Genworth Financial, Inc. — Q2 2023 Form 10-Q
Reporting period: Three and six months ended June 30, 2023; balance-sheet comparisons are against December 31, 2022. Amounts are in millions of dollars except per-share data and ratios. Comparative 2022 amounts were adjusted for LDTI accounting and a correction to long-term care (LTC) settlement-payment assumptions.
Business context and reporting period
Genworth operates through Enact (U.S. mortgage insurance), Long-Term Care Insurance, and Life and Annuities, plus Corporate and Other. Most Life and Annuities products are closed to new sales. Enact is publicly traded, and Genworth retains control. The filing reorganized segment reporting beginning in Q1 2023 and re-presented prior periods.
Financial results and condition
| Metric | Q2 2023 | Q2 2022 | Six months 2023 | Six months 2022 |
|---|---|---|---|---|
| Total revenue | $1,892 | $1,887 | $3,746 | $3,780 |
| Income from continuing operations before tax | $221 | $260 | $430 | $616 |
| Net income | $168 | $197 | $322 | $467 |
| Net income available to common stockholders | $137 | $159 | $259 | $399 |
| Diluted continuing-operations EPS | $0.28 | $0.31 | $0.53 | $0.78 |
| Adjusted operating income available to common stockholders | $85 | $153 | $229 | $322 |
- Quarterly revenue was nearly flat, while common-stockholder net income fell 14% and adjusted operating income fell 44%. For the six months, revenue declined 1%, common-stockholder net income declined 35%, and adjusted operating income declined 29%.
- Q2 benefits and policy-reserve changes rose to $1,175 from $768; acquisition and operating expenses fell to $226 from $579. The prior-year expense comparison included a $365 payment related to a third-party recapture of certain annuity contracts. The six-month period also showed higher benefits and reserve costs and a $95 adverse year-over-year swing in liability remeasurement.
- Segment adjusted operating income, Q2 / first half: Enact $146 / $289 (prior year $167 / $302); LTC $(43) / $(20) (prior year $17 / $90); Life and Annuities $2 / $(2) (prior year $(15) / $(45)); Corporate and Other $(20) / $(38) (prior year $(16) / $(25)).
- Cash flows for the first half: operating inflow $275 versus $337; investing inflow $917 versus $535; financing outflow $818 versus $719. Cash, cash equivalents and restricted cash ended at $2,173, up from $1,799 at year-end.
- At June 30, total assets were $89,844, total liabilities $81,577, and total equity $8,267. Investments totaled $58,803; long-term borrowings were $1,601. Genworth Holdings separately reported $876 of outstanding principal, with no debt maturities until June 2034, and $222 of unrestricted cash. These are different entity scopes.
- Fixed-maturity securities had fair value of $46,070 against amortized cost of $49,864. Genworth stockholders’ equity included accumulated other comprehensive loss of $2,861. The company said interest-rate changes contribute to volatility in equity under LDTI.
- Enact’s Q2 new insurance written fell 14% year over year to $15.1 billion; primary insurance in force increased 9% year over year to $257.8 billion. Its Q2 loss ratio was (2)% versus (26)% and expense ratio was 23% versus 26%. The negative loss ratios reflect favorable reserve releases.
- Enact’s PMIERs sufficiency ratio was 162%, or $1,958 above requirements, at June 30. The estimated risk-based capital ratio for Genworth’s U.S. life insurance subsidiaries was approximately 293%.
Material changes, outlook, risks and unusual items
- LTC performance and rate actions: Management attributed the LTC segment’s move to an adjusted operating loss to lower terminations, elevated benefit utilization, and higher new claims; first-half experience also included less favorable rate-action assumption updates. The company had approvals for approximately $144 of incremental annual premiums in the first half. It estimated cumulative economic benefits from its multi-year rate-action plan at $24.4 billion, on a net present value basis, against a currently expected total of $30.3 billion. Rate approvals, timing, benefit reductions, and policyholder behavior remain uncertain.
- Enact and capital returns: Enact recorded favorable reserve releases of $63 in Q2 and $133 in the first half, mainly from better cures on older delinquencies. Genworth Financial repurchased 31.8 million shares in the first half for $180 excluding excise taxes and other costs ($183 including them); a further $20 was repurchased in July. The board authorized an additional $350 of repurchases on July 31, raising remaining authorization to approximately $436. Enact returned $91 of capital to Genworth Holdings in the first half and announced a separate additional $100 share-repurchase authorization in August.
- Strategy and guidance: Management highlighted strengthening the legacy LTC business, capital returns from Enact, and developing senior-care services through CareScout. CareScout’s initial services launched in March 2023. The filing provides no specific consolidated earnings or revenue guidance; management’s strategic plans and expected outcomes are forward-looking and subject to risks.
- LDTI and correction: LDTI adoption materially changed reported long-duration insurance balances and reduced stockholders’ equity by $13.7 billion after tax at the January 1, 2021 transition date. The company corrected its treatment of estimated legal-settlement payments in LTC benefit assumptions; it judged the correction immaterial to prior periods but revised comparative information. LDTI does not change cash flows or underlying business economics, according to management, but increases sensitivity of reported equity to interest rates.
- Controls: Disclosure controls were deemed ineffective as of June 30 solely because of a material weakness in accounting for certain LTC settlement payments under LDTI. The company stated the weakness was fully remediated by the filing date and concluded current disclosure controls were effective. It also concluded the weakness did not cause a material misstatement in the Q1 2023 filing.
- Cybersecurity and litigation: A MOVEit incident at vendor PBI exposed or may have exposed personal information of an estimated 2.5–2.7 million policyholders or other customers. Genworth reported related class actions and said it could not estimate reasonably possible losses for its identified pending legal and regulatory matters. It does not currently expect the incident to have a material adverse effect, but continues to assess it.
- Other risks and contingencies: Risks include LTC claims, rate approvals and reserve assumptions; housing, mortgage delinquencies and recession risk; interest-rate and investment-market movements; counterparty and credit exposures; regulatory and litigation matters; and reliance on Enact capital returns for holding-company liquidity. Management reported $4.4 billion of unrealized losses on fixed-maturity securities without a credit-loss allowance and said it did not intend or expect to be required to sell them before recovery. The company sold First Republic Bank bonds and recorded a $9 loss in Q2, and fully impaired its preferred-stock position.
- Other unusual items: A prior-year $20 legal-settlement expense in Life and Annuities did not recur. The filing also describes settlements expected to have an overall net favorable economic impact on LTC, though ultimate results depend on policyholder elections and implementation.
Important facts for investors to verify
- How LTC claims, benefit utilization, terminations, rate approvals, settlement elections, and revised LDTI assumptions evolve—and whether the plan approaches management’s stated economic break-even objective.
- Whether Enact sustains favorable delinquency cures, maintains PMIERs and statutory capital buffers, and can continue distributions without limiting growth or policyholder protection.
- Holding-company liquidity after share repurchases, taxes, debt service, CareScout investment, and any changes in Enact capital returns; distinguish holding-company cash and debt from consolidated figures.
- The size and duration of unrealized investment losses, portfolio credit quality and commercial real-estate exposures, and potential liquidity needs if securities must be sold.
- Developments in MOVEit-related litigation, data-remediation costs, other pending cases, and the effectiveness of the remediated accounting controls.
- Comparability of reported results: prior periods were re-presented for LDTI, segment changes, and the LTC settlement-payment correction; adjusted operating income is a non-GAAP measure.