Genworth Financial Inc: Form 10-Q for the period ended Sep 30, 2023

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 2022 Annual Report on Form 10-K. Unless the context otherwise requires, references to “Genworth,” the “Company,” “we” or “our” herein are to Genworth Financial, Inc. on a consolidated basis. References to “Genworth Financial” refer solely to Genworth Financial, Inc., and not to any of its consolidated 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. (“Enact Holdings”), including share repurchases, and quarterly and special dividends; the cumulative amount of rate action benefits required for our long-term care insurance business to achieve economic break-even status; future financial performance and condition of our businesses; liquidity and future strategic investments, including new senior care services and products; future business and financial performance of CareScout LLC (“CareScout”); as well as statements we make regarding the potential of a recession.

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:

• our inability to successfully execute our strategic plans;
• our failure to achieve economic break-even on or stabilize our legacy long-term care insurance in-force block, including as a result of the inability to achieve desired levels of in-force rate actions and/or the timing of our future premium rate increases and associated benefit reductions taking longer to achieve than originally assumed; other regulatory actions negatively impacting our life insurance businesses and/or the inability to establish new long-term care insurance business;
• inaccuracies or changes in estimates, assumptions, methodologies, valuations, projections and/or models, which result in inadequate reserves or other adverse results (including as a result of any changes in connection with quarterly, annual or other reviews, including reviews we expect to complete and carry out in the fourth quarter of 2023);
• the impact on holding company liquidity caused by an inability to receive dividends or any other returns of capital from Enact Holdings, and limited sources of capital and financing;
• adverse changes to the structure, or requirements of Federal National Mortgage Association (“Fannie Mae”), Federal Home Loan Mortgage Corporation (“Freddie Mac”) or the U.S. mortgage insurance market; an increase in the number of loans insured through federal government mortgage insurance programs, including those offered by the Federal Housing Administration (“FHA”); the inability of Enact Holdings and/or its U.S. mortgage insurance subsidiaries to continue to meet the requirements mandated by the private mortgage insurer eligibility requirements (“PMIERs”) (or any adverse changes thereto), inability to meet minimum statutory capital requirements of applicable regulators or the mortgage insurer eligibility requirements of Fannie Mae or Freddie Mac;
• changes in economic, market and political conditions including as a result of high inflation, labor shortages, displacements related to the coronavirus pandemic (“COVID-19”) and elevated interest

rates, including actions taken by the U.S. Federal Reserve to increase interest rates to combat inflation and slow economic growth, which could heighten the risk of a future recession; unanticipated financial events such as closures and disruptions experienced by the banking sector, which could lead to market-wide liquidity problems and other significant market disruption resulting in losses, defaults or credit rating downgrades of other financial institutions; deterioration in economic conditions, a recession or a decline in home prices, all of which could be driven by many potential factors, including inflation, may 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;

• rating downgrades or potential downgrades in liquidity, financial strength and credit ratings; counterparty credit risks; defaults by counterparties to reinsurance arrangements or derivative instruments; defaults or other events impacting the value of invested assets;
• changes in tax rates or tax laws, or changes in accounting and reporting standards (including new accounting guidance we adopted on January 1, 2023 related to long-duration insurance contracts);
• litigation and regulatory investigations or other actions, including commercial and contractual disputes with counterparties;
• our inability to achieve anticipated business performance and financial results from CareScout and its senior care growth initiatives through fee-based services, advice, consulting and other products and services;
• the inability to retain, attract and motivate qualified employees or senior management;
• the occurrence of natural or man-made disasters, including geopolitical tensions and war (including the Russian invasion of Ukraine and the Hamas attack on Israel and ensuing response), a public health emergency, including pandemics, or climate change;
• the inability to effectively manage information technology systems, cyber incidents or other failures, disruptions or security breaches to us or our third-party vendors such as the MOVEit cybersecurity incident described herein (the “MOVEit Cybersecurity Incident”); and
• other factors described in the risk factors contained in Item 1A of our Annual Report on Form 10-K, filed with the U.S. Securities and Exchange Commission (“SEC”) on February 28, 2023.

We provide additional information regarding these risks and uncertainties in our Annual Report on Form 10-K. Unlisted factors may present 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

Genworth Financial, through its principal insurance subsidiaries, offers mortgage and long-term care insurance products. Genworth Financial is the parent company of Enact Holdings, a leading provider of private mortgage insurance in the United States through its mortgage insurance subsidiaries. Genworth Financial’s principal U.S. life insurance subsidiaries offer long-term care insurance and also manage in-force blocks of life insurance and annuity products. We report our business results through three operating segments: Enact; Long-Term Care Insurance; and Life and Annuities. The products in the Life and Annuities segment include traditional and non-traditional life insurance (term, universal and term universal life insurance as well as corporate-owned life insurance and funding agreements), fixed annuities and variable annuities (which include variable life insurance), none of which are actively marketed or sold.

In addition to our three operating segments, we also have Corporate and Other, which includes debt financing expenses that are incurred at the Genworth Holdings, Inc. (“Genworth Holdings”) level, unallocated corporate income and expenses, eliminations of inter-segment transactions and the results of other businesses that are reported outside of our operating segments, such as certain international businesses and discontinued operations. Corporate and Other also includes start-up results related to fee-based services, care support and advice, clinical assessments and consulting offered by CareScout to advance our senior care growth initiatives.

Enact Holdings is a public company traded on the Nasdaq Global Select Market exchange under the ticker symbol “ACT.” Genworth Financial maintains control of Enact Holdings through an indirect majority voting interest and accordingly, Enact Holdings remains a consolidated subsidiary of Genworth Financial. Our Enact segment predominantly includes Enact Holdings and 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 SEC. Notwithstanding these differences, we commonly make references to “Enact,” our “Enact segment” and our “U.S. mortgage insurance subsidiaries” 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.

Strategic Update

Genworth has advanced its strategy to drive shareholder value over the past several years, culminating in several major achievements in 2022 and through the third quarter of 2023. We reduced Genworth Holdings’ debt to less than $1.0 billion, enhanced the value of Enact, received multiple upgrades from rating agencies, continued to make progress on our multi-year long-term care insurance in-force rate action plan and began returning capital to shareholders for the first time in over 13 years. In addition, the government-sponsored enterprises (“GSEs”) lifted the restrictions that had been imposed on Enact effective March 1, 2023. This was an important milestone as Enact is no longer subject to more stringent capital requirements as compared to its peers, putting it on a more level playing field with its competitors. Building on this progress and the transformative improvement in Genworth’s financial position over the past few years, we have refocused our priorities to three areas:

• further strengthen our legacy long-term care insurance financial and operational capabilities to address customer needs;
• allocate capital from Enact to drive Genworth Financial’s long-term shareholder value; and
• leverage our unparalleled long-term care expertise to develop innovative aging care services and solutions.

Our long-term care insurance business continued to make progress on its multi-year long-term care insurance in-force rate action plan, receiving approvals of approximately $227 million of incremental annual premiums for the nine months ended September 30, 2023. In aggregate, we estimate that the cumulative economic benefit of approved rate actions in our long-term care insurance multi-year in-force rate action plan through the third quarter of 2023 was approximately $25 billion, on a net present value basis, of the total currently estimated amount required of approximately $30.3 billion. We continue to work closely with the National Association of Insurance Commissioners (“NAIC”) and state regulators to demonstrate the broad-based need for actuarially justified rate increases and associated benefit reductions in order to pay future claims.

Enact continues to be a significant driver of value for Genworth. As the majority shareholder, Genworth Holdings received $26 million of capital returns from Enact Holdings during the third quarter of 2023. In addition, on August 1, 2023, Enact Holdings announced the authorization of a new share repurchase program under which Enact Holdings may repurchase up to an additional $100 million of its common stock. Genworth Holdings has agreed to participate in order to maintain its overall ownership at its current level. Capital returns from Enact have enabled us to achieve key milestones to date and will continue to benefit our shareholders by funding our strategic initiatives, including share repurchases.

Cumulative to date, Genworth Financial has repurchased approximately $334 million of its common shares under its share repurchase program that began in May 2022, including $80 million during the third quarter of

2023 and another $10 million in October 2023. On July 31, 2023, Genworth Financial’s Board of Directors authorized an additional $350 million of share repurchases under the existing share repurchase program. Including this additional authorization, the remaining authorized amount under the program as of October 31, 2023 was approximately $366 million. The timing and number of future shares repurchased under the program will depend on a variety of factors, including Genworth Financial’s stock price and trading volume, and general business and market conditions, among other factors.

In terms of our longer-term priorities, we are focused on advancing Genworth’s senior care growth initiatives, including through fee-based services, advice, consulting and other products and services offered by CareScout, an indirect subsidiary of Genworth Financial. We see meaningful opportunities to provide these services to address the needs of elderly Americans, as well as their caregivers and families. We launched the initial phase of our CareScout services business in March 2023. This business includes a digital platform, where we hope to curate a broad marketplace that matches consumers’ long-term care needs with a network of quality providers that we are building as part of the initial phase of the CareScout services launch. In addition to the digital platform and quality network offerings to consumers, employers and long-term care insurers, the discounts available through the network are expected to have the potential to further mitigate risk in our legacy long-term care insurance block by reducing claims costs. Our CareScout services business is currently focused on home care providers as the majority of our initial long-term care insurance claims begin with care in the home. While the initial focus for the quality network is with Genworth’s long-term care insurance policyholders in one state, we believe we can accelerate our efforts to build a national quality network of care providers, which we expect could allow a high-quality experience and discounted fees for more existing Genworth policyholders and broaden the scope of our CareScout services business to new consumer markets. As we expand the business, there may be other potential future growth opportunities, namely options that assist in funding long-term care needs and expanding CareScout’s products and services to international markets.

In October 2023, Genworth Holdings completed a bondholder consent solicitation that amended the Replacement Capital Covenant entered into for the benefit of the holders of its senior notes due in 2034 (“2034 Notes”) that limited its ability to repurchase its floating rate junior subordinated notes due in 2066 (“2066 Notes”). The amendment permits certain repayments, redemptions or repurchases of Genworth Holdings’ 2066 Notes. This transaction provides more flexibility in our capital management program as it gives us more optionality to make opportunistic debt repurchases while prioritizing growth investments and share repurchases. Genworth will strive to maintain a disciplined approach in its capital allocation strategy, balancing investments in growth initiatives with returning value to shareholders.

Financial Strength and Credit Ratings

On August 1, 2023, A.M. Best Company, Inc. assigned an initial public financial strength rating of “A-” to Enact Mortgage Insurance Corporation (“EMICO”), Enact Holdings’ principal U.S. mortgage insurance subsidiary, with an outlook of stable.

On April 25, 2023, Fitch Ratings, Inc. upgraded the financial strength rating of EMICO to “A-” from “BBB+” with an outlook of stable.

On March 1, 2023, Moody’s Investors Service, Inc. upgraded the credit rating of Genworth Holdings to “Ba1” from “Ba2” and upgraded the financial strength rating of EMICO to “A3” from “Baa1.” The outlooks for the ratings are stable.

On February 16, 2023, S&P Global Ratings upgraded the credit rating of Genworth Financial and Genworth Holdings to “BB-” from “B+” with an outlook of stable and upgraded the financial strength rating of EMICO to “BBB+” from “BBB.”

There were no other changes in the financial strength ratings of our insurance subsidiaries or the credit ratings of Genworth Financial and Genworth Holdings subsequent to February 28, 2023, the date we filed our

2022 Annual Report on Form 10-K. For additional information regarding the financial strength ratings of Genworth Financial’s insurance subsidiaries and the credit ratings of Genworth Financial and Genworth Holdings, including their importance to our business, see “Item 1—Ratings” in our 2022 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 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. Benefits and other changes in policy reserves exclude the impact of liability remeasurement (gains) losses, which is separately presented as discussed below.
• Liability remeasurement (gains) losses. Liability remeasurement (gains) losses represent changes to the net premium ratio for actual versus expected experience and updates to cash flow assumptions used to measure long-duration and limited-payment insurance contracts.
• Changes in fair value of market risk benefits and associated hedges. Changes in fair value of market risk benefits and associated hedges consist of fair value changes of market risk benefits (other than changes attributable to instrument-specific credit risk), net of changes in the fair value of non-qualified derivative instruments associated with our market risk benefits.
• 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. We allocate corporate expenses to each of our operating segments using various methodologies.

• Amortization of deferred acquisition costs and intangibles. Amortization of deferred acquisition costs (“DAC”) and intangibles consists primarily of the amortization of acquisition costs that are capitalized, present value of future profits and capitalized software.
• Interest expense. Interest expense represents interest related to our borrowings that are incurred at Genworth Holdings or Enact Holdings, and certain reinsurance arrangements being accounted for as deposits.
• Provision (benefit) for 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.

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. For a discussion of the effective tax rates used to record the provision for income taxes for our three operating segments and Corporate and Other for the three and nine months ended September 30, 2023 and 2022, see note 17 in our unaudited condensed consolidated financial statements under “Item 1—Financial Statements.”

• 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.

Consolidated Results of Operations

Three Months Ended September 30, 2023 Compared to Three Months Ended September 30, 2022

The following table sets forth the consolidated results of operations for the periods indicated:

(Amounts in millions)

(1) We define “NM” as not meaningful for increases or decreases greater than 200%.

The following table sets forth the consolidated results of operations for the periods indicated:

(Amounts in millions)

(1) We define “NM” as not meaningful for increases or decreases greater than 200%.

Unless otherwise stated, all references to net income (loss), net income (loss) per share, adjusted operating income (loss) and adjusted operating income (loss) per share found in “Item 2—Management’s Discussion and Analysis of Financial Condition and Results of Operations” should be read as net income (loss) available to Genworth Financial, Inc.’s common stockholders, net income (loss) available to Genworth Financial, Inc.’s common stockholders per share, adjusted operating income (loss) available to Genworth Financial, Inc.’s common stockholders and adjusted operating income (loss) available to Genworth Financial, Inc.’s common stockholders per share, respectively.

Use of non- GAAP measures

Reconciliation of net income (loss) to adjusted operating income (loss)

We use non-GAAP financial measures entitled “adjusted operating income (loss)” and “adjusted operating income (loss) per share.” Adjusted operating income (loss) per share is derived from adjusted operating income (loss). Our President and Chief Executive Officer (Principal Executive Officer), who serves as our chief operating decision maker, evaluates segment performance and allocates resources on the basis of adjusted operating income (loss). We define adjusted operating income (loss) 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), changes in fair value of market risk benefits and associated hedges, gains (losses) on the sale of businesses, gains (losses) on the early extinguishment of debt, restructuring costs and infrequent or unusual non-operating items. 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. We exclude net investment gains (losses), changes in fair value of market risk benefits and associated hedges, gains (losses) on the sale of businesses, gains (losses) on the early extinguishment of debt, restructuring costs and infrequent or unusual non-operating items from adjusted operating income (loss) because, in our opinion, they are not indicative of overall operating performance.

While some of these items may be significant components of net income (loss) in accordance with U.S. GAAP, we believe that adjusted operating income (loss), and measures that are derived from or incorporate adjusted operating income (loss), including adjusted operating income (loss) per share on a basic and diluted basis, 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) 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) have occurred in the past and could, and in some cases will, recur in the future. Adjusted operating income (loss) and adjusted operating income (loss) per share on a basic and diluted basis are not substitutes for net income (loss) or net income (loss) per share on a basic and diluted basis determined in accordance with U.S. GAAP. In addition, our definition of adjusted operating income (loss) may differ from the definitions used by other companies.

