Newswires
GENWORTH FINANCIAL INC – 10-K – Management's Discussion and Analysis of Financial Condition and Results of Operations
The following discussion and analysis of our consolidated financial condition
and results of operations should be read in conjunction with our audited
consolidated financial statements and related notes included in "Item
8-Financial Statements and Supplementary Data."
Item 7 of our Annual Report on Form 10-K generally discusses year-to-year comparisons between the years endedDecember 31, 2022 and 2021. Discussions of information related to 2020 and year-to-year comparisons between 2021 and 2020 are not included in this Form 10-K. Comparative discussions between 2021 and 2020 can be found in "Item 7-Management's Discussion and Analysis of Financial Condition and Results of Operations" in our Annual Report on Form 10-K for the year endedDecember 31, 2021 . Overview Our businessGenworth Financial , through its principal insurance subsidiaries, offers mortgage and long-term care insurance products.Genworth Financial is the parent company of Enact Holdings, a leading provider of private mortgage insurance inthe United States through its mortgage insurance subsidiaries.Genworth Financial's U.S. life insurance subsidiaries offer long-term care insurance and also manage in-force blocks of life insurance and annuity products which are no longer sold. We report our business results through three operating business segments: Enact;U.S. Life Insurance ; and Runoff. We also have Corporate and Other activities. OurU.S. Life Insurance segment includes long-term care insurance, life insurance and fixed annuity products. The Runoff segment primarily includes variable annuity, variable life insurance and corporate-owned life insurance products, which have not been actively sold since 2011, as well as funding agreements. Our financial information
The financial information in this Annual Report on Form 10-K has been derived
from our consolidated financial statements.
Revenues and expenses
Our revenues consist primarily of the following:
• Premiums. Premiums consist primarily of premiums earned on insurance
products for mortgage, long-term care and term life insurance.
• Net investment income. Net investment income represents the income
earned on our investments. For discussion of the change in net
investment income, see the comparison for this line item under
"-Investments and Derivative Instruments."
• Net investment gains (losses). Net investment gains (losses) consist
primarily of realized gains and losses from the sale of our
investments, credit losses, unrealized and realized gains and losses
from our equity securities, limited partnership investments and
derivative instruments. For discussion of the change in net investment
gains (losses), see the comparison for this line item under
"-Investments and Derivative Instruments."
• Policy fees and other income. Policy fees and other income consists
primarily of fees assessed against policyholder and
contractholder
account values, surrender charges, cost of insurance assessed on
universal and term universal life insurance policies, advisory and
administration service fees assessed on investment
contractholder
account values, broker/dealer commission revenues, fee revenue from
contract underwriting services and other fees.
Our expenses consist primarily of the following:
• Benefits and other changes in policy reserves. Benefits and other
changes in policy reserves consist primarily of benefits paid and
reserve activity related to current claims and future policy
benefits
on insurance and investment products for long-term care
insurance,
life insurance, accident and health insurance, structured
settlements
and single premium immediate annuities with life
contingencies, and
claim costs incurred related to mortgage insurance products.
80
--------------------------------------------------------------------------------
Table of Contents
• Interest credited. Interest credited represents interest credited on
behalf of policyholder and contractholder general account balances.
• Acquisition and operating expenses, net of deferrals. Acquisition and
operating expenses, net of deferrals, represent costs and
expenses
related to the acquisition and ongoing maintenance of
insurance and
investment contracts, including commissions, policy issuance expenses
and other underwriting and general operating costs. These costs and
expenses are net of amounts that are capitalized and deferred, which
are costs and expenses that are related directly to the successful
acquisition of new or renewal insurance policies and investment
contracts, such as first-year commissions in excess of ultimate
renewal commissions and other policy issuance expenses.
• Amortization of deferred acquisition costs and intangibles.
Amortization of DAC and intangibles consists primarily of the
amortization of acquisition costs that are capitalized, PVFP and
capitalized software.
• Interest expense. Interest expense represents interest related to our
borrowings that are incurred at Genworth Holdings or Enact
Holdings
and our former non-recourse funding obligations, as well as
interest
expense related to the Tax Matters Agreement previously owed
to
certain reinsurance arrangements being accounted for as
deposits.
• Income taxes. We tax our businesses at the U.S. corporate federal
income tax rate of 21%. Each segment is then adjusted to
reflect the
unique tax attributes of that segment, such as permanent
differences
between U.S. GAAP and tax law. The difference between the
consolidated
provision for income taxes and the sum of the provision for
income
taxes in each segment is reflected in Corporate and Other
activities.
• Net income from continuing operations attributable to noncontrolling
interests. Net income from continuing operations attributable to
noncontrolling interests represents the portion of income from
continuing operations in a subsidiary attributable to third parties.
The effective tax rates disclosed herein are calculated using whole numbers. As
a result, the percentages shown may differ from an effective tax rate calculated
using rounded numbers.
We allocate corporate expenses to each of our operating segments using various
methodologies.
81
--------------------------------------------------------------------------------
Table of Contents
Consolidated Results of Operations
The following table sets forth the consolidated results of operations for the
periods indicated:
Increase (decrease) and
Years ended December 31, percentage change
(Amounts in millions) 2022 2021 2020 2022 vs. 2021 2021 vs. 2020
Revenues:
Premiums $ 3,719 $ 3,435 $ 3,836 $ 284 8 % $ (401 ) (10 )%
Net investment income 3,146 3,370 3,227 (224 ) (7 )% 143 4 %
Net investment gains (losses) (17 ) 323 492
(340 ) (105 )% (169 ) (34 )%
Policy fees and other income
659 704 729 (45 ) (6 )% (25 ) (3 )% Total revenues 7,507 7,832 8,284 (325 ) (4 )% (452 ) (5 )% Benefits and expenses: Benefits and other changes in policy reserves 4,242 4,383 5,214
(141 ) (3 )% (831 ) (16 )%
Interest credited
503 508 549
(5 ) (1 )% (41 ) (7 )%
Acquisition and operating expenses,
net of deferrals
1,371 1,223 935 148 12 % 288 31 % Amortization of deferred acquisition costs and intangibles 307 377 463 (70 ) (19 )% (86 ) (19 )% Interest expense 106 160 195 (54 ) (34 )% (35 ) (18 )% Total benefits and expenses 6,529 6,651 7,356 (122 ) (2 )% (705 ) (10 )% Income from continuing operations before income taxes 978 1,181 928 (203 ) (17 )% 253 27 % Provision for income taxes 239 263 230 (24 ) (9 )% 33 14 % Income from continuing operations 739 918 698 (179 ) (19 )% 220 32 % Income (loss) from discontinued operations, net of taxes - 27 (486 ) (27 ) (100 )% 513 106 % Net income 739 945 212 (206 ) (22 )% 733 NM (1) Less: net income from continuing operations attributableto noncontrolling interests 130 33 - 97 NM (1) 33 NM (1) Less: net income from discontinued operations attributableto noncontrolling interests - 8 34
(8 ) (100 )% (26 ) (76 )%
Net income available to Genworth Financial, Inc.'s common stockholders$ 609 $ 904 $ 178
Net income available toGenworth Financial, Inc.'s common stockholders: Income from continuing operations available to Genworth Financial, Inc.'s common stockholders$ 609 $ 885 $ 698 $ (276 ) (31 )%$ 187 27 % Income (loss) from discontinued operations available to Genworth Financial, Inc.'s common stockholders - 19 (520 )
(19 ) (100 )% 539 104 %
Net income available to Genworth Financial, Inc.'s common stockholders$ 609 $ 904 $ 178 $ (295 ) (33 )%$ 726 NM (1)
(1) We define "NM" as not meaningful for increases or decreases greater than
200%.
Unless otherwise stated, all references to net income (loss), net income (loss)
per share, adjusted operating income (loss) and adjusted operating income (loss)
per share found in "Item 7-Management's Discussion and
82
--------------------------------------------------------------------------------
Table of Contents
Analysis of Financial Condition and Results of Operations" should be read as net income (loss) available toGenworth Financial, Inc.'s common stockholders, net income (loss) available toGenworth Financial, Inc.'s common stockholders per share, adjusted operating income (loss) available toGenworth Financial, Inc.'s common stockholders and adjusted operating income (loss) available toGenworth Financial, Inc.'s common stockholders per share, respectively.
Use of non-GAAP measures
Reconciliation of net income (loss) to adjusted operating income (loss)
We use non-GAAP financial measures entitled "adjusted operating income (loss)" and "adjusted operating income (loss) per share." Adjusted operating income (loss) per share is derived from adjusted operating income (loss). Our chief operating decision maker evaluates segment performance and allocates resources on the basis of adjusted operating income (loss). We define adjusted operating income (loss) as income (loss) from continuing operations excluding the after-tax effects of income (loss) from continuing operations attributable to noncontrolling interests, net investment gains (losses), gains (losses) on the sale of businesses, gains (losses) on the early extinguishment of debt, initial gains (losses) on insurance block transactions, restructuring costs and infrequent or unusual non-operating items. Initial gains (losses) on insurance block transactions are defined as gains (losses) on the early extinguishment of non-recourse funding obligations, early termination fees for other financing restructuring and/or initial gains (losses) on reinsurance restructuring for certain blocks of business. We exclude net investment gains (losses) and infrequent or unusual non-operating items because we do not consider them to be related to the operating performance of our segments and Corporate and Other activities. A component of our net investment gains (losses) is the result of estimated future credit losses, the size and timing of which can vary significantly depending on market credit cycles. In addition, the size and timing of other investment gains (losses) can be subject to our discretion and are influenced by market opportunities, as well as asset-liability matching considerations. Gains (losses) on the sale of businesses, gains (losses) on the early extinguishment of debt, initial gains (losses) on insurance block transactions and restructuring costs are also excluded from adjusted operating income (loss) because, in our opinion, they are not indicative of overall operating trends. Infrequent or unusual non-operating items are also excluded from adjusted operating income (loss) if, in our opinion, they are not indicative of overall operating trends. While some of these items may be significant components of net income (loss) in accordance withU.S. GAAP, we believe that adjusted operating income (loss), and measures that are derived from or incorporate adjusted operating income (loss), including adjusted operating income (loss) per share on a basic and diluted basis, are appropriate measures that are useful to investors because they identify the income (loss) attributable to the ongoing operations of the business. Management also uses adjusted operating income (loss) as a basis for determining awards and compensation for senior management and to evaluate performance on a basis comparable to that used by analysts. However, the items excluded from adjusted operating income (loss) have occurred in the past and could, and in some cases will, recur in the future. Adjusted operating income (loss) and adjusted operating income (loss) per share on a basic and diluted basis are not substitutes for net income (loss) or net income (loss) per share on a basic and diluted basis determined in accordance withU.S. GAAP. In addition, our definition of adjusted operating income (loss) may differ from the definitions used by other companies. Adjustments to reconcile net income (loss) to adjusted operating income (loss) assume a 21% tax rate and are net of the portion attributable to noncontrolling interests. Net investment gains (losses) are also adjusted for DAC and other intangible amortization and certain benefit reserves. 83
--------------------------------------------------------------------------------
Table of Contents
The following table presents a reconciliation of net income to adjusted
operating income for the years ended
(Amounts in millions) 2022
2021 2020
Net income available to
common stockholders
$ 609 $ 904 $ 178 Add: net income from continuing operations attributable to noncontrolling interests 130 33 - Add: net income from discontinued operations attributable to noncontrolling interests - 8 34 Net income 739 945 212
Less: income (loss) from discontinued operations, net
of taxes
-
27 (486 )
Income from continuing operations 739 918 698 Less: net income from continuing operations attributable to noncontrolling interests 130 33 - Income from continuing operations available to Genworth Financial, Inc.'s common stockholders 609 885 698 Adjustments to income from continuing operations available toGenworth Financial, Inc.'s common stockholders: Net investment (gains) losses, net (1) 14 (324 ) (503 ) Losses on early extinguishment of debt 6 45 9 Initial loss from life block transaction - 92 - Expenses related to restructuring 2 34 3 Pension plan termination costs 8 - - Taxes on adjustments (6 ) 33 103 Adjusted operating income available to Genworth Financial, Inc.'s common stockholders$ 633 $ 765 $ 310
(1) For the years ended
losses were adjusted for DAC and other intangible amortization and certain
benefit reserves of
respectively.
During 2022, we paid a pre-tax make-whole premium of$2 million and wrote off$1 million of bond consent fees and deferred borrowing costs related to the early redemption ofGenworth Holdings' senior notes originally scheduled to mature inFebruary 2024 . Prior to the redemption, we repurchased$130 million principal amount ofGenworth Holdings' senior notes due inFebruary 2024 for a pre-tax loss of$4 million . We also repurchased$13 million principal amount ofGenworth Holdings' senior notes due in 2034 for a pre-tax gain of$1 million during the fourth quarter of 2022. During 2021, we paid a pre-tax make-whole premium of$6 million and$20 million related to the early redemption ofGenworth Holdings' senior notes originally scheduled to mature inSeptember 2021 andAugust 2023 , respectively. We also repurchased$146 million principal amount ofGenworth Holdings' senior notes due inSeptember 2021 for a pre-tax loss of$4 million and repurchased$91 million and$118 million principal amount ofGenworth Holdings' senior notes due in 2023 and 2024, respectively, for a pre-tax loss of$15 million . During 2020, we repurchased$84 million principal amount ofGenworth Holdings' senior notes with 2021 maturity dates for a pre-tax gain of$4 million . InJanuary 2020 , we paid a pre-tax make-whole expense of$9 million related to the early redemption ofGenworth Holdings' senior notes originally scheduled to mature inJune 2020 and Rivermont Life Insurance Company I, our indirect wholly-owned special purpose consolidated captive insurance subsidiary, early redeemed all of its$315 million outstanding non-recourse funding obligations originally due in 2050 resulting in a pre-tax loss of$4 million from the write-off of deferred borrowing costs. These transactions were excluded from adjusted operating income as they relate to gains (losses) on the early extinguishment of debt.
In 2021, we recorded a pre-tax loss of
term life insurance policies as part of a life block transaction.
84
--------------------------------------------------------------------------------
Table of Contents
In 2022, 2021 and 2020, we recorded a pre-tax expense of$2 million ,$34 million and$3 million , respectively, related to restructuring costs as we continue to evaluate and appropriately size our organizational needs and expenses. During 2022, we incurred$8 million of pre-tax pension plan termination costs related to one of our defined benefit pension plans. There were no other infrequent or unusual items excluded from adjusted operating income during the periods presented. Earnings per share The following table provides basic and diluted earnings per common share for the years endedDecember 31 : Increase (decrease) and percentage change
(Amounts in millions, except per share amounts) 2022 2021
2020 2022 vs. 2021 2021 vs. 2020 Income from continuing operations available toGenworth Financial, Inc.'s common stockholders per share: Basic$ 1.21 $ 1.75 $ 1.38 $ (0.54 ) (31 )%$ 0.37 27 % Diluted$ 1.19 $ 1.72 $ 1.36 $ (0.53 ) (31 )%$ 0.36 26 % Net income available toGenworth Financial, Inc.'s common stockholders per share: Basic$ 1.21 $ 1.78 $ 0.35 $ (0.57 ) (32 )%$ 1.43 NM (1) Diluted$ 1.19 $ 1.76 $ 0.35 $ (0.57 ) (32 )%$ 1.41 NM (1) Adjusted operating income available toGenworth Financial, Inc.'s common stockholders per share: Basic$ 1.26 $ 1.51 $ 0.61 $ (0.25 ) (17 )%$ 0.90 148 % Diluted$ 1.24 $ 1.48 $ 0.61 $ (0.24 ) (16 )%$ 0.87 143 % Weighted-average common shares outstanding: Basic 504.5 506.9 505.2 Diluted 511.0 514.7 511.6
(1) We define "NM" as not meaningful for increases or decreases greater than
200%.
Diluted weighted-average common shares outstanding reflect the effects of
potentially dilutive securities including stock options, restricted stock units
and other equity-based awards.
85
--------------------------------------------------------------------------------
Table of Contents
The following table presents a summary of adjusted operating income (loss) for
our segments and Corporate and Other activities for the years ended
Increase (decrease) and
percentage change
(Amounts in millions) 2022 2021 2020 2022 vs. 2021 2021 vs. 2020
Adjusted operating income (loss)
available to Genworth Financial,
Inc.'s common stockholders:
Enact segment $ 578 $ 520 $ 381 $ 58 11 % $ 139 36 %
U.S. Life Insurance segment:
Long-term care insurance 142 445 237 (303 ) (68 )% 208 88 %
Life insurance (148 ) (269 ) (247 ) 121 45 % (22 ) (9 )%
Fixed annuities 72 91 78 (19 ) (21 )% 13 17 %
U.S. Life Insurance segment 66 267 68 (201 ) (75 )% 199 NM (1)
Runoff segment 37 54 43 (17 ) (31 )% 11 26 %
Corporate and Other activities (48 ) (76 ) (182 )
28 37 % 106 58 %
Adjusted operating income available toGenworth Financial, Inc.'s common stockholders$ 633 $ 765 $ 310 $ (132 ) (17 )%$ 455 147 %
(1) We define "NM" as not meaningful for increases or decreases greater than
200%.
Executive Summary of Consolidated Financial Results
Below is an executive summary of our consolidated financial results for the
periods indicated. Amounts included within this "Executive Summary of
Consolidated Financial Results" are net of taxes, unless otherwise indicated.
After-tax amounts assume a tax rate of 21%.
For a discussion of selected financial information and detailed descriptions of
operating performance measures see "-Results of Operations and Selected
Financial and Operating Performance Measures by Segment."
2022 compared to 2021
• Net income for the years ended December 31, 2022 and 2021 was $609
million and $904 million , respectively, and adjusted operating income
was $633 million and $765 million , respectively.
• Our Enact segment drove our 2022 consolidated financial results,
with $578 million of adjusted operating income, an
increase of 11%
compared to 2021.
• The increase was primarily attributable to lower losses largely
driven by net favorable reserve adjustments of $212 million ,
consisting of reserve releases of $248 million primarily
related to COVID-19 delinquencies from 2020 and 2021 curing at
levels above original reserve expectations, partially offset by
reserve strengthening of $36 million related to 2022
delinquencies given uncertainty in the current economic
environment.
• This improvement was partially offset by the minority IPO of
Enact Holdings that closed in September 2021 , which reduced
Genworth Financial's ownership percentage to 81.6%.
• The improvement was also partially offset by lower premiums in 2022.
• Our U.S. Life Insurance segment had adjusted operating income of
$66 million and $267 million in 2022 and 2021, respectively.
86
--------------------------------------------------------------------------------
Table of Contents
• Long-term care insurance:
• Adjusted operating income in our long-term care insurance
business decreased $303 million primarily from higher
severity and frequency of new claims, lower net investment
income and lower terminations as the pandemic impacts
lessened in 2022.
• The decrease was also attributable to a $49 million less
favorable impact in 2022 from in-force rate actions approved
and implemented, which included a lower net favorable impact
from policyholder benefit reduction elections made in
connection with legal settlements, as the implementation of
one is materially complete and the implementation of another
one began in August 2022 .
• Life insurance:
• The adjusted operating loss in our life insurance business
decreased $121 million mainly attributable to a favorable
unlocking of $34 million in our universal and term universal
life insurance products as part of our annual review of
assumptions in the fourth quarter of 2022 compared to an
unfavorable unlocking of $70 million in 2021 (see "-Critical
Accounting Estimates" for additional information).
• The decrease was also attributable to lower mortality as the
pandemic impacts subsided and lower DAC impairments of $51
million in 2022.
• These improvements were partially offset by higher lapses in
our 20-year term life insurance block written in 2002
entering its post-level premium period in 2022.
• Fixed annuities:
• Adjusted operating income in our fixed annuities business
decreased $19 million mainly attributable to lower net
spreads, partially offset by lower DAC amortization and
higher mortality in our single premium immediate annuity
products in 2022.
• Our Runoff segment had adjusted operating income of $37 million
and $54 million in 2022 and 2021, respectively.
• The decrease was predominantly due to the impact from
unfavorable equity market performance and higher interest rates
on our variable annuity products in 2022.
• Corporate and Other activities had an adjusted operating loss of
$48 million and $76 million in 2022 and 2021, respectively.
• The decrease in the loss was primarily related to lower
interest expense, partially offset by tax benefits of $21
million in 2021 from a reduction in uncertain tax positions due
to the expiration of certain statute of limitations that did
not recur.
Significant Developments and Strategic Highlights
The periods under review include, among others, the following significant
developments and steps taken in the execution of our strategic priorities.
Enact
• Persistency and loss performance:
• Enact's primary persistency rate was 80% for 2022, a meaningful
increase compared to 62% for 2021 from rising interest rates and
suppressed mortgage refinancing activity in 2022.
87
--------------------------------------------------------------------------------
Table of Contents
• Higher persistency offset the decline in new insurance written,
leading to an increase in insurance in-force of $21.7 billion
during 2022.
• Enact recorded net favorable after-tax reserve
adjustments of
million during 2022, primarily related to COVID-19 delinquencies
curing at levels above original reserve expectations.
• PMIERs compliance:
• Enact's PMIERs sufficiency ratio was 165% or $2,050 million above
the published PMIERs requirements as of December 31, 2022 .
• As of December 31, 2022 , Enact had estimated available assets of
$5,206 million against $3,156 million net required assets under
PMIERs compared to available assets of $5,077 million against
$3,074 million net required assets as of December 31, 2021 (PMIERs
sufficiency is based on the published requirements applicable to
private mortgage insurers and does not give effect to the GSE
restrictions imposed on Enact Holdings).
• As of December 31, 2022 and 2021, Enact's PMIERs required assets
benefited by $132 million and $390 million , respectively, from the
application of a 0.30 multiplier applied to the risk-based
required asset amount factor for certain non-performing loans.
• Given Genworth's strengthened financial position, including
achieving its strategic priority to reduce its outstanding public
debt at Genworth Holdings to approximately $1.0 billion , we
believe Genworth satisfied two consecutive quarters of financial
metric conditions during the fourth quarter of 2022 related to the
GSE Restrictions imposed on Enact. We expect the GSE Restrictions
to be lifted in the first quarter of 2023, subject to GSE review
and confirmation.
For additional information related to PMIERs, see "Item
1-Business-Regulation-Enact-Mortgage Insurance Regulation-Other
and Agency Qualification Requirements."
• Dividends and other return of capital:
• On April 26, 2022 , Enact Holdings' board of directors approved the
initiation of a dividend program under which it intends to pay a
quarterly cash dividend, subject to a quarterly review by its
board of directors.
• Pursuant to the program, Enact Holdings paid quarterly dividends
beginning in the second quarter of 2022, and Genworth Holdings
received $57 million during 2022 as the majority shareholder.
• In the fourth quarter of 2022, Enact Holdings paid a special
dividend and Genworth Holdings received $148 million as the
majority shareholder.
• On November 1, 2022 , Enact Holdings also announced the approval by
its board of directors of a share repurchase program under which
Enact Holdings may repurchase up to $75 million of its outstanding
common stock. Genworth Holdings has agreed to participate in order
to maintain its overall ownership at its current level. Enact
Holdings began share repurchases under the program in the fourth
quarter of 2022.
• Liquidity and financial flexibility:
• On June 30, 2022 , Enact Holdings entered into a $200 million
unsecured revolving credit facility that remained undrawn as of
December 31, 2022 .
• Long-term care insurance multi-year in-force rate action plan:
• We estimate that the cumulative economic benefit of our long-term
care insurance multi-year in-force rate action plan through 2022
was approximately $23.5 billion , on a net present value basis, of
the total expected amount required of $30.3 billion as of December
31, 2022 .
88
--------------------------------------------------------------------------------
Table of Contents
• We received 139 filing approvals from 35 states during 2022,
representing a weighted-average increase of 48% on approximately
$1,143 million in annualized in-force premiums, or approximately
$549 million of incremental annual premiums. Of that aggregate
amount, we are awaiting the final disposition of a small number of
the approvals as we work through implementation mechanics.
• We also submitted 139 new filings in 37 states during 2022 on
approximately $1,226 million in annualized in-force premiums.
• Profits followed by losses in our long-term care insurance business:
• Future projections in our long-term care insurance block,
excluding the acquired block, indicate we have projected profits
in earlier periods followed by projected losses in later periods.
• As a result of this pattern of projected profits followed by
projected losses, we ratably accrue additional future policy
benefit reserves over the profitable periods by the amounts
necessary to offset estimated losses during the periods that
follow.
• As of December 31, 2022 and 2021, the total amount accrued for
profits followed by losses was $1.7 billion and $1.3 billion ,
respectively.
• Completion of annual long-term care insurance assumption review:
• In the fourth quarter of 2022, we completed a review of our
assumptions and methodologies of our claim reserves and future
policy benefits for our long-term care insurance business and
completed loss recognition testing.
• We made no significant changes to our existing claim reserves, as
experience in the aggregate was in line with expectations.
• In aggregate, the 2022 margins for our long-term care insurance
business remained in the same range as 2021 of
approximately
billion to$1.0 billion . • Completion of annual life insurance assumption review: • We also completed a review of our assumptions and
methodologies of
our life insurance business and completed loss recognition testing
in the fourth quarter of 2022.
• The loss recognition testing margin for our term life insurance
products remained positive at over $1.0 billion in 2022.
• As part of our review in the fourth quarter of 2022, we recorded a
$34 million after-tax benefit to net income in our
universal and
term universal life insurance products primarily related to higher
interest rates.
For additional information see "-Critical Accounting Estimates."
Liquidity and Capital Resources
• Execution of strategic plan to reduce debt maturities:
• On September 21, 2022 , Genworth Holdings early redeemed the
remaining $152 million principal balance of its 4.80% senior notes
due in February 2024 . This redemption resulted in the achievement
of Genworth's strategic goal of reducing debt at Genworth Holdings
to approximately $1.0 billion .
• In the fourth quarter of 2022, Genworth Holdings repurchased $13
million principal amount of its senior notes due in June 2034 .
• As of December 31, 2022 , Genworth Holdings had outstanding
principal of $887 million of long-term debt, with no debt
maturities until June 2034 .
89
--------------------------------------------------------------------------------
Table of Contents
• During the first half of 2022 and prior to the early redemption,
Genworth Holdings repurchased $130 million of its senior notes due
in February 2024 .
