|
|
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
|
||||||||||||||||||||||||||||
|
|
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
|
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
|
|
|
|
(1) Nature of Business and Formation of Genworth
Genworth Holdings, Inc. (“Genworth Holdings”) (formerly known as Genworth Financial, Inc.) was incorporated in Delaware in 2003 in preparation for an initial public offering (“IPO”) of Genworth common stock, which was completed on May 28, 2004. On April 1, 2013, Genworth Holdings completed a holding company reorganization pursuant to which Genworth Holdings became a direct, 100% owned subsidiary of a new public holding company that it had formed. The new public holding company was incorporated in Delaware on December 5, 2012, in connection with the reorganization, under the name Sub XLVI, Inc., and was renamed Genworth Financial, Inc. (“Genworth Financial”) upon the completion of the reorganization.
References to “Genworth,” the “Company,” “we” or “our” in the accompanying consolidated financial statements and these notes thereto have the following meanings, unless the context otherwise requires:
• | For periods prior to April 1, 2013: Genworth Holdings and its subsidiaries |
• | For periods from and after April 1, 2013: Genworth Financial and its subsidiaries |
The accompanying financial statements include on a consolidated basis the accounts of Genworth and our affiliate companies in which we hold a majority voting interest or where we are the primary beneficiary of a variable interest entity (“VIE”). All intercompany accounts and transactions have been eliminated in consolidation.
We operate our business through the following five operating segments:
• | U.S. Mortgage Insurance. In the United States, we offer mortgage insurance products predominantly insuring prime-based, individually underwritten residential mortgage loans (“flow mortgage insurance”). We selectively provide mortgage insurance on a bulk basis (“bulk mortgage insurance”) with essentially all of our bulk writings being prime-based. |
• | Canada Mortgage Insurance. We offer flow mortgage insurance and also provide bulk mortgage insurance that aids in the sale of mortgages to the capital markets and helps lenders manage capital and risk in Canada. |
• | Australia Mortgage Insurance. In Australia, we offer flow mortgage insurance and selectively provide bulk mortgage insurance that aids in the sale of mortgages to the capital markets and helps lenders manage capital and risk. |
• | U.S. Life Insurance. We offer long-term care insurance products as well as service traditional life insurance and fixed annuity products in the United States. |
• | Runoff. The Runoff segment includes the results of non-strategic products which are no longer actively sold. Our non-strategic products primarily include our variable annuity, variable life insurance, institutional, corporate-owned life insurance and other accident and health insurance products. Institutional products consist of: funding agreements, funding agreements backing notes (“FABNs”) and guaranteed investment contracts (“GICs”). We no longer offer retail and group variable annuities but continue to service our existing blocks of business. |
In addition to our five operating business segments, we also have Corporate and Other activities which include debt financing expenses that are incurred at the Genworth Holdings level, unallocated corporate income and expenses, eliminations of inter-segment transactions and the results of other businesses that are managed outside of our operating segments, including certain smaller international mortgage insurance businesses and discontinued operations.
On December 1, 2015, we completed the sale of our lifestyle protection insurance business, which had previously been designated as a non-core business. Our lifestyle protection insurance business, previously the only business in the International Protection segment, has been reported as discontinued operations and its financial position, results of operations and cash flows are separately reported for all periods presented. All prior periods reflected herein have been re-presented on this basis. See note 24 for additional information related to discontinued operations.
On October 27, 2015, we announced that Genworth Mortgage Insurance Company (“GMICO”), our wholly-owned indirect subsidiary, entered into an agreement to sell our European mortgage insurance business. As the held-for-sale criteria were satisfied during the fourth quarter of 2015, our European mortgage insurance business, included in Corporate and Other activities, has been reported as held for sale and its financial position is separately reported for all periods presented. All prior periods reflected herein have been re-presented on this basis. See note 24 for additional information.
|
(2) Summary of Significant Accounting Policies
Our consolidated financial statements have been prepared on the basis of U.S. generally accepted accounting principles (“U.S. GAAP”). Preparing financial statements in conformity with U.S. GAAP requires us to make estimates and assumptions that affect reported amounts and related disclosures. Actual results could differ from those estimates. Certain prior year amounts have been reclassified to conform to the current year presentation.
a) Premiums
For traditional long-duration insurance contracts, we report premiums as earned when due. For short-duration insurance contracts, we report premiums as revenue over the terms of the related insurance policies on a pro-rata basis or in proportion to expected claims.
For single premium mortgage insurance contracts, we report premiums over the estimated policy life in accordance with the expected pattern of risk emergence as further described in our accounting policy for unearned premiums. In addition, we have a practice of refunding the post-delinquent premiums in our U.S. mortgage insurance business to the insured party if the delinquent loan goes to claim. We record a liability for premiums received on the delinquent loans where our practice is to refund post-delinquent premiums.
Premiums received under annuity contracts without significant mortality risk and premiums received on investment and universal life insurance products are not reported as revenues but rather as deposits and are included in liabilities for policyholder account balances.
b) Net Investment Income and Net Investment Gains and Losses
Investment income is recognized when earned. Income or losses upon call or prepayment of available-for-sale fixed maturity securities is recognized in net investment income, except for hybrid securities where the income or loss upon call is recognized in net investment gains and losses. Investment gains and losses are calculated on the basis of specific identification on the trade date.
Investment income on mortgage-backed and asset-backed securities is initially based upon yield, cash flow and prepayment assumptions at the date of purchase. Subsequent revisions in those assumptions are recorded using the retrospective or prospective method. Under the retrospective method used for mortgage-backed and asset-backed securities of high credit quality (ratings equal to or greater than “AA” or that are backed by a U.S. agency) which cannot be contractually prepaid in such a manner that we would not recover a substantial portion of the initial investment, amortized cost of the security is adjusted to the amount that would have existed had the revised assumptions been in place at the date of purchase. The adjustments to amortized cost are recorded as a charge or credit to net investment income. Under the prospective method, which is used for all other mortgage-backed and asset-backed securities, future cash flows are estimated and interest income is recognized going forward using the new internal rate of return.
c) Policy Fees and Other Income
Policy fees and other income consists primarily of insurance charges assessed on universal and term universal life insurance contracts and fees assessed against customer account values. For universal and term universal life insurance contracts, charges to policyholder accounts for cost of insurance are recognized as revenue when due. Variable product fees are charged to variable annuity contractholders and variable life insurance policyholders based upon the daily net assets of the contractholder’s and policyholder’s account values and are recognized as revenue when charged. Policy surrender fees are recognized as income when the policy is surrendered.
d) Investment Securities
At the time of purchase, we designate our investment securities as either available-for-sale or trading and report them in our consolidated balance sheets at fair value. Our portfolio of fixed maturity securities comprises primarily investment grade securities. Changes in the fair value of available-for-sale investments, net of the effect on deferred acquisition costs (“DAC”), present value of future profits (“PVFP”), benefit reserves and deferred income taxes, are reflected as unrealized investment gains or losses in a separate component of accumulated other comprehensive income (loss). Realized and unrealized gains and losses related to trading securities are reflected in net investment gains (losses). Trading securities are included in other invested assets in our consolidated balance sheets and primarily represent fixed maturity securities where we utilized the fair value option.
Other-Than-Temporary Impairments On Available-For-Sale Securities
As of each balance sheet date, we evaluate securities in an unrealized loss position for other-than-temporary impairments. For debt securities, we consider all available information relevant to the collectability of the security, including information about past events, current conditions, and reasonable and supportable forecasts, when developing the estimate of cash flows expected to be collected. More specifically for mortgage-backed and asset-backed securities, we also utilize performance indicators of the underlying assets including default or delinquency rates, loan to collateral value ratios, third-party credit enhancements, current levels of subordination, vintage and other relevant characteristics of the security or underlying assets to develop our estimate of cash flows. Estimating the cash flows expected to be collected is a quantitative and qualitative process that incorporates information received from third-party sources along with certain internal assumptions and judgments regarding the future performance of the underlying collateral. Where possible, this data is benchmarked against third-party sources.
We recognize other-than-temporary impairments on debt securities in an unrealized loss position when one of the following circumstances exists:
• | we do not expect full recovery of our amortized cost basis, |
• | the present value of cash flows expected to be collected is less than our amortized cost basis, |
• | we intend to sell a security or |
• | it is more likely than not that we will be required to sell a security prior to recovery. |
For other-than-temporary impairments recognized during the period, we present the total other-than-temporary impairments, the portion of other-than-temporary impairments included in other comprehensive income (loss) (“OCI”) and the net other-than-temporary impairments as supplemental disclosure presented on the face of our consolidated statements of income.
Total other-than-temporary impairments that emerged in the current period are calculated as the difference between the amortized cost and fair value. For other-than-temporarily impaired securities where we do not intend to sell the security and it is not more likely than not that we will be required to sell the security prior to recovery, total other-than-temporary impairments are adjusted by the portion of other-than-temporary impairments recognized in OCI (“non-credit”). Net other-than-temporary impairments recorded in net income (loss) represent the credit loss on the other-than-temporarily impaired securities with the offset recognized as an adjustment to the amortized cost to determine the new amortized cost basis of the securities.
For securities that were deemed to be other-than-temporarily impaired and a non-credit loss was recorded in OCI, the amount recorded as an unrealized gain (loss) represents the difference between the current fair value and the new amortized cost for each period presented. The unrealized gain (loss) on an other-than-temporarily impaired security is recorded as a separate component in OCI until the security is sold or until we record an other-than-temporary impairment where we intend to sell the security or will be required to sell the security prior to recovery.
To estimate the amount of other-than-temporary impairment attributed to credit losses on debt securities where we do not intend to sell the security and it is not more likely than not that we will be required to sell the security prior to recovery, we determine our best estimate of the present value of the cash flows expected to be collected from a security using the effective yield on the security prior to recording any other-than-temporary impairment. If the present value of the discounted cash flows is lower than the amortized cost of the security, the difference between the present value and amortized cost represents the credit loss associated with the security with the remaining difference between fair value and amortized cost recorded as a non-credit other-than-temporary impairment in OCI.
The evaluation of other-than-temporary impairments is subject to risks and uncertainties and is intended to determine the appropriate amount and timing for recognizing an impairment charge. The assessment of whether such impairment has occurred is based on management’s best estimate of the cash flows expected to be collected at the individual security level. We regularly monitor our investment portfolio to ensure that securities that may be other-than-temporarily impaired are identified in a timely manner and that any impairment charge is recognized in the proper period.
While the other-than-temporary impairment model for debt securities generally includes fixed maturity securities, there are certain hybrid securities that are classified as fixed maturity securities where the application of a debt impairment model depends on whether there has been any evidence of deterioration in credit of the issuer, such as a downgrade to below investment grade. Under certain circumstances, evidence of deterioration in credit of the issuer may result in the application of the equity securities impairment model.
For equity securities, we recognize an impairment charge in the period in which we determine that the security will not recover to book value within a reasonable period. We determine what constitutes a reasonable period on a security-by-security basis based upon consideration of all the evidence available to us, including the magnitude of an unrealized loss and its duration. In any event, this period does not exceed 18 months for common equity securities. We measure other-than-temporary impairments based upon the difference between the amortized cost of a security and its fair value.
e) Fair Value Measurements
Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. We have fixed maturity, equity and trading securities, derivatives, embedded derivatives, securities held as collateral, separate account assets and certain other financial instruments, which are carried at fair value.
Fair value measurements are based upon observable and unobservable inputs. Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect our view of market assumptions in the absence of observable market information. We utilize valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs. All assets and liabilities carried at fair value are classified and disclosed in one of the following three categories:
• | Level 1—Quoted prices for identical instruments in active markets. |
• | Level 2—Quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; and model-derived valuations whose inputs are observable or whose significant value drivers are observable. |
• | Level 3—Instruments whose significant value drivers are unobservable. |
Level 1 primarily consists of financial instruments whose value is based on quoted market prices such as exchange-traded derivatives and actively traded mutual fund investments.
Level 2 includes those financial instruments that are valued using industry-standard pricing methodologies, models or other valuation methodologies. These models are primarily industry-standard models that consider various inputs, such as interest rate, credit spread and foreign exchange rates for the underlying financial instruments. All significant inputs are observable, or derived from observable, information in the marketplace or are supported by observable levels at which transactions are executed in the marketplace. Financial instruments in this category primarily include: certain public and private corporate fixed maturity and equity securities; government or agency securities; certain mortgage-backed and asset-backed securities; securities held as collateral; and certain non-exchange-traded derivatives such as interest rate or cross currency swaps.
Level 3 comprises financial instruments whose fair value is estimated based on industry-standard pricing methodologies and internally developed models utilizing significant inputs not based on, nor corroborated by, readily available market information. In certain instances, this category may also utilize non-binding broker quotes. This category primarily consists of certain less liquid fixed maturity, equity and trading securities and certain derivative instruments or embedded derivatives where we cannot corroborate the significant valuation inputs with market observable data.
As of each reporting period, all assets and liabilities recorded at fair value are classified in their entirety based on the lowest level of input that is significant to the fair value measurement. Our assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment, and considers factors specific to the asset or liability, such as the relative impact on the fair value as a result of including a particular input. We review the fair value hierarchy classifications each reporting period. Changes in the observability of the valuation attributes may result in a reclassification of certain financial assets or liabilities. Such reclassifications are reported as transfers in and out of Level 3 at the beginning fair value for the reporting period in which the changes occur. See note 16 for additional information related to fair value measurements.
f) Commercial Mortgage Loans
The carrying value of commercial mortgage loans is stated at original cost, net of principal payments, amortization and allowance for loan losses. Interest on loans is recognized on an accrual basis at the applicable interest rate on the principal amount outstanding. Loan origination fees and direct costs, as well as premiums and discounts, are amortized as level yield adjustments over the respective loan terms. Unamortized net fees or costs are recognized upon early repayment of the loans. Loan commitment fees are deferred and amortized on an effective yield basis over the term of the loan. Commercial mortgage loans are considered past due when contractual payments have not been received from the borrower by the required payment date.
“Impaired” loans are defined by U.S. GAAP as loans for which it is probable that the lender will be unable to collect all amounts due according to original contractual terms of the loan agreement. In determining whether it is probable that we will be unable to collect all amounts due, we consider current payment status, debt service coverage ratios, occupancy levels and current loan-to-value. Impaired loans are carried on a non-accrual status. Loans are placed on non-accrual status when, in management’s opinion, the collection of principal or interest is unlikely, or when the collection of principal or interest is 90 days or more past due. Income on impaired loans is not recognized until the loan is sold or the cash received exceeds the carrying amount recorded.
We evaluate the impairment of commercial mortgage loans first on an individual loan basis. If an individual loan is not deemed impaired, then we evaluate the remaining loans collectively to determine whether an impairment should be recorded.
For individually impaired loans, we record an impairment charge when it is probable that a loss has been incurred. The impairment is recorded as an increase in the allowance for loan losses. All losses of principal are charged to the allowance for loan losses in the period in which the loan is deemed to be uncollectible.
For loans that are not individually impaired where we evaluate the loans collectively, the allowance for loan losses is maintained at a level that we determine is adequate to absorb estimated probable incurred losses in the loan portfolio. Our process to determine the adequacy of the allowance utilizes an analytical model based on historical loss experience adjusted for current events, trends and economic conditions that would result in a loss in the loan portfolio over the next 12 months. Key inputs into our evaluation include debt service coverage ratios, loan-to-value, property-type, occupancy levels, geographic region, and probability weighting of the scenarios generated by the model. The actual amounts realized could differ in the near term from the amounts assumed in arriving at the allowance for loan losses reported in the consolidated financial statements. Additions and reductions to the allowance through periodic provisions or benefits are recorded in net investment gains (losses).
For commercial mortgage loans classified as held-for-sale, each loan is carried at the lower of cost or market and is included in commercial mortgage loans in our consolidated balance sheets. See note 4 for additional disclosures related to commercial mortgage loans.
g) Repurchase Agreements
We have a repurchase program in which we sell an investment security at a specified price and agree to repurchase that security at another specified price at a later date. Repurchase agreements are treated as collateralized financing transactions and are carried at the amounts at which the securities will be subsequently reacquired, including accrued interest, as specified in the respective agreement. The fair value of securities to be repurchased is monitored and collateral levels are adjusted where appropriate to protect the counterparty against credit exposure. Cash received is invested in fixed maturity securities. See note 12 for additional information related to our repurchase agreements.
h) Securities Lending Activity
In the United States and Canada, we engage in certain securities lending transactions for the purpose of enhancing the yield on our investment securities portfolio. We maintain effective control over all loaned securities and, therefore, continue to report such securities as fixed maturity securities on the consolidated balance sheets. We are currently indemnified against counterparty credit risk by the intermediary. See note 12 for additional information related to our securities lending activity.
i) Cash and Cash Equivalents
Certificates of deposit, money market funds and other time deposits with original maturities of 90 days or less are considered cash equivalents in the consolidated balance sheets and consolidated statements of cash flows. Items with maturities greater than 90 days but less than one year at the time of acquisition are considered short-term investments.
j) Deferred Acquisition Costs
Acquisition costs include costs that are directly related to the successful acquisition of new or renewal insurance contracts. Acquisition costs are deferred and amortized to the extent they are recoverable from future profits.
Long-Duration Contracts. Acquisition costs include commissions in excess of ultimate renewal commissions and for contracts issued, certain other costs such as underwriting, medical inspection and issuance expenses. DAC for traditional long-duration insurance contracts, including term life and long-term care insurance, is amortized as a level percentage of premiums based on assumptions, including, investment returns, health care experience (including type of care and cost of care), policyholder persistency or lapses (i.e., the probability that a policy or contract will remain in-force from one period to the next), insured life expectancy or longevity, insured morbidity (i.e., frequency and severity of claim, including claim termination rates and benefit utilization rates) and expenses, established when the contract is issued. Amortization is adjusted each period to reflect actual lapse or termination rates.
Amortization for deferred annuity and universal life insurance contracts is based on expected gross profits. Expected gross profits are adjusted quarterly to reflect actual experience to date or for changes in underlying assumptions relating to future gross profits. Estimates of gross profits for DAC amortization are based on assumptions including interest rates, policyholder persistency or lapses, insured life expectancy or longevity and expenses.
Short-Duration Contracts. Acquisition costs primarily consist of commissions and premium taxes and are amortized ratably over the terms of the underlying policies.
We regularly review our assumptions and test DAC for recoverability at least annually. For deferred annuity and universal life insurance contracts, if the present value of expected future gross profits is less than the unamortized DAC for a line of business, a charge to income is recorded for additional DAC amortization. For traditional long-duration and short-duration contracts, if the benefit reserve plus anticipated future premiums and interest income for a line of business are less than the current estimate of future benefits and expenses (including any unamortized DAC), a charge to income is recorded for additional DAC amortization or for increased benefit reserves. See note 6 for additional information related to DAC including loss recognition and recoverability.
k) Intangible Assets
Present Value of Future Profits. In conjunction with the acquisition of a block of insurance policies or investment contracts, a portion of the purchase price is assigned to the right to receive future gross profits arising from existing insurance and investment contracts. This intangible asset, called PVFP, represents the actuarially estimated present value of future cash flows from the acquired policies. PVFP is amortized, net of accreted interest, in a manner similar to the amortization of DAC.
We regularly review our PVFP assumptions and periodically test PVFP for recoverability similar to our treatment of DAC. See note 7 for additional information related to PVFP including loss recognition and recoverability.
Deferred Sales Inducements to Contractholders. We defer sales inducements to contractholders for features on variable annuities that entitle the contractholder to an incremental amount to be credited to the account value upon making a deposit, and for fixed annuities with crediting rates higher than the contract’s expected ongoing crediting rates for periods after the inducement. Deferred sales inducements to contractholders are reported as a separate intangible asset and amortized in benefits and other changes in policy reserves using the same methodology and assumptions used to amortize DAC.
Other Intangible Assets. We amortize the costs of other intangibles over their estimated useful lives unless such lives are deemed indefinite. Amortizable intangible assets are tested for impairment based on undiscounted cash flows, which requires the use of estimates and judgment, and, if impaired, written down to fair value based on either discounted cash flows or appraised values. Intangible assets with indefinite lives are tested at least annually for impairment using a qualitative or quantitative assessment and are written down to fair value as required.
l) Goodwill
Goodwill is not amortized but is tested for impairment annually or between annual tests if an event occurs or circumstances change that would more likely than not reduce the fair value of the reporting unit below its carrying value. The determination of fair value requires the use of estimates and judgment, at the “reporting unit” level. A reporting unit is the operating segment, or a business, one level below that operating segment (the “component” level) if discrete financial information is prepared and regularly reviewed by management at the component level. If the reporting unit’s fair value is below its carrying value, we must determine the amount of implied goodwill that would be established if the reporting unit was hypothetically purchased on the impairment assessment date. We recognize an impairment charge for any amount by which the carrying amount of a reporting unit’s goodwill exceeds the amount of implied goodwill.
See note 7 for additional information related to goodwill and impairments recorded.
m) Reinsurance
Premium revenue, benefits and acquisition and operating expenses, net of deferrals, are reported net of the amounts relating to reinsurance ceded to and assumed from other companies. Amounts due from reinsurers for incurred and estimated future claims are reflected in the reinsurance recoverable asset. Amounts received from reinsurers that represent recovery of acquisition costs are netted against DAC so that the net amount is capitalized. The cost of reinsurance is accounted for over the terms of the related treaties using assumptions consistent with those used to account for the underlying reinsured policies. Premium revenue, benefits and acquisition and operating expenses, net of deferrals, for reinsurance contracts that do not qualify for reinsurance accounting are accounted for under the deposit method of accounting.
n) Derivatives
Derivative instruments are used to manage risk through one of four principal risk management strategies including: (i) liabilities; (ii) invested assets; (iii) portfolios of assets or liabilities; and (iv) forecasted transactions.
On the date we enter into a derivative contract, management designates the derivative as a hedge of the identified exposure (fair value, cash flow or foreign currency). If a derivative does not qualify for hedge accounting, the changes in its fair value and all scheduled periodic settlement receipts and payments are reported in income.
We formally document all relationships between hedging instruments and hedged items, as well as our risk management objective and strategy for undertaking various hedge transactions. In this documentation, we specifically identify the asset, liability or forecasted transaction that has been designated as a hedged item, state how the hedging instrument is expected to hedge the risks related to the hedged item, and set forth the method that will be used to retrospectively and prospectively assess the hedging instrument’s effectiveness and the method that will be used to measure hedge ineffectiveness. We generally determine hedge effectiveness based on total changes in fair value of the hedged item attributable to the hedged risk and the total changes in fair value of the derivative instrument.
We discontinue hedge accounting prospectively when: (i) it is determined that the derivative is no longer effective in offsetting changes in the fair value or cash flows of a hedged item; (ii) the derivative expires or is sold, terminated or exercised; (iii) the derivative is de-designated as a hedge instrument; or (iv) it is no longer probable that the forecasted transaction will occur.
For all qualifying and highly effective cash flow hedges, the effective portion of changes in fair value of the derivative instrument is reported as a component of OCI. The ineffective portion of changes in fair value of the derivative instrument is reported as a component of income. When hedge accounting is discontinued because it is probable that a forecasted transaction will not occur, the derivative continues to be carried in the consolidated balance sheets at its fair value, and gains and losses that were accumulated in OCI are recognized immediately in income. When the hedged forecasted transaction is no longer probable, but is reasonably possible, the accumulated gain or loss remains in OCI and is recognized when the transaction affects income; however, prospective hedge accounting for the transaction is terminated. In all other situations in which hedge accounting is discontinued on a cash flow hedge, amounts previously deferred in OCI are reclassified into income when income is impacted by the variability of the cash flow of the hedged item.
For all qualifying and highly effective fair value hedges, the changes in fair value of the derivative instrument are reported in income. In addition, changes in fair value attributable to the hedged portion of the underlying instrument are reported in income. When hedge accounting is discontinued because it is determined that the derivative no longer qualifies as an effective fair value hedge, the derivative continues to be carried in the consolidated balance sheets at its fair value, but the hedged asset or liability will no longer be adjusted for changes in fair value. In all other situations in which hedge accounting is discontinued, the derivative is carried at its fair value in the consolidated balance sheets, with changes in its fair value recognized in current period income.
We may enter into contracts that are not themselves derivative instruments but contain embedded derivatives. For each contract, we assess whether the economic characteristics of the embedded derivative are clearly and closely related to those of the host contract and determine whether a separate instrument with the same terms as the embedded instrument would meet the definition of a derivative instrument.
If it is determined that the embedded derivative possesses economic characteristics that are not clearly and closely related to the economic characteristics of the host contract, and that a separate instrument with the same terms would qualify as a derivative instrument, the embedded derivative is separated from the host contract and accounted for as a stand-alone derivative. Such embedded derivatives are recorded in the consolidated balance sheets at fair value and are classified consistent with their host contract. Changes in their fair value are recognized in current period income. If we are unable to properly identify and measure an embedded derivative for separation from its host contract, the entire contract is carried in the consolidated balance sheets at fair value, with changes in fair value recognized in current period income.
Changes in the fair value of non-qualifying derivatives, including embedded derivatives, changes in fair value of certain derivatives and related hedged items in fair value hedge relationships and hedge ineffectiveness on cash flow hedges are reported in net investment gains (losses).
The majority of our derivative arrangements require the posting of collateral upon meeting certain net exposure thresholds. The amounts recognized for derivative counterparty collateral received by us was recorded in cash and cash equivalents with a corresponding amount recorded in other liabilities to represent our obligation to return the collateral retained by us. We also receive non-cash collateral that is not recognized in our balance sheet unless we exercise our right to sell or re-pledge the underlying asset. As of December 31, 2015 and 2014, the fair value of non-cash collateral received was $86 million and $287 million, respectively, and the underlying assets were not sold or re-pledged. Additionally, we have pledged $263 million and $49 million of fixed maturity securities as of December 31, 2015 and 2014, respectively. We have not pledged any cash as collateral to derivative counterparties. Fixed maturity securities that we pledge as collateral remain on our balance sheet within fixed maturity securities available-for-sale. Any cash collateral pledged to a derivative counterparty is derecognized with a receivable recorded in other assets for the right to receive our cash collateral back from the counterparty.
o) Separate Accounts and Related Insurance Obligations
Separate account assets represent funds for which the investment income and investment gains and losses accrue directly to the contractholders and are reflected in our consolidated balance sheets at fair value, reported as summary total separate account assets with an equivalent summary total reported for liabilities. Amounts assessed against the contractholders for mortality, administrative and other services are included in revenues. Changes in liabilities for minimum guarantees are included in benefits and other changes in policy reserves. Net investment income, net investment gains (losses) and the related liability changes associated with the separate account are offset within the same line item in the consolidated statements of income. There were no gains or losses on transfers of assets from the general account to the separate account.
We offer certain minimum guarantees associated with our variable annuity contracts. Our variable annuity contracts usually contain a basic guaranteed minimum death benefit (“GMDB”) which provides a minimum benefit to be paid upon the annuitant’s death equal to the larger of account value and the return of net deposits. Some variable annuity contracts permit contractholders to purchase through riders, at an additional charge, enhanced death benefits such as the highest contract anniversary value (“ratchets”), accumulated net deposits at a stated rate (“rollups”), or combinations thereof.
Additionally, some of our variable annuity contracts provide the contractholder with living benefits such as a guaranteed minimum withdrawal benefit (“GMWB”) or certain types of guaranteed annuitization benefits. The GMWB allows contractholders to withdraw a pre-defined percentage of account value or benefit base each year, either for a specified period of time or for life. The guaranteed annuitization benefit generally provides for a guaranteed minimum level of income upon annuitization accompanied by the potential for upside market participation.
Most of our reserves for additional insurance and annuitization benefits are calculated by applying a benefit ratio to accumulated contractholder assessments, and then deducting accumulated paid claims. The benefit ratio is equal to the ratio of benefits to assessments, accumulated with interest and considering both past and anticipated future experience. The projections utilize stochastic scenarios of separate account returns incorporating reversion to the mean, as well as assumptions for mortality and lapses. Some of our minimum guarantees, mainly GMWBs, are accounted for as embedded derivatives; see notes 5 and 16 for additional information on these embedded derivatives and related fair value measurement disclosures.
p) Insurance Reserves
Future Policy Benefits
The liability for future policy benefits is equal to the present value of expected benefits and expenses less the present value of expected future net premiums based on assumptions, including, investment returns, health care experience (including type of care and cost of care), policyholder persistency or lapses (i.e., the probability that a policy or contract will remain in-force from one period to the next), insured life expectancy or longevity, insured morbidity (i.e., frequency and severity of claim, including claim termination rates and benefit utilization rates) and expenses, all of which are locked-in at the time the policies are issued or acquired. Claim termination rates refer to the expected rates at which claims end. Benefit utilization rates estimate how much of the available policy benefits are expected to be used.
The liability for future policy benefits is evaluated at least annually to determine if a premium deficiency exists. Loss recognition testing is generally performed at the line of business level, with acquired blocks and certain reinsured blocks tested separately. If the liability for future policy benefits plus the current present value of expected future premiums are less than the current present value of expected future benefits and expenses (including any unamortized DAC), a charge to income is recorded for accelerated DAC amortization and, if necessary, a premium deficiency reserve is established. If a charge is recorded, DAC amortization and the liability for future policy benefits are measured using updated assumptions, which become the new locked-in assumptions utilized going forward unless another premium deficiency charge is recorded. Our estimates of future premiums used in loss recognition testing for our long-term care insurance business include assumptions for significant premium rate increases that have been filed and approved or are anticipated to be approved. Beginning in the fourth quarter of 2014, estimates of future premiums also include significant anticipated (but not yet filed) future rate increases or benefit reductions. These anticipated future increases are based on our best estimate of the rate increases we expect to obtain, considering, among other factors, our historical experience from prior rate increase approvals and based on our best estimate of expected claim costs.
We are also required to accrue additional future policy benefit reserves when the overall reserve is adequate, but profits are projected in early periods followed by losses projected in later periods. When this pattern of profits followed by losses exists, we ratably accrue this additional profits followed by losses liability over time, increasing reserves in the profitable periods to offset estimated losses expected during the periods that follow. We calculate and adjust the additional reserves using our current best estimate of the amount necessary to offset the losses in future periods, based on the pattern of expected income and current best estimate assumptions consistent with our loss recognition testing. We adjust the accrual rate prospectively, going forward over the remaining profit periods, without any catch-up adjustment.
For long-term care insurance products, benefit reductions are treated as partial lapse of coverage with the balance of our future policy benefits and DAC both reduced in proportion to the reduced coverage. For level premium term life insurance products, we floor the liability for future policy benefits on each policy at zero.
Estimates and actuarial assumptions used for establishing the liability for future policy benefits and in loss recognition testing involve the exercise of significant judgment, and changes in assumptions or deviations of actual experience from assumptions can have material impacts on our liability for future policy benefits and net income (loss). Because these assumptions relate to factors that 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. Small changes in assumptions or small deviations of actual experience from assumptions can have, and in the past have had, material impacts on our reserves, results of operations and financial condition. The risk that our claims experience may differ significantly from our pricing and valuation assumptions is particularly significant for our long-term care insurance products. Long-term care insurance policies provide for long-duration coverage and, therefore, our actual claims experience will emerge over many years after pricing and locked-in valuation assumptions have been established.
Policyholder Account Balances
The liability for policyholder account balances represents the contract value that has accrued to the benefit of the policyholder as of the balance sheet date for investment-type and universal life insurance contracts. We are also required to establish additional benefit reserves for guarantees or product features in addition to the contract value where the additional benefit reserves are calculated by applying a benefit ratio to accumulated contractholder assessments, and then deducting accumulated paid claims. The benefit ratio is equal to the ratio of benefits to assessments, accumulated with interest and considering both past and anticipated future experience.
Investment-type contracts are broadly defined to include contracts without significant mortality or morbidity risk. Payments received from sales of investment contracts are recognized by providing a liability equal to the current account value of the policyholders’ contracts. Interest rates credited to investment contracts are guaranteed for the initial policy term with renewal rates determined as necessary by management.
q) Liability for Policy and Contract Claims
The liability for policy and contract claims, or claim reserves, represents the amount needed to provide for the estimated ultimate cost of settling claims relating to insured events that have occurred on or before the end of the respective reporting period. The estimated liability includes requirements for future payments of: (a) claims that have been reported to the insurer; (b) claims related to insured events that have occurred but that have not been reported to the insurer as of the date the liability is estimated; and (c) claim adjustment expenses. Claim adjustment expenses include costs incurred in the claim settlement process such as legal fees and costs to record, process and adjust claims.
Our liability for policy and contract claims is reviewed regularly, with changes in our estimates of future claims recorded through net income (loss). Estimates and actuarial assumptions used for establishing the liability for policy and contract claims involve the exercise of significant judgment, and changes in assumptions or deviations of actual experience from assumptions can have material impacts on our liability for policy and contract claims and net income (loss). Because these assumptions relate to factors that 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. Small changes in assumptions or small deviations of actual experience from assumptions can have, and in the past have had, material impacts on our reserves, results of operations and financial condition.
The liability for policy and contract claims for our long-term care insurance products represents the present value of the amount needed to provide for the estimated ultimate cost of settling claims relating to insured events that have occurred on or before the end of the respective reporting period. Key assumptions include investment returns, health care experience (including type of care and cost of care), policyholder persistency or lapses (i.e., the probability that a policy or contract will remain in-force from one period to the next), insured mortality (i.e., life expectancy or longevity), insured morbidity (i.e., frequency and severity of claim, including claim termination rates and benefit utilization rates) and expenses. Claim termination rates refer to the expected rates at which claims end. Benefit utilization rates estimate how much of the available policy benefits are expected to be used. Both claim termination rates and benefit utilization rates are influenced by, among other things, gender, age at claim, diagnosis, type of care needed, benefit period, and daily benefit amount. Because these assumptions relate to factors that 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. Small changes in assumptions or small deviations of actual experience from assumptions can have, and in the past have had, material impacts on our reserves, results of operations and financial condition.
The liabilities for our mortgage insurance policies represent our best estimates of the liabilities at the time based on known facts, trends and other external factors, including economic conditions, housing prices and employment rates. For our mortgage insurance policies, reserves for losses and loss adjustment expenses are based on notices of mortgage loan defaults and estimates of defaults that have been incurred but have not been reported by loan servicers, using assumptions of claim rates for loans in default and the average amount paid for loans that result in a claim. As is common accounting practice in the mortgage insurance industry and in accordance with U.S. GAAP, we begin to provide for the ultimate claim payment relating to a potential claim on a defaulted loan when the status of that loan first goes delinquent. Over time, as the status of the underlying delinquent loans move toward foreclosure and the likelihood of the associated claim loss increases, the amount of the loss reserves associated with the potential claims may also increase.
Management considers the liability for policy and contract claims provided to be satisfactory to cover the losses that have occurred. Management monitors actual experience, and where circumstances warrant, will revise its assumptions. The methods of determining such estimates and establishing the reserves are reviewed periodically and any adjustments are reflected in operations in the period in which they become known. Future developments may result in losses and loss expenses greater or less than the liability for policy and contract claims provided.
r) Unearned Premiums
For single premium insurance contracts, we recognize premiums over the policy life in accordance with the expected pattern of risk emergence. We recognize a portion of the revenue in premiums earned in the current period, while the remaining portion is deferred as unearned premiums and earned over time in accordance with the expected pattern of risk emergence. If single premium policies are cancelled and the premium is non-refundable, then the remaining unearned premium related to each cancelled policy is recognized to earned premiums upon notification of the cancellation. Expected pattern of risk emergence on which we base premium recognition is inherently judgmental and is based on actuarial analysis of historical experience. We periodically review our premium earnings recognition models with any adjustments to the estimates reflected in current period income. For the years ended December 31, 2015, 2014 and 2013, we updated our premium recognition factors for our international mortgage insurance businesses. These updates included the consideration of recent and projected loss experience, policy cancellation experience and refinement of actuarial methods. In 2015, 2014 and 2013, adjustments associated with this update resulted in an increase in earned premiums of $8 million, $6 million and $12 million, respectively.
s) Stock-Based Compensation
We determine a grant date fair value and recognize the related compensation expense, adjusted for expected forfeitures, through the income statement over the respective vesting period of the awards.
t) Employee Benefit Plans
We provide employees with a defined contribution pension plan and recognize expense throughout the year based on the employee’s age, service and eligible pay. We make an annual contribution to the plan. We also provide employees with defined contribution savings plans. We recognize expense for our contributions to the savings plans at the time employees make contributions to the plans.
Some employees participate in defined benefit pension and postretirement benefit plans. We recognize expense for these plans based upon actuarial valuations performed by external experts. We estimate aggregate benefits by using assumptions for employee turnover, future compensation increases, rates of return on pension plan assets and future health care costs. We recognize an expense for differences between actual experience and estimates over the average future service period of participants. We recognize the overfunded or underfunded status of a defined benefit plan as an asset or liability in our consolidated balance sheets and recognize changes in that funded status in the year in which the changes occur through OCI.
u) Income Taxes
We determine deferred tax assets and/or liabilities by multiplying the differences between the financial reporting and tax reporting bases for assets and liabilities by the enacted tax rates expected to be in effect when such differences are recovered or settled if there is no change in law. The effect on deferred taxes of a change in tax rates is recognized in income in the period that includes the enactment date. Valuation allowances on deferred tax assets are estimated based on our assessment of the realizability of such amounts.
We do not record U.S. deferred taxes on foreign income that we do not expect to remit or repatriate to U.S. corporations within our consolidated group. Under U.S. GAAP, we are generally required to record U.S. deferred taxes on the anticipated repatriation of foreign income as the income is recognized for financial reporting purposes. An exception under certain accounting guidance permits us not to record a U.S. deferred tax liability for foreign income that we expect to reinvest in our foreign operations and for which remittance will be postponed indefinitely. If it becomes apparent that we cannot positively assert that some or all undistributed income will be reinvested indefinitely, the related deferred taxes are recorded in that period. In determining indefinite reinvestment, we regularly evaluate the capital needs of our domestic and foreign operations considering all available information, including operating and capital plans, regulatory capital requirements, parent company financing and cash flow needs, as well as the applicable tax laws to which our domestic and foreign subsidiaries are subject. Our estimates are based on our historical experience and our expectation of future performance. Our judgments and assumptions are subject to change given the inherent uncertainty in predicting future capital needs, which are impacted by such things as regulatory requirements, policyholder behavior, competitor pricing, new product introductions, and specific industry and market conditions.
Similarly, under another exception to the recognition of deferred taxes under U.S. GAAP, we do not record deferred taxes on U.S. domestic subsidiary entities for the excess of the financial statement carrying amount over the tax basis in the stock of the subsidiary (commonly referred to as “outside basis difference”) if we have the ability under the tax law and intent to recover the basis difference in a tax free manner. Deferred taxes would be recognized in the period of a change to our ability or intent.
Our companies have elected to file a single U.S. consolidated income tax return (the “life/non-life consolidated return”). All companies domesticated in the United States and our Bermuda and Guernsey subsidiaries, which have elected to be taxed as U.S. domestic companies, are included in the life/non-life consolidated return as allowed by the tax law and regulations. We have a tax sharing agreement (the “life/non-life tax sharing agreement”) in place and all intercompany balances related to this agreement are settled at least annually.
Our subsidiaries based in Bermuda and Guernsey are treated as U.S. insurance companies under provisions of the U.S. Internal Revenue Code, are included in the life/non-life consolidated return, and have adopted the life-non/life tax sharing agreement. Jurisdictions outside the United States in which our various subsidiaries incur significant taxes include Australia and Canada.
v) Foreign Currency Translation
The determination of the functional currency is made based on the appropriate economic and management indicators. The assets and liabilities of foreign operations are translated into U.S. dollars at the exchange rates in effect at the balance sheet date. Translation adjustments are included as a separate component of accumulated other comprehensive income (loss). Revenues and expenses of the foreign operations are translated into U.S. dollars at the average rates of exchange during the period of the transaction. Gains and losses from foreign currency transactions are reported in income and have not been material in any years presented in our consolidated statements of income.
w) Variable Interest Entities
We are involved in certain entities that are considered VIEs as defined under U.S. GAAP, and, accordingly, we evaluate the VIE to determine whether we are the primary beneficiary and are required to consolidate the assets and liabilities of the entity. The primary beneficiary of a VIE is the enterprise that has the power to direct the activities of a VIE that most significantly impacts the VIE’s economic performance and has the obligation to absorb losses or receive benefits that could potentially be significant to the VIE. The determination of the primary beneficiary for a VIE can be complex and requires management judgment regarding the expected results of the entity and how those results are absorbed by beneficial interest holders, as well as which party has the power to direct activities that most significantly impact the performance of the VIEs.
Our primary involvement related to VIEs includes securitization transactions, certain investments and certain mortgage insurance policies.
We have retained interests in VIEs where we are the servicer and transferor of certain assets that were sold to a newly created VIE. Additionally, for certain securitization transactions, we were the transferor of certain assets that were sold to a newly created VIE but did not retain any beneficial interest in the VIE other than acting as the servicer of the underlying assets.
We hold investments in certain structures that are considered VIEs. Our investments represent beneficial interests that are primarily in the form of structured securities or alternative investments. Our involvement in these structures typically represent a passive investment in the returns generated by the VIE and typically do not result in having significant influence over the economic performance of the VIE.
We also provide mortgage insurance on certain residential mortgage loans originated and securitized by third parties using VIEs to issue mortgage-backed securities. While we provide mortgage insurance on the underlying loans, we do not typically have any ongoing involvement with the VIE other than our mortgage insurance coverage and do not act in a servicing capacity for the underlying loans held by the VIE.
See note 17 for additional information related to these consolidated entities.
x) Accounting Changes
Debt Issuance Costs
On December 31, 2015, we early adopted new accounting guidance related to the presentation of debt issuance costs. The new guidance requires that debt issuance costs be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability. This guidance was applied on a retrospective basis. Upon adoption, in our consolidated balance sheet as of December 31, 2014, we recorded a reduction in other assets and total assets of $42 million, with a related reduction in long-term debt of $27 million, a reduction in non-recourse funding obligations of $15 million and a reduction in total liabilities of $42 million. We also adopted new guidance that allows debt issuance costs related to revolving credit facilities to be presented as either an asset or as a direct deduction from the carrying amount of that debt liability. We elected to continue to present debt issuance costs related to revolving credit facilities in other assets in our consolidated balance sheet. See note 12 for more information related to our long-term debt and non-recourse funding obligations.
Financial Assets and Liabilities of a Collateralized Financing Entity
On January 1, 2015, we early adopted new accounting guidance related to measuring the financial assets and financial liabilities of a consolidated collateralized financing entity. The guidance addresses the accounting for the measurement difference between the fair value of financial assets and the fair value of financial liabilities of a collateralized financing entity. The new guidance provides an alternative whereby a reporting entity could measure the financial assets and financial liabilities of the collateralized financing entity in its consolidated financial statements using the more observable of the fair values. There was no impact on our consolidated financial statements.
Repurchase Financings
On January 1, 2015, we adopted new accounting guidance related to the accounting for repurchase-to-maturity transactions and repurchase financings. The new guidance changed the accounting for repurchase-to-maturity transactions and repurchase financing such that they were consistent with secured borrowing accounting. In addition, the guidance required new disclosures for all repurchase agreements and securities lending transactions which were effective beginning in the second quarter of 2015. We do not have repurchase-to-maturity transactions, but have repurchase agreements and securities lending transactions that are subject to additional disclosures. This new guidance did not have an impact on our consolidated financial statements but did impact our disclosures.
Investments In Affordable Housing Projects
On January 1, 2015, we adopted new accounting guidance related to the accounting for investments in affordable housing projects that qualify for the low-income housing tax credit. The new guidance permits reporting entities to make an accounting policy election to account for investments in qualified affordable housing projects by amortizing the initial cost of the investment in proportion to the tax benefits received and recognize the net investment performance as a component of income tax expense (called the proportional amortization method) if certain conditions are met. The new guidance requires use of the equity method or cost method for investments in qualified affordable housing projects not accounted for using the proportional amortization method. The adoption of this new guidance did not have a material impact on our consolidated financial statements.
Share-Based Payment Awards
On January 1, 2015, we early adopted new accounting guidance related to the accounting for share-based payment awards when the terms of an award provide that a performance target can be achieved after the requisite service period. The guidance requires that such performance targets should not be reflected in estimating the grant-date fair value of an award, and that compensation cost should be recognized in the period in which it becomes probable that the performance target will be achieved. We have performance stock unit grants where awards for employees who are retirement eligible can vest on a pro-rata basis upon retirement even if retirement occurs before the performance target is achieved. There was no impact on our consolidated financial statements from the adoption of this accounting guidance.
Investment Companies
On January 1, 2014, we adopted new accounting guidance on the scope, measurement and disclosure requirements for investment companies. The new guidance clarified the characteristics of an investment company, provided comprehensive guidance for assessing whether an entity is an investment company, required investment companies to measure noncontrolling ownership interest in other investment companies at fair value rather than using the equity method of accounting and required additional disclosures. The adoption of this accounting guidance did not have any impact on our consolidated financial statements.
Benchmarking Interest Rates Used When Applying Hedge Accounting
In July 2013, we adopted new accounting guidance to provide additional flexibility in the benchmark interest rates used when applying hedge accounting. The new guidance permits the use of the Federal Funds Effective Swap Rate as a benchmark interest rate for hedge accounting purposes and removes certain restrictions on being able to apply hedge accounting for similar hedges using different benchmark interest rates. The adoption of this accounting guidance did not have a material impact on our consolidated financial statements.
y) Accounting Pronouncements Not Yet Adopted
In January 2016, the Financial Accounting Standards Board (the “FASB”) issued new accounting guidance related to the recognition and measurement of financial assets and financial liabilities. Changes to the current financial instruments accounting primarily affects equity investments, financial liabilities under the fair value option, and the presentation and disclosure requirements for financial instruments. Under the new guidance, equity investments with readily determinable fair value, except those accounted for under the equity method of accounting, will be measured at fair value with changes in fair value recognized in net income. The new guidance also clarifies that the need for a valuation allowance on a deferred tax asset related to available-for-sale securities should be evaluated in combination with other deferred tax assets. This new guidance will be effective for us on January 1, 2018. We are still in process of evaluating the impact the guidance may have on our consolidated financial statements.
In May 2015, the FASB issued new disclosure requirements for short-duration insurance contracts. The new guidance requires additional disclosures on short-duration policy and contract claims liabilities for incurred and paid claims development, unpaid claims and claims frequency. These new disclosures will be effective for us on December 31, 2016 with early adoption permitted and will only impact our disclosures.
In February 2015, the FASB issued new accounting guidance related to consolidation. This guidance primarily impacts limited partnerships and similar legal entities, evaluation of fees paid to a decision maker as a variable interest, the effect of fee arrangements and related parties on the primary beneficiary determination and certain investment funds. This guidance is effective for us on January 1, 2016, with early adoption permitted. We do not expect any significant impact on our consolidated financial statements.