Adjustments to reconcile net income (loss) to adjusted operating income (loss) assume a 21% tax rate and are net of the portion attributable to noncontrolling interests. Changes in fair value of market risk benefits and associated hedges are adjusted to exclude changes in reserves, attributed fees and benefit payments.

The following table presents a reconciliation of net income to adjusted operating income for the periods indicated:

(Amounts in millions)

(1) For the nine months ended September 30, 2023, net investment (gains) losses were adjusted for the portion attributable to noncontrolling interests of $2 million.

(2) Changes in fair value of market risk benefits and associated hedges were adjusted to exclude changes in reserves, attributed fees and benefit payments of $(2) million and $(5) million for the three months ended September 30, 2023 and 2022, respectively, and $(9) million and $(30) million for the nine months ended September 30, 2023 and 2022, respectively.

(3) During the nine months ended September 30, 2023, we repurchased $11 million principal amount of Genworth Holdings’ 2034 Notes for a pre-tax gain of $1 million. During the three and nine months ended September 30, 2022, we paid a pre-tax make-whole premium of $2 million and wrote off $1 million of bond consent fees and deferred borrowing costs related to the early redemption of Genworth Holdings’ senior notes originally scheduled to mature in 2024 (“2024 Notes”). Additionally, during the nine months ended September 30, 2022, we repurchased $130 million principal amount of Genworth Holdings’ 2024 Notes for a pre-tax loss of $4 million.

Other than pension plan termination costs incurred in the third quarter of 2022 related to one of our defined benefit pension plans, there were no infrequent or unusual items excluded from adjusted operating income during the periods presented.

Earnings per share

The following table provides basic and diluted earnings per common share for the periods indicated:

(Amounts in millions, except per share amounts)

Diluted weighted-average common shares outstanding reflect the effects of potentially dilutive securities including stock options, restricted stock units and other equity-based awards.

The following table presents a summary of adjusted operating income (loss) for our segments and Corporate and Other for the periods indicated:

(Amounts in millions)

(1) We define “NM” as not meaningful for increases or decreases greater than 200%.

Executive Summary of Consolidated Financial Results

Below is an executive summary of our condensed consolidated financial results for the periods indicated. Amounts within this “Executive Summary of Consolidated Financial Results” are net of taxes, unless otherwise indicated. After-tax amounts assume a tax rate of 21%.

For a discussion of selected financial information and detailed descriptions of operating performance measures see “—Results of Operations and Selected Financial and Operating Performance Measures by Segment.”

Three Months Ended September 30, 2023 Compared to Three Months Ended September 30, 2022

• Net income for the three months ended September 30, 2023 and 2022 was $29 million and $136 million, respectively, and adjusted operating income was $42 million and $158 million, respectively.
• Our Enact segment reported adjusted operating income of $134 million and $156 million for the three months ended September 30, 2023 and 2022, respectively.
• Adjusted operating income decreased primarily attributable to higher losses on new delinquencies and a lower favorable reserve adjustment, partially offset by higher net investment income and premiums in the current year.
• Our Long-Term Care Insurance segment reported adjusted operating income (loss) of $(71) million and $26 million for the three months ended September 30, 2023 and 2022, respectively.
• The change to an adjusted operating loss in the current year from adjusted operating income in the prior year was primarily from higher liability remeasurement losses largely driven by timing impacts related to a second legal settlement, higher claims and lower terminations in the current year.
• The adverse change was also attributable to lower net investment income in the current year, partially offset by an accrual for legal settlement costs of $16 million in the prior year that did not recur.
• Our Life and Annuities segment reported an adjusted operating loss of $3 million and $6 million for the three months ended September 30, 2023 and 2022, respectively.
• Life insurance:
• The adjusted operating loss in our life insurance products decreased $3 million primarily due to favorable mortality experience and lower DAC amortization, partially offset by higher liability remeasurement losses largely related to a voluntary recapture of previously ceded reinsurance in the current year.
• Fixed annuities:
• Adjusted operating income in our fixed annuity products increased $2 million mainly from favorable mortality in our fixed payout annuity products, partially offset by lower net spreads primarily related to block runoff in the current year.
• Variable annuities:
• Adjusted operating income in our variable annuity products decreased $2 million predominantly due to a decline in fee income driven by lower account value in the current year.
• Corporate and Other had an adjusted operating loss of $18 million for both the three months ended September 30, 2023 and 2022.
• The adjusted operating loss was flat as a decrease in tax expense on certain forward starting swap gains was offset by higher expenses related to CareScout growth initiatives and higher interest expense in the current year.

Nine Months Ended September 30, 2023 Compared to Nine Months Ended September 30, 2022

• Net income for the nine months ended September 30, 2023 and 2022 was $288 million and $535 million, respectively, and adjusted operating income was $271 million and $480 million, respectively.
• Our Enact segment reported $423 million and $458 million of adjusted operating income for the nine months ended September 30, 2023 and 2022, respectively.
• Adjusted operating income decreased primarily attributable to higher losses on new delinquencies and lower favorable reserve adjustments, partially offset by higher net investment income, lower operating costs and higher premiums in the current year.
• Our Long-Term Care Insurance segment reported adjusted operating income (loss) of $(91) million and $116 million for the nine months ended September 30, 2023 and 2022, respectively.
• The change to an adjusted operating loss in the current year from adjusted operating income in the prior year was primarily from an unfavorable change in liability remeasurement (gains) losses largely driven by timing impacts related to legal settlements, higher claims and lower terminations in the current year.
• The change was also attributable to less favorable cash flow assumption updates related to implementation timing and approval amounts of our in-force rate action plan and from higher operating costs in the current year.
• Our Life and Annuities segment reported an adjusted operating loss of $5 million and $51 million for the nine months ended September 30, 2023 and 2022, respectively.
• Life insurance:
• The adjusted operating loss in our life insurance products decreased $43 million largely attributable to lower DAC amortization related to higher lapse in the prior year and from favorable mortality experience in the current year as the COVID-19 impacts subsided. In addition, the prior year included a $20 million legal settlement expense that did not recur.
• These favorable developments were partially offset by lower premiums reflecting runoff of our in-force blocks in the current year.
• Fixed annuities:
• Adjusted operating income in our fixed annuity products decreased $7 million mainly attributable to lower net spreads primarily related to block runoff, partially offset by favorable mortality experience in the current year.
• Variable annuities:
• Adjusted operating income in our variable annuity products increased $10 million predominantly due to aging of our in-force block, partially offset by a decrease in fee income driven by lower account value in the current year.
• Corporate and Other had an adjusted operating loss of $56 million and $43 million for the nine months ended September 30, 2023 and 2022, respectively.
• The increase in the adjusted operating loss was primarily from higher expenses related to CareScout growth initiatives and higher interest expense, partially offset by higher net investment income and lower tax expense on certain forward starting swap gains in the current year.

Significant Developments and Strategic Highlights

The periods under review include, among others, the following significant developments and steps taken in the execution of our strategic priorities.

Enact

• Persistency, new insurance written and loss performance:
• Enact’s primary persistency rate was 84% for the third quarter of 2023 compared to 82% for the third quarter of 2022. Elevated persistency continued to offset the decline in new insurance written, contributing to insurance in-force growth in 2023.
• New insurance written decreased 4% in the third quarter of 2023 compared to the third quarter of 2022 mostly from a decline in originations due to elevated interest rates.
• Enact recorded favorable pre-tax reserve adjustments of $188 million for the nine months ended September 30, 2023, including $55 million in the third quarter of 2023, primarily related to favorable cure performance on 2022 and prior delinquencies, including those related to COVID-19. Enact recorded $226 million of pre-tax net favorable reserve adjustments for the nine months ended September 30, 2022, including $80 million in the third quarter of 2022, primarily related to favorable cure performance on COVID-19 delinquencies.
• New primary delinquencies in the third quarter of 2023 increased compared to the third quarter of 2022 primarily due to the aging of large, new books of business.
• PMIERs compliance:
• Effective March 1, 2023, the GSEs removed the capital restrictions that had been imposed on Enact.
• Enact’s PMIERs sufficiency ratio was 162% or $2,017 million above the PMIERs requirements as of September 30, 2023.
• As of September 30, 2023, Enact had estimated available assets of $5,268 million against $3,251 million net required assets under PMIERs compared to available assets of $5,093 million against $3,135 million net required assets as of June 30, 2023.
• Returns of capital:
• On November 1, 2022, Enact Holdings announced the approval by its board of directors of a share repurchase program under which Enact Holdings may repurchase up to $75 million of its outstanding common stock.
• On August 1, 2023, Enact Holdings announced the authorization of a new share repurchase program under which Enact Holdings may repurchase up to an additional $100 million of its common stock.
• Genworth Holdings has agreed to participate in both programs in order to maintain its overall ownership at its current level.
• Genworth Holdings received $26 million of capital returns from Enact Holdings during the third quarter of 2023.
• Based on Genworth Financial’s ownership of 81.6% of Enact Holdings, we expect to receive approximately $245 million from Enact Holdings for the full year 2023, consisting of quarterly dividends, share repurchases and a special dividend to be paid in the fourth quarter of 2023.

U.S. life insurance companies

• As of September 30, 2023, the consolidated company action level risk-based capital ratio of our U.S. domiciled life insurance subsidiaries was estimated to be approximately 291%, flat compared to December 31, 2022.
• As part of our strategy for our long-term care insurance business, we have been implementing, and expect to continue to pursue, significant premium rate increases and associated benefit reductions on older generation blocks of business in order to bring those blocks closer to a break-even point over time and reduce the strain on earnings and capital. We are also requesting premium rate increases and associated benefit reductions on newer blocks of business, as needed, some of which may be significant, to help bring these blocks closer to their original pricing. We estimate that the cumulative economic benefit of approved rate actions in our long-term care insurance multi-year in-force rate action plan through the third quarter of 2023 was approximately $25 billion, on a net present value basis, of the total currently estimated amount required of approximately $30.3 billion.
• We expect higher paid claims in our long-term care insurance business as our blocks age with peak claim years over a decade away. Paid claims on newer products continue to increase as policyholders approach peak claim age, while claims on our older products decline as those policyholders are past peak claim age. We also expect overall claim costs to continue to increase as the approximately 630,000 insured individuals in our two largest blocks, Choice I and Choice II, with average attained ages of 76 and 73, respectively, reach their peak claim years, which are over age 85.
• Under the new accounting guidance for long-duration insurance contracts, commonly known as long-duration targeted improvements (“LDTI”), we expect ongoing volatility in our quarterly U.S. GAAP results as we remeasure our actual experience versus our best estimate assumptions, which are now recorded at a granular policy cohort level. For example, in the third quarter of 2023, our long-term care insurance remeasurement loss was $104 million due to adverse actual versus expected experience largely driven by timing impacts related to a second legal settlement, higher claims and lower terminations in the current year compared to a remeasurement loss of $3 million in the prior year.
• In the fourth quarter of 2022, we updated our assumptions in our long-term care insurance business, which resulted in a favorable assumption update of $303 million largely from an update to legal settlement elections attributable to the inclusion of a second legal settlement. This settlement primarily impacts older, unprofitable capped cohorts; therefore, it had an immediate impact to the fourth quarter of 2022 earnings. While we have experienced and may continue to experience quarterly fluctuations in earnings due to deviations in actual versus expected experience associated with this legal settlement, we expect an overall net favorable economic impact to our long-term care insurance business, as this legal settlement reduces tail risk on our long-duration liabilities.
• We were notified by PBI Research Services (“PBI”), a third-party vendor, that PBI was subject to the widely reported security events involving the MOVEit file transfer system, which PBI uses in the performance of its services. The MOVEit Cybersecurity Incident resulted in the unauthorized acquisition of data by a third party from PBI as well as several organizations and governmental agencies. Since receiving notification of the security event, we, together with PBI, promptly launched an investigation to determine the extent to which personal information had been unlawfully accessed. Approximately 2.5 to 2.7 million of our policyholders’ or other customers’ personal information, including social security numbers, was exposed to and obtained by the threat actor as a result of the MOVEit Cybersecurity Incident. Regulatory agencies were notified and impacted individuals were mailed notices as required by federal and state law. In addition, impacted individuals have been offered credit monitoring, fraud consultation and identity theft restoration services. To date, most of the regulatory notification costs have been incurred by PBI.

Liquidity and capital resources

• Genworth Financial share repurchase program:
• On July 31, 2023, Genworth Financial’s Board of Directors authorized an additional $350 million of share repurchases under its existing share repurchase program.
• During the nine months ended September 30, 2023, Genworth Financial repurchased 45,839,750 shares of its common stock at an average price of $5.68 per share for a total of $260 million, excluding excise taxes and other costs paid in connection with acquiring the shares.
• Genworth Financial authorized share repurchases through a Rule 10b5-1 trading plan under which 1,717,825 shares of its common stock were repurchased in October 2023 at an average price of $5.82 per share for a total cost of $10 million before excise taxes, leaving approximately $366 million authorized amount remaining under the share repurchase program as of October 31, 2023.
• Genworth Holdings’ debt:
• During the nine months ended September 30, 2023, Genworth Holdings repurchased $11 million principal amount of its 2034 Notes for a pre-tax gain of $1 million and paid accrued interest thereon.
• As of September 30, 2023, Genworth Holdings had outstanding principal of $876 million of long-term debt, with no debt maturities until June 2034.
• On October 25, 2023, Genworth Holdings repurchased approximately $14 million of its 2034 Notes in connection with the completion of a bondholder consent solicitation that amended the Replacement Capital Covenant. The amendment permits certain repayments, redemptions or repurchases of Genworth Holdings’ 2066 Notes and provides greater flexibility in our capital management program.

Results of Operations and Selected Financial and Operating Performance Measures by Segment

Our President and Chief Executive Officer (Principal Executive Officer), who serves as our chief operating decision maker, evaluates segment performance and allocates resources on the basis of adjusted operating income (loss).

Management’s discussion and analysis by segment contains selected operating performance measures including “sales” and “insurance in-force” or “risk in-force” which are commonly used in the insurance industry as measures of operating performance.

Management regularly monitors and reports sales metrics as a measure of volume of new business generated in a period. Sales refer to new insurance written for mortgage insurance products included in our Enact segment. We consider new insurance written to be a measure of our Enact segment’s operating performance because it represents a measure of new sales of insurance policies during a specified period, rather than a measure of revenues or profitability during that period.

Management regularly monitors and reports insurance in-force, risk in-force and a loss ratio for our Enact segment. Insurance in-force is a measure of the aggregate unpaid principal balance as of the respective reporting date for loans insured by our U.S. mortgage insurance subsidiaries. Risk in-force is based on the coverage percentage applied to the estimated current outstanding loan balance. We consider insurance in-force and risk in-force to be measures of our Enact segment’s operating performance because they represent measures of the size of its business at a specific date which will generate revenues and profits in a future period, rather than measures of its revenues or profitability during that period. The loss ratio is the ratio of benefits and other changes in policy reserves to net earned premiums. We consider the loss ratio to be a measure of underwriting performance and helps to enhance the understanding of the operating performance of our Enact segment.

Management also regularly monitors and reports on in-force rate actions, including state filing approvals; impacted in-force premiums; weighted-average percentage rate increases approved; and gross incremental premiums approved in our Long-Term Care Insurance segment. In-force rate actions are critical to our strategy for our long-term care insurance business. We monitor these selected operating performance measures for in-force rate actions to track our progress on achieving economic break-even. We consider these in-force rate actions metrics to be measures of financial performance and help to enhance the understanding of the operating performance of our Long-Term Care Insurance segment.

These operating performance measures enable us to compare our operating performance across periods without regard to revenues or profitability related to policies or contracts sold in prior periods or from investments or other sources.