See note 12 in our consolidated financial statements under "Item 8-Financial
Statements and Supplementary Data" for additional information on our long-term
borrowings.
• Genworth Financial share repurchase program:
• 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.
• During 2022, Genworth Financial repurchased 16,173,196 shares of
its common stock at an average price of $3.94 per share for a
total cash outlay of $64 million .
• Genworth Financial also repurchased 5,912,297 shares
fromFebruary 9, 2023 throughFebruary 24, 2023 of its common stock at an average price of$6.08 per share for a total cost of$36 million , leaving approximately$250 million that may yet be
purchased under
the share repurchase program.
Results of Operations and Selected Financial and Operating Performance Measures
by Segment
Our chief operating decision maker evaluates segment performance and allocates
resources on the basis of adjusted operating income (loss).
Management's discussion and analysis by segment contains selected operating
performance measures including "sales" and "insurance in-force" or "risk
in-force" which are commonly used in the insurance industry as measures of
operating performance.
Management regularly monitors and reports sales metrics as a measure of volume of new business generated in a period. Sales refer to new insurance written for mortgage insurance products included in our Enact segment. We consider new insurance written to be a measure of our Enact segment's operating performance because it represents a measure of new sales of insurance policies during a specified period, rather than a measure of revenues or profitability during that period. Management regularly monitors and reports insurance in-force and risk in-force for our Enact segment. Insurance in-force is a measure of the aggregate unpaid principal balance as of the respective reporting date for loans insured by ourU.S. mortgage insurance subsidiaries. Risk in-force is based on the coverage percentage applied to the estimated current outstanding loan balance. We consider insurance in-force and risk in-force to be measures of our Enact segment's operating performance because they represent measures of the size of its business at a specific date which will generate revenues and profits in a future period, rather than measures of its revenues or profitability during that period. Management regularly monitors and reports a loss ratio for our businesses. For our mortgage insurance businesses included in our Enact segment, the loss ratio is the ratio of benefits and other changes in policy reserves to net earned premiums. For our long-term care insurance business included in ourU.S. Life Insurance segment, the loss ratio is the ratio of benefits and other changes in reserves less tabular interest on reserves less loss adjustment expenses to net earned premiums. We consider the loss ratio to be a measure of underwriting performance in these businesses and helps to enhance the understanding of the operating performance of our businesses.
Management also regularly monitors and reports adjusted operating income
available to
in-force rate actions in the long-term care insurance
90
--------------------------------------------------------------------------------
Table of Contents
business included in ourU.S. Life Insurance segment. In-force rate actions include premium rate increases and associated benefit reductions implemented since 2012, which are presented net of estimated premium taxes, commissions, and other expenses on an after-tax basis. Estimates for in-force rate actions reflect certain simplifying assumptions that may vary materially from actual historical results, including but not limited to, a uniform rate of coinsurance and premium taxes in addition to consistent policyholder behavior over time. Actual policyholder behavior may differ significantly from these assumptions. In addition, estimates exclude reserve updates resulting from profits followed by losses and reserve changes for group products. Management considers adjusted operating income attributable to in-force rate actions to be a measure of our operating performance because it helps bring older generation long-term care insurance blocks closer to a break-even point over time and helps bring the loss ratios on newer long-term care insurance blocks back towards their original pricing.
These operating performance measures enable us to compare our operating
performance across periods without regard to revenues or profitability related
to policies or contracts sold in prior periods or from investments or other
sources.
Enact segment Trends and conditions Results of our Enact segment are affected primarily by the following factors: competitor actions; unemployment or underemployment levels; other economic and housing market trends, including interest rates, home prices, the number of first-time homebuyers, and mortgage origination volume mix and practices; the levels and aging of mortgage delinquencies; the effect of seasonal variations; the inventory of unsold homes; loan modification and other servicing efforts; and litigation, among other items. References to "Enact" included herein "Item 7-Management's Discussion and Analysis of Financial Condition and Results of Operations-Enact segment" are, unless the context otherwise requires, to our Enact segment. Mortgage origination activity declined throughout 2022 in response to rising mortgage rates. If interest rates remain high, the refinance market is likely to remain depressed. Housing affordability was challenged in 2022 due to increasing interest rates, low inventory and elevated home prices, modestly offset by rising median family income, according to theNational Association of Realtors Housing Affordability Index . Annual home price appreciation slowed throughout 2022, and home prices declined in the second half of the year, according to the FHFA Monthly Purchase-Only House Price Index. The unemployment rate decreased to 3.5% inDecember 2022 , compared to 3.9% inDecember 2021 , following a decline from its peak of 14.8% inApril 2020 , bringing unemployment in line with the pre-pandemic level of 3.5% inFebruary 2020 . As ofDecember 31, 2022 , the number of unemployed Americans was under 6 million, and the number of long term unemployed over 26 weeks was approximately one million. Both of these metrics remain relatively in line withFebruary 2020 levels. For mortgages insured by the federal government (including those purchased by Fannie Mae and Freddie Mac), forbearance allows borrowers impacted by COVID-19 to temporarily suspend mortgage payments up to 18 months subject to certain limits. Currently, the GSEs do not have a deadline for requesting an initial forbearance. Federal laws and regulations continue to require servicers to discuss loss mitigation options with borrowers before proceeding with foreclosures. These requirements could further extend the foreclosure timeline, which could negatively impact the severity of loss on loans that go to claim. Although it is difficult to predict the future level of reported forbearance and how many of the loans in a forbearance plan that remain current on their monthly mortgage payment will go delinquent, servicer reported forbearances have generally declined. As ofDecember 31, 2022 , approximately 1.5% or 14,270 of Enact's active primary policies were reported in a forbearance plan, of which approximately 36% were reported as delinquent compared with approximately 2% or 21,899 of its active primary policies reported in forbearance with 91
--------------------------------------------------------------------------------
Table of Contents
approximately 47% reported as delinquent as of
disasters, such as hurricanes, often lead to temporary increases in
delinquencies in forbearance. While Enact experienced a small increase in
delinquencies in the fourth quarter of 2022 related to the recent hurricane
impacting the southeastern
loss reserves as of
affected areas and support measures enacted by the GSEs, including allowing
forbearance, restricting foreclosure actions and providing other forms of
mortgage relief for those who experienced property damage.
Total delinquencies decreased during 2022 compared to 2021 as a result of cures outpacing new delinquencies. The 2022 new delinquency rate of 3.8%, while slightly higher than the 2021 new delinquency rate of 3.5%, was in line with Enact's pre-pandemic levels. The full impact of COVID-19 and its adverse economic effects on Enact's future business results are difficult to predict. Given the maximum length of forbearance plans, the resolution of a delinquency in a plan may not be known for several quarters. Enact continues to monitor regulatory and government actions and the resolution of forbearance delinquencies. While the associated risks have moderated and delinquencies have declined, it is possible that COVID-19 related forbearance programs could have an adverse impact on Enact's future results of operations and financial condition. Private mortgage insurance market penetration and overall market size are affected in part by actions that impact housing or housing finance policy taken by the GSEs and theU.S. government, including but not limited to, the FHA and the FHFA. In the past, these actions have included announced changes, or potential changes, to underwriting standards, including changes to the GSEs' automated underwriting systems, FHA pricing, GSE guaranty fees, loan limits and alternative products. OnFebruary 25, 2022 , the FHFA finalized the rule for the Enterprise Capital Framework, which included technical corrections to itsDecember 17, 2020 rule. Higher GSE capital requirements could lead to increased costs to borrowers of GSE loans, which in turn could shift the market away from the GSEs to the FHA or lender portfolios. Such a shift could result in a smaller market for private mortgage insurance. InJanuary 2022 , the FHFA introduced new upfront fees charged to borrowers for some high-balance and second home loans sold to Fannie Mae and Freddie Mac, which became effectiveApril 1, 2022 . Upfront fees for high-balance loans increased between 0.25% and 0.75%, tiered by loan-to-value ratio. For second home loans, the upfront fees increased between 1.125% and 3.875%, also tiered by loan-to-value ratio. To date, Enact has not experienced a significant impact to its business or results of operations as a result of this new pricing framework. OnOctober 24, 2022 , the FHFA announced targeted changes to the GSEs' guarantee fee pricing by eliminating upfront fees for certain first-time home buyers with income at or below area median income and for certain GSE affordable mortgage products, while implementing targeted increases to the upfront fees for most cash-out refinance loans. The fee reductions went into effect in the fourth quarter of 2022 while the new fees on cash-out refinance loans beganFebruary 1, 2023 . Enact expects these price changes to have a net positive impact to the private mortgage insurance market. The FHFA also announced inOctober 2022 its validation and approval of certain credit score models for use by the GSEs and changed the required number of credit reports provided by lenders from all three nationwide consumer reporting agencies to only two. The validation of the new credit scores requires lenders to deliver both credit scores for each loan sold to the GSEs. There is currently no implementation deadline, and this is expected to be a multiple year process that will require system and process updates. InJanuary 2023 , the FHFA announced additional updates to its upfront fee structure and pricing matrix. The changes impact purchase and rate-term refinance loans with pricing grids to be broken out by loan purpose and recalibrated to new credit score and loan-to-value ratio categories, along with associated loan attributes. The new pricing matrix also includes new upfront fees for loans with debt-to-income ratios greater than 40%. These changes will go into effect inMay 2023 . Enact is currently evaluating the impact of these changes but does not expect a significant impact to the private mortgage insurance market. 92
--------------------------------------------------------------------------------
Table of Contents
InFebruary 2023 , theDepartment of Housing and Urban Development announced a 30 basis point reduction of the annual insurance premium charged to borrowers with FHA-insured mortgages in order to reduce the cost of borrowing for eligible lower and middle class homebuyers. This price reduction is expected to have a negative impact on theU.S. private mortgage insurance market but will be partially offset by the effects of the recent FHFA pricing changes referenced above. Enact does not expect the net impact to be material. TheU.S. private mortgage insurance industry is highly competitive. Enact Holdings' market share is influenced by the execution of its go to market strategy, including but not limited to, pricing competitiveness relative to its peers and its selective participation in forward commitment transactions. Enact continues to manage the quality of new business through pricing and its underwriting guidelines, which are modified from time to time when circumstances warrant. The market and underwriting conditions, including the mortgage insurance pricing environment, are within Enact's risk adjusted return appetite enabling it to write new business at returns it views as attractive. New insurance written of$66.5 billion in 2022 decreased 31% compared to 2021 primarily due to a smaller estimated private mortgage insurance market. The decrease in the estimated private mortgage insurance market was largely driven by lower purchase and refinancing originations due to rising interest rates. Enact's primary persistency rate increased to 80% for the year endedDecember 31, 2022 compared to 62% for the year endedDecember 31, 2021 . The increase in persistency was primarily driven by a decline in the percentage of in-force policies with mortgage rates above current interest rates and offset the decline in new insurance written in 2022, leading to an increase in insurance in-force of$21.7 billion during 2022. Higher persistency impacted business performance trends in several ways, including but not limited to, slowing the recognition of earned premiums due to lower single premium policy cancellations, slowing the amortization of existing reinsurance transactions and the corresponding reduction of PMIERs capital credit, and shifting the concentration of Enact's primary insurance in-force by policy year. As ofDecember 31, 2022 , Enact's primary insurance in-force had approximately 58% concentration in 2022 and 2021 book years compared to 71% primary insurance in-force concentration in 2021 and 2020 book years as ofDecember 31, 2021 . Net earned premiums decreased in 2022 compared to 2021 primarily from the lapse of older, higher priced policies and from lower single premium policy cancellations, partially offset by insurance in-force growth in 2022. The total number of delinquent loans has declined from the COVID-19 peak in the second quarter of 2020 as borrowers continued to exit forbearance plans and new forbearances declined. During this time, and consistent with prior years, servicers continued the practice of remitting premiums during the early stages of default and Enact refunds the post-delinquent premiums to the insured party if the delinquent loan goes to claim. Enact records a liability and a reduction to net earned premiums for the post-delinquent premiums it expects to refund. The post-delinquent premium liability recorded since the beginning of COVID-19 in the second quarter of 2020 throughDecember 31, 2022 was not significant to the change in earned premiums for those periods as a result of the high concentration of new delinquencies being subject to a servicer reported forbearance plan and the lower estimated claim rate for these loans. Enact's loss ratio was (10)% for the year endedDecember 31, 2022 , compared to 13% for the year endedDecember 31, 2021 . The decrease was largely from net favorable reserve adjustments of$268 million in 2022, primarily related to favorable cure performance on COVID-19 delinquencies from 2020 and 2021. During the peak of COVID-19, Enact experienced elevated new delinquencies subject to forbearance plans. Those delinquencies have been curing at levels above Enact's reserve expectations, which led to releases of$314 million of reserves in 2022. These reserve releases were partially offset by reserve strengthening on certain 2022 delinquencies. Due to uncertainty in the current economic environment, Enact increased the expected claim rate on new delinquencies during 2022. New delinquencies in the fourth quarter of 2022 were recorded at the higher expected claim rate and reserves on delinquencies from prior quarters in 2022 were strengthened by$46 million . In 2021, Enact decreased reserves by$22 million primarily related to positive frequency and severity development on pre-COVID-19 delinquencies. 93
--------------------------------------------------------------------------------
Table of Contents
Enact's loss reserves continue to be impacted by COVID-19 and remain subject to uncertainty. Borrowers who have experienced a financial hardship including, but not limited to, the loss of income due to the closing of a business or the loss of a job continue to take advantage of available loss mitigation options, including forbearance programs, payment deferral options and other modifications. Loss reserves recorded on these delinquencies require a high degree of estimation due to the level of uncertainty regarding whether delinquencies in forbearance will ultimately cure or result in claim payments, as well as the timing and severity of those payments. The severity of loss on loans that do go to claim may be negatively impacted by the extended forbearance and foreclosure timelines, the associated elevated expenses and the higher loan amount of the recent new delinquencies. These negative influences on loss severity could be mitigated in part by embedded home price appreciation. For loans insured on or afterOctober 1, 2014 , Enact's mortgage insurance policies limit the number of months of unpaid interest and associated expenses that are included in the mortgage insurance claim amount to a maximum of 36 months. New primary delinquencies in 2022 increased compared to 2021. New primary delinquencies of 35,996 contributed$171 million of loss expense in 2022, while Enact incurred$144 million of losses from 32,624 new primary delinquencies in 2021. In determining the loss expense estimate, considerations were given to forbearance and non-forbearance delinquencies, recent cure and claim experience and the prevailing and prospective economic conditions. Approximately 21% of Enact's primary new delinquencies in 2022 were subject to a forbearance plan as compared to 42% in 2021. EMICO's risk-to-capital ratio under the current regulatory framework as established underNorth Carolina law and enforced by the NCDOI, EMICO's domestic insurance regulator, was approximately 12.9:1 as ofDecember 31, 2022 compared with a risk-to-capital ratio of 12.3:1 as ofDecember 31, 2021 . EMICO's risk-to-capital ratio remains below the NCDOI's maximum risk-to-capital ratio of 25:1.North Carolina's calculation of risk-to-capital excludes the risk in-force for delinquent loans given the established loss reserves against all delinquencies. EMICO's ongoing risk-to-capital ratio will depend principally on the magnitude of future losses incurred by EMICO, the effectiveness of ongoing loss mitigation activities, new business volume and profitability, the amount of policy lapses and the amount of additional capital that is generated or distributed by the business. Under PMIERs, Enact is subject to operational and financial requirements that private mortgage insurers must meet in order to remain eligible to insure loans that are purchased by the GSEs. Since 2020, the GSEs have issued several amendments to PMIERs, which implemented both permanent and temporary revisions to PMIERs. Many of the provisions are no longer applicable, but for loans that became non-performing due to a COVID-19 hardship, PMIERs was temporarily amended with respect to each non-performing loan that (i) had an initial missed monthly payment occurring on or afterMarch 1, 2020 and prior toApril 1, 2021 or (ii) is subject to a forbearance plan granted in response to a financial hardship related to COVID-19, the terms of which are materially consistent with terms of forbearance plans offered by the GSEs. The risk-based required asset amount factor for the non-performing loan is the greater of (a) the applicable risk-based required asset amount factor for a performing loan were it not delinquent, and (b) the product of a 0.30 multiplier and the applicable risk-based required asset amount factor for a non-performing loan. In the case of (i) above, absent the loan being subject to a forbearance plan described in (ii) above, the 0.30 multiplier was applicable for no longer than three calendar months beginning with the month in which the loan became a non-performing loan due to having missed two monthly payments. Loans subject to a forbearance plan described in (ii) above include those that are either in a repayment plan or loan modification trial period following the forbearance plan unless reported to the approved insurer that the loan is no longer in such forbearance plan, repayment plan, or loan modification trial period. The PMIERs amendment datedJune 30, 2021 further allows loans that enter a forbearance plan due to a COVID-19 hardship on or afterApril 1, 2021 to remain eligible for extended application of the reduced PMIERs capital factor for as long as the loan remains in forbearance. In addition, the PMIERs amendments made permanent revisions to the risk-based required asset amount factor for non-performing loans for properties located in future FEMA Declared Major Disaster Areas eligible for individual assistance. 94
--------------------------------------------------------------------------------
Table of Contents
In addition, inSeptember 2020 , certain GSE Restrictions were imposed with respect to capital on Enact, which will remain in effect until the collective GSE Conditions are met. For additional details related to PMIERs, the PMIERs amendments and the GSE Conditions and Restrictions, see "Item 1-Regulation-Enact-Mortgage Insurance Regulation-OtherU.S. Regulation and Agency Qualification Requirements." As ofDecember 31, 2022 , Enact had estimated available assets of$5,206 million against$3,156 million net required assets under PMIERs compared to available assets of$5,077 million against$3,074 million net required assets as ofDecember 31, 2021 . The sufficiency ratio as ofDecember 31, 2022 and 2021 was 165%, or$2,050 million and$2,003 million , respectively, above the published PMIERS requirements. PMIERs sufficiency is based on the published requirements applicable to private mortgage insurers and does not give effect to the GSE Restrictions imposed on Enact. Enact's PMIERs required assets as ofDecember 31, 2022 and 2021 benefited from the application of a 0.30 multiplier applied to the risk-based required asset amount factor for certain non-performing loans. The application of the 0.30 multiplier to all eligible delinquencies provided$132 million and$390 million of benefit to Enact's PMIERs required assets as ofDecember 31, 2022 and 2021, respectively. These amounts are gross of any incremental reinsurance benefit from the elimination of the 0.30 multiplier. Credit risk transfer transactions provided an aggregate of approximately$1,578 million of PMIERs capital credit as ofDecember 31, 2022 . Enact may execute future credit risk transfer transactions to maintain a prudent level of financial flexibility in excess of the PMIERs capital requirements in response to potential changes in performance and PMIERs requirements over time. OnApril 26, 2022 , Enact Holdings' board of directors approved the initiation of a quarterly dividend program. Pursuant to the program, Enact Holdings paid quarterly dividends beginning in the second quarter of 2022, andGenworth Holdings received$57 million in 2022 as the majority shareholder. Enact Holdings also paid a special dividend in the fourth quarter of 2022, andGenworth Holdings received$148 million . Future dividend payments are subject to quarterly review and approval by Enact Holdings' board of directors andGenworth Financial . In addition, inNovember 2022 , Enact Holdings announced approval by its board of directors of a share repurchase program under which it may repurchase up to$75 million of its outstanding common stock.Genworth Holdings has agreed to participate in order to maintain its overall ownership at its current level. Enact Holdings began share repurchases under the program in the fourth quarter of 2022. EMICO completed distributions to Enact Holdings inApril 2022 andOctober 2022 , the proceeds of which were used to support Enact Holdings' cash dividends. Enact Holdings intends to use future EMICO distributions to fund the quarterly dividend as well as to bolster its financial flexibility and potentially return additional capital to shareholders. Returning capital to shareholders, balanced with growth and risk management priorities, remains a key commitment for Enact Holdings, as it looks to enhance shareholder value through time. Future return of capital will be shaped by Enact Holdings' capital prioritization framework, including: supporting its existing policyholders; growing its mortgage insurance business; funding attractive new business opportunities; and returning capital to shareholders. Enact Holdings' total return of capital will also be based on its view of the prevailing and prospective macroeconomic conditions, regulatory landscape and business performance. 95
--------------------------------------------------------------------------------
Table of Contents
Segment results of operations
The following table sets forth the results of operations relating to our Enact
segment for the periods indicated:
Increase (decrease)
and percentage
Years ended December 31, change
(Amounts in millions) 2022 2021 2020 2022 vs. 2021
Revenues:
Premiums $ 940 $ 975 $ 971 $ (35 ) (4 )%
Net investment income 155 141 133 14 10 %
Net investment gains (losses) (2 ) (2 ) (4 ) - - %
Policy fees and other income 2 4 6 (2 ) (50 )%
Total revenues 1,095 1,118 1,106 (23 ) (2 )%
Benefits and expenses:
Benefits and other changes in policy
reserves (94 ) 125 381 (219 ) (175 )%
Acquisition and operating expenses, net
of deferrals 227 230 206 (3 ) (1 )%
Amortization of deferred acquisition
costs and intangibles 12 15 21 (3 ) (20 )%
Interest expense 52 51 18 1 2 %
Total benefits and expenses 197 421 626 (224 ) (53 )%
Income from continuing operations before
income taxes 898 697 480 201 29 %
Provision for income taxes 194 148 102 46 31 %
Income from continuing operations 704 549 378 155 28 %
Less: net income from continuing
operations attributable to
noncontrolling interests 130 33 - 97 NM (1)
Income from continuing operations
available to Genworth
Financial, Inc.'s common stockholders 574 516 378 58 11 %
Adjustments to income from continuing
operations available to Genworth
Financial, Inc.'s common stockholders:
Net investment (gains) losses 2 2 4 - - %
Expenses related to restructuring 3 3 - - - %
Taxes on adjustments (1 ) (1 ) (1 ) - - %
Adjusted operating income available to
Genworth Financial, Inc.'s common
stockholders $ 578 $ 520 $ 381 $ 58 11 %
(1) We define "NM" as not meaningful for increases or decreases greater than
200%.
2022 compared to 2021
Adjusted operating income available to
stockholders
Adjusted operating income increased primarily attributable to lower losses largely driven by net favorable reserve adjustments of$212 million , consisting of reserve releases of$248 million primarily related to COVID-19 delinquencies from 2020 and 2021 curing at levels above original reserve expectations, partially offset by reserve strengthening of$36 million related to 2022 delinquencies given uncertainty in the current economic environment. This improvement was partially offset by the minority IPO of Enact Holdings that closed inSeptember 2021 , which reducedGenworth Financial's ownership percentage to 81.6%, and lower premiums in 2022. 96
--------------------------------------------------------------------------------
Table of Contents
Revenues
Premiums decreased mainly driven by the lapse of older, higher priced policies
and lower single premium policy cancellations, partially offset by higher
insurance in-force in 2022 driven by increased persistency.
Net investment income increased primarily due to higher investment yields and higher average invested assets, partially offset by lower income from bond calls in 2022. Benefits and expenses Benefits and other changes in policy reserves decreased largely from net favorable reserve adjustments of$268 million , partially offset by higher new delinquencies in 2022. During 2022, Enact released$314 million of reserves primarily related to COVID-19 delinquencies from 2020 and 2021 curing at levels above original reserve expectations, partially offset by reserve strengthening on certain 2022 delinquencies. Due to uncertainty in the current economic environment, Enact increased the expected claim rate on new delinquencies during 2022. New delinquencies in the fourth quarter of 2022 were recorded at the higher expected claim rate and reserves on delinquencies from prior quarters in 2022 were strengthened by$46 million . In 2021, Enact decreased reserves by$22 million primarily related to positive frequency and severity development on pre-COVID-19 delinquencies.
Acquisition and operating expenses, net of deferrals, decreased primarily
attributable to expenses associated with strategic transaction preparations in
2021 that did not recur.
Amortization of deferred acquisition costs and intangibles decreased primarily due to lower DAC amortization largely from higher persistency in 2022 driven by rising interest rates. Provision for income taxes. The effective tax rate was 21.6% and 21.3% for the years endedDecember 31, 2022 and 2021, respectively, consistent with theU.S. corporate federal income tax rate.
Net income from continuing operations attributable to noncontrolling interests.
The increase relates to the minority IPO of Enact Holdings on
2021
Enact selected operating performance measures
The following table sets forth selected operating performance measures regarding
Enact as of and for the dates indicated:
Increase (decrease)
and percentage
Years ended December 31, change
(Amounts in millions) 2022 2021 2020 2022 vs. 2021
Primary insurance in-force(1) $ 248,262 $ 226,514 $ 207,947 $ 21,748 10 %
Risk in-force:
Primary $ 62,791 $ 56,881 $ 52,475 $ 5,910 10 %
Pool 79 105 146 (26 ) (25 )%
Total risk in-force $ 62,870 $ 56,986 $ 52,621 $ 5,884 10 %
New insurance written $ 66,485 $ 97,004 $ 99,871 $ (30,519 ) (31 )%
(1) Primary insurance in-force represents the aggregate unpaid principal balance
for loans Enact insures.
97
--------------------------------------------------------------------------------
Table of Contents
2022 compared to 2021
Primary insurance in-force and risk in-force
Primary insurance in-force increased largely from new insurance written. In addition, lower lapses and cancellations drove higher primary persistency, largely as a result of a decline in refinancing activity due to rising interest rates in 2022. The primary persistency rate was 80% and 62% for the years endedDecember 31, 2022 and 2021, respectively. Total risk in-force increased largely from higher primary insurance in-force.
New insurance written
New insurance written decreased principally due to a smaller estimated private mortgage insurance market in 2022, which was primarily driven by a decline in both purchase and refinancing originations due to rising interest rates.
Loss and expense ratios
The following table sets forth the loss and expense ratios for Enact for the
dates indicated:
Years ended December 31, Increase (decrease)
2022 2021 2020 2022 vs. 2021
Loss ratio (10 )% 13 % 39 % (23 )%
Expense ratio 25 % 25 % 23 % - %
The loss ratio is the ratio of benefits and other changes in policy reserves to
net earned premiums. The expense ratio is the ratio of general expenses to net
earned premiums. In Enact, general expenses consist of acquisition and operating
expenses, net of deferrals, and amortization of DAC and intangibles.