In May 2014, the FASB issued new accounting guidance related to revenue from contracts with customers, effective for us on January 1, 2018. The key principle of the new guidance is that entities should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for such goods or services. The standard permits the use of either the retrospective or modified retrospective (cumulative effect) transition method. Insurance contracts are specifically excluded from this new guidance. The FASB has proposed a technical correction to clarify the scope that both insurance and investment contracts are excluded from the scope of this new guidance. In addition, we believe that mortgage insurance, although excluded from insurance revenue guidance, is not within scope of the new revenue recognition rules and will continue to follow existing industry revenue practices. As such, while we are still evaluating the full impact, at this time we do not expect any significant impacts from this new guidance on our consolidated financial statements.
z) Cash Flow Statement Reclassification
We have revised our consolidated statements of cash flows previously reported in our 2014 Annual Report on Form 10-K for the years ended December 31, 2014 and 2013 to reflect a correction related to the calculation of the change in reinsurance recoverable that impacted the lines “insurance reserves” and “other liabilities, policy and contract claims and other policy-related balances.” As a result, the change in insurance reserves decreased by $720 million and $613 million, respectively, and the change in other liabilities, policy and contract claims and other policy-related balances increased by $720 million and $613 million, respectively, for the years ended December 31, 2014 and 2013. The revisions had no impact on net cash flows from operating activities or the total change in cash and cash equivalents within our consolidated statements of cash flows. Additionally, there was no impact on our consolidated balance sheets or consolidated statements of income.
|
(4) Investments
(a) Net Investment Income
Sources of net investment income were as follows for the years ended December 31:
(Amounts in millions) |
2015 | 2014 | 2013 | |||||||||
Fixed maturity securities—taxable |
$ | 2,558 | $ | 2,598 | $ | 2,603 | ||||||
Fixed maturity securities—non-taxable |
12 | 12 | 9 | |||||||||
Commercial mortgage loans |
337 | 333 | 335 | |||||||||
Restricted commercial mortgage loans related to securitization entities (1) |
14 | 14 | 23 | |||||||||
Equity securities |
15 | 14 | 17 | |||||||||
Other invested assets (2) |
135 | 105 | 108 | |||||||||
Restricted other invested assets related to securitization entities (1) |
5 | 5 | 4 | |||||||||
Policy loans |
137 | 129 | 129 | |||||||||
Cash, cash equivalents and short-term investments |
13 | 24 | 19 | |||||||||
|
|
|
|
|
|
|||||||
Gross investment income before expenses and fees |
3,226 | 3,234 | 3,247 | |||||||||
Expenses and fees |
(88 | ) | (92 | ) | (92 | ) | ||||||
|
|
|
|
|
|
|||||||
Net investment income |
$ | 3,138 | $ | 3,142 | $ | 3,155 | ||||||
|
|
|
|
|
|
(1) | See note 17 for additional information related to consolidated securitization entities. |
(2) | Included in other invested assets was $9 million, $8 million and $13 million of net investment income related to trading securities for the years ended December 31, 2015, 2014 and 2013, respectively. |
(b) Net Investment Gains (Losses)
The following table sets forth net investment gains (losses) for the years ended December 31:
(Amounts in millions) |
2015 | 2014 | 2013 | |||||||||
Available-for-sale securities: |
||||||||||||
Realized gains |
$ | 102 | $ | 72 | $ | 149 | ||||||
Realized losses |
(82 | ) | (46 | ) | (184 | ) | ||||||
|
|
|
|
|
|
|||||||
Net realized gains (losses) on available-for-sale securities |
20 | 26 | (35 | ) | ||||||||
|
|
|
|
|
|
|||||||
Impairments: |
||||||||||||
Total other-than-temporary impairments |
(28 | ) | (9 | ) | (16 | ) | ||||||
Portion of other-than-temporary impairments included in other comprehensive income (loss) |
1 | — | (9 | ) | ||||||||
|
|
|
|
|
|
|||||||
Net other-than-temporary impairments |
(27 | ) | (9 | ) | (25 | ) | ||||||
|
|
|
|
|
|
|||||||
Trading securities |
(7 | ) | 39 | (23 | ) | |||||||
Commercial mortgage loans |
7 | 11 | 4 | |||||||||
Net gains (losses) related to securitization entities (1) |
5 | 16 | 69 | |||||||||
Derivative instruments (2) |
(76 | ) | (103 | ) | (49 | ) | ||||||
Contingent consideration adjustment |
2 | (2 | ) | — | ||||||||
Other |
1 | — | (5 | ) | ||||||||
|
|
|
|
|
|
|||||||
Net investment gains (losses) |
$ | (75 | ) | $ | (22 | ) | $ | (64 | ) | |||
|
|
|
|
|
|
(1) | See note 17 for additional information related to consolidated securitization entities. |
(2) | See note 5 for additional information on the impact of derivative instruments included in net investment gains (losses). |
We generally intend to hold securities in unrealized loss positions until they recover. However, from time to time, our intent on an individual security may change, based upon market or other unforeseen developments. In such instances, we sell securities in the ordinary course of managing our portfolio to meet diversification, credit quality, yield and liquidity requirements. If a loss is recognized from a sale subsequent to a balance sheet date due to these unexpected developments, the loss is recognized in the period in which we determined that we have the intent to sell the securities or it is more likely than not that we will be required to sell the securities prior to recovery. The aggregate fair value of securities sold at a loss during the years ended December 31, 2015, 2014 and 2013 was $1,827 million, $857 million and $1,743 million, respectively, which was approximately 96%, 95% and 91%, respectively, of book value.
The following represents the activity for credit losses recognized in net income (loss) on debt securities where an other-than-temporary impairment was identified and a portion of other-than-temporary impairments was included in OCI as of and for the years ended December 31:
(Amounts in millions) |
2015 | 2014 | 2013 | |||||||||
Beginning balance |
$ | 83 | $ | 101 | $ | 387 | ||||||
Additions: |
||||||||||||
Other-than-temporary impairments not previously recognized |
— | 1 | 4 | |||||||||
Increases related to other-than-temporary impairments previously recognized |
— | 1 | 11 | |||||||||
Reductions: |
||||||||||||
Securities sold, paid down or disposed |
(19 | ) | (20 | ) | (301 | ) | ||||||
|
|
|
|
|
|
|||||||
Ending balance |
$ | 64 | $ | 83 | $ | 101 | ||||||
|
|
|
|
|
|
(c) Unrealized Investment Gains and Losses
Net unrealized gains and losses on available-for-sale investment securities reflected as a separate component of accumulated other comprehensive income (loss) were as follows as of December 31:
(Amounts in millions) |
2015 | 2014 | 2013 | |||||||||
Net unrealized gains (losses) on investment securities: |
||||||||||||
Fixed maturity securities |
$ | 3,140 | $ | 5,560 | $ | 2,346 | ||||||
Equity securities |
(10 | ) | 32 | 23 | ||||||||
Other invested assets |
— | (2 | ) | (4 | ) | |||||||
|
|
|
|
|
|
|||||||
Subtotal |
3,130 | 5,590 | 2,365 | |||||||||
Adjustments to DAC, PVFP, sales inducements and benefit reserves |
(1,070 | ) | (1,656 | ) | (869 | ) | ||||||
Income taxes, net |
(711 | ) | (1,372 | ) | (517 | ) | ||||||
|
|
|
|
|
|
|||||||
Net unrealized investment gains (losses) |
1,349 | 2,562 | 979 | |||||||||
Less: net unrealized investment gains (losses) attributable to noncontrolling interests |
95 | 109 | 53 | |||||||||
|
|
|
|
|
|
|||||||
Net unrealized investment gains (losses) attributable to Genworth Financial, Inc. |
$ | 1,254 | $ | 2,453 | $ | 926 | ||||||
|
|
|
|
|
|
The change in net unrealized gains (losses) on available-for-sale investment securities reported in accumulated other comprehensive income (loss) was as follows as of and for the years ended December 31:
(Amounts in millions) |
2015 | 2014 | 2013 | |||||||||
Beginning balance |
$ | 2,453 | $ | 926 | $ | 2,638 | ||||||
Unrealized gains (losses) arising during the period: |
||||||||||||
Unrealized gains (losses) on investment securities |
(2,467 | ) | 3,244 | (3,780 | ) | |||||||
Adjustment to DAC |
177 | (172 | ) | 248 | ||||||||
Adjustment to PVFP |
89 | (66 | ) | 95 | ||||||||
Adjustment to sales inducements |
30 | (15 | ) | 40 | ||||||||
Adjustment to benefit reserves |
290 | (534 | ) | 673 | ||||||||
Provision for income taxes |
663 | (862 | ) | 952 | ||||||||
|
|
|
|
|
|
|||||||
Change in unrealized gains (losses) on investment securities |
(1,218 | ) | 1,595 | (1,772 | ) | |||||||
Reclassification adjustments to net investment (gains) losses, net of taxes of $(2), $7 and $(12) |
5 | (12 | ) | 21 | ||||||||
|
|
|
|
|
|
|||||||
Change in net unrealized investment gains (losses) |
(1,213 | ) | 1,583 | (1,751 | ) | |||||||
Less: change in net unrealized investment gains (losses) attributable to noncontrolling interests |
(14 | ) | 56 | (39 | ) | |||||||
|
|
|
|
|
|
|||||||
Ending balance |
$ | 1,254 | $ | 2,453 | $ | 926 | ||||||
|
|
|
|
|
|
(d) Fixed Maturity and Equity Securities
As of December 31, 2015, the amortized cost or cost, gross unrealized gains (losses) and fair value of our fixed maturity and equity securities classified as available-for-sale were as follows:
Amortized cost or cost |
Gross unrealized gains | Gross unrealized losses | Fair value |
|||||||||||||||||||||
(Amounts in millions) |
Not other-than- temporarily impaired |
Other-than- temporarily impaired |
Not other-than- temporarily impaired |
Other-than- temporarily impaired |
||||||||||||||||||||
Fixed maturity securities: |
||||||||||||||||||||||||
U.S. government, agencies and government-sponsored enterprises |
$ | 5,487 | $ | 732 | $ | — | $ | (16 | ) | $ | — | $ | 6,203 | |||||||||||
State and political subdivisions |
2,287 | 181 | — | (30 | ) | — | 2,438 | |||||||||||||||||
Non-U.S. government |
1,910 | 110 | — | (5 | ) | — | 2,015 | |||||||||||||||||
U.S. corporate: |
||||||||||||||||||||||||
Utilities |
3,355 | 364 | — | (26 | ) | — | 3,693 | |||||||||||||||||
Energy |
2,560 | 103 | — | (162 | ) | — | 2,501 | |||||||||||||||||
Finance and insurance |
5,268 | 392 | 15 | (43 | ) | — | 5,632 | |||||||||||||||||
Consumer—non-cyclical |
3,755 | 371 | — | (30 | ) | — | 4,096 | |||||||||||||||||
Technology and communications |
2,108 | 123 | — | (38 | ) | — | 2,193 | |||||||||||||||||
Industrial |
1,164 | 53 | — | (44 | ) | — | 1,173 | |||||||||||||||||
Capital goods |
1,774 | 188 | — | (12 | ) | — | 1,950 | |||||||||||||||||
Consumer—cyclical |
1,602 | 95 | — | (22 | ) | — | 1,675 | |||||||||||||||||
Transportation |
1,023 | 75 | — | (12 | ) | — | 1,086 | |||||||||||||||||
Other |
385 | 22 | — | (5 | ) | — | 402 | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total U.S. corporate |
22,994 | 1,786 | 15 | (394 | ) | — | 24,401 | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Non-U.S. corporate: |
||||||||||||||||||||||||
Utilities |
815 | 37 | — | (9 | ) | — | 843 | |||||||||||||||||
Energy |
1,700 | 64 | — | (78 | ) | — | 1,686 | |||||||||||||||||
Finance and insurance |
2,327 | 152 | 2 | (8 | ) | — | 2,473 | |||||||||||||||||
Consumer—non-cyclical |
746 | 24 | — | (18 | ) | — | 752 | |||||||||||||||||
Technology and communications |
978 | 36 | — | (26 | ) | — | 988 | |||||||||||||||||
Industrial |
1,063 | 19 | — | (96 | ) | — | 986 | |||||||||||||||||
Capital goods |
602 | 19 | — | (17 | ) | — | 604 | |||||||||||||||||
Consumer—cyclical |
522 | 8 | — | (4 | ) | — | 526 | |||||||||||||||||
Transportation |
559 | 52 | — | (6 | ) | — | 605 | |||||||||||||||||
Other |
2,574 | 187 | — | (25 | ) | — | 2,736 | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total non-U.S. corporate |
11,886 | 598 | 2 | (287 | ) | — | 12,199 | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Residential mortgage-backed |
4,777 | 330 | 11 | (17 | ) | — | 5,101 | |||||||||||||||||
Commercial mortgage-backed |
2,492 | 84 | 3 | (20 | ) | — | 2,559 | |||||||||||||||||
Other asset-backed |
3,328 | 11 | 1 | (59 | ) | — | 3,281 | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total fixed maturity securities |
55,161 | 3,832 | 32 | (828 | ) | — | 58,197 | |||||||||||||||||
Equity securities |
325 | 8 | — | (23 | ) | — | 310 | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total available-for-sale securities |
$ | 55,486 | $ | 3,840 | $ | 32 | $ | (851 | ) | $ | — | $ | 58,507 | |||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2014, the amortized cost or cost, gross unrealized gains (losses) and fair value of our fixed maturity and equity securities classified as available-for-sale were as follows:
Amortized cost or cost |
Gross unrealized gains | Gross unrealized losses | Fair value |
|||||||||||||||||||||
(Amounts in millions) |
Not other-than- temporarily impaired |
Other-than- temporarily impaired |
Not other-than- temporarily impaired |
Other-than- temporarily impaired |
||||||||||||||||||||
Fixed maturity securities: |
||||||||||||||||||||||||
U.S. government, agencies and government-sponsored enterprises |
$ | 5,006 | $ | 995 | $ | — | $ | (1 | ) | $ | — | $ | 6,000 | |||||||||||
State and political subdivisions |
2,013 | 236 | — | (27 | ) | — | 2,222 | |||||||||||||||||
Non-U.S. government |
1,761 | 143 | — | (2 | ) | — | 1,902 | |||||||||||||||||
U.S. corporate: |
||||||||||||||||||||||||
Utilities |
3,292 | 577 | — | (5 | ) | — | 3,864 | |||||||||||||||||
Energy |
2,498 | 265 | — | (21 | ) | — | 2,742 | |||||||||||||||||
Finance and insurance |
5,102 | 537 | 20 | (13 | ) | — | 5,646 | |||||||||||||||||
Consumer—non-cyclical |
3,483 | 538 | — | (8 | ) | — | 4,013 | |||||||||||||||||
Technology and communications |
2,112 | 217 | — | (4 | ) | — | 2,325 | |||||||||||||||||
Industrial |
1,195 | 100 | — | (8 | ) | — | 1,287 | |||||||||||||||||
Capital goods |
1,748 | 263 | — | (5 | ) | — | 2,006 | |||||||||||||||||
Consumer—cyclical |
1,750 | 158 | — | (8 | ) | — | 1,900 | |||||||||||||||||
Transportation |
929 | 114 | — | (4 | ) | — | 1,039 | |||||||||||||||||
Other |
370 | 31 | — | — | — | 401 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total U.S. corporate |
22,479 | 2,800 | 20 | (76 | ) | — | 25,223 | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Non-U.S. corporate: |
||||||||||||||||||||||||
Utilities |
857 | 48 | — | (2 | ) | — | 903 | |||||||||||||||||
Energy |
1,911 | 163 | — | (38 | ) | — | 2,036 | |||||||||||||||||
Finance and insurance |
2,757 | 203 | — | (3 | ) | — | 2,957 | |||||||||||||||||
Consumer—non-cyclical |
764 | 41 | — | (9 | ) | — | 796 | |||||||||||||||||
Technology and communications |
986 | 71 | — | (4 | ) | — | 1,053 | |||||||||||||||||
Industrial |
1,166 | 65 | — | (18 | ) | — | 1,213 | |||||||||||||||||
Capital goods |
592 | 31 | — | (5 | ) | — | 618 | |||||||||||||||||
Consumer—cyclical |
520 | 14 | — | — | — | 534 | ||||||||||||||||||
Transportation |
521 | 70 | — | (1 | ) | — | 590 | |||||||||||||||||
Other |
3,153 | 257 | — | (15 | ) | — | 3,395 | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total non-U.S. corporate |
13,227 | 963 | — | (95 | ) | — | 14,095 | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Residential mortgage-backed |
4,871 | 362 | 13 | (17 | ) | (1 | ) | 5,228 | ||||||||||||||||
Commercial mortgage-backed |
2,564 | 143 | 4 | (9 | ) | — | 2,702 | |||||||||||||||||
Other asset-backed |
3,735 | 23 | 1 | (54 | ) | — | 3,705 | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total fixed maturity securities |
55,656 | 5,665 | 38 | (281 | ) | (1 | ) | 61,077 | ||||||||||||||||
Equity securities |
250 | 32 | — | (7 | ) | — | 275 | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total available-for-sale securities |
$ | 55,906 | $ | 5,697 | $ | 38 | $ | (288 | ) | $ | (1 | ) | $ | 61,352 | ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
The following table presents the gross unrealized losses and fair values of our investment securities, aggregated by investment type and length of time that individual investment securities have been in a continuous unrealized loss position, as of December 31, 2015:
Less than 12 months | 12 months or more | Total | ||||||||||||||||||||||||||||||||||
(Dollar amounts in millions) |
Fair value |
Gross unrealized losses |
Number of securities |
Fair value |
Gross unrealized losses |
Number of securities |
Fair value |
Gross unrealized losses |
Number of securities |
|||||||||||||||||||||||||||
Description of Securities |
||||||||||||||||||||||||||||||||||||
Fixed maturity securities: |
||||||||||||||||||||||||||||||||||||
U.S. government, agencies and government-sponsored enterprises |
$ | 883 | $ | (16 | ) | 32 | $ | — | $ | — | — | $ | 883 | $ | (16 | ) | 32 | |||||||||||||||||||
State and political subdivisions |
464 | (15 | ) | 81 | 163 | (15 | ) | 17 | 627 | (30 | ) | 98 | ||||||||||||||||||||||||
Non-U.S. government |
366 | (5 | ) | 49 | — | — | — | 366 | (5 | ) | 49 | |||||||||||||||||||||||||
U.S. corporate |
5,836 | (332 | ) | 817 | 466 | (62 | ) | 83 | 6,302 | (394 | ) | 900 | ||||||||||||||||||||||||
Non-U.S. corporate |
3,016 | (170 | ) | 400 | 486 | (117 | ) | 87 | 3,502 | (287 | ) | 487 | ||||||||||||||||||||||||
Residential mortgage-backed |
756 | (10 | ) | 88 | 103 | (7 | ) | 38 | 859 | (17 | ) | 126 | ||||||||||||||||||||||||
Commercial mortgage-backed |
780 | (19 | ) | 116 | 39 | (1 | ) | 13 | 819 | (20 | ) | 129 | ||||||||||||||||||||||||
Other asset-backed |
1,944 | (22 | ) | 349 | 336 | (37 | ) | 55 | 2,280 | (59 | ) | 404 | ||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||
Subtotal, fixed maturity securities |
14,045 | (589 | ) | 1,932 | 1,593 | (239 | ) | 293 | 15,638 | (828 | ) | 2,225 | ||||||||||||||||||||||||
Equity securities |
153 | (23 | ) | 64 | — | — | — | 153 | (23 | ) | 64 | |||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||
Total for securities in an unrealized loss position |
$ | 14,198 | $ | (612 | ) | 1,996 | $ | 1,593 | $ | (239 | ) | 293 | $ | 15,791 | $ | (851 | ) | 2,289 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||
% Below cost—fixed maturity securities: |
||||||||||||||||||||||||||||||||||||
<20% Below cost |
$ | 13,726 | $ | (472 | ) | 1,877 | $ | 1,259 | $ | (78 | ) | 238 | $ | 14,985 | $ | (550 | ) | 2,115 | ||||||||||||||||||
20%-50% Below cost |
319 | (116 | ) | 54 | 316 | (139 | ) | 50 | 635 | (255 | ) | 104 | ||||||||||||||||||||||||
>50% Below cost |
— | (1 | ) | 1 | 18 | (22 | ) | 5 | 18 | (23 | ) | 6 | ||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||
Total fixed maturity securities |
14,045 | (589 | ) | 1,932 | 1,593 | (239 | ) | 293 | 15,638 | (828 | ) | 2,225 | ||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||
% Below cost—equity securities: |
||||||||||||||||||||||||||||||||||||
<20% Below cost |
133 | (18 | ) | 56 | — | — | — | 133 | (18 | ) | 56 | |||||||||||||||||||||||||
20%-50% Below cost |
20 | (5 | ) | 8 | — | — | — | 20 | (5 | ) | 8 | |||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||
Total equity securities |
153 | (23 | ) | 64 | — | — | — | 153 | (23 | ) | 64 | |||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||
Total for securities in an unrealized loss position |
$ | 14,198 | $ | (612 | ) | 1,996 | $ | 1,593 | $ | (239 | ) | 293 | $ | 15,791 | $ | (851 | ) | 2,289 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||
Investment grade |
$ | 13,342 | $ | (524 | ) | 1,834 | $ | 1,245 | $ | (135 | ) | 225 | $ | 14,587 | $ | (659 | ) | 2,059 | ||||||||||||||||||
Below investment grade |
856 | (88 | ) | 162 | 348 | (104 | ) | 68 | 1,204 | (192 | ) | 230 | ||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||
Total for securities in an unrealized loss position |
$ | 14,198 | $ | (612 | ) | 1,996 | $ | 1,593 | $ | (239 | ) | 293 | $ | 15,791 | $ | (851 | ) | 2,289 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table presents the gross unrealized losses and fair values of our corporate securities, aggregated by investment type and length of time that individual investment securities have been in a continuous unrealized loss position, based on industry, as of December 31, 2015:
Less than 12 months | 12 months or more | Total | ||||||||||||||||||||||||||||||||||
(Dollar amounts in millions) |
Fair value |
Gross unrealized losses |
Number of securities |
Fair value |
Gross unrealized losses |
Number of securities |
Fair value |
Gross unrealized losses |
Number of securities |
|||||||||||||||||||||||||||
Description of Securities |
||||||||||||||||||||||||||||||||||||
U.S. corporate: |
||||||||||||||||||||||||||||||||||||
Utilities |
$ | 485 | $ | (25 | ) | 74 | $ | 14 | $ | (1 | ) | 7 | $ | 499 | $ | (26 | ) | 81 | ||||||||||||||||||
Energy |
1,162 | (134 | ) | 163 | 131 | (28 | ) | 22 | 1,293 | (162 | ) | 185 | ||||||||||||||||||||||||
Finance and insurance |
1,142 | (35 | ) | 160 | 94 | (8 | ) | 15 | 1,236 | (43 | ) | 175 | ||||||||||||||||||||||||
Consumer—non-cyclical |
836 | (26 | ) | 107 | 51 | (4 | ) | 10 | 887 | (30 | ) | 117 | ||||||||||||||||||||||||
Technology and communications |
658 | (36 | ) | 95 | 23 | (2 | ) | 5 | 681 | (38 | ) | 100 | ||||||||||||||||||||||||
Industrial |
476 | (33 | ) | 64 | 44 | (11 | ) | 9 | 520 | (44 | ) | 73 | ||||||||||||||||||||||||
Capital goods |
293 | (10 | ) | 48 | 26 | (2 | ) | 4 | 319 | (12 | ) | 52 | ||||||||||||||||||||||||
Consumer—cyclical |
427 | (18 | ) | 60 | 63 | (4 | ) | 10 | 490 | (22 | ) | 70 | ||||||||||||||||||||||||
Transportation |
273 | (10 | ) | 38 | 20 | (2 | ) | 1 | 293 | (12 | ) | 39 | ||||||||||||||||||||||||
Other |
84 | (5 | ) | 8 | — | — | — | 84 | (5 | ) | 8 | |||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||
Subtotal, U.S. corporate securities |
5,836 | (332 | ) | 817 | 466 | (62 | ) | 83 | 6,302 | (394 | ) | 900 | ||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||
Non-U.S. corporate: |
||||||||||||||||||||||||||||||||||||
Utilities |
130 | (6 | ) | 20 | 32 | (3 | ) | 6 | 162 | (9 | ) | 26 | ||||||||||||||||||||||||
Energy |
589 | (48 | ) | 71 | 127 | (30 | ) | 20 | 716 | (78 | ) | 91 | ||||||||||||||||||||||||
Finance and insurance |
478 | (7 | ) | 77 | 30 | (1 | ) | 8 | 508 | (8 | ) | 85 | ||||||||||||||||||||||||
Consumer—non-cyclical |
261 | (14 | ) | 27 | 37 | (4 | ) | 4 | 298 | (18 | ) | 31 | ||||||||||||||||||||||||
Technology and communications |
324 | (15 | ) | 37 | 33 | (11 | ) | 9 | 357 | (26 | ) | 46 | ||||||||||||||||||||||||
Industrial |
495 | (54 | ) | 67 | 110 | (42 | ) | 18 | 605 | (96 | ) | 85 | ||||||||||||||||||||||||
Capital goods |
154 | (8 | ) | 22 | 41 | (9 | ) | 9 | 195 | (17 | ) | 31 | ||||||||||||||||||||||||
Consumer—cyclical |
155 | (4 | ) | 20 | — | — | — | 155 | (4 | ) | 20 | |||||||||||||||||||||||||
Transportation |
147 | (6 | ) | 17 | — | — | — | 147 | (6 | ) | 17 | |||||||||||||||||||||||||
Other |
283 | (8 | ) | 42 | 76 | (17 | ) | 13 | 359 | (25 | ) | 55 | ||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||
Subtotal, non-U.S. corporate securities |
3,016 | (170 | ) | 400 | 486 | (117 | ) | 87 | 3,502 | (287 | ) | 487 | ||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||
Total for corporate securities in an unrealized loss position |
$ | 8,852 | $ | (502 | ) | 1,217 | $ | 952 | $ | (179 | ) | 170 | $ | 9,804 | $ | (681 | ) | 1,387 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As indicated in the tables above, the majority of the securities in a continuous unrealized loss position for less than 12 months were investment grade and less than 20% below cost. These unrealized losses were primarily attributable to the increase in interest rates, mostly concentrated in our corporate securities. For securities that have been in a continuous unrealized loss position for less than 12 months, the average fair value percentage below cost was approximately 4% as of December 31, 2015.
Fixed Maturity Securities In A Continuous Unrealized Loss Position For 12 Months Or More
Of the $78 million of unrealized losses on fixed maturity securities in a continuous unrealized loss for 12 months or more that were less than 20% below cost, the weighted-average rating was “BBB+” and approximately 75% of the unrealized losses were related to investment grade securities as of December 31, 2015. These unrealized losses were predominantly attributable to corporate securities and state and political subdivision securities including fixed rate securities purchased in a lower rate environment and variable rate securities purchased in a higher rate and lower spread environment. The average fair value percentage below cost for these securities was approximately 6% as of December 31, 2015. See below for additional discussion related to fixed maturity securities that have been in a continuous unrealized loss position for 12 months or more with a fair value that was more than 20% below cost.
The following tables present the concentration of gross unrealized losses and fair values of fixed maturity securities that were more than 20% below cost and in a continuous unrealized loss position for 12 months or more by asset class as of December 31, 2015:
Investment Grade | ||||||||||||||||||||||||||||||||
20% to 50% | Greater than 50% | |||||||||||||||||||||||||||||||
(Dollar amounts in millions) |
Fair value |
Gross unrealized losses |
% of total gross unrealized losses |
Number of securities |
Fair value |
Gross unrealized losses |
% of total gross unrealized losses |
Number of securities |
||||||||||||||||||||||||
Fixed maturity securities: |
||||||||||||||||||||||||||||||||
State and political subdivisions |
$ | 9 | $ | (3 | ) | — | % | 1 | $ | — | $ | — | — | % | — | |||||||||||||||||
U.S. corporate: |
||||||||||||||||||||||||||||||||
Energy |
23 | (8 | ) | 1 | 4 | — | — | — | — | |||||||||||||||||||||||
Industrial |
18 | (9 | ) | 1 | 3 | — | — | — | — | |||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||
Total U.S. corporate |
41 | (17 | ) | 2 | 7 | — | — | — | — | |||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||
Non-U.S. corporate: |
||||||||||||||||||||||||||||||||
Utilities |
8 | (2 | ) | — | 1 | — | — | — | — | |||||||||||||||||||||||
Energy |
21 | (8 | ) | 1 | 2 | — | — | — | — | |||||||||||||||||||||||
Industrial |
29 | (14 | ) | 2 | 4 | — | — | — | — | |||||||||||||||||||||||
Capital goods |
6 | (5 | ) | 1 | 2 | — | — | — | — | |||||||||||||||||||||||
Other |
5 | (2 | ) | — | 1 | — | — | — | — | |||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||
Total non-U.S. corporate |
69 | (31 | ) | 4 | 10 | — | — | — | — | |||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||
Structured securities: |
||||||||||||||||||||||||||||||||
Other asset-backed |
66 | (25 | ) | 3 | 4 | — | — | — | — | |||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||
Total structured securities |
66 | (25 | ) | 3 | 4 | — | — | — | — | |||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||
Total |
$ | 185 | $ | (76 | ) | 9 | % | 22 | $ | — | $ | — | — | % | — | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Below Investment Grade | ||||||||||||||||||||||||||||||||
20% to 50% | Greater than 50% | |||||||||||||||||||||||||||||||
(Dollar amounts in millions) |
Fair value |
Gross unrealized losses |
% of total gross unrealized losses |
Number of securities |
Fair value |
Gross unrealized losses |
% of total gross unrealized losses |
Number of securities |
||||||||||||||||||||||||
Fixed maturity securities: |
||||||||||||||||||||||||||||||||
U.S. corporate: |
||||||||||||||||||||||||||||||||
Energy |
$ | 21 | $ | (9 | ) | 1 | % | 6 | $ | — | $ | — | — | % | — | |||||||||||||||||
Finance and insurance |
7 | (3 | ) | 1 | 1 | — | — | — | — | |||||||||||||||||||||||
Technology and communications |
5 | (2 | ) | — | 1 | — | — | — | — | |||||||||||||||||||||||
Industrial |
4 | (1 | ) | — | 1 | — | — | — | — | |||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||
Total U.S. corporate |
37 | (15 | ) | 2 | 9 | — | — | — | — | |||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||
Non-U.S. corporate: |
||||||||||||||||||||||||||||||||
Energy |
44 | (20 | ) | 2 | 8 | — | — | — | — | |||||||||||||||||||||||
Technology and communications |
5 | (4 | ) | 1 | 2 | 4 | (5 | ) | 1 | 1 | ||||||||||||||||||||||
Industrial |
10 | (6 | ) | 1 | 2 | 14 | (17 | ) | 2 | 4 | ||||||||||||||||||||||
Capital goods |
3 | (2 | ) | 1 | 1 | — | — | — | — | |||||||||||||||||||||||
Other |
24 | (10 | ) | — | 5 | — | — | — | — | |||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||
Total non-U.S. corporate |
86 | (42 | ) | 5 | 18 | 18 | (22 | ) | 3 | 5 | ||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||
Structured securities: |
||||||||||||||||||||||||||||||||
Other asset-backed |
8 | (6 | ) | 1 | 1 | — | — | — | — | |||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||
Total structured securities |
8 | (6 | ) | 1 | 1 | — | — | — | — | |||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||
Total |
$ | 131 | $ | (63 | ) | 8 | % | 28 | $ | 18 | $ | (22 | ) | 3 | % | 5 | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For all securities in an unrealized loss position, we expect to recover the amortized cost based on our estimate of the amount and timing of cash flows to be collected. We do not intend to sell nor do we expect that we will be required to sell these securities prior to recovering our amortized cost. See below for further discussion of gross unrealized losses by asset class.
Non-U.S. corporate
As indicated above, $95 million of gross unrealized losses were related to non-U.S. corporate fixed maturity securities that have been in an unrealized loss position for more than 12 months and were more than 20% below cost. Of the total unrealized losses for non-U.S. corporate fixed maturity securities, $37 million, or 39%, related to the industrial sector and $28 million, or 29%, related to the energy sector. Reduced overseas demand for metals, particularly copper and oil, has led to a decline in commodities pricing, adversely impacting the fair value of these securities.
We expect that our investments in non-U.S. corporate securities will continue to perform in accordance with our expectations about the amount and timing of estimated cash flows. Although we do not anticipate such events, it is reasonably possible that issuers of our investments in non-U.S. corporate securities may perform worse than current expectations. Such events may lead us to recognize write-downs within our portfolio of non-U.S. corporate securities in the future.
While we considered the length of time each security had been in an unrealized loss position, the extent of the unrealized loss position and any significant declines in fair value subsequent to the balance sheet date in our evaluation of impairment for each of these individual securities, the primary factor in our evaluation of impairment is the expected performance for each of these securities. Our evaluation of expected performance is based on the historical performance of the associated securitization trust as well as the historical performance of the underlying collateral. Our examination of the historical performance of the securitization trust included consideration of the following factors for each class of securities issued by the trust: i) the payment history, including failure to make scheduled payments; ii) current payment status; iii) current and historical outstanding balances; iv) current levels of subordination and losses incurred to date; and v) characteristics of the underlying collateral. Our examination of the historical performance of the underlying collateral included: i) historical default rates, delinquency rates, voluntary and involuntary prepayments and severity of losses, including recent trends in this information; ii) current payment status; iii) loan to collateral value ratios, as applicable; iv) vintage; and v) other underlying characteristics such as current financial condition.
We used our assessment of the historical performance of both the securitization trust and the underlying collateral for each security, along with third-party sources, when available, to develop our best estimate of cash flows expected to be collected. These estimates reflect projections for future delinquencies, prepayments, defaults and losses for the assets that collateralize the securitization trust and are used to determine the expected cash flows for our security, based on the payment structure of the trust. Our projection of expected cash flows is primarily based on the expected performance of the underlying assets that collateralize the securitization trust and is not directly impacted by the rating of our security. While we consider the rating of the security as an indicator of the financial condition of the issuer, this factor does not have a significant impact on our expected cash flows for each security. In limited circumstances, our expected cash flows include expected payments from reliable financial guarantors where we believe the financial guarantor will have sufficient assets to pay claims under the financial guarantee when the cash flows from the securitization trust are not sufficient to make scheduled payments. We then discount the expected cash flows using the effective yield of each security to determine the present value of expected cash flows.
Based on this evaluation, the present value of expected cash flows was greater than or equal to the amortized cost for each security. Accordingly, we determined that the unrealized losses on each of our structured securities represented temporary impairments as of December 31, 2015.
Despite the considerable analysis and rigor employed on our structured securities, it is reasonably possible that the underlying collateral of these investments will perform worse than current market expectations. Such events may lead to adverse changes in cash flows on our holdings of structured securities and future write-downs within our portfolio of structured securities.
The following table presents the gross unrealized losses and fair values of our investment securities, aggregated by investment type and length of time that individual investment securities have been in a continuous unrealized loss position, as of December 31, 2014:
Less than 12 months | 12 months or more | Total | ||||||||||||||||||||||||||||||||||
(Dollar amounts in millions) |
Fair value |
Gross unrealized losses |
Number of securities |
Fair value |
Gross unrealized losses (1) |
Number of securities |
Fair value |
Gross unrealized losses (1) |
Number of securities |
|||||||||||||||||||||||||||
Description of Securities |
||||||||||||||||||||||||||||||||||||
Fixed maturity securities: |
||||||||||||||||||||||||||||||||||||
U.S. government, agencies and government-sponsored enterprises |
$ | — | $ | — | — | $ | 75 | $ | (1 | ) | 10 | $ | 75 | $ | (1 | ) | 10 | |||||||||||||||||||
State and political subdivision |
9 | — | 7 | 267 | (27 | ) | 45 | 276 | (27 | ) | 52 | |||||||||||||||||||||||||
Non-U.S. government |
64 | (1 | ) | 15 | 22 | (1 | ) | 4 | 86 | (2 | ) | 19 | ||||||||||||||||||||||||
U.S. corporate |
1,639 | (33 | ) | 231 | 1,201 | (43 | ) | 174 | 2,840 | (76 | ) | 405 | ||||||||||||||||||||||||
Non-U.S. corporate |
1,456 | (67 | ) | 199 | 504 | (28 | ) | 67 | 1,960 | (95 | ) | 266 | ||||||||||||||||||||||||
Residential mortgage-backed |
180 | (1 | ) | 24 | 249 | (17 | ) | 87 | 429 | (18 | ) | 111 | ||||||||||||||||||||||||
Commercial mortgage-backed |
163 | — | 21 | 362 | (9 | ) | 49 | 525 | (9 | ) | 70 | |||||||||||||||||||||||||
Other asset-backed |
1,551 | (12 | ) | 215 | 487 | (42 | ) | 55 | 2,038 | (54 | ) | 270 | ||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||
Subtotal, fixed maturity securities |
5,062 | (114 | ) | 712 | 3,167 | (168 | ) | 491 | 8,229 | (282 | ) | 1,203 | ||||||||||||||||||||||||
Equity securities |
30 | (3 | ) | 46 | 48 | (4 | ) | 6 | 78 | (7 | ) | 52 | ||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||
Total for securities in an unrealized loss position |
$ | 5,092 | $ | (117 | ) | 758 | $ | 3,215 | $ | (172 | ) | 497 | $ | 8,307 | $ | (289 | ) | 1,255 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||
% Below cost—fixed maturity securities: |
||||||||||||||||||||||||||||||||||||
<20% Below cost |
$ | 5,025 | $ | (103 | ) | 708 | $ | 3,036 | $ | (114 | ) | 470 | $ | 8,061 | $ | (217 | ) | 1,178 | ||||||||||||||||||
20%-50% Below cost |
37 | (11 | ) | 4 | 131 | (53 | ) | 15 | 168 | (64 | ) | 19 | ||||||||||||||||||||||||
>50% Below cost |
— | — | — | — | (1 | ) | 6 | — | (1 | ) | 6 | |||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||
Total fixed maturity securities |
5,062 | (114 | ) | 712 | 3,167 | (168 | ) | 491 | 8,229 | (282 | ) | 1,203 | ||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||
% Below cost—equity securities: |
||||||||||||||||||||||||||||||||||||
<20% Below cost |
26 | (2 | ) | 40 | 48 | (4 | ) | 6 | 74 | (6 | ) | 46 | ||||||||||||||||||||||||
20%-50% Below cost |
4 | (1 | ) | 6 | — | — | — | 4 | (1 | ) | 6 | |||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||
Total equity securities |
30 | (3 | ) | 46 | 48 | (4 | ) | 6 | 78 | (7 | ) | 52 | ||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||
Total for securities in an unrealized loss position |
$ | 5,092 | $ | (117 | ) | 758 | $ | 3,215 | $ | (172 | ) | 497 | $ | 8,307 | $ | (289 | ) | 1,255 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||
Investment grade |
$ | 4,501 | $ | (75 | ) | 631 | $ | 2,918 | $ | (145 | ) | 424 | $ | 7,419 | $ | (220 | ) | 1,055 | ||||||||||||||||||
Below investment grade (2) |
591 | (42 | ) | 127 | 297 | (27 | ) | 73 | 888 | (69 | ) | 200 | ||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||
Total for securities in an unrealized loss position |
$ | 5,092 | $ | (117 | ) | 758 | $ | 3,215 | $ | (172 | ) | 497 | $ | 8,307 | $ | (289 | ) | 1,255 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) | Amounts included $1 million of unrealized losses on other-than-temporarily impaired securities. |
(2) | Amounts that have been in a continuous unrealized loss position for 12 months or more included $1 million of unrealized losses on other-than-temporarily impaired securities. |
The following table presents the gross unrealized losses and fair values of our corporate securities, aggregated by investment type and length of time that individual investment securities have been in a continuous unrealized loss position, based on industry, as of December 31, 2014:
Less than 12 months | 12 months or more | Total | ||||||||||||||||||||||||||||||||||
(Dollar amounts in millions) |
Fair value |
Gross unrealized losses |
Number of securities |
Fair value |
Gross unrealized losses |
Number of securities |
Fair value |
Gross unrealized losses |
Number of securities |
|||||||||||||||||||||||||||
Description of Securities |
||||||||||||||||||||||||||||||||||||
U.S. corporate: |
||||||||||||||||||||||||||||||||||||
Utilities |
$ | 55 | $ | — | 10 | $ | 164 | $ | (5 | ) | 23 | $ | 219 | $ | (5 | ) | 33 | |||||||||||||||||||
Energy |
404 | (16 | ) | 56 | 96 | (5 | ) | 15 | 500 | (21 | ) | 71 | ||||||||||||||||||||||||
Finance and insurance |
399 | (3 | ) | 56 | 257 | (10 | ) | 35 | 656 | (13 | ) | 91 | ||||||||||||||||||||||||
Consumer—non-cyclical |
160 | (3 | ) | 20 | 182 | (5 | ) | 32 | 342 | (8 | ) | 52 | ||||||||||||||||||||||||
Technology and communications |
181 | (3 | ) | 27 | 97 | (1 | ) | 15 | 278 | (4 | ) | 42 | ||||||||||||||||||||||||
Industrial |
151 | (4 | ) | 21 | 80 | (4 | ) | 11 | 231 | (8 | ) | 32 | ||||||||||||||||||||||||
Capital goods |
85 | — | 13 | 122 | (5 | ) | 18 | 207 | (5 | ) | 31 | |||||||||||||||||||||||||
Consumer—cyclical |
132 | (2 | ) | 17 | 139 | (6 | ) | 18 | 271 | (8 | ) | 35 | ||||||||||||||||||||||||
Transportation |
52 | (2 | ) | 9 | 57 | (2 | ) | 6 | 109 | (4 | ) | 15 | ||||||||||||||||||||||||
Other |
20 | — | 2 | 7 | — | 1 | 27 | — | 3 | |||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||
Subtotal, U.S. corporate securities |
1,639 | (33 | ) | 231 | 1,201 | (43 | ) | 174 | 2,840 | (76 | ) | 405 | ||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||
Non-U.S. corporate: |
||||||||||||||||||||||||||||||||||||
Utilities |
79 | — | 13 | 43 | (2 | ) | 5 | 122 | (2 | ) | 18 | |||||||||||||||||||||||||
Energy |
442 | (33 | ) | 57 | 58 | (5 | ) | 13 | 500 | (38 | ) | 70 | ||||||||||||||||||||||||
Finance and insurance |
237 | (2 | ) | 32 | 29 | (1 | ) | 6 | 266 | (3 | ) | 38 | ||||||||||||||||||||||||
Consumer—non-cyclical |
134 | (6 | ) | 10 | 83 | (3 | ) | 9 | 217 | (9 | ) | 19 | ||||||||||||||||||||||||
Technology and communications |
77 | (2 | ) | 13 | 81 | (2 | ) | 8 | 158 | (4 | ) | 21 | ||||||||||||||||||||||||
Industrial |
214 | (9 | ) | 30 | 116 | (9 | ) | 15 | 330 | (18 | ) | 45 | ||||||||||||||||||||||||
Capital goods |
63 | (2 | ) | 7 | 38 | (3 | ) | 4 | 101 | (5 | ) | 11 | ||||||||||||||||||||||||
Consumer—cyclical |
8 | — | 1 | — | — | — | 8 | — | 1 | |||||||||||||||||||||||||||
Transportation |
30 | — | 6 | 14 | (1 | ) | 1 | 44 | (1 | ) | 7 | |||||||||||||||||||||||||
Other |
172 | (13 | ) | 30 | 42 | (2 | ) | 6 | 214 | (15 | ) | 36 | ||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||
Subtotal, non-U.S. corporate securities |
1,456 | (67 | ) | 199 | 504 | (28 | ) | 67 | 1,960 | (95 | ) | 266 | ||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||
Total for corporate securities in an unrealized loss position |
$ | 3,095 | $ | (100 | ) | 430 | $ | 1,705 | $ | (71 | ) | 241 | $ | 4,800 | $ | (171 | ) | 671 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The scheduled maturity distribution of fixed maturity securities as of December 31, 2015 is set forth below. Actual maturities may differ from contractual maturities because issuers of securities may have the right to call or prepay obligations with or without call or prepayment penalties.
(Amounts in millions) |
Amortized cost or cost |
Fair value |
||||||
Due one year or less |
$ | 1,729 | $ | 1,744 | ||||
Due after one year through five years |
9,814 | 10,192 | ||||||
Due after five years through ten years |
11,772 | 11,917 | ||||||
Due after ten years |
21,249 | 23,403 | ||||||
|
|
|
|
|||||
Subtotal |
44,564 | 47,256 | ||||||
Residential mortgage-backed |
4,777 | 5,101 | ||||||
Commercial mortgage-backed |
2,492 | 2,559 | ||||||
Other asset-backed |
3,328 | 3,281 | ||||||
|
|
|
|
|||||
Total |
$ | 55,161 | $ | 58,197 | ||||
|
|
|
|
As of December 31, 2015, $7,730 million of our investments (excluding mortgage-backed and asset-backed securities) were subject to certain call provisions.
As of December 31, 2015, securities issued by finance and insurance, consumer—non-cyclical , utilities and energy industry groups represented approximately 22%, 13%, 12% and 11%, respectively, of our domestic and foreign corporate fixed maturity securities portfolio. No other industry group comprised more than 10% of our investment portfolio.
As of December 31, 2015, we did not hold any fixed maturity securities in any single issuer, other than securities issued or guaranteed by the U.S. government, which exceeded 10% of stockholders’ equity.
As of December 31, 2015 and 2014, $44 million and $49 million, respectively, of securities were on deposit with various state or foreign government insurance departments in order to comply with relevant insurance regulations.
(e) Commercial Mortgage Loans
Our mortgage loans are collateralized by commercial properties, including multi-family residential buildings. The carrying value of commercial mortgage loans is stated at original cost net of principal payments, amortization and allowance for loan losses.