Enact segment

Trends and conditions

Results of our Enact segment are affected primarily by the following factors: competitor actions; unemployment or underemployment levels; other economic and housing market trends, including interest rates, home prices, the number of first-time homebuyers, and mortgage origination volume mix and practices; the levels and aging of mortgage delinquencies; the effect of seasonal variations; the inventory of unsold homes; loan modification and other servicing efforts; and litigation, among other items. References to “Enact” included herein “Item 2—Management’s Discussion and Analysis of Financial Condition and Results of Operations—Enact segment” are, unless the context otherwise requires, to our Enact segment.

Mortgage origination activity remained slow during the third quarter of 2023 in response to elevated mortgage rates and sustained low housing supply. We anticipate that the refinance market is likely to remain suppressed in the near to mid-term. Housing affordability continues to deteriorate due to high interest rates and elevated home prices, marginally offset by rising median family income, according to the National Association of Realtors Housing Affordability Index. After a sustained period of strong home price appreciation, national home prices began to decline in late 2022 but have recovered and continued to rise through the third quarter of 2023, according to the Federal Housing Finance Agency (“FHFA”) Monthly Purchase-Only House Price Index.

The unemployment rate was 3.8% in September 2023, up slightly from June 2023. As of September 30, 2023, there were just over six million unemployed Americans, of which approximately one million were long term unemployed over 26 weeks. Both metrics remain in line with pre-pandemic levels.

For mortgages insured by the federal government (including those purchased by Fannie Mae and Freddie Mac), forbearance has allowed borrowers impacted by COVID-19 to temporarily suspend mortgage payments up to 18 months subject to certain limits. An initial forbearance period is typically up to six months and can be extended for another six months if requested by the borrower to the mortgage servicer. However, the Biden Administration ended the national emergency for COVID-19 in April 2023, so the deadline for requesting a COVID-19 related forbearance under the Coronavirus Aid, Relief, and Economic Security Act ended in August 2023. During the third quarter of 2023, the GSEs announced that their COVID-19 servicing-related policies with respect to forbearance would end on November 1, 2023.

In March 2023, the GSEs announced new loss mitigation programs that would allow six-month payment deferrals for borrowers facing financial hardship and encouraged servicers to start evaluating borrowers for these programs as early as July 1, 2023 but no later than October 1, 2023. Even though most foreclosure moratoriums expired at the end of 2021, federal laws and regulations continue to require servicers to discuss loss mitigation options with borrowers before proceeding with foreclosures. These requirements could further extend the foreclosure timeline, which could negatively impact the severity of loss on loans that go to claim.

Although it is difficult to predict the future level of reported forbearance and how many of the loans in a forbearance plan that remain current on their monthly mortgage payment will go delinquent, servicer reported forbearances have generally declined. As of September 30, 2023, approximately 1.2% or 12,135 of Enact’s active primary policies were reported in a forbearance plan, of which approximately 30% were reported as delinquent compared with approximately 1.5% or 14,231 of its active primary policies reported in forbearance with approximately 34% reported as delinquent as of September 30, 2022.

Total delinquencies increased during the third quarter of 2023 compared to the third quarter of 2022 as a result of new delinquencies outpacing cures. The third quarter 2023 new delinquency rate of 1.2% was slightly higher than the third quarter 2022 new delinquency rate of 1.0%. The full impact of COVID-19 and its adverse economic effects on Enact’s future business results continue to be difficult to predict. Given the maximum length of forbearance plans, the resolution of a delinquency in a plan may not be known for several quarters. Enact continues to monitor regulatory and government actions and the resolution of forbearance delinquencies. While the associated risks have moderated and delinquencies have declined, it is possible that COVID-19 related forbearance programs could have an adverse impact on Enact’s future results of operations and financial condition.

Private mortgage insurance market penetration and overall market size are affected in part by actions that impact housing or housing finance policy taken by the GSEs and the U.S. government, including but not limited to, the FHA and the FHFA. In the past, these actions have included announced changes, or potential changes, to underwriting standards, including changes to the GSEs’ automated underwriting systems, FHA pricing, GSE guaranty fees, loan limits and alternative products.

On October 24, 2022, the FHFA announced targeted changes to the GSEs’ guarantee fee pricing by eliminating upfront fees for certain first-time home buyers with income at or below area median income and for certain GSE affordable mortgage products, while implementing targeted increases to the upfront fees for most cash-out refinance loans. The fee reductions went into effect in the fourth quarter of 2022 while the new fees on cash-out refinance loans began February 1, 2023. Enact expects these price changes to have a net positive impact to the private mortgage insurance market but believes the impact has been limited to date.

The FHFA also announced in October 2022 its validation and approval of certain credit score models for use by the GSEs and changed the required number of credit reports provided by lenders from all three nationwide consumer reporting agencies to only two. The validation of the new credit scores requires lenders to deliver both credit scores for each loan sold to the GSEs. The FHFA has announced preliminary implementation expectations, but this is expected to be a multiple year process that will require system and process updates.

In January 2023, the FHFA announced additional updates to its upfront fee structure and pricing matrix. The changes marked the third iteration of the FHFA’s ongoing pricing review since early 2022 and impact purchase and rate-term refinance loans. Pricing grids are now broken out by loan purpose and are recalibrated to new credit score and loan-to-value ratio categories, along with associated loan attributes. The new pricing matrix initially included new upfront fees for loans with debt-to-income ratios greater than 40% but those fees were rescinded prior to implementation. The remaining changes became effective May 1, 2023.

In February 2023, the Department of Housing and Urban Development announced a 30-basis point reduction of the annual insurance premium charged to borrowers with FHA-insured mortgages in an effort to reduce the cost of borrowing for eligible lower and middle class homebuyers. This price reduction, which went into effect on March 20, 2023, is expected to have a negative impact on the U.S. private mortgage insurance market but will be partially offset by the effects of the recent FHFA pricing changes referenced above. Enact does not believe this net impact has been or will be material.

The U.S. private mortgage insurance industry is highly competitive. Enact Holdings’ market share is influenced by the execution of its go to market strategy, including but not limited to, pricing competitiveness relative to its peers and its selective participation in forward commitment transactions. Enact continues to manage the quality of new business through pricing and its underwriting guidelines, which are modified from time to time when circumstances warrant. The market and underwriting conditions, including the mortgage insurance pricing environment, are within Enact’s risk adjusted return appetite, enabling it to write new business at returns it views as attractive.

New insurance written of $14.4 billion in the third quarter of 2023 decreased 4% compared to the third quarter of 2022 mostly from a decline in originations due to elevated mortgage rates. Enact’s primary persistency rate was 84% during the third quarter of 2023 compared to 82% during the third quarter of 2022. The increase in persistency was primarily driven by a decline in the percentage of in-force policies with mortgage rates above current mortgage rates. Elevated persistency continued to offset the decline in new insurance written in the third quarter of 2023, leading to an increase in primary insurance in-force of $4.2 billion as compared to June 30, 2023.

Net earned premiums increased in the third quarter of 2023 compared to the third quarter of 2022 primarily driven by insurance in-force growth, partially offset by the lapse of older, higher priced policies and lower single premium policy cancellations in the current year. The total number of delinquent loans has declined from the COVID-19 peak in the second quarter of 2020 as borrowers continued to exit forbearance plans and new forbearances declined. During this time and consistent with prior years, servicers continued the practice of remitting premiums during the early stages of default, and Enact refunds the post-delinquent premiums to the insured party if the delinquent loan goes to claim. Enact records a liability and a reduction to net earned premiums for the post-delinquent premiums it expects to refund. The post-delinquent premium liability recorded since the beginning of COVID-19 in the second quarter of 2020 through the third quarter of 2023 was not significant to the change in earned premiums for those periods.

Enact’s loss ratio for the three months ended September 30, 2023 and 2022 was 7% and (17)%, respectively. Enact recorded a favorable reserve adjustment of $55 million during the third quarter of 2023 primarily related to favorable cure performance on delinquencies from 2022 and earlier, including those related to COVID-19. Cure performance on delinquencies from 2022 has not been negatively impacted by uncertainty in the economic environment to the extent initially expected. In addition, during the peak of COVID-19, Enact experienced elevated new delinquencies subject to forbearance plans, and those delinquencies have been curing at levels above Enact’s reserve expectations. During the third quarter of 2022, Enact released $105 million of reserves largely related to favorable cure performance on COVID-19 delinquencies, partially offset by reserve strengthening of $25 million related to 2022 delinquencies given uncertainty in the economic environment.

Borrowers who have experienced a financial hardship including, but not limited to, the loss of income due to the closing of a business or the loss of a job continue to take advantage of available loss mitigation options, including forbearance programs, payment deferral options and other modifications. Loss reserves recorded on these delinquencies require a high degree of estimation due to the level of uncertainty regarding whether delinquencies in forbearance will ultimately cure or result in claim payments, as well as the timing and severity of those payments. The severity of loss on loans that do go to claim may be negatively impacted by the extended forbearance and foreclosure timelines, the associated elevated expenses and the higher loan amount of the recent new delinquencies. These negative influences on loss severity could be mitigated in part by embedded home price appreciation. For loans insured on or after October 1, 2014, Enact’s mortgage insurance policies limit the number of months of unpaid interest and associated expenses that are included in the mortgage insurance claim amount to a maximum of 36 months.

New primary delinquencies in the third quarter of 2023 increased compared to the third quarter of 2022 primarily due to the aging of large, new books of business. New primary delinquencies of 11,107 contributed $72 million of loss expense in the third quarter of 2023, while Enact incurred $39 million of losses from 9,121 new primary delinquencies in the third quarter of 2022. In determining the loss expense estimate, considerations were given to recent cure and claim experience and the prevailing and prospective economic conditions. Approximately 12% of Enact’s primary new delinquencies in the third quarter of 2023 were subject to a forbearance plan compared to 18% in the third quarter of 2022. Due to the declining number of new delinquencies in forbearance, Enact no longer differentiates the expected claim rates applied to new delinquencies in forbearance versus those not in forbearance.

As of September 30, 2023, EMICO’s risk-to-capital ratio under the current regulatory framework as established under North Carolina law and enforced by the North Carolina Department of Insurance (“NCDOI”), EMICO’s domestic insurance regulator, was approximately 11.6:1, compared with a risk-to-capital ratio of 11.9:1 and 12.9:1 as of June 30, 2023 and December 31, 2022, respectively. EMICO’s risk-to-capital ratio remains below the NCDOI’s maximum risk-to-capital ratio of 25:1. North Carolina’s calculation of risk-to-capital excludes the risk in-force for delinquent loans given the established loss reserves against all delinquencies. EMICO’s ongoing risk-to-capital ratio will depend principally on the magnitude of future losses incurred by EMICO, the effectiveness of ongoing loss mitigation activities, new business volume and profitability, the impact of quota share reinsurance, the amount of policy lapses and the amount of additional capital that is generated or distributed by the business.

Under PMIERs, Enact is subject to operational and financial requirements that private mortgage insurers must meet in order to remain eligible to insure loans that are purchased by the GSEs. In addition, in September 2020, subsequent to the issuance of Enact Holdings’ senior notes due in 2025, the GSEs imposed certain restrictions (the “GSE Restrictions”) with respect to capital on Enact. In May 2021, in connection with their conditional approval of the then potential partial sale of Enact Holdings, the GSEs confirmed the GSE Restrictions would remain in effect until certain conditions (the “GSE Conditions”) were met. These conditions were met as of December 31, 2022 and in March 2023, the GSEs confirmed that Enact is no longer subject to the GSE Restrictions and the GSE Conditions.

As of September 30, 2023, Enact had estimated available assets of $5,268 million against $3,251 million net required assets under PMIERs compared to available assets of $5,093 million against $3,135 million net required assets as of June 30, 2023. The sufficiency ratio as of September 30, 2023 was 162% or $2,017 million above the PMIERs requirements, compared to 162% or $1,958 million above the PMIERs requirements as of June 30, 2023. Enact’s PMIERs required assets as of September 30, 2023 and June 30, 2023 benefited from the application of a 0.30 multiplier applied to the risk-based required asset amount factor for certain non-performing loans as defined under PMIERs. The application of the 0.30 multiplier to all eligible delinquencies provided $86 million of benefit to

Enact’s September 30, 2023 PMIERs required assets compared to $107 million of benefit as of June 30, 2023. These amounts are gross of any incremental reinsurance benefit from the elimination of the 0.30 multiplier. Enact’s third-party reinsurance transactions provided an aggregate of approximately $1,505 million and $1,524 million of PMIERs capital credit as of September 30, 2023 and June 30, 2023, respectively.

In April 2023, EMICO completed a distribution to Enact Holdings that supports its ability to pay a quarterly dividend. Enact Holdings intends to use these proceeds and future EMICO distributions to fund the quarterly dividend as well as to bolster its financial flexibility and potentially return additional capital to shareholders. Future dividend payments are subject to quarterly review and approval by Enact Holdings’ board of directors and Genworth Financial. In addition to Enact’s quarterly dividend program, in November 2022, Enact Holdings announced approval by its board of directors of a share repurchase program under which it may repurchase up to $75 million of its outstanding common stock, and on August 1, 2023, announced the authorization of an additional $100 million of common stock repurchases under a new share repurchase program. Genworth Holdings has agreed to participate in order to maintain its overall ownership at its current level. As the majority shareholder, Genworth Holdings received $26 million of capital returns from Enact Holdings during the third quarter of 2023. On November 1, 2023, Enact Holdings announced a special dividend of $113 million to be paid in the fourth quarter of 2023.

Returning capital to shareholders, balanced with growth and risk management priorities, remains a key commitment for Enact Holdings as it looks to enhance shareholder value through time. Future return of capital will be shaped by Enact Holdings’ capital prioritization framework, including: supporting its existing policyholders; growing its mortgage insurance business; funding attractive new business opportunities; and returning capital to shareholders. Enact Holdings’ total return of capital will also be based on its view of the prevailing and prospective macroeconomic conditions, regulatory landscape and business performance.

Segment results of operations

Three Months Ended September 30, 2023 Compared to Three Months Ended September 30, 2022

The following table sets forth the results of operations relating to our Enact segment for the periods indicated:

(Amounts in millions)

Adjusted operating income available to Genworth Financial, Inc.’s common stockholders

Adjusted operating income decreased primarily attributable to higher losses on new delinquencies and a lower favorable reserve adjustment, partially offset by higher net investment income and premiums in the current year.

Revenues

Premiums increased mostly from higher insurance in-force, partially offset by the lapse of older, higher priced policies and lower single premium policy cancellations in the current year.

Net investment income increased primarily from higher investment yields and higher average invested assets in the current year.

Benefits and expenses

Benefits and other changes in policy reserves increased largely from higher losses on new delinquencies and a lower favorable reserve adjustment in the current year as discussed above in “—Trends and conditions.”

Acquisition and operating expenses, net of deferrals, decreased primarily attributable to lower operating costs in the current year.

Provision for income taxes. The effective tax rate was 23.0% and 21.9% for the three months ended September 30, 2023 and 2022, respectively, generally consistent with the U.S. corporate federal income tax rate.

The following table sets forth the results of operations relating to our Enact segment for the periods indicated:

(Amounts in millions)

(1) We define “NM” as not meaningful for increases or decreases greater than 200%.

(2) For the nine months ended September 30, 2023, net investment (gains) losses were adjusted for the portion attributable to noncontrolling interests of $2 million.

Adjusted operating income available to Genworth Financial, Inc.’s common stockholders

Adjusted operating income decreased primarily attributable to higher losses on new delinquencies and lower favorable reserve adjustments, partially offset by higher net investment income, lower operating costs and higher premiums in the current year.

