GENWORTH FINANCIAL INC – 10-Q – Management's Discussion and Analysis of Financial Condition and Results of Operations
The following discussion and analysis of our financial condition and results of
operations should be read in conjunction with our unaudited condensed
consolidated financial statements and related notes included herein and with our
2021 Annual Report on Form 10-K. Unless the context otherwise requires,
references to "
Financial, Inc.
refer solely to
subsidiaries.
Cautionary note regarding forward-looking statements
This report contains certain "forward-looking statements" within the meaning of
the Private Securities Litigation Reform Act of 1995. Forward-looking statements
may be identified by words such as "expects," "intends," "anticipates," "plans,"
"believes," "seeks," "estimates," "will," or words of similar meaning and
include, but are not limited to, statements regarding the outlook for our future
business and financial performance. Examples of forward-looking statements
include statements we make relating to potential dividends or share repurchases;
future return of capital by Enact Holdings, Inc. ("
share repurchases, and quarterly and special dividends; the cumulative amount of
rate action benefits required for our long-term care insurance business to
achieve break-even; future financial performance and condition of our
businesses, including
metrics to satisfy certain conditions in connection with the
government-sponsored enterprises' ("GSEs") restrictions placed on Enact Holdings
and the impact to
related to long-duration insurance contracts; liquidity and future strategic
investments, including new products and services designed to assist individuals
with navigating and financing long-term care, and potential third-party
relationships or business arrangements relating thereto; as well as statements
we make regarding the potential impacts of the coronavirus pandemic
("COVID-19"). Forward-looking statements are based on management's current
expectations and assumptions, which are subject to inherent uncertainties, risks
and changes in circumstances that are difficult to predict. Actual outcomes and
results may differ materially from those in the forward-looking statements due
to global political, economic, inflation, business, competitive, market,
regulatory and other factors and risks, including but not limited to, the
following:
• we may be unable to successfully execute our strategic plans: to
strengthen our financial position and create long-term shareholder value,
including with respect to reducing debt of Genworth Holdings, Inc.
("Genworth Holdings "); maximizing the value of Enact Holdings; achieving
economic breakeven on and stabilizing the legacy long-term care insurance
in-force block; advancing our long-term care growth initiatives,
including launching either unilaterally or with a strategic partner new
product and service offerings designed to assist individuals with
navigating and financing long-term care; and returning capital to
Genworth Financial shareholders, due to numerous risks and constraints,
including but not limited to: Enact Holdings' ability to pay dividends,
including as a result of the GSEs' amendments to the private mortgage
insurer eligibility requirements ("PMIERs") in response to COVID-19, as
well as additional PMIERs requirements or other restrictions that the
GSEs may place on the ability of Enact Holdings to pay dividends; an
inability to increase the capital needed in our businesses in a timely
manner and on anticipated terms, including through improved business
performance, reinsurance or similar transactions, asset sales, debt
issuances, securities offerings or otherwise, in each case as and when
required; our strategic priorities change or become more costly or
difficult to successfully achieve than currently anticipated or the
benefits achieved being less than anticipated; an inability to identify
and contract with a strategic partner regarding a new long-term care
insurance business; an inability to establish a new long-term care
insurance business or product offerings due to commercial and/or
regulatory challenges; an inability to reduce costs proportionate with
Genworth's reduced business activity, including as forecasted and in a
timely manner; and adverse tax or accounting charges, including new
accounting guidance (that is effective for us on January 1, 2023 ) related
to long-duration insurance contracts;
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• risks relating to estimates, assumptions and valuations including:
inadequate reserves and the need to increase reserves (including as a
result of any changes we may make to our assumptions, methodologies or
otherwise in connection with periodic or other reviews, including reviews
we expect to complete and carry out in the fourth quarter of 2022); risks
related to the impact of our annual review of assumptions and
methodologies related to our long-term care insurance claim reserves and
margin reviews in the fourth quarter of 2022, including risks that
additional information obtained in finalizing our claim reserves and
margin reviews in the fourth quarter of 2022 or other changes to
assumptions or methodologies materially affect margins; or other changes
to assumptions or methodologies materially affect margins; the inability
to accurately estimate the impacts of COVID-19 and other novel diseases;
inaccurate models; the need to increase our reserves as a result of
deviations from our estimates and actuarial assumptions or other reasons;
accelerated amortization of deferred acquisition costs ("DAC") and
present value of future profits ("PVFP") (including as a result of any
changes we may make to our assumptions, methodologies or otherwise in
connection with periodic or other reviews, including reviews we expect to
complete and carry out in the fourth quarter of 2022); adverse impact on
our financial results as a result of projected profits followed by
projected losses (as is currently the case with our long-term care
insurance business); changes in valuation of fixed maturity and equity
securities; and the benefits Enact Holdings realizes from its future loss
mitigation actions or programs may be limited;
