Segment Information

9 Months Ended

Sep. 30, 2020

Segment Information

(11) Segment Information

We have the following four operating business segments: U.S. Mortgage Insurance; Australia Mortgage Insurance; U.S. Life Insurance (which includes our long-term care insurance, life insurance and fixed annuities businesses); and Runoff (which includes the results of non-strategic products which have not been actively sold since 2011). In addition to our four operating business segments, we also have Corporate and Other activities which include debt financing expenses that are incurred at the Genworth Holdings level, unallocated corporate income and expenses, eliminations of inter-segment transactions and the results of other businesses that are managed outside of our operating segments, including certain smaller international mortgage insurance businesses and discontinued operations.

We tax our international businesses at their local jurisdictional tax rates and our domestic businesses at the U.S. corporate federal income tax rate of 21%. Our segment tax methodology applies the respective jurisdictional or domestic tax rate to the pre-tax income (loss) of each segment, which is then adjusted in each segment to reflect the tax attributes of items unique to that segment such as foreign withholding taxes and permanent differences between U.S. GAAP and local 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.

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 use the same accounting policies and procedures to measure segment income (loss) and assets as our consolidated net income and assets. Our chief operating decision maker evaluates segment performance and allocates resources on the basis of “adjusted operating income (loss) available to Genworth Financial, Inc.’s common stockholders.” We define adjusted operating income (loss) available to Genworth Financial, Inc.’s common stockholders 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), goodwill impairments, gains (losses) on the sale of businesses, gains (losses) on the early extinguishment of debt, gains (losses) on insurance block transactions, restructuring costs and infrequent or unusual non-operating items. 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 resulting 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. Goodwill impairments, gains (losses) on the sale of businesses, gains (losses) on the early extinguishment of debt, gains (losses) on insurance block transactions and restructuring costs are also excluded from adjusted operating income (loss)

available to Genworth Financial, Inc.’s common stockholders 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) available to Genworth Financial, Inc.’s common stockholders 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) available to Genworth Financial, Inc.’s common stockholders in accordance with U.S. GAAP, we believe that adjusted operating income (loss) available to Genworth Financial, Inc.’s common stockholders, and measures that are derived from or incorporate adjusted operating income (loss) available to Genworth Financial, Inc.’s common stockholders, 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) available to Genworth Financial, Inc.’s common stockholders 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) available to Genworth Financial, Inc.’s common stockholders have occurred in the past and could, and in some cases will, recur in the future. Adjusted operating income (loss) available to Genworth Financial, Inc.’s common stockholders is not a substitute for net income (loss) available to Genworth Financial, Inc.’s common stockholders determined in accordance with U.S. GAAP. In addition, our definition of adjusted operating income (loss) available to Genworth Financial, Inc.’s common stockholders may differ from the definitions used by other companies.

Adjustments to reconcile net income (loss) available to Genworth Financial, Inc.’s common stockholders to adjusted operating income (loss) assume a 21% tax rate for our domestic segments and a 30% tax rate for our Australia Mortgage Insurance segment 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.

During the nine months ended September 30, 2020, we repurchased $84 million principal amount of Genworth Holdings’ senior notes with 2021 maturity dates for a pre-tax gain of $4 million. In January 2020, we paid a pre-tax make-whole expense of $9 million related to the early redemption of Genworth Holdings’ senior notes originally scheduled to mature in June 2020 and Rivermont 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 (loss) for the periods presented as they relate to gains (losses) on the early extinguishment of debt.

In the second quarter of 2020, we recorded a goodwill impairment of $3 million, net of the portion attributable to noncontrolling interests, in our Australia mortgage insurance business.

We recorded a pre-tax expense of $2 million and $4 million for the nine months ended September 30, 2020 and 2019, respectively, related to restructuring costs as we continue to evaluate and appropriately size our organizational needs and expenses. There were no infrequent or unusual items excluded from adjusted operating income (loss) during the periods presented.