We diversify our commercial mortgage loans by both property type and geographic region. The following tables set forth the distribution across property type and geographic region for commercial mortgage loans as of December 31:
2015 | 2014 | |||||||||||||||
(Amounts in millions) |
Carrying value |
% of total |
Carrying value |
% of total |
||||||||||||
Property type: |
||||||||||||||||
Retail |
$ | 2,355 | 38 | % | $ | 2,150 | 35 | % | ||||||||
Industrial |
1,562 | 25 | 1,597 | 26 | ||||||||||||
Office |
1,516 | 24 | 1,643 | 27 | ||||||||||||
Apartments |
465 | 8 | 494 | 8 | ||||||||||||
Mixed use/other |
289 | 5 | 239 | 4 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Subtotal |
6,187 | 100 | % | 6,123 | 100 | % | ||||||||||
|
|
|
|
|||||||||||||
Unamortized balance of loan origination fees and costs |
(2 | ) | (1 | ) | ||||||||||||
Allowance for losses |
(15 | ) | (22 | ) | ||||||||||||
|
|
|
|
|||||||||||||
Total |
$ | 6,170 | $ | 6,100 | ||||||||||||
|
|
|
|
2015 | 2014 | |||||||||||||||
(Amounts in millions) |
Carrying value |
% of total |
Carrying value |
% of total |
||||||||||||
Geographic region: |
||||||||||||||||
Pacific |
$ | 1,581 | 26 | % | $ | 1,636 | 27 | % | ||||||||
South Atlantic |
1,574 | 25 | 1,673 | 27 | ||||||||||||
Middle Atlantic |
890 | 14 | 826 | 14 | ||||||||||||
Mountain |
585 | 10 | 536 | 9 | ||||||||||||
West North Central |
416 | 7 | 382 | 6 | ||||||||||||
East North Central |
386 | 6 | 397 | 7 | ||||||||||||
West South Central |
294 | 5 | 268 | 4 | ||||||||||||
New England |
268 | 4 | 264 | 4 | ||||||||||||
East South Central |
193 | 3 | 141 | 2 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Subtotal |
6,187 | 100 | % | 6,123 | 100 | % | ||||||||||
|
|
|
|
|||||||||||||
Unamortized balance of loan origination fees and costs |
(2 | ) | (1 | ) | ||||||||||||
Allowance for losses |
(15 | ) | (22 | ) | ||||||||||||
|
|
|
|
|||||||||||||
Total |
$ | 6,170 | $ | 6,100 | ||||||||||||
|
|
|
|
The following tables set forth the aging of past due commercial mortgage loans by property type as of December 31:
2015 | ||||||||||||||||||||||||
(Amounts in millions) |
31 - 60 days past due |
61 - 90 days past due |
Greater than 90 days past due |
Total past due |
Current | Total | ||||||||||||||||||
Property type: |
||||||||||||||||||||||||
Retail |
$ | — | $ | — | $ | — | $ | — | $ | 2,355 | $ | 2,355 | ||||||||||||
Industrial |
— | — | — | — | 1,562 | 1,562 | ||||||||||||||||||
Office |
6 | — | 5 | 11 | 1,505 | 1,516 | ||||||||||||||||||
Apartments |
— | — | — | — | 465 | 465 | ||||||||||||||||||
Mixed use/other |
— | — | — | — | 289 | 289 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total recorded investment |
$ | 6 | $ | — | $ | 5 | $ | 11 | $ | 6,176 | $ | 6,187 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
% of total commercial mortgage loans |
— | % | — | % | — | % | — | % | 100 | % | 100 | % | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
2014 | ||||||||||||||||||||||||
(Amounts in millions) |
31 - 60 days past due |
61 - 90 days past due |
Greater than 90 days past due |
Total past due |
Current | Total | ||||||||||||||||||
Property type: |
||||||||||||||||||||||||
Retail |
$ | — | $ | — | $ | — | $ | — | $ | 2,150 | $ | 2,150 | ||||||||||||
Industrial |
— | — | 2 | 2 | 1,595 | 1,597 | ||||||||||||||||||
Office |
— | — | 6 | 6 | 1,637 | 1,643 | ||||||||||||||||||
Apartments |
— | — | — | — | 494 | 494 | ||||||||||||||||||
Mixed use/other |
— | — | — | — | 239 | 239 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total recorded investment |
$ | — | $ | — | $ | 8 | $ | 8 | $ | 6,115 | $ | 6,123 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
% of total commercial mortgage loans |
— | % | — | % | — | % | — | % | 100 | % | 100 | % | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2015 and 2014, we had no commercial mortgage loans that were past due for more than 90 days and still accruing interest. We also did not have any commercial mortgage loans that were past due for less than 90 days on non-accrual status as of December 31, 2015 and 2014.
We evaluate the impairment of commercial mortgage loans on an individual loan basis. As of December 31, 2015 and 2014, our commercial mortgage loans greater than 90 days past due included loans with appraised values in excess of the recorded investment and the current recorded investment of these loans was expected to be recoverable.
During the years ended December 31, 2015 and 2014, we modified or extended 21 and 28 commercial mortgage loans, respectively, with a total carrying value of $110 million and $254 million, respectively. All of these modifications or extensions were based on current market interest rates, did not result in any forgiveness in the outstanding principal amount owed by the borrower and were not considered troubled debt restructurings.
The following table sets forth the allowance for credit losses and recorded investment in commercial mortgage loans as of or for the years ended December 31:
(Amounts in millions) |
2015 | 2014 | 2013 | |||||||||
Allowance for credit losses: |
||||||||||||
Beginning balance |
$ | 22 | $ | 33 | $ | 42 | ||||||
Charge-offs |
(4 | ) | (1 | ) | (2 | ) | ||||||
Recoveries |
— | — | — | |||||||||
Provision |
(3 | ) | (10 | ) | (7 | ) | ||||||
|
|
|
|
|
|
|||||||
Ending balance |
$ | 15 | $ | 22 | $ | 33 | ||||||
|
|
|
|
|
|
|||||||
Ending allowance for individually impaired loans |
$ | — | $ | — | $ | — | ||||||
|
|
|
|
|
|
|||||||
Ending allowance for loans not individually impaired that were evaluated collectively for impairment |
$ | 15 | $ | 22 | $ | 33 | ||||||
|
|
|
|
|
|
|||||||
Recorded investment: |
||||||||||||
Ending balance |
$ | 6,187 | $ | 6,123 | $ | 5,932 | ||||||
|
|
|
|
|
|
|||||||
Ending balance of individually impaired loans |
$ | 19 | $ | 15 | $ | 2 | ||||||
|
|
|
|
|
|
|||||||
Ending balance of loans not individually impaired that were evaluated collectively for impairment |
$ | 6,168 | $ | 6,108 | $ | 5,930 | ||||||
|
|
|
|
|
|
As of December 31, 2015, we had an individually impaired commercial mortgage loan included within the office property type with a recorded investment of $5 million, an unpaid principal balance of $6 million and charge-offs of $1 million. As of December 31, 2014, we had an individually impaired commercial mortgage loan included within the industrial property type with a recorded investment of $15 million, an unpaid principal balance of $16 million and charge-offs of $1 million. As of December 31, 2015, this loan had a recorded investment of $14 million, an unpaid principal balance of $15 million and interest income of $1 million.
In evaluating the credit quality of commercial mortgage loans, we assess the performance of the underlying loans using both quantitative and qualitative criteria. Certain risks associated with commercial mortgage loans can be evaluated by reviewing both the loan-to-value and debt service coverage ratio to understand both the probability of the borrower not being able to make the necessary loan payments as well as the ability to sell the underlying property for an amount that would enable us to recover our unpaid principal balance in the event of default by the borrower. The average loan-to-value ratio is based on our most recent estimate of the fair value for the underlying property which is evaluated at least annually and updated more frequently if necessary to better indicate risk associated with the loan. A lower loan-to-value indicates that our loan value is more likely to be recovered in the event of default by the borrower if the property was sold. The debt service coverage ratio is based on “normalized” annual net operating income of the property compared to the payments required under the terms of the loan. Normalization allows for the removal of annual one-time events such as capital expenditures, prepaid or late real estate tax payments or non-recurring third-party fees (such as legal, consulting or contract fees). This ratio is evaluated at least annually and updated more frequently if necessary to better indicate risk associated with the loan. A higher debt service coverage ratio indicates the borrower is less likely to default on the loan. The debt service coverage ratio should not be used without considering other factors associated with the borrower, such as the borrower’s liquidity or access to other resources that may result in our expectation that the borrower will continue to make the future scheduled payments.
The following tables set forth the loan-to-value of commercial mortgage loans by property type as of December 31:
2015 | ||||||||||||||||||||||||
(Amounts in millions) |
0%-50% | 51%-60% | 61%-75% | 76%-100% | Greater than 100% (1) |
Total | ||||||||||||||||||
Property type: |
||||||||||||||||||||||||
Retail |
$ | 846 | $ | 465 | $ | 924 | $ | 106 | $ | 14 | $ | 2,355 | ||||||||||||
Industrial |
515 | 478 | 499 | 65 | 5 | 1,562 | ||||||||||||||||||
Office |
493 | 341 | 580 | 83 | 19 | 1,516 | ||||||||||||||||||
Apartments |
196 | 66 | 182 | 21 | — | 465 | ||||||||||||||||||
Mixed use/other |
49 | 55 | 185 | — | — | 289 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total recorded investment |
$ | 2,099 | $ | 1,405 | $ | 2,370 | $ | 275 | $ | 38 | $ | 6,187 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
% of total |
34 | % | 23 | % | 38 | % | 4 | % | 1 | % | 100 | % | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Weighted-average debt service coverage ratio |
2.13 | 1.82 | 1.57 | 1.12 | 0.55 | 1.79 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
(1) | Included $38 million of loans in good standing, where borrowers continued to make timely payments, with a total weighted-average loan-to-value of 123%. |
2014 | ||||||||||||||||||||||||
(Amounts in millions) |
0%-50% | 51%-60% | 61%-75% | 76%-100% | Greater than 100% (1) |
Total | ||||||||||||||||||
Property type: |
||||||||||||||||||||||||
Retail |
$ | 671 | $ | 419 | $ | 967 | $ | 75 | $ | 18 | $ | 2,150 | ||||||||||||
Industrial |
451 | 285 | 778 | 60 | 23 | 1,597 | ||||||||||||||||||
Office |
383 | 278 | 782 | 164 | 36 | 1,643 | ||||||||||||||||||
Apartments |
211 | 76 | 199 | 8 | — | 494 | ||||||||||||||||||
Mixed use/other |
45 | 43 | 145 | 6 | — | 239 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total recorded investment |
$ | 1,761 | $ | 1,101 | $ | 2,871 | $ | 313 | $ | 77 | $ | 6,123 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
% of total |
29 | % | 18 | % | 47 | % | 5 | % | 1 | % | 100 | % | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Weighted-average debt service coverage ratio |
2.27 | 1.75 | 1.61 | 1.02 | 0.72 | 1.78 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
(1) | Included $15 million of impaired loans, $6 million of loans past due and not individually impaired and $56 million of loans in good standing, where borrowers continued to make timely payments, with a total weighted-average loan-to-value of 120%. |
The following tables set forth the debt service coverage ratio for fixed rate commercial mortgage loans by property type as of December 31:
2015 | ||||||||||||||||||||||||
(Amounts in millions) |
Less than 1.00 | 1.00-1.25 | 1.26-1.50 | 1.51-2.00 | Greater than 2.00 |
Total | ||||||||||||||||||
Property type: |
||||||||||||||||||||||||
Retail |
$ | 70 | $ | 232 | $ | 466 | $ | 1,017 | $ | 570 | $ | 2,355 | ||||||||||||
Industrial |
94 | 181 | 208 | 672 | 407 | 1,562 | ||||||||||||||||||
Office |
85 | 114 | 265 | 699 | 346 | 1,509 | ||||||||||||||||||
Apartments |
6 | 41 | 74 | 199 | 145 | 465 | ||||||||||||||||||
Mixed use/other |
— | 58 | 141 | 60 | 30 | 289 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total recorded investment |
$ | 255 | $ | 626 | $ | 1,154 | $ | 2,647 | $ | 1,498 | $ | 6,180 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
% of total |
4 | % | 10 | % | 19 | % | 43 | % | 24 | % | 100 | % | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Weighted-average loan-to-value |
74 | % | 64 | % | 58 | % | 58 | % | 43 | % | 56 | % | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
2014 | ||||||||||||||||||||||||
(Amounts in millions) |
Less than 1.00 | 1.00-1.25 | 1.26-1.50 | 1.51-2.00 | Greater than 2.00 |
Total | ||||||||||||||||||
Property type: |
||||||||||||||||||||||||
Retail |
$ | 80 | $ | 253 | $ | 524 | $ | 870 | $ | 423 | $ | 2,150 | ||||||||||||
Industrial |
158 | 142 | 246 | 706 | 343 | 1,595 | ||||||||||||||||||
Office |
119 | 101 | 247 | 780 | 389 | 1,636 | ||||||||||||||||||
Apartments |
1 | 48 | 88 | 186 | 171 | 494 | ||||||||||||||||||
Mixed use/other |
6 | 1 | 61 | 135 | 36 | 239 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total recorded investment |
$ | 364 | $ | 545 | $ | 1,166 | $ | 2,677 | $ | 1,362 | $ | 6,114 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
% of total |
6 | % | 9 | % | 19 | % | 44 | % | 22 | % | 100 | % | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Weighted-average loan-to-value |
77 | % | 64 | % | 64 | % | 59 | % | 45 | % | 59 | % | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2015 and 2014, we had floating rate commercial mortgage loans of $7 million and $9 million, respectively.
(f) Restricted Commercial Mortgage Loans Related To Securitization Entities
We have a consolidated securitization entity that holds commercial mortgage loans that are recorded as restricted commercial mortgage loans related to securitization entities. See note 17 for additional information related to consolidated securitization entities.
(g) Restricted Other Invested Assets Related To Securitization Entities
We have consolidated securitization entities that hold certain investments that are recorded as restricted other invested assets related to securitization entities. The consolidated securitization entities hold certain investments as trading securities whereby the changes in fair value are recorded in current period income (loss). The trading securities comprise asset-backed securities, including residual interest in certain policy loan securitization entities and highly rated bonds that are primarily backed by credit card receivables. See note 17 for additional information related to consolidated securitization entities.
|
(5) Derivative Instruments
Our business activities routinely deal with fluctuations in interest rates, equity prices, currency exchange rates and other asset and liability prices. We use derivative instruments to mitigate or reduce certain of these risks. We have established policies for managing each of these risks, including prohibitions on derivatives market-making and other speculative derivatives activities. These policies require the use of derivative instruments in concert with other techniques to reduce or mitigate these risks. While we use derivatives to mitigate or reduce risks, certain derivatives do not meet the accounting requirements to be designated as hedging instruments and are denoted as “derivatives not designated as hedges” in the following disclosures. For derivatives that meet the accounting requirements to be designated as hedges, the following disclosures for these derivatives are denoted as “derivatives designated as hedges,” which include both cash flow and fair value hedges.
The following table sets forth our positions in derivative instruments as of December 31:
Derivative assets |
Derivative liabilities |
|||||||||||||||||||
Balance sheet |
Fair value |
Balance sheet |
Fair value | |||||||||||||||||
(Amounts in millions) |
2015 | 2014 | 2015 | 2014 | ||||||||||||||||
Derivatives designated as hedges |
||||||||||||||||||||
Cash flow hedges: |
||||||||||||||||||||
Interest rate swaps |
Other invested assets | $ | 629 | $ | 639 | Other liabilities | $ | 37 | $ | 27 | ||||||||||
Inflation indexed swaps |
Other invested assets | — | — | Other liabilities | 33 | 42 | ||||||||||||||
Foreign currency swaps |
Other invested assets | 8 | 6 | Other liabilities | — | — | ||||||||||||||
|
|
|
|
|
|
|
|
|||||||||||||
Total cash flow hedges |
637 | 645 | 70 | 69 | ||||||||||||||||
|
|
|
|
|
|
|
|
|||||||||||||
Total derivatives designated as hedges |
637 | 645 | 70 | 69 | ||||||||||||||||
|
|
|
|
|
|
|
|
|||||||||||||
Derivatives not designated as hedges |
||||||||||||||||||||
Interest rate swaps |
Other invested assets | 425 | 452 | Other liabilities | 183 | 177 | ||||||||||||||
Interest rate swaps related to securitization entities (1) |
Restricted other invested assets | — | — | Other liabilities | 30 | 26 | ||||||||||||||
Credit default swaps |
Other invested assets | 1 | 4 | Other liabilities | — | — | ||||||||||||||
Credit default swaps related to securitization entities (1) |
Restricted other invested assets | — | — | Other liabilities | 14 | 17 | ||||||||||||||
Foreign currency swaps |
Other invested assets | — | — | Other liabilities | 27 | 7 | ||||||||||||||
Equity index options |
Other invested assets | 30 | 17 | Other liabilities | — | — | ||||||||||||||
Financial futures |
Other invested assets | — | — | Other liabilities | — | — | ||||||||||||||
Equity return swaps |
Other invested assets | 2 | — | Other liabilities | 1 | 1 | ||||||||||||||
Other foreign currency contracts |
Other invested assets | 17 | 14 | Other liabilities | 34 | 13 | ||||||||||||||
GMWB embedded derivatives |
Reinsurance recoverable (2) | 17 | 13 | Policyholder account balances (3) | 352 | 291 | ||||||||||||||
Fixed index annuity embedded derivatives |
Other assets | — | — | Policyholder account balances (4) | 342 | 276 | ||||||||||||||
Indexed universal life embedded derivatives |
Reinsurance recoverable | — | — | Policyholder account balances (5) | 10 | 7 | ||||||||||||||
|
|
|
|
|
|
|
|
|||||||||||||
Total derivatives not designated as hedges |
492 | 500 | 993 | 815 | ||||||||||||||||
|
|
|
|
|
|
|
|
|||||||||||||
Total derivatives |
$ | 1,129 | $ | 1,145 | $ | 1,063 | $ | 884 | ||||||||||||
|
|
|
|
|
|
|
|
(1) | See note 17 for additional information related to consolidated securitization entities. |
(2) | Represents embedded derivatives associated with the reinsured portion of our GMWB liabilities. |
(3) | Represents the embedded derivatives associated with our GMWB liabilities, excluding the impact of reinsurance. |
(4) | Represents the embedded derivatives associated with our fixed index annuity liabilities. |
(5) | Represents the embedded derivatives associated with our indexed universal life liabilities. |
The fair value of derivative positions presented above was not offset by the respective collateral amounts received or provided under these agreements.
The activity associated with derivative instruments can generally be measured by the change in notional value over the periods presented. However, for GMWB, fixed index annuity embedded derivatives 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) |
Measurement |
December 31, 2014 |
Additions | Maturities/ terminations |
December 31, 2015 |
|||||||||||||
Derivatives designated as hedges |
||||||||||||||||||
Cash flow hedges: |
||||||||||||||||||
Interest rate swaps |
Notional | $ | 11,961 | $ | — | $ | (747 | ) | $ | 11,214 | ||||||||
Inflation indexed swaps |
Notional | 571 | 13 | (13 | ) | 571 | ||||||||||||
Foreign currency swaps |
Notional | 35 | — | — | 35 | |||||||||||||
|
|
|
|
|
|
|
|
|||||||||||
Total cash flow hedges |
12,567 | 13 | (760 | ) | 11,820 | |||||||||||||
|
|
|
|
|
|
|
|
|||||||||||
Total derivatives designated as hedges |
12,567 | 13 | (760 | ) | 11,820 | |||||||||||||
|
|
|
|
|
|
|
|
|||||||||||
Derivatives not designated as hedges |
||||||||||||||||||
Interest rate swaps |
Notional | 5,074 | 2,100 | (2,242 | ) | 4,932 | ||||||||||||
Interest rate swaps related to securitization entities (1) |
Notional | 77 | — | (10 | ) | 67 | ||||||||||||
Credit default swaps |
Notional | 394 | — | (250 | ) | 144 | ||||||||||||
Credit default swaps related to securitization entities (1) |
Notional | 312 | — | — | 312 | |||||||||||||
Equity index options |
Notional | 994 | 1,455 | (1,369 | ) | 1,080 | ||||||||||||
Financial futures |
Notional | 1,331 | 5,700 | (5,700 | ) | 1,331 | ||||||||||||
Equity return swaps |
Notional | 108 | 386 | (360 | ) | 134 | ||||||||||||
Foreign currency swaps |
Notional | 104 | 58 | — | 162 | |||||||||||||
Forward bond purchase commitments |
Notional | — | 1,140 | (1,140 | ) | — | ||||||||||||
Other foreign currency contracts |
Notional | 425 | 2,516 | (1,285 | ) | 1,656 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||||
Total derivatives not designated as hedges |
8,819 | 13,355 | (12,356 | ) | 9,818 | |||||||||||||
|
|
|
|
|
|
|
|
|||||||||||
Total derivatives |
$ | 21,386 | $ | 13,368 | $ | (13,116 | ) | $ | 21,638 | |||||||||
|
|
|
|
|
|
|
|
(1) | See note 17 for additional information related to consolidated securitization entities. |
(Number of policies) |
Measurement | December 31, 2014 |
Additions | Maturities/ terminations |
December 31, 2015 |
|||||||||||||||
Derivatives not designated as hedges |
||||||||||||||||||||
GMWB embedded derivatives |
Policies | 39,015 | — | (2,869 | ) | 36,146 | ||||||||||||||
Fixed index annuity embedded derivatives |
Policies | 13,901 | 3,939 | (358 | ) | 17,482 | ||||||||||||||
Indexed universal life embedded derivatives |
Policies | 421 | 595 | (34 | ) | 982 |
Cash Flow Hedges
Certain derivative instruments are designated as cash flow hedges. The changes in fair value of these instruments are recorded as a component of OCI. We designate and account for the following as cash flow hedges when they have met the effectiveness requirements: (i) various types of interest rate swaps to convert floating rate investments to fixed rate investments; (ii) various types of interest rate swaps to convert floating rate liabilities into fixed rate liabilities; (iii) receive U.S. dollar fixed on foreign currency swaps to hedge the foreign currency cash flow exposure of foreign currency denominated investments; (iv) forward starting interest rate swaps to hedge against changes in interest rates associated with future fixed rate bond purchases and/or interest income; (v) forward bond purchase commitments to hedge against the variability in the anticipated cash flows required to purchase future fixed rate bonds; and (vi) other instruments to hedge the cash flows of various forecasted transactions.
The following table provides information about the pre-tax income (loss) effects of cash flow hedges for the year ended December 31, 2015:
(Amounts in millions) |
Gain (loss) recognized in OCI |
Gain (loss) reclassified into net income (loss) from OCI |
Classification of gain (loss) reclassified into net income (loss) |
Gain (loss) recognized in net income (loss) (1) |
Classification of gain (loss) recognized in net income (loss) |
|||||||||||
Interest rate swaps hedging assets |
$ | 78 | $ | 85 | Net investment income |
$ | — | Net investment gains (losses) |
||||||||
Interest rate swaps hedging liabilities |
(10 | ) | — | Interest expense |
— | Net investment gains (losses) |
||||||||||
Inflation indexed swaps |
9 | — | Net investment income |
— | Net investment gains (losses) |
|||||||||||
Foreign currency swaps |
2 | — | Net investment income |
— | Net investment gains (losses) |
|||||||||||
Forward bond purchase commitments |
— | 1 | Net investment income |
— | Net investment gains (losses) |
|||||||||||
Forward bond purchase commitments |
— | 32 | Net investment gains (losses) |
— | Net investment gains (losses) |
|||||||||||
|
|
|
|
|
|
|||||||||||
Total |
$ | 79 | $ | 118 | $ | — | ||||||||||
|
|
|
|
|
|
(1) | Represents ineffective portion of cash flow hedges as there were no amounts excluded from the measurement of effectiveness. |
The following table provides information about the pre-tax income (loss) effects of cash flow hedges for the year ended December 31, 2014:
(Amounts in millions) |
Gain (loss) recognized in OCI |
Gain (loss) reclassified into net income (loss) from OCI |
Classification of gain (loss) reclassified into net income (loss) |
Gain (loss) recognized in net income (loss) (1) |
Classification of gain (loss) recognized in net income (loss) |
|||||||||||
Interest rate swaps hedging assets |
$ | 1,229 | $ | 63 | Net investment income |
$ | 15 | Net investment gains (losses) |
||||||||
Interest rate swaps hedging assets |
— | 2 | Net investment gains (losses) |
— | Net investment gains (losses) |
|||||||||||
Interest rate swaps hedging liabilities |
(69 | ) | 1 | Interest expense | — | Net investment gains (losses) |
||||||||||
Inflation indexed swaps |
17 | (9 | ) | Net investment income |
— | Net investment gains (losses) |
||||||||||
Foreign currency swaps |
4 | — | Interest expense | — | Net investment gains (losses) |
|||||||||||
Forward bond purchase commitments |
34 | — | Net investment income |
— | Net investment gains (losses) |
|||||||||||
|
|
|
|
|
|
|||||||||||
Total |
$ | 1,215 | $ | 57 | $ | 15 | ||||||||||
|
|
|
|
|
|
(1) | Represents ineffective portion of cash flow hedges, as there were no amounts excluded from the measurement of effectiveness. |
The following table provides information about the pre-tax income (loss) effects of cash flow hedges for the year ended December 31, 2013:
(Amounts in millions) |
Gain (loss) recognized in OCI |
Gain (loss) reclassified into net income (loss) from OCI |
Classification of gain (loss) reclassified into net income (loss) |
Gain (loss) recognized in net income (loss) (1) |
Classification of gain (loss) recognized in net income (loss) |
|||||||||||
Interest rate swaps hedging assets |
$ | (892 | ) | $ | 47 | Net investment income |
$ | (14 | ) | Net investment gains (losses) |
||||||
Interest rate swaps hedging assets |
— | 1 | Net investment gains (losses) |
— | Net investment gains (losses) |
|||||||||||
Interest rate swaps hedging liabilities |
42 | 2 | Interest expense | — | Net investment gains (losses) |
|||||||||||
Inflation indexed swaps |
45 | (5 | ) | Net investment income |
— | Net investment gains (losses) |
||||||||||
Foreign currency swaps |
(1 | ) | — | Interest expense | — | Net investment gains (losses) |
||||||||||
Forward bond purchase commitments |
(60 | ) | — | Net investment income |
— | Net investment gains (losses) |
||||||||||
|
|
|
|
|
|
|||||||||||
Total |
$ | (866 | ) | $ | 45 | $ | (14 | ) | ||||||||
|
|
|
|
|
|
(1) | Represents ineffective portion of cash flow hedges, as there were no amounts excluded from the measurement of effectiveness. |
The following table provides a reconciliation of current period changes, net of applicable income taxes, for these designated derivatives presented in the separate component of stockholders’ equity labeled “derivatives qualifying as hedges,” for the years ended December 31:
(Amounts in millions) |
2015 | 2014 | 2013 | |||||||||
Derivatives qualifying as effective accounting hedges as of January 1 |
$ | 2,070 | $ | 1,319 | $ | 1,909 | ||||||
Current period increases (decreases) in fair value, net of deferred taxes of $(29), $(427) and $305 |
50 | 788 | (561 | ) | ||||||||
Reclassification to net (income) loss, net of deferred taxes of $43, $20 and $16 |
(75 | ) | (37 | ) | (29 | ) | ||||||
|
|
|
|
|
|
|||||||
Derivatives qualifying as effective accounting hedges as of December 31 |
$ | 2,045 | $ | 2,070 | $ | 1,319 | ||||||
|
|
|
|
|
|
The total of derivatives designated as cash flow hedges of $2,045 million, net of taxes, recorded in stockholders’ equity as of December 31, 2015 is expected to be reclassified to net income (loss) in the future, concurrently with and primarily offsetting changes in interest expense and interest income on floating rate instruments and interest income on future fixed rate bond purchases. Of this amount, $70 million, net of taxes, is expected to be reclassified to net income (loss) in the next 12 months. Actual amounts may vary from this amount as a result of market conditions. All forecasted transactions associated with qualifying cash flow hedges are expected to occur by 2047. There were immaterial amounts reclassified to net income (loss) during the years ended December 31, 2015, 2014 and 2013 in connection with forecasted transactions that were no longer considered probable of occurring.
Fair Value Hedges
Certain derivative instruments are designated as fair value hedges. The changes in fair value of these instruments are recorded in net income (loss). In addition, changes in the fair value attributable to the hedged portion of the underlying instrument are reported in net income (loss). We designate and account for the following as fair value hedges when they have met the effectiveness requirements: (i) interest rate swaps to convert fixed rate liabilities into floating rate liabilities; (ii) cross currency swaps to convert non-U.S. dollar fixed rate liabilities to floating rate U.S. dollar liabilities; and (iii) other instruments to hedge various fair value exposures of investments.
There were no pre-tax income (loss) effects of fair value hedges and related hedged items for the years ended December 31, 2015 and 2014.
The following table provides information about the pre-tax income (loss) effects of fair value hedges and related hedged items for the year ended December 31, 2013:
Derivative instrument | Hedged item | |||||||||||||||||
(Amounts in |
Gain (loss) recognized in net income (loss) |
Classification of gain (losses) recognized in net income (loss) |
Other impacts to net income (loss) |
Classification of other impacts to net income (loss) |
Gain (loss) recognized in net income (loss) |
Classification of gain (losses) recognized in net income (loss) |
||||||||||||
Interest rate swaps hedging liabilities |
$ | (11 | ) | Net investment gains (losses) |
$ | 13 | Interest credited | $ | 11 | Net investment gains (losses) |
||||||||
Foreign currency swaps |
(31 | ) | Net investment gains (losses) |
— | Interest credited | 31 | Net investment gains (losses) |
|||||||||||
|
|
|
|
|
|
|||||||||||||
Total |
$ | (42 | ) | $ | 13 | $ | 42 | |||||||||||
|
|
|
|
|
|
The difference between the gain (loss) recognized for the derivative instrument and the hedged item presented above represents the net ineffectiveness of the fair value hedging relationships. The other impacts presented above represent the net income (loss) effects of the derivative instruments that are presented in the same location as the income (loss) activity from the hedged item. There were no amounts excluded from the measurement of effectiveness.
Derivatives Not Designated As Hedges
We also enter into certain non-qualifying derivative instruments such as: (i) interest rate swaps and financial futures to mitigate interest rate risk as part of managing regulatory capital positions; (ii) credit default swaps to enhance yield and reproduce characteristics of investments with similar terms and credit risk; (iii) equity index options, equity return swaps, interest rate swaps and financial futures to mitigate the risks associated with liabilities that have guaranteed minimum benefits, fixed index annuities and indexed universal life; (iv) interest rate swaps where the hedging relationship does not qualify for hedge accounting; (v) credit default swaps to mitigate loss exposure to certain credit risk; (vi) foreign currency swaps, options and forward contracts to mitigate currency risk associated with non-functional currency investments held by certain foreign subsidiaries and future dividends or other cash flows from certain foreign subsidiaries to our holding company; and (vii) equity index options to mitigate certain macroeconomic risks associated with certain foreign subsidiaries. Additionally, we provide GMWBs on certain variable annuities that are required to be bifurcated as embedded derivatives. We also offer fixed index annuity and indexed universal life products and have reinsurance agreements with certain features that are required to be bifurcated as embedded derivatives.
We also have derivatives related to securitization entities where we were required to consolidate the related securitization entity as a result of our involvement in the structure. The counterparties for these derivatives typically only have recourse to the securitization entity. The interest rate swaps used for these entities are typically used to effectively convert the interest payments on the assets of the securitization entity to the same basis as the interest rate on the borrowings issued by the securitization entity. Credit default swaps are utilized in certain securitization entities to enhance the yield payable on the borrowings issued by the securitization entity and also include a settlement feature that allows the securitization entity to provide the par value of assets in the securitization entity for the amount of any losses incurred under the credit default swap.
The following table provides the pre-tax gain (loss) recognized in net income (loss) for the effects of derivatives not designated as hedges for the years ended December 31:
(Amounts in millions) |
2015 | 2014 | 2013 |
Classification of gain (loss) recognized |
||||||||||
Interest rate swaps |
$ | (11 | ) | $ | 1 | $ | (7 | ) | Net investment gains (losses) | |||||
Interest rate swaps related to securitization entities (1) |
(4 | ) | (9 | ) | 9 | Net investment gains (losses) | ||||||||
Credit default swaps |
1 | 1 | 14 | Net investment gains (losses) | ||||||||||
Credit default swaps related to securitization entities (1) |
7 | 19 | 77 | Net investment gains (losses) | ||||||||||
Equity index options |
(25 | ) | (31 | ) | (43 | ) | Net investment gains (losses) | |||||||
Financial futures |
(34 | ) | 90 | (232 | ) | Net investment gains (losses) | ||||||||
Equity return swaps |
(3 | ) | 5 | (33 | ) | Net investment gains (losses) | ||||||||
Other foreign currency contracts |
10 | (4 | ) | 6 | Net investment gains (losses) | |||||||||
Foreign currency swaps |
(22 | ) | (7 | ) | — | Net investment gains (losses) | ||||||||
Forward bond purchase commitments |
2 | — | — | Net investment gains (losses) | ||||||||||
GMWB embedded derivatives |
(25 | ) | (147 | ) | 277 | Net investment gains (losses) | ||||||||
Fixed index annuity embedded derivatives |
(7 | ) | (27 | ) | (18 | ) | Net investment gains (losses) | |||||||
Indexed universal life embedded derivatives |
6 | (1 | ) | — | Net investment gains (losses) | |||||||||
|
|
|
|
|
|
|||||||||
Total derivatives not designated as hedges |
$ | (105 | ) | $ | (110 | ) | $ | 50 | ||||||
|
|
|
|
|
|
(1) | See note 17 for additional information related to consolidated securitization entities. |
Derivative Counterparty Credit Risk
Most of our derivative arrangements with counterparties require the posting of collateral upon meeting certain net exposure thresholds. For derivatives related to securitization entities, there are no arrangements that require either party to provide collateral and the recourse of the derivative counterparty is typically limited to the assets held by the securitization entity and there is no recourse to any entity other than the securitization entity.
The following table presents additional information about derivative assets and liabilities subject to an enforceable master netting arrangement as of December 31:
2015 | 2014 | |||||||||||||||||||||||
(Amounts in millions) |
Derivatives assets (1) |
Derivatives liabilities (2) |
Net derivatives |
Derivatives assets (1) |
Derivatives liabilities (2) |
Net derivatives |
||||||||||||||||||
Amounts presented in the balance sheet: |
||||||||||||||||||||||||
Gross amounts recognized |
$ | 1,135 | $ | 320 | $ | 815 | $ | 1,157 | $ | 273 | $ | 884 | ||||||||||||
Gross amounts offset in the balance sheet |
— | — | — | — | — | — | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Net amounts presented in the balance sheet |
1,135 | 320 | 815 | 1,157 | 273 | 884 | ||||||||||||||||||
Gross amounts not offset in the balance sheet: |
||||||||||||||||||||||||
Financial instruments (3) |
(231 | ) | (231 | ) | — | (227 | ) | (227 | ) | — | ||||||||||||||
Collateral received |
(642 | ) | — | (642 | ) | (884 | ) | — | (884 | ) | ||||||||||||||
Collateral pledged |
— | (263 | ) | 263 | — | (49 | ) | 49 | ||||||||||||||||
Over collateralization |
3 | 174 | (171 | ) | 1 | 5 | (4 | ) | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Net amount |
$ | 265 | $ | — | $ | 265 | $ | 47 | $ | 2 | $ | 45 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
(1) | Included $24 million and $25 million of accruals on derivatives classified as other assets and does not include amounts related to embedded derivatives as of December 31, 2015 and 2014, respectively. |
(2) | Included $6 million of accruals on derivatives classified as other liabilities and does not include amounts related to embedded derivatives and derivatives related to securitization entities as of December 31, 2015 and 2014. |
(3) | Amounts represent derivative assets and/or liabilities that are presented gross within the balance sheet but are held with the same counterparty where we have a master netting arrangement. This adjustment results in presenting the net asset and net liability position for each counterparty. |
Except for derivatives related to securitization entities, almost all of our master swap agreements contain credit downgrade provisions that allow either party to assign or terminate derivative transactions if the other party’s long-term unsecured debt rating or financial strength rating is below the limit defined in the applicable agreement. If the downgrade provisions had been triggered as of December 31, 2015 and 2014, we could have been allowed to claim $265 million and $47 million, respectively, or required to disburse up to $2 million as of December 31, 2014. The chart above excludes embedded derivatives and derivatives related to securitization entities as those derivatives are not subject to master netting arrangements.
Credit Derivatives
We sell protection under single name credit default swaps and credit default swap index tranches in combination with purchasing securities to replicate characteristics of similar investments based on the credit quality and term of the credit default swap. Credit default triggers for both indexed reference entities and single name reference entities follow the Credit Derivatives Physical Settlement Matrix published by the International Swaps and Derivatives Association. Under these terms, credit default triggers are defined as bankruptcy, failure to pay or restructuring, if applicable. Our maximum exposure to credit loss equals the notional value for credit default swaps. In the event of default for credit default swaps, we are typically required to pay the protection holder the full notional value less a recovery rate determined at auction.
In addition to the credit derivatives discussed above, we also have credit derivative instruments related to securitization entities that we consolidate. These derivatives represent a customized index of reference entities with specified attachment points for certain derivatives. The credit default triggers are similar to those described above. In the event of default, the securitization entity will provide the counterparty with the par value of assets held in the securitization entity for the amount of incurred loss on the credit default swap. The maximum exposure to loss for the securitization entity is the notional value of the derivatives. Certain losses on these credit default swaps would be absorbed by the third-party noteholders of the securitization entity and the remaining losses on the credit default swaps would be absorbed by our portion of the notes issued by the securitization entity.
The following table sets forth our credit default swaps where we sell protection on single name reference entities and the fair values as of December 31:
2015 | 2014 | |||||||||||||||||||||||
(Amounts in millions) |
Notional value |
Assets | Liabilities | Notional value |
Assets | Liabilities | ||||||||||||||||||
Investment grade |
||||||||||||||||||||||||
Matures in less than one year |
$ | — | $ | — | $ | — | $ | — | $ | — | $ | — | ||||||||||||
Matures after one year through five years |
39 | — | — | 39 | 1 | — | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total credit default swaps on single name reference entities |
$ | 39 | $ | — | $ | — | $ | 39 | $ | 1 | $ | — | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
The following table sets forth our credit default swaps where we sell protection on credit default swap index tranches and the fair values as of December 31:
2015 | 2014 | |||||||||||||||||||||||
(Amounts in millions) |
Notional value |
Assets | Liabilities | Notional value |
Assets | Liabilities | ||||||||||||||||||
Original index tranche attachment/detachment point and maturity: |
||||||||||||||||||||||||
7% - 15% matures in less than one year (1) |
$ | 100 | $ | 1 | $ | — | $ | — | $ | — | $ | — | ||||||||||||
7% - 15% matures after one year through five years (1) |
— | — | — | 100 | 1 | — | ||||||||||||||||||
9% - 12% matures in less than one year (2) |
— | — | — | 250 | 2 | — | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total credit default swap index tranches |
100 | 1 | — | 350 | 3 | — | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Customized credit default swap index tranches related to securitization entities: |
||||||||||||||||||||||||
Portion backing third-party borrowings maturing 2017 (3) |
12 | — | 2 | 12 | — | — | ||||||||||||||||||
Portion backing our interest maturing 2017 (4) |
300 | — | 12 | 300 | — | 17 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total customized credit default swap index tranches related to securitization entities |
312 | — | 14 | 312 | — | 17 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total credit default swaps on index tranches |
$ | 412 | $ | 1 | $ | 14 | $ | 662 | $ | 3 | $ | 17 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
(1) | The current attachment/detachment as of December 31, 2015 and 2014 was 7% – 15%. |
(2) | The current attachment/detachment as of December 31, 2015 and 2014 was 9% – 12%. |
(3) | Original notional value was $39 million. |
(4) | Original notional value was $300 million. |
|
(6) Deferred Acquisition Costs
The following table presents the activity impacting DAC as of and for the years ended December 31:
(Amounts in millions) |
2015 | 2014 | 2013 | |||||||||
Unamortized balance as of January 1 |
$ | 5,200 | $ | 5,214 | $ | 5,220 | ||||||
Impact of foreign currency translation |
(23 | ) | (15 | ) | (16 | ) | ||||||
Costs deferred |
295 | 385 | 365 | |||||||||
Amortization, net of interest accretion |
(448 | ) | (384 | ) | (355 | ) | ||||||
Impairment |
(455 | ) | — | — | ||||||||
|
|
|
|
|
|
|||||||
Unamortized balance as of December 31 |
4,569 | 5,200 | 5,214 | |||||||||
Accumulated effect of net unrealized investment (gains) losses |
(171 | ) | (348 | ) | (176 | ) | ||||||
|
|
|
|
|
|
|||||||
Balance as of December 31 |
$ | 4,398 | $ | 4,852 | $ | 5,038 | ||||||
|
|
|
|
|
|
We regularly review DAC to determine if it is recoverable from future income. In the fourth quarter of 2015, as part of our annual review of assumptions, we increased DAC amortization by $109 million in our universal life insurance products, reflecting updated assumptions for persistency, long-term interest rates, mortality and other refinements as well as corrections related to reinsurance inputs.
On September 30, 2015, Genworth Life and Annuity Insurance Company (“GLAIC”), our indirect wholly-owned subsidiary, entered into a Master Agreement (the “Master Agreement”) for a life block transaction with Protective Life Insurance Company (“Protective Life”). Pursuant to the Master Agreement, GLAIC and Protective Life agreed to enter into a reinsurance agreement (the “Reinsurance Agreement”), under the terms of which Protective Life would coinsure certain term life insurance business of GLAIC, net of third-party reinsurance. The Reinsurance Agreement was entered into in January 2016. In connection with entering into the Master Agreement, we recorded a DAC impairment of $455 million as a result of loss recognition testing of certain term life insurance policies as part of this life block transaction.
As of December 31, 2015, we believe all of our other businesses had sufficient future income and therefore the related DAC was recoverable. As of December 31, 2014, all of our businesses had sufficient future income and therefore the related DAC was recoverable.
|
(7) Intangible Assets and Goodwill
The following table presents our intangible assets as of December 31:
2015 | 2014 | |||||||||||||||
(Amounts in millions) |
Gross carrying amount |
Accumulated amortization |
Gross carrying amount |
Accumulated amortization |
||||||||||||
PVFP |
$ | 2,084 | $ | (1,941 | ) | $ | 1,995 | $ | (1,917 | ) | ||||||
Capitalized software |
665 | (571 | ) | 641 | (532 | ) | ||||||||||
Deferred sales inducements to contractholders |
268 | (178 | ) | 209 | (153 | ) | ||||||||||
Other |
66 | (50 | ) | 55 | (49 | ) | ||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total |
$ | 3,083 | $ | (2,740 | ) | $ | 2,900 | $ | (2,651 | ) | ||||||
|
|
|
|
|
|
|
|
Amortization expense related to PVFP, capitalized software and other intangible assets for the years ended December 31, 2015, 2014 and 2013 was $64 million, $70 million and $109 million, respectively. Amortization expense related to deferred sales inducements of $25 million, $30 million and $24 million, respectively, for the years ended December 31, 2015, 2014 and 2013 was included in benefits and other changes in policy reserves.
Present Value of Future Profits
The following table presents the activity in PVFP as of and for the years ended December 31:
(Amounts in millions) |
2015 | 2014 | 2013 | |||||||||
Unamortized balance as of January 1 |
$ | 229 | $ | 246 | $ | 297 | ||||||
Interest accreted at 6.45%, 5.89% and 5.52% |
14 | 14 | 15 | |||||||||
Amortization |
(38 | ) | (31 | ) | (66 | ) | ||||||
|
|
|
|
|
|
|||||||
Unamortized balance as of December 31 |
205 | 229 | 246 | |||||||||
Accumulated effect of net unrealized investment (gains) losses |
(62 | ) | (151 | ) | (85 | ) | ||||||
|
|
|
|
|
|
|||||||
Balance as of December 31 |
$ | 143 | $ | 78 | $ | 161 | ||||||
|
|
|
|
|
|
We regularly review our assumptions and periodically test PVFP for recoverability in a manner similar to our treatment of DAC. In the fourth quarter of 2015, as part of our annual review of assumptions, we increased PVFP amortization for our universal life insurance products by $14 million. The updated assumptions largely reflected changes to persistency, long-term interest rates, mortality and other refinements. As of December 31, 2015, we believe all of our other businesses have sufficient future income and therefore the related PVFP is recoverable.
For the years ended December 31, 2015 and 2013, there were no charges to income as a result of our PVFP recoverability testing. During the fourth quarter of 2014, the loss recognition testing for our acquired block of long-term care insurance business resulted in a premium deficiency. As a result, we wrote off the entire PVFP balance for our long-term care insurance business of $6 million through amortization with a corresponding change to net unrealized investment gains (losses). The results of the test were driven by changes to assumptions and methodologies primarily impacting claim termination rates, most significantly in later-duration claims, and benefit utilization rates.
The percentage of the December 31, 2015 PVFP balance net of interest accretion, before the effect of unrealized investment gains or losses, estimated to be amortized over each of the next five years is as follows:
2016 |
15.1 | % | ||
2017 |
13.7 | % | ||
2018 |
11.7 | % | ||
2019 |
10.0 | % | ||
2020 |
8.7 | % |
Amortization expense for PVFP in future periods will be affected by acquisitions, dispositions, net investment gains (losses) or other factors affecting the ultimate amount of gross profits realized from certain lines of business. Similarly, future amortization expense for other intangibles will depend on future acquisitions, dispositions and other business transactions.
Goodwill
As of December 31, 2015 and 2014, our goodwill balance was $14 million and $16 million, respectively, which changed due to foreign currency translation. Of those amounts as of December 31, 2015 and 2014, our Canada Mortgage Insurance segment has goodwill of $8 million and $10 million, respectively, and our Australia Mortgage Insurance segment has goodwill of $6 million.
No goodwill impairment charges were recorded in 2015 or 2013. During 2014, we wrote off the entire goodwill balance of our U.S. Life Insurance segment and recorded goodwill impairments of $849 million, including $354 million for our long-term care insurance reporting unit and $495 million for our life insurance reporting unit.
Based on the fair value of projected new business for our long-term care insurance and life insurance reporting units, we recorded goodwill impairments of $200 million and $350 million, respectively, during the third quarter of 2014. The remaining goodwill balances for our long-term care insurance and life insurance reporting units of $154 million and $145 million, respectively, were deemed recoverable as of September 30, 2014 based on our determination of implied goodwill.
During the fourth quarter of 2014 and in connection with the preparation of the financial statements, due to negative actions taken by rating agencies and suspension of sales by certain distributors, we performed an interim goodwill impairment analysis for our long-term care and life insurance businesses. As a result of market conditions, decreases in sales projections from negative rating actions and overall uncertainty created as a result of the long-term care insurance reserve increases, we recorded a goodwill impairment of $154 million in our long-term care insurance business and $145 million in our life insurance business. The uncertainty associated with the level and value of new business that a market participant would place on our long-term care and life insurance businesses resulted in concluding the goodwill balances were no longer recoverable.
|
We reinsure a portion of our policy risks to other insurance companies in order to reduce our ultimate losses, diversify our exposures and provide capital flexibility. We also assume certain policy risks written by other insurance companies. Reinsurance accounting is followed for assumed and ceded transactions when there is adequate risk transfer. Otherwise, the deposit method of accounting is followed.
Reinsurance does not relieve us from our obligations to policyholders. In the event that the reinsurers are unable to meet their obligations, we remain liable for the reinsured claims. We monitor both the financial condition of individual reinsurers and risk concentrations arising from similar geographic regions, activities and economic characteristics of reinsurers to lessen the risk of default by such reinsurers. Other than the relationship discussed below with Union Fidelity Life Insurance Company (“UFLIC”), we do not have significant concentrations of reinsurance with any one reinsurer that could have a material impact on our financial position.
As of December 31, 2015, the maximum amount of individual ordinary life insurance normally retained by us on any one individual life policy was $5 million.