• liquidity, financial strength and credit ratings, and counterparty and
credit risks including: the impact on Genworth Financial's and Genworth
Holdings' liquidity caused by the inability to receive dividends or other
returns of capital from Enact Holdings, including as a result of
COVID-19; limited sources of capital and financing, including under
certain conditions we may seek additional capital on unfavorable terms;
future adverse rating agency actions against us or Enact Holdings,
including with respect to rating downgrades or potential downgrades or
being put on review for potential downgrade, all of which could have
adverse implications, including with respect to key business
relationships, product offerings, business results of operations,
financial condition and capital needs, strategic plans, collateral
obligations and availability and terms of hedging, reinsurance and
borrowings; defaults by counterparties to reinsurance arrangements or
derivative instruments; and defaults or other events impacting the value
of our invested assets, including but not limited to, our fixed maturity
and equity securities, commercial mortgage loans, policy loans and
limited partnership investments;
• risks relating to economic, market and political conditions including:
downturns and volatility in global economies and equity and credit
markets, including as a result of inflation and supply chain disruptions,
a potential recession, continued labor shortages and other displacements
caused by COVID-19; interest rates and changes in rates could adversely
affect our business and profitability; deterioration in economic
conditions (including as a result of the Russian invasion of Ukraine ) or
a decline in home prices or home sales that adversely affect Enact
Holdings' loss experience and/or business levels; political and economic
instability or changes in government policies; and fluctuations in
international securities markets;
• regulatory and legal risks including: extensive regulation of our
businesses and changes in applicable laws and regulations (including
changes to tax laws and regulations); litigation and regulatory
investigations or other actions, including commercial and contractual
disputes with counterparties; heightened regulatory restrictions and
other insurance, regulatory or corporate law restrictions; the inability
to successfully seek in-force rate action increases (including increased
premiums and associated benefit reductions) in our long-term care
insurance business, including as a result of COVID-19; adverse changes in
regulatory requirements, including risk-based capital; inability of Enact
Holdings to continue to meet the requirements mandated by PMIERs,
including as a result of increased delinquencies caused by COVID-19;
inability of Enact Holdings' U.S. mortgage insurance subsidiaries to meet
minimum statutory capital requirements; the influence of Federal National
Mortgage Association ("Fannie Mae"), Federal Home Loan Mortgage
Corporation ("Freddie Mac") and a small number of large mortgage lenders
in the U.S. mortgage insurance market and adverse changes to the
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role or structure of Fannie Mae and Freddie Mac; adverse changes in
regulations affecting Enact Holdings, including any additional
restrictions placed on Enact Holdings by government and government-owned
enterprises and the GSEs in connection with additional capital
transactions; inability to continue to implement actions to mitigate the
impact of statutory reserve requirements; changes in accounting and
reporting standards, including new accounting guidance (that is effective
for us on January 1, 2023 ) related to long-duration insurance contracts;
• operational risks including: the inability to retain, attract and
motivate qualified employees or senior management; Enact Holdings'
reliance on, and loss of, key customers or distribution relationships;
competition with government-owned and government-sponsored enterprises
may put Enact Holdings at a competitive disadvantage on pricing and other
terms and conditions; the design and effectiveness of our disclosure
controls and procedures and internal control over financial reporting may
not prevent all errors, misstatements or misrepresentations; and failure
or any compromise of the security of our computer systems, disaster
recovery systems, business continuity plans and failures to safeguard or
breaches of confidential information;
• insurance and product-related risks including: Enact Holdings' inability
to maintain or increase capital in its mortgage insurance subsidiaries in
a timely manner; our inability to increase premiums and reduce benefits
sufficiently, and in a timely manner, on our in-force long-term care
insurance policies, in each case, as currently anticipated and as may be
required from time to time in the future (including as a result of a
delay or failure to obtain any necessary regulatory approvals, including
as a result of COVID-19, or unwillingness or inability of policyholders
to pay increased premiums and/or accept reduced benefits), including to
offset any negative impact on our long-term care insurance margins;
availability, affordability and adequacy of reinsurance to protect us
against losses; decreases in the volume of mortgage originations or
increases in mortgage insurance cancellations; increases in the use of
alternatives to private mortgage insurance and reductions in the level of
coverage selected; potential liabilities in connection with Enact
Holdings' U.S. contract underwriting services; Enact Holdings' delegated
underwriting program may subject its mortgage insurance subsidiaries to
unanticipated claims; and medical advances, such as genetic research and
diagnostic imaging, and related legislation that impact policyholder
behavior in ways adverse to us;
• other general risks including: the occurrence of natural or man-made
disasters, including geopolitical tensions and war (including the Russian
invasion of Ukraine ), or a public health emergency, including pandemics,
climate change or cybersecurity breaches, could materially adversely
affect our financial condition and results of operations.