Revenues

Premiums increased mostly from higher insurance in-force, partially offset by the lapse of older, higher priced policies and lower single premium policy cancellations in the current year.

Net investment income increased primarily from higher investment yields and higher average invested assets in the current year.

For a discussion of the change in net investment gains (losses), see the comparison for this line item under “—Investments and Derivative Instruments.”

Benefits and expenses

Benefits and other changes in policy reserves increased largely from higher losses on new delinquencies and lower favorable reserve adjustments in the current year. Enact recorded reserve releases of $188 million in the current year primarily related to favorable cure performance on delinquencies from 2022 and earlier, including those related to COVID-19. During the prior year, Enact released $251 million of reserves largely related to favorable cure performance on COVID-19 delinquencies, partially offset by reserve strengthening of $25 million related to 2022 delinquencies given uncertainty in the economic environment.

Acquisition and operating expenses, net of deferrals, decreased primarily attributable to lower operating costs in the current year.

Provision for income taxes. The effective tax rate was 22.0% and 21.7% for the nine months ended September 30, 2023 and 2022, respectively, consistent with the U.S. corporate federal income tax rate.

Enact selected operating performance measures

Primary Mortgage Insurance

Substantially all of Enact’s policies are primary mortgage insurance, which provides protection on individual loans at specified coverage percentages. Primary mortgage insurance is placed on individual loans at the time of origination and is typically delivered to Enact on a loan-by-loan basis. Primary mortgage insurance can also be delivered to Enact on an aggregated basis, whereby each mortgage in a given loan portfolio is insured in a single transaction after the point of origination.

Pool Mortgage Insurance

Pool mortgage insurance transactions provide coverage on a finite set of individual loans identified by the pool policy. Pool policies contain coverage percentages and provisions limiting the insurer’s obligation to pay claims until a threshold amount is reached (known as a “deductible”) or capping the insurer’s potential aggregate liability for claims payments (known as a “stop loss”) or a combination of both provisions. Pool mortgage insurance is typically used to provide additional credit enhancement for certain secondary market mortgage transactions.

The following tables set forth selected operating performance measures regarding Enact as of and for the dates indicated:

(Amounts in millions)

(1) Primary insurance in-force represents the aggregate unpaid principal balance for loans Enact insures.

(Amounts in millions)

Primary insurance in-force and risk in-force

Primary insurance in-force increased mainly from new insurance written. In addition, lower lapses and cancellations drove higher primary persistency, largely as a result of suppressed refinancing activity in the current year due to elevated interest rates. The primary persistency rate was 84% and 79% for the nine months ended September 30, 2023 and 2022, respectively. Total risk in-force increased primarily as a result of higher primary insurance in-force.

New insurance written

For the three and nine months ended September 30, 2023, new insurance written decreased principally from lower originations in the current year due to elevated interest rates.

Loss and expense ratios

The following table sets forth the loss and expense ratios for Enact for the dates indicated:

The loss ratio is the ratio of benefits and other changes in policy reserves to net earned premiums. The expense ratio is the ratio of general expenses to net earned premiums. In Enact, general expenses consist of acquisition and operating expenses, net of deferrals, and amortization of DAC and intangibles.

The loss ratio increased for the three and nine months ended September 30, 2023 largely from higher losses on new delinquencies and lower favorable reserve adjustments in the current year, as discussed above.

The expense ratio for the three and nine months ended September 30, 2023 decreased primarily attributable to lower operating costs in the current year.

Mortgage insurance loan portfolio

The following table sets forth selected financial information regarding Enact’s loan portfolio as of September 30:

(Amounts in millions)

(1) Fair Isaac Company.

(2) Loans with unknown FICO scores are included in the 660-679 category.

Delinquent loans

The following table sets forth the number of loans insured, the number of delinquent loans and the delinquency rate for Enact’s loan portfolio as of the dates indicated:

Delinquency rates decreased compared to December 31, 2022 primarily from a decline in total delinquencies mostly driven by paid claims and cures outpacing new delinquencies.

The following tables set forth primary delinquencies, direct primary case reserves and risk in-force by aged missed payment status in Enact’s loan portfolio as of the dates indicated:

(Dollar amounts in millions)

(Dollar amounts in millions)

(1) Direct primary case reserves exclude loss adjustment expenses, pool, incurred but not reported (“IBNR”) and reinsurance reserves.

Reserves as a percentage of risk in-force as of September 30, 2023 decreased compared to December 31, 2022 as long-term delinquencies with higher reserves have continued to cure. The number of loans that are delinquent for 12 months or more has decreased since December 31, 2022 and is more in line with pre-COVID-19 levels. Due to continued forbearance options, foreclosure moratoriums and the uncertainty around the lack of progression through the foreclosure process, there is still uncertainty around the likelihood and timing of delinquencies going to claim.

Primary insurance delinquency rates differ from region to region in the United States at any one time depending upon economic conditions and cyclical growth patterns. The tables below set forth the dispersion of direct primary case reserves and primary delinquency rates for the 10 largest states and the 10 largest Metropolitan Statistical Areas (“MSA”) or Metro Divisions (“MD”) by Enact’s primary risk in-force as of the dates indicated. Delinquency rates are shown by region based upon the location of the underlying property rather than the location of the lender.

(1) Direct primary case reserves exclude loss adjustment expenses, pool, IBNR and reinsurance reserves.

(2) Jurisdiction predominantly uses a judicial foreclosure process, which generally increases the amount of time it takes for a foreclosure to be completed.

(1) Direct primary case reserves exclude loss adjustment expenses, pool, IBNR and reinsurance reserves.

The following table sets forth the dispersion of Enact’s direct primary case reserves, primary insurance in-force and risk in-force by year of policy origination, and delinquency rate as of September 30, 2023:

(Amounts in millions)

(1) Direct primary case reserves exclude loss adjustment expenses, pool, IBNR and reinsurance reserves.

Loss reserves in policy years 2008 and prior are outsized compared to their representation of risk in-force. The size of these policy years at origination combined with the significant decline in home prices led to significant losses in policy years prior to 2009. Although uncertainty remains with respect to the ultimate losses Enact will experience on these policy years, they have become a smaller percentage of its total mortgage insurance portfolio. Loss reserves have shifted to newer book years, largely 2020 and later, given their significant representation of risk in-force. As of September 30, 2023, Enact’s 2016 and newer policy years represented approximately 96% of its primary risk in-force and 75% of its total direct primary case reserves.

Long-Term Care Insurance segment

Trends and conditions

The long-term profitability of our long-term care insurance business depends upon how our actual experience compares with our valuation assumptions, including but not limited to in-force rate actions, morbidity, mortality and persistency. Estimates for in-force rate actions reflect certain simplifying assumptions that may vary materially from actual results, including but not limited to consistent policyholder behavior over time in addition to a uniform rate of coinsurance and premium taxes. Actual policyholder behavior may differ significantly from these assumptions. Results of our long-term care insurance business are also influenced by our ability to improve investment yields and manage expenses and reinsurance, among other factors. Changes in laws or government programs, including long-term care insurance rate action legislation, regulation and/or practices, could also impact our long-term care insurance business either positively or negatively.

Because these factors are not known in advance, change over time, are difficult to accurately predict and are inherently uncertain, we cannot determine with precision the ultimate amounts we will pay for actual claims or the timing of those payments. We will continue to monitor our experience and assumptions closely and make changes to our assumptions and methodologies, as appropriate, for our long-term care insurance products. Any adverse change in our assumptions could have a negative impact on our reserve levels and results of operations in our long-term care insurance business. Even small changes in assumptions or small deviations of actual experience from assumptions could have, and in the past have had, material impacts on our reserve levels, results of operations and financial condition.

Under LDTI, the impacts of assumption updates and actual versus expected experience will continue to drive volatility in our long-term care insurance results. Under LDTI, approximately 50% of our cohorts currently have net premium ratios capped at 100%. The net premium ratio represents the portion of the gross premiums required to provide for all benefits and certain expenses in our long-term care insurance business. These capped cohorts are generally our older long-term care insurance policies, largely sold prior to 2003. The other 50% of our cohorts have a net premium ratio of less than 100% and are currently expected to be profitable. We currently expect the profitable uncapped cohorts to have a more modest earnings impact when we evaluate actual to expected experience, with a portion of the impact reflected in current period results, and the remaining majority of the impact recognized over the life of the cohort. Conversely, for the unprofitable capped cohorts, the full impact of the actual to expected variances will be recognized in current period earnings and will likely be more impactful on our results of operations. It is important to note that quarterly variations are typically expected to be immaterial compared to our liability for future policy benefits of $41.9 billion, at the locked-in discount rate, for our long-term care insurance business as of September 30, 2023 and do not impact cash flows, the long-term economics of the business or the way we manage the business. Under LDTI, we would also expect ongoing income statement impacts and volatility related to assumption updates in our older, unprofitable capped cohorts going forward.

We complete the required annual review of our cash flow assumptions, including mortality, benefit utilization, expected claim incidence and terminations, and benefit reductions related to in-force rate actions and legal settlements, among other assumptions, for our long-term care insurance products in the fourth quarter of each year. Cash flow assumptions related to legal settlements also include estimates for cash payments to policyholders who elect certain reduced benefit options in connection with the legal settlements, referred to herein as settlement payments. In the fourth quarter of 2022, we refined several assumptions, including reducing our lapse assumption in light of favorable experience from our long-term care insurance legal settlement elections and benefit reductions. The favorable impact from changes in cash flow assumptions was mainly attributable to the inclusion of a second legal settlement. We also evaluated our assumptions regarding expectations of future premium rate increase approvals and benefit reductions and made no significant changes to our 2022 multi-year in-force rate action plan. However, we did increase the value of our assumption for future approvals and benefit reductions based on recent rate increase approval experience, regulatory support and legal settlement results.

As part of our assumption updates in the fourth quarter of 2023, we will include assumptions related to a third legal settlement. While we expect the third legal settlement to result in a significant reduction in tail risk over the long term, any changes would have a muted income statement impact in the fourth quarter of 2023 because this settlement is primarily part of the profitable uncapped cohorts. The benefit to us will depend on the rate at which policyholders elect to reduce benefits, and the majority of the impact will be realized over the lifetime of these uncapped cohorts. In connection with our 2023 cash flow assumption update reviews, we are also reviewing our long-term assumptions for lapses, benefit utilization, mortality and in-force rate actions. We are also evaluating potential short-term impacts emerging after COVID-19 and aligning near-term projections with recent experience. While our reviews are still underway and not yet complete, the long-term care insurance assumption updates could be negative in the aggregate, as experience has been mixed, and would be reported immediately in earnings particularly for unprofitable capped cohorts.

We will also complete statutory cash flow testing for our life insurance companies in the fourth quarter. Under cash flow testing, changes to our claim reserve assumptions are reflected in statutory income. However, changes impacting active life reserves are included in our cash flow testing margin review, which only impacts statutory income if the margin falls below zero. While our statutory process is not yet complete and significant work remains, our early assessment is that the margin for Genworth Life Insurance Company, one of our principal life insurance subsidiaries, should remain positive.

Given the ongoing challenges in our long-term care insurance business, we continue to pursue initiatives to improve the risk and profitability profile of our business, including premium rate increases and associated benefit reductions on our in-force policies. Executing on our multi-year long-term care insurance in-force rate action plan with premium rate increases and associated benefit reductions on our legacy long-term care insurance policies is critical to the business. For an update on in-force rate actions, refer to “Significant Developments and Strategic Highlights—U.S. life insurance companies” and the selected operating performance measures below.

In addition, we have reached certain legal settlements regarding alleged disclosure deficiencies in premium increases for long-term care insurance policies. The first legal settlement related to certain of our long-term care insurance policies, which represents approximately 20% of our block, was implemented beginning in 2021 and its implementation was materially completed in the second quarter of 2022. A second legal settlement on certain of our long-term care insurance policies, which represents 15% of our block, became final on July 29, 2022. We began implementation of this settlement on August 1, 2022 and expect it to be materially complete at the end of 2023. On March 27, 2023, a third similar settlement on certain of our long-term care insurance policies, which represents 35% of our block, became final. We began implementation of this settlement during the second quarter of 2023.

While the second and third legal settlements are similar to the first settlement, their ultimate impact will depend on the policyholder election rates and the types of reduced benefits elected. Given our experience with the first settlement, we expect the second and third legal settlements to result in an overall net favorable economic impact to our long-term care insurance business as they reduce tail risk on these long-duration liabilities. While we expect renewal premiums to decline over time, the settlements could accelerate that decline if policyholders continue to elect non-forfeiture and reduced benefit options, which have predominantly been the most prevalent policyholder elections for these legal settlements.

In our long-term care insurance products, we experienced a favorable impact on reserves and our operating results related to mortality during COVID-19. Although it is not our practice to track cause of death for long-term care insurance policyholders and claimants, we believe the favorable mortality in our long-term care insurance business in early 2022 was likely impacted by COVID-19. We expected the impacts to be temporary, and we saw mortality levels trending back to pre-pandemic levels in the latter half of 2022. In the first quarter of 2023, we experienced typical seasonally favorable mortality, but mortality was unfavorable in the second and third quarters of 2023, consistent with seasonal trends. We continue to evaluate the long-term impacts of COVID-19 on our mortality assumptions.

We also experienced lower than expected new claims incidence in our long-term care insurance business during COVID-19. However, we expected this to be a temporary reduction and that claims incidence experience would ultimately revert to pre-pandemic trends. We are seeing new claims incidence trending back to pre-pandemic levels. In addition, during the pandemic, a larger share of our claimants sought home care instead of facility-based care, and as the impacts of the pandemic subside, we have seen that trend reverse. Our long-term care insurance benefit utilization will be monitored so that we can evaluate any long-term impact emerging from the pandemic, although it is too early to tell the magnitude and/or direction of that impact.

While the longer-term impacts of COVID-19 are very difficult to predict, the related outcomes and impact on our long-term care insurance business currently depend on the after-effects indirectly caused by the pandemic, including elevated inflation, the associated impacts to the cost of care and changes in policyholder behavior. We will continue to monitor COVID-19 associated impacts and evaluate all of our assumptions that may need updating as a result of longer-term trends related to the pandemic. For our 2023 assumption updates, we will generally not include data after 2019 in setting any long-term assumptions, as we do not have sufficient information around longer-term effects of the pandemic, which is consistent with the approach for our 2022 assumptions.

In addition, average claim reserves for new claims are trending higher over time as the mix of claims continues to evolve, with an increasing number of policies with higher daily benefit amounts and higher inflation factors going on claim. Although new claim counts on our oldest long-term care insurance blocks of business will continue to decrease as the blocks run off, we are gaining more experience on our larger new blocks of business and fully expect continued overall growth in new claims as policyholders reach their peak claim years.

Results of our long-term care insurance business are also impacted by interest rates. Prior to the recent rise in interest rates beginning in 2022, historic low interest rates put pressure on the profitability and returns of our long-term care insurance business as higher-yielding investments matured and were replaced with lower-yielding investments. We have sought to manage the impact of low interest rates through asset-liability management, investment in alternative assets, including limited partnerships, as well as interest rate hedging strategies for a portion of our long-term care insurance product cash flows. In addition, rapidly rising interest rates have caused and may continue to cause increased unrealized losses on our investment portfolios and could have an adverse effect on our financial condition and results of operations, including the requirement to liquidate fixed-income investments in an unrealized loss position to satisfy claims obligations. In our long-term care insurance business, we also remeasure our liability for future policy benefits and related reinsurance recoverables at the single-A bond rate each quarter. As a result, our insurance liabilities are sensitive to movements in interest rates, which will likely result in continued volatility to our reserve balances and equity.