We have several significant reinsurance transactions (“Reinsurance Transactions”) with UFLIC. In these transactions, we ceded to UFLIC in-force blocks of structured settlements issued prior to 2004, substantially all of our in-force blocks of variable annuities issued prior to 2004 and a block of long-term care insurance policies that we reinsured in 2000 from MetLife Insurance Company USA. Although we remain directly liable under these contracts and policies as the ceding insurer, the Reinsurance Transactions have the effect of transferring the financial results of the reinsured blocks to UFLIC. As of December 31, 2015 and 2014, we had a reinsurance recoverable of $14,363 million and $14,494 million, respectively, associated with those Reinsurance Transactions.
To secure the payment of its obligations to us under the reinsurance agreements governing the Reinsurance Transactions, UFLIC has established trust accounts to maintain an aggregate amount of assets with a statutory book value at least equal to the statutory general account reserves attributable to the reinsured business less an amount required to be held in certain claims paying accounts. A trustee administers the trust accounts and we are permitted to withdraw from the trust accounts amounts due to us pursuant to the terms of the reinsurance agreements that are not otherwise paid by UFLIC. In addition, pursuant to a Capital Maintenance Agreement, General Electric Capital Corporation, an indirect subsidiary of General Electric Company (“GE”), previously agreed to maintain sufficient capital in UFLIC to maintain UFLIC’s risk-based capital (“RBC”) at not less than 150% of its company action level, as defined from time to time by the National Association of Insurance Commissioners (“NAIC”). In connection with its announced realignment and reorganization of the business of General Electric Capital Corporation in December 2015, General Electric Capital Corporation merged with and into GE. As a result, GE is the successor obligor under the Capital Maintenance Agreement.
Under the terms of certain reinsurance agreements that our life insurance subsidiaries have with external parties, we pledged assets in either separate portfolios or in trust for the benefit of external reinsurers. These assets support the reserves ceded to those external reinsurers. We had pledged fixed maturity securities and commercial mortgage loans of $8,324 million and $347 million, respectively, as of December 31, 2015 and $8,737 million and $544 million, respectively, as of December 31, 2014 in connection with these reinsurance agreements. However, we maintain the ability to substitute these pledged assets for other qualified collateral, and may use, commingle, encumber or dispose of any portion of the collateral as long as there is no event of default and the remaining qualified collateral is sufficient to satisfy the collateral maintenance level.
As of December 31, 2014, under the terms of certain reinsurance agreements that our international insurance subsidiaries had with external parties, we deposited $33 million of assets in an authorized account for the benefit of the external reinsurers. These pledged assets supported the reserves and certain expenses in accordance with the reinsurance agreement. In 2015, these reinsurance agreements were terminated and the related assets previously held on deposit were no longer pledged.
The following table sets forth net domestic life insurance in-force as of December 31:
(Amounts in millions) |
2015 | 2014 | 2013 | |||||||||
Direct life insurance in-force |
$ | 686,446 | $ | 701,797 | $ | 708,271 | ||||||
Amounts assumed from other companies |
899 | 935 | 1,070 | |||||||||
Amounts ceded to other companies (1) |
(411,340 | ) | (393,244 | ) | (313,593 | ) | ||||||
|
|
|
|
|
|
|||||||
Net life insurance in-force |
$ | 276,005 | $ | 309,488 | $ | 395,748 | ||||||
|
|
|
|
|
|
|||||||
Percentage of amount assumed to net |
— | % | — | % | — | % | ||||||
|
|
|
|
|
|
(1) | Includes amounts accounted for under the deposit method. |
The following table sets forth the effects of reinsurance on premiums written and earned for the years ended December 31:
Written | Earned | |||||||||||||||||||||||
(Amounts in millions) |
2015 | 2014 | 2013 | 2015 | 2014 | 2013 | ||||||||||||||||||
Direct: |
||||||||||||||||||||||||
Life insurance |
$ | 1,030 | $ | 1,131 | $ | 1,088 | $ | 1,030 | $ | 1,131 | $ | 1,088 | ||||||||||||
Accident and health insurance |
2,764 | 2,706 | 2,584 | 2,778 | 2,697 | 2,565 | ||||||||||||||||||
Mortgage insurance |
1,754 | 1,814 | 1,682 | 1,514 | 1,588 | 1,608 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total direct |
5,548 | 5,651 | 5,354 | 5,322 | 5,416 | 5,261 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Assumed: |
||||||||||||||||||||||||
Life insurance |
34 | 34 | 3 | 34 | 34 | 3 | ||||||||||||||||||
Accident and health insurance |
342 | 343 | 345 | 347 | 348 | 350 | ||||||||||||||||||
Mortgage insurance |
10 | 20 | 19 | 22 | 31 | 33 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total assumed |
386 | 397 | 367 | 403 | 413 | 386 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Ceded: |
||||||||||||||||||||||||
Life insurance |
(372 | ) | (332 | ) | (340 | ) | (372 | ) | (332 | ) | (340 | ) | ||||||||||||
Accident and health insurance |
(682 | ) | (708 | ) | (709 | ) | (688 | ) | (706 | ) | (700 | ) | ||||||||||||
Mortgage insurance |
(86 | ) | (95 | ) | (92 | ) | (86 | ) | (91 | ) | (91 | ) | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total ceded |
(1,140 | ) | (1,135 | ) | (1,141 | ) | (1,146 | ) | (1,129 | ) | (1,131 | ) | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Net premiums |
$ | 4,794 | $ | 4,913 | $ | 4,580 | $ | 4,579 | $ | 4,700 | $ | 4,516 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Percentage of amount assumed to net |
9 | % | 9 | % | 9 | % | ||||||||||||||||||
|
|
|
|
|
|
Reinsurance recoveries recognized as a reduction of benefits and other changes in policy reserves amounted to $2,771 million, $2,846 million and $2,641 million during 2015, 2014 and 2013, respectively.
|
(9) Insurance Reserves
Future Policy Benefits
The following table sets forth our recorded liabilities and the major assumptions underlying our future policy benefits as of December 31:
(Amounts in millions) |
Mortality/ morbidity assumption |
Interest rate |
2015 | 2014 | ||||||||||
Long-term care insurance contracts |
(a | ) | 3.50% - 7.50% | $ | 20,563 | $ | 19,310 | |||||||
Structured settlements with life contingencies |
(b | ) | 1.50% - 8.00% | 8,991 | 9,133 | |||||||||
Annuity contracts with life contingencies |
(b | ) | 1.50% - 8.00% | 4,010 | 4,470 | |||||||||
Traditional life insurance contracts |
(c | ) | 3.00% - 7.50% | 2,638 | 2,733 | |||||||||
Supplementary contracts with life contingencies |
(b | ) | 1.50% - 8.00% | 269 | 265 | |||||||||
Accident and health insurance contracts |
(d | ) | 3.50% - 7.00% | 4 | 4 | |||||||||
|
|
|
|
|||||||||||
Total future policy benefits |
$ | 36,475 | $ | 35,915 | ||||||||||
|
|
|
|
(a) | The 1983 Individual Annuitant Mortality Table or 2000 U.S. Annuity Table, or 1983 Group Annuitant Mortality Table or 1994 Group Annuitant Mortality Table and company experience. |
(b) | Assumptions for limited-payment contracts come from either the U.S. Population Table, 1983 Group Annuitant Mortality Table, 1983 Individual Annuitant Mortality Table, Annuity 2000 Mortality Table or 2012 Individual Annuity Reserving Table. |
(c) | Principally modifications based on company experience of the Society of Actuaries 1965-70 or 1975-80 Select and Ultimate Tables, 1941, 1958, 1980 and 2001 Commissioner’s Standard Ordinary Tables, 1980 Commissioner’s Extended Term table and (IA) Standard Table 1996 (modified). |
(d) | The 1958 and 1980 Commissioner’s Standard Ordinary Tables, or 2000 U.S. Annuity Table, or 1983 Group Annuitant Mortality. |
We regularly review our assumptions and perform loss recognition testing at least annually. During the fourth quarter of 2014, loss recognition testing for our acquired block of long-term care insurance business resulted in a premium deficiency. As a result, we wrote off the PVFP balance of $6 million and increased reserves $710 million. The results of the test in 2014 were driven by changes to assumptions and methodologies primarily impacting claim termination rates, most significantly in later-duration claims, and benefit utilization rates. The 2015 test did not result in a charge. The liability for future policy benefits for our acquired block of long-term care insurance business represents our current best estimate; however, there may be future adjustments to this estimate and related assumptions. Such adjustments, reflecting any variety of new and adverse trends, could possibly be significant and result in further increases in the related future policy benefit reserves for this block of business by an amount that could be material to our results of operations and financial condition and liquidity.
As of December 31, 2015, we recorded additional future policy benefit reserves of $13 million on our consolidated balance sheet to accrue for profits followed by losses in our long-term care insurance business and increased benefits and other changes in policy reserves in our consolidated income statement for the same amount for the year ended December 31, 2015. Given there were no profits in our long-term care insurance business in 2014, no accrual was recorded in that year. The current present value of expected losses was approximately $500 million as of December 31, 2015. However, there may be future adjustments to this estimate reflecting any variety of new and adverse trends that could result in increases to future policy benefit reserves for profits followed by losses accrual, and such future increases could possibly be material to our results of operations and financial condition and liquidity.
Policyholder Account Balances
The following table sets forth our recorded liabilities for policyholder account balances as of December 31:
(Amounts in millions) |
2015 | 2014 | ||||||
Annuity contracts |
$ | 14,376 | $ | 14,406 | ||||
GICs, funding agreements and FABNs |
410 | 493 | ||||||
Structured settlements without life contingencies |
1,694 | 1,828 | ||||||
Supplementary contracts without life contingencies |
762 | 742 | ||||||
Other |
16 | 17 | ||||||
|
|
|
|
|||||
Total investment contracts |
17,258 | 17,486 | ||||||
Universal life insurance contracts |
8,951 | 8,546 | ||||||
|
|
|
|
|||||
Total policyholder account balances |
$ | 26,209 | $ | 26,032 | ||||
|
|
|
|
In the fourth quarter of 2015, as part of our annual review of assumptions, we increased our liability for policyholder account balances by $175 million for our universal and term universal life insurance products, reflecting updated assumptions for persistency, long-term interest rates, mortality and other refinements.
Certain of our U.S. life insurance companies are members of the Federal Home Loan Bank (the “FHLB”) system in their respective regions. As of December 31, 2015 and 2014, we held $30 million and $33 million, respectively, of FHLB common stock related to those memberships which was included in equity securities. We have outstanding funding agreements with the FHLBs and also have letters of credit which have not been drawn upon. The FHLBs have been granted a lien on certain of our invested assets to collateralize our obligations; however, we maintain the ability to substitute these pledged assets for other qualified collateral, and may use, commingle, encumber or dispose of any portion of the collateral as long as there is no event of default and the remaining qualified collateral is sufficient to satisfy the collateral maintenance level. Upon any event of default by us, the FHLB’s recovery on the collateral is limited to the amount of our funding agreement liabilities to the FHLB. The amount of funding agreements outstanding with the FHLB was $105 million and $199 million, respectively, as of December 31, 2015 and 2014 which was included in policyholder account balances. We had letters of credit related to the FHLB of $583 million as of December 31, 2015 and 2014. These funding agreements and letters of credit were collateralized by fixed maturity securities with a fair value of $742 million and $854 million, respectively, as of December 31, 2015 and 2014.
Certain Non-traditional Long-Duration Contracts
The following table sets forth information about our variable annuity products with death and living benefit guarantees as of December 31:
(Dollar amounts in millions) |
2015 | 2014 | ||||||
Account values with death benefit guarantees (net of reinsurance): |
||||||||
Standard death benefits (return of net deposits) account value |
$ | 2,512 | $ | 2,877 | ||||
Net amount at risk |
$ | 5 | $ | 5 | ||||
Average attained age of contractholders |
73 | 72 | ||||||
Enhanced death benefits (ratchet, rollup) account value |
$ | 2,866 | $ | 3,443 | ||||
Net amount at risk |
$ | 188 | $ | 119 | ||||
Average attained age of contractholders |
73 | 73 | ||||||
Account values with living benefit guarantees: |
||||||||
GMWBs |
$ | 3,111 | $ | 3,675 | ||||
Guaranteed annuitization benefits |
$ | 1,181 | $ | 1,362 |
Variable annuity contracts may contain more than one death or living benefit; therefore, the amounts listed above are not mutually exclusive. Substantially all of our variable annuity contracts have some form of GMDB.
As of December 31, 2015 and 2014, our total liability associated with variable annuity contracts with minimum guarantees was approximately $6,170 million and $7,108 million, respectively. The liability, net of reinsurance, for our variable annuity contracts with GMDB and guaranteed annuitization benefits was $72 million and $55 million as of December 31, 2015 and 2014, respectively.
The contracts underlying the lifetime benefits such as GMWB and guaranteed annuitization benefits are considered “in the money” if the contractholder’s benefit base, or the protected value, is greater than the account value. As of December 31, 2015 and 2014, our exposure related to GMWB and guaranteed annuitization benefit contracts that were considered “in the money” was $745 million and $532 million, respectively. For GMWBs and guaranteed annuitization benefits, the only way the contractholder can monetize the excess of the benefit base over the account value of the contract is through lifetime withdrawals or lifetime income payments after annuitization.
Account balances of variable annuity contracts with death or living benefit guarantees were invested in separate account investment options as follows as of December 31:
(Amounts in millions) |
2015 | 2014 | ||||||
Balanced funds |
$ | 3,304 | $ | 3,848 | ||||
Equity funds |
1,387 | 1,639 | ||||||
Bond funds |
576 | 707 | ||||||
Money market funds |
85 | 96 | ||||||
|
|
|
|
|||||
Total |
$ | 5,352 | $ | 6,290 | ||||
|
|
|
|
|
(10) Liability for Policy and Contract Claims
The following table sets forth our recorded liability for policy and contract claims by business as of December 31:
(Amounts in millions) |
2015 | 2014 | ||||||
Long-term care insurance |
$ | 6,749 | $ | 6,216 | ||||
U.S. mortgage insurance |
849 | 1,180 | ||||||
Life insurance |
202 | 197 | ||||||
Australia mortgage insurance |
165 | 152 | ||||||
Canada mortgage insurance |
87 | 91 | ||||||
Fixed annuities |
18 | 21 | ||||||
Runoff |
18 | 15 | ||||||
Other mortgage insurance |
7 | 9 | ||||||
|
|
|
|
|||||
Total liability for policy and contract claims |
$ | 8,095 | $ | 7,881 | ||||
|
|
|
|
The liability for policy and contract claims represents our current best estimate; however, there may be future adjustments to this estimate and related assumptions. Such adjustments, reflecting any variety of new and adverse trends, could possibly be significant, and result in increases in reserves by an amount that could be material to our results of operations and financial condition and liquidity.
Long-term care insurance
The following table sets forth changes in the liability for policy and contract claims for our long-term care insurance business for the dates indicated:
(Amounts in millions) |
2015 | 2014 | 2013 | |||||||||
Beginning balance as of January 1 |
$ | 6,216 | $ | 4,999 | $ | 4,655 | ||||||
Less reinsurance recoverables |
(1,926 | ) | (1,707 | ) | (1,574 | ) | ||||||
|
|
|
|
|
|
|||||||
Net balance as of January 1 |
4,290 | 3,292 | 3,081 | |||||||||
|
|
|
|
|
|
|||||||
Incurred related to insured events of: |
||||||||||||
Current year |
1,655 | 1,474 | 1,323 | |||||||||
Prior years |
39 | 726 | 3 | |||||||||
|
|
|
|
|
|
|||||||
Total incurred |
1,694 | 2,200 | 1,326 | |||||||||
|
|
|
|
|
|
|||||||
Paid related to insured events of: |
||||||||||||
Current year |
(151 | ) | (134 | ) | (131 | ) | ||||||
Prior years |
(1,371 | ) | (1,263 | ) | (1,160 | ) | ||||||
|
|
|
|
|
|
|||||||
Total paid |
(1,522 | ) | (1,397 | ) | (1,291 | ) | ||||||
|
|
|
|
|
|
|||||||
Interest on liability for policy and contract claims |
232 | 195 | 176 | |||||||||
|
|
|
|
|
|
|||||||
Net balance as of December 31 |
4,694 | 4,290 | 3,292 | |||||||||
Add reinsurance recoverables |
2,055 | 1,926 | 1,707 | |||||||||
|
|
|
|
|
|
|||||||
Ending balance as of December 31 |
$ | 6,749 | $ | 6,216 | $ | 4,999 | ||||||
|
|
|
|
|
|
In 2015, the incurred amount of $39 million related to insured events of prior years increased primarily from lower claim termination rates, partially offset by $25 million of net favorable corrections and adjustments in 2015.
In 2014, the incurred amount of $726 million related to insured events of prior years increased largely as a result of the completion of a comprehensive review of our long-term care insurance claim reserves conducted during the third quarter of 2014 which resulted in recording higher reserves of $604 million and an increase in reinsurance recoverables of $73 million. This review was commenced as a result of adverse claims experience during the second quarter of 2014 and in connection with our regular review of our claim reserves assumptions during the third quarter of each year. As a result of this review, we made changes to our assumptions and methodologies relating to our long-term care insurance claim reserves primarily impacting claim termination rates, most significantly in later-duration claims, and benefit utilization rates, reflecting that claims are not terminating as quickly and claimants are utilizing more of their available benefits in aggregate than had previously been assumed in our reserve calculations. In conducting the review, we increased the population of claims reviewed, utilizing more of our recent data. During the third quarter of 2014, we also recorded a $61 million unfavorable correction to claim reserves related to a calculation of benefit utilization for policies with a benefit inflation option. This error arose prior to 2011 and was not material to earnings in any interim or annual period. During the fourth quarter of 2014, we recorded an $81 million unfavorable correction to claim reserves primarily related to claims in course of settlement arising in connection with the implementation of our updated assumptions and methodologies as part of our comprehensive claims review completed in the third quarter of 2014 and a $21 million unfavorable adjustment related to a revised interest rate assumption, partially offset by a $49 million favorable refinement of assumptions for claim termination rates. As a result of these items, we also recorded an increase in reinsurance recoverables of $17 million in 2014. The remaining increase was attributable to aging and growth of the in-force block.
In 2013, the incurred amount of $3 million related to insured events of prior years increased predominantly from growth and aging of the in-force block.
U.S. mortgage insurance
The following table sets forth changes in the liability for policy and contract claims for our U.S. mortgage insurance business for the dates indicated:
(Amounts in millions) |
2015 | 2014 | 2013 | |||||||||
Beginning balance as of January 1 |
$ | 1,180 | $ | 1,482 | $ | 2,009 | ||||||
Less reinsurance recoverables |
(24 | ) | (44 | ) | (80 | ) | ||||||
|
|
|
|
|
|
|||||||
Net balance as of January 1 |
1,156 | 1,438 | 1,929 | |||||||||
|
|
|
|
|
|
|||||||
Incurred related to insured events of: |
||||||||||||
Current year |
236 | 328 | 476 | |||||||||
Prior years |
(14 | ) | 29 | (63 | ) | |||||||
|
|
|
|
|
|
|||||||
Total incurred |
222 | 357 | 413 | |||||||||
|
|
|
|
|
|
|||||||
Paid related to insured events of: |
||||||||||||
Current year |
(13 | ) | (21 | ) | (45 | ) | ||||||
Prior years |
(521 | ) | (618 | ) | (859 | ) | ||||||
|
|
|
|
|
|
|||||||
Total paid |
(534 | ) | (639 | ) | (904 | ) | ||||||
|
|
|
|
|
|
|||||||
Net balance as of December 31 |
844 | 1,156 | 1,438 | |||||||||
Add reinsurance recoverables |
5 | 24 | 44 | |||||||||
|
|
|
|
|
|
|||||||
Ending balance as of December 31 |
$ | 849 | $ | 1,180 | $ | 1,482 | ||||||
|
|
|
|
|
|
In 2015, the incurred amount of $14 million related to insured events of prior years decreased largely related to favorable aging of existing delinquencies.
In 2014, the incurred amount of $29 million related to insured events of prior years increased primarily related to an aggregate increase in our claim reserves of $53 million in connection with the settlement agreement with Bank of America, N.A. and discussions with another servicer in an effort to resolve pending disputes over loss mitigation activities. This increase was partially offset by favorable aging on existing delinquencies in 2014.
In 2013, the incurred amount of $63 million related to insured events of prior years decreased primarily from improvements in net cures.
|
(11) Employee Benefit Plans
(a) Pension and Retiree Health and Life Insurance Benefit Plans
Essentially all of our employees are enrolled in a qualified defined contribution pension plan. The plan is 100% funded by Genworth. We make annual contributions to each employee’s pension plan account based on the employee’s age, service and eligible pay. Employees are vested in the plan after three years of service. As of December 31, 2015 and 2014, we recorded a liability related to these benefits of $13 million.
In addition, certain employees also participate in non-qualified defined contribution plans and in qualified and non-qualified defined benefit pension plans. The plan assets, projected benefit obligation and accumulated benefit obligation liabilities of these plans were not material to our consolidated financial statements individually or in the aggregate. As of December 31, 2015 and 2014, we recorded a liability related to these plans of $78 million and $71 million, respectively, which we accrued in other liabilities in the consolidated balance sheets. In 2015, we recognized an increase of $30 million in OCI. In 2014, we recognized a decrease of $34 million in OCI related to these plans.
In connection with the sale of our lifestyle protection insurance business in December 2015, we wrote off our pension benefit assets of $17 million and recognized all of the unrealized actuarial losses of $15 million related to the U.K. pension plan. In addition, related to the settlement of the U.K. pension plan, we agreed to purchase a group annuity contract. To fully fund this group annuity contract, we incurred $69 million of expense in 2015, of which $58 million was paid in 2015. These items resulted in $101 million of pension settlement costs related to the sale. The amounts associated with the group annuity contract are held in a third-party trust for the benefit of the participants. It is our intent to completely settle the U.K. pension plan in 2016. See note 24 for additional details related to the sale of our lifestyle protection insurance business.
We provide retiree health benefits to domestic employees hired prior to January 1, 2005 who meet certain service requirements. Under this plan, retirees over 65 years of age receive a subsidy towards the purchase of a Medigap policy, and retirees under 65 years of age receive medical benefits similar to our employees’ medical benefits. In December 2009, we announced that eligibility for retiree medical benefits will be limited to associates who are within 10 years of retirement eligibility as of January 1, 2010. This resulted in a negative plan amendment which will be amortized over the average future service of the participants. We also provide retiree life and long-term care insurance benefits. The plans are funded as claims are incurred. As of December 31, 2015 and 2014, the accumulated postretirement benefit obligation associated with these benefits was $78 million and $90 million, respectively, which we accrued in other liabilities in the consolidated balance sheets. In 2015, we recognized an increase of $13 million in OCI. In 2014, we recognized a decrease of $10 million in OCI.
Our cost associated with our pension, retiree health and life insurance benefit plans was $25 million, $21 million and $22 million for the years ended December 31, 2015, 2014 and 2013, respectively.
(b) Savings Plans
Our domestic employees participate in qualified and non-qualified defined contribution savings plans that allow employees to contribute a portion of their pay to the plan on a pre-tax basis. We match these contributions, which vest immediately, up to 6% of the employee’s pay. Employees hired on or after January 1, 2011 will not vest immediately in Genworth matching contributions but will fully vest in the matching contributions after two complete years of service. One option available to employees in the defined contribution savings plan is the ClearCourse® variable annuity option offered by certain of our life insurance subsidiaries. The amount of deposits recorded by our life insurance subsidiaries in 2015 and 2014 in relation to this plan option was $1 million for each year. Employees also have the option of purchasing a fund which invests primarily in Genworth stock as part of the defined contribution savings plan. Our cost associated with these plans was $17 million, $16 million and $17 million for the years ended December 31, 2015, 2014 and 2013, respectively.
(c) Health and Welfare Benefits for Active Employees
We provide health and welfare benefits to our employees, including health, life, disability, dental and long-term care insurance. Our long-term care insurance is provided through our group long-term care insurance products. The premiums recorded by this business related to these benefits were insignificant during 2015, 2014 and 2013.
|
(12) Borrowings and Other Financings
(a) Short-Term Borrowings
Revolving Credit Facility
In September 2013, Genworth Financial and Genworth Holdings entered into a Credit Agreement (the “Credit Agreement”) which provides Genworth Holdings with a $300 million multi-currency revolving credit facility, with a $100 million sublimit for letters of credit. The credit facility is available on a revolving basis until September 26, 2016, unless the commitments are terminated earlier either at the request of Genworth Holdings or by the lenders as a result of any event of default. The proceeds of the loans may be used for working capital and general corporate purposes. As of December 31, 2015 and 2014, there was no amount outstanding under the credit facility. The obligations under the Credit Agreement are unsecured and payment of Genworth Holdings’ obligations is fully and unconditionally guaranteed by Genworth Financial.
Any borrowings under the revolving credit facility will bear interest at a rate per annum equal to, at the option of Genworth Holdings, (i) a rate based on the greater of JPMorgan Chase Bank N.A.’s prime rate, the federal funds rate and the one-month adjusted London Interbank Offered Rate (“LIBOR”) from time to time, or (ii) with respect to euro currency borrowings, a rate based on the LIBOR from time to time, plus in each case a margin that fluctuates based upon the ratings assigned from time to time by Moody’s Investors Service, Inc. and Standard & Poor’s Rating Group to Genworth Holdings’ senior unsecured long-term indebtedness for borrowed money that is not guaranteed by any other person other than Genworth Financial or subject to any other credit enhancement. Genworth Holdings will also pay a commitment fee at a rate that varies with Genworth Holdings’ senior unsecured long-term indebtedness ratings and that is calculated on the average daily unused amount of the commitments, payable quarterly in arrears.
The Credit Agreement contains representations, warranties, covenants, terms and conditions customary for transactions of this type. These include negative covenants limiting the ability of Genworth Holdings and its subsidiaries, to: (1) create liens other than permitted liens; (2) in the case of Genworth Holdings and Genworth Life Insurance Company (“GLIC”), merge into or consolidate with any other person or permit any person to merge into or consolidate with them unless Genworth Holdings or GLIC, as applicable, is the surviving person; (3) sell, transfer, lease, or otherwise dispose of all or substantially all of the assets of Genworth Holdings and its subsidiaries, taken as a whole, and the equity interest in or assets of GLIC, subject to certain excluded transactions; (4) enter into certain transactions with affiliates; and (5) enter into certain restrictive agreements. In addition, Genworth Financial agrees not to permit Priority Indebtedness (as defined in the Credit Agreement) to exceed 7.5% of its consolidated total capitalization (as defined in the Credit Agreement) as of the end of any fiscal quarter ending on and after September 30, 2013.
The Credit Agreement also contains financial covenants that require Genworth Financial not to permit (i) its capitalization ratio (as defined in the Credit Agreement) to be greater than 0.35 to 1.00, and (ii) its consolidated net worth (as defined in the Credit Agreement) to be less than the sum of $8.9 billion plus 50% of its consolidated net income (as defined in the Credit Agreement), in each case as of the end of each fiscal quarter ending on and after September 30, 2013.
The Credit Agreement contains certain customary events of default, subject to customary grace periods, including, among others: (1) failure to pay when due principal, interest or any other amounts due and payable under the Credit Agreement; (2) incorrectness in any material respect of representations and warranties when made or deemed made; (3) breach of specified covenants; (4) cross-defaults with other material indebtedness (as defined in the Credit Agreement) exceeding an aggregate principal amount of $100 million; (5) certain ERISA (Employee Retirement Income Security Act of 1974) events, (6) bankruptcy and insolvency events, (7) occurrence of a change in control of either Genworth Financial or Genworth Holdings; (8) inability to pay debts as they become due; (9) certain undischarged judgments; (10) Genworth Financial’s guarantee ceases to be valid, binding and enforceable in accordance with its terms; or (11) issuance by any insurance regulatory official of any material corrective order or initiation by any such official of any material regulatory proceeding to oversee or direct management, if such order of proceeding continues undismissed for a period of 30 days.
(b) Long-Term Borrowings
The following table sets forth total long-term borrowings as of December 31:
(Amounts in millions) |
2015 | 2014 | ||||||
Genworth Holdings |
||||||||
8.625% Senior Notes, due 2016 |
$ | 298 | $ | 300 | ||||
6.52% Senior Notes, due 2018 |
598 | 600 | ||||||
7.70% Senior Notes, due 2020 |
397 | 400 | ||||||
7.20% Senior Notes, due 2021 |
389 | 399 | ||||||
7.625% Senior Notes, due 2021 |
724 | 758 | ||||||
4.90% Senior Notes, due 2023 |
399 | 399 | ||||||
4.80% Senior Notes, due 2024 |
400 | 400 | ||||||
6.50% Senior Notes, due 2034 |
297 | 297 | ||||||
6.15% Fixed-to-Floating Rate Junior Subordinated Notes, due 2066 |
598 | 598 | ||||||
|
|
|
|
|||||
Subtotal |
4,100 | 4,151 | ||||||
Deferred borrowing charges |
(21 | ) | (24 | ) | ||||
|
|
|
|
|||||
Total Genworth Holdings |
4,079 | 4,127 | ||||||
|
|
|
|
|||||
Canada |
||||||||
5.68% Senior Notes, due 2020 |
199 | 236 | ||||||
4.24% Senior Notes, due 2024 |
116 | 138 | ||||||
|
|
|
|
|||||
Subtotal |
315 | 374 | ||||||
Deferred borrowing charges |
(2 | ) | (2 | ) | ||||
|
|
|
|
|||||
Total Canada |
313 | 372 | ||||||
|
|
|
|
|||||
Australia |
||||||||
Floating Rate Junior Notes, due 2021 |
36 | 114 | ||||||
Floating Rate Junior Notes, due 2025 |
146 | — | ||||||
|
|
|
|
|||||
Subtotal |
182 | 114 | ||||||
Deferred borrowing charges |
(4 | ) | (1 | ) | ||||
|
|
|
|
|||||
Total Australia |
178 | 113 | ||||||
|
|
|
|
|||||
Total |
$ | 4,570 | $ | 4,612 | ||||
|
|
|
|
Genworth Holdings
Long-Term Senior Notes
As of December 31, 2015, Genworth Holdings had outstanding eight series of fixed rate senior notes with varying interest rates between 4.80% and 8.625% and maturity dates between 2016 and 2034. The senior notes are Genworth Holdings’ direct, unsecured obligations and rank equally in right of payment with all of its existing and future unsecured and unsubordinated obligations. Genworth Financial provides a full and unconditional guarantee to the trustee of Genworth Holdings’ outstanding senior notes and the holders of the senior notes, on an unsecured unsubordinated basis, 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 the full and punctual payment of all other amounts payable by Genworth Holdings under the senior notes indenture in respect of such senior notes. We have the option to redeem all or a portion of each series of senior notes at any time with notice to the noteholders at a price equal to the greater of 100% of principal or the sum of the present value of the remaining scheduled payments of principal and interest discounted at the then-current treasury rate plus an applicable spread.
In January 2016, Genworth Holdings redeemed $298 million of its 8.625% senior notes due 2016 issued in December 2009 (the “2016 Notes”) and paid accrued and unpaid interest and a make-whole premium of approximately $23 million pre-tax.
During the third quarter of 2015, Genworth Holdings repurchased $50 million aggregate principal amount of its senior notes for a pre-tax loss of $1 million and paid accrued and unpaid interest thereon.
Genworth Holdings repaid $485 million of its 5.75% senior notes due 2014 issued in June 2004 (the “2014 Notes”) in June 2014 from cash on hand.
In December 2013, Genworth Holdings issued $400 million aggregate principal amount of senior notes, with an interest rate of 4.80% per year payable semi-annually, and maturing in 2024 (“2024 Notes”). The net proceeds of $397 million from the issuance of the 2024 Notes, together with cash on hand at Genworth Financial, were used to contribute $100 million to GMICO, our primary U.S. mortgage insurance subsidiary, and an additional $300 million was contributed to a U.S. mortgage holding company to be used to satisfy all or part of the higher capital requirements expected to be imposed by the government-sponsored enterprises (“GSEs”) as part of the anticipated revisions to their asset-and capital-related requirements. In May 2014, our U.S. mortgage holding company contributed the additional $300 million to GMICO.
In August 2013, Genworth Holdings issued $400 million aggregate principal amount of 4.90% senior notes due 2023 (the “2023 Notes”). The net proceeds of $396 million from the issuance of the 2023 Notes, together with cash on hand at Genworth Holdings, were used to redeem all $346 million of the remaining outstanding aggregate principal amount of Genworth Holdings’ 4.95% senior notes due 2015 (the “2015 Notes”) and pay accrued and unpaid interest on such notes and pay a make-whole payment of approximately $30 million pre-tax.
During 2013, Genworth Holdings repurchased $15 million aggregate principal amount of the 2014 Notes, and paid accrued and unpaid interest thereon. In June 2013, Genworth Holdings repurchased $4 million aggregate principal amount of the 2015 Notes, and paid accrued and unpaid interest thereon.
Long-Term Junior Subordinated Notes
As of December 31, 2015, Genworth Holdings had outstanding fixed-to-floating rate junior notes having an aggregate principal amount of $598 million, with an annual interest rate equal to 6.15% payable semi-annually, until November 15, 2016, at which point the annual interest rate will be equal to the three-month LIBOR plus 2.0025% payable quarterly, until the notes mature in November 2066 (“2066 Notes”). Subject to certain conditions, Genworth Holdings has the right, on one or more occasions, to defer the payment of interest on the 2066 Notes during any period of up to 10 years without giving rise to an event of default and without permitting acceleration under the terms of the 2066 Notes. Genworth Holdings will not be required to settle deferred interest payments until it has deferred interest for five years or made a payment of current interest. In the event of our bankruptcy, holders will have a limited claim for deferred interest.
Genworth Holdings may redeem the 2066 Notes on November 15, 2036, the “scheduled redemption date,” but only to the extent that it has received net proceeds from the sale of certain qualifying capital securities. Genworth Holdings may redeem the 2066 Notes (i) in whole or in part, at any time on or after November 15, 2016 at their principal amount plus accrued and unpaid interest to the date of redemption or (ii) in whole or in part, prior to November 15, 2016 at their principal amount plus accrued and unpaid interest to the date of redemption or, if greater, a make-whole price.
The 2066 Notes will be subordinated to all existing and future senior, subordinated and junior subordinated debt of Genworth Holdings, except for any future debt that by its terms is not superior in right of payment, and will be effectively subordinated to all liabilities of our subsidiaries. Genworth Financial provides a full and unconditional guarantee to the trustee of the 2066 Notes and the holders of the 2066 Notes, on an unsecured subordinated basis, of the full and punctual payment of the principal of, premium, if any and interest on, and all other amounts payable under, the outstanding 2066 Notes, and the full and punctual payment of all other amounts payable by Genworth Holdings under the 2066 Notes indenture in respect of the 2066 Notes.
In connection with the issuance of the 2066 Notes, we entered into a Replacement Capital Covenant (the “Replacement Capital Covenant”), whereby we agreed, for the benefit of holders of our 6.5% Senior Notes due 2034, that Genworth Holdings will not repay, redeem or repurchase all or any part of the 2066 Notes on or before November 15, 2046, unless such repayment, redemption or repurchase is made from the proceeds of the issuance of certain replacement capital securities and pursuant to the other terms and conditions set forth in the Replacement Capital Covenant.
Canada
As of December 31, 2015, Genworth MI Canada Inc. (“Genworth Canada”), our indirect majority-owned subsidiary, had outstanding two series of fixed rate senior notes with interest rates of 5.68% and 4.24% and maturity dates of 2020 and 2024, respectively. The senior notes are redeemable at the option of Genworth Canada, in whole or in part, at any time.
In April 2014, Genworth Canada issued CAD$160 million aggregate principal amount of 4.24% senior notes (the “2024 Canada Notes”). The net proceeds of the offering of the 2024 Canada Notes were used to redeem, in full, the CAD$150 million outstanding principal on its existing 4.59% senior notes due 2015. In conjunction with the redemption, Genworth Canada made an early redemption payment to existing noteholders of approximately CAD$7 million and accrued interest of approximately CAD$2 million in the second quarter of 2014.
Australia
As of December 31, 2015, Genworth Financial Mortgage Insurance Pty Limited, our indirect majority-owned subsidiary, had outstanding two series of subordinated floating rate notes with an interest rate of three-month Bank Bill Swap reference rate plus a margin of 4.75% and 3.50% and maturity dates of 2021 and 2025, respectively.
In July 2015, Genworth Financial Mortgage Insurance Pty Limited issued AUD$200 million of subordinated floating rate notes due 2025 (the “2025 Australia Notes”) with an interest rate of three-month Bank Bill Swap reference rate plus a margin of 3.50%. Genworth Financial Mortgage Insurance Pty Limited used the proceeds it received from this transaction to redeem AUD$90 million of its outstanding debt and for general corporate purposes and incurred a $2 million pre-tax early redemption payment.
(c) Non-Recourse Funding Obligations
The following table sets forth the non-recourse funding obligations (surplus notes) of our wholly-owned, special purpose consolidated captive insurance subsidiaries as of December 31:
(Amounts in millions) |
||||||||
Issuance |
2015 | 2014 | ||||||
River Lake Insurance Company (a), due 2033 |
$ | 570 | $ | 570 | ||||
River Lake Insurance Company (b), due 2033 |
405 | 435 | ||||||
River Lake Insurance Company II (a), due 2035 |
192 | 192 | ||||||
River Lake Insurance Company II (b), due 2035 |
453 | 484 | ||||||
Rivermont Life Insurance Company I (a), due 2050 |
315 | 315 | ||||||
|
|
|
|
|||||
Subtotal |
1,935 | 1,996 | ||||||
Deferred borrowing charges |
(15 | ) | (15 | ) | ||||
|
|
|
|
|||||
Total |
$ | 1,920 | $ | 1,981 | ||||
|
|
|
|
(a) | Accrual of interest based on one-month LIBOR that resets every 28 days plus a fixed margin. |
(b) | Accrual of interest based on one-month LIBOR that resets on a specified date each month plus a contractual margin. |
These surplus notes bear a floating rate of interest and have been deposited into a series of trusts that have issued money market or term securities. Both principal and interest payments on the money market and term securities are guaranteed by a third-party insurance company. The holders of the money market or term securities cannot require repayment from us or any of our subsidiaries, other than the River Lake and Rivermont Insurance Companies, as applicable, the direct issuers of the notes. We have provided a limited guarantee to Rivermont Life Insurance Company I (“Rivermont I”), where under adverse interest rate, mortality or lapse scenarios (or combination thereof), we may be required to provide additional funds to Rivermont I. GLAIC, our wholly-owned subsidiary, has agreed to indemnify the issuers and the third-party insurer for certain limited costs related to the issuance of these obligations.
Any payment of principal, including by redemption, or interest on the notes may only be made with the prior approval of the Director of Insurance of the State of South Carolina in accordance with the terms of its licensing orders and in accordance with applicable law. The holders of the notes have no rights to accelerate payment of principal of the notes under any circumstances, including without limitation, for non-payment or breach of any covenant. Each issuer reserves the right to repay the notes that it has issued at any time, subject to prior regulatory approval.
During 2015, 2014 and 2013, River Lake Insurance Company, our indirect wholly-owned subsidiary, repaid $30 million, $26 million and $28 million, respectively, of its total outstanding floating rate subordinated notes due in 2033.
During 2015 and 2014, River Lake Insurance Company II (“River Lake II”), our indirect wholly-owned subsidiary, repaid $31 million and $16 million, respectively, of its total outstanding floating rate subordinated notes due in 2035.
The weighted-average interest rates on the non-recourse funding obligations as of December 31, 2015 and 2014 were 1.73% and 1.51%, respectively.
In connection with the life block transaction with Protective Life discussed in note 6, River Lake Insurance Company and River Lake II will redeem their outstanding floating rate subordinated notes in the first quarter of 2016.
(d) Liquidity
Principal amounts under our long-term borrowings (including senior notes) and non-recourse funding obligations by maturity were as follows as of December 31, 2015:
(Amounts in millions) |
Amount | |||
2016 |
$ | 298 | ||
2017 |
— | |||
2018 |
598 | |||
2019 |
— | |||
2020 and thereafter (1) |
5,636 | |||
|
|
|||
Total |
$ | 6,532 | ||
|
|
(1) | Repayment of $1.9 billion of our non-recourse funding obligations requires regulatory approval. |
Our liquidity requirements are principally met through cash flows from operations.
(e) Repurchase agreements and securities lending activity
Repurchase agreements
As of December 31, 2015 and 2014, the fair value of securities pledged under the repurchase program was $231 million and $592 million, respectively, and the repurchase obligation of $229 million and $553 million, respectively, was included in other liabilities in the consolidated balance sheets.
Securities lending activity
Under our securities lending program in the United States, the borrower is required to provide collateral, which can consist of cash or government securities, on a daily basis in amounts equal to or exceeding 102% of the value of the loaned securities. Currently, we only accept cash collateral from borrowers under the program. Cash collateral received by us on securities lending transactions is reflected in other invested assets with an offsetting liability recognized in other liabilities for the obligation to return the collateral. Any cash collateral received is reinvested by our custodian based upon the investment guidelines provided within our agreement. In the United States, the reinvested cash collateral is primarily invested in a money market fund approved by the NAIC, U.S. and foreign government securities, U.S. government agency securities, asset-backed securities and corporate debt securities. As of December 31, 2015 and 2014, the fair value of securities loaned under our securities lending program in the United States was $334 million and $288 million, respectively. As of December 31, 2015 and 2014, the fair value of collateral held under our securities lending program in the United States was $347 million and $289 million, respectively, and the offsetting obligation to return collateral of $347 million and $299 million, respectively, was included in other liabilities in the consolidated balance sheets. We did not have any non-cash collateral provided by the borrowers in our securities lending program in the United States as of December 31, 2015 and 2014.
Under our securities lending program in Canada, the borrower is required to provide collateral consisting of government securities on a daily basis in amounts equal to or exceeding 105% of the fair value of the applicable securities loaned. Securities received from counterparties as collateral are not recorded on our consolidated balance sheet given that the risk and rewards of ownership is not transferred from the counterparties to us in the course of such transactions. Additionally, there was no cash collateral because it is not permitted as an acceptable form of collateral under the program. In Canada, the lending institution must be included on the approved Securities Lending Borrowers List with the Canadian regulator and the intermediary must be rated at least “AA-” by Standard & Poor’s Financial Services LLC. As of December 31, 2015 and 2014, the fair value of securities loaned under our securities lending program in Canada was $340 million and $371 million, respectively.
Risks associated with repurchase agreements and securities lending programs
Our repurchase agreement and securities lending programs expose us to liquidity risk if we did not have enough cash or collateral readily available to return to the counterparty when required to do so under the agreements. We manage this risk by regularly monitoring our available sources of cash and collateral to ensure we can meet short-term liquidity demands under normal and stressed scenarios.
We are also exposed to credit risk in the event of default of our counterparties or changes in collateral values. This risk is significantly reduced because our programs require over collateralization and collateral exposures are trued up on a daily basis. We manage this risk by using multiple counterparties and ensuring that changes in required collateral are monitored and adjusted daily. We also monitor the creditworthiness, including credit ratings, of our counterparties on a regular basis.
Contractual maturity
The following tables present the remaining contractual maturity of the agreements as of December 31:
2015 | ||||||||||||||||||||
(Amounts in millions) |
Overnight and continuous |
Up to 30 days | 31 - 90 days |
Greater than 90 days |
Total | |||||||||||||||
Repurchase agreements: |
||||||||||||||||||||
U.S. government, agencies and government-sponsored enterprises |
$ | — | $ | 58 | $ | 25 | $ | 146 | $ | 229 | ||||||||||
Securities lending: |
||||||||||||||||||||
Fixed maturity securities: |
||||||||||||||||||||
U.S. government, agencies and government-sponsored enterprises |
18 | — | — | — | 18 | |||||||||||||||
Non-U.S. government |
39 | — | — | — | 39 | |||||||||||||||
U.S. corporate |
95 | — | — | — | 95 | |||||||||||||||
Non-U.S. corporate |
190 | — | — | — | 190 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Subtotal, fixed maturity securities |
342 | — | — | — | 342 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Equity securities |
5 | — | — | — | 5 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total securities lending |
347 | — | — | — | 347 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total repurchase agreements and securities lending |
$ | 347 | $ | 58 | $ | 25 | $ | 146 | $ | 576 | ||||||||||
|
|
|
|
|
|
|
|
|
|
2014 | ||||||||||||||||||||
(Amounts in millions) |
Overnight and continuous |
Up to 30 days | 31 - 90 days |
Greater than 90 days |
Total | |||||||||||||||
Repurchase agreements: |
||||||||||||||||||||
U.S. government, agencies and government-sponsored enterprises |
$ | — | $ | 129 | $ | 123 | $ | 301 | $ | 553 | ||||||||||
Securities lending: |
||||||||||||||||||||
Fixed maturity securities: |
||||||||||||||||||||
U.S. government, agencies and government-sponsored enterprises |
36 | — | — | — | 36 | |||||||||||||||
Non-U.S. government |
32 | — | — | — | 32 | |||||||||||||||
U.S. corporate |
66 | — | — | — | 66 | |||||||||||||||
Non-U.S. corporate |
163 | — | — | — | 163 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Subtotal, fixed maturity securities |
297 | — | — | — | 297 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Equity securities |
2 | — | — | — | 2 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total securities lending |
299 | — | — | — | 299 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total repurchase agreements and securities lending |
$ | 299 | $ | 129 | $ | 123 | $ | 301 | $ | 852 | ||||||||||
|
|
|
|
|
|
|
|
|
|
|
(13) Income Taxes
Income (loss) from continuing operations before income taxes included the following components for the years ended December 31:
(Amounts in millions) |
2015 | 2014 | 2013 | |||||||||
Domestic |
$ | (468 | ) | $ | (2,022 | ) | $ | 283 | ||||
Foreign |
453 | 723 | 710 | |||||||||
|
|
|
|
|
|
|||||||
Income (loss) from continuing operations before income taxes |
$ | (15 | ) | $ | (1,299 | ) | $ | 993 | ||||
|
|
|
|
|
|
The total provision (benefit) for income taxes was as follows for the years ended December 31:
(Amounts in millions) |
2015 | 2014 | 2013 | |||||||||
Current federal income taxes |
$ | 1 | $ | (3 | ) | $ | (12 | ) | ||||
Deferred federal income taxes |
(199 | ) | (305 | ) | 137 | |||||||
|
|
|
|
|
|
|||||||
Total federal income taxes |
(198 | ) | (308 | ) | 125 | |||||||
|
|
|
|
|
|
|||||||
Current state income taxes |
— | 4 | (1 | ) | ||||||||
Deferred state income taxes |
4 | (4 | ) | (9 | ) | |||||||
|
|
|
|
|
|
|||||||
Total state income taxes |
4 | — | (10 | ) | ||||||||
|
|
|
|
|
|
|||||||
Current foreign income taxes |
186 | 246 | 426 | |||||||||
Deferred foreign income taxes |
(1 | ) | (32 | ) | (228 | ) | ||||||
|
|
|
|
|
|
|||||||
Total foreign income taxes |
185 | 214 | 198 | |||||||||
|
|
|
|
|
|
|||||||
Total provision (benefit) for income taxes |
$ | (9 | ) | $ | (94 | ) | $ | 313 | ||||
|
|
|
|
|
|
Our current income tax payable was $10 million and $35 million as of December 31, 2015 and 2014, respectively.