We provide additional information regarding these risks and uncertainties in our
Annual Report on Form 10-K, filed with the
Commission
significant additional obstacles to the realization of forward-looking
statements. Accordingly, for the foregoing reasons, we caution you against
relying on any forward-looking statements. We undertake no obligation to
publicly update any forward-looking statement, whether as a result of new
information, future developments or otherwise, except as may be required under
applicable securities laws.
Overview
mortgage and long-term care insurance products.
company of Enact Holdings, a leading provider of private mortgage insurance in
Financial's
also manage in-force blocks of life insurance and annuity products which are no
longer sold.
Enact Holdings is a public company traded on the Nasdaq Global Select Market
exchange under the ticker symbol "ACT."
Enact Holdings through an indirect majority voting
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interest and accordingly, Enact Holdings remains a consolidated subsidiary of
its mortgage insurance subsidiaries. There are minor financial reporting
differences between our Enact segment and the standalone financial results of
Enact Holdings, which are separately disclosed with the
Commission
"Enact," our "Enact segment" and our "
throughout this Quarterly Report on Form 10-Q, which generally can be viewed as
references to Enact Holdings and its mortgage insurance subsidiaries, unless the
context otherwise requires.
We report our business results through three operating business segments: Enact;
Our
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.
Strategic Update
the debt of
approximately
achieving economic breakeven on and stabilizing the legacy long-term care
insurance in-force block; advancing
initiatives; and returning capital to
the third quarter of 2022, we continued to make meaningful progress on our
strategic priorities. In
remaining
reducing its total outstanding indebtedness to
redemption of the
strategic priority of reducing outstanding public debt to approximately
billion
share repurchase program under which
average price of
the nine months ended
Enact Holdings announced a special dividend of
quarter of 2022 and the authorization of a share repurchase program under which
it may repurchase up to
Holdings decides to repurchase shares as part of this program, we have agreed to
participate in order to maintain our overall ownership at its current level. We
expect these returns of capital, along with the redemption of
growth and shareholder return initiatives.
Stabilizing our
long-term goals. Our
its multi-year long-term care insurance in-force rate action plan, receiving
approvals of approximately
nine months ended
cumulative economic benefit of our long-term care insurance multi-year in-force
rate action plan through the third quarter of 2022 was approximately
billion
Insurance Commissioners
broad-based need for actuarially justified rate increases and associated benefit
reductions in order to pay future claims.
Financial Strength and Credit Ratings
On
credit rating of
(Speculative) and provided a Stable outlook. The reasons cited for the ratings
upgrade include improvement in
flexibility and leverage,
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including the expectation that its remaining
the third quarter of 2022. The reasons cited also include the expectation of
continued dividends from
Moody's also upgraded the financial strength rating of
Corporation
cited for the upgrade include improvements in the overall
insurance sector and Enact's overall credit profile, including its market
position, profitability, capital adequacy and financial flexibility. The upgrade
also reflects Enact's solid position in the
good client diversification, as well as its consistent PMIERs sufficiency.
On
(Speculative) and maintained a Positive outlook. The ratings upgrade was mostly
due to the reduction in
past 12 months, resulting in its improved financial flexibility and lower
liquidity risk. In addition, S&P affirmed its "BBB" (Good) financial strength
rating of EMICO and maintained a Positive outlook.
There were no other changes in the financial strength ratings of our insurance
subsidiaries or the credit ratings of
subsequent to
Form 10-K. For additional information regarding the financial strength ratings
of
business, see "Item 1-Ratings" in our 2021 Annual Report on Form 10-K.
Our Financial Information
The financial information in this Quarterly Report on Form 10-Q has been derived
from our unaudited condensed 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
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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.
• 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
interest expense related to the Tax Matters Agreement previously owed to
General Electric Company ("GE") and 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.
generally accepted accounting principles ("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.
The annually-determined tax rates and adjustments to each segment's provision
for income taxes are estimates which are subject to review and could change from
year to year.
We allocate corporate expenses to each of our operating segments using various
methodologies.
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OCWEN FINANCIAL CORP – 10-Q – MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
ENACT HOLDINGS, INC. – 10-Q – MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
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