We believe that the MOVEit Cybersecurity Incident has not had any impact on any of our information systems, including our financial systems, and that there has not been any material interruption of our business operations. While we are continuing to measure the impact, including certain remediation expenses and other potential liabilities, we do not currently believe this incident will have a material adverse effect on our business, operations, or financial results. In addition, we do not use the MOVEit file transfer system, and PBI has informed us that it has rectified the vulnerability that allowed the incident.

Segment results of operations

Three Months Ended September 30, 2023 Compared to Three Months Ended September 30, 2022

The following table sets forth the results of operations relating to our Long-Term Care Insurance segment for the periods indicated:

(Amounts in millions)

(1) We define “NM” as not meaningful for increases or decreases greater than 200%.

Adjusted operating income (loss) available to Genworth Financial, Inc.’s common stockholders

The change to an adjusted operating loss in the current year from adjusted operating income in the prior year was primarily from higher liability remeasurement losses largely driven by timing impacts related to the second legal settlement, higher claims and lower terminations in the current year. The adverse change was also attributable to lower net investment income in the current year, partially offset by an accrual for legal settlement costs of $16 million in the prior year that did not recur.

Revenues

Premiums decreased primarily driven by lower renewal premiums from policy terminations and policies entering paid-up status, partially offset by $11 million of higher premiums from newly implemented in-force rate actions in the current year.

Net investment income decreased largely from lower income from U.S. Government Treasury Inflation Protected Securities (“TIPS”) and limited partnerships, partially offset by higher investment yields and higher average invested assets in the current year.

For a discussion of the change in net investment gains (losses), see the comparison for this line item under “—Investments and Derivative Instruments.”

Benefits and expenses

The liability remeasurement loss in the current year was primarily due to adverse actual versus expected experience largely driven by timing impacts related to the second legal settlement, higher claims and lower terminations.

Acquisition and operating expenses, net of deferrals, decreased principally from a $20 million accrual for legal settlement costs in the prior year that did not recur, partially offset by higher operating costs in the current year.

Benefit for income taxes. The effective tax rate was 14.0% and 6.6% for the three months ended September 30, 2023 and 2022, respectively. The increase in the effective tax rate was primarily attributable to tax expense on certain forward starting swap gains that are tax effected at the previously enacted federal income tax rate of 35% as they are amortized into net investment income in relation to the pre-tax loss in the current year.

The following table sets forth the results of operations relating to our Long-Term Care Insurance segment for the periods indicated:

(Amounts in millions)

(1) We define “NM” as not meaningful for increases or decreases greater than 200%.

Adjusted operating income (loss) available to Genworth Financial, Inc.’s common stockholders

The change to an adjusted operating loss in the current year from adjusted operating income in the prior year was primarily from an unfavorable change in liability remeasurement (gains) losses largely driven by timing impacts related to legal settlements, higher claims and lower terminations in the current year. The change was also attributable to less favorable cash flow assumption updates related to implementation timing and approval amounts of our in-force rate action plan and from higher operating costs in the current year.

Revenues

Premiums decreased primarily driven by lower renewal premiums from policy terminations and policies entering paid-up status, partially offset by $60 million of higher premiums from newly implemented in-force rate actions in the current year.

Net investment income decreased largely due to lower income from TIPS, partially offset by higher income from bank loans and higher average invested assets in the current year.

For a discussion of the change in net investment gains (losses), see the comparison for this line item under “—Investments and Derivative Instruments.”

Benefits and expenses

Benefits and other changes in policy reserves increased primarily due to aging of the in-force block, including higher interest accretion, as well as higher loss adjustment expenses in the current year.

The liability remeasurement loss of $133 million in the current year was largely driven by adverse actual versus expected experience related to timing impacts from the second legal settlement, higher claims and lower terminations. This was partially offset by a favorable cash flow assumption update related to implementation timing and approval of our in-force rate action plan. The liability remeasurement gain of $62 million in the prior year resulted from favorable actual versus expected experience related to higher terminations, lower claims and timing impacts from the first legal settlement. The remeasurement gain in the prior year also included a favorable cash flow assumption update related to implementation timing and approval of our in-force rate action plan.

Acquisition and operating expenses, net of deferrals, increased principally from higher operating costs, partially offset by a lower accrual for legal settlement costs in the current year.

Provision for income taxes. The effective tax rate was (39.2)% and 28.8% for the nine months ended September 30, 2023 and 2022, respectively. The decrease in the effective tax rate was primarily attributable to tax expense on certain forward starting swap gains that are tax effected at the previously enacted federal income tax rate of 35% as they are amortized into net investment income in relation to a pre-tax loss in the current year.

Long-Term Care Insurance selected operating performance measures

Under LDTI, we included expectations for benefit reductions related to in-force rate actions and legal settlements as well as settlement payments in our assumptions for the liability for future policy benefits, which have impacted and will continue to impact our reported U.S. GAAP financial results. There was no change in how we recognize premiums related to in-force rate actions due to the adoption of LDTI.

In the fourth quarter of 2022, our long-term care insurance business had a liability remeasurement gain of $255 million primarily from favorable assumption updates of $303 million, which reflected an expected reserve reduction, net of estimated settlement payments, attributable to the inclusion of the second legal settlement. This settlement primarily impacts older, unprofitable capped cohorts; therefore, it had an immediate impact to the fourth quarter of 2022 earnings. In contrast to our second legal settlement, when we update our assumptions for our third legal settlement in the fourth quarter of 2023, any changes would have a muted income statement impact because this settlement impacts profitable uncapped cohorts. We have experienced and may continue to experience quarterly fluctuations in earnings related to the legal settlements to the extent actual experience deviates from our assumptions. However, we expect the legal settlements to result in an overall net favorable economic impact to our long-term care insurance business as they reduce tail risk on these long-duration liabilities.

Under LDTI, we elected to update the net premium ratio quarterly for actual versus expected experience; therefore, forecasted cash flow assumptions will be replaced with actual cash flows each quarter with any difference recorded in net income (loss). As a result, variances between actual experience and our expectations for benefit reductions and settlement payments will be reflected in liability remeasurement (gains) losses in our operating results on a quarterly basis.

Remeasurement (gains) losses

The following table sets forth the pre-tax components of the liability remeasurement (gains) losses for the periods indicated:

(Amounts in millions)

(1) We define “NM” as not meaningful for increases or decreases greater than 200%.

For a discussion of the change in liability remeasurement (gains) losses, see the comparison for this line item above in “—Segment results of operations.”

In-force rate actions

As part of our strategy for our long-term care insurance business, we have been implementing, and expect to continue to pursue, significant premium rate increases and associated benefit reductions on older generation blocks of business in order to bring those blocks closer to a break-even point over time and reduce the strain on earnings and capital.

The following table sets forth filing approvals as part of our multi-year in-force rate action plan for the periods indicated:

(Dollar amounts in millions)

During the nine months ended September 30, 2023, we also submitted 104 new filings on approximately $705 million in annualized in-force premiums.

The approval process for in-force rate actions and the amount and timing of the premium rate increases and associated benefit reductions approved vary by state. In certain states, the decision to approve or disapprove a rate increase can take a significant amount of time, and the approved amount may be phased in over time. After approval, insureds are provided with written notice of the increase and increases are generally applied on the insured’s next policy anniversary date. As a result, the benefits of any rate increase are not fully realized until the implementation cycle is complete and are, therefore, expected to be realized over time.

We continue to work closely with the NAIC and state regulators to demonstrate the broad-based need for actuarially justified rate increases in order to pay future claims. Because obtaining actuarially justified rate increases and associated benefit reductions is important to our ability to pay future claims, we will consider litigation against states that decline to approve those actuarially justified rate increases. In January 2022, we began litigation with two states that have refused to approve actuarially justified rate increases.

Life and Annuities segment

Trends and conditions

Many factors can affect the results of our life insurance and annuity products, as further discussed below. Because these factors are not known in advance, change over time, are difficult to accurately predict and are inherently uncertain, we cannot determine with precision the ultimate amounts we will pay for actual claims or the timing of those payments. We will continue to monitor our experience and assumptions closely and make changes to our assumptions and methodologies, as appropriate, for our life insurance and annuity products. Even small changes in assumptions or small deviations of actual experience from assumptions could have, and in the past have had, material impacts on our reserve levels, results of operations and financial condition. Results of our life insurance and annuity products depend significantly upon the extent to which our actual future experience is consistent with assumptions and methodologies we have used in calculating our reserves. We no longer solicit sales of traditional life insurance and annuity products; however, we continue to service our existing retained and reinsured blocks of business.

We complete the required annual review of our cash flow assumptions, including mortality and lapse, among other assumptions, for our life insurance and annuity products in the fourth quarter of each year. Our 2023 assumption review will consider trends during the pandemic years, but any proposed updates to long-term assumptions will generally exclude or adjust experience data after 2019, as we do not have sufficient information around the long-term effects of COVID-19. However, we will assess near-term trends together with our review of long-term care insurance mortality as we continue to evaluate the long-term implications of COVID-19. Any materially adverse changes to our assumptions could have a materially negative impact on our results of operations, financial condition and business.

Results of our life insurance and annuity products are also impacted by interest rates. Prior to the recent rise in interest rates beginning in 2022, historic low interest rates put pressure on the profitability and returns of our life insurance and annuity products as higher-yielding investments matured and were replaced with lower-yielding investments. We have sought to manage the impact of low interest rates through asset-liability management. Additionally, certain products have implicit and explicit rate guarantees or optionality that are significantly impacted by changes in interest rates. During periods of increasing market interest rates, we may increase crediting rates on in-force universal life insurance and fixed annuity products to remain competitive in the marketplace. In addition, rapidly rising interest rates have caused and may continue to cause increased unrealized losses on our investment portfolios, increased policy surrenders, withdrawals from life insurance policies and annuity contracts and requests for policy loans, as policyholders and contractholders shift assets into higher-yielding investments. Increases in crediting rates, as well as surrenders and withdrawals, could have an adverse effect on our financial condition and results of operations, including the requirement to liquidate fixed-income investments in an unrealized loss position to satisfy surrenders or withdrawals. For a further discussion of the impact of interest rates on our life insurance and annuity products, see “Item 7A—Quantitative and Qualitative Disclosures About Market Risk” in our 2022 Annual Report on Form 10-K.

For a discussion of our assessment of the impacts of the MOVEit Cybersecurity Incident on our business, see “Long-Term Care Insurance segment—Trends and conditions.”

Life insurance

Results of our life insurance products are impacted primarily by mortality, persistency, investment yields, expenses, reinsurance and statutory reserve requirements, among other factors.

Mortality levels may deviate each period from historical trends. Overall mortality experience was favorable for the third quarter of 2023 compared to the third quarter of 2022 but was slightly less favorable than the second quarter of 2023. In our life insurance products, COVID-19 deaths have continued to significantly decline during 2023 from the levels in 2022. We have experienced unfavorable mortality compared to our then-current and priced-for assumptions in recent years for our universal life insurance block. We have also been experiencing higher mortality related charges resulting in an increase in rates charged by our reinsurance partners reflecting natural block aging and unfavorable mortality compared to expectations.

We regularly review our assumptions in light of emerging experience and trends. In the fourth quarter of 2022, we made favorable cash flow assumption updates of $37 million in our universal and term universal life insurance products primarily related to higher interest rates. In connection with our 2023 review of our cash flow assumptions, we are currently considering updates to lapses and mortality, including mortality improvement. We have been monitoring lapse experience particularly in our universal life insurance products with secondary guarantees, consistent with others in the industry. However, given the relatively small size and characteristics of our closed block, any impact would likely be smaller relative to others in the industry with larger blocks. Our mortality experience for older ages has also been emerging and we have continued to monitor trends in mortality improvement. While our reviews are still underway and not yet complete, the life insurance assumption updates we are considering in aggregate could pressure our results in the fourth quarter of 2023.

Our universal life insurance products with secondary guarantees are subject to additional reserves on a statutory basis using a regulatory prescribed reinvestment rate. Given the increase in rates, we currently anticipate a favorable benefit from the reinvestment rate. From a statutory income perspective, we believe the favorable benefit from the reinvestment rate will help offset any potential negative assumption updates. Our statutory reviews are still underway and not yet complete, and we plan to report the outcome of these reviews in connection with our release of our fourth quarter of 2023 financial results.

Fixed annuities

Results of our fixed annuity products are affected primarily by investment performance, interest rate levels, the slope of the interest rate yield curve, net interest spreads, equity market conditions, mortality, persistency and expense and commission levels.

We monitor and change crediting rates on fixed deferred annuities on a regular basis to maintain spreads and targeted returns, if applicable. However, we have seen and could continue to see declines in our fixed annuity spreads and margins as interest rates change, depending on the severity of the change.

As part of our fourth quarter of 2023 review of our cash flow assumptions, we are monitoring mortality and lapse assumptions in our fixed annuity products. Our lapse experience in the higher interest rate environment and after the banking disruption in early 2023 has been emerging. Any materially adverse changes to our assumptions could have a materially negative impact on our results of operations, financial condition and business.

For fixed indexed annuities, equity market and interest rate performance and volatility could also result in additional gains or losses, although associated hedging activities are expected to partially mitigate these impacts.

Variable annuities

Results of our variable annuity products are affected primarily by investment performance, interest rate levels, the slope of the interest rate yield curve, net interest spreads, equity market conditions, mortality, surrenders and scheduled maturities. In addition, the results of our variable annuity products can significantly impact our regulatory capital requirements, distributable earnings and liquidity. We use hedging strategies as well as liquidity planning and asset-liability management to help mitigate the impacts. In addition, we have used reinsurance to help mitigate volatility in our variable annuity results.

Equity market volatility and interest rate movements have caused fluctuations in the results of our variable annuity products and regulatory capital requirements. In the future, equity and interest rate market performance and volatility could result in additional gains or losses in these products although associated hedging activities are expected to partially mitigate these impacts.

Segment results of operations

Three Months Ended September 30, 2023 Compared to Three Months Ended September 30, 2022

The following table sets forth the results of operations relating to our Life and Annuities segment for the periods indicated:

(Amounts in millions)

(1) We define “NM” as not meaningful for increases or decreases greater than 200%.

(2) For the three months ended September 30, 2023 and 2022, changes in fair value of market risk benefits and associated hedges were adjusted to exclude changes in reserves, attributed fees and benefit payments of $(2) million and $(5) million, respectively.

The following table sets forth adjusted operating income (loss) available to Genworth Financial, Inc.’s common stockholders for the products included in our Life and Annuities segment for the periods indicated:

(Amounts in millions)

Adjusted operating loss available to Genworth Financial, Inc.’s common stockholders

• The adjusted operating loss in our life insurance products decreased primarily due to favorable mortality experience and lower DAC amortization, partially offset by higher liability remeasurement losses largely related to a voluntary recapture of previously ceded reinsurance in the current year.
• Adjusted operating income in our fixed annuity products increased mainly from favorable mortality in our fixed payout annuity products, partially offset by lower net spreads primarily related to block runoff in the current year.
• Adjusted operating income in our variable annuity products decreased predominantly due to a decline in fee income driven by lower account value in the current year.

Revenues

Premiums. The decrease was driven by our life insurance products largely due to the continued runoff of our in-force blocks, partially offset by lower ceded premiums in the current year.

Net investment income. The decrease was primarily attributable to lower average invested assets driven mostly by block runoff in our fixed annuity products in the current year.

Net investment gains (losses). For a 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. The decrease was related to our life insurance products driven mostly by lower product charges due to the runoff of our in-force blocks and from lower fee income due mostly to a decline in average account value in our variable annuity products in the current year.

