Segment Information

3 Months Ended

Mar. 31, 2021

Segment Information

(10) Segment Information

We have the following three operating business segments: U.S. 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 three 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 international mortgage insurance businesses and discontinued operations.

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.

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), 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. 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. Net investment gains (losses) are also adjusted for DAC and other intangible amortization and certain benefit reserves.

We repurchased $146 million and $14 million principal amount of Genworth Holdings’ senior notes with 2021 maturity dates for a pre-tax gain (loss) of $(4) million and $1 million in the first quarters of 2021 and 2020, respectively. 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 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.

We recorded a pre-tax expense of $21 million and $1 million in the first quarters of 2021 and 2020, 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 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
	March 31,
(Amounts in millions)	2021		2020
Revenues:
U.S. Mortgage Insurance segment	$	288	$	261
U.S. Life Insurance segment:
Long-term care insurance		1,140		1,006
Life insurance		348		348
Fixed annuities		132		133
U.S. Life Insurance segment		1,620		1,487
Runoff segment		76		7
Corporate and Other activities		1		54
Total revenues	$	1,985	$	1,809

The following tables present the reconciliation of net income (loss) available to Genworth Financial, Inc.’s common stockholders to adjusted operating income 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
	March 31,
(Amounts in millions)	2021			2020
Net income (loss) available to Genworth Financial, Inc.’s common stockholders	$	187		$	(66	)
Add: net income from continuing operations attributable to noncontrolling interests		—			—
Add: net income (loss) from discontinued operations attributable to noncontrolling interests		8			(6	)
Net income (loss)		195			(72	)
Less: income (loss) from discontinued operations, net of taxes		21			(12	)
Income (loss) from continuing operations		174			(60	)
Less: net income from continuing operations attributable to noncontrolling interests		—			—
Income (loss) from continuing operations available to Genworth Financial, Inc.’s common stockholders		174			(60	)
Adjustments to income (loss) from continuing operations available to Genworth Financial, Inc.’s common stockholders:
Net investment (gains) losses, net (1)		(33	)		88
Losses on early extinguishment of debt		4			12
Expenses related to restructuring		21			1
Taxes on adjustments		2			(21	)
Adjusted operating income available to Genworth Financial, Inc.’s common stockholders	$	168		$	20

(1) For the three months ended March 31, 2020, net investment (gains) losses were adjusted for DAC and other intangible amortization and certain benefit reserves of $(11) million.

	Three months ended
	March 31,
(Amounts in millions)	2021			2020
Adjusted operating income (loss) available to Genworth Financial, Inc.’s common stockholders:
U.S. Mortgage Insurance segment	$	126		$	148
U.S. Life Insurance segment:
Long-term care insurance		95			1
Life insurance		(63	)		(77	)
Fixed annuities		30			6
U.S. Life Insurance segment		62			(70	)
Runoff segment		12			(13	)
Corporate and Other activities		(32	)		(45	)
Adjusted operating income available to Genworth Financial, Inc.’s common stockholders	$	168		$	20

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

	March 31,		December 31,
(Amounts in millions)	2021		2020
Assets:
U.S. Mortgage Insurance segment	$	5,683	$	5,627
U.S. Life Insurance segment		80,352		84,671
Runoff segment		9,521		9,735
Corporate and Other activities		3,002		2,897
Segment assets from continuing operations		98,558		102,930
Assets related to discontinued operations		—		2,817
Total assets	$	98,558	$	105,747