The reconciliation of the federal statutory tax rate to the effective income tax rate was as follows for the years ended December 31:
(Amounts in millions) |
2015 | 2014 | 2013 | |||||||||||||||||||||
Pre-tax income (loss) |
$ | (15 | ) | $ | (1,299 | ) | $ | 993 | ||||||||||||||||
|
|
|
|
|
|
|||||||||||||||||||
Statutory U.S. federal income tax rate |
$ | (5 | ) | 35.0 | % | $ | (455 | ) | 35.0 | % | $ | 348 | 35.0 | % | ||||||||||
Increase (reduction) in rate resulting from: |
||||||||||||||||||||||||
State income tax, net of federal income tax effect |
2 | (18.0 | ) | — | — | (2 | ) | (0.2 | ) | |||||||||||||||
Benefit on tax favored investments |
(14 | ) | 93.3 | (19 | ) | 1.4 | (18 | ) | (1.8 | ) | ||||||||||||||
Effect of foreign operations |
(20 | ) | 129.2 | (66 | ) | 5.1 | (66 | ) | (6.6 | ) | ||||||||||||||
Net impact of repatriating foreign earnings |
— | — | 205 | (15.8 | ) | — | — | |||||||||||||||||
Interest on uncertain tax positions |
— | — | (2 | ) | 0.1 | (1 | ) | (0.1 | ) | |||||||||||||||
Non-deductible expenses |
(3 | ) | 22.0 | 4 | (0.3 | ) | 2 | 0.2 | ||||||||||||||||
Non-deductible goodwill |
— | — | 245 | (18.8 | ) | — | — | |||||||||||||||||
Valuation allowance |
25 | (165.0 | ) | (6 | ) | 0.5 | 16 | 1.6 | ||||||||||||||||
Stock-based compensation |
5 | (31.7 | ) | 4 | (0.3 | ) | 25 | 2.5 | ||||||||||||||||
Other, net |
1 | (6.8 | ) | (4 | ) | 0.3 | 9 | 0.9 | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Effective rate |
$ | (9 | ) | 58.0 | % | $ | (94 | ) | 7.2 | % | $ | 313 | 31.5 | % | ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
For the year ended December 31, 2015, the increase in the effective tax rate was primarily attributable to tax benefits on lower taxed foreign income, changes in uncertain tax positions and tax favored investments in relation to pre-tax results in 2015 as well as non-deductible goodwill impairments in 2014. These increases were partially offset by a valuation allowance established on a specific capital loss, tax expense related to our agreement to sell our European mortgage insurance business and stock-based compensation expense in 2015.
For the year ended December 31, 2014, the decrease in the effective tax rate was primarily attributable to non-deductible goodwill impairments in 2014 and a charge of $174 million in the fourth quarter of 2014 associated with our Australian mortgage insurance business as we can no longer assert our intent to permanently reinvest earnings in that business and $31 million in connection with our plans to sell our lifestyle protection insurance business from a change to the permanent reinvestment assertion on one of its legal entities.
The components of the net deferred income tax liability were as follows as of December 31:
(Amounts in millions) |
2015 | 2014 | ||||||
Assets: |
||||||||
Foreign tax credit carryforwards |
$ | 787 | $ | 666 | ||||
Accrued commission and general expenses |
199 | 203 | ||||||
State income taxes |
302 | 275 | ||||||
Net operating loss carryforwards |
1,727 | 1,797 | ||||||
Other |
51 | 21 | ||||||
|
|
|
|
|||||
Gross deferred income tax assets |
3,066 | 2,962 | ||||||
Valuation allowance |
(353 | ) | (296 | ) | ||||
|
|
|
|
|||||
Total deferred income tax assets |
2,713 | 2,666 | ||||||
|
|
|
|
|||||
Liabilities: |
||||||||
Investments |
29 | 86 | ||||||
Net unrealized gains on investment securities |
639 | 1,260 | ||||||
Net unrealized gains on derivatives |
218 | 222 | ||||||
Insurance reserves |
751 | 491 | ||||||
DAC |
863 | 1,115 | ||||||
PVFP and other intangibles |
20 | 3 | ||||||
Investment in foreign subsidiaries |
10 | 310 | ||||||
Other |
52 | 37 | ||||||
|
|
|
|
|||||
Total deferred income tax liabilities |
2,582 | 3,524 | ||||||
|
|
|
|
|||||
Net deferred income tax asset (liability) |
$ | 131 | $ | (858 | ) | |||
|
|
|
|
The above valuation allowances of $353 million and $296 million, respectively, related to state deferred tax assets, foreign net operating losses, capital losses, a specific federal separate tax return net operating loss deferred tax asset and foreign tax credits as of December 31, 2015 and 2014, respectively. The state deferred tax assets related primarily to the future deductions associated with the Section 338 elections and non-insurance net operating loss (“NOL”) carryforwards. The net increase in the valuation allowance during 2015 related to current year operations and changes in judgments regarding the future realization of deferred tax assets. Based on our analysis, we believe it is more likely than not that the results of future operations will generate sufficient taxable income to enable us to realize the deferred tax assets for which we have not established valuation allowances.
NOL carryforwards amounted to $4,972 million as of December 31, 2015, and, if unused, will expire beginning in 2021. Foreign tax credit carryforwards amounted to $787 million as of December 31, 2015, and, if unused will begin to expire in 2019.
As a result of the losses incurred in 2015, we are in a three-year cumulative pre-tax loss position in our U.S. jurisdiction as of December 31, 2015. A cumulative loss position is considered significant negative evidence in assessing the realizability of our deferred tax assets. Our ability to realize our net U.S. deferred tax asset of $137 million, which includes deferred tax assets of $2,514 million related to net operating loss and foreign tax credit carryforwards, is primarily dependent upon generating sufficient taxable income in future years. Management has concluded that there is sufficient positive evidence to overcome this negative evidence. This positive evidence includes the fact that: (i) our three-year cumulative pre-tax loss position includes significant charges that are not expected to recur in the future, including goodwill impairments, long-term care acquired block loss recognition testing in our U.S. Life Insurance segment in 2014 that did not recur in 2015, a loss on the sale of our lifestyle protection insurance business in 2015 and an estimated loss recorded in 2015 related to the planned sale of our mortgage insurance business in Europe; (ii) our profitable U.S. operating forecasts, exclusive of tax planning strategies, result in full utilization of the net deferred tax assets within the U.S. federal carryforward periods based on our current projections, including already obtained and expected in-force premium rate actions in our long-term care insurance business and the lack of future sales for our traditional life insurance and fixed annuity products given our suspension of new sales included in these forecasts; and (iii) overall domestic losses that we have incurred are allowed to be reclassified as foreign source income to the extent of 50% of domestic source income produced in subsequent years, and such resulting foreign source income is sufficient to cover the foreign tax credits being carried forward. If our actual results do not validate the current projections of pre-tax income, we may be required to record a valuation allowance that could have a material impact on our consolidated financial statements in future periods.
As a consequence of our separation from GE, and our joint election with GE to treat that separation as an asset sale under Section 338 of the Internal Revenue Code, we became entitled to additional tax deductions in post IPO periods. As of December 31, 2015 and 2014, we have recorded in our consolidated balance sheets our estimates of the remaining deferred tax benefits associated with these deductions of $599 million. We are obligated, pursuant to our Tax Matters Agreement with GE, to make fixed payments to GE, over the next eight years, on an after-tax basis and subject to a cumulative maximum of $640 million, which is 80% of the projected tax savings associated with the Section 338 deductions. We recorded net interest expense of $11 million, $13 million and $15 million for the years ended December 31, 2015, 2014 and 2013, respectively, reflecting accretion of our liability at the Tax Matters Agreement rate of 5.72%. As of December 31, 2015 and 2014, we have recorded the estimated present value of our remaining obligation to GE of $188 million and $216 million, respectively, as a liability in our consolidated balance sheets. Both our IPO-related deferred tax assets and our obligation to GE are estimates that are subject to change.
In 2014 and 2013, we increased our deferred tax liability by $6 million and $17 million, respectively, with an offset to additional paid-in capital related to an unsupported tax balance that arose prior to our IPO.
U.S. deferred income taxes are not provided on unremitted foreign income that is considered permanently reinvested, which as of December 31, 2015, amounted to approximately $1,712 million related to our Canadian mortgage insurance business. It is not practicable to determine the income tax liability that might be incurred if all such income was remitted to the United States due to the inherent complexities associated with any hypothetical calculation. We will record deferred taxes in the period in which we are no longer able to assert unremitted earnings of foreign operations are permanently reinvested. Our Canadian mortgage insurance business held cash and short-term investments of $178 million related to the unremitted earnings of foreign operations considered to be permanently reinvested as of December 31, 2015.
A reconciliation of the beginning and ending amount of unrecognized tax benefits was as follows:
(Amounts in millions) |
2015 | 2014 | 2013 | |||||||||
Balance as of January 1 |
$ | 49 | $ | 41 | $ | 55 | ||||||
Tax positions related to the current period: |
||||||||||||
Gross additions |
5 | 7 | 3 | |||||||||
Gross reductions |
— | (3 | ) | — | ||||||||
Tax positions related to the prior years: |
||||||||||||
Gross additions |
— | 17 | 4 | |||||||||
Gross reductions |
(26 | ) | (13 | ) | (21 | ) | ||||||
|
|
|
|
|
|
|||||||
Balance as of December 31 |
$ | 28 | $ | 49 | $ | 41 | ||||||
|
|
|
|
|
|
The total amount of unrecognized tax benefits was $28 million as of December 31, 2015, of which $21 million, if recognized, would affect the effective rate on continuing operations. These unrecognized tax benefits included the impact of foreign currency translation from our international operations.
We recognize accrued interest and penalties related to unrecognized tax benefits as components of income tax expense. We recorded $1 million, $3 million and $1 million, respectively, of benefits related to interest and penalties during 2015, 2014 and 2013. We had no interest and penalties accrued as of December 31, 2015 and 2014.
Our companies have elected to file a single U.S. consolidated income tax return (the “life/non-life consolidated return”). All companies domesticated in the United States and our Bermuda and Guernsey subsidiaries, which have elected to be taxed as U.S. domestic companies, are included in the life/non-life consolidated return as allowed by the tax law and regulations. We have a tax sharing agreement in place and all intercompany balances related to this agreement are settled at least annually. With possible exceptions, we are no longer subject to U.S. Federal tax examinations for years through 2010. Any exposure with respect to these pre-2011 years has been sufficiently recorded in the financial statements. Potential state and local examinations for those years are generally restricted to results that are based on closed U.S. Federal examinations. For our life and non-life consolidated company federal income tax returns, all tax years prior to 2011 have been examined or reviewed. We are also responsible for any tax liability of any separate U.S. Federal and state pre-disposition period returns of former life insurance and non-insurance subsidiaries sold in the years 2011 to 2013. With respect to our foreign affiliates, there are various examinations ongoing by foreign jurisdictions with any material exposure liability related thereto being duly recorded in the financial statements.
We believe it is reasonably possible that in 2016 as a result of our open audits and appeals, up to approximately $11 million of unrecognized tax benefits will be recognized. These tax benefits are related to certain insurance tax attributes in the United States and in foreign jurisdictions.
|
(14) Supplemental Cash Flow Information
Net cash paid for taxes was $153 million, $645 million and $125 million and cash paid for interest was $424 million, $437 million and $453 million for the years ended December 31, 2015, 2014 and 2013, respectively.
|
(15) Stock-Based Compensation
Prior to May 2012, we granted share-based awards to employees and directors, including stock options, SARs, RSUs and deferred stock units (“DSUs”) under the 2004 Genworth Financial, Inc. Omnibus Incentive Plan (the “2004 Omnibus Incentive Plan”). In May 2012, the 2012 Genworth Financial, Inc. Omnibus Incentive Plan (the “2012 Omnibus Incentive Plan,” together with the 2004 Omnibus Incentive Plan, the “Omnibus Incentive Plans”) was approved by stockholders. Under the 2012 Omnibus Incentive Plan, we are authorized to grant 16 million equity awards, plus a number of additional shares not to exceed 25 million underlying awards outstanding under the prior Plan. From and after May 2012, no further awards have been or will be granted under the 2004 Omnibus Incentive Plan and the 2004 Omnibus Incentive Plan will remain in effect only as long as awards granted thereunder remain outstanding.
We recorded stock-based compensation expense under the Omnibus Incentive Plans of $17 million, $20 million and $28 million, respectively, for the years ended December 31, 2015, 2014 and 2013. For awards issued prior to January 1, 2006, stock-based compensation expense was recognized on a graded vesting attribution method over the awards’ respective vesting schedule. For awards issued after January 1, 2006, stock-based compensation expense was recognized evenly on a straight-line attribution method over the awards’ respective vesting period.
For purposes of determining the fair value of stock-based payment awards on the date of grant, we typically use the Black-Scholes Model. The Black-Scholes Model requires the input of certain assumptions that involve judgment. Management periodically evaluates the assumptions and methodologies used to calculate fair value of share-based compensation. Circumstances may change and additional data may become available over time, which could result in changes to these assumptions and methodologies.
The following table contains the stock option and SAR weighted-average grant-date fair value information and related valuation assumptions for the years ended December 31:
Stock Options and SARs | ||||||||||||||||
2015 | 2014 | 2013 | ||||||||||||||
Black-Scholes Model |
Black-Scholes Model |
Black-Scholes Model |
Monte-Carlo Simulation (1) |
|||||||||||||
Awards granted (in thousands) |
1,378 | 2,960 | 3,404 | 1,200 | ||||||||||||
Maximum share value at exercise of SARs |
$ | 75.00 | $ | 75.00 | $ | 75.00 | $ | 75.00 | ||||||||
Fair value per options and SARs |
$ | 3.43 | $ | 3.05 | $ | 2.53 | $ | 5.88 | ||||||||
Valuation assumptions: |
||||||||||||||||
Expected term (years) |
6.0 | 6.0 | 5.9 | NA | ||||||||||||
Expected volatility |
66.0 | % | 100.2 | % | 100.7 | % | 102.5 | % | ||||||||
Expected dividend yield |
— | % | 0.5 | % | 0.5 | % | 0.5 | % | ||||||||
Risk-free interest rate |
1.9 | % | 1.9 | % | 1.1 | % | 1.1 | % |
(1) | For purposes of determining the fair value of 1.2 million shares of performance-accelerated SARs that were issued in January 2013, we used a Monte-Carlo Simulation technique. Monte-Carlo Simulation is a method used to simulate future stock price movements in order to determine the fair value due to unique vesting and exercising provisions. The performance-accelerated SARs have a derived service period of one year on average and have a grant price of $7.90. The performance-accelerated SARs vest on the third anniversary of the grant date but are subject to earlier vesting on or after the one year anniversary of the grant date based on the closing price of our Class A Common Stock exceeding certain specified amounts ($12.00, $16.00 and $20.00, respectively) for 45 consecutive trading days. Based on the closing price of our Class A Common Stock, the first tranche at $12.00 vested in January 2014 and the second tranche at $16.00 vested in June 2014. |
During 2015 and 2014, we granted SARs with exercise prices ranging from $4.96 to $7.99 and $14.30 to $17.89, respectively. These SARs have a feature that places a cap on the amount of gain that can be recognized upon exercise of the SARs. Specifically, if the price of our Class A Common Stock reaches $75.00, any vested portion of the SAR will be automatically exercised. The SAR grant price equaled the closing market prices of our Class A Common Stock on the date of the grant and the awards have an exercise term of 10 years. The SARs granted in 2015 have an average vesting period of three years, while the SARs granted in 2014 and 2013 have average vesting periods of four years. Vesting occurs in annual increments commencing on the first anniversary of the grant date. Additionally, during 2015 and 2014, we issued RSUs with average restriction periods of four years and a fair value of $4.96 to $7.99 and $9.19 to $17.89, respectively, which were measured at the market price of a share of our Class A Common Stock on the grant date. In 2015 and 2014, we granted performance stock units (“PSUs”) with a fair value of $7.75 and fair value ranges of $15.23 to $17.89, respectively. The PSUs were granted at market price as of the grant date. PSUs may be earned over a three-year period based upon the achievement of certain performance goals. The performance goals for the PSUs granted in 2015 are based upon the average daily closing price of our Class A Common Stock during the fourth quarter of 2017 and the two point average of our book value per share, excluding accumulated other comprehensive income (loss), during the close of the third and fourth quarters of 2017. The PSUs will be payable in Genworth Class A Common Stock in March 2018 provided we have attained or exceeded threshold levels related to the performance goals. Our book value per share is divided into the average daily closing price of our Class A Common Stock to calculate the book value multiplier, which determines the potential number of shares to be paid out. If the respective levels have not been achieved by December 31, 2017, no payout will occur and all the related expenses recorded to date will be reversed. The performance goals for the PSUs granted in 2014 were based upon the achievement of goals related to our 2016 annual operating return on equity and book value per share, excluding accumulated other comprehensive income (loss). We do not expect to achieve the respective threshold levels for the PSUs granted in 2014 by the December 31, 2016 deadline; therefore, all the related expenses recorded to date were reversed in 2015.
In 2015, we granted $10 million in cash retention awards with a fair value of $1.00. During 2015, approximately $1 million awards were forfeited due to employees leaving Genworth prior to the vesting date. The remaining cash awards vest over two years, with half of the payout occurring per year, beginning on the first anniversary of the grant date.
No stock options were granted in 2015, 2014 or 2013.
The following table summarizes stock option activity as of December 31, 2015 and 2014:
(Shares in thousands) |
Shares subject to option |
Weighted-average exercise price |
||||||
Balance as of January 1, 2014 |
4,310 | $ | 13.17 | |||||
Granted |
— | $ | — | |||||
Exercised |
(921 | ) | $ | 8.10 | ||||
Expired and forfeited |
(885 | ) | $ | 19.32 | ||||
|
|
|||||||
Balance as of January 1, 2015 |
2,504 | $ | 12.86 | |||||
Granted |
— | $ | — | |||||
Exercised |
(47 | ) | $ | 4.39 | ||||
Expired and forfeited |
(317 | ) | $ | 17.62 | ||||
|
|
|||||||
Balance as of December 31, 2015 |
2,140 | $ | 12.34 | |||||
|
|
|||||||
Exercisable as of December 31, 2015 |
2,140 | $ | 12.34 | |||||
|
|
The following table summarizes information about stock options outstanding as of December 31, 2015:
Outstanding and Exercisable | ||||||||||||
Exercise price range |
Shares in thousands |
Average life (1) |
Average exercise price |
|||||||||
$2.00 - $2.46(2) |
362 | 3.04 | $ | 2.43 | ||||||||
$7.36 - $7.80 |
433 | 1.77 | $ | 7.79 | ||||||||
$9.10 - $14.18 |
1,119 | 3.95 | $ | 14.14 | ||||||||
$14.92 - $22.80 |
100 | 2.33 | $ | 21.80 | ||||||||
$30.52 - $34.13 |
126 | 0.99 | $ | 32.86 | ||||||||
|
|
|||||||||||
2,140 | $ | 12.34 | ||||||||||
|
|
(1) | Average contractual life remaining in years. |
(2) | These shares have an aggregate intrinsic value of $1 million each for total options outstanding and exercisable. |
The following tables summarize the status of our other equity-based awards as of December 31, 2015 and 2014:
RSUs | PSUs | DSUs | SARs | |||||||||||||||||||||||||||||
(Awards in thousands) |
Number of awards |
Weighted- average grant date fair value |
Number of awards |
Weighted- average fair value |
Number of awards |
Weighted- average fair value |
Number of awards |
Weighted- average grant date fair value |
||||||||||||||||||||||||
Balance as of January 1, 2014 |
2,887 | $ | 10.21 | — | $ | — | 579 | $ | 9.43 | 12,365 | $ | 4.00 | ||||||||||||||||||||
Granted |
1,226 | $ | 15.00 | 343 | $ | 15.31 | 113 | $ | 12.98 | 2,960 | $ | 3.05 | ||||||||||||||||||||
Exercised |
(938 | ) | $ | 10.06 | — | $ | — | (58 | ) | $ | 6.65 | (1,353 | ) | $ | 3.88 | |||||||||||||||||
Terminated |
(262 | ) | $ | 12.16 | (39 | ) | $ | 15.23 | — | $ | — | (1,905 | ) | $ | 5.23 | |||||||||||||||||
|
|
|
|
|
|
|
|
|||||||||||||||||||||||||
Balance as of January 1, 2015 |
2,913 | $ | 12.09 | 304 | $ | 15.32 | 634 | $ | 9.96 | 12,067 | $ | 3.62 | ||||||||||||||||||||
Granted |
2,087 | $ | 7.50 | 535 | $ | 7.75 | 256 | $ | 3.90 | 1,378 | $ | 3.43 | ||||||||||||||||||||
Exercised |
(1,390 | ) | $ | 11.60 | — | $ | — | (10 | ) | $ | 2.14 | (59 | ) | $ | 1.28 | |||||||||||||||||
Terminated |
(355 | ) | $ | 10.10 | (129 | ) | $ | 9.72 | — | $ | — | (1,238 | ) | $ | 4.05 | |||||||||||||||||
|
|
|
|
|
|
|
|
|||||||||||||||||||||||||
Balance as of December 31, 2015 |
3,255 | $ | 9.22 | 710 | $ | 10.63 | 880 | $ | 8.18 | 12,148 | $ | 3.56 | ||||||||||||||||||||
|
|
|
|
|
|
|
|
As of December 31, 2015 and 2014, total unrecognized stock-based compensation expense related to non-vested awards not yet recognized was $29 million and $35 million, respectively. This expense is expected to be recognized over a weighted-average period of approximately two years.
In 2015, there was less than $1 million in cash received from stock options exercised. There was $20 million in cash received from stock options exercised 2014. New shares were issued to settle all exercised awards. The actual tax benefit realized for the tax deductions from the exercise of share-based awards was $4 million and $11 million as of December 31, 2015 and 2014, respectively.
Genworth Canada, our indirect subsidiary and a public company, grants stock options and other equity-based awards to its Canadian employees. The following table summarizes the status of Genworth Canada’s stock option activity and other equity-based awards as of December 31, 2015 and 2014:
Stock options | RSUs and PSUs | DSUs |
Executive deferred stock units (“EDSUs”) |
|||||||||||||
(Shares and awards in thousands) |
Shares subject to option |
Number of awards |
Number of awards |
Number of awards |
||||||||||||
Balance as of January 1, 2014 |
987 | 177 | 45 | 20 | ||||||||||||
Granted |
114 | 93 | 9 | 1 | ||||||||||||
Exercised |
(93 | ) | (67 | ) | — | — | ||||||||||
Terminated |
(6 | ) | — | — | — | |||||||||||
|
|
|
|
|
|
|
|
|||||||||
Balance as of January 1, 2015 |
1,002 | 203 | 54 | 21 | ||||||||||||
Granted |
53 | 78 | 14 | 10 | ||||||||||||
Exercised |
(88 | ) | (60 | ) | (14 | ) | — | |||||||||
Terminated |
(12 | ) | (27 | ) | — | — | ||||||||||
|
|
|
|
|
|
|
|
|||||||||
Balance as of December 31, 2015 |
955 | 194 | 54 | 31 | ||||||||||||
|
|
|
|
|
|
|
|
As of December 31, 2015 and 2014, the DSUs were fully vested and the stock options, RSUs, PSUs and EDSUs were partially vested. The EDSUs were introduced in 2013 as part of a share-based compensation plan intended for executive level employees entitling them to receive an amount equal to the fair value of Genworth Canada stock. For the years ended December 31, 2015, 2014 and 2013, we recorded an increase (decrease) to stock-based compensation expense of $(3) million, $6 million and $11 million, respectively. For the years ended December 31, 2015, 2014 and 2013, we estimated total unrecognized expense of $2 million, $3 million and $3 million, respectively, related to these awards.
In connection with the IPO of Genworth Mortgage Insurance Australia Limited (“Genworth Australia”) in May 2014, our indirect subsidiary, Genworth Australia, granted stock options and other equity-based awards to its Australian employees. The following table summarizes the status of Genworth Australia’s restricted share rights as of December 31, 2015 and 2014:
Restricted share rights | ||||
(Shares in thousands) |
Shares subject
to option |
|||
Balance as of January 1, 2014 |
— | |||
Granted |
2,846 | |||
Exercised |
(5 | ) | ||
Terminated |
(38 | ) | ||
|
|
|||
Balance as of January 1, 2015 |
2,803 | |||
Granted |
147 | |||
Exercised |
(40 | ) | ||
Terminated |
(145 | ) | ||
|
|
|||
Balance as of December 31, 2015 |
2,765 | |||
|
|
As of December 31, 2015 and 2014, none of the restricted share rights were vested. For the years ended December 31, 2015 and 2014, we recorded stock-based compensation expense of $2 million in each year and we estimated total unrecognized expense of $4 million and $5 million, respectively, related to these awards.
|
(16) Fair Value of Financial Instruments
Assets and liabilities that are reflected in the accompanying consolidated financial statements at fair value are not included in the following disclosure of fair value. Such items include cash and cash equivalents, investment securities, separate accounts, securities held as collateral and derivative instruments. Other financial assets and liabilities—those not carried at fair value—are discussed below. Apart from certain of our borrowings and certain marketable securities, few of the instruments discussed below are actively traded and their fair values must often be determined using models. The fair value estimates are made at a specific point in time, based upon available market information and judgments about the financial instruments, including estimates of the timing and amount of expected future cash flows and the credit standing of counterparties. Such estimates do not reflect any premium or discount that could result from offering for sale at one time our entire holdings of a particular financial instrument, nor do they consider the tax impact of the realization of unrealized gains or losses. In many cases, the fair value estimates cannot be substantiated by comparison to independent markets.
The basis on which we estimate fair value is as follows:
Commercial mortgage loans. Based on recent transactions and/or discounted future cash flows, using current market rates. Given the limited availability of data related to transactions for similar instruments, we typically classify these loans as Level 3.
Restricted commercial mortgage loans. Based on recent transactions and/or discounted future cash flows, using current market rates. Given the limited availability of data related to transactions for similar instruments, we typically classify these loans as Level 3.
Other invested assets. Primarily represents short-term investments and limited partnerships accounted for under the cost method. The fair value of short-term investments typically does not include significant unobservable inputs and approximate our amortized cost basis. As a result, short-term investments are classified as Level 2. Limited partnerships are valued based on comparable market transactions, discounted future cash flows, quoted market prices and/or estimates using the most recent data available for the underlying instrument. Cost method limited partnerships typically include significant unobservable inputs as a result of being relatively illiquid with limited market activity for similar instruments and are classified as Level 3.
Long-term borrowings. We utilize available market data when determining fair value of long-term borrowings issued in the United States and Canada, which includes data on recent trades for the same or similar financial instruments. Accordingly, these instruments are classified as Level 2 measurements. In cases where market data is not available such as our long-term borrowings in Australia, we use broker quotes for which we consider the valuation methodology utilized by the third party, but the valuation typically includes significant unobservable inputs. Accordingly, we classify these borrowings where fair value is based on our consideration of broker quotes as Level 3 measurements.
Non-recourse funding obligations. We use an internal model to determine fair value using the current floating rate coupon and expected life/final maturity of the instrument discounted using the floating rate index and current market spread assumption, which is estimated based on recent transactions for these instruments or similar instruments as well as other market information or broker provided data. Given these instruments are private and very little market activity exists, our current market spread assumption is considered to have significant unobservable inputs in calculating fair value and, therefore, results in the fair value of these instruments being classified as Level 3.
Borrowings related to securitization entities. Based on market quotes or comparable market transactions. Some of these borrowings are publicly traded debt securities and are classified as Level 2. Certain borrowings are not publicly traded and are classified as Level 3.
Investment contracts. Based on expected future cash flows, discounted at current market rates for annuity contracts or institutional products. Given the significant unobservable inputs associated with policyholder behavior and current market rate assumptions used to discount the expected future cash flows, we classify these instruments as Level 3 except for certain funding agreement-backed notes that are traded in the marketplace as a security and are classified as Level 2.
The following represents our estimated fair value of financial assets and liabilities that are not required to be carried at fair value as of December 31:
2015 | ||||||||||||||||||||||||
Notional amount |
Carrying amount |
Fair value | ||||||||||||||||||||||
(Amounts in millions) |
Total | Level 1 | Level 2 | Level 3 | ||||||||||||||||||||
Assets: |
||||||||||||||||||||||||
Commercial mortgage loans |
$ | (1) | $ | 6,170 | $ | 6,476 | $ | — | $ | — | $ | 6,476 | ||||||||||||
Restricted commercial mortgage loans (2) |
(1) | 161 | 179 | — | — | 179 | ||||||||||||||||||
Other invested assets |
(1) | 273 | 279 | — | 197 | 82 | ||||||||||||||||||
Liabilities: |
||||||||||||||||||||||||
Long-term borrowings (3) |
(1) | 4,570 | 3,518 | — | 3,343 | 175 | ||||||||||||||||||
Non-recourse funding obligations (3) |
(1) | 1,920 | 1,401 | — | — | 1,401 | ||||||||||||||||||
Borrowings related to securitization entities (2) |
(1) | 98 | 104 | — | 104 | — | ||||||||||||||||||
Investment contracts |
(1) | 17,258 | 17,910 | — | 5 | 17,905 | ||||||||||||||||||
Other firm commitments: |
||||||||||||||||||||||||
Commitments to fund limited partnerships |
131 | — | — | — | — | — | ||||||||||||||||||
Ordinary course of business lending commitments |
40 | — | — | — | — | — |
2014 | ||||||||||||||||||||||||
Notional amount |
Carrying amount |
Fair value | ||||||||||||||||||||||
(Amounts in millions) |
Total | Level 1 | Level 2 | Level 3 | ||||||||||||||||||||
Assets: |
||||||||||||||||||||||||
Commercial mortgage loans |
$ | (1) | $ | 6,100 | $ | 6,573 | $ | — | $ | — | $ | 6,573 | ||||||||||||
Restricted commercial mortgage loans (2) |
(1) | 201 | 228 | — | — | 228 | ||||||||||||||||||
Other invested assets |
(1) | 311 | 323 | — | 238 | 85 | ||||||||||||||||||
Liabilities: |
||||||||||||||||||||||||
Long-term borrowings (3) |
(1) | 4,612 | 4,273 | — | 4,155 | 118 | ||||||||||||||||||
Non-recourse funding obligations (3) |
(1) | 1,981 | 1,423 | — | — | 1,423 | ||||||||||||||||||
Borrowings related to securitization entities (2) |
(1) | 134 | 146 | — | 146 | — | ||||||||||||||||||
Investment contracts |
(1) | 17,486 | 18,012 | — | 7 | 18,005 | ||||||||||||||||||
Other firm commitments: |
||||||||||||||||||||||||
Commitments to fund limited partnerships |
53 | — | — | — | — | — | ||||||||||||||||||
Ordinary course of business lending commitments |
155 | — | — | — | — | — |
(1) | These financial instruments do not have notional amounts. |
(2) | See note 17 for additional information related to consolidated securitization entities. |
(3) | See note 12 for additional information related to borrowings. |
Recurring Fair Value Measurements
We have fixed maturity, equity and trading securities, derivatives, embedded derivatives, securities held as collateral, separate account assets and certain other financial instruments, which are carried at fair value. Below is a description of the valuation techniques and inputs used to determine fair value by class of instrument.
Fixed maturity, equity and trading securities
The fair value of fixed maturity, equity and trading securities are estimated primarily based on information derived from third-party pricing services (“pricing services”), internal models and/or third-party broker provided prices (“broker quotes”), which use a market approach, income approach or a combination of the market and income approach depending on the type of instrument and availability of information. In general, a market approach is utilized if there is readily available and relevant market activity for an individual security. In certain cases where market information is not available for a specific security but is available for similar securities, a security is valued using that market information for similar securities, which is also a market approach. When market information is not available for a specific security or is available but such information is less relevant or reliable, an income approach or a combination of a market and income approach is utilized. For securities with optionality, such as call or prepayment features (including mortgage-backed or asset-backed securities), an income approach may be used. In addition, a combination of the results from market and income approaches may be used to estimate fair value. These valuation techniques may change from period to period, based on the relevance and availability of market data.
We utilize certain third-party data providers when determining fair value. We consider information obtained from pricing services as well as broker quotes in our determination of fair value. Additionally, we utilize internal models to determine the valuation of securities using an income approach where the inputs are based on third-party provided market inputs. While we consider the valuations provided by pricing services and broker quotes to be of high quality, management determines the fair value of our investment securities after considering all relevant and available information. We also use various methods to obtain an understanding of the valuation methodologies and procedures used by third-party data providers to ensure sufficient understanding to evaluate the valuation data received, including an understanding of the assumptions and inputs utilized to determine the appropriate fair value. For pricing services, we analyze the prices provided by our primary pricing services to other readily available pricing services and perform a detailed review of the assumptions and inputs from each pricing service to determine the appropriate fair value when pricing differences exceed certain thresholds. We evaluate changes in fair value that are greater than certain pre-defined thresholds each month to further aid in our review of the accuracy of fair value measurements and our understanding of changes in fair value, with more detailed reviews performed by the asset managers responsible for the related asset class associated with the security being reviewed. A pricing committee provides additional oversight and guidance in the evaluation and review of the pricing methodologies used to value our investment portfolio.
In general, we first obtain valuations from pricing services. If a price is not supplied by a pricing service, we will typically seek a broker quote for public or private fixed maturity securities. In certain instances, we utilize price caps for broker quoted securities where the estimated market yield results in a valuation that may exceed the amount that we believe would be received in a market transaction. For certain private fixed maturity securities where we do not obtain valuations from pricing services, we utilize an internal model to determine fair value since transactions for identical securities are not readily observable and these securities are not typically valued by pricing services. For all securities, excluding certain private fixed maturity securities, if neither a pricing service nor broker quotes valuation is available, we determine fair value using internal models.
For pricing services, we obtain an understanding of the pricing methodologies and procedures for each type of instrument. Additionally, on a monthly basis we review a sample of securities, examining the pricing service’s assumptions to determine if we agree with the service’s derived price. When available, we also evaluate the prices sampled as compared to other public prices. If a variance greater than a pre-defined threshold is noted, additional review of the price is executed to ensure accuracy. In general, a pricing service does not provide a price for a security if sufficient information is not readily available to determine fair value or if such security is not in the specific sector or class covered by a particular pricing service. Given our understanding of the pricing methodologies and procedures of pricing services, the securities valued by pricing services are typically classified as Level 2 unless we determine the valuation process for a security or group of securities utilizes significant unobservable inputs, which would result in the valuation being classified as Level 3.
For private fixed maturity securities, we utilize an income approach where we obtain public bond spreads and utilize those in an internal model to determine fair value. Other inputs to the model include rating and weighted-average life, as well as sector which is used to assign the spread. We then add an additional premium, which represents an unobservable input, to the public bond spread to adjust for the liquidity and other features of our private placements. We utilize the estimated market yield to discount the expected cash flows of the security to determine fair value. We utilize price caps for securities where the estimated market yield results in a valuation that may exceed the amount that would be received in a market transaction and value all private fixed maturity securities at par that have less than 12 months to maturity. When a security does not have an external rating, we assign the security an internal rating to determine the appropriate public bond spread that should be utilized in the valuation. To evaluate the reasonableness of the internal model, we review a sample of private fixed maturity securities each month. In that review we compare the modeled prices to the prices of similar public securities in conjunction with analysis on current market indicators. If a pricing variance greater than a pre-defined threshold is noted, additional review of the price is executed to ensure accuracy. At the end of each month, all internally modeled prices are compared to the prior month prices with an evaluation of all securities with a month-over-month change greater than a pre-defined threshold. While we generally consider the public bond spreads by sector and maturity to be observable inputs, we evaluate the similarities of our private placement with the public bonds, any price caps utilized, liquidity premiums applied, and whether external ratings are available for our private placements to determine whether the spreads utilized would be considered observable inputs. We classify private securities without an external rating and public bond spread as Level 3. In general, increases (decreases) in credit spreads will decrease (increase) the fair value for our fixed maturity securities.
For broker quotes, we consider the valuation methodology utilized by the third party and analyze a sample each month to assess reasonableness given then-current market conditions. Additionally, for broker quotes on certain structured securities, we validate prices received against other publicly available pricing sources. Broker quotes are typically based on an income approach given the lack of available market data. As the valuation typically includes significant unobservable inputs, we classify the securities where fair value is based on our consideration of broker quotes as Level 3 measurements.
For remaining securities priced using internal models, we determine fair value using an income approach. We analyze a sample each month to assess reasonableness given then-current market conditions. We maximize the use of observable inputs but typically utilize significant unobservable inputs to determine fair value. Accordingly, the valuations are typically classified as Level 3.
A summary of the inputs used for our fixed maturity, equity and trading securities based on the level in which instruments are classified is included below. We have combined certain classes of instruments together as the nature of the inputs is similar.
Level 1 measurements
Equity securities. The primary inputs to the valuation of exchange-traded equity securities include quoted prices for the identical instrument.
Level 2 measurements
Fixed maturity securities
• | Third-party pricing services: In estimating the fair value of fixed maturity securities, approximately 90% of our portfolio is priced using third-party pricing sources. These pricing services utilize industry-standard valuation techniques that include market-based approaches, income-based approaches, a combination of market-based and income-based approaches or other proprietary, internally generated models as part of the valuation processes. These third-party pricing vendors maximize the use of publicly available data inputs to generate valuations for each asset class. Priority and type of inputs used may change frequently as certain inputs may be more direct drivers of valuation at the time of pricing. Examples of significant inputs incorporated by third-party pricing services may include sector and issuer spreads, seasoning, capital structure, security optionality, collateral data, prepayment assumptions, default assumptions, delinquencies, debt covenants, benchmark yields, trade data, dealer quotes, credit ratings, maturity and weighted-average life. We conduct regular meetings with our third-party pricing services for the purpose of understanding the methodologies, techniques and inputs used by the third-party pricing providers. |
The following table presents a summary of the significant inputs used by our third-party pricing services for certain fair value measurements of fixed maturity securities that are classified as Level 2 as of December 31, 2015:
(Amounts in millions) |
Fair value |
Primary methodologies |
Significant inputs |
|||||
U.S. government, agencies and government-sponsored enterprises |
$ | 6,200 | Price quotes from trading desk, broker feeds | Bid side prices, trade prices, Option Adjusted Spread (“OAS”) to swap curve, Bond Market Association (“BMA”) OAS, Treasury Curve, Agency Bullet Curve, maturity to issuer spread | ||||
State and political subdivisions |
$ | 2,403 | Multi-dimensional attribute-based modeling systems, third-party pricing vendors | Trade prices, material event notices, Municipal Market Data benchmark yields, broker quotes | ||||
Non-U.S. government |
$ | 1,996 | Matrix pricing, spread priced to benchmark curves, price quotes from market makers | Benchmark yields, trade prices, broker quotes, comparative transactions, issuer spreads, bid-offer spread, market research publications, third-party pricing sources | ||||
U.S. corporate |
$ | 21,505 | Multi-dimensional attribute-based modeling systems, broker quotes, price quotes from market makers, internal models, OAS-based models | Bid side prices to Treasury Curve, Issuer Curve, which includes sector, quality, duration, OAS percentage and change for spread matrix, trade prices, comparative transactions, Trade Reporting and Compliance Engine (“TRACE”) reports | ||||
Non-U.S. corporate |
$ | 10,364 | Multi-dimensional attribute-based modeling systems, OAS-based models, price quotes from market makers | Benchmark yields, trade prices, broker quotes, comparative transactions, issuer spreads, bid-offer spread, market research publications, third-party pricing sources | ||||
Residential mortgage-backed |
$ | 4,985 | OAS-based models, To Be Announced pricing models, single factor binomial models, internally priced | Prepayment and default assumptions, aggregation of bonds with similar characteristics, including collateral type, vintage, tranche type, weighted-average life, weighted-average loan age, issuer program and delinquency ratio, pay up and pay down factors, TRACE reports | ||||
Commercial |
$ | 2,549 | Multi-dimensional attribute-based modeling systems, pricing matrix, spread matrix priced to swap curves, Trepp commercial mortgage-backed securities analytics model | Credit risk, interest rate risk, prepayment speeds, new issue data, collateral performance, origination year, tranche type, original credit ratings, weighted-average life, cash flows, spreads derived from broker quotes, bid side prices, spreads to daily updated swaps curves | ||||
Other asset-backed |
$ | 2,139 | Multi-dimensional attribute-based modeling systems, spread matrix priced to swap curves, price quotes from market makers, internal models | Spreads to daily updated swaps curves, spreads derived from trade prices and broker quotes, bid side prices, new issue data, collateral performance, analysis of prepayment speeds, cash flows, collateral loss analytics, historical issue analysis, trade data from market makers, TRACE reports |
• | Internal models: A portion of our non-U.S. government, U.S. corporate and non-U.S. corporate securities are valued using internal models. The fair value of these fixed maturity securities were $19 million, $567 million and $290 million, respectively, as of December 31, 2015. Internally modeled securities are primarily private fixed maturity securities where we use market observable inputs such as an interest rate yield curve, published credit spreads for similar securities based on the external ratings of the instrument and related industry sector of the issuer. Additionally, we may apply certain price caps and liquidity premiums in the valuation of private fixed maturity securities. Price caps and liquidity premiums are established using inputs from market participants. |
Equity securities. The primary inputs to the valuation include quoted prices for identical assets, or similar assets in markets that are not active.
Level 3 measurements
Fixed maturity securities
• | Internal models: A portion of our U.S. government, agencies and government-sponsored enterprises, non-U.S. government, U.S. corporate, non-U.S. corporate, residential mortgage-backed, commercial mortgage-backed and other asset-backed securities are valued using internal models. The primary inputs to the valuation of the bond population include quoted prices for identical assets, or similar assets in markets that are not active, contractual cash flows, duration, call provisions, issuer rating, benchmark yields and credit spreads. Certain private fixed maturity securities are valued using an internal model using market observable inputs such as interest rate yield curve, as well as published credit spreads for similar securities where there are no external ratings of the instrument and include a significant unobservable input. Additionally, we may apply certain price caps and liquidity premiums in the valuation of private fixed maturity securities. Price caps are established using inputs from market participants. For structured securities, the primary inputs to the valuation include quoted prices for identical assets, or similar assets in markets that are not active, contractual cash flows, weighted-average coupon, weighted-average maturity, issuer rating, structure of the security, expected prepayment speeds and volumes, collateral type, current and forecasted loss severity, average delinquency rates, vintage of the loans, geographic region, debt service coverage ratios, payment priority with the tranche, benchmark yields and credit spreads. The fair value of our Level 3 fixed maturity securities priced using internal models was $3,534 million as of December 31, 2015. |
• | Broker quotes: A portion of our state and political subdivisions, U.S. corporate, non-U.S. corporate, residential mortgage-backed, commercial mortgage-backed and other asset-backed securities are valued using broker quotes. Broker quotes are obtained from third-party providers that have current market knowledge to provide a reasonable price for securities not routinely priced by third-party pricing services. Brokers utilized for valuation of assets are reviewed annually. The fair value of our Level 3 fixed maturity securities priced by broker quotes was $1,646 million as of December 31, 2015. |
Equity securities. The primary inputs to the valuation include broker quotes where the underlying inputs are unobservable and for internal models, structure of the security and issuer rating.
Restricted other invested assets related to securitization entities
We have trading securities related to securitization entities that are classified as restricted other invested assets and are carried at fair value. The trading securities represent asset-backed securities. The valuation for trading securities is determined using a market approach and/or an income approach depending on the availability of information. For certain highly rated asset-backed securities, there is observable market information for transactions of the same or similar instruments, which is provided to us by a third-party pricing service and is classified as Level 2. For certain securities that are not actively traded, we determine fair value after considering third-party broker provided prices or discounted expected cash flows using current yields for similar securities and classify these valuations as Level 3.
Securities lending collateral
The fair value of securities held as collateral is primarily based on Level 2 inputs from market information for the collateral that is held on our behalf by the custodian. We determine fair value after considering prices obtained by third-party pricing services.
Contingent consideration
We have certain contingent purchase price payments and receivables related to acquisitions and sales that are recorded at fair value each period. Fair value is determined using an income approach whereby we project the expected performance of the business and compare our projections of the relevant performance metric to the thresholds established in the purchase or sale agreement to determine our expected payments or receipts. We then discount these expected amounts to calculate the fair value as of the valuation date. We evaluate the underlying projections used in determining fair value each period and update these underlying projections when there have been significant changes in our expectations of the future business performance. The inputs used to determine the discount rate and expected payments or receipts are primarily based on significant unobservable inputs and result in the fair value of the contingent consideration being classified as Level 3. An increase in the discount rate or a decrease in expected payments or receipts will result in a decrease in the fair value of contingent consideration.
Separate account assets
The fair value of separate account assets is based on the quoted prices of the underlying fund investments and, therefore, represents Level 1 pricing.
Derivatives
We consider counterparty collateral arrangements and rights of set-off when evaluating our net credit risk exposure to our derivative counterparties. Accordingly, we are permitted to include consideration of these arrangements when determining whether any incremental adjustment should be made for both the counterparty’s and our non-performance risk in measuring fair value for our derivative instruments. As a result of these counterparty arrangements, we determined that any adjustment for credit risk would not be material and we have not recorded any incremental adjustment for our non-performance risk or the non-performance risk of the derivative counterparty for our derivative assets or liabilities. We determine fair value for our derivatives using an income approach with internal models based on relevant market inputs for each derivative instrument. We also compare the fair value determined using our internal model to the valuations provided by our derivative counterparties with any significant differences or changes in valuation being evaluated further by our derivatives professionals that are familiar with the instrument and market inputs used in the valuation.
Interest rate swaps. The valuation of interest rate swaps is determined using an income approach. The primary input into the valuation represents the forward interest rate swap curve, which is generally considered an observable input, and results in the derivative being classified as Level 2. For certain interest rate swaps, the inputs into the valuation also include the total returns of certain bonds that would primarily be considered an observable input and result in the derivative being classified as Level 2. For certain other swaps, there are features that provide an option to the counterparty to terminate the swap at specified dates. The interest rate volatility input used to value these options would be considered a significant unobservable input and results in the fair value measurement of the derivative being classified as Level 3. These options to terminate the swap by the counterparty are based on forward interest rate swap curves and volatility. As interest rate volatility increases, our valuation of the derivative changes unfavorably.
Interest rate swaps related to securitization entities. The valuation of interest rate swaps related to securitization entities is determined using an income approach. The primary input into the valuation represents the forward interest rate swap curve, which is generally considered an observable input, and results in the derivative being classified as Level 2.