Benefits and expenses

Benefits and other changes in policy reserves

• Our life insurance products decreased $13 million primarily from favorable mortality in our universal life insurance products, partially offset by lower lapses in our term life insurance products in the current year.
• Our fixed annuity products decreased $6 million largely from favorable mortality in the current year.

Liability remeasurement (gains) losses

• The liability remeasurement gain in our fixed annuity products increased $8 million primarily due to favorable mortality compared to expectations in the current year.
• The liability remeasurement loss in our life insurance products increased $6 million driven mostly by higher projected benefits as compared to prior expectations due largely to a voluntary recapture of previously ceded reinsurance, partially offset by favorable mortality in the current year.

Changes in fair value of market risk benefits and associated hedges

• Our variable annuity products had an unfavorable variance of $6 million primarily attributable to higher derivative losses and a less favorable impact from interest rate increases, partially offset by a less unfavorable equity market impact in the current year.
• Our fixed annuity products had a favorable variance of $3 million primarily driven by higher interest rates in the current year.

Amortization of deferred acquisition costs and intangibles. The decrease was primarily related to our life insurance products largely due to higher lapses in the prior year as our 20-year level premium period business written in 2002 entered its post-level premium period.

Provision for income taxes. The effective tax rate was 16.8% and (8.4)% for the three months ended September 30, 2023 and 2022, respectively. The increase in the effective tax rate was primarily attributable to tax benefits from tax favored items in relation to pre-tax income in the current year.

The following table sets forth the results of operations relating to our Life and Annuities segment for the periods indicated:

(Amounts in millions)

(1) We define “NM” as not meaningful for increases or decreases greater than 200%.

(2) For the nine months ended September 30, 2023 and 2022, changes in fair value of market risk benefits and associated hedges were adjusted to exclude changes in reserves, attributed fees and benefit payments of $(9) million and $(30) million, respectively.

The following table sets forth adjusted operating income (loss) available to Genworth Financial, Inc.’s common stockholders for the products included in our Life and Annuities segment for the periods indicated:

(Amounts in millions)

Adjusted operating loss available to Genworth Financial, Inc.’s common stockholders

• The adjusted operating loss in our life insurance products decreased largely from lower DAC amortization related to higher lapse in the prior year and from favorable mortality experience in the current year as the COVID-19 impacts subsided. In addition, the prior year included a $20 million legal settlement expense that did not recur. These favorable developments were partially offset by lower premiums reflecting runoff of our in-force blocks in the current year.
• Adjusted operating income in our fixed annuity products decreased mainly attributable to lower net spreads primarily related to block runoff, partially offset by favorable mortality experience in the current year.
• Adjusted operating income in our variable annuity products increased predominantly due to aging of our in-force block, partially offset by a decrease in fee income driven by lower account value in the current year.

Revenues

Premiums. The decrease was driven by our life insurance products largely due to the continued runoff of our in-force blocks in the current year.

Net investment income. The decrease was primarily attributable to lower average invested assets driven mostly by block runoff in our fixed annuity products in the current year.

Net investment gains (losses). For a 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. The decrease was principally from lower fee income due mostly to a decline in average account value in our variable annuity products and from lower product charges in our life insurance products due to the runoff of our in-force blocks in the current year.

Benefits and expenses

Benefits and other changes in policy reserves

• Our fixed annuity products increased $354 million primarily from lower assumed reserves in the prior year as a result of a third-party recapture of $372 million of certain single premium immediate annuity contracts, partially offset by favorable mortality in the current year.
• Our life insurance products decreased $37 million primarily from favorable mortality in the current year, partially offset by an unfavorable change in reserves reflecting prior year term lapse experience.

Changes in fair value of market risk benefits and associated hedges

• Our fixed annuity products had an unfavorable variance of $26 million primarily attributable to lower interest rates, partially offset by favorable equity market impacts in the current year.
• Our variable annuity products had a favorable variance of $4 million principally driven by favorable equity market impacts as well as lower attributed fees and higher benefit payments due to aging of our in-force block, partially offset by higher derivative losses in the current year.

Acquisition and operating expenses, net of deferrals

• Our fixed annuity products decreased $364 million primarily due to a payment of $365 million in the prior year related to the recapture of certain single premium immediate annuity contracts by a third party.
• Our life insurance products decreased $22 million primarily due to a legal settlement expense of $25 million and pension plan termination costs of $6 million in the prior year that did not recur. These decreases were partially offset by higher operating expenses in the current year, including costs associated with an outsourcing arrangement.

Amortization of deferred acquisition costs and intangibles. The decrease was primarily related to our life insurance products largely due to higher lapses in the prior year as our 20-year level premium period business written in 2002 entered its post-level premium period.

Benefit for income taxes. The effective tax rate was 35.6% and (33.3)% for the nine months ended September 30, 2023 and 2022, respectively. The increase in the effective tax rate was primarily attributable to tax benefits from tax favored items in relation to a pre-tax loss in the current year.

Life and Annuities selected operating performance measures

Life insurance

The following table sets forth selected operating performance measures regarding our life insurance products as of the dates indicated:

(Amounts in millions)

We no longer solicit sales of our traditional life insurance products; however, we continue to service our existing blocks of business. The decrease in insurance in-force in our life insurance products reflects the continued runoff of our in-force blocks.

Corporate and Other

Results of operations

Three Months Ended September 30, 2023 Compared to Three Months Ended September 30, 2022

The following table sets forth the results of operations relating to Corporate and Other for the periods indicated:

(Amounts in millions)

(1) We define “NM” as not meaningful for increases or decreases greater than 200%.

Adjusted operating loss available to Genworth Financial, Inc.’s common stockholders

The adjusted operating loss was flat as a decrease in tax expense on certain forward starting swap gains was offset by higher expenses related to CareScout growth initiatives and higher interest expense in the current year.

Revenues

For a discussion of the change in net investment gains (losses), see the comparison for this line item under “—Investments and Derivative Instruments.”

Benefits and expenses

Benefits and other changes in policy reserves increased primarily related to inter-segment transactions in the current year.

Acquisition and operating expenses, net of deferrals, increased primarily from higher expenses related to CareScout growth initiatives and higher employee-related expenses in the current year, partially offset by a loss of $3 million in the prior year related to the early redemption of Genworth Holdings’ 2024 Notes that did not recur.

Interest expense increased largely driven by a higher floating rate of interest on Genworth Holdings’ 2066 Notes in the current year, partially offset by the early redemption of Genworth Holdings’ 2024 Notes in the prior year.

The benefit for income taxes for the three months ended September 30, 2023 was primarily related to the pre-tax loss. The provision for income taxes for the three months ended September 30, 2022 was largely related to tax expense on certain forward starting swap gains that are tax effected at the previously enacted federal income tax rate of 35% as they are amortized into net investment income, partially offset by a tax benefit related to the pre-tax loss.

The following table sets forth the results of operations relating to Corporate and Other for the periods indicated:

(Amounts in millions)

(1) We define “NM” as not meaningful for increases or decreases greater than 200%.

Adjusted operating loss available to Genworth Financial, Inc.’s common stockholders

The adjusted operating loss increased primarily from higher expenses related to CareScout growth initiatives and higher interest expense, partially offset by higher net investment income and lower tax expense on certain forward starting swap gains in the current year.

Revenues

Net investment income increased largely from higher investment yields and higher average invested assets in the current year.

For a discussion of the change in net investment gains (losses), see the comparison for this line item under “—Investments and Derivative Instruments.”

Benefits and expenses

Benefits and other changes in policy reserves increased primarily related to inter-segment transactions in the current year.

Acquisition and operating expenses, net of deferrals, increased primarily from higher expenses related to CareScout growth initiatives and higher employee-related expenses, including $4 million of restructuring costs in the current year. These increases were partially offset by a gain of $1 million in the current year compared to losses of $7 million in the prior year related to the repurchase and early redemption of Genworth Holdings’ senior notes.

Interest expense increased largely driven by a higher floating rate of interest on Genworth Holdings’ 2066 Notes in the current year, partially offset by the early redemption of Genworth Holdings’ 2024 Notes in the prior year.

The benefit for income taxes for the nine months ended September 30, 2023 was primarily related to the pre-tax loss, partially offset by non-deductible expenses. The tax benefit related to the pre-tax loss for the nine months ended September 30, 2022 was offset by tax expense on certain forward starting swap gains that are tax effected at the previously enacted federal income tax rate of 35% as they are amortized into net investment income and non-deductible expenses.

Investments and Derivative Instruments

General macroeconomic environment

The stability of both the financial markets and global economies in which we operate impacts the sales, revenue growth and profitability trends of our businesses as well as the value of assets and liabilities.

Varied levels of economic performance, coupled with uncertain economic outlooks, war and geopolitical tensions, changes in government policy, including monetary policy, global trade, regulatory and tax reforms, and other changes in market conditions, such as inflation and banking industry disruptions, will continue to influence investment and spending decisions by consumers and businesses as they adjust their consumption, debt, capital and risk profiles in response to these conditions. These trends change as investor confidence in the markets and the outlook for some consumers and businesses shift. As a result, our sales, revenues and profitability trends of certain insurance and investment products as well as the value of assets and liabilities could be impacted going forward. In particular, government responses and displacements caused by COVID-19, persistent elevated inflation, monetary policies (such as the U.S. Federal Reserve’s quantitative tightening), the volatility and strength of the capital markets, changes in tax policy and/or in U.S. tax legislation, high commodity costs, including the price of oil, international trade and the impact of global financial regulation reform will continue to affect economic and business outlooks, level of interest rates, consumer confidence and consumer behavior moving forward.

During the third quarter of 2023, the U.S. Federal Reserve continued to address elevated inflation by increasing interest rates. The U.S. Federal Reserve increased interest rates by 25 basis points at its July 2023 meeting, bringing the upper end of the target range to the highest level since 2001, but held rates steady at its September and November 2023 meetings as it continues to monitor economic activity and inflation. The U.S. consumer price index increased from the second quarter of 2023 while core inflation, which excludes the food and energy sectors, continued to decline from the second quarter of 2023, although it remained at elevated levels compared to the U.S. Federal Reserve’s target inflation rate of 2%. Labor markets remained tight and contributed to elevated inflation in the third quarter of 2023 with real wage growth continuing to decline but job creation exceeding market expectations.

Direct market pressures caused by the sudden disruption of the banking sector in the first quarter of 2023 continued to ease in the third quarter of 2023. Silicon Valley Bank and Signature Bank, which were each taken into receivership by the Federal Deposit Insurance Corporation (“FDIC”), contributed to deposit outflows and pressure on share prices for other small regional banks in the United States in the first quarter of 2023. In the second quarter of 2023, these pressures contributed to First Republic Bank also being taken into receivership by the FDIC and subsequently sold to JPMorgan Chase & Co. While bank deposits began to stabilize in the third quarter of 2023, the long-term impacts of these banking sector disruptions on the broader economy remain uncertain and concerns remain elevated regarding tighter bank lending standards, increased capital requirements for regional banks and the subsequent negative impacts to commercial real estate financing conditions.

Although our overall exposure to recently closed financial institutions has been limited to date, to the extent banks and other financial institutions enter receivership or become insolvent in the future in response to financial conditions affecting the banking system and financial markets, it could negatively affect the value of our investment portfolio or our liquidity if it hinders our ability to access or monetize our existing cash, cash equivalents or investment portfolio. While our business and balance sheet differ substantially from banking institutions that have been the focus of the greatest scrutiny, the operating environment and public trading prices of financial services sector securities can be highly correlated, in particular in times of stress, which may adversely affect the trading price of our common stock and potentially our results of operations.

Given the persistent elevated inflation, evolving U.S. Federal Reserve monetary policy, uncertainty regarding the impacts of the disruption in the banking sector and prolonged geopolitical tensions, including escalating tensions and conflicts in the Middle East, it is possible the U.S. economy could fall into a recession in early 2024. Specific to Genworth, we continue to closely monitor the operating results and financial position of Enact Holdings, particularly related to emerging housing trends. If housing trends move in an unfavorable direction in contrast to our current projections, our liquidity, financial position and results of operations could be adversely impacted.

Trends and conditions

Investments

U.S. Treasury yields continued to increase during the third quarter of 2023 as the U.S. Federal Reserve maintained a restrictive monetary policy. The ten-year U.S. Treasury yield rose to its highest level since 2007, and although the two-year U.S. Treasury yield also increased and remained above the ten-year U.S. Treasury yield, the differential between the two-year yield and the ten-year yield declined from the second quarter of 2023. Following strong performance in the second quarter of 2023, credit market performance remained resilient as macroeconomic data continued to support market optimism for a soft economic landing. Credit spreads ended the third quarter of 2023 flat compared to the second quarter of 2023 and remained below first half of 2023 levels. Corporate borrowers in both the investment grade and below investment grade markets maintained consistent access to capital markets, with a significant increase in below investment grade issuances through the end of the third quarter of 2023 relative to the same period last year.

We continue to closely monitor our exposure to regional banks and commercial real estate in our investment portfolio. We have no exposure to Silicon Valley Bank or Signature Bank. At this time, we believe our investment portfolio is well positioned and any risks to valuations as a result of the pressures in the regional banking system and commercial real estate are manageable.

As of September 30, 2023, our fixed maturity securities portfolio, which was 96% investment grade, comprised 75% of our total invested assets and cash.

Derivatives

As of September 30, 2023, $1.3 billion notional of our derivatives portfolio was cleared through the Chicago Mercantile Exchange (“CME”). The customer swap agreements that govern our cleared derivatives contain provisions that enable our clearing agents to request initial margin in excess of CME requirements. As of September 30, 2023, we posted initial margin of $92 million to our clearing agents, which represented $46 million more than was otherwise required by the clearinghouse. Because our clearing agents serve as guarantors of our obligations to the CME, the customer agreements contain broad termination provisions that are not specifically dependent on ratings. As of September 30, 2023, $11.0 billion notional of our derivatives portfolio was in bilateral over-the-counter derivative transactions pursuant to which we have posted aggregate independent amounts of $477 million and are holding collateral from counterparties in the amount of $15 million.

In July 2017, the United Kingdom Financial Conduct Authority announced its intention to transition away from London Interbank Offered Rate (“LIBOR”), with its full elimination to occur after 2021. The LIBOR tenors, such as the three-month LIBOR, had various phase-out dates with the last committed publication date of June 30, 2023. In December 2022, the Board of Governors of the Federal Reserve System adopted a final rule, which became effective on February 27, 2023. The final rule established benchmark rates, based on the Secured Overnight Financing Rate (“SOFR”), to replace LIBOR after its elimination on June 30, 2023. SOFR is calculated and published by the New York Federal Reserve Bank and reflects the combination of three overnight U.S. Treasury Repo Rates. The rate is different from LIBOR, in that it is a risk-free rate, is backward-looking instead of forward-looking, is a secured rate and currently is available primarily as an overnight rate rather than a one-, three- or six-month rate available for LIBOR.

Since the initial announcement, we have terminated our LIBOR-based swaps and entered into alternative rate swaps. In addition, the designated SOFR benchmark rate replaced the current contractual three-month LIBOR rate applied to Genworth Holdings’ 2066 Notes during the third quarter of 2023. See “—Liquidity and Capital Resources—Capital resources and financing activities” for additional information. We do not expect a material adverse impact on our results of operations or financial condition from the transition away from LIBOR.

Investment results

The following tables set forth information about our investment income, excluding net investment gains (losses), for each component of our investment portfolio for the periods indicated:

(Amounts in millions)

(1) Limited partnership investments are primarily equity-based and do not have fixed returns by period.