2022 compared to 2021
The loss ratio decreased largely from net favorable reserve adjustments of$268 million , as discussed above, partially offset by higher new delinquencies in 2022. Enact decreased reserves by$22 million in 2021 primarily related to positive frequency and severity development on pre-COVID-19 delinquencies.
The expense ratio remained flat as lower premiums were offset by expenses
associated with strategic transaction preparations in 2021 that did not recur.
98
--------------------------------------------------------------------------------
Table of Contents
Mortgage insurance loan portfolio
The following table sets forth selected financial information regarding Enact's
loan portfolio as of
(Amounts in millions) 2022 2021 2020 Primary insurance in-force by loan-to-value ratio at origination: 95.01% and above$ 39,509 $ 35,455 $ 34,520 90.01% to 95.00% 103,618 95,149 92,689 85.01% to 90.00% 72,132 64,549 56,341 85.00% and below 33,003 31,361 24,397 Total$ 248,262 $ 226,514 $ 207,947 Primary risk in-force by loan-to-value ratio at origination: 95.01% and above$ 11,136 $ 9,907 $ 9,279 90.01% to 95.00% 30,079 27,608 26,774 85.01% to 90.00% 17,621 15,644 13,562 85.00% and below 3,955 3,722 2,860 Total$ 62,791 $ 56,881 $ 52,475 Primary insurance in-force by credit quality at origination: Over 760$ 102,467 $ 89,982 $ 78,488 740-759 40,097 35,874 33,635 720-739 34,916 31,730 30,058 700-719 28,867 27,359 25,870 680-699 21,554 21,270 20,140 660-679(1) 10,926 10,549 9,819 640-659 6,095 6,124 5,935 620-639 2,630 2,783 2,902 <620 710 843 1,100 Total$ 248,262 $ 226,514 $ 207,947 Primary risk in-force by credit quality at origination: Over 760$ 25,807 $ 22,489 $ 19,691 740-759 10,154 9,009 8,497 720-739 8,931 8,055 7,673 700-719 7,317 6,907 6,579 680-699 5,428 5,334 5,100 660-679(1) 2,767 2,638 2,442 640-659 1,540 1,530 1,472 620-639 665 702 737 <620 182 217 284 Total$ 62,791 $ 56,881 $ 52,475
(1) Loans with unknown FICO scores are included in the 660-679 category.
The FICO credit score is one indicator of a borrower's credit quality. Enact continues to underwrite predominantly prime loan new business. Based upon FICO at loan closing, the weighted average FICO score of Enact's primary insurance in-force was 743 as ofDecember 31, 2022 . 99
--------------------------------------------------------------------------------
Table of Contents
Delinquent loans and claims
Enact's delinquency management process begins with notification by the loan servicer of a delinquency on an insured loan. "Delinquency" is defined in Enact's master policies as the borrower's failure to pay when due an amount equal to the scheduled monthly mortgage payment under the terms of the mortgage. Generally, the master policies require an insured to notify Enact of a delinquency if the borrower fails to make two consecutive monthly mortgage payments prior to the due date of the next mortgage payment. Enact generally considers a loan to be delinquent and establishes required reserves after the insured gives notification that the borrower has failed to make two scheduled mortgage payments. Borrowers default for a variety of reasons, including a reduction of income, unemployment, divorce, illness/death, inability to manage credit, falling home prices and interest rate levels. Borrowers may cure delinquencies by making all of the delinquent loan payments, agreeing to a loan modification or by selling the property in full satisfaction of all amounts due under the mortgage. In most cases, delinquencies that are not cured result in a claim under Enact's policy. The following table sets forth the number of loans insured, the number of delinquent loans and the delinquency rate for Enact's loan portfolio as ofDecember 31 : 2022 2021 2020 Primary insurance: Insured loans in-force 960,306 937,350 924,624 Delinquent loans 19,943 24,820 44,904
Percentage of delinquent loans (delinquency rate) 2.08 % 2.65 %
4.86 % The delinquency rate as ofDecember 31, 2022 decreased compared toDecember 31, 2021 and 2020 primarily from a decline in total delinquencies as cures outpaced new delinquencies.
The following tables set forth primary delinquencies, direct primary case
reserves and risk in-force by aged missed payment status in Enact's loan
portfolio as of
2022
Direct primary Risk Reserves as %
(Dollar amounts in millions) Delinquencies case reserves(1) in-force of risk in-force
Payments in default:
3 payments or less 8,920 $ 69 $ 509 14 %
4 - 11 payments 6,466 166 390 43 %
12 payments or more 4,557 244 248 98 %
Total 19,943 $ 479 $ 1,147 42 %
2021
Direct primary Risk Reserves as % of
(Dollar amounts in millions) Delinquencies case reserves(1) in-force risk in-force
Payments in default:
3 payments or less 6,586 $ 35 $ 340 10 %
4 - 11 payments 7,360 111 426 26 %
12 payments or more 10,874 460 643 72 %
Total 24,820 $ 606 $ 1,409 43 %
(1) Direct primary case reserves exclude loss adjustment expenses, pool,
incurred but not reported ("IBNR") and reinsurance reserves.
Total reserves as a percentage of risk in-force as of December 31, 2022 remained
relatively flat as both delinquent risk in-force and reserves decreased.
Delinquent risk in-force decreased mainly from lower total delinquencies as
cures outpaced new delinquencies in 2022, while reserves decreased largely from
favorable
100
--------------------------------------------------------------------------------
Table of Contents
reserve adjustments related to COVID-19 delinquencies from 2020 and 2021,
partially offset by new delinquencies in 2022.
The number of loans that are delinquent for 12 months or more was elevated as ofDecember 31, 2021 due in large part to borrowers in forbearance plans driven by COVID-19 and decreased in 2022 due to cure activity. Enact's current reserve estimate assumes that remaining COVID-19 delinquencies will have a higher likelihood of going to claim given the uncertainty around lack of progression through the foreclosure process. While Enact has seen significant cure activity in aged delinquencies, forbearance options continue to exist, so Enact could continue to experience elevated delinquencies in this aged category. Resolution of a delinquency in a forbearance plan, whether it ultimately results in a cure or a claim, is difficult to estimate and may not be known for several quarters, if not longer. Primary insurance delinquency rates differ from region to region inthe United States at any one time depending upon economic conditions and cyclical growth patterns. The tables below set forth the dispersion of direct primary case reserves and primary delinquency rates for the 10 largest states and the 10 largest Metropolitan Statistical Areas ("MSA") or Metro Divisions ("MD") by Enact's primary risk in-force as of the dates indicated. Delinquency rates are shown by region based upon the location of the underlying property, rather than the location of the lender. Percent of primary Percent of direct primary Delinquency rate as of December 31, risk in-force as of case reserves as of December 31, 2022 December 31, 2022(1) 2022 2021 2020 By State: California 12 % 10 % 2.09 % 3.17 % 6.20 % Texas 8 % 7 % 2.12 % 2.89 % 5.82 % Florida(2) 8 % 8 % 2.54 % 2.97 % 6.92 % New York(2) 5 % 13 % 2.95 % 3.80 % 6.92 % Illinois(2) 5 % 6 % 2.54 % 3.09 % 5.21 % Arizona 4 % 2 % 1.78 % 2.31 % 4.54 % Michigan 4 % 3 % 1.79 % 1.87 % 2.93 % North Carolina 3 % 3 % 1.59 % 2.18 % 3.84 % Georgia 3 % 3 % 2.23 % 2.94 % 5.89 % Washington 3 % 3 % 1.92 % 2.98 % 5.37 %
(1) Direct primary case reserves exclude loss adjustment expenses, pool, IBNR
and reinsurance reserves.
(2) Jurisdiction predominantly uses a judicial foreclosure process, which
generally increases the amount of time it takes for a foreclosure to be
completed.
101
--------------------------------------------------------------------------------
Table of Contents
Percent of primary Percent of direct primary Delinquency rate as of December 31,
risk in-force as of case reserves as of
December 31, 2022 December 31, 2022(1) 2022 2021 2020
By MSA or MD:
Chicago-Naperville, IL MD 3 % 5 % 2.84 % 3.68 % 6.36 %
Phoenix, AZ MSA 3 % 2 % 1.83 % 2.36 % 4.63 %
New York, NY MD 3 % 8 % 3.75 % 5.32 % 10.25 %
Atlanta, GA MSA 2 % 3 % 2.42 % 3.28 % 6.68 %
Washington-Arlington, DC MD 2 % 2 % 1.85 % 2.96 % 6.09 %
Houston, TX MSA 2 % 3 % 2.60 % 3.61 % 7.59 %
Riverside-San Bernardino, CA MSA 2 % 2 % 2.89 % 3.42 % 7.08 %
Los Angeles-Long Beach, CA MD 2 % 2 % 2.18 % 3.95 % 7.57 %
Dallas, TX MD 2 % 1 % 1.86 % 2.31 % 5.10 %
Denver-Aurora-Lakewood, CO MSA 2 % 1 % 1.12 % 1.66 % 3.77 %
(1) Direct primary case reserves exclude loss adjustment expenses, pool, IBNR
and reinsurance reserves.
The number of delinquencies may not correlate directly with the number of claims received because delinquencies may cure. The rate at which delinquencies cure is influenced by borrowers' financial resources and circumstances and regional economic differences. Whether a delinquency leads to a claim correlates highly with the borrower's equity at the time of delinquency, as it influences the borrower's willingness to continue to make payments, and the borrower's or the insured's ability to sell the home for an amount sufficient to satisfy all amounts due under the mortgage loan, as well as the borrower's financial ability to continue making payments. When Enact receives notice of a delinquency, it uses its proprietary model to determine whether a delinquent loan is a candidate for a modification. When the model identifies such a candidate, Enact's loan workout specialists prioritize cases for loss mitigation based upon the likelihood that the loan will result in a claim. Loss mitigation actions include loan modification, extension of credit to bring a loan current, foreclosure forbearance, pre-foreclosure sale and deed-in-lieu. These loss mitigation efforts often are an effective way to reduce Enact's claim exposure and ultimate payouts. The following table sets forth the dispersion of Enact's direct primary case reserves, primary insurance in-force and risk in-force by year of policy origination, weighted average mortgage interest rate and delinquency rate as ofDecember 31, 2022 : Weighted Percent of Primary Primary average direct primary insurance Percent risk Percent Delinquency (Amounts in millions) rate(1) case reserves(2) in-force of total in-force of total rate Policy Year 2008 and prior 5.70 % 26 %$ 6,596 3 %$ 1,699 3 % 9.61 % 2009 to 2014 4.45 % 4 2,113 1 560 1 5.01 % 2015 4.20 % 3 2,912 1 781 1 3.61 % 2016 3.91 % 6 6,296 2 1,681 3 3.17 % 2017 4.28 % 7 6,495 3 1,708 3 3.78 % 2018 4.81 % 9 6,839 3 1,736 3 4.63 % 2019 4.24 % 11 16,352 7 4,143 7 2.71 % 2020 3.26 % 17 55,358 22 14,158 22 1.47 % 2021 3.10 % 14 81,724 33 20,418 32 1.20 % 2022 4.88 % 3 63,577 25 15,907 25 0.54 % Total portfolio 3.84 % 100 %$ 248,262 100 %$ 62,791 100 % 2.08 %
(1) Average annual mortgage interest rate weighted by insurance in-force.
(2) Direct primary case reserves exclude loss adjustment expenses, pool, IBNR
and reinsurance reserves.
102
--------------------------------------------------------------------------------
Table of Contents
Loss reserves in policy years 2008 and prior are outsized compared to their representation of risk in-force. The size of these policy years at origination combined with the significant decline in home prices led to significant losses in policy years prior to 2009. Although uncertainty remains with respect to the ultimate losses Enact will experience on these policy years, they have become a smaller percentage of its total mortgage insurance portfolio. The largest portion of reserves has shifted to newer book years as a result of COVID-19 given their significant representation of risk in-force. As ofDecember 31, 2022 , Enact's 2015 and newer policy years represented approximately 96% of primary risk in-force and 70% of total direct primary case reserves. The ratio of the claim paid to the current risk in-force for a loan is referred to as "claim severity." The current risk in-force is equal to the unpaid principal amount multiplied by the coverage percentage. The main determinants of claim severity are the age of the mortgage loan, the value of the underlying property, accrued interest on the loan, expenses advanced by the insured and foreclosure expenses. These amounts depend partly upon the time required to complete foreclosure, which varies depending upon state laws. Pre-foreclosure sales, acquisitions and other early workout and claim administration actions help to reduce overall claim severity. Enact's average primary mortgage insurance claim severity was 94%, 103% and 106% for the years endedDecember 31, 2022 , 2021 and 2020, respectively. The average claim severity for the year endedDecember 31, 2022 was impacted by low claim volumes and lifetime home price appreciation. The average claim severities do not include the effects of agreements on non-performing loans.
Trends and conditions
Results of ourU.S. life insurance businesses depend significantly upon the extent to which our actual future experience is consistent with assumptions and methodologies we have used in calculating our reserves. Many factors can affect the results of ourU.S. life insurance businesses. Because these factors are not known in advance, change over time, are difficult to accurately predict and are inherently uncertain, we cannot determine with precision the ultimate amounts we will pay for actual claims or the timing of those payments. We will continue to monitor our experience and assumptions closely and make changes to our assumptions and methodologies, as appropriate, for ourU.S. life insurance products. Even small changes in assumptions or small deviations of actual experience from assumptions can have, and in the past have had, material impacts on our DAC amortization, reserve levels, results of operations and financial condition. Our liability for policy and contract claims is reviewed quarterly and we completed a detailed review of our claim reserve assumptions and methodologies for our long-term care insurance business in the fourth quarter of 2022 as discussed further below. In the fourth quarter of 2022, we performed assumption reviews for ourU.S. life insurance products, including our long-term care and life insurance products, and completed our loss recognition testing as discussed below. For our 2022 assumption updates, we generally did not include data after 2019 in setting any long-term assumptions, as we do not yet have sufficient information around longer term effects of the pandemic, which is consistent with the approach for our 2021 assumptions. Our review of assumptions, as part of our testing in the fourth quarter of 2022, included assumptions regarding expected claim incidence and terminations, expenses, benefit utilization, mortality, persistency, interest rates and in-force rate actions, among other assumptions. In addition, we performed cash flow testing separately for each of ourU.S. life insurance companies on a statutory accounting basis in the fourth quarter of 2022. OurU.S. life insurance subsidiaries are subject to the NAIC's RBC standards and other minimum statutory capital and surplus requirements. As ofDecember 31, 2022 , the RBC of each of ourU.S. life insurance subsidiaries exceeded the level of RBC that would require any of them to take or become subject to any corrective action in their respective domiciliary state, or company action level RBC ratio. The consolidated RBC ratio of ourU.S. domiciled life insurance subsidiaries was approximately 291% and 289% as ofDecember 31, 2022 and 2021, respectively. The slight increase was driven by earnings in our long-term care insurance business mainly from premium rate increases and benefit reductions, including policyholder benefit reduction elections 103
--------------------------------------------------------------------------------
Table of Contents
made in connection with legal settlements, that were mostly offset by high
mortality in our life insurance products and unfavorable equity market
performance in our variable annuity products.
We continue to face challenges in our principal life insurance subsidiaries, particularly those subsidiaries that rely heavily on long-term care insurance in-force rate actions as a source of earnings and capital. We may see variability in statutory results and a decline in the company action level RBC ratios of these subsidiaries given the time lag between the approval of in-force rate actions versus when the benefits from the in-force rate actions (including increased premiums and associated benefit reductions) are fully realized in our financial results. Additionally, the company action level RBC ratio of ourU.S. life insurance subsidiaries would be negatively impacted by future increases in our statutory reserves, including results of life mortality, cash flow testing and assumption reviews, particularly in our long-term care and life insurance products. Future declines in the company action level RBC ratio of our life insurance subsidiaries could result in heightened supervision and regulatory action. Results of ourU.S. life insurance businesses are also impacted by interest rates. Prior to the recent rise in interest rates during 2022, historic low interest rates put pressure on the profitability and returns of ourU.S. life insurance businesses as higher yielding investments matured and were replaced with lower-yielding investments. We have sought to manage the impact of low interest rates through asset-liability management, investment in alternative assets, including limited partnerships, as well as interest rate hedging strategies for a portion of our long-term care insurance product cash flows. Additionally, certain products have implicit and explicit rate guarantees or optionality that are significantly impacted by changes in interest rates. During periods of increasing market interest rates, we may increase crediting rates on in-force universal life insurance and fixed annuity products to remain competitive in the marketplace. In addition, rapidly rising interest rates may cause increased unrealized losses on our investment portfolios, increased policy surrenders, withdrawals from life insurance policies and annuity contracts and requests for policy loans, as policyholders and contractholders shift assets into higher yielding investments. Increases in crediting rates, as well as surrenders and withdrawals, could have an adverse effect on our financial condition and results of operations, including the requirement to liquidate fixed-income investments in an unrealized loss position to satisfy surrenders or withdrawals. For a further discussion of the impact of interest rates on ourU.S. life insurance businesses, see "Item 7A-Quantitative and Qualitative Disclosures About Market Risk." In recent years, ourU.S. life insurance businesses have been impacted by COVID-19 as a result of elevated mortality. Our long-term care insurance operating results were favorably impacted by higher mortality in 2021 and 2020. This trend continued into 2022 albeit to a lesser extent, and we have seen mortality levels return to pre-pandemic levels in the latter half of 2022 in our long-term care insurance business. Conversely, higher mortality rates had unfavorable impacts in our life insurance products; however, we have seen lower mortality since the first quarter of 2022. We have also observed minimal impact from COVID-19 in our fixed annuity products. While the ongoing impact of COVID-19 is very difficult to predict, the related outcomes and impact on theU.S. life insurance business currently depend on the after-effects indirectly caused by the pandemic, including supply chain shortages and high inflation, and the shape of the economic recovery. For sensitivities related to lapses and mortality on ourU.S. life insurance products, see "-Critical Accounting Estimates." We will continue to monitor COVID-19 associated impacts and evaluate all of our assumptions that may need updating as a result of longer-term trends related to the pandemic. Long-term care insurance The long-term profitability of our long-term care insurance business depends upon how our actual experience compares with our valuation assumptions, including but not limited to morbidity, mortality and persistency. If any of our assumptions prove to be inaccurate, our reserves may be inadequate, which in the past has had, and may in the future have, a material adverse effect on our results of operations, financial condition and business. Results of our long-term care insurance business are also influenced by our ability to achieve in-force rate actions, improve investment yields and manage expenses and reinsurance, among other factors. Changes in 104
--------------------------------------------------------------------------------
Table of Contents
laws or government programs, including long-term care insurance rate action
legislation, regulation and/or practices, could also impact our long-term care
insurance business either positively or negatively.
In the fourth quarter of 2022, we completed loss recognition and cash flow testing and reviewed key assumptions for future policy benefits, or active life reserves, for our long-term care insurance business, including assumptions regarding expected claim incidence and terminations, expenses, benefit utilization, interest rates and in-force rate actions, among other assumptions. As ofDecember 31, 2022 , our loss recognition testing margin for our long-term care insurance business, excluding the acquired block, was positive but slightly lower than the 2021 level. We continue to test our acquired block of long-term care insurance separately. In 2022, our loss recognition testing margin for the acquired block was positive and slightly higher than the 2021 level. All key margin testing assumptions were reviewed and updated where appropriate. We refined several assumptions, including reducing our lapse assumption in light of favorable experience from our long-term care insurance legal settlement elections and benefit reductions and updating our interest rate assumption to reflect the impact of the higher interest rate environment. These refinements were not significant and we believe our assumptions are holding up in the aggregate. We also evaluated our assumptions regarding expectations of future premium rate increase approvals and benefit reductions and made no significant changes to our 2022 multi-year in-force rate action plan. However, we did increase the value of our assumption for future approvals and benefit reductions based on recent rate increase approval experience, regulatory support and legal settlement results. We will continue to regularly review our methodologies and assumptions in light of emerging experience and may be required to make adjustments to our long-term care insurance reserves in the future, which could also impact our loss recognition and cash flow testing results. For a discussion of additional information related to margins for our long-term care insurance business, see "-Critical Accounting Estimates-Future policy benefits." During the fourth quarter of 2022, we reviewed our assumptions and methodologies relating to our claim reserves of our long-term care insurance business. As part of our review, we considered emerging experience particularly in mortality and benefit utilization, including the impact of increased cost of care due to inflation. In 2022 and 2021, based on the review of our assumptions and methodologies, we did not make any significant changes to our claim reserves. For a discussion of additional information related to changes to our assumptions and methodologies to our long-term care insurance claim reserves, see "-Critical Accounting Estimates-Liability for policy and contract claims." As a result of the review of our claim reserves completed in prior years, we have been establishing higher claim reserves on new claims, which has negatively impacted earnings, and we expect this to continue going forward. Also, average claim reserves for new claims are trending higher over time as the mix of claims continues to evolve, with an increasing number of policies with higher daily benefit amounts and higher inflation factors going on claim. Although new claim counts on our older long-term care insurance blocks of business will continue to decrease as the blocks run off, we are gaining more experience on our larger new blocks of business and expect continued growth in new claims on these blocks as policyholders reach older attained ages with higher likelihood of going on claim. In our long-term care insurance products, we have experienced higher mortality during COVID-19 which has had a favorable impact on claim reserves and our operating results. Although it is not our practice to track cause of death for long-term care insurance policyholders and claimants, we believe the higher mortality in our long-term care insurance business in early 2022 as well as during 2021 was likely impacted by COVID-19, but we expect the impacts to be temporary. COVID-19 significantly increased mortality on our most vulnerable claimants, which may reduce mortality rates in future periods. To account for this change in experience due to COVID-19, we adjusted the mortality assumption in our claim reserves to reflect the risk of lower claim termination rates on remaining claims. As ofDecember 31, 2022 , the balance of our incremental claim reserves associated with COVID-19 mortality was$90 million , which decreased$44 million from theDecember 31, 2021 balance of$134 million as mortality decreased for most of 2022 as the impacts from the pandemic subsided. 105
--------------------------------------------------------------------------------
Table of Contents
Short-term mortality experience may fluctuate, and we would decrease the
COVID-19 mortality adjustment if we continue to experience lower mortality.
We also experienced lower new claims incidence in our long-term care insurance business during COVID-19. However, we expected this to be temporary and that claims incidence experience would ultimately revert to pre-pandemic trends. As a result, we strengthened our IBNR claim reserves during the height of COVID-19. As ofDecember 31, 2022 and 2021, the balance of IBNR claim reserves due to lower claims incidence was$47 million and$75 million , respectively. We are seeing new claims incidence trending back to pre-pandemic levels. In addition, during the pandemic, a larger share of our claimants sought home care instead of facility-based care, and as the impacts of the pandemic subside, we have seen that trend begin to reverse. We continue to utilize virtual assessments to assess eligibility for benefits while in-person assessments have been temporarily discontinued since the onset of COVID-19. We are reviewing the options to resume in-person assessments, with appropriate protocols in place, while having virtual assessments available for those policyholders who would prefer this option. For claimants without the technology to perform virtual assessments, we have alternate options for gathering information. Our long-term care insurance benefit utilization will be monitored for impact, although it is too early to tell the magnitude and/or direction of that impact. Given the ongoing challenges in our long-term care insurance business, we continue to pursue initiatives to improve the risk and profitability profile of our business, including: premium rate increases and associated benefit reductions on our in-force policies; managing expense levels; executing investment strategies targeting higher returns; and enhancing our financial and actuarial analytical capabilities. In addition, we have reached certain legal settlements regarding alleged disclosure deficiencies in premium increases for long-term care insurance policies. The first legal settlement related to certain of our long-term care insurance policies, which represents approximately 20% of our block, was implemented beginning in 2021 and its implementation was materially completed in the second quarter of 2022. Another similar legal settlement on certain of our long-term care insurance policies, which represents 15% of our block, became final onJuly 29, 2022 . We began implementation of this settlement onAugust 1, 2022 , and recognized modest benefits during the fourth quarter of 2022. Because the election mailings occur on the policyholder's policy anniversary date, the majority of the impacts are expected to be realized in 2023. However, we do not expect the financial impacts of this settlement to be as significant as they were with the first settlement given the smaller policy block size. OnFebruary 15, 2023 , the court issued final approval on another similar pending settlement on certain of our long-term care insurance policies, which represents 35% of our block. The judgment will become final 30 days after its entry, or upon final resolution of any timely appeal, and we would expect to begin implementation in the second quarter of 2023. While the two new settlements are similar to the previous settlement, their ultimate impact will depend on the policyholder election rates and the types of reduced benefits elected. Given our experience with the first settlement, we expect these additional settlements to result in an overall net favorable impact to our long-term care insurance business. While we expect renewal premiums to decline over time, the settlements could accelerate that decline if policyholders continue to elect non-forfeiture and reduced benefit options, which have predominantly been the most prevalent policyholder elections for these legal settlements. Executing on our multi-year long-term care insurance in-force rate action plan with premium rate increases and associated benefit reductions on our legacy long-term care insurance policies is critical to the business. For an update on in-force rate actions, refer to "-Significant Developments andStrategic Highlights-U.S. Life Insurance " and "Item 1-Business-U.S. Life Insurance-In-force rate actions." The approval process for in-force rate actions and the amount and timing of the premium rate increases and associated benefit reductions approved vary by state. In certain states, the decision to approve or disapprove a rate increase can take a significant amount of time, and the approved amount may be phased in over time. After approval, insureds are provided with written notice of the increase and increases are generally applied on the insured's next policy anniversary date. As a result, the benefits of any rate increase are not fully realized until the implementation cycle is complete and are, therefore, expected to be realized over time. Because obtaining actuarially justified rate increases and associated benefit reductions is important to our ability to pay future claims, we will consider litigation against states that decline to approve those actuarially 106
--------------------------------------------------------------------------------
Table of Contents
justified rate increases. In
that have refused to approve actuarially justified rate increases.