Inflation indexed swaps. The valuation of inflation indexed swaps is determined using an income approach. The primary inputs into the valuation represent the forward interest rate swap curve, the current consumer price index and the forward consumer price index curve, which are generally considered observable inputs, and results in the derivative being classified as Level 2.
Foreign currency swaps. The valuation of foreign currency swaps is determined using an income approach. The primary inputs into the valuation represent the forward interest rate swap curve and foreign currency exchange rates, both of which are considered an observable input, and results in the derivative being classified as Level 2.
Credit default swaps. We have both single name credit default swaps and index tranche credit default swaps. For single name credit default swaps, we utilize an income approach to determine fair value based on using current market information for the credit spreads of the reference entity, which is considered observable inputs based on the reference entities of our derivatives and results in these derivatives being classified as Level 2. For index tranche credit default swaps, we utilize an income approach that utilizes current market information related to credit spreads and expected defaults and losses associated with the reference entities that comprise the respective index associated with each derivative. There are significant unobservable inputs associated with the timing and amount of losses from the reference entities as well as the timing or amount of losses, if any, that will be absorbed by our tranche. Accordingly, the index tranche credit default swaps are classified as Level 3. As credit spreads widen for the underlying issuers comprising the index, the change in our valuation of these credit default swaps will be unfavorable.
Credit default swaps related to securitization entities. Credit default swaps related to securitization entities represent customized index tranche credit default swaps and are valued using a similar methodology as described above for index tranche credit default swaps. We determine fair value of these credit default swaps after considering both the valuation methodology described above as well as the valuation provided by the derivative counterparty. In addition to the valuation methodology and inputs described for index tranche credit default swaps, these customized credit default swaps contain a feature that permits the securitization entity to provide the par value of underlying assets in the securitization entity to settle any losses under the credit default swap. The valuation of this settlement feature is dependent upon the valuation of the underlying assets and the timing and amount of any expected loss on the credit default swap, which is considered a significant unobservable input. Accordingly, these customized index tranche credit default swaps related to securitization entities are classified as Level 3. As credit spreads widen for the underlying issuers comprising the customized index, the change in our valuation of these credit default swaps will be unfavorable.
Equity index options. We have equity index options associated with various equity indices. The valuation of equity index options is determined using an income approach. The primary inputs into the valuation represent forward interest rate volatility and time value component associated with the optionality in the derivative, which are considered significant unobservable inputs in most instances. The equity index volatility surface is determined based on market information that is not readily observable and is developed based upon inputs received from several third-party sources. Accordingly, these options are classified as Level 3. As equity index volatility increases, our valuation of these options changes favorably.
Financial futures. The fair value of financial futures is based on the closing exchange prices. Accordingly, these financial futures are classified as Level 1. The period end valuation is zero as a result of settling the margins on these contracts on a daily basis.
Equity return swaps. The valuation of equity return swaps is determined using an income approach. The primary inputs into the valuation represent the forward interest rate swap curve and underlying equity index values, which are generally considered observable inputs, and results in the derivative being classified as Level 2.
Forward bond purchase commitments. The valuation of forward bond purchase commitments is determined using an income approach. The primary input into the valuation represents the current bond prices and interest rates, which are generally considered an observable input, and results in the derivative being classified as Level 2.
Other foreign currency contracts. We have certain foreign currency options classified as other foreign currency contracts. The valuation of foreign currency options is determined using an income approach. The primary inputs into the valuation represent the forward interest rate swap curve, foreign currency exchange rates, forward interest rate, foreign currency exchange rate volatility, foreign equity index volatility and time value component associated with the optionality in the derivative. As a result of the significant unobservable inputs associated with the forward interest rate, foreign currency exchange rate volatility and foreign equity index volatility inputs, the derivative is classified as Level 3. As foreign currency exchange rate volatility and foreign equity index volatility increases, the change in our valuation of these options will be favorable for purchase options and unfavorable for options sold. We also have foreign currency forward contracts where the valuation is determined using an income approach. The primary inputs into the valuation represent the forward foreign currency exchange rates, which are generally considered observable inputs and results in the derivative being classified as Level 2.
GMWB embedded derivatives
We are required to bifurcate an embedded derivative for certain features associated with annuity products and related reinsurance agreements where we provide a GMWB to the policyholder and are required to record the GMWB embedded derivative at fair value. The valuation of our GMWB embedded derivative is based on an income approach that incorporates inputs such as forward interest rates, equity index volatility, equity index and fund correlation, and policyholder assumptions such as utilization, lapse and mortality. In addition to these inputs, we also consider risk and expense margins when determining the projected cash flows that would be determined by another market participant. While the risk and expense margins are considered in determining fair value, these inputs do not have a significant impact on the valuation. We determine fair value using an internal model based on the various inputs noted above. The resulting fair value measurement from the model is reviewed by the product actuarial, risk and finance professionals each reporting period with changes in fair value also being compared to changes in derivatives and other instruments used to mitigate changes in fair value from certain market risks, such as equity index volatility and interest rates.
For GMWB liabilities, non-performance risk is integrated into the discount rate. Our discount rate used to determine fair value of our GMWB liabilities includes market credit spreads above U.S. Treasury rates to reflect an adjustment for the non-performance risk of the GMWB liabilities. As of December 31, 2015 and 2014, the impact of non-performance risk resulted in a lower fair value of our GMWB liabilities of $79 million and $74 million, respectively.
To determine the appropriate discount rate to reflect the non-performance risk of the GMWB liabilities, we evaluate the non-performance risk in our liabilities based on a hypothetical exit market transaction as there is no exit market for these types of liabilities. A hypothetical exit market can be viewed as a hypothetical transfer of the liability to another similarly rated insurance company which would closely resemble a reinsurance transaction. Another hypothetical exit market transaction can be viewed as a hypothetical transaction from the perspective of the GMWB policyholder. In determining the appropriate discount rate to incorporate non-performance risk of the GMWB liabilities, we also considered the impacts of state guarantees embedded in the related insurance product as a form of inseparable third-party guarantee. We believe that a hypothetical exit market participant would use a similar discount rate as described above to value the liabilities.
For equity index volatility, we determine the projected equity market volatility using both historical volatility and projected equity market volatility with more significance being placed on projected near-term volatility and recent historical data. Given the different attributes and market characteristics of GMWB liabilities compared to equity index options in the derivative market, the equity index volatility assumption for GMWB liabilities may be different from the volatility assumption for equity index options, especially for the longer dated points on the curve.
Equity index and fund correlations are determined based on historical price observations for the fund and equity index.
For policyholder assumptions, we use our expected lapse, mortality and utilization assumptions and update these assumptions for our actual experience, as necessary. For our lapse assumption, we adjust our base lapse assumption by policy based on a combination of the policyholder’s current account value and GMWB benefit.
We classify the GMWB valuation as Level 3 based on having significant unobservable inputs, with equity index volatility and non-performance risk being considered the more significant unobservable inputs. As equity index volatility increases, the fair value of the GMWB liabilities will increase. Any increase in non-performance risk would increase the discount rate and would decrease the fair value of the GMWB liability. Additionally, we consider lapse and utilization assumptions to be significant unobservable inputs. An increase in our lapse assumption would decrease the fair value of the GMWB liability, whereas an increase in our utilization rate would increase the fair value.
Fixed index annuity embedded derivatives
We offer fixed indexed annuity products where interest is credited to the policyholder’s account balance based on equity index changes. This feature is required to be bifurcated as an embedded derivative and recorded at fair value. Fair value is determined using an income approach where the present value of the excess cash flows above the guaranteed cash flows is used to determine the value attributed to the equity index feature. The inputs used in determining the fair value include policyholder behavior (lapses and withdrawals), near-term equity index volatility, expected future interest credited, forward interest rates and an adjustment to the discount rate to incorporate non-performance risk and risk margins. As a result of our assumptions for policyholder behavior and expected future interest credited being considered significant unobservable inputs, we classify these instruments as Level 3. As lapses and withdrawals increase, the value of our embedded derivative liability will decrease. As expected future interest credited decreases, the value of our embedded derivative liability will decrease.
Indexed universal life embedded derivatives
We offer indexed universal life products where interest is credited to the policyholder’s account balance based on equity index changes. This feature is required to be bifurcated as an embedded derivative and recorded at fair value. Fair value is determined using an income approach where the present value of the excess cash flows above the guaranteed cash flows is used to determine the value attributed to the equity index feature. The inputs used in determining the fair value include policyholder behavior (lapses and withdrawals), near-term equity index volatility, expected future interest credited, forward interest rates and an adjustment to the discount rate to incorporate non-performance risk and risk margins. As a result of our assumptions for policyholder behavior and expected future interest credited being considered significant unobservable inputs, we classify these instruments as Level 3. As lapses and withdrawals increase, the value of our embedded derivative liability will decrease. As expected future interest credited decreases, the value of our embedded derivative liability will decrease.
Borrowings related to securitization entities
We record certain borrowings related to securitization entities at fair value. The fair value of these borrowings is determined using either a market approach or income approach, depending on the instrument and availability of market information. Given the unique characteristics of the securitization entities that issued these borrowings as well as the lack of comparable instruments, we determine fair value considering the valuation of the underlying assets held by the securitization entities and any derivatives, as well as any unique characteristics of the borrowings that may impact the valuation. After considering all relevant inputs, we determine fair value of the borrowings using the net valuation of the underlying assets and derivatives that are backing the borrowings. Accordingly, these instruments are classified as Level 3. Increases in the valuation of the underlying assets or decreases in the derivative liabilities will result in an increase in the fair value of these borrowings.
The following tables set forth our assets by class of instrument that are measured at fair value on a recurring basis as of December 31:
2015 | ||||||||||||||||
(Amounts in millions) |
Total | Level 1 | Level 2 | Level 3 | ||||||||||||
Assets |
||||||||||||||||
Investments: |
||||||||||||||||
Fixed maturity securities: |
||||||||||||||||
U.S. government, agencies and government-sponsored enterprises |
$ | 6,203 | $ | — | $ | 6,200 | $ | 3 | ||||||||
State and political subdivisions |
2,438 | — | 2,403 | 35 | ||||||||||||
Non-U.S. government |
2,015 | — | 2,015 | — | ||||||||||||
U.S. corporate: |
||||||||||||||||
Utilities |
3,693 | — | 3,244 | 449 | ||||||||||||
Energy |
2,501 | — | 2,248 | 253 | ||||||||||||
Finance and insurance |
5,632 | — | 4,917 | 715 | ||||||||||||
Consumer—non-cyclical |
4,096 | — | 3,987 | 109 | ||||||||||||
Technology and communications |
2,193 | — | 2,158 | 35 | ||||||||||||
Industrial |
1,173 | — | 1,112 | 61 | ||||||||||||
Capital goods |
1,950 | — | 1,770 | 180 | ||||||||||||
Consumer—cyclical |
1,675 | — | 1,436 | 239 | ||||||||||||
Transportation |
1,086 | — | 980 | 106 | ||||||||||||
Other |
402 | — | 220 | 182 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total U.S. corporate |
24,401 | — | 22,072 | 2,329 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Non-U.S. corporate: |
||||||||||||||||
Utilities |
843 | — | 556 | 287 | ||||||||||||
Energy |
1,686 | — | 1,434 | 252 | ||||||||||||
Finance and insurance |
2,473 | — | 2,282 | 191 | ||||||||||||
Consumer—non-cyclical |
752 | — | 583 | 169 | ||||||||||||
Technology and communications |
988 | — | 926 | 62 | ||||||||||||
Industrial |
986 | — | 902 | 84 | ||||||||||||
Capital goods |
604 | — | 391 | 213 | ||||||||||||
Consumer—cyclical |
526 | — | 455 | 71 | ||||||||||||
Transportation |
605 | — | 461 | 144 | ||||||||||||
Other |
2,736 | — | 2,664 | 72 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total non-U.S. corporate |
12,199 | — | 10,654 | 1,545 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Residential mortgage-backed |
5,101 | — | 4,985 | 116 | ||||||||||||
Commercial mortgage-backed |
2,559 | — | 2,549 | 10 | ||||||||||||
Other asset-backed |
3,281 | — | 2,139 | 1,142 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total fixed maturity securities |
58,197 | — | 53,017 | 5,180 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Equity securities |
310 | 270 | 2 | 38 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Other invested assets: |
||||||||||||||||
Trading securities |
447 | — | 447 | — | ||||||||||||
Derivative assets: |
||||||||||||||||
Interest rate swaps |
1,054 | — | 1,054 | — | ||||||||||||
Foreign currency swaps |
8 | — | 8 | — | ||||||||||||
Credit default swaps |
1 | — | — | 1 | ||||||||||||
Equity index options |
30 | — | — | 30 | ||||||||||||
Equity return swaps |
2 | — | 2 | — | ||||||||||||
Other foreign currency contracts |
17 | — | 14 | 3 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total derivative assets |
1,112 | — | 1,078 | 34 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Securities lending collateral |
347 | — | 347 | — | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total other invested assets |
1,906 | — | 1,872 | 34 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Restricted other invested assets related to securitization entities (1) |
413 | — | 181 | 232 | ||||||||||||
Reinsurance recoverable (2) |
17 | — | — | 17 | ||||||||||||
Separate account assets |
7,883 | 7,883 | — | — | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total assets |
$ | 68,726 | $ | 8,153 | $ | 55,072 | $ | 5,501 | ||||||||
|
|
|
|
|
|
|
|
(1) | See note 17 for additional information related to consolidated securitization entities. |
(2) | Represents embedded derivatives associated with the reinsured portion of our GMWB liabilities. |
2014 | ||||||||||||||||
(Amounts in millions) |
Total | Level 1 | Level 2 | Level 3 | ||||||||||||
Assets |
||||||||||||||||
Investments: |
||||||||||||||||
Fixed maturity securities: |
||||||||||||||||
U.S. government, agencies and government-sponsored enterprises |
$ | 6,000 | $ | — | $ | 5,996 | $ | 4 | ||||||||
State and political subdivisions |
2,222 | — | 2,192 | 30 | ||||||||||||
Non-U.S. government |
1,902 | — | 1,895 | 7 | ||||||||||||
U.S. corporate: |
||||||||||||||||
Utilities |
3,864 | — | 3,420 | 444 | ||||||||||||
Energy |
2,742 | — | 2,457 | 285 | ||||||||||||
Finance and insurance |
5,646 | — | 5,030 | 616 | ||||||||||||
Consumer—non-cyclical |
4,013 | — | 3,873 | 140 | ||||||||||||
Technology and communications |
2,325 | — | 2,280 | 45 | ||||||||||||
Industrial |
1,287 | — | 1,251 | 36 | ||||||||||||
Capital goods |
2,006 | — | 1,840 | 166 | ||||||||||||
Consumer—cyclical |
1,900 | — | 1,537 | 363 | ||||||||||||
Transportation |
1,039 | — | 886 | 153 | ||||||||||||
Other |
401 | — | 230 | 171 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total U.S. corporate |
25,223 | — | 22,804 | 2,419 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Non-U.S. corporate: |
||||||||||||||||
Utilities |
903 | — | 575 | 328 | ||||||||||||
Energy |
2,036 | — | 1,712 | 324 | ||||||||||||
Finance and insurance |
2,957 | — | 2,736 | 221 | ||||||||||||
Consumer—non-cyclical |
796 | — | 599 | 197 | ||||||||||||
Technology and communications |
1,053 | — | 1,011 | 42 | ||||||||||||
Industrial |
1,213 | — | 1,082 | 131 | ||||||||||||
Capital goods |
618 | — | 381 | 237 | ||||||||||||
Consumer—cyclical |
534 | — | 445 | 89 | ||||||||||||
Transportation |
590 | — | 436 | 154 | ||||||||||||
Other |
3,395 | — | 3,314 | 81 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total non-U.S. corporate |
14,095 | — | 12,291 | 1,804 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Residential mortgage-backed |
5,228 | — | 5,163 | 65 | ||||||||||||
Commercial mortgage-backed |
2,702 | — | 2,697 | 5 | ||||||||||||
Other asset-backed |
3,705 | — | 2,285 | 1,420 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total fixed maturity securities |
61,077 | — | 55,323 | 5,754 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Equity securities |
275 | 237 | 4 | 34 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Other invested assets: |
||||||||||||||||
Trading securities |
241 | — | 241 | — | ||||||||||||
Derivative assets: |
||||||||||||||||
Interest rate swaps |
1,091 | — | 1,091 | — | ||||||||||||
Foreign currency swaps |
6 | — | 6 | — | ||||||||||||
Credit default swaps |
4 | — | 1 | 3 | ||||||||||||
Equity index options |
17 | — | — | 17 | ||||||||||||
Other foreign currency contracts |
14 | — | 14 | — | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total derivative assets |
1,132 | — | 1,112 | 20 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Securities lending collateral |
289 | — | 289 | — | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total other invested assets |
1,662 | — | 1,642 | 20 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Restricted other invested assets related to securitization entities (1) |
411 | — | 181 | 230 | ||||||||||||
Reinsurance recoverable (2) |
13 | — | — | 13 | ||||||||||||
Separate account assets |
9,208 | 9,208 | — | — | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total assets |
$ | 72,646 | $ | 9,445 | $ | 57,150 | $ | 6,051 | ||||||||
|
|
|
|
|
|
|
|
(1) | See note 17 for additional information related to consolidated securitization entities. |
(2) | Represents embedded derivatives associated with the reinsured portion of our GMWB liabilities. |
We review the fair value hierarchy classifications each reporting period. Changes in the observability of the valuation attributes may result in a reclassification of certain financial assets or liabilities. Such reclassifications are reported as transfers between levels at the beginning fair value for the reporting period in which the changes occur. Given the types of assets classified as Level 1, which primarily represents mutual fund investments, we typically do not have any transfers between Level 1 and Level 2 measurement categories and did not have any such transfers during any period presented.
Our assessment of whether or not there were significant unobservable inputs related to fixed maturity securities was based on our observations obtained through the course of managing our investment portfolio, including interaction with other market participants, observations related to the availability and consistency of pricing and/or rating, and understanding of general market activity such as new issuance and the level of secondary market trading for a class of securities. Additionally, we considered data obtained from third-party pricing sources to determine whether our estimated values incorporate significant unobservable inputs that would result in the valuation being classified as Level 3.
The following tables present additional information about assets measured at fair value on a recurring basis and for which we have utilized significant unobservable (Level 3) inputs to determine fair value as of or for the dates indicated:
(Amounts in millions) |
Beginning balance as of January 1, 2015 |
Total realized and unrealized gains (losses) |
Purchases | Sales | Issuances | Settlements | Transfer into Level 3 (1) |
Transfer out of Level 3 (1) |
Ending balance as of December 31, 2015 |
Total gains (losses) included in net income (loss) attributable to assets still held |
||||||||||||||||||||||||||||||||||
Included in net income (loss) |
Included in OCI |
|||||||||||||||||||||||||||||||||||||||||||
Fixed maturity securities: |
||||||||||||||||||||||||||||||||||||||||||||
U.S. government, agencies and government-sponsored enterprises |
$ | 4 | $ | — | $ | — | $ | — | $ | — | $ | — | $ | (1 | ) | $ | — | $ | — | $ | 3 | $ | — | |||||||||||||||||||||
State and political subdivisions |
30 | 3 | $ | 7 | $ | 5 | $ | — | $ | — | $ | — | $ | — | $ | (10 | ) | $ | 35 | $ | 3 | |||||||||||||||||||||||
Non-U.S. government |
7 | — | $ | (1 | ) | $ | — | $ | — | $ | — | $ | (1 | ) | $ | — | $ | (5 | ) | $ | — | $ | — | |||||||||||||||||||||
U.S. corporate: |
||||||||||||||||||||||||||||||||||||||||||||
Utilities |
444 | — | (14 | ) | 67 | — | — | (16 | ) | 10 | (42 | ) | 449 | — | ||||||||||||||||||||||||||||||
Energy |
285 | — | (13 | ) | 4 | (4 | ) | — | (11 | ) | — | (8 | ) | 253 | — | |||||||||||||||||||||||||||||
Finance and insurance |
616 | 16 | (28 | ) | 90 | — | — | (33 | ) | 97 | (43 | ) | 715 | 14 | ||||||||||||||||||||||||||||||
Consumer—non-cyclical |
140 | 2 | (3 | ) | 29 | (9 | ) | — | (40 | ) | — | (10 | ) | 109 | — | |||||||||||||||||||||||||||||
Technology and communications |
45 | 3 | (2 | ) | — | — | — | — | — | (11 | ) | 35 | 3 | |||||||||||||||||||||||||||||||
Industrial |
36 | — | (3 | ) | 28 | — | — | — | — | — | 61 | — | ||||||||||||||||||||||||||||||||
Capital goods |
166 | — | (6 | ) | 30 | (3 | ) | — | (1 | ) | — | (6 | ) | 180 | — | |||||||||||||||||||||||||||||
Consumer—cyclical |
363 | 1 | (8 | ) | 39 | — | — | (52 | ) | 11 | (115 | ) | 239 | — | ||||||||||||||||||||||||||||||
Transportation |
153 | 1 | (5 | ) | 7 | — | — | (31 | ) | — | (19 | ) | 106 | 1 | ||||||||||||||||||||||||||||||
Other |
171 | 1 | (2 | ) | — | — | — | (7 | ) | 19 | — | 182 | 1 | |||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||||
Total U.S. corporate |
2,419 | 24 | (84 | ) | 294 | (16 | ) | — | (191 | ) | 137 | (254 | ) | 2,329 | 19 | |||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||||
Non-U.S. corporate: |
||||||||||||||||||||||||||||||||||||||||||||
Utilities |
328 | — | (4 | ) | 18 | — | — | (46 | ) | — | (9 | ) | 287 | — | ||||||||||||||||||||||||||||||
Energy |
324 | (1 | ) | (21 | ) | 15 | (24 | ) | — | (41 | ) | — | — | 252 | (1 | ) | ||||||||||||||||||||||||||||
Finance and insurance |
221 | 5 | (6 | ) | 21 | — | — | (26 | ) | — | (24 | ) | 191 | 3 | ||||||||||||||||||||||||||||||
Consumer—non-cyclical |
197 | — | (1 | ) | 15 | — | — | (41 | ) | — | (1 | ) | 169 | — | ||||||||||||||||||||||||||||||
Technology and communications |
42 | — | (4 | ) | 24 | — | — | — | — | — | 62 | — | ||||||||||||||||||||||||||||||||
Industrial |
131 | — | (4 | ) | 7 | — | — | (18 | ) | 1 | (33 | ) | 84 | — | ||||||||||||||||||||||||||||||
Capital goods |
237 | — | (7 | ) | — | — | — | (17 | ) | — | — | 213 | — | |||||||||||||||||||||||||||||||
Consumer—cyclical |
89 | — | (2 | ) | — | — | — | — | 15 | (31 | ) | 71 | — | |||||||||||||||||||||||||||||||
Transportation |
154 | — | (2 | ) | — | — | — | (8 | ) | — | — | 144 | — | |||||||||||||||||||||||||||||||
Other |
81 | — | 2 | — | — | — | (11 | ) | — | — | 72 | — | ||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||||
Total non-U.S. corporate |
1,804 | 4 | (49 | ) | 100 | (24 | ) | — | (208 | ) | 16 | (98 | ) | 1,545 | 2 | |||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||||
Residential mortgage-backed |
65 | — | (1 | ) | 58 | — | — | (10 | ) | 76 | (72 | ) | 116 | — | ||||||||||||||||||||||||||||||
Commercial mortgage-backed |
5 | — | (1 | ) | 9 | — | — | (2 | ) | 13 | (14 | ) | 10 | — | ||||||||||||||||||||||||||||||
Other asset-backed |
1,420 | 2 | 2 | 152 | (190 | ) | — | (267 | ) | 164 | (141 | ) | 1,142 | — | ||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||||
Total fixed maturity securities |
5,754 | 33 | (127 | ) | 618 | (230 | ) | — | (680 | ) | 406 | (594 | ) | 5,180 | 24 | |||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||||
Equity securities |
34 | — | — | 1 | (6 | ) | — | — | 9 | — | 38 | — | ||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||||
Other invested assets: |
||||||||||||||||||||||||||||||||||||||||||||
Derivative assets: |
||||||||||||||||||||||||||||||||||||||||||||
Credit default swaps |
3 | 1 | — | — | — | — | (3 | ) | — | — | 1 | 1 | ||||||||||||||||||||||||||||||||
Equity index options |
17 | (25 | ) | — | 38 | — | — | — | — | — | 30 | (3 | ) | |||||||||||||||||||||||||||||||
Other foreign currency contracts |
— | (2 | ) | — | 5 | — | — | — | — | — | 3 | (1 | ) | |||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||||
Total derivative assets |
20 | (26 | ) | — | 43 | — | — | (3 | ) | — | — | 34 | (3 | ) | ||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||||
Total other invested assets |
20 | (26 | ) | — | 43 | — | — | (3 | ) | — | — | 34 | (3 | ) | ||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||||
Restricted other invested assets related to securitization entities (2) |
230 | 2 | — | — | — | — | — | — | — | 232 | 2 | |||||||||||||||||||||||||||||||||
Reinsurance recoverable (3) |
13 | 1 | — | — | — | 3 | — | — | — | 17 | 1 | |||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||||
Total Level 3 assets |
$ | 6,051 | $ | 10 | $ | (127 | ) | $ | 662 | $ | (236 | ) | $ | 3 | $ | (683 | ) | $ | 415 | $ | (594 | ) | $ | 5,501 | $ | 24 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) | The transfers into and out of Level 3 for fixed maturity securities were related to changes in the primary pricing source and changes in the observability of external information used in determining the fair value, such as external ratings or credit spreads, as well as changes in the industry sectors assigned to specific securities. |
(2) | See note 17 for additional information related to consolidated securitization entities. |
(3) | Represents embedded derivatives associated with the reinsured portion of our GMWB liabilities. |
(Amounts in millions) |
Beginning balance as of January 1, 2014 |
Total realized and unrealized gains (losses) |
Purchases | Sales | Issuances | Settlements | Transfer into Level 3 (1) |
Transfer out of Level 3 (1) |
Ending balance as of December 31, 2014 |
Total gains (losses) included in net income (loss) attributable to assets still held |
||||||||||||||||||||||||||||||||||
Included in net income (loss) |
Included in OCI |
|||||||||||||||||||||||||||||||||||||||||||
Fixed maturity securities: |
||||||||||||||||||||||||||||||||||||||||||||
U.S. government, agencies and government-sponsored enterprises |
$ | 5 | $ | — | $ | — | $ | — | $ | — | $ | — | $ | (1 | ) | $ | — | $ | — | $ | 4 | $ | — | |||||||||||||||||||||
State and political subdivisions |
27 | 2 | (4 | ) | 5 | — | — | — | — | — | 30 | 2 | ||||||||||||||||||||||||||||||||
Non-U.S. government |
23 | — | — | 2 | — | — | (2 | ) | — | (16 | ) | 7 | — | |||||||||||||||||||||||||||||||
U.S. corporate: |
||||||||||||||||||||||||||||||||||||||||||||
Utilities |
420 | — | 11 | 12 | — | — | (5 | ) | 58 | (52 | ) | 444 | — | |||||||||||||||||||||||||||||||
Energy |
281 | — | — | 40 | — | — | (4 | ) | 27 | (59 | ) | 285 | — | |||||||||||||||||||||||||||||||
Finance and insurance |
433 | 14 | 23 | 39 | (1 | ) | — | (10 | ) | 155 | (37 | ) | 616 | 3 | ||||||||||||||||||||||||||||||
Consumer—non-cyclical |
224 | 2 | 2 | — | (38 | ) | — | (60 | ) | 10 | — | 140 | — | |||||||||||||||||||||||||||||||
Technology and communications |
60 | 3 | 5 | — | (20 | ) | — | (13 | ) | 10 | — | 45 | 3 | |||||||||||||||||||||||||||||||
Industrial |
24 | 2 | 1 | 27 | — | — | (15 | ) | — | (3 | ) | 36 | — | |||||||||||||||||||||||||||||||
Capital goods |
139 | — | 3 | 8 | — | — | — | 31 | (15 | ) | 166 | — | ||||||||||||||||||||||||||||||||
Consumer—cyclical |
386 | 1 | 1 | 62 | (1 | ) | — | (86 | ) | — | — | 363 | 1 | |||||||||||||||||||||||||||||||
Transportation |
196 | 2 | 4 | 10 | — | — | (11 | ) | — | (48 | ) | 153 | 2 | |||||||||||||||||||||||||||||||
Other |
210 | 2 | 8 | 8 | — | — | (47 | ) | 10 | (20 | ) | 171 | 1 | |||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||||
Total U.S. corporate |
2,373 | 26 | 58 | 206 | (60 | ) | — | (251 | ) | 301 | (234 | ) | 2,419 | 10 | ||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||||
Non-U.S. corporate: |
||||||||||||||||||||||||||||||||||||||||||||
Utilities |
260 | — | 6 | 54 | — | — | (14 | ) | 22 | — | 328 | — | ||||||||||||||||||||||||||||||||
Energy |
320 | — | (14 | ) | 55 | — | — | (48 | ) | 20 | (9 | ) | 324 | — | ||||||||||||||||||||||||||||||
Finance and insurance |
181 | 3 | 32 | 71 | (42 | ) | — | (8 | ) | 21 | (37 | ) | 221 | 2 | ||||||||||||||||||||||||||||||
Consumer—non-cyclical |
212 | — | (4 | ) | 35 | — | — | (46 | ) | — | — | 197 | — | |||||||||||||||||||||||||||||||
Technology and communications |
58 | — | (1 | ) | 20 | (35 | ) | — | — | — | — | 42 | — | |||||||||||||||||||||||||||||||
Industrial |
151 | — | 2 | — | (12 | ) | — | — | — | (10 | ) | 131 | — | |||||||||||||||||||||||||||||||
Capital goods |
299 | 1 | (3 | ) | 30 | (35 | ) | — | (52 | ) | 10 | (13 | ) | 237 | — | |||||||||||||||||||||||||||||
Consumer—cyclical |
96 | — | — | 6 | — | — | (13 | ) | — | — | 89 | — | ||||||||||||||||||||||||||||||||
Transportation |
153 | — | 1 | 11 | — | — | (25 | ) | 14 | — | 154 | — | ||||||||||||||||||||||||||||||||
Other |
89 | — | (11 | ) | — | — | — | (17 | ) | 20 | — | 81 | — | |||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||||
Total non-U.S. corporate |
1,819 | 4 | 8 | 282 | (124 | ) | — | (223 | ) | 107 | (69 | ) | 1,804 | 2 | ||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||||
Residential mortgage-backed |
104 | — | (3 | ) | 16 | (23 | ) | — | (9 | ) | 13 | (33 | ) | 65 | — | |||||||||||||||||||||||||||||
Commercial mortgage-backed |
6 | — | 2 | — | — | — | (2 | ) | 7 | (8 | ) | 5 | — | |||||||||||||||||||||||||||||||
Other asset-backed |
1,166 | 5 | (3 | ) | 298 | (15 | ) | — | (181 | ) | 244 | (94 | ) | 1,420 | 1 | |||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||||
Total fixed maturity securities |
5,523 | 37 | 58 | 809 | (222 | ) | — | (669 | ) | 672 | (454 | ) | 5,754 | 15 | ||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||||
Equity securities |
78 | — | — | 1 | (38 | ) | — | — | — | (7 | ) | 34 | — | |||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||||
Other invested assets: |
||||||||||||||||||||||||||||||||||||||||||||
Trading securities |
34 | — | — | — | — | — | (3 | ) | — | (31 | ) | — | — | |||||||||||||||||||||||||||||||
Derivative assets: |
||||||||||||||||||||||||||||||||||||||||||||
Credit default swaps |
10 | — | — | — | — | — | (7 | ) | — | — | 3 | — | ||||||||||||||||||||||||||||||||
Equity index options |
12 | (31 | ) | — | 36 | — | — | — | — | — | 17 | (28 | ) | |||||||||||||||||||||||||||||||
Other foreign currency contracts |
3 | (2 | ) | — | — | (1 | ) | — | — | — | — | — | — | |||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||||
Total derivative assets |
25 | (33 | ) | — | 36 | (1 | ) | — | (7 | ) | — | — | 20 | (28 | ) | |||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||||
Total other invested assets |
59 | (33 | ) | — | 36 | (1 | ) | — | (10 | ) | — | (31 | ) | 20 | (28 | ) | ||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||||
Restricted other invested assets related to securitization entities (2) |
211 | 19 | — | — | — | — | — | — | — | 230 | 18 | |||||||||||||||||||||||||||||||||
Reinsurance recoverable (3) |
(1 | ) | 11 | — | — | — | 3 | — | — | — | 13 | 11 | ||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||||
Total Level 3 assets |
$ | 5,870 | $ | 34 | $ | 58 | $ | 846 | $ | (261 | ) | $ | 3 | $ | (679 | ) | $ | 672 | $ | (492 | ) | $ | 6,051 | $ | 16 | |||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) | The transfers into and out of Level 3 for fixed maturity securities were related to changes in the primary pricing source and changes in the observability of external information used in determining the fair value, such as external ratings or credit spreads. |
(2) | See note 17 for additional information related to consolidated securitization entities. |
(3) | Represents embedded derivatives associated with the reinsured portion of our GMWB liabilities. |
(Amounts in millions) |
Beginning balance as of January 1, 2013 |
Total realized and unrealized gains (losses) |
Purchases | Sales | Issuances | Settlements | Transfer into Level 3 (1) |
Transfer out of Level 3 (1) |
Ending balance as of December 31, 2013 |
Total gains (losses) included in net income (loss) attributable to assets still held |
||||||||||||||||||||||||||||||||||
Included in net income (loss) |
Included in OCI |
|||||||||||||||||||||||||||||||||||||||||||
Fixed maturity securities: |
||||||||||||||||||||||||||||||||||||||||||||
U.S. government, agencies and government-sponsored enterprises |
$ | 9 | $ | — | $ | — | $ | — | $ | — | $ | — | $ | (4 | ) | $ | — | $ | — | $ | 5 | $ | — | |||||||||||||||||||||
State and political subdivisions |
25 | 2 | — | — | — | — | — | — | — | 27 | 2 | |||||||||||||||||||||||||||||||||
Non-U.S. government |
9 | — | 1 | — | — | — | (2 | ) | 16 | (1 | ) | 23 | — | |||||||||||||||||||||||||||||||
U.S. corporate: |
||||||||||||||||||||||||||||||||||||||||||||
Utilities |
414 | — | 15 | 6 | (15 | ) | — | (20 | ) | 57 | (37 | ) | 420 | — | ||||||||||||||||||||||||||||||
Energy |
240 | — | 12 | 42 | (10 | ) | — | (25 | ) | 26 | (4 | ) | 281 | — | ||||||||||||||||||||||||||||||
Finance and insurance |
453 | 13 | (3 | ) | 33 | (11 | ) | — | (9 | ) | 21 | (64 | ) | 433 | 12 | |||||||||||||||||||||||||||||
Consumer—non-cyclical |
243 | (4 | ) | 12 | 42 | (13 | ) | — | (64 | ) | 8 | — | 224 | (6 | ) | |||||||||||||||||||||||||||||
Technology and communications |
73 | 2 | (6 | ) | 6 | (6 | ) | — | (1 | ) | 3 | (11 | ) | 60 | 2 | |||||||||||||||||||||||||||||
Industrial |
29 | — | 1 | — | — | — | (6 | ) | — | — | 24 | — | ||||||||||||||||||||||||||||||||
Capital goods |
169 | 1 | 4 | 15 | (35 | ) | — | (14 | ) | — | (1 | ) | 139 | 1 | ||||||||||||||||||||||||||||||
Consumer—cyclical |
496 | 1 | 8 | 27 | (46 | ) | — | (107 | ) | 35 | (28 | ) | 386 | — | ||||||||||||||||||||||||||||||
Transportation |
205 | 1 | — | 9 | — | — | (36 | ) | 18 | (1 | ) | 196 | 1 | |||||||||||||||||||||||||||||||
Other |
354 | 1 | (58 | ) | — | (14 | ) | — | (66 | ) | 17 | (24 | ) | 210 | 1 | |||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||||
Total U.S. corporate |
2,676 | 15 | (15 | ) | 180 | (150 | ) | — | (348 | ) | 185 | (170 | ) | 2,373 | 11 | |||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||||
Non-U.S. corporate: |
||||||||||||||||||||||||||||||||||||||||||||
Utilities |
242 | — | 8 | 10 | — | — | — | — | — | 260 | — | |||||||||||||||||||||||||||||||||
Energy |
286 | 1 | 7 | 7 | (14 | ) | — | (17 | ) | 50 | — | 320 | — | |||||||||||||||||||||||||||||||
Finance and insurance |
245 | 2 | (16 | ) | 21 | (19 | ) | — | (9 | ) | 18 | (61 | ) | 181 | 2 | |||||||||||||||||||||||||||||
Consumer—non-cyclical |
194 | — | (1 | ) | 42 | — | — | (23 | ) | — | — | 212 | — | |||||||||||||||||||||||||||||||
Technology and communications |
69 | — | 1 | — | — | — | (12 | ) | — | — | 58 | — | ||||||||||||||||||||||||||||||||
Industrial |
207 | — | 1 | 21 | — | — | (77 | ) | — | (1 | ) | 151 | — | |||||||||||||||||||||||||||||||
Capital goods |
329 | — | 11 | 4 | — | — | (45 | ) | — | — | 299 | — | ||||||||||||||||||||||||||||||||
Consumer—cyclical |
106 | — | 4 | 15 | — | — | (30 | ) | 1 | — | 96 | — | ||||||||||||||||||||||||||||||||
Transportation |
147 | — | 7 | — | — | — | (1 | ) | — | — | 153 | — | ||||||||||||||||||||||||||||||||
Other |
135 | — | (46 | ) | — | — | — | — | — | — | 89 | — | ||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||||
Total non-U.S. corporate |
1,960 | 3 | (24 | ) | 120 | (33 | ) | — | (214 | ) | 69 | (62 | ) | 1,819 | 2 | |||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||||
Residential mortgage-backed |
143 | (9 | ) | 7 | — | (8 | ) | — | (27 | ) | 14 | (16 | ) | 104 | — | |||||||||||||||||||||||||||||
Commercial mortgage-backed |
35 | (5 | ) | (1 | ) | — | — | — | (32 | ) | 11 | (2 | ) | 6 | (4 | ) | ||||||||||||||||||||||||||||
Other asset-backed |
864 | 4 | 10 | 200 | (49 | ) | — | (89 | ) | 246 | (20 | ) | 1,166 | 4 | ||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||||
Total fixed maturity securities |
5,721 | 10 | (22 | ) | 500 | (240 | ) | — | (716 | ) | 541 | (271 | ) | 5,523 | 15 | |||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||||
Equity securities |
99 | 2 | — | 1 | (24 | ) | — | — | — | — | 78 | — | ||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||||
Other invested assets: |
||||||||||||||||||||||||||||||||||||||||||||
Trading securities |
76 | 7 | — | — | (40 | ) | — | (9 | ) | — | — | 34 | 2 | |||||||||||||||||||||||||||||||
Derivative assets: |
||||||||||||||||||||||||||||||||||||||||||||
Interest rate swaps |
2 | (1 | ) | — | — | — | — | (1 | ) | — | — | — | (1 | ) | ||||||||||||||||||||||||||||||
Credit default swaps |
7 | 12 | — | — | — | — | (9 | ) | — | — | 10 | 6 | ||||||||||||||||||||||||||||||||
Equity index options |
25 | (43 | ) | — | 39 | — | — | (9 | ) | — | — | 12 | (40 | ) | ||||||||||||||||||||||||||||||
Other foreign currency contracts |
— | (1 | ) | — | 4 | — | — | — | — | — | 3 | (1 | ) | |||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||||
Total derivative assets |
34 | (33 | ) | — | 43 | — | — | (19 | ) | — | — | 25 | (36 | ) | ||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||||
Total other invested assets |
110 | (26 | ) | — | 43 | (40 | ) | — | (28 | ) | — | — | 59 | (34 | ) | |||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||||
Restricted other invested assets related to securitization entities (2) |
194 | (1 | ) | — | 19 | — | — | (20 | ) | 19 | — | 211 | (1 | ) | ||||||||||||||||||||||||||||||
Other assets (3) |
9 | — | — | — | — | — | (9 | ) | — | — | — | — | ||||||||||||||||||||||||||||||||
Reinsurance recoverable (4) |
10 | (14 | ) | — | — | — | 3 | — | — | — | (1 | ) | (14 | ) | ||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||||
Total Level 3 assets |
$ | 6,143 | $ | (29 | ) | $ | (22 | ) | $ | 563 | $ | (304 | ) | $ | 3 | $ | (773 | ) | $ | 560 | $ | (271 | ) | $ | 5,870 | $ | (34 | ) | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) | The transfers into and out of Level 3 for fixed maturity securities were related to changes in the primary pricing source and changes in the observability of external information used in determining the fair value, such as external ratings or credit spreads. |
(2) | See note 17 for additional information related to consolidated securitization entities. |
(3) | Represents contingent receivables associated with recent business dispositions. |
(4) | Represents embedded derivatives associated with the reinsured portion of our GMWB liabilities. |
The following table presents the gains and losses included in net income (loss) from assets measured at fair value on a recurring basis and for which we have utilized significant unobservable (Level 3) inputs to determine fair value and the related income statement line item in which these gains and losses were presented for the years ended December 31:
(Amounts in millions) |
2015 | 2014 | 2013 | |||||||||
Total realized and unrealized gains (losses) included in net income (loss): |
||||||||||||
Net investment income |
$ | 42 | $ | 44 | $ | 36 | ||||||
Net investment gains (losses) |
(32 | ) | (10 | ) | (65 | ) | ||||||
|
|
|
|
|
|
|||||||
Total |
$ | 10 | $ | 34 | $ | (29 | ) | |||||
|
|
|
|
|
|
|||||||
Total gains (losses) included in net income (loss) attributable to assets still held: |
||||||||||||
Net investment income |
$ | 33 | $ | 19 | $ | 35 | ||||||
Net investment gains (losses) |
(9 | ) | (3 | ) | (69 | ) | ||||||
|
|
|
|
|
|
|||||||
Total |
$ | 24 | $ | 16 | $ | (34 | ) | |||||
|
|
|
|
|
|
The amount presented for unrealized gains (losses) included in net income (loss) for available-for-sale securities represents impairments and accretion on certain fixed maturity securities.