(2) Investment income for other invested assets includes amortization of terminated cash flow hedges, which have no corresponding book value within the yield calculation.

(Amounts in millions)

(1) Limited partnership investments are primarily equity-based and do not have fixed returns by period.

(2) Investment income for other invested assets includes amortization of terminated cash flow hedges, which have no corresponding book value within the yield calculation.

Yields are based on net investment income as reported under U.S. GAAP and are consistent with how we measure our investment performance for management purposes. Yields are annualized, for interim periods, and are calculated as net investment income as a percentage of average quarterly asset carrying values except for fixed maturity securities, derivatives and derivative counterparty collateral, which exclude unrealized fair value adjustments.

For the three months ended September 30, 2023, gross annualized weighted-average investment yields were unchanged as lower investment income was offset by lower average invested assets. Net investment income included $16 million of lower income related to inflation-driven volatility on TIPS and $7 million of lower limited partnership income. We experienced higher returns on our short-term investments mainly due to higher interest rates in the current year.

For the nine months ended September 30, 2023, gross annualized weighted-average investment yields increased from higher investment income on lower average invested assets. Net investment income included higher returns on our short-term investments mainly due to higher interest rates and $15 million of higher income from bank loans, partially offset by $41 million of lower income related to inflation-driven volatility on TIPS and $20 million of lower bond calls and commercial mortgage loan prepayments.

The following table sets forth net investment gains (losses) for the periods indicated:

(Amounts in millions)

Three Months Ended September 30, 2023 Compared to Three Months Ended September 30, 2022

• We recorded $16 million of lower net losses related to the sale of available-for-sale fixed maturity securities in the current year. The three months ended September 30, 2022 included $38 million of realized losses primarily driven by sales of U.S. corporate securities to manage asset exposure.
• The three months ended September 30, 2023 included $14 million of net unrealized gains on limited partnerships from favorable private equity market performance compared to $24 million of net unrealized losses during the three months ended September 30, 2022 from unfavorable private equity market performance.
• Net investment losses related to derivatives of $28 million during the three months ended September 30, 2023 were primarily associated with losses from forward bond purchase commitments and on hedging programs that support our fixed indexed annuity products.

Net investment gains related to derivatives of $7 million during the three months ended September 30, 2022 were primarily associated with gains on derivatives used to protect statutory surplus from equity market fluctuations and gains on hedging programs that support our indexed universal life insurance products, partially offset by losses on hedging programs that support our fixed indexed annuity products.

• We recorded $18 million of higher net losses related to the sale of available-for-sale fixed maturity securities in the current year. The nine months ended September 30, 2023 included net losses on sales related to portfolio repositioning and liquidity management, as well as regional bank exposure management, including a $15 million loss related to the sale of First Republic Bank U.S. corporate bonds. The nine months ended September 30, 2022 included net losses primarily

from sales of U.S. corporate securities to manage asset exposure and to optimize cash at Genworth Holdings.

• We recorded net unrealized gains on equity securities of $20 million during the nine months ended September 30, 2023 compared to net unrealized losses of $46 million during the nine months ended September 30, 2022 driven by favorable equity market performance in the current year compared to unfavorable performance in the prior year. The nine months ended September 30, 2023 included $19 million of higher net unrealized gains on limited partnerships driven by more favorable private equity market performance in the current year. We also recorded an allowance for credit losses on available-for-sale fixed maturity securities of $6 million in the current year.
• Net investment losses related to derivatives of $17 million during the nine months ended September 30, 2023 were primarily associated with losses from forward bond purchase commitments and on hedging programs that support our fixed indexed annuity products, partially offset by gains on hedging programs that support our indexed universal life insurance products and forward starting interest rate swap gains.

Net investment gains related to derivatives of $44 million during the nine months ended September 30, 2022 were primarily associated with derivatives used to protect statutory surplus from equity market fluctuations and hedging programs that support our indexed universal life insurance products.

Investment portfolio

The following table sets forth our cash, cash equivalents and invested assets as of the dates indicated:

(Amounts in millions)

For a discussion of the change in cash, cash equivalents and invested assets, see the comparison for these line items under “—Consolidated Balance Sheets.” See note 5 in our unaudited condensed consolidated financial statements under “Item 1—Financial Statements” for additional information related to our investment portfolio.

We hold fixed maturity and equity securities, limited partnerships, derivatives, embedded derivatives and certain other financial instruments, which are carried at fair value. Fair value is the price that would be received to sell an asset in an orderly transaction between market participants at the measurement date. As of September 30, 2023, approximately 6% of our investment holdings recorded at fair value was based on significant inputs that were not market observable and were classified as Level 3 measurements. See note 7 in our unaudited condensed consolidated financial statements under “Item 1—Financial Statements” for additional information related to fair value.

Fixed maturity securities

As of September 30, 2023, the amortized cost or cost, gross unrealized gains (losses), allowance for credit losses and fair value of our fixed maturity securities classified as available-for-sale were as follows:

(Amounts in millions)

151

As of December 31, 2022, the amortized cost or cost, gross unrealized gains (losses), allowance for credit losses and fair value of our fixed maturity securities classified as available-for-sale were as follows:

(Amounts in millions)

Fixed maturity securities decreased $2.6 billion compared to December 31, 2022 primarily from an increase in net unrealized losses related to an increase in long-term interest rates and from net sales and maturities in the current year.

Other invested assets

The following table sets forth the carrying values of our other invested assets as of the dates indicated:

(Amounts in millions)

Bank loan investments increased from funding of additional investments, partially offset by principal payments. Short-term investments increased from net purchases in the current year.

Derivatives

The activity associated with derivative instruments can generally be measured by the change in notional value over the periods presented. However, for fixed indexed annuity and indexed universal life embedded derivatives, the change between periods is best illustrated by the number of policies. The following tables represent activity associated with derivative instruments as of the dates indicated:

(Notional in millions)

The increase in the notional value of derivatives was primarily attributable to the addition of interest rate swaps and forward bond purchase commitments that support our long-term care insurance business, partially offset by a decrease in equity index options used to support our fixed indexed annuity products.

The number of policies with embedded derivatives decreased as these products are no longer being offered and continue to runoff.

Critical Accounting Estimates

In applying our accounting policies in the preparation of financial statements in conformity with U.S. GAAP, we make estimates and assumptions that affect amounts reported in our unaudited condensed consolidated financial statements. As a result of the adoption of LDTI on January 1, 2023, we made significant updates to the estimates and assumptions used to measure our insurance assets and liabilities for long-duration insurance contracts. In accordance with the new guidance, these updates were applied as of January 1, 2021 and therefore the effects of adoption were applied for the years ended December 31, 2022 and 2021.

For a discussion of updates to significant accounting policies related to our insurance assets and liabilities associated with long-duration insurance contracts, see note 2 to our unaudited condensed consolidated financial statements under “Item 1—Financial Statements.” The critical accounting estimates below have changed as a result of LDTI. Critical accounting estimates not impacted by the adoption of LDTI are described in Item 7 of our 2022 Annual Report on Form 10-K.

Future policy benefits. The liability for future policy benefits is equal to the present value of expected future benefits and expenses, less the present value of expected future net premiums based on assumptions including projected interest rates, health care experience, policyholder persistency or lapses, insured mortality, insured morbidity and expenses. See notes 2 and 10 to our unaudited condensed consolidated financial statements under “Item 1—Financial Statements” for additional information related to the impact of changes in inputs and assumptions on the measurement of the liability for future policy benefits.

Market risk benefits. Market risk benefits are contracts or contract features that both provide protection to the contractholder from capital market risk while exposing the insurer to other-than-nominal capital market risk. Market risk benefits include certain contract features on fixed and variable annuity products that provide minimum guarantees, in addition to the policyholder account balance, such as guaranteed minimum death benefits, guaranteed minimum withdrawal benefits and guaranteed payout annuity floor benefits. See notes 7 and 13 to our unaudited condensed consolidated financial statements under “Item 1—Financial Statements” for additional information related to the significant inputs, judgments, valuation methods and assumptions, as well as the effects of changes in inputs and assumptions on the measurement of our net market risk benefit liabilities.

Deferred acquisition costs. As a result of the adoption of LDTI, we no longer consider DAC to be a critical accounting estimate. The measurement and amortization methodology related to DAC is no longer subject to the same degree of variability and DAC is no longer subject to recoverability testing.

Consolidated Balance Sheets

Total assets. Total assets decreased $4,248 million from $89,714 million as of December 31, 2022 to $85,466 million as of September 30, 2023.

• Invested assets decreased $2,247 million primarily attributable to decreases of $2,615 million in fixed maturity securities and $217 million in commercial mortgage loans, partially offset by increases of $368 million in limited partnerships and $94 million in policy loans in the current year. The decrease in fixed maturity securities was predominantly related to higher interest rates reducing the fair value of our fixed maturity investment portfolio and from net sales and maturities in the current year. The decrease in commercial mortgage loans was mostly due to payments outpacing originations. Limited partnerships increased largely from capital calls in the current year, and policy loans increased as new policy loans outpaced payoffs in our corporate-owned life insurance products in the current year.
• Cash and cash equivalents increased $194 million primarily from net sales and maturities of fixed maturity securities and payments of commercial mortgage loans outpacing originations, partially offset by net withdrawals from our investment contracts and repurchases of Genworth Financial’s common stock in the current year.
• Deferred acquisition costs decreased $169 million primarily attributable to amortization in our long-term care and life insurance products in the current year.
• Reinsurance recoverable decreased $1,401 million largely due to an increase in the single-A interest rate used to discount the liability for future policy benefits and related reinsurance recoverables in the current year.
• Deferred tax asset decreased $403 million principally from a reduction in insurance reserves due to an increase in the single-A interest rate, the utilization of foreign tax credits and the recognition of an incremental valuation allowance in the current year. Given the change in our unrealized gains (losses) on our fixed maturity securities and forward starting swaps due to rising interest rates and the corresponding reduction in the amount of unrealized capital gains expected to be available in the future to offset our capital loss carryforwards and other capital deferred tax assets, we recorded an additional valuation allowance of $150 million in the third quarter of 2023 through accumulated other comprehensive income (loss) related to deferred tax assets that would produce capital losses. These decreases were partially offset by the change in unrealized gains (losses) on investments and derivatives due to rising interest rates in the current year.
• Separate account assets (and liabilities) decreased $173 million primarily due to surrenders, withdrawals and benefit payments, partially offset by favorable equity market performance in the current year.

Total liabilities. Total liabilities decreased $4,740 million from $81,328 million as of December 31, 2022 to $76,588 million as of September 30, 2023.

• The liability for future policy benefits decreased $3,667 million primarily from an increase in the single-A interest rate used to discount the liability for future policy benefits and related reinsurance recoverables and from benefit payments outpacing collected premiums, partially offset by aging of our long-term care insurance in-force block, including higher interest accretion. Current year benefit payments were primarily driven by higher new claims and benefit utilization in our long-term care insurance products, as well as benefit payments in our term life insurance and single premium immediate annuity products.
• Policyholder account balances decreased $974 million primarily from product charges, surrenders and benefit payments in our single premium deferred annuity products and our universal and term universal life insurance products in the current year.
• Market risk benefit liabilities decreased $169 million mostly related to higher interest rates and favorable equity market performance, partially offset by attributed fees collected in our variable annuity products in the current year.
• Other liabilities increased $351 million mostly driven by higher derivative liability valuations due to an increase in interest rates, partially offset by lower employee payroll accruals and from the derecognition of reinsurance payables recorded in connection with a recapture of certain reinsurance agreements in our life insurance products in the current year.

Total equity. Total equity increased $492 million from $8,386 million as of December 31, 2022 to $8,878 million as of September 30, 2023.

• We reported net income available to Genworth Financial, Inc.’s common stockholders of $288 million for the nine months ended September 30, 2023.
• Unrealized gains (losses) on investments and derivatives qualifying as hedges decreased $1,371 million and $473 million, respectively, primarily from an increase in interest rates in the current year, resulting in a decrease to total equity.
• Change in the discount rate used to measure future policy benefits increased $2,229 million largely attributable to an increase in the single-A interest rate used to discount the liability for future policy benefits and related reinsurance recoverables (net of deferred taxes) in the current year, resulting in an increase to total equity.
• Treasury stock increased $264 million primarily due to the repurchase of Genworth Financial’s common stock, at cost, including excise taxes and other costs paid in connection with acquiring the shares, resulting in a decrease to total equity in the current year.

Liquidity and Capital Resources

Liquidity and capital resources represent our overall financial strength and our ability to generate cash flows from our businesses, borrow funds at competitive rates and raise new capital to meet our operating and growth needs.

Overview of cash flows—Genworth and subsidiaries

The following table sets forth our unaudited condensed consolidated cash flows for the nine months ended September 30:

(Amounts in millions)

Our principal sources of cash include sales of our products and services, income from our investment portfolio and proceeds from sales of investments. As an insurance business, we typically generate positive cash flows from operating activities, as premiums collected from our insurance products and income received from our investments typically exceed policy acquisition costs, benefits and claims paid, redemptions and operating expenses. Our cash flows from operating activities are affected by the timing of premiums, fees and investment income received and benefits, claims and expenses paid. Positive cash flows from operating activities are then invested to support the obligations of our insurance and investment products and required capital supporting these products. In analyzing our cash flow, we focus on the change in the amount of cash available and used in investing activities. Changes in cash from financing activities primarily relate to deposits to, and redemptions and benefit payments on, universal life insurance and investment contracts; the issuance of debt and equity securities; the repayment or repurchase of borrowings; the repurchase of common stock presented as treasury stock; and other capital transactions.

We had lower cash inflows from operating activities in the current year primarily from higher benefit payments in our long-term care insurance business, partially offset by net cash disbursements in the prior year in connection with the return of cash collateral received from counterparties under our derivative contracts.

We had higher cash inflows from investing activities mainly due to payments of commercial mortgage loans outpacing originations in the current year compared to originations outpacing payments in the prior year.

We had higher cash outflows from financing activities in the current year principally from higher repurchases of Genworth Financial’s common stock and higher net withdrawals from our investment contracts, partially offset by lower repurchases of long-term debt and a prior year settlement payment related to a Tax Matters Agreement with General Electric Company that did not recur. In the current year, Genworth Holdings repurchased $11 million principal amount of its 2034 Notes compared to the repurchase of $130 million and early redemption of $152 million principal of its 2024 Notes in the prior year.

Genworth—holding company liquidity

In consideration of our liquidity, it is important to separate the needs of our holding companies from the needs of their respective subsidiaries. Genworth Financial and Genworth Holdings each act as a holding company for their respective subsidiaries and do not have any significant operations of their own. Accordingly, our holding companies are highly dependent upon their respective subsidiaries to pay dividends and make other payments to meet their respective obligations. Moreover, management’s focus is predominantly on Genworth Holdings’ liquidity given it is the issuer of our outstanding public debt.

Genworth Financial’s and Genworth Holdings’ principal sources of cash are derived from dividends from their respective subsidiaries, subsidiary payments to them under tax sharing and expense reimbursement arrangements and proceeds from borrowings or securities issuances. Our liquidity at the holding company level is highly dependent on the performance of Enact Holdings and its ability to pay timely dividends and other forms of capital returns to Genworth Holdings as anticipated. As of December 31, 2022, our principal U.S. life insurance subsidiaries had negative unassigned surplus of approximately $849 million under statutory accounting, and as a result, we do not expect these subsidiaries to pay dividends for the foreseeable future. Genworth Financial has the right to appoint a majority of directors to the board of directors of Enact Holdings; however, actions taken by Enact Holdings and its board of directors (including in the case of the payment of dividends to us, the approval of Enact Holdings’ independent capital committee) are subject to and may be limited by the interests of Enact Holdings, including but not limited to, its use of capital for growth opportunities and regulatory requirements. In addition, insurance laws and regulations regulate the payment of dividends and other distributions to Genworth Financial and Genworth Holdings by their insurance subsidiaries.