Life insurance
Results of our life insurance business are impacted primarily by mortality, persistency, investment yields, expenses, reinsurance and statutory reserve requirements, among other factors. We no longer solicit sales of traditional life insurance products; however, we continue to service our existing retained and reinsured blocks of business. Mortality levels may deviate each period from historical trends. Overall mortality experience was lower in 2022 compared to 2021. In our life insurance products, COVID-19 deaths also declined in 2022 compared to 2021. We have experienced higher mortality than our then-current and priced-for assumptions in recent years for our universal life insurance block. We have also been experiencing higher mortality related charges resulting from an increase in rates charged by our reinsurance partners reflecting natural block aging and higher mortality compared to expectations. In the fourth quarters of 2022 and 2021, we performed our annual review of life insurance assumptions and loss recognition testing. Our reviews focused on assumptions for mortality, persistency and interest rates, among other assumptions. Our mortality assumption was updated in 2021 to align with the overall pre-COVID-19 experience in later-duration as well as in targeted blocks such as term universal life insurance, conversion policies and post-level term. As ofDecember 31, 2022 , the loss recognition testing margin for our term and whole life insurance products was positive and consistent with the 2021 level. As part of our annual review of assumptions in the fourth quarter of 2022, we recorded a$34 million after-tax benefit in our universal and term universal life insurance products primarily related to higher interest rates. As part of our review in the fourth quarter of 2021, we recorded a$70 million after-tax expense in our universal and term universal life insurance products primarily related to higher pre-COVID-19 mortality experience. For the year endedDecember 31, 2022 , in connection with our review of DAC for recoverability, we recorded after-tax charges of$41 million in our universal and term universal life insurance products compared to$92 million after-tax charges in 2021. However, there was no recoverability charge in the fourth quarter of 2022 as a result of our favorable assumption update. For a discussion of additional information related to changes to our assumptions and DAC recoverability related to our life insurance business, see "-Critical Accounting Estimates." Our mortality experience for older ages is emerging and we continue to monitor trends in mortality improvement. We will continue to regularly review our mortality assumptions as well as all of our other assumptions in light of emerging experience. We may be required to make adjustments in the future to our assumptions which could impact our life insurance reserves. Any materially adverse changes to our assumptions, including mortality, persistency or interest rates, could have a materially negative impact on our results of operations, financial condition and business. For a discussion of additional information related to changes to our life insurance assumptions, see "-Critical Accounting Estimates." Compared to 1998 and prior years, we had a significant increase in term life insurance sales between 1999 and 2009, particularly in 1999 and 2000. The blocks of business issued since 2000 vary in size as compared to the large 1999 and 2000 blocks of business. As our large 10-, 15- and 20-year level premium period term life insurance policies written in 1999 and 2000 transitioned to their post-level guaranteed premium rate period, we experienced lower persistency compared to our pricing and valuation assumptions which accelerated DAC amortization in previous years. Our 20-year level premium period business written in 2002 began to enter its post-level period in 2022 and we experienced elevated DAC amortization, albeit lower than the levels we experienced in 2020 and 2019, due to higher-than-expected lapses as these policies exit the level premium period. 107
--------------------------------------------------------------------------------
Table of Contents
Fixed annuities
Results of our fixed annuities business are affected primarily by investment performance, interest rate levels, the slope of the interest rate yield curve, net interest spreads, equity market conditions, mortality, persistency and expense and commission levels. We no longer solicit sales of traditional fixed annuity products; however, we continue to service our existing retained and reinsured blocks of business. We monitor and change crediting rates on fixed deferred annuities on a regular basis to maintain spreads and targeted returns, if applicable. However, we could see declines in our fixed annuity spreads and margins as interest rates change, depending on the severity of the change. We have previously had premium deficiencies in our single premium immediate annuity products that resulted in the establishment of additional future policy benefit reserves that were reflected as charges to net income. In 2022 and 2021, the results of our loss recognition testing did not result in a premium deficiency; therefore, our liability for future policy benefits was sufficient. The impacts of future adverse changes in our assumptions could result in the establishment of additional future policy benefit reserves and would be immediately reflected as a charge to earnings. For additional information, see "-Critical Accounting Estimates-Future Policy Benefits." For fixed indexed annuities, equity market and interest rate performance and volatility could also result in additional gains or losses, although associated hedging activities are expected to partially mitigate these impacts.
Segment results of operations
The following table sets forth the results of operations relating to our
Life Insurance
Increase (decrease)
Years ended and percentage
December 31, change
(Amounts in millions) 2022 2021 2020 2022 vs. 2021
Revenues:
Premiums $ 2,773 $ 2,454 $ 2,858 $ 319 13 %
Net investment income 2,769 3,029 2,878 (260 ) (9 )%
Net investment gains (losses) 16 329 517 (313 ) (95 )%
Policy fees and other income 543 565 595 (22 ) (4 )%
Total revenues 6,101 6,377 6,848 (276 ) (4 )%
Benefits and expenses:
Benefits and other changes in policy
reserves 4,301 4,230 4,781 71 2 %
Interest credited 322 346 383 (24 ) (7 )%
Acquisition and operating expenses, net of
deferrals 1,078 865 620 213 25 %
Amortization of deferred acquisition costs
and intangibles 272 340 418 (68 ) (20 )%
Interest expense - - 5 - - %
Total benefits and expenses 5,973 5,781 6,207 192 3 %
Income from continuing operations before
income taxes 128 596 641 (468 ) (79 )%
Provision for income taxes 55 155 163 (100 ) (65 )%
Income from continuing operations 73 441 478 (368 ) (83 )%
Adjustments to income from continuing
operations:
Net investment (gains) losses, net (1) (17 ) (330 ) (525 ) 313 95 %
Losses on early extinguishment of debt - - 4 - - %
Initial loss from life block transaction - 92 - (92 ) (100 )%
Expenses related to restructuring (1 ) 17 1 (18 ) (106 )%
Pension plan termination costs 8 - - 8 NM (2)
Taxes on adjustments 3 47 110 (44 ) (94 )%
Adjusted operating income available to
Genworth Financial, Inc.'s common
stockholders $ 66 $ 267 $ 68 $ (201 ) (75 )%
(1) For the years ended
losses were adjusted for DAC and other intangible amortization and certain
benefit reserves of
respectively.
(2) We define "NM" as not meaningful for increases or decreases greater than
200%.
108
--------------------------------------------------------------------------------
Table of Contents
The following table sets forth adjusted operating income (loss) for the businesses included in ourU.S. Life Insurance segment for the periods indicated: Increase (decrease) and percentage Years ended December 31, change (Amounts in millions) 2022 2021 2020 2022 vs. 2021 Adjusted operating income (loss) available toGenworth Financial, Inc.'s common stockholders: Long-term care insurance$ 142 $ 445 $ 237 $ (303 ) (68 )% Life insurance (148 ) (269 ) (247 ) 121 45 % Fixed annuities 72 91 78 (19 ) (21 )% Total adjusted operating income available toGenworth Financial, Inc.'s common stockholders$ 66 $ 267 $ 68 $ (201 ) (75 )% 2022 compared to 2021 Adjusted operating income (loss) available toGenworth Financial, Inc.'s common stockholders • Adjusted operating income in our long-term care insurance business decreased$303 million primarily from higher severity and
frequency of
new claims, lower net investment income and lower terminations
as the
pandemic impacts lessened in 2022. The decrease was also
attributable
to a$49 million less favorable impact in 2022 from in-force rate actions approved and implemented, which included a lower net favorable impact from policyholder benefit reduction elections made in connection with legal settlements, as the implementation of one is materially complete and the implementation of another one began inAugust 2022 .
• The adjusted operating loss in our life insurance business decreased
$121 million mainly attributable to a favorable unlocking of
million in our universal and term universal life insurance
products as
part of our annual review of assumptions in the fourth quarter
of 2022
compared to an unfavorable unlocking of$70 million in 2021 (see "-Critical Accounting Estimates" for additional information). The decrease was also attributable to lower mortality as the
pandemic
impacts subsided and lower DAC impairments of $51 million in
2022.
These decreases were partially offset by higher lapses in our
20-year
term life insurance block written in 2002 entering its
post-level
premium period in 2022.
• Adjusted operating income in our fixed annuities business decreased
$19 million mainly attributable to lower net spreads,
partially offset
by lower DAC amortization and higher mortality in our single premium
immediate annuity products in 2022.
Revenues
Premiums
• Our long-term care insurance business decreased $51 million primarily
driven by lower renewal premiums from policy terminations and policies
entering paid-up status, partially offset by $93 million of increased
premiums in 2022 from in-force rate actions approved and implemented.
• Our life insurance business increased $370 million primarily driven by
lower ceded premiums, partially offset by the continued runoff of our
in-force blocks in 2022. In 2021, we initially ceded $360 million of
certain term life insurance premiums under a new reinsurance treaty as
part of a life block transaction.
109
--------------------------------------------------------------------------------
Table of Contents
Net investment income
• Our long-term care insurance business decreased $127 million largely
from lower income of $169 million in 2022 mostly attributable to
limited partnerships, bond calls and commercial mortgage loan
prepayments. The decrease was partially offset by higher
income of
million related toU.S. Government Treasury Inflation Protected Securities ("TIPS") and higher average invested assets in 2022.
• Our life insurance business decreased
to$19 million of lower bond calls and commercial mortgage loan prepayments, and lower average invested assets in 2022. • Our fixed annuities business decreased$109 million largely attributable to lower average invested assets, as well as$35 million of lower bond calls and commercial mortgage loan prepayments in 2022. Net investment gains (losses)
• Our long-term care insurance business decreased
driven by lower net unrealized gains from mark to market
adjustments
on limited partnerships and changes in the fair value of equity
securities in 2022.
• Our life insurance business decreased $69 million primarily due to
lower net realized gains on the sale of investment securities in 2022,
as well as unrealized losses from changes in the fair value of equity
securities and derivative losses in 2022 compared to gains in 2021.
Policy fees and other income. The decrease was largely related to our life
insurance business driven mostly by the runoff of our in-force blocks.
Benefits and expenses
Benefits and other changes in policy reserves
• Our long-term care insurance business increased
due to a less favorable impact of $253 million from reduced
benefits
in 2022 related to in-force rate actions approved and
implemented,
which included policyholder benefit reduction elections made in
connection with legal settlements as the implementation of one is
materially complete and the implementation of another one began in
August 2022 . The increase was also attributable to aging of the
in-force block, including higher severity and frequency of new claims,
less favorable development on incurred but not reported
claims, as
well as lower terminations as the impacts of the pandemic
lessened in
2022. These increases were partially offset by lower
incremental
reserves of$244 million recorded in connection with an
accrual for
profits followed by losses in 2022. To account for the change
in
experience related to mortality and claim incidence due to
COVID-19,
we increased claim reserves by $10 million in 2021. As the
impacts of
COVID-19 lessened, we reduced claim reserves by $72 million in 2022.
• Our life insurance business increased $135 million largely from higher
ceded reinsurance in 2021. We initially ceded$268 million of certain term life insurance reserves under a new reinsurance treaty as part of a life block transaction in 2021. The increase was partially offset by lower mortality and a favorable unlocking of$37 million in our universal and term universal life insurance products as part of our annual review of assumptions in the fourth quarter of 2022
compared to
an unfavorable unlocking of $86 million in 2021 (see
"-Critical
Accounting Estimates-Policyholder account balances" for
additional
information).
• Our fixed annuities business decreased
lower assumed reserves as a result of a third-party recapture of$374 million of certain single premium immediate annuity contracts and from higher mortality in 2022. 110
--------------------------------------------------------------------------------
Table of Contents
Interest credited. The decrease in interest credited was driven by declines of$18 million in our fixed annuities products and$6 million in our life insurance products due to lower average account values from block runoff.
Acquisition and operating expenses, net of deferrals
• Our long-term care insurance business decreased $131 million
principally related to lower premium taxes, commissions and other
expenses of $98 million in 2022 associated with our in-force rate
action plan, which included expenses related to policyholder benefit
reduction elections made in connection with legal settlements as the
implementation of one is materially complete and the
implementation of
another one began inAugust 2022 . The decrease was also
attributable
to restructuring costs of $12 million in 2021 that did not recur and
lower operating costs in 2022.
• Our life insurance business decreased $7 million primarily due to
lower reinsurance, operating and restructuring costs in 2022. These
decreases were partially offset by a $25 million legal settlement
expense, $19 million primarily related to conversion costs associated
with an outsourcing arrangement and pension plan termination costs of
$8 million in 2022.
• Our fixed annuities business increased
payment of$365 million related to the recapture of certain single premium immediate annuity contracts by a third party in 2022, partially offset by lower operating costs largely due to block runoff.
Amortization of deferred acquisition costs and intangibles
• Our long-term care insurance business decreased $17 million primarily
due to lower policy terminations and policies entering paid-up status
in 2022.
• Our life insurance business decreased $38 million primarily from lower
DAC impairments of $65 million on our universal and term universal
life insurance products, as well as lower lapses and mortality in
2022, partially offset by higher lapses in our 20-year term life
insurance block written in 2002 entering its post-level premium
period.
• Our fixed annuities business decreased $13 million primarily due to
higher interest rates in 2022 that are expected to increase future
investment spreads.
Provision for income taxes. The effective tax rate was 43.3% and 26.1% for the
years ended December 31, 2022 and 2021, respectively. The increase in the
effective tax rate was primarily attributable to tax expense on certain forward
starting swap gains that are tax effected at the previously enacted federal
income tax rate of 35% as they are amortized into net investment income, in
relation to lower pre-tax income in 2022.
Long-term care insurance
As part of our strategy for our long-term care insurance business, we have been implementing, and expect to continue to pursue, significant premium rate increases and associated benefit reductions on older generation blocks of business in order to bring those blocks closer to a break-even point over time and reduce the strain on earnings and capital. We are also requesting premium rate increases and associated benefit reductions on newer blocks of business, as needed, some of which may be significant, to help bring their loss ratios back towards their original pricing. In aggregate, we estimate that we have achieved approximately$23.5 billion , on a net present value basis, of approved in-force rate increases since 2012. We continue to work closely with the NAIC and state regulators to demonstrate the broad-based need for actuarially justified rate increases and associated benefit reductions in order to pay future claims. 111
--------------------------------------------------------------------------------
Table of Contents
The following table summarizes the impact from cumulative in-force rate actions
on the results of operations of our long-term care insurance business for the
periods indicated:
Increase (decrease)
and percentage
Years ended December 31, change
(Amounts in millions) 2022 2021 2020 2022 vs. 2021
Premiums $ 923 $ 830 $ 746 $ 93 11 %
Plus: Benefits and other changes in
policy reserves(1) 659 912 507 (253 ) (28 )%
Less: Acquisition and operating expenses,
net of deferrals(2) 184 282 62 (98 ) (35 )%
Adjusted operating income before taxes 1,398 1,460 1,191 (62 ) (4 )%
Income taxes 294 307 250 (13 ) (4 )%
Adjusted operating income(3) $ 1,104 $ 1,153 $ 941 $ (49 ) (4 )%
(1) Amounts represent benefit reductions elected by policyholders as an
alternative to increased premiums. These amounts reduced benefits and other
changes in policy reserves in our long-term care insurance business for the
periods indicated.
(2) Amounts include premium taxes, commissions and other expenses associated
with our long-term care insurance in-force rate action plan, which included
expenses of
2022 and 2021, respectively, related to policyholder benefit reduction
elections made in connection with legal settlements. Included in the
million and
and 2021, respectively, was
cash damages. The implementation of one legal settlement is materially
complete and the implementation of another one began in August 2022 .
(3) Adjusted operating income available to
stockholders attributable to in-force rate actions excludes reserve updates
resulting from profits followed by losses and reserve changes for group
products.
See our results of operations above for additional details.
The following table presents net earned premiums and the loss ratio for our
long-term care insurance business for the periods indicated:
Increase (decrease) and
Years ended December 31, percentage change
(Amounts in millions) 2022 2021 2020 2022 vs. 2021
Net earned premiums:
Individual long-term care insurance(1)
(2 )% Group long-term care insurance 134 124 123 10 8 % Total$ 2,539 $ 2,590 $ 2,620 $ (51 ) (2 )% Loss ratio 75 % 61 % 71 % 14 %
(1) For the years ended
increased premiums of
respectively, from in-force rate actions approved and implemented.
The loss ratio is the ratio of benefits and other changes in reserves less
tabular interest on reserves less loss adjustment expenses to net earned
premiums.
Net earned premiums decreased in 2022 compared to 2021 primarily driven by lower renewal premiums from policy terminations and policies entering paid-up status, partially offset by$93 million of increased premiums in 2022 from in-force rate actions approved and implemented. 112
--------------------------------------------------------------------------------
Table of Contents
The loss ratio increased in 2022 compared to 2021 due to higher benefits and
other changes in reserves and lower premiums in 2022 as discussed above.
Life insurance
The following table sets forth selected operating performance measures regarding
our life insurance business as of and for the dates indicated:
Increase (decrease)
and percentage
Years ended December 31, change
(Amounts in millions) 2022 2021 2020 2022 vs. 2021
Term and whole life insurance
Net earned premiums (1) $ 234 $ (136 ) $ 238 $ 370 NM (2)
Life insurance in-force, net of
reinsurance 48,162 47,297 59,919 865 2 %
Life insurance in-force before
reinsurance 300,145 332,793 362,082 (32,648 ) (10 )%
Term universal life insurance
Net deposits $ 187 $ 203 $ 217 $ (16 ) (8 )%
Life insurance in-force, net of
reinsurance 92,719 99,471 107,048 (6,752 ) (7 )%
Life insurance in-force before
reinsurance 93,336 100,119 107,774 (6,783 ) (7 )%
Universal life insurance
Net deposits $ 245 $ 259 $ 269 $ (14 ) (5 )%
Life insurance in-force, net of
reinsurance 29,798 31,117 32,501 (1,319 ) (4 )%
Life insurance in-force before
reinsurance 33,622 35,228 36,839 (1,606 ) (5 )%
Total life insurance
Net earned premiums and deposits
(1) $ 666 $ 326 $ 724 $ 340 104 %
Life insurance in-force, net of
reinsurance 170,679 177,885 199,468 (7,206 ) (4 )%
Life insurance in-force before
reinsurance 427,103 468,140 506,695 (41,037 ) (9 )%
(1) In the fourth quarter of 2021, we initially ceded premiums of
associated with certain term life insurance policies under a new reinsurance
treaty as part of a life block transaction.
(2) We define "NM" as not meaningful for increases or decreases greater than
200%.
We no longer solicit sales of our traditional life insurance products; however,
we continue to service our existing blocks of business.
Term and whole life insurance
Net earned premiums increased in 2022 compared to 2021 mainly attributable to lower ceded premiums in 2022, partially offset by the continued runoff of our in-force blocks. In 2021, we initially ceded$360 million of certain term life insurance premiums under a new reinsurance treaty as part of a life block transaction.
Universal and term universal life insurance
Net deposits decreased in 2022 compared to 2021 primarily attributable to lower
renewals in 2022 and from the continued runoff of our in-force blocks.
113
--------------------------------------------------------------------------------
Table of Contents
Fixed annuities
The following table sets forth selected operating performance measures regarding
our fixed annuities business as of and for the dates indicated:
Increase (decrease)
and percentage
Years ended December 31, change
(Amounts in millions) 2022 2021 2020 2022 vs. 2021
Account value, beginning of period
Deposits
72 83 80 (11 ) (13 )% Surrenders, benefits and product charges (1) (2,015 ) (1,976 ) (1,886 ) (39 ) (2 )% Net flows (1,943 ) (1,893 ) (1,806 ) (50 ) (3 )% Interest credited and investment performance 257 349 405 (92 ) (26 )% Effect of accumulated net unrealized investment gains (losses) (627 ) (108 ) 193 (519 ) NM (2) Account value, end of period$ 7,850 $ 10,163 $ 11,815 $ (2,313 ) (23 )%
(1) Amount included the recapture of
single premium immediate annuities by a third party during 2022.
(2) We define "NM" as not meaningful for increases or decreases greater than
200%.
We no longer solicit sales of our traditional fixed annuity products; however,
we continue to service our existing block of business.
Account value as ofDecember 31, 2022 decreased compared toDecember 31, 2021 driven mostly by surrenders and benefits, which included the recapture of$373 million of certain single premium immediate annuity contracts by a third party in 2022. The decrease compared toDecember 31, 2021 was also attributable to unfavorable market performance, partially offset by interest credited in 2022. Runoff segment Trends and conditions Results of our Runoff segment are affected primarily by investment performance, interest rate levels, net interest spreads, equity market conditions, mortality, surrenders and scheduled maturities. In addition, the results of our Runoff segment can significantly impact our regulatory capital requirements, distributable earnings and liquidity. We use hedging strategies as well as liquidity planning and asset-liability management to help mitigate the impacts. In addition, we have used reinsurance to help mitigate volatility in our variable annuity results. Equity market volatility and interest rate movements have caused fluctuations in the results of our variable annuity products and regulatory capital requirements. In the future, equity and interest rate market performance and volatility could result in additional gains or losses in these products although associated hedging activities are expected to partially mitigate these impacts. 114
--------------------------------------------------------------------------------
Table of Contents
Segment results of operations
The following table sets forth the results of operations relating to our Runoff
segment for the periods indicated:
Increase
(decrease) and
Years ended percentage
December 31, change
(Amounts in millions) 2022 2021 2020 2022 vs. 2021
Revenues:
Net investment income $ 214 $ 194 $ 210 $ 20 10 %
Net investment gains (losses) (16 ) 3 (26 ) (19 ) NM (1)
Policy fees and other income 114 134 130 (20 ) (15 )%
Total revenues 312 331 314 (19 ) (6 )%
Benefits and expenses:
Benefits and other changes in policy reserves 35 27 48
8 30 % Interest credited 181 162 166 19 12 % Acquisition and operating expenses, net of deferrals 42 53 48 (11 ) (21 )% Amortization of deferred acquisition costs and intangibles 23 20 23 3 15 % Total benefits and expenses 281 262 285 19 7 % Income from continuing operations before income taxes 31 69 29 (38 ) (55 )% Provision for income taxes 5 13 4 (8 ) (62 )% Income from continuing operations 26 56 25 (30 ) (54 )% Adjustments to income from continuing operations: Net investment (gains) losses, net (2) 14 (3 ) 23 17 NM (1) Taxes on adjustments (3 ) 1
(5 ) (4 ) NM (1)
Adjusted operating income available to Genworth Financial, Inc.'s common stockholders$ 37 $ 54 $ 43 $ (17 ) (31 )%
(1) We define "NM" as not meaningful for increases or decreases greater than
200%.
(2) For the years ended
losses were adjusted for DAC and other intangible amortization and certain
benefit reserves of
2022 compared to 2021
Adjusted operating income available to
stockholders
Adjusted operating income decreased predominantly due to the impact from
unfavorable equity market performance and higher interest rates on our variable
annuity products in 2022.
Revenues
Net investment income increased primarily from higher policy loan income in our
corporate-owned life insurance products in 2022.
Net investment losses in 2022 were predominantly related to derivative losses, partially offset by gains on embedded derivatives associated with our variable annuity products with GMWBs. Net investment gains in 2021 were predominantly related to gains on embedded derivatives associated with our variable annuity products with GMWBs and net gains from the sale of investment securities, partially offset by derivative losses.
Policy fees and other income decreased principally from lower fee income driven
mostly by a decline in the average account values in our variable annuity
products in 2022.
115
--------------------------------------------------------------------------------
Table of Contents
Benefits and expenses
Benefits and other changes in policy reserves increased primarily attributable
to higher GMDB reserves in our variable annuity products due to unfavorable
equity market performance and higher interest rates in 2022.
Interest credited increased largely due to our corporate-owned life insurance
products in 2022.
Acquisition and operating expenses, net of deferrals, decreased principally from lower commissions and operating costs in our variable annuity products in 2022 due to block runoff. Amortization of deferred acquisition costs and intangibles increased primarily from higher DAC amortization in our variable annuity products due to unfavorable equity market performance in 2022. Provision for income taxes. The effective tax rate decreased to 14.9% for the year endedDecember 31, 2022 from 18.5% for the year endedDecember 31, 2021 . The decrease was primarily attributable to tax benefits from tax favored items in relation to lower pre-tax income in 2022.
Runoff selected operating performance measures
Variable annuity and variable life insurance products
The following table sets forth selected operating performance measures regarding
our variable annuity and variable life insurance products as of and for the
dates indicated:
Increase (decrease)
and percentage
Years ended December 31, change
(Amounts in millions) 2022 2021 2020 2022 vs. 2021
Account value, beginning of period $ 4,839 $ 5,001 $ 5,042 $ (162 ) (3 )%
Deposits 16 19 20 (3 ) (16 )%
Surrenders, benefits and product charges (463 ) (607 ) (559 )
144 24 % Net flows (447 ) (588 ) (539 ) 141 24 %
Interest credited and investment performance (730 ) 426
498 (1,156 ) NM (1) Account value, end of period$ 3,662 $ 4,839 $ 5,001 $ (1,177 ) (24 )%
(1) We define "NM" as not meaningful for increases or decreases greater than
200%.