The following tables set forth our liabilities by class of instrument that are measured at fair value on a recurring basis as of December 31:
2015 | ||||||||||||||||
(Amounts in millions) |
Total | Level 1 | Level 2 | Level 3 | ||||||||||||
Liabilities |
||||||||||||||||
Policyholder account balances: |
||||||||||||||||
GMWB embedded derivatives (1) |
$ | 352 | $ | — | $ | — | $ | 352 | ||||||||
Fixed index annuity embedded derivatives |
342 | — | — | 342 | ||||||||||||
Indexed universal life embedded derivatives |
10 | — | — | 10 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total policyholder account balances |
704 | — | — | 704 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Derivative liabilities: |
||||||||||||||||
Interest rate swaps |
220 | — | 220 | — | ||||||||||||
Interest rate swaps related to securitization entities (2) |
30 | — | 30 | — | ||||||||||||
Inflation indexed swaps |
33 | — | 33 | — | ||||||||||||
Foreign currency swaps |
27 | — | 27 | — | ||||||||||||
Credit default swaps related to securitization entities (2) |
14 | — | — | 14 | ||||||||||||
Equity return swaps |
1 | — | 1 | — | ||||||||||||
Other foreign currency contracts |
34 | — | 34 | — | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total derivative liabilities |
359 | — | 345 | 14 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Borrowings related to securitization entities (2) |
81 | — | — | 81 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total liabilities |
$ | 1,144 | $ | — | $ | 345 | $ | 799 | ||||||||
|
|
|
|
|
|
|
|
(1) | Represents embedded derivatives associated with our GMWB liabilities, excluding the impact of reinsurance. |
(2) | See note 17 for additional information related to consolidated securitization entities. |
2014 | ||||||||||||||||
(Amounts in millions) |
Total | Level 1 | Level 2 | Level 3 | ||||||||||||
Liabilities |
||||||||||||||||
Policyholder account balances: |
||||||||||||||||
GMWB embedded derivatives (1) |
$ | 291 | $ | — | $ | — | $ | 291 | ||||||||
Fixed index annuity embedded derivatives |
276 | — | — | 276 | ||||||||||||
Indexed universal life embedded derivatives |
7 | — | — | 7 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total policyholder account balances |
574 | — | — | 574 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Derivative liabilities: |
||||||||||||||||
Interest rate swaps |
204 | — | 204 | — | ||||||||||||
Interest rate swaps related to securitization entities (2) |
26 | — | 26 | — | ||||||||||||
Inflation indexed swaps |
42 | — | 42 | — | ||||||||||||
Foreign currency swaps |
7 | — | 7 | — | ||||||||||||
Credit default swaps related to securitization entities (2) |
17 | — | — | 17 | ||||||||||||
Equity return swaps |
1 | — | 1 | — | ||||||||||||
Other foreign currency contracts |
13 | — | 13 | — | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total derivative liabilities |
310 | — | 293 | 17 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Borrowings related to securitization entities (2) |
85 | — | — | 85 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total liabilities |
$ | 969 | $ | — | $ | 293 | $ | 676 | ||||||||
|
|
|
|
|
|
|
|
(1) | Represents embedded derivatives associated with our GMWB liabilities, excluding the impact of reinsurance. |
(2) | See note 17 for additional information related to consolidated securitization entities. |
The following tables present additional information about liabilities measured at fair value on a recurring basis and for which we have utilized significant unobservable (Level 3) inputs to determine fair value as of or for the dates indicated:
(Amounts in millions) |
Beginning balance as of January 1, 2015 |
Total realized and unrealized (gains) losses |
Purchases | Sales | Issuances | Settlements | Transfer into Level 3 |
Transfer out of Level 3 |
Ending balance as of December 31, 2015 |
Total (gains) losses included in net (income) loss attributable to liabilities still held |
||||||||||||||||||||||||||||||||||
Included in net (income) loss |
Included in OCI |
|||||||||||||||||||||||||||||||||||||||||||
Policyholder account balances: |
||||||||||||||||||||||||||||||||||||||||||||
GMWB embedded derivatives (1) |
$ | 291 | $ | 26 | $ | — | $ | — | $ | — | $ | 35 | $ | — | $ | — | $ | — | $ | 352 | $ | 30 | ||||||||||||||||||||||
Fixed index annuity embedded derivatives |
276 | 7 | — | — | — | 65 | (6 | ) | — | — | 342 | 7 | ||||||||||||||||||||||||||||||||
Indexed universal life embedded derivatives |
7 | (6 | ) | — | — | — | 9 | — | — | — | 10 | (6 | ) | |||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||||
Total policyholder account balances |
574 | 27 | — | — | — | 109 | (6 | ) | — | — | 704 | 31 | ||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||||
Derivative liabilities: |
||||||||||||||||||||||||||||||||||||||||||||
Credit default swaps related to securitization entities (2) |
17 | (7 | ) | — | 4 | — | — | — | — | — | 14 | 21 | ||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||||
Total derivative liabilities |
17 | (7 | ) | — | 4 | — | — | — | — | — | 14 | 21 | ||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||||
Borrowings related to securitization entities (2) |
85 | (4 | ) | — | — | — | — | — | — | — | 81 | (4 | ) | |||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||||
Total Level 3 liabilities |
$ | 676 | $ | 16 | $ | — | $ | 4 | $ | — | $ | 109 | $ | (6 | ) | $ | — | $ | — | $ | 799 | $ | 48 | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) | Represents embedded derivatives associated with our GMWB liabilities, excluding the impact of reinsurance. |
(2) | See note 17 for additional information related to consolidated securitization entities. |
Beginning balance as of January 1, 2014 |
Total realized and unrealized (gains) losses |
Purchases | Sales | Issuances | Settlements | Transfer into Level 3 |
Transfer out of Level 3 |
Ending balance as of December 31, 2014 |
Total (gains) losses included in net (income) loss attributable to liabilities still held |
|||||||||||||||||||||||||||||||||||
(Amounts in millions) |
Included in net (income) loss |
Included in OCI |
||||||||||||||||||||||||||||||||||||||||||
Policyholder account balances: |
||||||||||||||||||||||||||||||||||||||||||||
GMWB embedded derivatives (1) |
$ | 96 | $ | 158 | $ | — | $ | — | $ | — | $ | 37 | $ | — | $ | — | $ | — | $ | 291 | $ | 160 | ||||||||||||||||||||||
Fixed index annuity embedded derivatives |
143 | 27 | — | — | — | 108 | (2 | ) | — | — | 276 | 27 | ||||||||||||||||||||||||||||||||
Indexed universal life embedded derivatives |
— | 1 | — | — | — | 6 | — | — | — | 7 | 1 | |||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||||
Total policyholder account balances |
239 | 186 | — | — | — | 151 | (2 | ) | — | — | 574 | 188 | ||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||||
Derivative liabilities: |
||||||||||||||||||||||||||||||||||||||||||||
Credit default swaps related to securitization entities (2) |
32 | (19 | ) | — | 4 | — | — | — | — | — | 17 | (19 | ) | |||||||||||||||||||||||||||||||
Other foreign currency contracts |
1 | 1 | — | — | (2 | ) | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||||
Total derivative liabilities |
33 | (18 | ) | — | 4 | (2 | ) | — | — | — | — | 17 | (19 | ) | ||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||||
Borrowings related to securitization entities (2) |
75 | 9 | — | — | — | 1 | — | — | — | 85 | 9 | |||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||||
Total Level 3 liabilities |
$ | 347 | $ | 177 | $ | — | $ | 4 | $ | (2 | ) | $ | 152 | $ | (2 | ) | $ | — | $ | — | $ | 676 | $ | 178 | ||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) | Represents embedded derivatives associated with our GMWB liabilities, excluding the impact of reinsurance. |
(2) | See note 17 for additional information related to consolidated securitization entities. |
Beginning balance as of January 1, 2013 |
Total realized and unrealized (gains) losses |
Purchases | Sales | Issuances | Settlements |
Transfer into Level 3 |
Transfer out of Level 3 |
Ending balance as of December 31, 2013 |
Total (gains) losses included in net (income) loss attributable to liabilities still held |
|||||||||||||||||||||||||||||||||||
(Amounts in millions) |
Included in net (income) loss |
Included in OCI |
||||||||||||||||||||||||||||||||||||||||||
Policyholder account balances: |
||||||||||||||||||||||||||||||||||||||||||||
GMWB embedded derivatives (1) |
$ | 350 | $ | (291 | ) | $ | — | $ | — | $ | — | $ | 37 | $ | — | $ | — | $ | — | $ | 96 | $ | (289 | ) | ||||||||||||||||||||
Fixed index annuity embedded derivatives |
27 | 18 | — | — | — | 98 | — | — | — | 143 | 18 | |||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||||
Total policyholder account balances |
377 | (273 | ) | — | — | — | 135 | — | — | — | 239 | (271 | ) | |||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||||
Derivative liabilities: |
||||||||||||||||||||||||||||||||||||||||||||
Credit default swaps |
1 | (1 | ) | — | — | — | — | — | — | — | — | (1 | ) | |||||||||||||||||||||||||||||||
Credit default swaps related to securitization entities (2) |
104 | (77 | ) | — | 5 | — | — | — | — | — | 32 | (77 | ) | |||||||||||||||||||||||||||||||
Equity index options |
— | 1 | — | — | — | — | (1 | ) | — | — | — | 1 | ||||||||||||||||||||||||||||||||
Other foreign current contracts |
— | (2 | ) | — | 3 | — | — | — | — | — | 1 | (2 | ) | |||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||||
Total derivative liabilities |
105 | (79 | ) | — | 8 | — | — | (1 | ) | — | — | 33 | (79 | ) | ||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||||
Borrowings related to securitization entities (2) |
62 | 13 | — | — | — | — | — | — | — | 75 | 13 | |||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||||
Total Level 3 liabilities |
$ | 544 | $ | (339 | ) | $ | — | $ | 8 | $ | — | $ | 135 | $ | (1 | ) | $ | — | $ | — | $ | 347 | $ | (337 | ) | |||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) | Represents embedded derivatives associated with our GMWB liabilities, excluding the impact of reinsurance. |
(2) | See note 17 for additional information related to consolidated securitization entities. |
The following table presents the gains and losses included in net (income) loss from liabilities measured at fair value on a recurring basis and for which we have utilized significant unobservable (Level 3) inputs to determine fair value and the related income statement line item in which these gains and losses were presented for the years ended December 31:
(Amounts in millions) |
2015 | 2014 | 2013 | |||||||||
Total realized and unrealized (gains) losses included in net (income) loss: |
||||||||||||
Net investment income |
$ | — | $ | — | $ | — | ||||||
Net investment (gains) losses |
16 | 177 | (339 | ) | ||||||||
|
|
|
|
|
|
|||||||
Total |
$ | 16 | $ | 177 | $ | (339 | ) | |||||
|
|
|
|
|
|
|||||||
Total (gains) losses included in net (income) loss attributable to liabilities still held: |
||||||||||||
Net investment income |
$ | — | $ | — | $ | — | ||||||
Net investment (gains) losses |
48 | 178 | (337 | ) | ||||||||
|
|
|
|
|
|
|||||||
Total |
$ | 48 | $ | 178 | $ | (337 | ) | |||||
|
|
|
|
|
|
Purchases, sales, issuances and settlements represent the activity that occurred during the period that results in a change of the asset or liability but does not represent changes in fair value for the instruments held at the beginning of the period. Such activity primarily consists of purchases, sales and settlements of fixed maturity, equity and trading securities and purchases, issuances and settlements of derivative instruments.
Issuances presented for GMWB embedded derivative liabilities are characterized as the change in fair value associated with the product fees recognized that are attributed to the embedded derivative to equal the expected future benefit costs upon issuance. Issuances for fixed index annuity and indexed universal life embedded derivative liabilities represent the amount of the premium received that is attributed to the value of the embedded derivative. Settlements of embedded derivatives are characterized as the change in fair value upon exercising the embedded derivative instrument, effectively representing a settlement of the embedded derivative instrument. We have shown these changes in fair value separately based on the classification of this activity as effectively issuing and settling the embedded derivative instrument with all remaining changes in the fair value of these embedded derivative instruments being shown separately in the category labeled “included in net (income) loss” in the tables presented above.
The following table presents a summary of the significant unobservable inputs used for certain fair value measurements that are based on internal models and classified as Level 3 as of December 31, 2015:
(Amounts in millions) |
Valuation technique | Fair value | Unobservable input | Range | Weighted-average | |||||||
Fixed maturity securities: |
||||||||||||
U.S. corporate: |
||||||||||||
Utilities |
Internal models | $ | 425 | Credit spreads | 100bps - 346bps | 177bps | ||||||
Energy |
Internal models | 141 | Credit spreads | 124bps - 365bps | 208bps | |||||||
Finance and insurance |
Internal models | 598 | Credit spreads | 96bps - 644bps | 252bps | |||||||
Consumer—non-cyclical |
Internal models | 109 | Credit spreads | 150bps - 495bps | 280bps | |||||||
Technology and communications |
Internal models | 35 | Credit spreads | 403bps | Not applicable | |||||||
Industrial |
Internal models | 61 | Credit spreads | 252bps - 354bps | 305bps | |||||||
Capital goods |
Internal models | 180 | Credit spreads | 94bps - 516bps | 226bps | |||||||
Consumer—cyclical |
Internal models | 239 | Credit spreads | 94bps - 350bps | 230bps | |||||||
Transportation |
Internal models | 95 | Credit spreads | 66bps - 335bps | 223bps | |||||||
Other |
Internal models | 167 | Credit spreads | 82bps - 495bps | 154bps | |||||||
|
|
|||||||||||
Total U.S. corporate |
Internal models | $ | 2,050 | Credit spreads | 66bps - 644bps | 225bps | ||||||
|
|
|||||||||||
Non-U.S. corporate: |
||||||||||||
Utilities |
Internal models | $ | 287 | Credit spreads | 112bps - 212bps | 157bps | ||||||
Energy |
Internal models | 213 | Credit spreads | 146bps - 552bps | 265bps | |||||||
Finance and insurance |
Internal models | 181 | Credit spreads | 125bps - 230bps | 147bps | |||||||
Consumer—non-cyclical |
Internal models | 155 | Credit spreads | 94bps - 332bps | 213bps | |||||||
Technology and communications |
Internal models | 62 | Credit spreads | 179bps - 552bps | 312bps | |||||||
Industrial |
Internal models | 70 | Credit spreads | 150bps - 280bps | 253bps | |||||||
Capital goods |
Internal models | 180 | Credit spreads | 150bps - 440bps | 259bps | |||||||
Consumer—cyclical |
Internal models | 71 | Credit spreads | 109bps - 354bps | 236bps | |||||||
Transportation |
Internal models | 144 | Credit spreads | 120bps - 354bps | 197bps | |||||||
Other |
Internal models | 55 | Credit spreads | 354bps - 714bps | 464bps | |||||||
|
|
|||||||||||
Total non-U.S. corporate |
Internal models | $ | 1,418 | Credit spreads | 94bps - 714bps | 222bps | ||||||
|
|
|||||||||||
Derivative assets: |
||||||||||||
Credit default swaps (1) |
Discounted cash flows |
$ | 1 | Credit spreads | 5bps | Not applicable | ||||||
Equity index options |
Discounted cash flows |
$ | 30 | Equity index volatility |
—% - 23% | 17% | ||||||
Interest rate volatility | 24% - 25% | 25% | ||||||||||
Other foreign currency contracts |
Discounted cash flows |
$ | 3 | Foreign exchange rate volatility |
9% - 13% | 12% | ||||||
Policyholder account balances: |
||||||||||||
Withdrawal | ||||||||||||
utilization rate | —% - 98% | 66% | ||||||||||
Lapse rate | —% - 15% | 6% | ||||||||||
Non-performance risk (credit spreads) |
40bps - 85bps | 70bps | ||||||||||
GMWB embedded derivatives (2) |
Stochastic cash flow model |
$ | 352 | Equity index volatility |
17% - 24% | 21% | ||||||
Fixed index annuity embedded derivatives |
Option budget method |
$ | 342 | Expected future interest credited |
—% - 3% | 2% | ||||||
Indexed universal life embedded derivatives |
Option budget method |
$ | 10 | Expected future interest credited |
3% - 10% | 6% |
(1) | Unobservable input valuation based on the current market credit default swap premium. |
(2) | Represents embedded derivatives associated with our GMWB liabilities, excluding the impact of reinsurance. |
Certain classes of instruments classified as Level 3 are excluded above as a result of not being material or due to limitations in being able to obtain the underlying inputs used by certain third-party sources, such as broker quotes, used as an input in determining fair value.
|
(17) Variable Interest and Securitization Entities
VIEs are generally entities that have either a total equity investment that is insufficient to permit the entity to finance its activities without additional subordinated financial support or whose equity investors lack the characteristics of a controlling financial interest. We evaluate VIEs to determine whether we are the primary beneficiary and are required to consolidate the assets and liabilities of the entity. The determination of the primary beneficiary for a VIE can be complex and requires management judgment regarding the expected results of the entity and who directs the activities of the entity that most significantly impact the economic results of the VIE.
(a) Asset Securitizations
We have used former affiliates and third-party entities to facilitate asset securitizations. Disclosure requirements related to off-balance sheet arrangements encompass a broader array of arrangements than those at risk for consolidation. These arrangements include transactions with term securitization entities, as well as transactions with conduits that are sponsored by third parties.
The following table summarizes the total securitized assets as of December 31:
(Amounts in millions) |
2015 | 2014 | ||||||
Receivables secured by: |
||||||||
Other assets |
$ | 136 | $ | 142 | ||||
|
|
|
|
|||||
Total securitized assets not required to be consolidated |
136 | 142 | ||||||
|
|
|
|
|||||
Total securitized assets required to be consolidated |
267 | 300 | ||||||
|
|
|
|
|||||
Total securitized assets |
$ | 403 | $ | 442 | ||||
|
|
|
|
We do not have any additional exposure or guarantees associated with these securitization entities.
There has been no new asset securitization activity in 2015 or 2014.
(b) Securitization and Variable Interest Entities Required To Be Consolidated
For VIEs related to asset securitization transactions, we consolidate two securitization entities as a result of our involvement in the entities’ design or having certain decision making ability regarding the assets held by the securitization entity. These securitization entities were designed to have significant limitations on the types of assets owned and the types and extent of permitted activities and decision making rights. The two securitization entities that are consolidated comprise one securitization entity backed by commercial mortgage loans and one backed by residual interests in certain policy loan securitization entities.
For the commercial mortgage loan securitization entity, our primary economic interest represents the excess interest of the commercial mortgage loans and the subordinated notes of the securitization entity.
Our primary economic interest in the policy loan securitization entity represents the excess interest received from the residual interest in certain policy loan securitization entities and the floating rate obligation issued by the securitization entity, where our economic interest is not expected to be material in any future years. Upon consolidation, we elected fair value option for the assets and liabilities for the securitization entity.
For VIEs related to certain investments, we were required to consolidate three securitization entities as a result of having certain decision making rights related to instruments held by the entities. Upon consolidation, we elected fair value option for the assets and liabilities for the securitization entity.
The following table shows the assets and liabilities that were recorded for the consolidated securitization entities as of December 31:
(Amounts in millions) |
2015 | 2014 | ||||||
Assets |
||||||||
Investments: |
||||||||
Restricted commercial mortgage loans |
$ | 161 | $ | 201 | ||||
Restricted other invested assets: |
||||||||
Trading securities |
413 | 411 | ||||||
|
|
|
|
|||||
Total restricted other invested assets |
413 | 411 | ||||||
|
|
|
|
|||||
Total investments |
574 | 612 | ||||||
Cash and cash equivalents |
1 | 1 | ||||||
Accrued investment income |
1 | 1 | ||||||
Other assets |
5 | — | ||||||
|
|
|
|
|||||
Total assets |
$ | 581 | $ | 614 | ||||
|
|
|
|
|||||
Liabilities |
||||||||
Other liabilities: |
||||||||
Derivative liabilities |
$ | 44 | $ | 43 | ||||
Other liabilities |
2 | 2 | ||||||
|
|
|
|
|||||
Total other liabilities |
46 | 45 | ||||||
Borrowings related to securitization entities |
179 | 219 | ||||||
|
|
|
|
|||||
Total liabilities |
$ | 225 | $ | 264 | ||||
|
|
|
|
The assets and other instruments held by the securitization entities are restricted and can only be used to fulfill the obligations of the securitization entity. Additionally, the obligations of the securitization entities do not have any recourse to the general credit of any other consolidated subsidiaries.
The following table shows the activity presented in our consolidated statement of income related to the consolidated securitization entities for the years ended December 31:
(Amounts in millions) |
2015 | 2014 | 2013 | |||||||||
Revenues: |
||||||||||||
Net investment income: |
||||||||||||
Restricted commercial mortgage loans |
$ | 14 | $ | 14 | $ | 23 | ||||||
Restricted other invested assets |
5 | 5 | 4 | |||||||||
|
|
|
|
|
|
|||||||
Total net investment income |
19 | 19 | 27 | |||||||||
|
|
|
|
|
|
|||||||
Net investment gains (losses): |
||||||||||||
Trading securities |
(2 | ) | 15 | (4 | ) | |||||||
Derivatives |
3 | 10 | 86 | |||||||||
Borrowings related to securitization entities recorded at fair value |
4 | (9 | ) | (13 | ) | |||||||
|
|
|
|
|
|
|||||||
Total net investment gains (losses) |
5 | 16 | 69 | |||||||||
|
|
|
|
|
|
|||||||
Total revenues |
24 | 35 | 96 | |||||||||
|
|
|
|
|
|
|||||||
Expenses: |
||||||||||||
Interest expense |
9 | 10 | 16 | |||||||||
|
|
|
|
|
|
|||||||
Total expenses |
9 | 10 | 16 | |||||||||
|
|
|
|
|
|
|||||||
Income before income taxes |
15 | 25 | 80 | |||||||||
Provision for income taxes |
5 | 9 | 27 | |||||||||
|
|
|
|
|
|
|||||||
Net income |
$ | 10 | $ | 16 | $ | 53 | ||||||
|
|
|
|
|
|
(c) Borrowings Related To Consolidated Securitization Entities
Borrowings related to securitization entities were as follows as of December 31:
2015 | 2014 | |||||||||||||||
(Amounts in millions) |
Principal amount |
Carrying value |
Principal amount |
Carrying value |
||||||||||||
GFCM LLC, due 2035, 5.2541% |
$ | — | $ | — | $ | 21 | $ | 21 | ||||||||
GFCM LLC, due 2035, 5.7426% |
98 | 98 | 113 | 113 | ||||||||||||
Marvel Finance 2007-4 LLC, due 2017 (1),(2) |
12 | 10 | 12 | 12 | ||||||||||||
Genworth Special Purpose Five, LLC, due 2040 (1),(2) |
NA | (3) | 71 | NA | (3) | 73 | ||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total |
$ | 110 | $ | 179 | $ | 146 | $ | 219 | ||||||||
|
|
|
|
|
|
|
|
(1) | Accrual of interest based on three-month LIBOR that resets every three months plus a fixed margin. |
(2) | Carrying value represents fair value as a result of electing fair value option for these liabilities. |
(3) | Principal amount not applicable. Notional balance was $118 million and $115 million as of December 31, 2015 and 2014, respectively. |
These borrowings are required to be paid down as principal is collected on the restricted investments held by the securitization entities and accordingly the repayment of these borrowings follows the maturity or prepayment, as permitted, of the restricted investments.
|
(18) Insurance Subsidiary Financial Information and Regulatory Matters
Dividends
Our insurance company subsidiaries are restricted by state and foreign laws and regulations as to the amount of dividends they may pay to their parent without regulatory approval in any year, the purpose of which is to protect affected insurance policyholders or contractholders, not stockholders. Any dividends in excess of limits are deemed “extraordinary” and require approval. Based on estimated statutory results as of December 31, 2015, in accordance with applicable dividend restrictions, our subsidiaries could pay dividends of approximately $140 million to us in 2016 without obtaining regulatory approval, and the remaining net assets are considered restricted. While the $140 million is unrestricted, our insurance subsidiaries may not pay dividends to us in 2016 at this level if they need to retain capital for growth and to meet capital requirements and desired thresholds. As of December 31, 2015, Genworth Financial’s and Genworth Holdings’ subsidiaries had restricted net assets of $12.7 billion and $12.8 billion, respectively. There are no regulatory restrictions on the ability of Genworth Financial to pay dividends. Our Board of Directors has suspended the payment of dividends on our common stock indefinitely. The declaration and payment of future dividends to holders of our common stock will be at the discretion of our Board of Directors and will be dependent on many factors including the receipt of dividends from our operating subsidiaries, our financial condition and operating results, the capital requirements of our subsidiaries, legal requirements, regulatory constraints, our credit and financial strength ratings and such other factors as the Board of Directors deems relevant.
Our domestic insurance subsidiaries paid dividends of $41 million (none of which were deemed “extraordinary”), $108 million (none of which were deemed “extraordinary”) and $418 million (none of which were deemed “extraordinary”) during 2015, 2014 and 2013, respectively. Our international insurance subsidiaries paid dividends of $640 million, $630 million and $317 million during 2015, 2014 and 2013, respectively.
U.S. domiciled insurance subsidiaries—statutory financial information
Our U.S. domiciled insurance subsidiaries file financial statements with state insurance regulatory authorities and the NAIC that are prepared on an accounting basis either prescribed or permitted by such authorities. Statutory accounting practices differ from U.S. GAAP in several respects, causing differences in reported net income (loss) and stockholders’ equity.
Permitted statutory accounting practices encompass all accounting practices not so prescribed but that have been specifically allowed by individual state insurance authorities. Our U.S. domiciled insurance subsidiaries have no material permitted accounting practices, except for River Lake Insurance Company VI (“River Lake VI”), River Lake Insurance Company VII (“River Lake VII”), River Lake Insurance Company VIII (“River Lake VIII”), River Lake Insurance Company IX (“River Lake IX”), River Lake Insurance Company X ((“River Lake X”), together with River Lake VI, River Lake VII, River Lake VIII and River Lake IX, the “SPFCs”) and Genworth Life Insurance Company of New York (“GLICNY”). The permitted practices of the SPFCs were an essential element of their design and were expressly included in their plans of operation and in the licensing orders issued by their domiciliary state regulators and without those permitted practices, these entities could be subject to regulatory action. Accordingly, we believe that the permitted practices will remain in effect for so long as we maintain the SPFCs. The permitted practices were as follows:
• | River Lake IX and River Lake X were granted a permitted accounting practice from the State of Vermont to carry its excess of loss reinsurance agreement with Brookfield Life and Annuity Insurance Company Limited (“BLAIC”) and Hannover Life Reassurance Company Of America, respectively, as an admitted asset. |
• | River Lake VII and River Lake VIII were granted a permitted accounting practice from the State of Vermont to carry their reserves on a basis similar to U.S. GAAP. |
• | River Lake VI was granted a permitted accounting practice from the State of Delaware to carry its excess of loss reinsurance agreement with The Canada Life Assurance Company as an admitted asset. |
• | GLICNY received a permitted practice from New York to exempt certain of its investments from a NAIC structured security valuation and ratings process. |
The impact of these permitted practices on our combined U.S. domiciled life insurance subsidiaries’ statutory capital and surplus was $120 million and $365 million as of December 31, 2015 and 2014, respectively. If permitted practices had not been used, no regulatory event would have been triggered.
The tables below include the combined statutory net income (loss) and statutory capital and surplus for our U.S. domiciled insurance subsidiaries for the periods indicated:
Years ended December 31, | ||||||||||||
(Amounts in millions) |
2015 | 2014 | 2013 | |||||||||
Combined statutory net income (loss): |
||||||||||||
Life insurance subsidiaries, excluding captive life reinsurance subsidiaries |
$ | (330 | ) | $ | (179 | ) | $ | 359 | ||||
Mortgage insurance subsidiaries |
287 | 198 | 85 | |||||||||
|
|
|
|
|
|
|||||||
Combined statutory net income (loss), excluding captive reinsurance subsidiaries |
(43 | ) | 19 | 444 | ||||||||
Captive life insurance subsidiaries |
(276 | ) | (281 | ) | (102 | ) | ||||||
|
|
|
|
|
|
|||||||
Combined statutory net income (loss) |
$ | (319 | ) | $ | (262 | ) | $ | 342 | ||||
|
|
|
|
|
|
As of December 31, | ||||||||
(Amounts in millions) |
2015 | 2014 | ||||||
Combined statutory capital and surplus: |
||||||||
Life insurance subsidiaries, excluding captive life reinsurance subsidiaries |
$ | 2,548 | $ | 2,560 | ||||
Mortgage insurance subsidiaries |
1,722 | 1,792 | ||||||
|
|
|
|
|||||
Combined statutory capital and surplus |
$ | 4,270 | $ | 4,352 | ||||
|
|
|
|
The statutory net income (loss) from our captive life reinsurance subsidiaries relates to the reinsurance of term and universal life insurance statutory reserves assumed from our U.S. domiciled life insurance companies. These reserves are, in turn, funded through the issuance of surplus notes (non-recourse funding obligations) to third parties or secured by a third-party letter of credit or excess of loss reinsurance treaties with third parties. Accordingly, the life insurance subsidiaries’ combined statutory net income (loss) and distributable income (loss) are not affected by the statutory net income (loss) of the captives, except to the extent dividends are received from the captives. The combined statutory capital and surplus of our life insurance subsidiaries does not include the capital and surplus of our captive life reinsurance subsidiaries of $671 million and $1,057 million as of December 31, 2015 and 2014, respectively. Capital and surplus of our captive life reinsurance subsidiaries, excluding River Lake VI, River Lake VII, River Lake VIII, River Lake IX and River Lake X, include surplus notes (non-recourse funding obligations) as further described in note 12.
The NAIC has adopted RBC requirements to evaluate the adequacy of statutory capital and surplus in relation to risks associated with: (i) asset risk; (ii) insurance risk; (iii) interest rate and equity market risk; and (iv) business risk. The RBC formula is designated as an early warning tool for the states to identify possible undercapitalized companies for the purpose of initiating regulatory action. In the course of operations, we periodically monitor the RBC level of each of our life insurance subsidiaries. As of December 31, 2015 and 2014, each of our life insurance subsidiaries exceeded the minimum required RBC levels. The consolidated RBC ratio of our U.S. domiciled life insurance subsidiaries was approximately 393% and 435% of the company action level as of December 31, 2015 and 2014, respectively.
On September 11, 2013, the New York Department of Financial Services announced that it would require New York licensed companies to use an alternative interpretation of Actuarial Guideline 38 (more commonly known as “AG 38”) for universal life insurance products with secondary guarantees from the NAIC interpretation. We did not record any additional statutory reserves as of December 31, 2015 and we recorded $70 million of additional statutory reserves as of December 31, 2014 in our life insurance subsidiary domiciled in New York. As of December 31, 2015, this subsidiary had a total of $150 million of additional AG 38 reserves recorded.
As of December 31, 2015, we established $198 million of additional statutory reserves resulting from updates to our universal life insurance products with secondary guarantees in our Virginia and Delaware licensed life insurance subsidiaries.
In addition, as a result of our annual statutory cash flow testing of our long-term care insurance business, our New York insurance subsidiary recorded $89 million and $39 million of additional statutory reserves in the fourth quarters of 2015 and 2014, respectively, and expects to record an aggregate of $267 million of additional statutory reserves over the next three years.
For regulatory purposes, our U.S. mortgage insurance subsidiaries are required to maintain a statutory contingency reserve. Annual additions to the statutory contingency reserve must equal the greater of: (i) 50% of earned premiums or (ii) the required level of policyholders position, as defined by state insurance laws. These contingency reserves generally are held until the earlier of: (i) the time that loss ratios exceed 35% or (ii) 10 years. However, approval by the North Carolina Department of Insurance (“NCDOI”) is required for contingency reserve releases when loss ratios exceed 35%. The statutory contingency reserve for our U.S. mortgage insurance subsidiaries was approximately $500 million and $193 million, respectively, as of December 31, 2015 and 2014 and, was included in the table above containing combined statutory capital and surplus balances.
Mortgage insurers are not subject to the NAIC’s RBC requirements but certain states and other regulators impose another form of capital requirement on mortgage insurers requiring maintenance of a risk-to-capital ratio not to exceed 25:1. Fifteen other states maintain similar risk-to-capital requirements. As of December 31, 2015, GMICO’s risk-to-capital ratio under the current regulatory framework as established under North Carolina law and enforced by the NCDOI, GMICO’s domestic insurance regulator, was approximately 16.4:1, compared with a risk-to-capital ratio of approximately 14.3:1 as of December 31, 2014.
In May 2014, Genworth Mortgage Holdings, LLC, a U.S. mortgage insurance holding company contributed $300 million to GMICO, our primary U.S. mortgage insurance subsidiary.
Effective December 31, 2015, each GSE adopted revised private mortgage insurer eligibility requirements (“PMIERs”) which set forth operational and financial requirements that mortgage insurers must meet in order to remain eligible. By March 1, 2016, an approved insurer must certify as to its compliance with PMIERs as of December 31, 2015. If an approved insurer meets all of PMIERs except the financial requirements that approved insurer may submit by March 31, 2016 a transition plan that each GSE in its sole and absolute discretion may approve or disapprove. If approved, the GSEs will permit a transition period deemed by the GSEs to be reasonably sufficient for the approved insurer to meet the financial requirements, which in any case may not extend beyond June 30, 2017. If an approved insurer is unable to certify as to its compliance with the non-financial requirements of PMIERs, then by March 1, 2016, it may submit a corrective action plan detailing how it expects to achieve compliance. An approved insurer will retain its ability to write insurance on loans eligible for delivery to the GSEs from December 31, 2015 until a transition plan or corrective action plan, as the case may be, has been specifically approved or disapproved, subject to the approved insurer continuing to meet all other PMIERs requirements. As of the December 31, 2015 effective date of PMIERs, our U.S mortgage insurance business met the PMIERs operational and financial requirements, based in part on: (i) our entry during 2015 into three separate excess of loss reinsurance transactions with three panels of reinsurers covering our 2009 through 2015 book years that we believe, based on indications from the GSEs, provide up to approximately $535 million of PMIERs credit; (ii) the intercompany sale during 2015 by our U.S. mortgage insurance business of its ownership interest in affiliated preferred securities for approximately $200 million; and (iii) an internal restructuring of legal entities during 2015.
International insurance subsidiaries—statutory financial information
Our international insurance subsidiaries also prepare financial statements in accordance with local regulatory requirements. As of December 31, 2015 and 2014, combined local statutory capital and surplus included in continuing operations for our international insurance subsidiaries, excluding our lifestyle protection insurance and European mortgage insurance businesses, was $5,249 million and $5,773 million, respectively. Combined local statutory net income (loss) included in continuing operations for our international insurance subsidiaries, excluding our lifestyle protection insurance business, was $412 million, $(66) million and $573 million for the years ended December 31, 2015, 2014 and 2013, respectively. The regulatory authorities in these international jurisdictions generally establish supervisory solvency requirements. Our international insurance subsidiaries, excluding our lifestyle protection insurance and European mortgage insurance businesses, had combined surplus levels included in continuing operations that exceeded local solvency requirements by $1,673 million and $1,642 million as of December 31, 2015 and 2014, respectively.
Our international insurance subsidiaries do not have any material accounting practices that differ from local regulatory requirements other than one of our insurance subsidiaries domiciled in Bermuda, which was granted approval from the Bermuda Monetary Authority to record a parental guarantee as statutory capital related to an internal reinsurance agreement. The amount recorded as statutory capital is equal to the excess of NAIC statutory reserves less the economic reserves up to the amount of the guarantee resulting in an increase in statutory capital of $205 million as of December 31, 2015 and 2014.
Certain of our insurance subsidiaries have securities on deposit with various state or foreign government insurance departments in order to comply with relevant insurance regulations. See note 4(d) for additional information related to these deposits. Additionally, under the terms of certain reinsurance agreements that our life insurance subsidiaries have with external parties, we pledged assets in either separate portfolios or in trust for the benefit of external reinsurers. These assets support the reserves ceded to those external reinsurers. See note 8 for additional information related to these pledged assets under reinsurance agreements. Certain of our U.S. life insurance subsidiaries are also members of regional FHLBs and the FHLBs have been granted a lien on certain of our invested assets to collateralize our obligations. See note 9 for additional information related to these pledged assets with the FHLBs.
Guarantees of obligations
In addition to the guarantees discussed in notes 17 and 21, we have provided guarantees to third parties for the performance of certain obligations of our subsidiaries. We estimate that our potential obligations under such guarantees, other than the Rivermont I guarantee, were $25 million and $28 million as of December 31, 2015 and 2014, respectively. We provide a limited guarantee to Rivermont I, an indirect subsidiary, which is accounted for as a derivative carried at fair value and is eliminated in consolidation. As of December 31, 2015 and 2014, the fair value of this derivative was $4 million and $5 million, respectively.
Genworth Holdings provides a guarantee for the benefit of policyholders for the payment of valid claims by our mortgage insurance subsidiary located in the United Kingdom. This guarantee is unlimited while we own the business. As of December 31, 2015, the risk in-force of the business subject to the Genworth Holdings guarantee was approximately $2.0 billion. Following the sale of this U.K. subsidiary to AmTrust Financial Services, Inc., the guarantee would be limited to the payment of valid claims on policies in-force prior to the sale date and those written approximately 90 days subsequent to the date of the sale and AmTrust Financial Services, Inc. has agreed to provide us with a limited indemnification in the event there is any exposure under the guarantee. The transaction is expected to close in the first quarter of 2016 and is subject to customary conditions, including requisite regulatory approvals.
Fifty percent of our in-force long-term care insurance business (excluding policies assumed from a non-affiliate third-party reinsurer) of GLIC, a Delaware insurance company and our indirect wholly-owned subsidiary, is reinsured to BLAIC, a Bermuda insurance company and our indirect wholly-owned subsidiary. Genworth Financial International Holdings, LLC (“GFIH”), our indirect wholly-owned subsidiary, has entered into a capital maintenance agreement whereby GFIH has agreed to provide capital to BLAIC to fund payment obligations of BLAIC to GLIC or GLAIC, as applicable, under certain reinsurance agreements, including the one covering our long-term care insurance business. As of December 31, 2015, GFIH directly or indirectly owns 52.0% of our Australian mortgage insurance subsidiaries and 40.6% of our Canadian mortgage insurance subsidiary. As a result of GFIH’s capital maintenance agreement, adverse developments in our reinsured long-term care insurance business (including the recent increases in our reserves of that business) have adversely impacted BLAIC’s financial condition, which could, in turn, adversely impact GFIH’s willingness or ability to pay dividends to Genworth Holdings.
|
(a) Operating Segment Information
Beginning in the fourth quarter of 2015, we changed how we review our operating businesses and no longer have separate reporting divisions. Under our new structure, we have the following five operating business segments: U.S. Mortgage Insurance; Canada Mortgage Insurance; Australia Mortgage Insurance; U.S Life Insurance (which includes our long-term care insurance, life insurance and fixed annuities businesses); and Runoff (which includes the results of non-strategic products which are no longer actively sold). In addition to our five operating business segments, we also have Corporate and Other activities which include debt financing expenses that are incurred at the Genworth Holdings level, unallocated corporate income and expenses, eliminations of inter-segment transactions and the results of other businesses that are managed outside of our operating segments, including certain smaller international mortgage insurance businesses and discontinued operations. Financial information has been updated for all periods to reflect the reorganized segment reporting structure. The following discussion reflects our reorganized operating segments.
In the first quarter of 2015, we revised how we allocate our consolidated provision for income taxes to our operating segments to simplify our process and reflect how our chief operating decision maker is evaluating segment performance. Our revised methodology applies a specific tax rate to the pre-tax income (loss) of each segment, which is then adjusted in each segment to reflect the tax attributes of items unique to that segment such as foreign income. The difference between the consolidated provision for income taxes and the sum of the provision for income taxes in each segment is reflected in Corporate and Other activities. Previously, we calculated a unique income tax provision for each segment based on quarterly changes to tax attributes and implications of transactions specific to each product within the segment.
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. Prior year amounts have not been re-presented to reflect this revised presentation and are, therefore, not comparable to the current year provision for income taxes by segment. However, we do not believe that the previous methodology would have resulted in a materially different segment-level provision for income taxes.
We use the same accounting policies and procedures to measure segment income (loss) and assets as our consolidated net income and assets. Our chief operating decision maker evaluates segment performance and allocates resources on the basis of “net operating income (loss).” We define net operating income (loss) as income (loss) from continuing operations excluding the after-tax effects of income attributable to noncontrolling interests, net investment gains (losses), goodwill impairments, gains (losses) on the sale of businesses, gains (losses) on the early extinguishment of debt, gains (losses) on insurance block transactions, restructuring costs and infrequent or unusual non-operating items. Gains (losses) on insurance block transactions are defined as gains (losses) on the early extinguishment of non-recourse funding obligations, early termination fees for other financing restructuring and/or resulting gains (losses) on reinsurance restructuring for certain blocks of business. We exclude net investment gains (losses) and infrequent or unusual non-operating items because we do not consider them to be related to the operating performance of our segments and Corporate and Other activities. A component of our net investment gains (losses) is the result of impairments, the size and timing of which can vary significantly depending on market credit cycles. In addition, the size and timing of other investment gains (losses) can be subject to our discretion and are influenced by market opportunities, as well as asset-liability matching considerations. Goodwill impairments, gains (losses) on the sale of businesses, gains (losses) on the early extinguishment of debt, gains (losses) on insurance block transactions and restructuring costs are also excluded from net operating income (loss) because, in our opinion, they are not indicative of overall operating trends. Infrequent or unusual non-operating items are also excluded from net operating income (loss) if, in our opinion, they are not indicative of overall operating trends.
While some of these items may be significant components of net income (loss) available to Genworth Financial, Inc.’s common stockholders in accordance with U.S. GAAP, we believe that net operating income (loss), and measures that are derived from or incorporate net operating income (loss), 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 net 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 net operating income (loss) have occurred in the past and could, and in some cases will, recur in the future. Net operating income (loss) is not a substitute for net income (loss) available to Genworth Financial, Inc.’s common stockholders determined in accordance with U.S. GAAP. In addition, our definition of net operating income (loss) may differ from the definitions used by other companies.
In the first quarter of 2015, we modified our definition to explicitly state that restructuring costs, which were previously included in the infrequent and unusual category, are excluded from net operating income (loss). In 2015, we recorded an after-tax expense of $5 million related to restructuring costs as part of an expense reduction plan as the company evaluates and appropriately sizes its organizational needs and expenses. Also, in the second quarter of 2013, we recorded a $10 million after-tax expense related to restructuring costs.
In 2014, we recorded goodwill impairments of $296 million, net of taxes, in our long-term care insurance business and $495 million, net of taxes, in our life insurance business.
In 2015, we recorded an estimated loss of $141 million, net of taxes, related to the planned sale of our mortgage insurance business in Europe.
In the third quarter of 2015, we paid an early redemption payment of approximately $1 million, net of taxes and portion attributable to noncontrolling interests, related to the early redemption of Genworth Financial Mortgage Insurance Pty Limited’s notes that were scheduled to mature in 2021. In the third quarter of 2015, we also repurchased approximately $50 million principal amount of Genworth Holdings, Inc.’s notes with various maturity dates for a loss of $1 million, net of taxes. In the second quarter of 2014, we paid an early redemption payment of approximately $2 million, net of taxes and portion attributable to noncontrolling interests, related to the early redemption of Genworth Canada’s notes that were scheduled to mature in 2015. In the third quarter of 2013, we paid a make-whole expense of approximately $20 million, net of taxes, related to the early redemption of Genworth Holdings’ 2015 Notes. These transactions were excluded from net operating income (loss) for the periods presented as they related to the loss on the early extinguishment of debt.
In the third quarter of 2015, we recorded a DAC impairment of $296 million, net of taxes, on certain term life insurance policies in connection with entering into an agreement with Protective Life to complete a life block transaction.
There were no infrequent or unusual items excluded from net operating income (loss) during the periods presented other than the following items. There was $205 million net tax impact in the fourth quarter of 2014 from potential business portfolio changes. We recognized a tax charge of $174 million in the fourth quarter of 2014 associated with our Australian mortgage insurance business as we could no longer assert our intent to permanently reinvest earnings in that business. In addition, in connection with our plans to sell our lifestyle protection insurance business, we made a change to the permanent reinvestment assertion of one of its legal entities recognizing tax expense of $31 million in the fourth quarter of 2014.
Adjustments to reconcile net income (loss) attributable to Genworth Financial, Inc.’s common stockholders and net operating income (loss) assume a 35% tax rate and are net of the portion attributable to noncontrolling interests. Net investment gains (losses) are also adjusted for DAC and other intangible amortization and certain benefit reserves.
The following is a summary of our segments and Corporate and Other activities as of or for the years ended December 31:
2015 |
U.S. Mortgage Insurance |
Canada Mortgage Insurance |
Australia Mortgage Insurance |
U.S. Life Insurance |
Runoff | Corporate and Other |
Total | |||||||||||||||||||||
(Amounts in millions) |
||||||||||||||||||||||||||||
Premiums |
$ | 602 | $ | 466 | $ | 357 | $ | 3,128 | $ | 1 | $ | 25 | $ | 4,579 | ||||||||||||||
Net investment income |
58 | 130 | 114 | 2,701 | 138 | (3 | ) | 3,138 | ||||||||||||||||||||
Net investment gains (losses) |
1 | (32 | ) | 6 | (10 | ) | (69 | ) | 29 | (75 | ) | |||||||||||||||||
Policy fees and other income |
4 | — | (3 | ) | 726 | 189 | (10 | ) | 906 | |||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Total revenues |
665 | 564 | 474 | 6,545 | 259 | 41 | 8,548 | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Benefits and other changes in policy reserves |
222 | 96 | 81 | 4,692 | 44 | 14 | 5,149 | |||||||||||||||||||||
Interest credited |
— | — | — | 596 | 124 | — | 720 | |||||||||||||||||||||
Acquisition and operating expenses, net of deferrals |
155 | 66 | 98 | 684 | 76 | 230 | 1,309 | |||||||||||||||||||||
Amortization of deferred acquisition costs and intangibles |
10 | 36 | 18 | 872 | 29 | 1 | 966 | |||||||||||||||||||||
Interest expense |
— | 18 | 10 | 92 | 1 | 298 | 419 | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Total benefits and expenses |
387 | 216 | 207 | 6,936 | 274 | 543 | 8,563 | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Income (loss) from continuing operations before income taxes |
278 | 348 | 267 | (391 | ) | (15 | ) | (502 | ) | (15 | ) | |||||||||||||||||
Provision (benefit) for income taxes |
99 | 90 | 80 | (138 | ) | (10 | ) | (130 | ) | (9 | ) | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Income (loss) from continuing operations |
179 | 258 | 187 | (253 | ) | (5 | ) | (372 | ) | (6 | ) | |||||||||||||||||
Income (loss) from discontinued operations, net of taxes |
— | — | — | — | — | (407 | ) | (407 | ) | |||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Net income (loss) |
179 | 258 | 187 | (253 | ) | (5 | ) | (779 | ) | (413 | ) | |||||||||||||||||
Less: net income attributable to noncontrolling interests |
— | 118 | 84 | — | — | — | 202 | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Net income (loss) available to Genworth Financial, Inc.’s common stockholders |
$ | 179 | $ | 140 | $ | 103 | $ | (253 | ) | $ | (5 | ) | $ | (779 | ) | $ | (615 | ) | ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Segment assets |
$ | 2,899 | $ | 4,520 | $ | 2,987 | $ | 79,530 | $ | 12,115 | $ | 4,253 | $ | 106,304 | ||||||||||||||
Assets held for sale |
— | — | — | — | — | 127 | 127 | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Total assets |
$ | 2,899 | $ | 4,520 | $ | 2,987 | $ | 79,530 | $ | 12,115 | $ | 4,380 | $ | 106,431 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2014 |
U.S. Mortgage Insurance |
Canada Mortgage Insurance |
Australia Mortgage Insurance |
U.S. Life Insurance |
Runoff | Corporate and Other |
Total | |||||||||||||||||||||
(Amounts in millions) |
||||||||||||||||||||||||||||
Premiums |
$ | 578 | $ | 515 | $ | 406 | $ | 3,169 | $ | 3 | $ | 29 | $ | 4,700 | ||||||||||||||
Net investment income |
59 | 155 | 144 | 2,665 | 129 | (10 | ) | 3,142 | ||||||||||||||||||||
Net investment gains (losses) |
— | (2 | ) | 3 | 41 | (66 | ) | 2 | (22 | ) | ||||||||||||||||||
Policy fees and other income |
2 | 1 | (16 | ) | 712 | 209 | 1 | 909 | ||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Total revenues |
639 | 669 | 537 | 6,587 | 275 | 22 | 8,729 | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Benefits and other changes in policy reserves |
357 | 102 | 78 | 5,820 | 37 | 24 | 6,418 | |||||||||||||||||||||
Interest credited |
— | — | — | 618 | 119 | — | 737 | |||||||||||||||||||||
Acquisition and operating expenses, net of deferrals |
140 | 90 | 97 | 658 | 84 | 69 | 1,138 | |||||||||||||||||||||
Amortization of deferred acquisition costs and intangibles |
7 | 38 | 21 | 345 | 39 | 3 | 453 | |||||||||||||||||||||
Goodwill impairment |
— | — | — | 849 | — | — | 849 | |||||||||||||||||||||
Interest expense |
— | 21 | 10 | 87 | 1 | 314 | 433 | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Total benefits and expenses |
504 | 251 | 206 | 8,377 | 280 | 410 | 10,028 | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Income (loss) from continuing operations before income taxes |
135 | 418 | 331 | (1,790 | ) | (5 | ) | (388 | ) | (1,299 | ) | |||||||||||||||||
Provision (benefit) for income taxes |
44 | 111 | 248 | (385 | ) | (19 | ) | (93 | ) | (94 | ) | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Income (loss) from continuing operations |
91 | 307 | 83 | (1,405 | ) | 14 | (295 | ) | (1,205 | ) | ||||||||||||||||||
Income from discontinued operations, net of taxes |
— | — | — | — | — | 157 | 157 | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Net income (loss) |
91 | 307 | 83 | (1,405 | ) | 14 | (138 | ) | (1,048 | ) | ||||||||||||||||||
Less: net income attributable to noncontrolling interests |
— | 140 | 56 | — | — | — | 196 | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Net income (loss) available to Genworth Financial, Inc.’s common stockholders |
$ | 91 | $ | 167 | $ | 27 | $ | (1,405 | ) | $ | 14 | $ | (138 | ) | $ | (1,244 | ) | |||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Segment assets |
$ | 2,324 | $ | 4,920 | $ | 3,494 | $ | 82,891 | $ | 12,971 | $ | 2,573 | $ | 109,173 | ||||||||||||||
Assets held for sale |
— | — | — | — | — | 2,143 | 2,143 | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Total assets |
$ | 2,324 | $ | 4,920 | $ | 3,494 | $ | 82,891 | $ | 12,971 | $ | 4,716 | $ | 111,316 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2013 |
U.S. Mortgage Insurance |
Canada Mortgage Insurance |
Australia Mortgage Insurance |
U.S. Life Insurance |
Runoff | Corporate and Other |
Total | |||||||||||||||||||||
(Amounts in millions) |
||||||||||||||||||||||||||||
Premiums |
$ | 554 | $ | 560 | $ | 398 | $ | 2,957 | $ | 5 | $ | 42 | $ | 4,516 | ||||||||||||||
Net investment income |
60 | 170 | 159 | 2,621 | 139 | 6 | 3,155 | |||||||||||||||||||||
Net investment gains (losses) |
— | 31 | (2 | ) | (3 | ) | (58 | ) | (32 | ) | (64 | ) | ||||||||||||||||
Policy fees and other income |
2 | (1 | ) | — | 755 | 216 | 46 | 1,018 | ||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Total revenues |
616 | 760 | 555 | 6,330 | 302 | 62 | 8,625 | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Benefits and other changes in policy reserves |
412 | 139 | 134 | 3,975 | 32 | 45 | 4,737 | |||||||||||||||||||||
Interest credited |
— | — | — | 619 | 119 | — | 738 | |||||||||||||||||||||
Acquisition and operating expenses, net of deferrals |
144 | 93 | 110 | 658 | 81 | 158 | 1,244 | |||||||||||||||||||||
Amortization of deferred acquisition costs and intangibles |
6 | 37 | 22 | 384 | 6 | 8 | 463 | |||||||||||||||||||||
Interest expense |
— | 22 | 11 | 97 | 2 | 318 | 450 | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Total benefits and expenses |
562 | 291 | 277 | 5,733 | 240 | 529 | 7,632 | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Income (loss) from continuing operations before income taxes |
54 | 469 | 278 | 597 | 62 | (467 | ) | 993 | ||||||||||||||||||||
Provision (benefit) for income taxes |
17 | 133 | 51 | 213 | 13 | (114 | ) | 313 | ||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Income (loss) from continuing operations |
37 | 336 | 227 | 384 | 49 | (353 | ) | 680 | ||||||||||||||||||||
Income from discontinued operations, net of taxes |
— | — | — | — | — | 34 | 34 | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Net income (loss) |
37 | 336 | 227 | 384 | 49 | (319 | ) | 714 | ||||||||||||||||||||
Less: net income attributable to noncontrolling interests |
— | 154 | — | — | — | — | 154 | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Net income (loss) available to Genworth Financial, Inc.’s common stockholders |
$ | 37 | $ | 182 | $ | 227 | $ | 384 | $ | 49 | $ | (319 | ) | $ | 560 | |||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(b) Revenues of Major Product Groups
The following is a summary of revenues of major product groups for our segments and Corporate and Other activities for the years ended December 31:
(Amounts in millions) |
2015 | 2014 | 2013 | |||||||||
Revenues: |
||||||||||||
U.S. Mortgage Insurance segment’s revenues |
$ | 665 | $ | 639 | $ | 616 | ||||||
|
|
|
|
|
|
|||||||
Canada Mortgage Insurance segment’s revenues |
564 | 669 | 760 | |||||||||
|
|
|
|
|
|
|||||||
Australia Mortgage Insurance segment’s revenues |
474 | 537 | 555 | |||||||||
|
|
|
|
|
|
|||||||
U.S. Life Insurance segment: |
||||||||||||
Long-term care insurance |
3,752 | 3,523 | 3,316 | |||||||||
Life insurance |
1,902 | 1,981 | 1,982 | |||||||||
Fixed annuities |
891 | 1,083 | 1,032 | |||||||||
|
|
|
|
|
|
|||||||
U.S. Life Insurance segment’s revenues |
6,545 | 6,587 | 6,330 | |||||||||
|
|
|
|
|
|
|||||||
Runoff segment’s revenues |
259 | 275 | 302 | |||||||||
|
|
|
|
|
|
|||||||
Corporate and Other’s revenues |
41 | 22 | 62 | |||||||||
|
|
|
|
|
|
|||||||
Total revenues |
$ | 8,548 | $ | 8,729 | $ | 8,625 | ||||||
|
|
|
|
|
|
(c) Net Operating Income (Loss)
The following is a summary of net operating income (loss) for our segments and Corporate and Other activities and a reconciliation of net operating income (loss) for our segments and Corporate and Other activities to net income (loss) available to Genworth Financial, Inc.’s common stockholders for the years ended December 31:
(Amounts in millions) |
2015 | 2014 | 2013 | |||||||||
U.S. Mortgage Insurance segment’s net operating income |
$ | 179 | $ | 91 | $ | 37 | ||||||
|
|
|
|
|
|
|||||||
Canada Mortgage Insurance segment’s net operating income |
152 | 170 | 170 | |||||||||
|
|
|
|
|
|
|||||||
Australia Mortgage Insurance segment’s net operating income |
102 | 200 | 228 | |||||||||
|
|
|
|
|
|
|||||||
U.S. Life Insurance segment: |
||||||||||||
Long-term care insurance |
29 | (815 | ) | 129 | ||||||||
Life insurance |
(80 | ) | 74 | 173 | ||||||||
Fixed annuities |
94 | 100 | 92 | |||||||||
|
|
|
|
|
|
|||||||
U.S. Life Insurance segment’s net operating income (loss) |
43 | (641 | ) | 394 | ||||||||
|
|
|
|
|
|
|||||||
Runoff segment’s net operating income |
27 | 48 | 66 | |||||||||
|
|
|
|
|
|
|||||||
Corporate and Other’s net operating loss |
(248 | ) | (266 | ) | (310 | ) | ||||||
|
|
|
|
|
|
|||||||
Net operating income (loss) |
255 | (398 | ) | 585 | ||||||||
Net investment gains (losses), net |
(19 | ) | (5 | ) | (29 | ) | ||||||
Goodwill impairment, net |
— | (791 | ) | — | ||||||||
Gains (losses) from sale of businesses, net |
(141 | ) | — | — | ||||||||
Gains (losses) on early extinguishment of debt, net |
(2 | ) | (2 | ) | (20 | ) | ||||||
Gains (losses) from life block transactions, net |
(296 | ) | — | — | ||||||||
Expenses related to restructuring, net |
(5 | ) | — | (10 | ) | |||||||
Tax impact from potential business portfolio changes |
— | (205 | ) | — | ||||||||
|
|
|
|
|
|
|||||||
Income (loss) from continuing operations available to Genworth Financial, Inc.’s common stockholders |
(208 | ) | (1,401 | ) | 526 | |||||||
Net income attributable to noncontrolling interests |
202 | 196 | 154 | |||||||||
|
|
|
|
|
|
|||||||
Income (loss) from continuing operations |
(6 | ) | (1,205 | ) | 680 | |||||||
Income (loss) from discontinued operations, net of taxes |
(407 | ) | 157 | 34 | ||||||||
|
|
|
|
|
|
|||||||
Net income (loss) |
(413 | ) | (1,048 | ) | 714 | |||||||
Less: net income attributable to noncontrolling interests |
202 | 196 | 154 | |||||||||
|
|
|
|
|
|
|||||||
Net income (loss) available to Genworth Financial, Inc.’s common stockholders |
$ | (615 | ) | $ | (1,244 | ) | $ | 560 | ||||
|
|
|
|
|
|
(d) Geographic Segment Information
We conduct our operations in the following geographic regions: (1) United States (2) Canada (3) Australia and (4) Other Countries.
