Genworth Financial, Inc. — 2023 Third-Quarter 10-Q
Reporting period: Quarter and nine months ended September 30, 2023; filed November 9, 2023. Amounts below are in U.S. dollars; financial statement amounts are in millions unless stated otherwise. Genworth reports Enact (mortgage insurance), Long-Term Care Insurance, Life and Annuities, and Corporate and Other. Prior periods were re-presented for the revised segment structure and adjusted for adoption of LDTI.
Key financial results
| Metric | Third quarter 2023 | Third quarter 2022 | Nine months 2023 | Nine months 2022 |
|---|---|---|---|---|
| Total revenue | $1,831 | $1,848 | $5,577 | $5,628 |
| Income from continuing operations before tax | $90 | $220 | $520 | $836 |
| Net income available to Genworth common stockholders | $29 | $136 | $288 | $535 |
| Adjusted operating income available to common stockholders (non-GAAP) | $42 | $158 | $271 | $480 |
| Diluted earnings per share | $0.06 | $0.27 | $0.60 | $1.04 |
| Net cash from operating activities | Not provided for quarter | Not provided for quarter | $450 | $645 |
Quarterly benefits and expenses rose to $1,741 from $1,628; nine-month expenses were $5,057 versus $4,792. Nine-month net investment income was $2,373 versus $2,359, while net investment losses were $15 versus a $3 gain. The filing does not provide a consolidated operating-margin measure.
At September 30, total assets were $85,466, total liabilities $76,588, and total equity $8,878. Cash, cash equivalents and restricted cash were $1,993, compared with $1,799 at December 31, 2022. Consolidated long-term borrowings were $1,602; Genworth Holdings separately reported $876 of principal outstanding and $232 of unrestricted cash, with no debt maturities until June 2034.
Material changes and segment performance
- Profitability declined: Third-quarter common-stockholder net income fell 79% year over year; nine-month income fell 46%. Adjusted operating income declined 73% for the quarter and 44% year to date.
- Long-Term Care Insurance: Adjusted operating loss was $71 for the quarter versus $26 income, and $91 loss for nine months versus $116 income. The nine-month liability remeasurement loss was $133, compared with a $62 gain in 2022. Management attributed the deterioration principally to settlement timing, higher claims, lower terminations, and less favorable rate-action assumption updates.
- Enact: Adjusted operating income was $134 for the quarter and $423 year to date, down 14% and 8%, respectively. New insurance written fell 4% in the quarter and 17% year to date, mainly because elevated mortgage rates reduced originations. Primary insurance in-force increased 8% year over year to $262.0 billion; the quarter-end PMIERs sufficiency ratio was 162%, or $2.017 billion above requirements.
- Life and Annuities: Adjusted operating loss narrowed to $3 for the quarter from $6 and to $5 year to date from $51. The products are generally runoff blocks, not actively marketed.
- Cash flow and capital returns: Nine-month operating cash flow declined to $450 from $645. Investing activities provided $913 versus $452; financing activities used $1,170 versus $1,107. Genworth repurchased about 45.8 million shares for $264 during the nine months. At October 31, approximately $366 of repurchase authorization remained.
Outlook, risks and unusual items
- Management reported approximately $227 of incremental annual premiums approved through the first nine months under its long-term-care rate-action plan. It estimates approved actions represent about $25 billion of cumulative economic benefit on a net-present-value basis, against an estimated total need of $30.3 billion. Approvals and implementation timing remain subject to regulators.
- Management said fourth-quarter 2023 long-term-care assumption updates were still underway and could be negative in aggregate, with immediate earnings sensitivity in unprofitable cohorts. A third legal settlement covers policies representing about 35% of the block; management expects a net favorable economic effect over time, but results depend on policyholder elections.
- Management expects higher long-term-care paid claims as insureds age and notes that LDTI contributes to quarterly GAAP volatility. Higher interest rates also affect insurance liabilities, investment values, and equity through discount-rate remeasurement.
- Enact capital returns are an important source of holding-company liquidity. Genworth expected approximately $245 of Enact returns for full-year 2023; after quarter-end, Enact announced a $113 special dividend for the fourth quarter. These amounts are expectations or subsequent announcements, not cash received by September 30.
- The MOVEit incident at third-party vendor PBI exposed and obtained personal information, including Social Security numbers, for approximately 2.5–2.7 million policyholders or other customers. Related class actions were consolidated; Genworth said it could not estimate reasonably possible losses. It did not believe the incident had materially disrupted operations.
- Other material matters include the Scottish Re liquidation and a $69 reinsurance recoverable write-off, including an additional $33 credit-loss charge in the third quarter, offset by derecognition of ceded premiums. The filing also describes pending insurance, policyholder, ERISA and reinsurance disputes; loss estimates were not available for the identified matters.
- Adoption of LDTI reduced stockholders’ equity by $13.7 billion at the January 1, 2021 transition date and materially changed reported insurance balances and earnings presentation. The company says adoption did not change cash flows or underlying economics. A material weakness in internal control related to LDTI settlement accounting was reported fully remediated during the quarter; management concluded disclosure controls were effective.
Important facts for investors to verify
- Whether the fourth-quarter long-term-care assumption review changes reserves or earnings, and how actual rate approvals and policyholder settlement elections compare with assumptions.
- Enact’s delinquency, cure, claims and new-business trends, especially given mortgage rates, home-price conditions and the concentration of growth in recent policy years.
- The amount and timing of Enact dividends and other capital returns actually received by Genworth Holdings, and the holding company’s liquidity after share repurchases and taxes.
- The scale and resolution of MOVEit-related claims and other litigation, since the filing provides no reasonably possible loss range for the identified legal matters.
- How much of the reported earnings and equity movement reflects operating performance versus LDTI remeasurement, interest-rate-driven unrealized investment losses, and non-GAAP exclusions.