We no longer solicit sales of our variable annuity or variable life insurance products; however, we continue to service our existing blocks of business and accept additional deposits on existing contracts and policies. Account value as ofDecember 31, 2022 decreased compared toDecember 31, 2021 primarily related to unfavorable equity market performance and surrenders in 2022. 116
--------------------------------------------------------------------------------
Table of Contents
Funding agreements
The following table presents the account value of our funding agreements as of
and for the dates indicated:
Increase (decrease)
Years ended and percentage
December 31, change
(Amounts in millions) 2022 2021 2020 2022 vs. 2021
Account value, beginning of period $ 250 $ 300 $ 253 $ (50 ) (17 )%
Deposits - - 150 - - %
Surrenders and benefits (53 ) (52 ) (106 ) (1 ) (2 )%
Net flows (53 ) (52 ) 44 (1 ) (2 )%
Interest credited 3 2 3 1 50 %
Account value, end of period $ 200 $ 250 $ 300 $ (50 ) (20 )%
Account value as of
from a principal payment of
Corporate and Other Activities
Results of operations
The following table sets forth the results of operations relating to Corporate
and Other activities for the periods indicated:
Increase (decrease)
Years ended and percentage
December 31, change
(Amounts in millions) 2022 2021 2020 2022 vs. 2021
Revenues:
Premiums $ 6 $ 6 $ 7 $ - - %
Net investment income 8 6 6 2 33 %
Net investment gains (losses) (15 ) (7 ) 5 (8 ) (114 )%
Policy fees and other income - 1 (2 ) (1 ) (100 )%
Total revenues (1 ) 6 16 (7 ) (117 )%
Benefits and expenses:
Benefits and other changes in policy
reserves - 1 4 (1 ) (100 )%
Acquisition and operating expenses, net of
deferrals 24 75 61 (51 ) (68 )%
Amortization of deferred acquisition costs
and intangibles - 2 1 (2 ) (100 )%
Interest expense 54 109 172 (55 ) (50 )%
Total benefits and expenses 78 187 238
(109 ) (58 )%
Loss from continuing operations before income taxes (79 ) (181 ) (222 ) 102 56 % Benefit for income taxes (15 ) (53 ) (39 ) 38 72 % Loss from continuing operations (64 ) (128 ) (183 ) 64 50 % Adjustments to loss from continuing operations: Net investment (gains) losses 15 7 (5 ) 8 114 % Losses on early extinguishment of debt 6 45 5 (39 ) (87 )% Expenses related to restructuring - 14 2 (14 ) (100 )% Taxes on adjustments (5 ) (14 ) (1 ) 9 64 % Adjusted operating loss available toGenworth Financial Inc.'s common stockholders$ (48 ) $ (76 ) $ (182 ) $ 28 37 % 117
--------------------------------------------------------------------------------
Table of Contents
2022 compared to 2021
Adjusted operating loss available to
stockholders
The adjusted operating loss decreased primarily related to lower interest
expense, partially offset by tax benefits of
reduction in uncertain tax positions due to the expiration of certain statute of
limitations that did not recur.
Revenues
The increase in net investment losses was primarily related to net realized
losses from the sale of investment securities in 2022 compared to net realized
gains in 2021, partially offset by derivative gains in 2022 compared to
derivative losses in 2021.
Benefits and expenses
Acquisition and operating expenses, net of deferrals, decreased mainly driven by$24 million of lower make-whole premiums on the early redemption ofGenworth Holdings' senior notes and$15 million of lower net losses related to the repurchase ofGenworth Holdings' senior notes in 2022, as well as$14 million of restructuring costs in 2021 that did not recur.
Interest expense decreased largely driven by the early redemption and repurchase
of
The decrease in the benefit for income taxes was primarily related to a
reduction in uncertain tax positions due to the expiration of certain statute of
limitations in 2021 that did not recur, as well as a lower pre-tax loss in 2022.
Investments and Derivative Instruments
General macroeconomic environment
The stability of both the financial markets and global economies in which we
operate impacts the sales, revenue growth and profitability trends of our
businesses as well as the value of assets and liabilities.
Varied levels of economic performance, coupled with uncertain economic outlooks, war and geopolitical tensions, changes in government policy, including monetary policy, global trade, regulatory and tax reforms, and other changes in market conditions, such as inflation, will continue to influence investment and spending decisions by consumers and businesses as they adjust their consumption, debt, capital and risk profiles in response to these conditions. These trends change as investor confidence in the markets and the outlook for some consumers and businesses shift. As a result, our sales, revenues and profitability trends of certain insurance and investment products as well as the value of assets and liabilities could be impacted going forward. In particular, government responses and displacements caused by COVID-19, including government stimulus, government spending, monetary policies (such as quantitative tightening), the volatility and strength of the capital markets, changes in tax policy and/or inU.S. tax legislation, inflation, including the price of oil, supply chain shortages, international trade and the impact of global financial regulation reform will continue to affect economic and business outlooks, level of interest rates, consumer confidence and consumer behavior moving forward. During the fourth quarter of 2022, theU.S. Federal Reserve continued to aggressively address elevated inflation by increasing interest rates. TheU.S. Federal Reserve increased interest rates by 75 basis points at its meeting held inNovember 2022 and by 50 basis points inDecember 2022 , with an additional increase of 25 basis points inFebruary 2023 , bringing the target range to the highest level since 2007. An imbalance of supply 118
--------------------------------------------------------------------------------
Table of Contents
and demand, a tightening labor market, supply chain disruptions, rising commodity prices and increased housing costs, as well as the Russian invasion ofUkraine and subsequent sanctions fromthe United States andWestern Europe , contributed to the rise in inflation throughout 2022. The consumer price index peaked above 9% during the first half of 2022 but slowed for six consecutive months during the second half of 2022 with annual inflation of 6.5% as ofDecember 31, 2022 . A strong labor market partially offset some of the inflationary pressures in the economy, with the unemployment rate in line with pre-COVID-19 levels and job creation steady in the fourth quarter of 2022. Gross domestic product contracted in the first half of 2022 due in part to elevated inflation pressure on consumers, monetary tightening and persistent supply chain disruptions, but increased modestly in the second half of 2022, reflecting increases in exports and government consumption, as well as consumer spending supported by a strong labor market. Given the persistent high inflation, supply chain disruptions, evolvingU.S. Federal Reserve monetary policy, including the expectation of continued higher interest rates, and prolonged geopolitical tensions, it is possible theU.S. economy could fall into a recession in 2023. Specific toGenworth , we continue to closely monitor the operating results and financial position of Enact Holdings, particularly related to emerging housing trends. If housing trends move in an unfavorable direction in contrast to our current projections, our liquidity, financial position and results of operations could be adversely impacted. See "-Enact segment-Trends and conditions" for additional information.
Trends and conditions
Investments
U.S. Treasury yields fluctuated during the fourth quarter of 2022 driven by economic data releases and monetary policy actions by theU.S. Federal Reserve . TheU.S. Treasury yield for shorter maturities increased during the fourth quarter of 2022 in line with actual and expected interest rate increases by theU.S. Federal Reserve . The differential between the two-year and ten-yearU.S. Treasury yield continued to invert during the fourth quarter of 2022 as the two-yearU.S. Treasury yield rose even higher than the ten-yearU.S. Treasury yield. The thirty-yearU.S. Treasury yield also rose higher than the ten-yearU.S. Treasury yield as ofDecember 31, 2022 , normalizing the long-term end of the curve. Credit markets performed well during the fourth quarter of 2022 due to a reduction in interest rate volatility driven by market clarity on monetary policy, as well as reduced macroeconomic pressures as a result of a strong labor market and moderating inflation. The improved economic environment allowed corporate borrowers to access capital markets with an increase in public corporate bond issuance, and investment grade credit spreads were lower during the fourth quarter of 2022.
As of
the valuation of our investment portfolio due to credit losses or direct
write-offs that may arise as a result of the conflict.
As of
investment grade, comprised 77% of our total invested assets and cash.
Derivatives
As ofDecember 31, 2022 ,$1.4 billion notional of our derivatives portfolio was cleared through theChicago Mercantile Exchange ("CME"). The customer swap agreements that govern our cleared derivatives contain provisions that enable our clearing agents to request initial margin in excess of CME requirements. As ofDecember 31, 2022 , we posted initial margin of$71 million to our clearing agents, which represented approximately$36 million more than was otherwise required by the clearinghouse. Because our clearing agents 119
--------------------------------------------------------------------------------
Table of Contents
serve as guarantors of our obligations to the CME, the customer agreements contain broad termination provisions that are not specifically dependent on ratings. As ofDecember 31, 2022 ,$9.6 billion notional of our derivatives portfolio was in bilateral OTC derivative transactions pursuant to which we have posted aggregate independent amounts of$437 million and are holding collateral from counterparties in the amount of$21 million . InJuly 2017 , theUnited Kingdom Financial Conduct Authority announced its intention to transition away from London Interbank Offered Rate ("LIBOR"), with its full elimination to occur after 2021. The LIBOR tenors, such as the three-month LIBOR, have various phase-out dates with the last committed publication date ofJune 30, 2023 . The Alternate Reference Rate Committee ("ARRC"), convened by theBoard of Governors of theFederal Reserve System and theNew York Federal Reserve Bank , has endorsed the Secured Overnight Financing Rate ("SOFR") as its preferred replacement benchmark forU.S. dollar LIBOR. SOFR is calculated and published by theNew York Federal Reserve Bank and reflects the combination of three overnightU.S. TreasuryRepo Rates . The rate is different from LIBOR, in that it is a risk-free rate, is backward-looking instead of forward-looking, is a secured rate and currently is available primarily as an overnight rate rather than a one-, three- or six-month rate available for LIBOR. We completed our assessment of operational readiness for LIBOR cessation related to our various instruments in 2021 and will continue to monitor the process of elimination and replacement of LIBOR, including any new accounting pronouncements that may be issued to provide further transition relief due to the extended cessation dates of certain LIBOR tenors. Since the initial announcement, we have terminated the majority of our LIBOR-based swaps and entered into alternative rate swaps. In anticipation of the elimination of LIBOR, we plan to continue to convert most of our remaining LIBOR-based derivatives in a similar manner. Moreover, we will continue to monitor the developments coming from ARRC, who is expected to authorize the use of an alternative rate to replace the current contractual three-month LIBOR rate applied toGenworth Holdings' junior subordinated notes due in 2066. Although uncertainty remains surrounding the final cessation and transition away from LIBOR, we do not expect a material adverse impact on our results of operations or financial condition. Investment results
The following table sets forth information about our investment income,
excluding net investment gains (losses), for each component of our investment
portfolio for the years ended
Increase (decrease)
2022 2021 2020 2022 vs. 2021
(Amounts in millions) Yield Amount Yield Amount Yield Amount Yield Amount
Fixed maturity securities-taxable 4.5 % $ 2,296 4.5 % $ 2,411 4.7 % $ 2,448 - % $ (115 )
Fixed maturity securities-non-taxable 4.7 % 5 5.6 % 7 4.3 % 6 (0.9 )% (2 )
Equity securities 4.0 % 10 4.0 % 9 4.2 % 12 - % 1
Commercial mortgage loans 4.6 % 321 5.5 % 376 5.0 % 345 (0.9 )% (55 )
Policy loans 10.0 % 211 9.3 % 189 9.5 % 199 0.7 % 22
Limited partnerships (1) 4.7 % 99 15.7 % 223 9.1 % 72 (11.0 )% (124 )
Other invested assets (2) 59.9 % 267 69.7 % 241 56.0 % 223 (9.8 )% 26
Cash, cash equivalents, restricted cash
and short-term investments 1.2 % 20 - % 1 0.5 % 15 1.2 % 19
Gross investment income before expenses
and fees 5.0 % 3,229 5.2 % 3,457 5.0 % 3,320 (0.2 )% (228 )
Expenses and fees (0.2 )% (83 ) (0.1 )% (87 ) (0.1 )% (93 ) (0.1 )% 4
Net investment income 4.8 % $ 3,146 5.1 % $ 3,370 4.9 % $ 3,227 (0.3 )% $ (224 )
Average invested assets and cash $ 65,160 $ 66,099 $ 65,982 $ (939 )
(1) Limited partnership investments are primarily equity-based and do not have
fixed returns by period.
(2) Investment income for other invested assets includes amortization of
terminated cash flow hedges, which have no corresponding book value within
the yield calculation.
120
--------------------------------------------------------------------------------
Table of Contents
Yields are based on net investment income as reported underU.S. GAAP and are consistent with how we measure our investment performance for management purposes. Yields are annualized, for interim periods, and are calculated as net investment income as a percentage of average quarterly asset carrying values except for fixed maturity securities, derivatives and derivative counterparty collateral, which exclude unrealized fair value adjustments and securities lending activity, which was included in other invested assets prior to the suspension of our securities lending program in the third quarter of 2021 and was calculated net of the corresponding securities lending liability. Gross annualized weighted-average investment yields decreased in 2022 compared to 2021 primarily driven by lower net investment income on lower average invested assets. Net investment income included$124 million of lower limited partnership income and$106 million of lower bond calls and commercial mortgage loan prepayments, partially offset by$18 million of higher income related to inflation-driven volatility on TIPS in 2022. The following table sets forth net investment gains (losses) for the years endedDecember 31 : (Amounts in millions) 2022 2021 2020 Realized investment gains (losses): Available-for-sale fixed maturity securities: Realized gains$ 28 $ 67 $ 471 Realized losses (102 ) (10 ) (29 )
Net realized gains (losses) on available-for-sale fixed
maturity securities
(74 ) 57 442 Net realized gains (losses) on equity securities sold - (7 ) (1 ) Net realized gains (losses) on limited partnerships -
3 -
Total net realized investment gains (losses) (74 )
53 441
Net change in allowance for credit losses on available-for-sale fixed maturity securities - (6 ) (5 ) Write-down of available-for-sale fixed maturity securities (2 )
(1 ) (4 )
Net unrealized gains (losses) on equity securities still
held
(35 ) 1 4 Net unrealized gains (losses) on limited partnerships 71 264 112 Commercial mortgage loans 4 (3 ) (2 ) Derivative instruments 17 14 (49 ) Other 2 1 (5 ) Net investment gains (losses)$ (17 ) $ 323 $ 492 2022 compared to 2021
• We recorded net realized losses related to the sale of
available-for-sale fixed maturity securities of $74 million in
2022
compared to net realized gains of$57 million in 2021
primarily driven
by sales of U.S. corporate securities to manage asset exposure and to
optimize cash at Genworth Holdings in 2022.
• We recorded $193 million of lower net unrealized gains on limited
partnerships in 2022 compared to 2021 primarily from less favorable
private equity market performance in 2022. We also recorded $35
million of net unrealized losses on equity securities during 2022
driven by unfavorable equity market performance.
121
--------------------------------------------------------------------------------
Table of Contents
Investment portfolio
The following table sets forth our cash, cash equivalents and invested assets as ofDecember 31 : 2022 2021 (Amounts in millions) Carrying value % of total Carrying value % of total
Available-for-sale fixed maturity securities: Public$ 31,757 53 %$ 42,501 58 % Private 14,826 24 17,979 24 Equity securities 319 1 198 - Commercial mortgage loans, net 7,010 11 6,830 9 Policy loans 2,139 3 2,050 3 Limited partnerships 2,331 4 1,900 3 Other invested assets 566 1 820 1 Cash, cash equivalents and restricted cash 1,799 3 1,571 2 Total cash, cash equivalents and invested assets$ 60,747 100 %$ 73,849 100 % For a discussion of the change in cash, cash equivalents and invested assets, see the comparison for this line item under "-Consolidated Balance Sheets." See note 4 to our consolidated financial statements under "Item 8-Financial Statements and Supplementary Data" for additional information related to our investment portfolio. We hold fixed maturity and equity securities, limited partnerships, derivatives, embedded derivatives and certain other financial instruments, which are carried at fair value. Fair value is the price that would be received to sell an asset in an orderly transaction between market participants at the measurement date. As ofDecember 31, 2022 , approximately 7% of our investment holdings recorded at fair value was based on significant inputs that were not market observable and were classified as Level 3 measurements. See note 16 to our consolidated financial statements under "Item 8-Financial Statements and Supplementary Data" for additional information related to fair value. 122
--------------------------------------------------------------------------------
Table of Contents
Fixed maturity securities
As of
(losses), allowance for credit losses and fair value of our fixed maturity
securities classified as available-for-sale were as follows:
Amortized Gross Gross Allowance
cost or unrealized unrealized for credit Fair
(Amounts in millions) cost gains losses losses value
Fixed maturity securities:
U.S. government, agencies and
government-sponsored
enterprises $ 3,446 $ 86 $ (191 ) $ - $ 3,341
State and political
subdivisions 2,726 19 (346 ) - 2,399
Non-U.S. government 731 15 (101 ) - 645
U.S. corporate:
Utilities 4,295 50 (447 ) - 3,898
Energy 2,450 33 (221 ) - 2,262
Finance and insurance 8,005 59 (871 ) - 7,193
Consumer-non-cyclical 4,776 84 (403 ) - 4,457
Technology and communications 3,265 43 (361 ) - 2,947
Industrial 1,312 15 (130 ) - 1,197
Capital goods 2,290 41 (193 ) - 2,138
Consumer-cyclical 1,758 14 (155 ) - 1,617
Transportation 1,165 32 (97 ) - 1,100
Other 325 3 (18 ) - 310
Total U.S. corporate 29,641 374 (2,896 ) - 27,119
Non-U.S. corporate:
Utilities 817 - (77 ) - 740
Energy 1,009 19 (68 ) - 960
Finance and insurance 2,124 30 (208 ) - 1,946
Consumer-non-cyclical 655 1 (90 ) - 566
Technology and communications 997 4 (107 ) - 894
Industrial 880 8 (70 ) - 818
Capital goods 606 3 (63 ) - 546
Consumer-cyclical 308 - (32 ) - 276
Transportation 392 12 (29 ) - 375
Other 932 15 (58 ) - 889
Total non-U.S. corporate 8,720 92 (802 ) - 8,010
Residential mortgage-backed 1,059 7 (71 ) - 995
Commercial mortgage-backed 2,183 2 (277 ) - 1,908
Other asset-backed 2,328 1 (163 ) - 2,166
Total available-for-sale fixed
maturity securities $ 50,834 $ 596 $ (4,847 ) $ - $ 46,583
123
--------------------------------------------------------------------------------
Table of Contents
As of
(losses), allowance for credit losses and fair value of our fixed maturity
securities classified as available-for-sale were as follows:
Amortized Gross Gross Allowance
cost or unrealized unrealized for credit Fair
(Amounts in millions) cost gains losses losses value
Fixed maturity securities:
U.S. government, agencies and
government-sponsored
enterprises $ 3,368 $ 1,184 $ - $ - $ 4,552
State and political
subdivisions 2,982 474 (6 ) - 3,450
Non-U.S. government 762 86 (13 ) - 835
U.S. corporate:
Utilities 4,330 783 (9 ) - 5,104
Energy 2,581 363 (10 ) - 2,934
Finance and insurance 8,003 1,012 (24 ) - 8,991
Consumer-non-cyclical 5,138 1,029 (8 ) - 6,159
Technology and communications 3,345 476 (13 ) - 3,808
Industrial 1,322 175 (3 ) - 1,494
Capital goods 2,334 415 (4 ) - 2,745
Consumer-cyclical 1,703 203 (7 ) - 1,899
Transportation 1,122 249 - - 1,371
Other 379 41 (1 ) - 419
Total U.S. corporate 30,257 4,746 (79 ) - 34,924
Non-U.S. corporate:
Utilities 867 63 (2 ) - 928
Energy 1,194 190 (1 ) - 1,383
Finance and insurance 2,171 270 (9 ) - 2,432
Consumer-non-cyclical 664 81 (2 ) - 743
Technology and communications 1,085 166 (1 ) - 1,250
Industrial 933 117 (3 ) - 1,047
Capital goods 640 66 (1 ) - 705
Consumer-cyclical 316 27 (2 ) - 341
Transportation 422 68 (1 ) - 489
Other 1,052 169 (4 ) - 1,217
Total non-U.S. corporate 9,344 1,217 (26 ) - 10,535
Residential mortgage-backed 1,325 116 (1 ) - 1,440
Commercial mortgage-backed 2,435 152 (3 ) - 2,584
Other asset-backed 2,138 29 (7 ) - 2,160
Total available-for-sale fixed
maturity securities $ 52,611 $ 8,004 $ (135 ) $ - $ 60,480
Fixed maturity securities decreased $13.9 billion primarily as a result of a
change from net unrealized investment gains in 2021 to net unrealized investment
losses in 2022 due to an increase in interest rates, as well as from net sales
and maturities in 2022.
124
--------------------------------------------------------------------------------
Table of Contents
Other invested assets
The following table sets forth the carrying values of our other invested assets as ofDecember 31 : 2022 2021 (Amounts in millions) Carrying value % of total Carrying value % of total Bank loan investments $ 467 82 % $ 363 45 % Derivatives 50 9 414 50 Short-term investments 3 1 26 3 Other investments 46 8 17 2 Total other invested assets $ 566 100 % $ 820 100 % Derivatives decreased largely from an increase in interest rates in 2022. Bank loan investments increased from funding of additional investments, partially offset by principal repayments in 2022.
Derivatives
The activity associated with derivative instruments can generally be measured by
the change in notional value over the periods presented. However, for GMWB
embedded derivatives, 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:
December 31, Maturities/ December 31,
(Notional in millions) Measurement 2021 Additions terminations 2022
Derivatives designated as hedges
Cash flow hedges:
Interest rate swaps Notional $ 7,653 $ 1,109 $ (220 ) $ 8,542
Foreign currency swaps Notional 127 17 - 144
Total cash flow hedges 7,780 1,126 (220 ) 8,686
Total derivatives designated as
hedges 7,780 1,126 (220 ) 8,686
Derivatives not designated as
hedges
Equity index options Notional 1,446 946 (1,456 ) 936
Financial futures Notional 946 4,405 (3,948 ) 1,403
Other foreign currency contracts Notional 83 - (83 ) -
Total derivatives not designated
as hedges 2,475 5,351 (5,487 ) 2,339
Total derivatives $ 10,255 $ 6,477 $ (5,707 ) $ 11,025
December 31, Maturities/ December 31,
(Number of policies) Measurement 2021 Additions terminations 2022
Derivatives not designated as
hedges
GMWB embedded derivatives Policies 21,804 - (1,876 ) 19,928
Fixed index annuity embedded
derivatives Policies 9,344 - (2,029 ) 7,315
Indexed universal life
embedded derivatives Policies 806 - (35 ) 771
The increase in the notional value of derivatives was primarily attributable to
the addition of interest rate swaps that support our long-term care insurance
business and financial futures forecasted to be used to hedge changes in the
fair value of MRBs under LDTI effective for us on January 1, 2023 , partially
offset by the
125
--------------------------------------------------------------------------------
Table of Contents
termination of equity index options used to protect statutory surplus from
equity market fluctuations. See note 2 in our consolidated financial statements
under "Item 8-Financial Statements and Supplementary Data" for additional
information related to new accounting guidance.
The number of policies related to our embedded derivatives decreased as these
products are no longer being offered and continue to runoff.
Critical Accounting Estimates
The accounting estimates and assumptions (including sensitivities) discussed in this section are those that we consider to be critical to an understanding of our consolidated financial statements because their application places significant demands on our ability to judge the effect of inherently uncertain matters on our financial results. For all of these accounting estimates and assumptions (including sensitivities), we caution that future events seldom develop as estimated and management's best estimates often require adjustment. See "Cautionary Note Regarding Forward-looking Statements." In addition, the impact of new accounting guidance related to long-duration insurance contracts, commonly known as LDTI, that will be effective for us onJanuary 1, 2023 , will include significant changes to our consolidated financial statements. These changes will include updates to our future estimates and assumptions used to measure our insurance assets and liabilities for long-duration insurance contracts beginning onJanuary 1, 2023 and applied to our historic comparative periods that will be re-presented commencing on the Transition Date. However, these changes are not effective for this annual report on Form 10-K, and accordingly, are not included in our critical accounting estimates herein. See note 2 in our consolidated financial statements under "Item 8-Financial Statements and Supplementary Data" for additional information. Insurance liabilities and reserves. We calculate and maintain reserves for the estimated future payment of claims to our policyholders and contractholders based on actuarial assumptions and in accordance withU.S. GAAP and industry practice. We build these reserves as the estimated value of those obligations increases, and we release these reserves as those future obligations are paid, experience changes or policies lapse. The reserves we establish reflect estimates and actuarial assumptions and methodologies with regard to our future experience, involve the exercise of significant judgment and are inherently uncertain. Our future financial results depend significantly upon the extent to which our actual future experience is consistent with the assumptions we have used in determining our reserves as well as the assumptions originally used in pricing our products. Many factors, and changes in these factors, can affect future experience including, but not limited to: interest rates; investment returns and volatility; economic and social conditions, such as inflation, unemployment, home price appreciation or depreciation, and healthcare experience; policyholder persistency or lapses; insured mortality; insured morbidity; future premium rate increases and associated benefit reductions; expenses; and doctrines of legal liability and damage awards in litigation. Because these assumptions relate to factors that are not known in advance, change over time, are difficult to accurately predict and are inherently uncertain, we cannot determine with precision the ultimate amounts we will pay for actual claims or the timing of those payments. Small changes in assumptions or small deviations of actual experience from assumptions can have, and in the past have had, material impacts on our reserve levels, results of operations and financial condition. Moreover, we may not be able to mitigate the impact of unexpected adverse experience by increasing premiums and/or other charges to policyholders (where we have the right to do so) or by offering benefit reductions as an alternative to increasing premiums.
Future policy benefits
The liability for future policy benefits is equal to the present value of
expected future benefits and expenses, less the present value of expected future
net premiums based on assumptions including projected interest rates and
investment returns, health care experience, policyholder persistency or lapses,
insured mortality, insured morbidity and expenses, all of which are locked-in at
the time the policies are issued or acquired. In our long-
126
--------------------------------------------------------------------------------
Table of Contents
term care insurance business, our assumptions used in loss recognition testing also include significant premium rate increases and associated benefit reductions that have been filed and approved or are anticipated to be approved (including premium rate increases and associated benefit reductions not yet filed). The liability for future policy benefits is reviewed at least annually as a part of our loss recognition testing using current assumptions based on the manner of acquiring, servicing and measuring the profitability of the insurance contracts. Loss recognition testing is generally performed at the line of business level, with acquired blocks tested separately. If loss recognition testing indicates a premium deficiency, the liability for future policy benefits is measured using updated assumptions, which become the new locked-in assumptions utilized going forward unless another premium deficiency charge is recorded.
See notes 2 and 9 in our consolidated financial statements under "Item
8-Financial Statements and Supplementary Data" for additional information
related to insurance reserves.