The primary uses of funds at Genworth Financial and Genworth Holdings include payment of principal, interest and other expenses on current and any future borrowings or other obligations, payment of holding company general operating expenses (including employee benefits and taxes), payments under current and any future guarantees (including guarantees of certain subsidiary obligations), payments to subsidiaries (and, in the case of Genworth Holdings, to Genworth Financial) under tax sharing agreements, contributions to subsidiaries, repurchases of debt securities, repurchases of Genworth Financial’s common stock and, in the case of Genworth Holdings, loans, dividends or other distributions to Genworth Financial.

On May 2, 2022, Genworth Financial’s Board of Directors authorized a share repurchase program under which Genworth Financial may repurchase up to $350 million of its outstanding Class A common stock. On July 31, 2023, Genworth Financial’s Board of Directors authorized an additional $350 million of share repurchases under its existing share repurchase program. Pursuant to the program, during the nine months ended September 30, 2023, Genworth Financial repurchased 45,839,750 shares of its common stock at an average price of $5.68 per share for a total of $260 million, excluding excise taxes and other costs paid in connection with acquiring the shares. Genworth Financial also authorized share repurchases through a Rule 10b5-1 trading plan under which 1,717,825 shares of its common stock were repurchased in October 2023 at an average price of $5.82 per share for a total cost of $10 million before excise taxes, leaving approximately $366 million authorized amount remaining under the program. Further repurchases under the authorized program will continue to be funded from holding company capital, as well as future cash flow generation, including expected future capital returns from Enact Holdings. Under the program, share repurchases may be made at Genworth’s discretion from time to time in open market transactions, privately negotiated transactions, or by other means, including through Rule 10b5-1 trading plans. The timing and number of future shares repurchased under the program will depend on a variety of factors, including Genworth Financial’s stock price and trading volume, and general business and market conditions, among other factors. The authorization has no expiration date and may be modified, suspended or terminated at any time.

Our future use of liquidity and capital will prioritize future strategic investments in CareScout and returning capital to Genworth Financial’s shareholders through share repurchases (as discussed above). We expect to provide capital to CareScout to help advance our senior care growth initiatives through fee-based services, advice, consulting and other products and services related to the needs of elderly Americans, as well as their caregivers and families. Our initial focus is on care advice and service offerings that help consumers navigate the complex caregiving challenges in the market, which is less capital intensive than insurance product offerings.

As of September 30, 2023, Genworth Holdings had outstanding $876 million principal of long-term debt. On October 25, 2023, Genworth Holdings completed a bondholder consent solicitation that amended the Replacement Capital Covenant entered into for the benefit of the holders of its 2034 Notes that limited its ability to repurchase its 2066 Notes. The amendment permits certain repayments, redemptions or repurchases of Genworth Holdings’ 2066 Notes, as further described below. In connection with this transaction, Genworth Holdings repurchased approximately $14 million principal of its 2034 Notes. We may from time to time seek to repurchase or redeem outstanding notes for cash (with cash on hand, proceeds from the issuance of new debt and/or the proceeds from asset or stock sales) in open market purchases, tender offers, privately negotiated transactions or otherwise.

As of September 30, 2023, Genworth Holdings had $232 million of unrestricted cash and cash equivalents, with no debt maturities due until June 2034. We believe Genworth Holdings’ unrestricted cash and cash equivalents provide sufficient liquidity to meet its financial obligations over the next twelve months. However, in the third quarter of 2023, we made a federal tax payment based on our projection of current taxable income and utilization of our remaining foreign tax credits, and we expect the amount of intercompany cash tax payments retained by Genworth Holdings from its subsidiaries to be lower starting in 2024 as compared to the amounts received during 2022 and 2023. We also expect Genworth Holdings’ liquidity to be significantly impacted by the amounts and timing of future dividends and other forms of capital returns from Enact Holdings, which will be influenced by economic, regulatory factors and other conditions that affect its business.

We actively monitor our liquidity position (most notably at Genworth Holdings), liquidity generation options and the credit markets given changing market conditions. For example, although interest rates rose dramatically during 2022 and 2023, we do not expect a significant impact on our liquidity given the reduction in Genworth Holdings’ debt and corresponding decrease in debt service costs. Genworth Holdings’ cash management target is to maintain a cash buffer of two times expected annual external debt interest payments. Genworth Holdings may move below or above this targeted cash buffer during any given quarter due to the timing of cash outflows and inflows or from future actions. Management of Genworth Financial continues to evaluate Genworth Holdings’ target level of liquidity as circumstances warrant.

Enact Holdings continues to evaluate its capital allocation strategy to consistently support its existing policyholders, grow its mortgage insurance business, fund attractive new business opportunities and return capital to shareholders. In addition to its quarterly cash dividend program, on November 1, 2022, Enact Holdings announced the approval by its board of directors of a share repurchase program under which Enact Holdings may repurchase up to $75 million of its outstanding common stock, and on August 1, 2023, announced the authorization of an additional $100 million of common stock repurchases under a new share repurchase program. Genworth Holdings agreed to participate in order to maintain its overall ownership at its current level. As the majority shareholder, Genworth Holdings received $117 million of capital returns from Enact Holdings during the nine months ended September 30, 2023. On November 1, 2023, Enact Holdings announced a special cash dividend of $113 million to be paid during the fourth quarter of 2023. The timing and number of future shares repurchased under the share repurchase programs will depend on a variety of factors, including Enact Holdings’ stock price and trading volume, and general business and market conditions, among other factors. Future dividends will be subject to quarterly review and approval by Enact Holdings’ board of directors and Genworth Financial and will also be dependent on a variety of economic, market and business conditions, among other considerations.

Genworth Holdings—changes in liquidity

Genworth Holdings had $232 million and $307 million of cash and cash equivalents as of September 30, 2023 and December 31, 2022, respectively. The decrease in Genworth Holdings’ cash and cash equivalents was principally driven by $260 million of Genworth Financial’s common stock repurchases and from debt interest payments, partially offset by intercompany cash tax payments received from its subsidiaries and $117 million of capital returns from Enact Holdings in the current year.

Capital resources and financing activities

Our current capital resource plans do not include any additional debt offerings or minority sales of Enact Holdings. The availability of additional capital resources will depend on a variety of factors such as market conditions, regulatory considerations, the general availability of credit, credit ratings and the performance of and outlook for Enact Holdings and the payment of dividends and other returns of capital therefrom.

During the nine months ended September 30, 2023, Genworth Holdings repurchased $11 million principal amount of its 2034 Notes for a pre-tax gain of $1 million and paid accrued interest thereon.

On October 25, 2023, Genworth Holdings completed a consent solicitation from bondholders representing a majority in principal amount of its 2034 Notes to amend the Replacement Capital Covenant, dated as of November 14, 2006. The amendment permits Genworth Holdings to repay, redeem or repurchase $2,000 principal amount of its 2066 Notes for each $1,000 principal amount of its 2034 Notes repaid, redeemed or repurchased. In connection with this transaction, Genworth Holdings repurchased approximately $14 million principal of its 2034 Notes at prices negotiated with the noteholders below par value.

In December 2022, the Board of Governors of the Federal Reserve System adopted a final rule that became effective on February 27, 2023. The final rule established benchmark rates, based on SOFR, that replaced LIBOR after its elimination on June 30, 2023. Pursuant to the final rule, Genworth Holdings’ 2066 Notes, which had an annual interest rate equal to three-month LIBOR plus 2.0025%, transitioned in the third quarter of 2023 to an annual interest rate equal to the three-month Term SOFR Reference Rate, plus a tenor spread adjustment of 0.26161%, plus an additional spread of 2.0025%. We do not expect this change to have a material impact on our results of operations or liquidity.

Regulated insurance subsidiaries

The liquidity requirements of our regulated insurance subsidiaries principally relate to the liabilities associated with their various insurance and investment products, operating costs and expenses, the payment of dividends to us, contributions to their subsidiaries, payment of principal and interest on their outstanding debt obligations and income taxes. Liabilities arising from insurance and investment products include the payment of benefits and claims, as well as cash payments in connection with policy surrenders and withdrawals, policy loans and obligations to redeem funding agreements. Given the challenging macroeconomic environment during 2022 and through the third quarter of 2023, employee costs were higher driven in part by high wage inflation, the competitive labor market and low labor participation. Additionally, in our long-term care insurance business, we have observed an increase in the cost of care principally attributable to elevated inflation. These inflationary impacts have not had a significant impact on our liquidity to date; however, we have experienced elevated benefit utilization in our long-term care insurance business, which could have a material adverse impact on our liquidity, results of operations and financial condition if it persists. We will continue to monitor macroeconomic trends, including inflation, to help mitigate any potential adverse impacts to our liquidity.

Our insurance subsidiaries have used cash flows from operations and investment activities to fund their liquidity requirements. Our insurance subsidiaries’ principal cash inflows from operating activities are derived from premiums, annuity deposits and insurance and investment product fees and other income, including commissions, cost of insurance, mortality, expense and surrender charges, contract underwriting fees, investment management fees, investment income and dividends and distributions from their subsidiaries. The principal cash inflows from investment activities result from maturities and repayments of investments and, as necessary, sales of invested assets.

Our insurance subsidiaries maintain investment strategies intended to provide adequate funds to pay benefits without forced sales of investments. Products having liabilities with longer durations, such as certain life insurance and long-term care insurance policies, are typically matched with investments having similar duration such as long-term fixed maturity securities and commercial mortgage loans. Shorter-term liabilities are typically matched with fixed maturity securities that have short- and medium-term fixed maturities. In addition, our insurance subsidiaries hold highly liquid, high quality short-term investment securities and other liquid investment grade fixed maturity securities to fund anticipated operating expenses, surrenders and withdrawals. As of September 30, 2023, our total cash, cash equivalents and invested assets were $58.7 billion. Our investments in privately placed fixed maturity securities, commercial mortgage loans, policy loans, bank loans, limited partnership investments and select mortgage-backed and asset-backed securities are relatively illiquid. These asset classes represented approximately 45% of the carrying value of our total cash, cash equivalents and invested assets as of September 30, 2023.

Although our overall exposure to banking sector disruptions has been limited to date, to the extent banks and other financial institutions enter receivership or become insolvent in the future in response to financial conditions affecting the banking system and financial markets, including from higher interest rates and the corresponding negative impact on investment spreads, it could negatively affect our liquidity or our investment portfolio, particularly if it hinders our ability to access or monetize our existing cash, cash equivalents and investments.

Off-balance sheet commitments, guarantees and contractual obligations

As of September 30, 2023, we were committed to fund $1,408 million in limited partnership investments, $136 million of bank loan investments, $12 million in private placement investments and $9 million in commercial mortgage loan investments.

As of September 30, 2023, there have been no material additions or changes to guarantees provided by Genworth Financial and Genworth Holdings or to our contractual obligations as compared to the amounts disclosed within our 2022 Annual Report on Form 10-K filed on February 28, 2023.

Supplemental Condensed Consolidating Financial Information

Genworth Financial provides a full and unconditional guarantee to the trustee of Genworth Holdings’ outstanding senior and subordinated notes (registered securities under the Securities Act of 1933) and the holders of the senior and subordinated notes, on an unsecured unsubordinated and subordinated basis, respectively, of the full and punctual payment of the principal of, premium, if any and interest on, and all other amounts payable under, each outstanding series of senior notes and outstanding subordinated notes, and the full and punctual payment of all other amounts payable by Genworth Holdings under the senior and subordinated notes indentures in respect of such senior and subordinated notes. Genworth Holdings is a direct, 100% owned subsidiary of Genworth Financial.

Excluding investments in subsidiaries, the assets, liabilities and results of operations of Genworth Financial and Genworth Holdings, on a combined basis, are not material to the consolidated financial position or the consolidated results of operations of Genworth. In addition, none of Genworth Financial’s direct or indirect subsidiaries, other than Genworth Holdings, are issuers or guarantors of any guaranteed securities. Therefore, in accordance with Rule 13-01 of Regulation S-X, we are permitted, and we elected, to exclude the summarized financial information for both the issuer and guarantor of the registered securities.

Market risk is the risk of the loss of fair value resulting from adverse changes in market rates and prices, such as interest rates, equity prices and foreign currency exchange rates. Market risk is directly influenced by the volatility and liquidity in the markets in which the related underlying financial instruments are traded. We may have additional financial impacts other than changes in estimated fair value, which are beyond the scope of this discussion. There have been no material changes to our market risk exposures since December 31, 2022, except as described below.

As a result of the adoption of new accounting guidance related to long-duration insurance contracts on January 1, 2023 as disclosed in note 2 of our unaudited condensed consolidated financial statements under “Item 1—Financial Statements,” we recognized market risk benefits in our condensed consolidated balance sheets, which are reported at fair value. As the contracts or contract features included in market risk benefits expose the insurer to other-than-nominal capital market risk, we updated our interest rate and equity market sensitivities as of December 31, 2022 to include these contracts. Note that all impacts noted below exclude any effects of deferred taxes.

Sensitivity Analysis

Interest Rate Risk

One means of assessing exposure to interest rate changes is to estimate the potential changes in fair value resulting from a hypothetical increase in interest rates of 100 basis points. We performed a sensitivity analysis on our variable annuity market risk benefits and noted that a 100 basis point increase in interest rates, with all other factors held constant, would result in a decrease in the fair value of the net liability after reinsurance of approximately $120 million as of December 31, 2022.

Equity Market Risk

One means of assessing exposure to changes in equity market prices is to estimate the potential changes in fair value resulting from a hypothetical broad-based decline in equity market prices of 10%. We performed a sensitivity analysis on our variable annuity market risk benefits and noted that a 10% decline in equity market prices, with all other factors held constant, would result in an increase in the fair value of the net liability after reinsurance of approximately $80 million as of December 31, 2022.

Evaluation of Disclosure Controls and Procedures

As of September 30, 2023, an evaluation was conducted under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934). Based on this evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of September 30, 2023.

Changes in Internal Control Over Financial Reporting During the Quarter Ended September 30, 2023

During the three months ended September 30, 2023, as previously disclosed in our Quarterly Report on Form 10-Q for the period ended June 30, 2023 (“Second Quarter 2023 Form 10-Q”), we fully remediated the material weakness in our internal control over financial reporting, which arose solely from a change in the accounting treatment related to cash payments made to policyholders in connection with legal settlements under LDTI that we adopted on January 1, 2023 (for which no specific guidance had been published) that resulted in the immaterial correction to our financial statements as described in note 1 in our unaudited condensed consolidated financial statements in our Second Quarter 2023 Form 10-Q.

There have been no other changes in our internal control over financial reporting during the three months ended September 30, 2023 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

The discussion of our business and operations should be read together with the risk factors contained in Item 1A of our 2022 Annual Report on Form 10-K, which together describe various risks and uncertainties to which we are or may become subject. These risks and uncertainties have the potential to affect our business, financial condition, results of operations, cash flows, strategies or prospects in a material and adverse manner. As of September 30, 2023, there have been no material changes to the risk factors set forth in the above-referenced filing.

For additional information regarding the MOVEit Cybersecurity Incident, see “Part I—Item 2—Management’s Discussion and Analysis of Financial Condition and Results of Operations—Significant Developments and Strategic Highlights.”