The following is a summary of revenues for our segments and Corporate and Other activities for the periods indicated:

	Three months ended September 30,					Nine months ended September 30,
(Amounts in millions)	2020			2019		2020		2019
Revenues:
U.S. Mortgage Insurance segment	$	284		$	251	$	819	$	709
Australia Mortgage Insurance segment		102			82		265		288
U.S. Life Insurance segment:
Long-term care insurance		1,466			1,110		3,672		3,279
Life insurance		333			347		1,016		1,101
Fixed annuities		138			145		400		455
U.S. Life Insurance segment		1,937			1,602		5,088		4,835
Runoff segment		103			74		200		234
Corporate and Other activities		(6	)		11		23		(8	)
Total revenues	$	2,420		$	2,020	$	6,395	$	6,058

The following tables present the reconciliation of net income (loss) available to Genworth Financial, Inc.’s common stockholders to adjusted operating income (loss) available to Genworth Financial, Inc.’s common stockholders and a summary of adjusted operating income (loss) available to Genworth Financial, Inc.’s common stockholders for our segments and Corporate and Other activities for the periods indicated:

	Three months ended September 30,						Nine months ended September 30,
(Amounts in millions)	2020			2019			2020			2019
Net income (loss) available to Genworth Financial, Inc.’s common stockholders	$	418		$	18		$	(89	)	$	360
Add: net income from continuing operations attributable to noncontrolling interests		18			10			35			45
Add: net income from discontinued operations attributable to noncontrolling interests		—			30			—			101
Net income (loss)		436			58			(54	)		506
Less: income (loss) from discontinued operations, net of taxes		1			(80	)		(519	)		42
Income from continuing operations		435			138			465			464
Less: net income from continuing operations attributable to noncontrolling interests		18			10			35			45
Income from continuing operations available to Genworth Financial, Inc.’s common stockholders		417			128			430			419
Adjustments to income from continuing operations available to Genworth Financial, Inc.’s common stockholders:
Net investment (gains) losses, net (1)		(362	)		(5	)		(378	)		(33	)
Goodwill impairment, net (2)		—			—			3			—
(Gains) losses on early extinguishment of debt		—			—			9			—
Expenses related to restructuring		—			—			2			4
Taxes on adjustments		77			—			78			6
Adjusted operating income available to Genworth Financial, Inc.’s common stockholders	$	132		$	123		$	144		$	396

(1)  For the three months ended September 30, 2020 and 2019, net investment (gains) losses were adjusted for DAC and other intangible amortization and certain benefit reserves of $1 and $(3) million, respectively, and adjusted for net investment gains (losses) attributable to noncontrolling interests of $12 million and $(4) million, respectively. For the nine months ended September 30, 2020 and 2019, net investment (gains) losses were adjusted for DAC and other intangible amortization and certain benefit reserves of $(14) million and $(8) million, respectively, and adjusted for net investment gains (losses) attributable to noncontrolling interests of $18 million and $2 million, respectively.

(2)  For the nine months ended September 30, 2020, goodwill impairment was adjusted for the portion attributable to noncontrolling interests of $2 million.

	Three months ended September 30,						Nine months ended September 30,
(Amounts in millions)	2020			2019			2020			2019
Adjusted operating income (loss) available to Genworth Financial, Inc.’s common stockholders:
U.S. Mortgage Insurance segment	$	141		$	137		$	286		$	408
Australia Mortgage Insurance segment		7			12			17			39
U.S. Life Insurance segment:
Long-term care insurance		59			21			108			38
Life insurance		(69	)		(25	)		(227	)		(17	)
Fixed annuities		24			3			58			39
U.S. Life Insurance segment		14			(1	)		(61	)		60
Runoff segment		19			10			30			39
Corporate and Other activities		(49	)		(35	)		(128	)		(150	)
Adjusted operating income available to Genworth Financial, Inc.’s common stockholders	$	132		$	123		$	144		$	396

The following is a summary of total assets for our segments and Corporate and Other activities as of the dates indicated:

(Amounts in millions)	September 30, 2020		December 31, 2019
Assets:
U.S. Mortgage Insurance segment	$	5,494	$	4,504
Australia Mortgage Insurance segment		2,601		2,406
U.S. Life Insurance segment		84,208		81,640
Runoff segment		9,901		9,953
Corporate and Other activities		2,721		2,839
Total assets	$	104,925	$	101,342