Long-term care insurance block, excluding our acquired block
We annually perform loss recognition testing for the liability for future policy benefits for our long-term care insurance products in the aggregate, excluding our acquired block of long-term care insurance, which is tested separately. The results of loss recognition testing are driven by changes to assumptions and methodologies primarily impacting claim termination rates, incidence and benefit utilization rates, mortality and lapse rates, as well as in-force rate actions. Claim termination rates refer to the expected rates at which claims end. Incidence rates represent the likelihood the policyholder will go on claim. Benefit utilization rates estimate how much of the available policy benefits are expected to be used. As ofDecember 31, 2022 and 2021, the liability for future policy benefits associated with our long-term care insurance block, excluding the acquired block, was$25.0 billion and$26.6 billion , respectively. A summary of certain of our significant estimates and assumptions used in the calculation of our long-term care insurance loss recognition testing margin was as follows for the periods presented: Other block (excluding Increase (decrease) the acquired block) and percentage December 31, change (Amounts in millions) 2022 2021 2022 vs. 2021 Select estimates and assumptions used in loss recognition testing: Present value of expected future benefits$ 49,452 $ 49,495 $ (43 ) - %
Future in-force rate action assumption
$ (2,200 ) (24 )% Discount rate assumption 5.32 % 5.25 % 7 0/000 1 % In 2022 and 2021, the results of our loss recognition testing on our long-term care insurance block, excluding the acquired block, indicated that our DAC was recoverable and reserves were sufficient, with a margin of approximately$400 million to$850 million as ofDecember 31, 2022 compared to approximately$450 million to$900 million as ofDecember 31, 2021 . All key assumptions were reviewed in 2022 and 2021 and updated where appropriate. For the fourth quarter of 2022 review, we refined several assumptions, including reducing our lapse assumption in light of favorable experience from our long-term care insurance settlement elections and benefit reductions and updating our interest rate assumption to reflect the impact of the higher interest rate environment. These refinements were not significant, and we believe our assumptions are holding up in the aggregate. We also evaluated our assumptions regarding expectations of future premium rate increase approvals and benefit reductions and made no significant changes to our 2022 multi-year in-force rate action plan. However, we did increase the value of our assumption for future approvals and benefit reductions based on recent rate increase approval experience, regulatory support and legal settlement results. As margins remained positive, there was no reserve strengthening required, and therefore no resulting charge to net income. 127
--------------------------------------------------------------------------------
Table of Contents
The decrease in the present value of expected future benefits was primarily attributable to actual benefit reductions in 2022 and expected future benefit reductions associated with our in-force rate action plan (among other factors), mostly offset by unfavorable assumption updates, most notably higher cost of care driven by elevated inflation. Our assumption for future in-force rate actions is based on our best estimate of the rate increases we expect given our current plans for rate increase filings and our historical experience regarding rate increase approvals. The decrease in future in-force rate actions in 2022 compared to 2021 reflects in-force rate actions approved and implemented during 2022, partially offset by expected future in-force rate actions not yet filed, including in connection with the impacts from assumption updates. An increase in the expected amount of in-force rate actions would favorably impact the results of our long-term care insurance margin testing, whereas any unexpected reduction in the amount of in-force rate actions would negatively impact our margins. We assume a static discount rate that is in line with our current portfolio yield. This rate represents our expected investment returns based on the portfolio of assets supporting the netU.S. GAAP liability as of the calculation date and, therefore, excludes the impacts of qualifying hedge gains that are not currently amortizing. Because the discount rate is based on our current portfolio yields, changes in interest rates do not impact our loss recognition testing margins unless they result in changes to investment yields. Returns on new investments would need to exceed our current portfolio yield to benefit loss recognition testing margins.
The following sensitivities reflect hypothetical changes to certain of our
significant estimates and assumptions and the associated impact it would have on
our 2022 long-term care insurance loss recognition testing margin:
Other block
(excluding the
(Amounts in millions) acquired block)
Sensitivities on loss recognition testing: (1)
5% relative increase in future claim costs $ (2,475 )
10% reduction in benefit of future in-force rate actions $ (680 )
Discount rate decrease of 25 basis points (2) $ (1,125 )
(1) The margin impacts are each discrete and do not reflect the impact one
factor may have on another. For example, the increase in claim costs does
not include any offsetting impacts from potential future in-force rate
actions. Any such offset from in-force rate actions would primarily impact
our long-term care insurance block, excluding the acquired block.
(2) The 25 basis point decrease in the discount rate refers to a reduction in
our portfolio yields.
Any future adverse changes in our assumptions would likely result in the establishment of additional future policy benefit reserves with a corresponding expense recognized in net income (loss). Our positive margin for our long-term care insurance block, excluding the acquired block, is dependent on our assumptions regarding our ability to successfully implement our in-force rate action strategy involving premium rate increases and associated benefit reductions. For our long-term care insurance block, excluding the acquired block, any adverse changes in assumptions would only be reflected in net income (loss) as a loss to the extent the margin was reduced below zero.
Profits followed by losses
With respect to our long-term care insurance block, excluding the acquired
block, while loss recognition testing supports that in the aggregate our
reserves are sufficient, our future projections indicate we have projected
profits in earlier periods followed by projected losses in later periods. As a
result of this pattern of projected profits followed by projected losses, we
have ratably accrued additional future policy benefit reserves over the
profitable periods by the amounts necessary to offset estimated losses during
the periods that follow. Such
128
--------------------------------------------------------------------------------
Table of Contents
additional reserves are updated each period and calculated based on our estimate of the amount necessary to offset the losses in future periods utilizing expected income and current best estimate assumptions based on actual and anticipated experience, consistent with our loss recognition testing. We adjust the accrual rate prospectively, over the remaining profitable periods, without any catch-up adjustment. During the years endedDecember 31, 2022 and 2021, we increased our long-term care insurance future policy benefit reserves by$405 million and$649 million , respectively, to accrue for profits followed by losses. As ofDecember 31, 2022 and 2021, the total amount accrued for profits followed by losses was$1.7 billion and$1.3 billion , respectively. The accrual is recorded quarterly and is impacted by the pattern and present value of expected future losses which are updated annually at the time in which we perform loss recognition testing. During the fourth quarter of 2022, we updated our loss recognition testing assumptions, which included changes from our annual assumption review completed in the fourth quarter of 2022, as well as updates to our future in-force rate actions. The present value of expected future losses was approximately$2.3 billion and$2.5 billion as ofDecember 31, 2022 and 2021, respectively. As ofDecember 31, 2022 and 2021, we estimate a factor of approximately 79% and 76%, respectively, of those profits on our long-term care insurance block, excluding the acquired block, will be accrued in the future to offset estimated future losses during later periods. The factor increased compared toDecember 31, 2021 due mostly to lower actual profits in 2022 resulting in a need to accelerate the accrual for incremental future policy benefits for profits followed by losses.
Acquired block of long-term care insurance
As of
associated with our acquired block of long-term care insurance was
and
A summary of certain of our significant estimates and assumptions used in the
calculation of our long-term care insurance loss recognition testing margin was
as follows for the periods presented:
Acquired block Increase (decrease)
and percentage
December 31, change
(Amounts in millions) 2022 2021 2022 vs. 2021
Select estimates and assumptions used in
loss recognition testing:
Present value of expected future benefits $ 1,900 $ 2,118 $ (218 ) (10 )%
Discount rate assumption 5.91 % 6.06 %
(15 )0/000 (2 )%
Our acquired block of long-term care insurance had positive margin of approximately$100 million to$150 million as ofDecember 31, 2022 compared to approximately$50 million to$100 million as ofDecember 31, 2021 . The margin in 2022 increased primarily from updates to claim severity and incidence, partially offset by lower investment yields due to portfolio rebalancing resulting in an overall reduction in the interest rate used to discount the insurance liabilities.
The following sensitivities reflect hypothetical changes to certain of our
significant estimates and assumptions and the associated impact it would have on
our 2022 long-term care insurance loss recognition testing margin:
Acquired
(Amounts in millions) block
Sensitivities on loss recognition testing margin: (1)
5% relative increase in future claim costs
$ (95 ) Discount rate decrease of 25 basis points (2)$ (25 )
(1) The margin impacts are each discrete and do not reflect the impact one
factor may have on another. For example, the increase in claim costs does
not include any incremental adverse impacts from a potential decrease in the
discount rate.
(2) The 25 basis point decrease in the discount rate refers to a reduction in
our portfolio yields.
129
--------------------------------------------------------------------------------
Table of Contents
Due to the age of our acquired block, it would not benefit significantly from future in-force rate actions; therefore, in-force rate actions are excluded from the significant estimates and assumptions disclosed above.
Term and whole life insurance
Similar to our long-term care insurance products, we annually perform loss recognition testing for the liability for future policy benefits for our term and whole life insurance products in the aggregate, excluding our acquired block, which are tested separately. As ofDecember 31, 2022 and 2021, the liability for future policy benefits associated with our term and whole life insurance products was$1.9 billion and$2.0 billion , respectively. The risks we face in these products mostly include adverse variations in mortality and lapse assumptions. A summary of certain of our significant estimates used in the calculation of our term and whole life insurance block, excluding the acquired block, loss recognition testing margin was as follows for the periods presented: Other block (excluding Increase (decrease) the acquired block) and percentage December 31, change (Amounts in millions) 2022 2021 2022 vs. 2021 Select estimates used in loss recognition testing: Total present value of expected future premiums$ 2,404 $ 2,612 $ (208 ) (8 )% Total present value of expected death benefits and expenses$ 1,931 $ 2,109
As ofDecember 31, 2022 and 2021, we had margin of approximately$300 million to$800 million and a DAC balance of$0.7 billion and$0.8 billion , respectively, on our term and whole life insurance products, excluding the acquired block. The decrease in both the present value of expected future premiums and death benefits and expenses in 2022 was primarily attributable to elevated lapses in 2022. A summary of certain of our significant estimates used in the calculation of our acquired term and whole life insurance block loss recognition testing margin was as follows for the periods presented: Acquired block Increase (decrease) and percentage December 31, change (Amounts in millions) 2022 2021 2022 vs. 2021 Select estimates used in loss recognition testing: Total present value of expected future premiums$ 491 $ 506 $ (15 ) (3 )% Total present value of expected death benefits and expenses$ 302 $ 317 $ (15 ) (5 )% As ofDecember 31, 2022 and 2021, we had margin of approximately$100 million to$300 million and a PVFP balance of$69 million and$71 million , respectively, on our acquired block of term and whole life insurance products. 130
--------------------------------------------------------------------------------
Table of Contents
The following sensitivities reflect hypothetical changes to certain of our
significant estimates and assumptions and the associated impact it would have on
our 2022 term and whole life insurance loss recognition testing margin:
Other block (excluding Acquired
(Amounts in millions) the acquired block) block Total
Sensitivities on loss
recognition testing: (1)
2% higher mortality $ (55 ) $ (7 ) $ (62 )
10% increase in lapses $ (252 ) $ (40 ) $ (292 )
(1) The margin impacts are each discrete and do not reflect the impact one
factor may have on another.
The sensitivities in the table above are changes that we consider to be
reasonably possible given historical changes in market conditions and our
experience with these products.
Single premium immediate annuities
As ofDecember 31, 2022 and 2021, the liability for future policy benefits associated with our single premium immediate annuity products with life contingencies was$10.0 billion and$11.3 billion , respectively. We regularly review our assumptions for these products and perform loss recognition testing at least annually. In 2016, we had a premium deficiency in our single premium immediate annuity products that resulted in the write-off of the entire DAC balance associated with these products. Subsequent to 2016, additional premium deficiencies have occurred in our single premium immediate annuity products that resulted in the establishment of additional future policy benefit reserves and were reflected as losses in net income. In 2022, 2021 and 2020, the results of our loss recognition testing did not result in a premium deficiency; therefore, our liability for future policy benefits was sufficient, with a margin of approximately$25 million as ofDecember 31, 2022 compared to approximately$85 million as ofDecember 31, 2021 . The decrease in the margin was primarily due to lower investment performance in relation to expected benefit payments and a reduction in the discount rate in 2022. A summary of certain of our significant estimates and assumptions used in the calculation of our single premium immediate annuity products loss recognition testing margin was as follows for the periods presented: Increase (decrease) and percentage December 31, change (Amounts in millions) 2022 2021 2022 vs. 2021 Select estimates and assumptions used in loss recognition testing: Total present value of expected benefits and expenses$ 2,920 $ 3,430 $ (510 ) (15 )% Reported investment yield 5.54 % 5.79 % (25 )0/000 (4 )% The decrease in the present value of expected benefits and expenses in 2022 was principally related to benefit payments and lower assumed reserves as a result of a third-party recapture of$374 million of certain single premium immediate annuity contracts in 2022, partially offset by the lower discount rate largely due to yield curve inversion during 2022. 131
--------------------------------------------------------------------------------
Table of Contents
The following sensitivities reflect hypothetical changes to certain of our
significant estimates and assumptions and the associated impact it would have on
our 2022 single premium immediate annuity products loss recognition testing
margin:
Single premium
immediate
(Amounts in millions) annuity products
Sensitivities on loss recognition testing: (1)
2% lower mortality $ (19 )
10 basis point reduction in investment yields $ (24 )
(1) The margin impacts are each discrete and do not reflect the impact one
factor may have on another.
Policyholder account balances
The liability for policyholder account balances represents the contract value that has accrued to the benefit of the policyholder as of the balance sheet date for investment-type and universal and term universal life insurance contracts. We are also required to establish additional benefit reserves for guarantees or product features in addition to the contract value where the additional benefit reserves are calculated by applying a benefit ratio to accumulated contractholder assessments, and then deducting accumulated paid claims. The benefit ratio is equal to the ratio of benefits to assessments, accumulated with interest and considering both past and anticipated future claims experience, which includes assumptions for insured mortality, interest rates and policyholder persistency or lapses, among other assumptions. We perform an annual review of assumptions for our universal and term universal life insurance products, typically in the fourth quarter. Our 2022 review resulted in a decrease in the liability for policyholder account balances of$37 million , with a corresponding pre-tax benefit recorded to net income, largely associated with higher interest rates. Our 2021 review resulted in an increase in the liability for policyholder account balances of$87 million , with a corresponding pre-tax loss recorded to net income, predominantly driven by higher pre-COVID-19 mortality. Other assumption updates mostly focused on long-term interest rate trends. Our 2020 review resulted in a decrease in the liability for policyholder account balances of$118 million , with a corresponding pre-tax benefit recorded to net income, primarily due to a model refinement in our term universal life insurance product related to persistency and grace period timing and lower projected cost of insurance assessments on our universal life insurance products. As ofDecember 31, 2022 and 2021, we had DAC of$236 million and $-, respectively, and total policyholder account balances including reserves in excess of the contract value of$8.1 billion and$9.0 billion , respectively, related to our universal and term universal life insurance products. The increase in DAC and decrease in policyholder account balances in 2022 compared to 2021 was primarily attributable to a reduction in shadow accounting adjustments associated with an increase in interest rates in 2022. As ofDecember 31, 2022 , for our universal and term universal life insurance products, we estimate that a 100 basis point reduction in interest rates from theDecember 31, 2022 level, or 2% higher mortality, scenarios that we consider to be reasonably possible given historical changes in market conditions and experience on these products, would result in a loss recorded to net income (loss) of approximately$40 million and$42 million , respectively. Adverse experience in persistency could also result in the impairment of PVFP associated with these products as well as the establishment of higher additional benefit reserves. Any favorable changes in these assumptions would result in a reduction in the liability for policyholder account balances.
Liability for policy and contract claims
The liability for policy and contract claims represents the amount needed to
provide for the estimated ultimate cost of settling claims relating to insured
events that have occurred on or before the end of the respective reporting
period. The estimated liability includes requirements for future payments of:
(a) claims that have been
132
--------------------------------------------------------------------------------
Table of Contents
reported to the insurer; (b) claims related to insured events that have occurred but that have not been reported to the insurer as of the date the liability is estimated; and (c) claim adjustment expenses. Claim adjustment expenses include costs incurred in the claim settlement process such as legal fees and costs to record, process and adjust claims.
Our liability for policy and contract claims is reviewed regularly, with changes
in our estimates of future claims recorded through net income (loss).
The following table sets forth our recorded liability for policy and contract claims as ofDecember 31 : (Amounts in millions) 2022 2021U.S. Life Insurance segment: Long-term care insurance$ 11,380 $ 10,861 Life insurance 299 308 Fixed annuities 16 14 Enact segment 519 641 Runoff segment 14 8 Other mortgage insurance (1) 6 9
Total liability for policy and contract claims
(1) Amounts included in Corporate and Other activities.
Long-term care insurance
The liability for policy and contract claims, also known as claim reserves, for
our long-term care insurance products represents the present value of the amount
needed to provide for the estimated ultimate cost of settling claims relating to
insured events that have occurred on or before the end of the respective
reporting period. Key assumptions include investment returns, health care
experience, insured mortality, insured morbidity and expenses. Our discount rate
assumption assumes a static discount rate in line with our current portfolio
yield.
We review our assumptions and methodologies relating to our claim reserves for
our long-term care insurance business annually in the fourth quarter. In the
fourth quarter of 2022, as part of our review, we considered emerging experience
particularly in mortality and benefit utilization, including the impact of
increased cost of care due to inflation. Based on the review of our assumptions
and methodologies, we did not make any significant changes to our claim reserves
in 2022. During the fourth quarter of 2021, we did not make any significant
changes to the assumptions or methodologies relating to our claim reserves based
on our review, other than routine updates to investment returns as we typically
do each quarter. These updates did not have a significant impact on claim
reserve levels. As experience has emerged in the past, we have made resulting
changes to our assumptions that have had a material impact on our results of
operations and financial position. Our experience will continue to emerge and as
a result there is a potential for future assumption reviews to result in further
updates.
Mortgage insurance
Estimates of mortgage insurance reserves for losses and loss adjustment expenses
are based on notices of mortgage loan defaults and estimates of defaults that
have been incurred but have not been reported by loan servicers, using
assumptions developed based on past experience and the expectation of future
development. The estimates are determined using a factor-based approach, in
which assumptions of claim rates for loans in default and the average amount
paid for loans that result in a claim are calculated using traditional actuarial
techniques. Over time, as the status of the underlying delinquent loan moves
toward foreclosure and the likelihood of the associated claim loss increases,
the amount of the reserve for losses associated with the potential claim may
also
133
--------------------------------------------------------------------------------
Table of Contents
increase. These inherently judgmental assumptions are established in a respective geography based on historical and expected experience. Enact Holdings has established processes, as well as contractual rights, to ensure it receives timely information from loan servicers to aid in the establishment of its estimates. In addition, when Enact Holdings has obtained sufficient facts and circumstances through its investigative process, it has the unilateral right under its master policies and at law to rescind coverage on the underlying loan certificate as if coverage never existed. As is common accounting practice in the mortgage insurance industry and in accordance withU.S. GAAP, loss reserves are not established for future claims on insured loans that are not currently in default. Management of Enact Holdings reviews the loss reserves quarterly for adequacy, and if necessary, updates the assumptions used for estimating and calculating such reserves based on actual experience and historical frequency of claim and severity of loss rates that are applied to the current population of delinquencies. Factors considered in establishing loss reserves include claim frequency patterns (reflecting the loss mitigation actions on such claim patterns), the aged category of the delinquency (i.e., age and progression of delinquency to claim), the severity of loss and loan coverage percentage. The establishment of Enact Holdings' mortgage insurance loss reserves is subject to inherent uncertainty and requires judgment. The actual amount of the claim payments may vary significantly from the loss reserve estimates. Enact Holdings' estimates could be adversely affected by several factors, including but not limited to, the development of COVID-19 delinquencies, a deterioration of regional or national economic conditions leading to a reduction in borrowers' income and thus their ability to make mortgage payments, a drop in housing values that could expose Enact Holdings to greater loss on resale of properties obtained through foreclosure proceedings, extended foreclosure timelines and an adverse change in the effectiveness of loss mitigation actions that could result in an increase in the frequency of expected claim rates. Enact Holdings' estimates are also affected by the extent of fraud and misrepresentation that are uncovered in the loans that are insured and the coverage upon which Enact Holdings has consequently rescinded or may rescind going forward. Enact Holdings' loss reserving methodology includes estimates of the number of loans in its delinquency inventory that will be rescinded or modified, as well as estimates of the number of loans for which coverage may be reinstated under certain conditions following a rescission action. In considering the potential sensitivity of the factors underlying Enact Holdings' best estimate of its mortgage insurance reserves for losses, it is possible that even a relatively small change in estimated delinquency-to-claim rate ("frequency") or a relatively small percentage change in estimated claim amount ("severity") could have a significant impact on reserves and, correspondingly, on results of operations. For example, based on Enact Holdings' actual experience during the three-year period endedDecember 31, 2022 , a quarterly change of 6% in its average frequency reserve factor would change the gross loss reserve amount for such quarter by approximately$80 million and a change of 6% in its average severity reserve factor would change the gross loss reserve amount for such quarter by approximately$26 million . Deferred acquisition costs. DAC represents costs that are directly related to the successful acquisition of new and renewal insurance policies and investment contracts which are deferred and amortized over the estimated life of the related insurance policies. These costs primarily include commissions in excess of ultimate renewal commissions and underwriting and contract and policy issuance expenses for policies successfully acquired. DAC is amortized to expense in relation to the anticipated recognition of premiums or gross profits. See note 2 in our consolidated financial statements under "Item 8-Financial Statements and Supplementary Data" for additional information. The amortization of DAC for traditional long-duration insurance products (including term life insurance, life-contingent structured settlements and immediate annuities and long-term care insurance) is determined as a level proportion of premiums based on accepted actuarial methods and reasonable assumptions, including related to projected interest rates and investment returns, health care experience (including type of care and cost of care), policyholder persistency or lapses (i.e., the probability that a policy or contract will remain in-force from one period to the next), insured mortality (i.e., life expectancy or longevity), insured morbidity (i.e., frequency and severity of claim, including claim termination rates and benefit utilization rates) and expenses, established when 134
--------------------------------------------------------------------------------
Table of Contents
the contract or policy is issued.U.S. GAAP requires that assumptions for these types of products not be modified (or unlocked) unless recoverability testing, also known as loss recognition testing, deems them to be inadequate. Amortization is adjusted each period to reflect actual lapses or terminations. Accordingly, we could experience accelerated amortization of DAC and a charge to net income (loss) if policies lapse or terminate earlier than originally assumed, or if we fail recoverability testing. Amortization of DAC for deferred annuity and universal life insurance contracts is based on expected gross profits. Expected gross profits are adjusted quarterly to reflect actual experience to date or for the unlocking of underlying key assumptions including interest rates, policyholder persistency or lapses, insured mortality and expenses. The estimation of expected gross profits is subject to change given the inherent uncertainty as to the underlying key assumptions employed and the long duration of our policy or contract liabilities. Changes in expected gross profits reflecting the unlocking of underlying key assumptions could result in a material increase or decrease in the amortization of DAC depending on the magnitude of the change in underlying assumptions. Significant factors that could result in a material increase or decrease in DAC amortization for these products include material changes in withdrawal or lapse rates, investment spreads or mortality assumptions. For the years endedDecember 31, 2022 , 2021 and 2020, key assumptions were unlocked in ourU.S. Life Insurance and Runoff segments to reflect our current expectation of future investment spreads, lapse rates and mortality. We review DAC for recoverability at least annually. For deferred annuity and universal life insurance contracts, if the present value of expected future gross profits is less than the unamortized DAC for a line of business, a charge to net income (loss) is recorded for additional DAC amortization. For traditional long-duration and short-duration contracts, if the benefit reserves plus the current estimate of expected future gross premiums and interest income for a line of business are less than the current estimate of expected future benefits and expenses (including any unamortized DAC), a charge to net income (loss) is recorded for additional DAC amortization or for increased benefit reserves. The evaluation of DAC recoverability is subject to inherent uncertainty and requires significant judgment and estimates to determine the present values of future premiums, estimated gross profits and expected benefits and expenses of our businesses. In 2022, 2021 and 2020, in connection with our review of DAC for recoverability, we wrote off$52 million ,$117 million and$63 million , respectively, of DAC in our universal and term universal life insurance products principally due to lower future estimated gross profits. The following table sets forth the increase (decrease) in amortization of DAC related to unlocking of underlying key assumptions by segment for the years endedDecember 31 : (Amounts in millions) 2022 2021 2020 U.S. Life Insurance$ (3 ) $ 2 $ 48 Enact - - 6 Runoff (2 ) (2 ) (2 ) Total$ (5 ) $ -$ 52
Impacts on DAC from assumption reviews
In the fourth quarter of 2020, as part of our annual review of assumptions, we increased DAC amortization by$48 million in our universal and term universal life insurance products predominantly due to changes in expected gross profits driven mostly by lower projected cost of insurance assessments on our universal life insurance products and a model refinement in our term universal life insurance product related to persistency and grace period timing.
See notes 2 and 6 in our consolidated financial statements under "Item
8-Financial Statements and Supplementary Data" for additional information
related to DAC.
135
--------------------------------------------------------------------------------
Table of Contents
Valuation of fixed maturity securities. Our portfolio of fixed maturity
securities comprises primarily investment grade securities, which are carried at
fair value.
The methodologies, estimates and assumptions used in valuing our fixed maturity securities evolve over time and are subject to different interpretations, all of which can lead to materially different estimates of fair value. Additionally, because the valuation is based on market conditions at a specific point in time, the period-to-period changes in fair value may vary significantly due to changing interest rates, as well as external macroeconomic and credit market conditions. For example, widening credit spreads will generally result in a decrease, while tightening of credit spreads will generally result in an increase, in the fair value of our fixed maturity securities. As well, during periods of increasing interest rates, the market values of lower-yielding assets will decline. See "Item 7A-Quantitative and Qualitative Disclosures About Market Risk-Sensitivity Analysis-Interest Rate Risk" for the impact of hypothetical changes in interest rates on our investments portfolio. Estimates of fair value for fixed maturity securities are obtained primarily from industry-standard pricing models utilizing observable market inputs. For our less liquid securities, such as our privately placed securities, we utilize independent market data to employ alternative valuation methods commonly used in the financial services industry to estimate fair value. These securities are categorized into a three-level hierarchy based on the observability of the inputs used in estimating the fair value. Our valuation techniques maximize the use of observable inputs. However, for certain less liquid securities, categorized as Level 3, the valuation inputs and assumptions cannot be corroborated with observable market data and require greater estimation, resulting in values that are less certain. Additionally, the availability of observable market information may change as certain inputs may be more direct drivers of valuation at the time of pricing, or if certain assets previously in active markets become less liquid due to changes in the financial environment. As a result, more securities may be categorized as Level 3 and require more subjectivity and management judgment. As ofDecember 31, 2022 , 6% of our total fixed maturity securities related to Level 3 private fixed maturities valued using internal pricing models. See notes 2, 4 and 16 in our consolidated financial statements under "Item 8-Financial Statements and Supplementary Data" for additional information related to the valuation of fixed maturity securities and a description of the fair value measurement estimates and level assignments. The following tables summarize the primary sources of data considered when determining fair value of each class of fixed maturity securities as ofDecember 31 : 2022 (Amounts in millions) Total Level 1 Level 2 Level 3 Fixed maturity securities: Pricing services$ 41,113 $ -$ 41,113 $ - Broker quotes 250 - - 250 Internal models 5,220 - 2,280 2,940
Total fixed maturity securities
3,190
2021
(Amounts in millions) Total Level 1 Level 2 Level 3
Fixed maturity securities:
Pricing services $ 53,852 $ - $ 53,852 $ -
Broker quotes 312 - - 312
Internal models 6,316 - 2,820 3,496
Total fixed maturity securities
3,808
136
--------------------------------------------------------------------------------
Table of Contents
Consolidated Balance Sheets
Total assets. Total assets decreased
• Cash, cash equivalents and invested assets decreased $13,102 million
primarily from decreases of $13,897 million and $254 million in fixed
maturity securities and other invested assets, respectively, partially
offset by increases of $431 million , $228 million and $180 million in
limited partnerships, cash, cash equivalents and restricted cash, and
commercial mortgage loans, respectively. The decrease in fixed
maturity securities was predominantly related to a decrease in the
fair value of our available-for-sale fixed maturities due to rising
interest rates and from net sales and maturities in 2022. The decrease
in other invested assets was largely driven by lower derivative
valuations due to an increase in interest rates. These
decreases were
partially offset by increases in limited partnerships mainly
from
capital calls and commercial mortgage loans primarily from
originations outpacing repayments in 2022, as well as an
increase in
cash, cash equivalents and restricted cash. The increase in
cash, cash
equivalents and restricted cash was largely attributable to
net sales
and maturities of fixed maturity securities, partially offset
by net
withdrawals from our investment contracts and the repurchase
and early
redemption ofGenworth Holdings' senior notes due in 2024 of$282 million in 2022.
• DAC increased
in shadow accounting adjustments associated with an increase
in
interest rates in 2022. The reduction in shadow accounting
adjustments
increased DAC by approximately$1,332 million , mostly in our long-term care insurance business, with an offsetting amount recorded in accumulated other comprehensive income (loss). This increase was partially offset by amortization and by DAC impairments of$52 million in our universal and term universal life insurance products recorded in connection with our periodic reviews of DAC for
recoverability.
• Reinsurance recoverable decreased
the runoff of our structured settlement products ceded to UFLIC.
• Deferred tax asset increased $1,225 million largely due to the change
in unrealized gains (losses) on investments and derivatives due to
rising interest rates, partially offset by the utilization of net
operating losses in 2022. In addition, given the change in our
unrealized gains (losses) on our fixed maturity securities and forward
starting swaps due to rising interest rates and the
corresponding
reduction in the amount of unrealized capital gains expected
to be
available in the future to offset our capital loss
carryforwards and
other capital deferred tax assets, we recorded an additional valuation
allowance of $200 million in 2022 through accumulated other
comprehensive income (loss) related to deferred tax assets that would
produce capital losses.
• Separate account assets (and liabilities) decreased $1,649 million
primarily due to unfavorable equity market performance and surrenders
in 2022.
Total liabilities. Total liabilities decreased
2022
• Future policy benefits decreased
reduction in shadow accounting adjustments associated with an
increase
in interest rates in 2022. The reduction in shadow accounting
adjustments decreased future policy benefits by approximately
million, mostly in our long-term care insurance business, with
an
offsetting amount recorded in accumulated other comprehensive
income
(loss). The decrease was also attributable to reduced benefits
of
million related to in-force rate actions approved and
implemented,
which included policyholder benefit reduction elections made in
connection with legal settlements in our long-term care insurance
business. In addition, we released $371 million of future policy
benefits in connection with the recapture of certain single premium
immediate annuity contracts by a third
137
--------------------------------------------------------------------------------
Table of Contents
party in 2022. These decreases were partially offset by aging of our
long-term care insurance in-force block and higher incremental
reserves of $405 million recorded in connection with an accrual for
profits followed by losses in 2022.
• Policyholder account balances decreased $2,241 million largely driven
by a reduction in shadow accounting adjustments associated with an
increase in interest rates in 2022. The reduction in shadow accounting
adjustments decreased policyholder account balances by
approximately
$908 million in our universal life insurance products, with an
offsetting amount recorded in accumulated other comprehensive income
(loss). The decrease was also attributable to surrenders and benefits
in our single premium deferred annuity products in 2022.
• Liability for policy and contract claims increased $393 million
primarily related to our long-term care insurance business largely
attributable to new claims and claim severity as a result of the aging
of the in-force block, partially offset by claim terminations and
pending claims that did not result in an active claim in 2022. The
increase was also partially offset by a decrease in our Enact segment
from net favorable reserve adjustments of $268 million primarily
related to COVID-19 delinquencies from 2020 and 2021 curing at levels
above original reserve expectations, partially offset by reserve
strengthening related to 2022 delinquencies given uncertainty in the
current economic environment. The net favorable reserve
adjustments
were partially offset by new delinquencies in 2022.
• Other liabilities increased $161 million largely driven by a decline
in derivative valuations due to an increase in interest rates,
partially offset by lower counterparty collateral held from the
decline in derivative valuations in 2022.
• Long-term borrowings decreased $288 million mostly attributable to the
repurchase and early redemption ofGenworth Holdings' February 2024 senior notes in 2022. See note 12 in our consolidated financial statements under "Item 8-Financial Statements and
Supplementary Data"
for additional details.
Total equity. Total equity decreased $5,527 million from $16,266 million as of
December 31, 2021 to $10,739 million as of December 31, 2022.
• We reported net income available to
stockholders of $609 million for the year ended December 31, 2022.
• Unrealized gains (losses) on investments and derivatives qualifying as
hedges decreased $5,286 million and $825 million,
respectively,
primarily from an increase in interest rates in 2022.
• Treasury stock increased $64 million primarily due to the repurchase
of Genworth Financial's common stock, at cost, in connection with a
share repurchase program.
Liquidity and Capital Resources
Liquidity and capital resources represent our overall financial strength and our
ability to generate cash flows from our businesses, borrow funds at competitive
rates and raise new capital to meet our operating and growth needs.
138
--------------------------------------------------------------------------------
Table of Contents
Overview of cash flows-
The following table sets forth our condensed consolidated cash flows for the years ended December 31: (Amounts in millions) 2022 2021 2020 Net cash from operating activities $ 1,049 $ 437 $ 1,960 Net cash from (used by) investing activities 733 896 (1,153 ) Net cash used by financing activities (1,554 )
(2,419 ) (1,507 )
Net increase (decrease) in cash before foreign exchange effect $ 228 $ (1,086 ) $ (700 ) Our principal sources of cash include sales of our products and services, income from our investment portfolio and proceeds from sales of investments. As an insurance business, we typically generate positive cash flows from operating activities, as premiums collected from our insurance products and income received from our investments typically exceed policy acquisition costs, benefits paid, redemptions and operating expenses. Our cash flows from operating activities are affected by the timing of premiums, fees and investment income received and benefits and expenses paid. Positive cash flows from operating activities are then invested to support the obligations of our insurance and investment products and required capital supporting these products. In analyzing our cash flow, we focus on the change in the amount of cash available and used in investing activities. Changes in cash from financing activities primarily relate to deposits to, and redemptions and benefit payments on, universal life insurance and investment contracts; deposits to and maturities of funding agreements; the issuance of debt and equity securities; the repayment or repurchase of borrowings; the acquisition of treasury stock and other capital transactions. We had higher cash inflows from operating activities in 2022 primarily from lower payments to AXA, partially offset by higher net cash disbursements in connection with the return of cash collateral received from counterparties under our derivative contracts. In addition, in 2021, we made an initial cash payment of $360 million in connection with a new reinsurance agreement under which we ceded certain term life insurance policies. In 2022, we paid AXA $31 million related to estimated future claims, compared to payments of $561 million in 2021 comprised of the full repayment of a secured promissory note issued to AXA of $543 million, including accrued interest, and an $18 million settlement payment associated with underwriting losses on a product sold by a distributor in our former lifestyle protection insurance business. We had lower cash inflows from investing activities in 2022 mainly due to net proceeds received in 2021 from the sale of Genworth Australia, partially offset by higher net sales and maturities of fixed maturity securities in 2022. We had lower cash outflows from financing activities in 2022 principally from lower repayment and repurchase of long-term debt and lower net withdrawals from our investment contracts, partially offset by net proceeds from the minority IPO of Enact Holdings in 2021. In 2022,Genworth Holdings repurchased $130 million and early redeemed $152 million principal balance of its senior notes originally due in February 2024 and repurchased $13 million principal amount of its senior notes due in 2034. In 2021,Genworth Holdings repurchased $91 million and $118 million principal amount of its senior notes due in August 2023 and February 2024, respectively, and early redeemed the remaining $309 million of its senior notes originally scheduled to mature in August 2023.Genworth Holdings also repurchased $146 million and early redeemed the remaining $513 million principal balance of its senior notes due in September 2021 and redeemed the $338 million principal balance of its senior notes due in February 2021.
In consideration of our liquidity, it is important to separate the needs of our
holding companies from the needs of their respective subsidiaries.
Financial
139
--------------------------------------------------------------------------------
Table of Contents
company for their respective subsidiaries and do not have any significant operations of their own. Accordingly, our holding companies are highly dependent upon their respective subsidiaries to pay dividends and make other payments to meet their respective obligations. Moreover, management's focus is predominantly onGenworth Holdings' liquidity given it is the issuer of our outstanding public debt.Genworth Financial's andGenworth Holdings' principal sources of cash are derived from dividends from their respective subsidiaries, subsidiary payments to them under tax sharing and expense reimbursement arrangements and proceeds from borrowings or securities issuances. Our liquidity at the holding company level is highly dependent on the performance of Enact Holdings and its ability to pay timely dividends and other forms of capital returns toGenworth Holdings as anticipated. Although the business performance and financial results of our principalU.S. life insurance subsidiaries have improved significantly, as of December 31, 2022, they had negative unassigned surplus of approximately $849 million under statutory accounting and as a result, we do not expect these subsidiaries to pay dividends for the foreseeable future.Genworth Financial has the right to appoint a majority of directors to the board of directors of Enact Holdings; however, actions taken by Enact Holdings and its board of directors (including in the case of the payment of dividends to us, the approval of Enact Holdings' independent capital committee) are subject to and may be limited by the interests of Enact Holdings, including but not limited to, its use of capital for growth opportunities and regulatory requirements. In addition, insurance laws and regulations regulate the payment of dividends and other distributions toGenworth Financial andGenworth Holdings by their insurance subsidiaries. See "-Regulated insurance subsidiaries" for additional details. The primary uses of funds atGenworth Financial andGenworth Holdings include payment of principal, interest and other expenses on current and any future borrowings or other obligations (including payments to AXA associated with a settlement agreement reported as discontinued operations, payment of holding company general operating expenses (including employee benefits and taxes), payments under current and any future guarantees (including guarantees of certain subsidiary obligations), payment of amounts previously owed toGE under the Tax Matters Agreement, payments to subsidiaries (and, in the case ofGenworth Holdings , toGenworth Financial ) under tax sharing agreements, contributions to subsidiaries, repurchases of debt securities, repurchases ofGenworth Financial's common stock and, in the case ofGenworth Holdings , loans, dividends or other distributions toGenworth Financial . For more information on our tax obligations, refer to note 13 in our consolidated financial statements under "Item 8-Financial Statements and Supplementary Data." In November 2008,Genworth Financial's Board of Directors suspended the payment of dividends to its shareholders and the repurchase of common stock under the Company's stock repurchase program indefinitely. Given the significant improvement in the results of operations and financial position ofGenworth Financial and its subsidiaries, and the $2.1 billion of debt reduction in 2021, on May 2, 2022,Genworth Financial's Board of Directors authorized a share repurchase program under whichGenworth Financial may repurchase up to $350 million of its outstanding Class A common stock. Pursuant to the program, during 2022,Genworth Financial repurchased 16,173,196 shares of its common stock at an average price of $3.94 per share for a total cash outlay of $64 million, including costs paid in connection with acquiring the shares.Genworth Financial also repurchased 5,912,297 shares from February 9, 2023 through February 24, 2023 of its common stock at an average price of $6.08 per share for a total cost of $36 million, leaving approximately $250 million that may yet be purchased under the share repurchase program. Future repurchases under the authorized program will continue to be funded from holding company capital, as well as future cash flow generation, including expected future dividends fromGenworth Financial's ownership in Enact Holdings. Under the program, share repurchases may be made atGenworth's discretion from time to time in open market transactions, privately negotiated transactions, or by other means, including through 10b5-1 trading plans. The timing and number of future shares repurchased under the program will depend on a variety of factors, includingGenworth 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.
Our future use of liquidity and capital will prioritize future strategic
investments in CareScout and returning capital to
shareholders through share repurchases (as discussed above). With the early
retirement of
2022, we achieved our deleveraging
140
--------------------------------------------------------------------------------
Table of Contents
goal of reducing debt atGenworth Holdings to approximately $1.0 billion. As of December 31, 2022,Genworth Holdings had outstanding $887 million principal of long-term debt. We may from time to time seek to repurchase or redeem outstanding notes for cash (with cash on hand, proceeds from the issuance of new debt and/or the proceeds from asset or stock sales) in open market purchases, tender offers, privately negotiated transactions or otherwise. We expect to provide capital to CareScout to help advance our senior care growth initiatives through fee-based services, advice, consulting and other products related to the needs of elderly Americans, as well as their caregivers and families. We will initially focus on care advice and service offerings that help consumers navigate the complex caregiving challenges in the market, which is less capital intensive than insurance product offerings. As of December 31, 2022,Genworth Holdings had $307 million of unrestricted cash, cash equivalents and liquid assets. Given the early retirement in the third quarter of 2022 of its senior notes originally due in February 2024, no debt maturities are due until June 2034. For further information aboutGenworth Holdings' borrowings, refer to note 12 in our consolidated financial statements under "Item 8-Financial Statements and Supplementary Data." In addition, in February 2022,Genworth Holdings paid AXA the majority of the remaining estimated unprocessed claims, and accordingly, we do not expect to pay AXA any significant amounts over the next twelve months. We believeGenworth Holdings' unrestricted cash, cash equivalents and liquid assets provide sufficient liquidity to meet its financial obligations over the next twelve months. However, we anticipate paying federal taxes starting in 2023 or 2024 due to projected taxable income and the utilization of our remaining net operating losses and foreign tax credits; therefore, we expect the amount of intercompany cash tax payments retained byGenworth Holdings from its subsidiaries to be lower starting in 2023 or 2024 as compared to the amounts received during 2021 and 2022. We also expectGenworth Holdings' liquidity to be significantly impacted by the amounts and timing of future dividends and other forms of capital returns from Enact Holdings, which will be influenced by economic, regulatory factors and other conditions that affect its business. We actively monitor our liquidity position (most notably atGenworth Holdings ), liquidity generation options and the credit markets given changing market conditions. For example, although interest rates have risen dramatically during 2022, we do not expect a significant impact on our liquidity given the reduction inGenworth Holdings' debt, which will decrease our future debt service costs.Genworth Holdings' cash management target is to maintain a cash buffer of two times expected annual external debt interest payments.Genworth Holdings may move below or above this targeted cash buffer during any given quarter due to the timing of cash outflows and inflows or from future actions. Management ofGenworth Financial continues to evaluateGenworth Holdings' target level of liquidity as circumstances warrant. Enact Holdings continues to evaluate its capital allocation strategy to consistently support its existing policyholders, grow its mortgage insurance business, fund attractive new business opportunities and return capital to shareholders. To this end, on April 26, 2022, Enact Holdings' board of directors approved the initiation of a quarterly cash dividend program. Pursuant to the program, Enact Holdings paid quarterly dividends beginning in the second quarter of 2022, andGenworth Holdings received $57 million in 2022 as the majority shareholder. In addition, Enact Holdings paid a special dividend in the fourth quarter of 2022 andGenworth Holdings received approximately $148 million as the majority shareholder. Future dividends will be subject to quarterly review and approval by Enact Holdings' board of directors andGenworth Financial , and also be dependent on a variety of economic, market and business conditions, among other considerations. On November 1, 2022, Enact Holdings announced the approval by its board of directors of a share repurchase program under which Enact Holdings may repurchase up to $75 million of its outstanding common stock.Genworth Holdings has agreed to participate in order to maintain its overall ownership at its current level. Enact Holdings began share repurchases under the program in the fourth quarter of 2022. The timing and number of future shares repurchased under the program will depend on a variety of factors, including Enact Holdings' stock price and trading volume, and general business and market conditions, among other factors. 141
--------------------------------------------------------------------------------
Table of Contents
Genworth Holdings had $307 million and $331 million of cash and cash equivalents as of December 31, 2022 and 2021, respectively.Genworth Holdings also held $25 million inU.S. government securities as of December 31, 2021, which included approximately $3 million of restricted assets. The decrease inGenworth Holdings' cash and cash equivalents was principally driven by the $282 million repurchase and early redemption of the principal balance of its senior notes originally due in February 2024, a $55 million payment toGE to satisfy its remaining obligation under the Tax Matters Agreement and the payment of unprocessed claims of $31 million to AXA, partially offset by intercompany cash tax payments received from its subsidiaries and dividends from Enact Holdings in 2022. During 2022, 2021 and 2020,Genworth Holdings received cash dividends from Enact Holdings of $205 million, $163 million and $437 million, respectively. Dividends paid by Enact Holdings in 2022 and 2021 included a proportionate dividend distribution to minority shareholders. Dividends received byGenworth Holdings in 2020 were from net proceeds received from Enact Holdings' senior notes issued in August 2020. During the years ended December 31, 2021 and 2020,Genworth Holdings received cash dividends from its international subsidiaries of $370 million and $11 million, respectively. Dividends received byGenworth Holdings in 2021 included the net proceeds from the sale of Genworth Australia. There were no dividends paid toGenworth Holdings by its domestic life insurance subsidiaries during the years ended December 31, 2022, 2021 and 2020. As discussed above, we do not expect these subsidiaries to pay dividends for the foreseeable future.
Capital resources and financing activities
Our current capital resource plans do not include any additional debt offerings or minority sales of Enact Holdings. The availability of additional capital resources will depend on a variety of factors such as market conditions, regulatory considerations, the general availability of credit, credit ratings and the performance of and outlook for Enact Holdings and the payment of dividends therefrom. For a discussion of certain risks associated with our liquidity and dependency on dividends paid by Enact Holdings, see "Item 1A-Risk Factors-Genworth Financial andGenworth Holdings depend on the ability of their respective subsidiaries to pay dividends and make other payments and distributions to each of them and to meet their obligations," and "-Risk Factors-Our sources of capital have become more limited, and under certain conditions we may need to seek additional capital on unfavorable terms." These risks may be exacerbated by the economic impact of current elevated interest rates and the affordability of homes. On June 30, 2022, Enact Holdings entered into a credit agreement with a syndicate of lenders that provides for a five-year unsecured revolving credit facility in the initial aggregate principal amount of $200 million, including the ability for Enact Holdings to increase the commitments under the credit facility on an uncommitted basis, by an additional aggregate principal amount of up to $100 million. Any borrowings under Enact Holdings' credit facility will bear interest at a per annum rate equal to a floating rate tied to a standard short-term borrowing index selected at Enact Holdings' option, plus an applicable margin, pursuant to the terms of the credit agreement. The applicable margin is based on Enact Holdings' ratings established by certain debt rating agencies for its outstanding debt. Enact Holdings may use borrowings under its credit facility for working capital needs and general corporate purposes, including the execution of dividends to its shareholders and capital contributions to its insurance subsidiaries. Enact Holdings' credit facility includes customary representations, warranties, covenants, terms and conditions. As of December 31, 2022, Enact Holdings was in compliance with all covenants and the credit facility remained undrawn.
In the fourth quarter of 2022,
principal amount of its 6.50% senior notes due in 2034 for a pre-tax gain of $1
million and paid accrued interest thereon.
On September 21, 2022,Genworth Holdings early redeemed its 4.80% senior notes originally scheduled to mature in February 2024. The senior notes were fully redeemed with a cash payment of $155 million, comprised 142
--------------------------------------------------------------------------------
Table of Contents
of the outstanding principal balance of $152 million, accrued interest of $1 million and a make-whole premium of $2 million. Prior to the early redemption of its 4.80% senior notes due in February 2024,Genworth Holdings repurchased $130 million principal amount of the notes for a pre-tax loss of $4 million in the first half of 2022 and also repurchased $118 million for a pre-tax loss of $6 million in the fourth quarter of 2021, and paid accrued interest thereon. On December 15, 2021,Genworth Holdings early redeemed its 4.90% senior notes originally scheduled to mature in August 2023. The senior notes were fully redeemed with a cash payment of $334 million, comprised of the outstanding principal balance of $309 million, accrued interest of $5 million and a make-whole premium of $20 million. Prior to the early redemption,Genworth Holdings repurchased $91 million principal amount of its 4.90% senior notes due in September 2021 for a pre-tax loss of $9 million and paid accrued interest thereon. On July 21, 2021,Genworth Holdings early redeemed its 7.625% senior notes originally scheduled to mature in September 2021. The senior notes were fully redeemed with a cash payment of $532 million, comprised of the outstanding principal balance of $513 million, accrued interest of $13 million and a make-whole premium of $6 million. Prior to the early redemption,Genworth Holdings repurchased $146 million principal amount of its 7.625% senior notes due in September 2021 for a pre-tax loss of $4 million and paid accrued interest thereon.Genworth Holdings paid its 7.20% senior notes with a principal balance of $338 million at maturity on February 16, 2021.Genworth Holdings' 7.20% senior notes were fully redeemed with a cash payment of $350 million, comprised of the outstanding principal balance and accrued interest.
Regulated insurance subsidiaries
Insurance laws and regulations regulate the payment of dividends and other distributions to us by our insurance subsidiaries. See note 17 in our consolidated financial statements under "Item 8-Financial Statements and Supplementary Data" for additional information regarding the payment of dividends. In general, dividends and distributions are required to be submitted to an insurer's domiciliary department of insurance for review. Based on estimated statutory results as of December 31, 2022, in accordance with applicable dividend restrictions, Enact Holdings'U.S. mortgage insurance subsidiaries could pay dividends from unassigned surplus of approximately $292 million in 2023 without affirmative regulatory approval. However, Enact Holdings may not pay dividends in 2023 at this level as they may need to retain capital for regulatory purposes and preserve capital for future growth or to meet capital requirements. The liquidity requirements of our regulated insurance subsidiaries principally relate to the liabilities associated with their various insurance and investment products, operating costs and expenses, the payment of dividends to us, contributions to their subsidiaries, payment of principal and interest on their outstanding debt obligations and income taxes. Liabilities arising from insurance and investment products include the payment of benefits and claims, as well as cash payments in connection with policy surrenders and withdrawals, policy loans and obligations to redeem funding agreements. Given the challenging macroeconomic environment, during 2022, employee costs were higher driven in part by high inflation, the competitive labor market and low labor participation. Additionally, in our long-term care insurance business, we have observed an increase in the cost of care principally attributable to elevated inflation. These inflationary impacts have not had a significant impact to date; however, we will continue to monitor macroeconomic trends, including inflation, to help mitigate any potential adverse impacts to our liquidity. Given our insurance product mix, payments to policyholders for insurance benefits are generally consistent each year with the exception of products that provide long-duration coverage, such as long-term care insurance. For example, our current projections reflect average annual claim payments of approximately $2.5 billion over the next five years primarily driven by surrender and benefit payments associated with fixed annuity products. Actual claims experience on products that provide long-duration coverage typically emerge over many years, change over time and are difficult to accurately predict. Therefore, we cannot determine with precision the ultimate amounts we will pay for actual claims or the timing of those payments. Moreover, for long-duration 143
--------------------------------------------------------------------------------
Table of Contents
coverage products, we generally assume a significant amount of claim payments will come due in five or more years from the date of our Annual Report on Form 10-K. For example, in 2028 and thereafter, we assume approximately $96.9 billion of claims and benefit payments will be paid to policyholders or approximately 89% of our total undiscounted claims and benefit payments. These assumed payments are principally associated with our long-term care insurance products given their long-duration coverages. These amounts are derived from estimates and actuarial assumptions used in establishing our reserves; however, they have not been discounted to present value like our obligations to policyholders reported in our consolidated balance sheets in accordance withU.S. GAAP, where the liabilities are discounted consistent with the present value concept under accounting guidance related to accounting and reporting by insurance enterprises. Therefore, these undiscounted amounts significantly exceed the liabilities recorded in reserves for future policy benefits and the liability for policy and contract claims. These undiscounted amounts include estimated claims and benefits, policy surrender and commission obligations calculated consistent withU.S. GAAP on in-force long-duration insurance policies and investment contracts and also include estimated claims obligations on mortgage insurance policies in-force and amounts established for recourse and indemnification related to the contract underwriting business in our Enact segment. Due to the significance of the assumptions used in estimating our claim and benefit obligations, these assumed amounts could materially differ from actual results. Our insurance subsidiaries have used cash flows from operations and investment activities to fund their liquidity requirements. Our insurance subsidiaries' principal cash inflows from operating activities are derived from premiums, annuity deposits and insurance and investment product fees and other income, including commissions, cost of insurance, mortality, expense and surrender charges, contract underwriting fees, investment management fees, investment income and dividends and distributions from their subsidiaries. The principal cash inflows from investment activities result from maturities and repayments of investments and, as necessary, sales of invested assets. Our insurance subsidiaries maintain investment strategies intended to provide adequate funds to pay benefits without forced sales of investments. Products having liabilities with longer durations, such as certain life insurance and long-term care insurance policies, are matched with investments having similar duration such as long-term fixed maturity securities and commercial mortgage loans. Shorter-term liabilities are matched with fixed maturity securities that have short- and medium-term fixed maturities. In addition, our insurance subsidiaries hold highly liquid, high quality short-term investment securities and other liquid investment grade fixed maturity securities to fund anticipated operating expenses, surrenders and withdrawals. As of December 31, 2022, our total cash, cash equivalents and invested assets were $60.7 billion. Our investments in privately placed fixed maturity securities, commercial mortgage loans, policy loans, bank loans, limited partnership investments and select mortgage-backed and asset-backed securities are relatively illiquid. These asset classes represented approximately 44% of the carrying value of our total cash, cash equivalents and invested assets as of December 31, 2022.
Guarantees and other off-balance sheet commitments
subject to adjustments, to one of its insurance subsidiaries to support its
mortgage insurance business in
terminated this limited guarantee in regard to new business. We believe this
insurance subsidiary has adequate reserves to cover its underlying obligations.
Genworth Holdings provided an unlimited guarantee for the benefit of policyholders for the payment of valid claims by our European mortgage insurance subsidiary prior to its sale in May 2016. Following the sale of thisUnited Kingdom subsidiary to AmTrust Financial Services, Inc., the guarantee was limited to the payment of valid claims on policies in-force prior to the sale date and those written approximately 90 days subsequent to the date of the sale, and AmTrust Financial Services, Inc. has agreed to provide us with a limited indemnification in the event there is any exposure under the guarantee. As of December 31, 2022, the risk in-force of active policies was approximately $950 million. 144
--------------------------------------------------------------------------------
Table of Contents
Genworth Financial provides a full and unconditional guarantee to the trustee ofGenworth Holdings' outstanding senior and subordinated notes and the holders of the senior and subordinated notes, on an unsecured unsubordinated and subordinated basis, respectively, of the full and punctual payment of the principal of, premium, if any and interest on, and all other amounts payable under, the outstanding senior and subordinated notes, and the full and punctual payment of all other amounts payable byGenworth Holdings under the senior and subordinated notes indentures in respect of such senior and subordinated notes. On March 1, 2021,Genworth Holdings entered into a guarantee agreement with Genworth Financial International Holdings, LLC ("GFIH") wherebyGenworth Holdings agreed to contribute additional capital to GFIH related to certain of its liabilities, or otherwise satisfy or discharge those liabilities. The liabilities include but are not limited to, claims and financial obligations or other liabilities of GFIH that existed immediately prior to the distribution of the net proceeds from the Genworth Australia sale. Pursuant to the agreement,Genworth Holdings paid AXA approximately €15 million ($18 million) in the second quarter of 2021 to settle amounts owed related to underwriting losses on a product sold by a distributor in our former lifestyle protection insurance business.Genworth Financial and certain of its holding companies also provide guarantees to third parties for the performance of certain obligations of their subsidiaries. We estimate that our potential obligations under such guarantees were $69 million and $10 million as of December 31, 2022 and 2021, respectively. The potential obligations as of December 31, 2022 include amounts associated with leasing agreements related to our new headquarters office. For more information about our new headquarters office, see "Item 2-Properties." As of December 31, 2022, we were committed to fund $1,365 million in limited partnership investments, $70 million of bank loan investments which had not yet been drawn, $19 million in private placement investments and $5 million in commercial mortgage loan investments.
Supplemental Condensed Consolidating Financial Information
Genworth Financial provides a full and unconditional guarantee to the trustee ofGenworth Holdings' outstanding senior and subordinated notes and the holders of the senior and subordinated notes, on an unsecured unsubordinated and subordinated basis, respectively, of the full and punctual payment of the principal of, premium, if any, and interest on, and all other amounts payable under, the outstanding senior and subordinated notes, and the full and punctual payment of all other amounts payable byGenworth Holdings under the senior and subordinated notes indentures in respect of such senior and subordinated notes.
The following supplemental condensed consolidating financial information of
pursuant to rules regarding the preparation of consolidating financial
information of Regulation S-X, as amended by the
The supplemental condensed consolidating financial information presents the condensed consolidating balance sheet information as of December 31, 2022 and 2021 and the condensed consolidating income statement information, condensed consolidating comprehensive income statement information and condensed consolidating cash flow statement information for the years ended December 31, 2022 and 2021. The supplemental condensed consolidating financial information reflectsGenworth Financial ("Parent Guarantor"),Genworth Holdings ("Issuer") and each ofGenworth Financial's other direct and indirect subsidiaries (the "All Other Subsidiaries") on a combined basis, none of which guarantee the senior notes or subordinated notes, as well as the eliminations necessary to presentGenworth Financial's financial information on a consolidated basis and total consolidated amounts. The accompanying supplemental condensed consolidating financial information is presented based on the equity method of accounting for all periods presented. Under this method, investments in subsidiaries are recorded at cost and adjusted for the subsidiaries' cumulative results of operations, capital contributions and distributions, and other changes in equity. Elimination entries include consolidating and eliminating entries for investments in subsidiaries and intercompany activity. 145
--------------------------------------------------------------------------------
Table of Contents
The following table presents the condensed consolidating balance sheet
information as of December 31, 2022:
Parent All Other
(Amounts in millions) Guarantor Issuer Subsidiaries Eliminations Consolidated
Assets
Investments:
Fixed maturity securities
available-for-sale, at fair value
(amortized cost of $50,834 and
allowance for credit losses of $-) $ - $ - $ 46,583 $ - $ 46,583
Equity securities, at fair value - - 319 - 319
Commercial mortgage loans (net of
unamortized balance of loan
origination fees and costs of $4) - - 7,032 - 7,032
Less: Allowance for credit losses - - (22 ) - (22 )
Commercial mortgage loans, net - - 7,010 - 7,010
Policy loans - - 2,139 - 2,139
Limited partnerships - - 2,331 - 2,331
Other invested assets - - 566 - 566
Investments in subsidiaries 10,008 10,256 - (20,264 ) -
Total investments 10,008 10,256 58,948 (20,264 ) 58,948
Cash, cash equivalents and
restricted cash - 307 1,492 - 1,799
Accrued investment income - - 643 - 643
Deferred acquisition costs - - 2,200 - 2,200
Intangible assets - - 241 - 241
Reinsurance recoverable - - 16,495 - 16,495
Less: Allowance for credit losses - - (60 ) - (60 )
Reinsurance recoverable, net - - 16,435 - 16,435
Other assets 3 88 324 - 415
Intercompany notes receivable - 27 26 (53 ) -
Deferred tax assets 6 225 1,113 - 1,344
Separate account assets - - 4,417 - 4,417
Total assets $ 10,017 $ 10,903 $ 85,839 $ (20,317 ) $ 86,442
Liabilities and equity
Liabilities:
Future policy benefits $ - $ - $ 38,064 $ - $ 38,064
Policyholder account balances - - 17,113 - 17,113
Liability for policy and contract
claims - - 12,234 - 12,234
Unearned premiums - - 584 - 584
Other liabilities 7 7 1,658 - 1,672
Intercompany notes payable 26 26 1 (53 ) -
Long-term borrowings - 868 743 - 1,611
Separate account liabilities - - 4,417 - 4,417
Liabilities related to discontinued
operations - 4 4 - 8
Total liabilities 33 905 74,818 (53 ) 75,703
Equity:
Common stock 1 - 4 (4 ) 1
Additional paid-in capital 11,869 12,734 18,203 (30,937 ) 11,869
Accumulated other comprehensive
income (loss) (2,220 ) (2,220 ) (1,977 ) 4,197 (2,220 )
Retained earnings 3,098 (516 ) (6,264 ) 6,780 3,098
Treasury stock, at cost (2,764 ) - - - (2,764 )
Total Genworth Financial, Inc.'s
stockholders' equity 9,984 9,998 9,966 (19,964 ) 9,984
Noncontrolling interests - - 1,055 (300 ) 755
Total equity 9,984 9,998 11,021 (20,264 ) 10,739
Total liabilities and equity $ 10,017 $ 10,903 $ 85,839 $ (20,317 ) $ 86,442
146
--------------------------------------------------------------------------------
Table of Contents
The following table presents the condensed consolidating balance sheet
information as of December 31, 2021:
Parent All Other
(Amounts in millions) Guarantor Issuer Subsidiaries Eliminations Consolidated
Assets
Investments:
Fixed maturity securities
available-for-sale, at fair value
(amortized cost of $52,611 and allowance
for credit losses of $-) $ - $ - $ 60,480 $ - $ 60,480
Equity securities, at fair value - - 198 - 198
Commercial mortgage loans (net of
unamortized balance of loan origination
fees and costs of $4) - - 6,856 - 6,856
Less: Allowance for credit losses - - (26 ) - (26 )
Commercial mortgage loans, net - - 6,830 - 6,830
Policy loans - - 2,050 - 2,050
Limited partnerships - - 1,900 - 1,900
Other invested assets - 27 793 - 820
Investments in subsidiaries 15,517 15,626 - (31,143 ) -
Total investments 15,517 15,653 72,251 (31,143 ) 72,278
Cash, cash equivalents and restricted
cash - 331 1,240 - 1,571
Accrued investment income - - 647 - 647
Deferred acquisition costs - - 1,146 - 1,146
Intangible assets - - 143 - 143
Reinsurance recoverable - - 16,868 - 16,868
Less: Allowance for credit losses - - (55 ) - (55 )
Reinsurance recoverable, net - - 16,813 - 16,813
Other assets 5 207 176 - 388
Intercompany notes receivable - 15 1 (16 ) -
Deferred tax assets 4 555 (440 ) - 119
Separate account assets - - 6,066 - 6,066
Total assets $ 15,526 $ 16,761 $ 98,043 $ (31,159 ) $ 99,171
Liabilities and equity
Liabilities:
Future policy benefits $ - $ - $ 41,528 $ - $ 41,528
Policyholder account balances - - 19,354 - 19,354
Liability for policy and contract claims - - 11,841 - 11,841
Unearned premiums - - 672 - 672
Other liabilities 4 64 1,443 - 1,511
Intercompany notes payable 12 1 3 (16 ) -
Long-term borrowings - 1,159 740 - 1,899
Separate account liabilities - - 6,066 - 6,066
Liabilities related to discontinued
operations - 30 4 - 34
Total liabilities 16 1,254 81,651 (16 ) 82,905
Equity:
Common stock 1 - 4 (4 ) 1
Additional paid-in capital 11,858 12,724 18,135 (30,859 ) 11,858
Accumulated other comprehensive income
(loss) 3,861 3,861 3,906 (7,767 ) 3,861
Retained earnings 2,490 (1,078 ) (6,709 ) 7,787 2,490
Treasury stock, at cost (2,700 ) - - - (2,700 )
Total Genworth Financial, Inc.'s
stockholders' equity 15,510 15,507 15,336 (30,843 ) 15,510
Noncontrolling interests - - 1,056 (300 ) 756
Total equity 15,510 15,507 16,392 (31,143 ) 16,266
Total liabilities and equity $ 15,526 $ 16,761 $ 98,043 $ (31,159 ) $ 99,171
147
--------------------------------------------------------------------------------
Table of Contents
The following table presents the condensed consolidating income statement
information for the year ended December 31, 2022:
Parent All Other
(Amounts in millions) Guarantor Issuer Subsidiaries Eliminations Consolidated
Revenues:
Premiums $ - $ - $ 3,719 $ - $ 3,719
Net investment income - 2 3,144 - 3,146
Net investment gains (losses) - - (17 ) - (17 )
Policy fees and other income - 1 660 (2 ) 659
Total revenues - 3 7,506 (2 ) 7,507
Benefits and expenses:
Benefits and other changes in
policy reserves - - 4,242 - 4,242
Interest credited - - 503 - 503
Acquisition and operating
expenses, net of deferrals 31 5 1,335 - 1,371
Amortization of deferred
acquisition costs and
intangibles - - 307 - 307
Interest expense - 55 53 (2 ) 106
Total benefits and expenses 31 60 6,440 (2 ) 6,529
Income (loss) from continuing
operations before income taxes
and equity in income of
subsidiaries (31 ) (57 ) 1,066 - 978
Provision (benefit) for income
taxes (3 ) (15 ) 257 - 239
Equity in income of subsidiaries 637 685 - (1,322 ) -
Income from continuing
operations 609 643 809 (1,322 ) 739
Income (loss) from discontinued
operations, net of taxes - (4 ) 4 - -
Net income 609 639 813 (1,322 ) 739
Less: net income from continuing
operations attributable to
noncontrolling interests - - 130 - 130
Less: net income from
discontinued operations
attributable to noncontrolling
interests - - - - -
Net income available to Genworth
Financial, Inc.'s common
stockholders $ 609 $ 639 $ 683 $ (1,322 ) $ 609
148
--------------------------------------------------------------------------------
Table of Contents
The following table presents the condensed consolidating income statement
information for the year ended December 31, 2021:
Parent All Other
(Amounts in millions) Guarantor Issuer Subsidiaries Eliminations Consolidated
Revenues:
Premiums $ - $ - $ 3,435 $ - $ 3,435
Net investment income (3 ) - 3,373 - 3,370
Net investment gains (losses) - - 323 - 323
Policy fees and other income - (1 ) 703 2 704
Total revenues (3 ) (1 ) 7,834 2 7,832
Benefits and expenses:
Benefits and other changes in
policy reserves - - 4,383 - 4,383
Interest credited - - 508 - 508
Acquisition and operating
expenses, net of deferrals 25 44 1,154 - 1,223
Amortization of deferred
acquisition costs and
intangibles - - 377 - 377
Interest expense (1 ) 109 50 2 160
Total benefits and expenses 24 153 6,472 2 6,651
Income (loss) from continuing
operations before income taxes
and equity in income of
subsidiaries (27 ) (154 ) 1,362 - 1,181
Provision (benefit) for income
taxes (1 ) (33 ) 297 - 263
Equity in income of subsidiaries 930 1,041 - (1,971 ) -
Income from continuing
operations 904 920 1,065 (1,971 ) 918
Income from discontinued
operations, net of taxes - 13 14 - 27
Net income 904 933 1,079 (1,971 ) 945
Less: net income from continuing
operations attributable to
noncontrolling interests - - 33 - 33
Less: net income from
discontinued operations
attributable to noncontrolling
interests - - 8 - 8
Net income available to Genworth
Financial, Inc.'s common
stockholders $ 904 $ 933 $ 1,038 $ (1,971 ) $ 904
149
--------------------------------------------------------------------------------
Table of Contents
The following table presents the condensed consolidating comprehensive income
statement information for the year ended December 31, 2022:
Parent All
Other
(Amounts in millions) Guarantor Issuer
Subsidiaries Eliminations Consolidated
Net income
$ 609 $ 639 $ 813 $ (1,322 ) $ 739 Other comprehensive income (loss), net of taxes: Net unrealized gains (losses) on securities without an allowance for credit losses (5,286 ) (5,286 ) (5,184 ) 10,384 (5,372 ) Net unrealized gains (losses) on securities with an allowance for credit losses - - - - - Derivatives qualifying as hedges (825 ) (825 ) (815 ) 1,640 (825 ) Foreign currency translation and other adjustments 30 30 30 (60 ) 30 Total other comprehensive income (loss) (6,081 ) (6,081 ) (5,969 ) 11,964 (6,167 ) Total comprehensive loss (5,472 ) (5,442 ) (5,156 ) 10,642 (5,428 ) Less: comprehensive income attributable to noncontrolling interests - - 44 - 44 Total comprehensive loss available toGenworth Financial, Inc.'s common stockholders $ (5,472 ) $ (5,442 ) $ (5,200 ) $ 10,642 $ (5,472 )
The following table presents the condensed consolidating comprehensive income
statement information for the year ended December 31, 2021:
Parent All Other
(Amounts in millions) Guarantor Issuer
Subsidiaries Eliminations Consolidated
Net income
$ 904 $ 933 $ 1,079 $ (1,971 ) $ 945
Other comprehensive income
(loss), net of taxes:
Net unrealized gains (losses) on
securities without an allowance
for credit losses (334 ) (335 ) (371 ) 670 (370 )
Net unrealized gains (losses) on
securities with an allowance for
credit losses 6 6 6 (12 ) 6
Derivatives qualifying as hedges (186 ) (186 ) (215 ) 401 (186 )
Foreign currency translation and
other adjustments (24 ) (24 ) 149 47 148
Total other comprehensive income
(loss) (538 ) (539 ) (431 ) 1,106 (402 )
Total comprehensive income 366 394 648 (865 ) 543
Less: comprehensive income
attributable to noncontrolling
interests - - 177 - 177
Total comprehensive income
available to Genworth Financial,
Inc.'s common stockholders $ 366 $ 394 $ 471 $ (865 ) $ 366
150
--------------------------------------------------------------------------------
Table of Contents
The following table presents the condensed consolidating cash flow statement
information for the year ended December 31, 2022:
Parent All Other
(Amounts in millions) Guarantor Issuer Subsidiaries Eliminations Consolidated
Cash flows from (used by) operating
activities:
Net income $ 609 $ 639 $
813 $ (1,322 ) $ 739
Less (income) loss from discontinued
operations, net of taxes
- 4 (4 ) - - Adjustments to reconcile net income to net cash from operating activities: Equity in income from subsidiaries (637 ) (685 ) - 1,322 - Dividends from subsidiaries - 205 (205 ) - - Amortization of fixed maturity securities discounts and premiums - 3 (157 ) - (154 ) Net investment (gains) losses - - 17 - 17 Charges assessed to policyholders - - (596 ) - (596 ) Acquisition costs deferred - - - - - Amortization of deferred acquisition costs and intangibles - - 307 - 307 Deferred income taxes (6 ) 219 22 - 235 Derivative instruments, limited partnerships and other - 5 (340 ) - (335 ) Stock-based compensation expense 27 - 10 - 37 Change in certain assets and liabilities: Accrued investment income and other assets 2 1 (164 ) - (161 ) Insurance reserves - - 863 - 863 Current tax liabilities 2 40 (43 ) - (1 ) Other liabilities, policy and contract claims and other policy-related balances 15 (1 ) 115 - 129 Cash used by operating activities-discontinued operations - (31 ) - - (31 ) Net cash from operating activities 12 399 638 - 1,049 Cash flows from (used by) investing activities: Proceeds from maturities and repayments of investments: Fixed maturity securities - - 2,705 - 2,705 Commercial mortgage loans - - 759 - 759 Limited partnerships and other invested assets - - 185 - 185 Proceeds from sales of investments: Fixed maturity and equity securities - - 2,658 - 2,658 Purchases and originations of investments: Fixed maturity and equity securities - - (4,035 ) - (4,035 ) Commercial mortgage loans - - (958 ) - (958 ) Limited partnerships and other invested assets - - (645 ) - (645 ) Short-term investments, net - 25 (2 ) - 23 Policy loans, net - - 41 - 41 Intercompany notes receivable, net - (99 ) 62 37 - Capital contributions to subsidiaries (3 ) (6 ) 9 - - Net cash from (used by) investing activities (3 ) (80 ) 779 37 733 Cash flows from (used by) financing activities: Deposits to universal life and investment contracts - - 606 - 606 Withdrawals from universal life and investment contracts - - (1,668 ) - (1,668 ) Repayment and repurchase of long-term debt - (297 ) - - (297 ) Intercompany notes payable, net 64 9 (36 ) (37 ) -Treasury stock acquired in connection with share repurchases (64 ) - - - (64 ) Dividends paid to noncontrolling interests - - (46 ) - (46 ) Other, net (9 ) (55 ) (21 ) - (85 ) Net cash used by financing activities (9 ) (343 ) (1,165 ) (37 ) (1,554 ) Effect of exchange rate changes on cash, cash equivalents and restricted cash - - - - - Net change in cash, cash equivalents and restricted cash - (24 ) 252 - 228 Cash, cash equivalents and restricted cash at beginning of period - 331 1,240 - 1,571 Cash, cash equivalents and restricted cash at end of period - 307 1,492 - 1,799 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 $ - $ 307 $ 1,492 $ - $ 1,799 151
--------------------------------------------------------------------------------
Table of Contents
The following table presents the condensed consolidating cash flow statement
information for the year ended December 31, 2021:
Parent All Other
(Amounts in millions) Guarantor Issuer Subsidiaries Eliminations Consolidated
Cash flows from (used by) operating
activities:
Net income $ 904 $ 933
$ 1,079 $ (1,971 ) $ 945
Less income from discontinued
operations, net of taxes
- (13 ) (14 ) - (27 )
Adjustments to reconcile net income to
net cash from (used by) operating
activities:
Equity in income from subsidiaries (930 ) (1,041 ) - 1,971 -
Dividends from subsidiaries - 552 (552 ) - -
Amortization of fixed maturity
securities discounts and premiums - 6 (182 ) - (176 )
Net investment (gains) losses - - (323 ) - (323 )
Charges assessed to policyholders - - (620 ) - (620 )
Acquisition costs deferred - - (8 ) - (8 )
Amortization of deferred acquisition
costs and intangibles - - 377 - 377
Deferred income taxes - 341 (51 ) - 290
Derivative instruments, limited
partnerships and other - 75 (434 ) - (359 )
Stock-based compensation expense 40 - - - 40
Change in certain assets and
liabilities:
Accrued investment income and other
assets (1 ) 9 (137 ) - (129 )
Insurance reserves - - 642 - 642
Current tax liabilities (5 ) 17 (46 ) - (34 )
Other liabilities, policy and contract
claims and other policy-related
balances (13 ) (40 ) 363 - 310
Cash from (used by) operating
activities-discontinued operations - (564 ) 73 - (491 )
Net cash from (used by) operating
activities (5 ) 275 167 - 437
Cash flows from (used by) investing
activities:
Proceeds from maturities and
repayments of investments:
Fixed maturity securities - - 4,162 - 4,162
Commercial mortgage loans - - 874 - 874
Limited partnerships and other
invested assets - - 255 - 255
Proceeds from sales of investments:
Fixed maturity and equity securities - - 2,273 - 2,273
Purchases and originations of
investments:
Fixed maturity and equity securities - - (5,216 ) - (5,216 )
Commercial mortgage loans - - (963 ) - (963 )
Limited partnerships and other
invested assets - - (767 ) - (767 )
Short-term investments, net - - 18 - 18
Policy loans, net - - 57 - 57
Intercompany notes receivable, net - 4 (1 ) (3 ) -
Capital contributions to subsidiaries (2 ) - 2 - -
Proceeds from sale of business, net of
cash transferred - - 270 - 270
Cash used by investing
activities-discontinued operations - - (67 ) - (67 )
Net cash from (used by) investing
activities (2 ) 4 897 (3 ) 896
Cash flows from (used by) financing
activities:
Deposits to universal life and
investment contracts - - 669 - 669
Withdrawals from universal life and
investment contracts - - (2,071 ) - (2,071 )
Repayment and repurchase of long-term
debt - (1,541 ) - - (1,541 )
Intercompany notes payable, net 12 1 (16 ) 3 -
Proceeds from the sale of subsidiary
shares to noncontrolling interests - 529 - - 529
Dividends paid to noncontrolling
interests - - (37 ) - (37 )
Other, net (5 ) (15 ) 52 - 32
Net cash from (used by) financing
activities 7 (1,026 ) (1,403 ) 3 (2,419 )
Effect of exchange rate changes on
cash, cash equivalents and restricted
cash (includes $(1) related to
discontinued operations) - - 1 - 1
Net change in cash, cash equivalents
and restricted cash - (747 ) (338 ) - (1,085 )
Cash, cash equivalents and restricted
cash at beginning of period - 1,078 1,578 - 2,656
Cash, cash equivalents and restricted
cash at end of period - 331 1,240 - 1,571
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 $ - $ 331 $ 1,240 $ - $ 1,571
152
--------------------------------------------------------------------------------
Table of Contents
Genworth Financial's andGenworth Holdings' insurance subsidiaries are subject to oversight by applicable insurance laws and regulations as to the amount of dividends they may pay to their parent in any year, the purpose of which is to protect affected insurance policyholders and contractholders, not stockholders. Enact Holdings' ability to pay dividends is limited in part by such regulatory restrictions on its insurance subsidiaries. Dividends paid by Enact Holdings also include a proportionate distribution to minority shareholders. In addition, the GSEs have imposed certain restrictions on Enact Holdings with respect to the amount of holding company liquidity it must retain in connection with its outstanding debt. We believe the conditions set forth by the GSEs in connection to the restrictions were fully satisfied as of December 31, 2022 and expect the GSE Restrictions to be lifted in the first quarter of 2023, subject to GSE review and confirmation. Although the business performance and financial results of our principalU.S. life insurance subsidiaries have improved significantly, as of December 31, 2022, they had negative unassigned surplus of approximately $849 million under statutory accounting and as a result, we do not expect these subsidiaries to pay dividends for the foreseeable future. For additional information on significant restrictions on dividends by insurance subsidiaries ofGenworth Financial andGenworth Holdings , see note 17 in our consolidated financial statements under "Part II-Item 8-Financial Statements and Supplementary Data."
For additional information on
including its share repurchase program, see "-Liquidity and Capital Resources."
ASSURANT, INC. FILES (8-K) Disclosing Other Events, Financial Statements and Exhibits
ENACT HOLDINGS, INC. – 10-K – Management's Discussion and Analysis of Financial Condition and Results of Operations
Advisor News
- High-risk assets gaining attention from many Americans
- LIMRA: Single premium pension risk transfer sales jump 132% in Q4 of 2025
- Wellmark still worries over temporary tax hike
- Where love meets preparation
- Investors remain skeptical of AI in financial advice
More Advisor NewsAnnuity News
- 2025: A record-breaking year for annuity sales via banks and BDs
- Lincoln Financial launches two new FIAs
- Great-West Life & Annuity Insurance Company trademark request filed
- The forces shaping life and annuities in 2026
- Variable annuity sales surge as market confidence remains high, Wink finds
More Annuity NewsHealth/Employee Benefits News
- Low-income mothers and babies will soon have a full year of Medicaid coverage in Wisconsin
- GOVERNOR KOTEK REFUTES MISLEADING CLAIMS ABOUT OREGON HEALTH PLAN, HIGHLIGHTS AGGRESSIVE FRAUD PREVENTION AND RECOVERY EFFORTS
- Her doctor recommended this cancer drug. Her insurance company denied it | Opinion
- Record 2025 Results Underscore New York Life’s Financial Strength and Mutual Advantage
- Transparent? Caro City Manager’s Resume Lacking
More Health/Employee Benefits NewsLife Insurance News
- Record 2025 Results Underscore New York Life’s Financial Strength and Mutual Advantage
- Where love meets preparation
- National Farm Life Insurance Board Elects Dr. Kyle W. McGregor as Chairman
- SBLI’s EasyTrak Term Now with Chronic Illness Rider at No Additional Premium Cost
- Ethics and IUL: Tax-advantaged strategies for client success
More Life Insurance News