The following is a summary of geographic region activity as of or for the years ended December 31:
2015 |
||||||||||||||||||||
(Amounts in millions) |
United States | Canada | Australia | Other Countries |
Total | |||||||||||||||
Total revenues |
$ | 7,483 | $ | 564 | $ | 474 | $ | 27 | $ | 8,548 | ||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Income (loss) from continuing operations |
$ | (430 | ) | $ | 258 | $ | 187 | $ | (21 | ) | $ | (6 | ) | |||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Net income (loss) |
$ | (430 | ) | $ | 258 | $ | 187 | $ | (428 | ) | $ | (413 | ) | |||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Segment assets |
$ | 98,738 | $ | 4,520 | $ | 2,987 | $ | 59 | $ | 106,304 | ||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Assets held for sale |
$ | — | $ | — | $ | — | $ | 127 | $ | 127 | ||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total assets |
$ | 98,738 | $ | 4,520 | $ | 2,987 | $ | 186 | $ | 106,431 | ||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
2014 |
||||||||||||||||||||
(Amounts in millions) |
United States | Canada | Australia | Other Countries |
Total | |||||||||||||||
Total revenues |
$ | 7,487 | $ | 669 | $ | 537 | $ | 36 | $ | 8,729 | ||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Income (loss) from continuing operations |
$ | (1,570 | ) | $ | 307 | $ | 83 | $ | (25 | ) | $ | (1,205 | ) | |||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Net income (loss) |
$ | (1,570 | ) | $ | 307 | $ | 83 | $ | 132 | $ | (1,048 | ) | ||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Segment assets |
$ | 100,690 | $ | 4,920 | $ | 3,494 | $ | 69 | $ | 109,173 | ||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Assets held for sale |
$ | — | $ | — | $ | — | $ | 2,143 | $ | 2,143 | ||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total assets |
$ | 100,690 | $ | 4,920 | $ | 3,494 | $ | 2,212 | $ | 111,316 | ||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
2013 |
||||||||||||||||||||
(Amounts in millions) |
United States | Canada | Australia | Other Countries |
Total | |||||||||||||||
Total revenues |
$ | 7,259 | $ | 760 | $ | 555 | $ | 51 | $ | 8,625 | ||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Income (loss) from continuing operations |
$ | 153 | $ | 336 | $ | 227 | $ | (36 | ) | $ | 680 | |||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Net income |
$ | 141 | $ | 336 | $ | 227 | $ | 10 | $ | 714 | ||||||||||
|
|
|
|
|
|
|
|
|
|
|
(20) Quarterly Results of Operations (unaudited)
Our unaudited quarterly results of operations for the year ended December 31, 2015 are summarized in the table below.
Three months ended | ||||||||||||||||
(Amounts in millions, except per share amounts) |
March 31, 2015 |
June 30, 2015 |
September 30, 2015 |
December 31, 2015 |
||||||||||||
Total revenues (1) |
$ | 2,135 | $ | 2,157 | $ | 2,100 | $ | 2,156 | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Total benefits and expenses (2) |
$ | 1,841 | $ | 1,912 | $ | 2,451 | $ | 2,359 | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Income (loss) from continuing operations (3) |
$ | 203 | $ | 175 | $ | (217 | ) | $ | (167 | ) | ||||||
|
|
|
|
|
|
|
|
|||||||||
Income (loss) from discontinued operations, net of taxes (4) |
$ | 1 | $ | (314 | ) | $ | (21 | ) | $ | (73 | ) | |||||
|
|
|
|
|
|
|
|
|||||||||
Net income (loss) (3), (4) |
$ | 204 | $ | (139 | ) | $ | (238 | ) | $ | (240 | ) | |||||
|
|
|
|
|
|
|
|
|||||||||
Net income attributable to noncontrolling interests |
$ | 50 | $ | 54 | $ | 46 | $ | 52 | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Net income (loss) available to Genworth Financial, Inc.’s common stockholders |
$ | 154 | $ | (193 | ) | $ | (284 | ) | $ | (292 | ) | |||||
|
|
|
|
|
|
|
|
|||||||||
Income (loss) from continuing operations available to Genworth Financial, Inc.’s common stockholders per common share: |
||||||||||||||||
Basic |
$ | 0.31 | $ | 0.24 | $ | (0.53 | ) | $ | (0.44 | ) | ||||||
|
|
|
|
|
|
|
|
|||||||||
Diluted |
$ | 0.31 | $ | 0.24 | $ | (0.53 | ) | $ | (0.44 | ) | ||||||
|
|
|
|
|
|
|
|
|||||||||
Net income (loss) available to Genworth Financial, Inc.’s common stockholders per common share: |
||||||||||||||||
Basic |
$ | 0.31 | $ | (0.39 | ) | $ | (0.57 | ) | $ | (0.59 | ) | |||||
|
|
|
|
|
|
|
|
|||||||||
Diluted |
$ | 0.31 | $ | (0.39 | ) | $ | (0.57 | ) | $ | (0.59 | ) | |||||
|
|
|
|
|
|
|
|
|||||||||
Weighted-average common shares outstanding: |
||||||||||||||||
Basic |
497.0 | 497.4 | 497.4 | 497.6 | ||||||||||||
Diluted (5) |
498.9 | 499.3 | 497.4 | 497.6 |
(1) | We completed our annual review of assumptions in the fourth quarter of 2015, which primarily resulted in $12 million of higher revenue, which included $5 million of corrections related to reinsurance inputs, in our universal and term universal life insurance products. The updated assumptions reflected changes to persistency, long-term interest rates, mortality and other refinements. |
(2) | We completed our annual review of assumptions in the fourth quarter of 2015, which primarily resulted in $310 million of charges, which included $60 million of corrections related to reinsurance inputs, in our universal and term universal life insurance products. The updated assumptions reflected changes to persistency, long-term interest rates, mortality and other refinements. We also recorded an expected loss of $140 million related to the planned sale of our mortgage insurance business in Europe in the fourth quarter of 2015. |
(3) | We completed our annual review of assumptions in the fourth quarter of 2015, which primarily resulted in $194 million, net of taxes, of charges, which included $36 million, net of taxes, of corrections related to reinsurance inputs, in our universal and term universal life insurance products. We also recorded an expected loss of $134 million, net of taxes, related to the planned sale of our mortgage insurance business in Europe in the fourth quarter of 2015. |
(4) | We completed the sale of our lifestyle protection insurance business on December 1, 2015 and recorded an additional loss of $63 million, net of taxes, in the fourth quarter of 2015. The additional loss in the fourth quarter of 2015 was primarily related to the write off of currency translation adjustments on a holding company that was not part of the sale but related to our lifestyle protection insurance business that was substantially liquidated after the completion of the sale. |
(5) | Under applicable accounting guidance, companies in a loss position are required to use basic weighted-average common shares outstanding in the calculation of diluted loss per share. Therefore, as a result of our loss from continuing operations available to Genworth Financial, Inc.’s common stockholders and net loss available to Genworth Financial, Inc.’s common stockholders for the three months ended September 30, 2015 and December 31, 2015, we were required to use basic weighted-average common shares outstanding in the calculation of diluted loss per share for the three months ended September 30, 2015 and December 31, 2015, as the inclusion of shares for stock options, RSUs and SARs of 1.3 million and 1.4 million, respectively, would have been antidilutive to the calculation. If we had not incurred a loss from continuing operations available to Genworth Financial, Inc.’s common stockholders and net loss available to Genworth Financial, Inc.’s common stockholders for the three months ended September 30, 2015 and December 31, 2015, dilutive potential weighted-average common shares outstanding would have been 498.7 and 499.0 million, respectively. |
Our unaudited quarterly results of operations for the year ended December 31, 2014 are summarized in the table below.
Three months ended | ||||||||||||||||
(Amounts in millions, except per share amounts) |
March 31, 2014 |
June 30, 2014 |
September 30, 2014 |
December 31, 2014 |
||||||||||||
Total revenues |
$ | 2,116 | $ | 2,194 | $ | 2,190 | $ | 2,229 | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Total benefits and expenses (1) |
$ | 1,819 | $ | 1,886 | $ | 3,170 | $ | 3,153 | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Income (loss) from continuing operations (2) |
$ | 210 | $ | 224 | $ | (793 | ) | $ | (846 | ) | ||||||
|
|
|
|
|
|
|
|
|||||||||
Income from discontinued operations, net of taxes |
$ | 9 | $ | 4 | $ | 6 | $ | 138 | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Net income (loss) (2) |
$ | 219 | $ | 228 | $ | (787 | ) | $ | (708 | ) | ||||||
|
|
|
|
|
|
|
|
|||||||||
Net income attributable to noncontrolling interests |
$ | 35 | $ | 52 | $ | 57 | $ | 52 | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Net income (loss) available to Genworth Financial, Inc.’s common stockholders (2) |
$ | 184 | $ | 176 | $ | (844 | ) | $ | (760 | ) | ||||||
|
|
|
|
|
|
|
|
|||||||||
Income (loss) from continuing operations available to Genworth Financial, Inc.’s common stockholders per common share: |
||||||||||||||||
Basic |
$ | 0.35 | $ | 0.35 | $ | (1.71 | ) | $ | (1.81 | ) | ||||||
|
|
|
|
|
|
|
|
|||||||||
Diluted |
$ | 0.35 | $ | 0.34 | $ | (1.71 | ) | $ | (1.81 | ) | ||||||
|
|
|
|
|
|
|
|
|||||||||
Net income (loss) available to Genworth Financial, Inc.’s common stockholders per common share: |
||||||||||||||||
Basic |
$ | 0.37 | $ | 0.35 | $ | (1.70 | ) | $ | (1.53 | ) | ||||||
|
|
|
|
|
|
|
|
|||||||||
Diluted |
$ | 0.37 | $ | 0.35 | $ | (1.70 | ) | $ | (1.53 | ) | ||||||
|
|
|
|
|
|
|
|
|||||||||
Weighted-average common shares outstanding: |
||||||||||||||||
Basic |
495.8 | 496.6 | 496.6 | 496.7 | ||||||||||||
Diluted (3) |
502.7 | 503.6 | 496.6 | 496.7 |
(1) | During the fourth quarter of 2014, we completed our annual loss recognition testing of our long-term care insurance business which resulted in additional expenses of $735 million. During the fourth quarter of 2014, we also recorded goodwill impairments of $299 million in our U.S. Life Insurance segment. In the fourth quarter of 2014, we recorded a correction of $49 million in our life insurance business related to reserves on a reinsurance transaction. Our long-term care insurance claim reserves also increased in the fourth quarter of 2014 as a result of a $67 million unfavorable correction related to claims in course of settlement arising in connection with the implementation of our updated assumptions and methodologies as part of our comprehensive claims review completed in the third quarter of 2014, partially offset by a $43 million favorable refinement of assumptions for claim termination rates. |
(2) | During the fourth quarter of 2014, we completed our annual loss recognition testing of our long-term care insurance business which resulted in additional charges of $478 million, net of taxes. During the fourth quarter of 2014, we also recorded goodwill impairments of $274 million, net of taxes, in our U.S. Life Insurance segment. There was $205 million net tax impact in the fourth quarter of 2014 from potential business portfolio changes. We recognized a tax charge of $174 million in the fourth quarter of 2014 associated with our Australian mortgage insurance business as we can no longer assert our intent to permanently reinvest earnings in that business. In addition, in connection with our plans to sell our lifestyle protection insurance business, we made a change to the permanent reinvestment assertion of one of its legal entities recognizing tax expense of $31 million in the fourth quarter of 2014. We recorded a correction of $32 million, net of taxes, in our life insurance business related to reserves on a reinsurance transaction in the fourth quarter of 2014. Our long-term care insurance claim reserves also increased in the fourth quarter of 2014 as a result of a $44 million unfavorable correction related to claims in course of settlement arising in connection with the implementation of our updated assumptions and methodologies as part of our comprehensive claims review completed in the third quarter of 2014, partially offset by a $28 million favorable refinement of assumptions for claim termination rates. |
(3) | Under applicable accounting guidance, companies in a loss position are required to use basic weighted-average common shares outstanding in the calculation of diluted loss per share. Therefore, as a result of our loss from continuing operations available to Genworth Financial, Inc.’s common stockholders and net loss available to Genworth Financial, Inc.’s common stockholders for the three months ended September 30, 2014 and December 31, 2014, we were required to use basic weighted-average common shares outstanding in the calculation of diluted loss per share for the three months ended September 30, 2014 and December 31, 2014, as the inclusion of shares for stock options, RSUs and SARs of 5.4 million and 3.2 million, respectively, would have been antidilutive to the calculation. If we had not incurred a loss from continuing operations available to Genworth Financial, Inc.’s common stockholders and net loss available to Genworth Financial, Inc.’s common stockholders for the three months ended September 30, 2014 and December 31, 2014, dilutive potential weighted-average common shares outstanding would have been 502.0 million and 499.9 million, respectively. |
|
(21) Commitments and Contingencies
(a) Litigation and Regulatory Matters
We face the risk of litigation and regulatory investigations and actions in the ordinary course of operating our businesses, including the risk of class action lawsuits. Our pending legal and regulatory actions include proceedings specific to us and others generally applicable to business practices in the industries in which we operate. In our insurance operations, we are, have been, or may become subject to class actions and individual suits alleging, among other things, issues relating to sales or underwriting practices, increases to in-force long-term care insurance premiums, payment of contingent or other sales commissions, claims payments and procedures, product design, product disclosure, administration, additional premium charges for premiums paid on a periodic basis, denial or delay of benefits, charging excessive or impermissible fees on products, recommending unsuitable products to customers, our pricing structures and business practices in our mortgage insurance businesses, such as captive reinsurance arrangements with lenders and contract underwriting services, violations of the Real Estate Settlement and Procedures Act of 1974 (“RESPA”) or related state anti-inducement laws, and mortgage insurance policy rescissions and curtailments, and breaching fiduciary or other duties to customers, including but not limited to breach of customer information. Plaintiffs in class action and other lawsuits against us may seek very large or indeterminate amounts which may remain unknown for substantial periods of time. In our investment-related operations, we are subject to litigation involving commercial disputes with counterparties. We are also subject to litigation arising out of our general business activities such as our contractual and employment relationships and securities lawsuits. In addition, we are also subject to various regulatory inquiries, such as information requests, subpoenas, books and record examinations and market conduct and financial examinations from state, federal and international regulators and other authorities. A substantial legal liability or a significant regulatory action against us could have an adverse effect on our business, financial condition and results of operations. Moreover, even if we ultimately prevail in the litigation, regulatory action or investigation, we could suffer significant reputational harm, which could have an adverse effect on our business, financial condition or results of operations.
In August 2014, Genworth Financial, Inc., its current chief executive officer and its then current chief financial officer were named in a putative class action lawsuit captioned Manuel Esguerra v. Genworth Financial, Inc., et al, in the United States District Court for the Southern District of New York. Plaintiff alleged securities law violations involving certain disclosures in 2013 and 2014 concerning Genworth’s long-term care insurance reserves. The lawsuit sought unspecified compensatory damages, costs and expenses, including counsel fees and expert fees. In October 2014, a putative class action lawsuit captioned City of Pontiac General Employees’ Retirement System v. Genworth Financial, Inc., et al., was filed in the United States District Court for the Eastern District of Virginia. This lawsuit names the same defendants, alleges the same securities law violations, seeks the same damages and covers the same class as the Esguerra lawsuit. Following the filing of the City of Pontiac lawsuit, the Esguerra lawsuit was voluntarily dismissed without prejudice allowing the City of Pontiac lawsuit to proceed. In the City of Pontiac lawsuit, the United States District Court for the Eastern District of Virginia appointed Her Majesty the Queen in Right of Alberta and Fresno County Employees’ Retirement Association as lead plaintiffs and designated the caption of the action as In re Genworth Financial, Inc. Securities Litigation. On December 22, 2014, the lead plaintiffs filed an amended complaint. On February 5, 2015, we filed a motion to dismiss plaintiffs’ amended complaint. On March 9, 2015, plaintiffs filed a memorandum of law in opposition to our motion to dismiss. On March 24, 2015, we filed our reply memorandum of law in further support of our motion to dismiss. The Court heard argument on our motion to dismiss the complaint on April 28, 2015. On May 1, 2015, the court denied the motion to dismiss. The Court has scheduled a trial for May 2016. We engaged in mediation in the fourth quarter of 2015, which is ongoing. The plaintiffs have recently taken the position that the class is entitled to recover per share and per bond amounts that, if the plaintiffs were to prevail, would, in the aggregate, be material. If ongoing discussions do not result in a settlement, we intend to vigorously defend the lawsuit. As of December 31, 2015, we have incurred or accrued $25 million, which is the amount of our self-insured retention on our executive and organization liability insurance program. At this stage of the litigation, we are unable to determine or predict the ultimate outcome of this litigation or provide an estimate or range of reasonably possible losses arising from this litigation. Nevertheless, we believe that it is reasonably possible we will incur additional losses in resolving this litigation beyond the amounts already incurred or accrued and, if so, that it is reasonably possible the amount of such losses would be material.
In April 2014, Genworth Financial, Inc., its former chief executive officer and its then current chief financial officer were named in a putative class action lawsuit captioned City of Hialeah Employees’ Retirement System v. Genworth Financial, Inc., et al., in the United States District Court for the Southern District of New York. Plaintiff alleges securities law violations involving certain disclosures in 2012 concerning Genworth’s Australian mortgage insurance business, including our plans for an initial public offering of the business. The lawsuit seeks unspecified damages, costs and attorneys’ fees and such equitable/injunctive relief as the court may deem proper. The United States District Court for the Southern District of New York appointed City of Hialeah Employees’ Retirement System and New Bedford Contributory Retirement System as lead plaintiffs and designated the caption of the action as In re Genworth Financial, Inc. Securities Litigation. On October 3, 2014, the lead plaintiffs filed an amended complaint. On December 2, 2014, we filed a motion to dismiss plaintiffs’ amended complaint, which motion was fully briefed as of March 4, 2015. On March 25, 2015, the United States District Court for the Southern District of New York denied the motion but entered an order dismissing the amended complaint with leave to replead. On April 17, 2015, plaintiffs filed a second amended complaint. We filed a motion to dismiss the second amended complaint and on June 16, 2015, the court denied the motion to dismiss. On January 22, 2016, we filed a motion for reconsideration of the court’s June 16, 2015 order denying our motion to dismiss. On January 29, 2016, plaintiffs filed a motion for class certification. We intend to vigorously defend this action.
In August 2015, Genworth Financial, Inc., its former chief executive officer, its current chief executive officer, its then current chief financial officer and the current members of its board of directors were named in two separate shareholder derivative suits, each of which was filed in the United States District Court for the Eastern District of Virginia, alleging breaches of fiduciary duties concerning Genworth’s long-term care insurance reserves and concerning Genworth’s Australian mortgage insurance business, including our plans for an initial public offering of the business. The cases are captioned, Pinkoski v. McInerney, et al. and Salberg v. McInerney, et al. The cases seek unspecified damages, costs, attorneys’ fees and such equitable relief as the court may deem proper. On November 10, 2015, the court entered an order granting plaintiffs’ motion for a voluntary dismissal without prejudice of the Pinkoski and Salberg derivative actions.
In August 2015, Genworth Financial, Inc., its current chief executive officer, its then current chief financial officer and the current members of its board of directors were named in a shareholder derivative suit filed in the United States District Court for the Eastern District of Virginia, alleging breaches of fiduciary duties relating to Genworth’s long-term care insurance reserves. The case is captioned Cohen v. McInerney, et al. The case seeks unspecified damages, costs, attorneys’ fees and such equitable relief as the court may deem proper. On November 10, 2015, the court entered an order granting plaintiffs’ motion for a voluntary dismissal without prejudice of the Cohen shareholder derivative actions.
In September 2015, Genworth Financial, Inc., its former chief executive officer, its current chief executive officer, its then current chief financial officer and the current members of its board of directors were named in a shareholder derivative suit filed in the United States District Court for the Eastern District of Virginia, alleging breaches of fiduciary duties relating to Genworth’s long-term care insurance reserves. The case is captioned Int’l Union of Operating Engineers Local No. 478 Pension Fund v. McInerney, et al. The case seeks unspecified damages, costs, attorneys’ fees and such equitable relief as the court may deem proper. On September 28, 2015, the court ordered that all four shareholder derivative suits be consolidated for all purposes under the case name Pinkoski v. McInerney, et al. and directed plaintiffs in the consolidated derivative suit to file an amended consolidated complaint within 21 days of the court’s order appointing lead counsel. The court consolidated the derivative suits with In Re Genworth Financial Securities Litigation for the purposes of discovery. On October 2, 2015, all of the plaintiffs in the consolidated shareholder derivative action filed a motion for voluntary dismissal without prejudice, stating they intend to refile in state court. On November 10, 2015, the court entered an order dismissing all of the shareholder derivative actions without prejudice.
In January 2016, Genworth Financial, Inc., its current chief executive officer, its former chief executive officer, its former chief financial officer and the current members of its board of directors were named in a shareholder derivative suit filed by International Union of Operating Engineers Local No. 478 Pension Fund, Richard L. Salberg and David Pinkoski in the Court of Chancery of the State of Delaware. The case is captioned Int’l Union of Operating Engineers Local No. 478 Pension Fund, et al v. McInerney, et al. The suit alleges breaches of fiduciary duties concerning Genworth’s long-term care insurance reserves and concerning Genworth’s Australian mortgage insurance business, including our plans for an initial public offering of the business and seeks unspecified damages, costs, attorneys’ fees and such equitable relief as the court may deem proper. In February 2016, Genworth Financial, Inc., its current chief executive officer, its former chief executive officer, its former chief financial officer and the current members of its board of directors were named in a shareholder derivative suit filed by Martin Cohen in the Court of Chancery of the State of Delaware. The case is captioned Cohen v. McInerney, et al. The suit alleges breaches of fiduciary duties concerning Genworth’s long-term care insurance reserves and concerning Genworth’s Australian mortgage insurance business, including our plans for an initial public offering of the business and seeks unspecified damages, costs, attorneys’ fees and such equitable relief as the court may deem proper. On February 23, 2016, the Court of Chancery of the State of Delaware consolidated these derivative suits under the caption Genworth Financial, Inc. Consolidated Derivative Litigation. We intend to vigorously defend the consolidated action.
Beginning in December 2011 and continuing through January 2013, one of our U.S. mortgage insurance subsidiaries was named along with several other mortgage insurance participants and mortgage lenders as a defendant in twelve putative class action lawsuits alleging that certain “captive reinsurance arrangements” were in violation of RESPA. Those cases are captioned as follows: Samp, et al. v. JPMorgan Chase Bank, N.A., et al., United States District Court for the Central District of California; White, et al., v. The PNC Financial Services Group, Inc., et al., United States District Court for the Eastern District of Pennsylvania; Menichino, et al. v. Citibank NA, et al., United States District Court for the Western District of Pennsylvania; McCarn, et al. v. HSBC USA, Inc., et al., United States District Court for the Eastern District of California; Manners, et al., v. Fifth Third Bank, et al., United States District Court for the Western District of Pennsylvania; Riddle, et al. v. Bank of America Corporation, et al., United States District Court for the Eastern District of Pennsylvania; Rulison et al. v. ABN AMRO Mortgage Group, Inc. et al., United States District Court for the Southern District of New York; Barlee, et al. v. First Horizon National Corporation, et al., United States District Court for the Eastern District of Pennsylvania; Cunningham, et al. v. M&T Bank Corp., et al., United States District Court for the Middle District of Pennsylvania; Orange, et al. v. Wachovia Bank, N.A., et al., United States District Court for the Central District of California; Hill et al. v. Flagstar Bank, FSB, et al., United States District Court for the Eastern District of Pennsylvania; and Moriba Ba, et al. v. HSBC USA, Inc., et al., United States District Court for the Eastern District of Pennsylvania. Plaintiffs allege that “captive reinsurance arrangements” with providers of private mortgage insurance whereby a mortgage lender through captive reinsurance arrangements received a portion of the borrowers’ private mortgage insurance premiums were in violation of RESPA and unjustly enriched the defendants for which plaintiffs seek declaratory relief and unspecified monetary damages, including restitution. The McCarn case was dismissed by the court with prejudice as to our subsidiary and certain other defendants on November 9, 2012. On July 3, 2012, the Rulison case was voluntarily dismissed by the plaintiffs. The Barlee case was dismissed by the court with prejudice as to our subsidiary and certain other defendants on February 27, 2013. The Manners case was dismissed by voluntary stipulation in March 2013. In early May 2013, the Samp and Orange cases were dismissed with prejudice as to our subsidiary. Plaintiffs appealed both of those dismissals, but have since withdrawn those appeals. The White case was dismissed by the court without prejudice on June 20, 2013, and on July 5, 2013 plaintiffs filed a second amended complaint again naming our U.S. mortgage insurance subsidiary as a defendant. The Menichino case was dismissed by the court without prejudice as to our subsidiary and certain other defendants on July 19, 2013. Plaintiffs filed a second amended complaint again naming our U.S. mortgage insurance subsidiary as a defendant and we moved to dismiss the second amended complaint. In the Riddle, Hill, Ba and Cunningham cases, the defendants’ motions to dismiss were denied, but the court in the Riddle, Hill and Cunningham cases limited discovery to issues surrounding whether the case should be dismissed on statute of limitations grounds. In the Hill case, on December 17, 2013, we moved for summary judgment dismissing the complaint. The court granted our motion, and in July 2014, the Hill plaintiffs filed a notice of appeal with the Third Circuit Court of Appeals. In the Riddle case, in late November 2013, the United States District Court for the Eastern District of Pennsylvania granted our motion for summary judgment dismissing the case. Plaintiffs appealed the dismissal. In October 2014, the Third Circuit Court of Appeals upheld the dismissal of the Riddle action. On January 30, 2015, our U.S. mortgage insurance subsidiary and all named plaintiffs in the cases still pending as of such date entered into a settlement agreement that has resulted in the dismissal of all actions as to our subsidiary. This settlement had no impact on our financial position or results of operations.
In December 2009, one of our former non-insurance subsidiaries, one of the former subsidiary’s officers and Genworth Financial, Inc. (now known as Genworth Holdings, Inc.) were named in a putative class action lawsuit captioned Michael J. Goodman and Linda Brown v. Genworth Financial Wealth Management, Inc. et al., in the United States District Court for the Eastern District of New York. Plaintiffs allege securities law and other violations involving the selection of mutual funds by our former subsidiary on behalf of certain of its Private Client Group clients. The lawsuit seeks unspecified monetary damages and other relief. In response to our motion to dismiss the complaint in its entirety, the court granted the motion to dismiss the state law fiduciary duty claim and denied the motion to dismiss the remaining federal claims. The District Court denied plaintiffs’ motion to certify a class on April 15, 2014. On April 29, 2014, plaintiffs filed a motion with the Second Circuit Court of Appeals for permission to appeal the District Court’s denial of their motion to certify a class, which we opposed. On July 9, 2014, the Second Circuit Court of Appeals denied plaintiffs’ motion. Pursuant to a joint stipulation of the parties, on March 20, 2015, the United States District Court for the Eastern District of New York entered a final order dismissing with prejudice all claims against the defendants.
In April 2012, two of our U.S. mortgage insurance subsidiaries were named as respondents in two arbitrations, one brought by Bank of America, N.A. and one brought by Countrywide Home Loans, Inc. and Bank of America, N.A. as claimants. Claimants alleged breach of contract and breach of the covenant of good faith and fair dealing and sought a declaratory judgment relating to our denial, curtailment and rescission of mortgage insurance coverage. In June 2012, our U.S. mortgage insurance subsidiaries responded to the arbitration demands and asserted numerous counterclaims against the claimants. On December 31, 2013, the parties reached an agreement to resolve that portion of both arbitrations involving rescission practices, which settlement took effect in the second quarter of 2014. As a result, the arbitration demands and counterclaims related to that portion of both arbitrations involving rescission practices were dismissed in the third quarter of 2014. In October 2014, the parties executed a definitive settlement agreement to settle all remaining claims in the arbitrations. Implementation of the settlement to resolve the remaining claims was subject to the consent of the GSEs. The settlement provides that our U.S. mortgage insurance subsidiaries will remit a portion of the previously curtailed claim amounts to Bank of America, N.A. and will agree to certain limits on future curtailment activity for loans that are part of the settlement. The consents of the GSEs were obtained in January 2015, and therefore, the parties moved to dismiss all remaining matters in the arbitration. Such dismissals occurred in the fourth quarter of 2015.
In addition to the negotiated settlement with Bank of America, N.A. discussed above, we have resolved a matter involving a second servicer’s dispute with us on loss mitigation. This second dispute did not involve any formal legal proceeding, as is the case with other discussions we have had from time to time with other lenders and servicers over disputed loss mitigation activities. During the third quarter of 2014, we recorded an aggregate increase in our claim reserves for our U.S. mortgage insurance business of $53 million principally to provide for the anticipated financial impact in connection with the settlement of the Bank of America, N.A. arbitration, as well as the second dispute, both of which were settled for amounts which in the aggregate were included within the claim reserve increase mentioned above.
In early 2006 as part of an industry-wide review, one of our U.S. mortgage insurance subsidiaries received an administrative subpoena from the Minnesota Department of Commerce, which has jurisdiction over insurance matters, with respect to our reinsurance arrangements, including captive reinsurance transactions with lender-affiliated reinsurers. Since 2006, the Minnesota Department of Commerce has periodically requested additional information. In June 2015, we entered into a Consent Order with the Minnesota Department of Commerce pursuant to the terms and conditions of which we agreed to pay a civil penalty of $90,000 and agreed not to enter into any new captive reinsurance transactions from a lender-affiliated reinsurer or to obtain reinsurance under an existing captive reinsurance transaction from a lender-affiliated reinsurer on any new mortgage transactions after the date of the Consent Order for a period of 10 years. Pursuant to the Consent Order, we were discharged from all potential liability that has or might have been asserted by the Minnesota Department of Commerce based on our captive mortgage reinsurance policies or practices, to the extent such practices occurred prior to the date of the Consent Order. Inquiries from other regulatory bodies with respect to the same subject matter have been resolved or dormant for a number of years.
At this time, other than as noted above, we cannot determine or predict the ultimate outcome of any of the pending legal and regulatory matters specifically identified above or the likelihood of potential future legal and regulatory matters against us. Except as disclosed above, we also are not able to provide an estimate or range of reasonably possible losses related to these matters. Therefore, we cannot ensure that the current investigations and proceedings will not have a material adverse effect on our business, financial condition or results of operations. In addition, it is possible that related investigations and proceedings may be commenced in the future, and we could become subject to additional unrelated investigations and lawsuits. Increased regulatory scrutiny and any resulting investigations or proceedings could result in new legal precedents and industry-wide regulations or practices that could adversely affect our business, financial condition and results of operations.
(b) Commitments
As of December 31, 2015, we were committed to fund $131 million in limited partnership investments, $17 million in U.S. commercial mortgage loan investments and $23 million in private placement investments.
In connection with the issuance of non-recourse funding obligations by Rivermont I, Genworth entered into a liquidity commitment agreement with the third-party trusts in which the floating rate notes have been deposited. The liquidity agreement may require that Genworth issue to the trusts either a loan or a letter of credit (“LOC”), at maturity of the notes (2050), in the amount equal to the then market value of the assets supporting the notes held in the trust. Any loan or LOC issued is an obligation of the trust and shall accrue interest at LIBOR plus a margin. In consideration for entering into this agreement, Genworth received, from Rivermont I, a one-time commitment fee of approximately $2 million. The expected amount of future obligation under this agreement is approximately $15 million based on current projections.
|
(22) Changes In Accumulated Other Comprehensive Income (Loss)
The following tables show the changes in accumulated other comprehensive income (loss), net of taxes, by component as of and for the periods indicated:
(Amounts in millions) |
Net unrealized investment gains (losses) (1) |
Derivatives qualifying as hedges (2) |
Foreign currency translation and other adjustments |
Total | ||||||||||||
Balances as of January 1, 2015 |
$ | 2,453 | $ | 2,070 | $ | (77 | ) | $ | 4,446 | |||||||
OCI before reclassifications |
(1,218 | ) | 50 | (530 | ) | (1,698 | ) | |||||||||
Amounts reclassified from (to) OCI |
5 | (75 | ) | — | (70 | ) | ||||||||||
|
|
|
|
|
|
|
|
|||||||||
Current period OCI |
(1,213 | ) | (25 | ) | (530 | ) | (1,768 | ) | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Balances as of December 31, 2015 before noncontrolling interests |
1,240 | 2,045 | (607 | ) | 2,678 | |||||||||||
Less: change in OCI attributable to noncontrolling interests |
(14 | ) | — | (318 | ) | (332 | ) | |||||||||
|
|
|
|
|
|
|
|
|||||||||
Balances as of December 31, 2015 |
$ | 1,254 | $ | 2,045 | $ | (289 | ) | $ | 3,010 | |||||||
|
|
|
|
|
|
|
|
(1) | Net of adjustments to DAC, PVFP, sales inducements and benefit reserves. See note 4 for additional information. |
(2) | See note 5 for additional information. |
(Amounts in millions) |
Net unrealized investment gains (losses) (1) |
Derivatives qualifying as hedges (2) |
Foreign currency translation and other adjustments |
Total | ||||||||||||
Balances as of January 1, 2014 |
$ | 926 | $ | 1,319 | $ | 297 | $ | 2,542 | ||||||||
OCI before reclassifications |
1,595 | 788 | (537 | ) | 1,846 | |||||||||||
Amounts reclassified from (to) OCI |
(12 | ) | (37 | ) | — | (49 | ) | |||||||||
|
|
|
|
|
|
|
|
|||||||||
Current period OCI |
1,583 | 751 | (537 | ) | 1,797 | |||||||||||
|
|
|
|
|
|
|
|
|||||||||
Balances as of December 31, 2014 before noncontrolling interests |
2,509 | 2,070 | (240 | ) | 4,339 | |||||||||||
Less: change in OCI attributable to noncontrolling interests |
56 | — | (163 | ) | (107 | ) | ||||||||||
|
|
|
|
|
|
|
|
|||||||||
Balances as of December 31, 2014 |
$ | 2,453 | $ | 2,070 | $ | (77 | ) | $ | 4,446 | |||||||
|
|
|
|
|
|
|
|
(1) | Net of adjustments to DAC, PVFP, sales inducements and benefit reserves. See note 4 for additional information. |
(2) | See note 5 for additional information. |
(Amounts in millions) |
Net unrealized investment gains (losses) (1) |
Derivatives qualifying as hedges (2) |
Foreign currency translation and other adjustments |
Total | ||||||||||||
Balances as of January 1, 2013 |
$ | 2,638 | $ | 1,909 | $ | 655 | $ | 5,202 | ||||||||
OCI before reclassifications |
(1,772 | ) | (561 | ) | (442 | ) | (2,775 | ) | ||||||||
Amounts reclassified from (to) OCI |
21 | (29 | ) | — | (8 | ) | ||||||||||
|
|
|
|
|
|
|
|
|||||||||
Current period OCI |
(1,751 | ) | (590 | ) | (442 | ) | (2,783 | ) | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Balances as of December 31, 2013 before noncontrolling interests |
887 | 1,319 | 213 | 2,419 | ||||||||||||
Less: change in OCI attributable to noncontrolling interests |
(39 | ) | — | (84 | ) | (123 | ) | |||||||||
|
|
|
|
|
|
|
|
|||||||||
Balances as of December 31, 2013 |
$ | 926 | $ | 1,319 | $ | 297 | $ | 2,542 | ||||||||
|
|
|
|
|
|
|
|
(1) | Net of adjustments to DAC, PVFP, sales inducements and benefit reserves. See note 4 for additional information. |
(2) | See note 5 for additional information. |
The foreign currency translation and other adjustments balance included $5 million, $37 million and $6 million, respectively, net of taxes of $3 million, $14 million and $1 million, respectively, related to a net unrecognized postretirement benefit obligation as of December 31, 2015, 2014 and 2013. Amount also included taxes of $(63) million, $(10) million and $39 million, respectively, related to foreign currency translation adjustments as of December 31, 2015, 2014 and 2013.
The following table shows reclassifications out of accumulated other comprehensive income (loss), net of taxes, for the periods presented:
Amount reclassified from accumulated other comprehensive income (loss) |
Affected line item in the consolidated statements of income |
|||||||||||||
Years ended December 31, | ||||||||||||||
(Amounts in millions) |
2015 | 2014 | 2013 | |||||||||||
Net unrealized investment (gains) losses: |
||||||||||||||
Unrealized (gains) losses on investments (1) |
$ | 7 | $ | (19 | ) | $ | 33 | Net investment (gains) losses | ||||||
Provision for income taxes |
(2 | ) | 7 | (12 | ) | Provision for income taxes | ||||||||
|
|
|
|
|
|
|||||||||
Total |
$ | 5 | $ | (12 | ) | $ | 21 | |||||||
|
|
|
|
|
|
|||||||||
Derivatives qualifying as hedges: |
||||||||||||||
Interest rate swaps hedging assets |
$ | (85 | ) | $ | (63 | ) | $ | (47 | ) | Net investment income | ||||
Interest rate swaps hedging assets |
— | (2 | ) | (1 | ) | Net investment (gains) losses | ||||||||
Interest rate swaps hedging liabilities |
— | (1 | ) | (2 | ) | Interest expense | ||||||||
Inflation indexed swaps |
— | 9 | 5 | Net investment income | ||||||||||
Forward bond purchase commitments |
(1 | ) | — | — | Net investment income | |||||||||
Forward bond purchase commitments |
(32 | ) | — | — | Net investment (gains) losses | |||||||||
Provision for income taxes |
43 | 20 | 16 | Provision for income taxes | ||||||||||
|
|
|
|
|
|
|||||||||
Total |
$ | (75 | ) | $ | (37 | ) | $ | (29 | ) | |||||
|
|
|
|
|
|
(1) | Amounts exclude adjustments to DAC, PVFP, sales inducements and benefit reserves. |
|
Canada
In July 2009, Genworth Canada, our indirect subsidiary, completed an IPO of its common shares and we beneficially owned 57.5% of the common shares of Genworth Canada through subsidiaries. We currently hold approximately 57.3% of the outstanding common shares of Genworth Canada on a consolidated basis through subsidiaries. In addition, we have the right, exercisable at our discretion, to purchase for cash these common shares of Genworth Canada from our U.S. mortgage insurance companies at the then-current market price. We also have a right of first refusal with respect to the transfer of these common shares of Genworth Canada by our U.S. mortgage insurance companies.
In April 2015, Genworth Canada announced acceptance by the Toronto Stock Exchange of its Notice of Intention to Make a Normal Course Issuer Bid (“NCIB”). Pursuant to the NCIB, Genworth Canada may purchase from time to time through May 2016, up to an aggregate of 4.7 million of its issued and outstanding common shares. During 2015, Genworth Canada repurchased 1.4 million of its shares for CAD$50 million through a NCIB. We participated in the NCIB in order to maintain our overall ownership percentage at 57.3% and received $23 million in cash.
During 2014, Genworth Canada repurchased 1.9 million shares for CAD$75 million through a NCIB authorized by its board for up to 4.7 million shares. We participated in the NCIB in order to maintain our overall ownership percentage at its then current level and received $38 million in cash.
During 2013, Genworth Canada repurchased 3.9 million shares for CAD$105 million through a NCIB authorized by its board for up to 4.9 million shares. We participated in the NCIB in order to maintain our overall ownership percentage at its then current level and received $58 million in cash.
In 2015, 2014 and 2013, dividends of $49 million, $69 million and $52 million, respectively, were paid to the noncontrolling interests of Genworth Canada.
Australia
On May 15, 2014, Genworth Australia, a holding company for Genworth’s Australian mortgage insurance business, priced an IPO of 220,000,000 of its ordinary shares at an IPO price of AUD$2.65 per ordinary share. The offering closed on May 21, 2014. Following completion of the offering, Genworth Financial beneficially owned 66.2% of the ordinary shares of Genworth Australia through subsidiaries. The net proceeds of the offering were used by Genworth Australia to repay a portion of certain intercompany funding arrangements with our subsidiaries and those funds were then distributed to Genworth Holdings. The gross proceeds of the offering (before payment of fees and expenses) were approximately $541 million. Fees and expenses in connection with the offering were approximately $27 million, including approximately $3 million paid in 2013.
On May 11, 2015, we sold 92,300,000 of our shares in Genworth Australia at AUD$3.08 per ordinary share. The offering closed on May 15, 2015. Following completion of the offering, Genworth Financial beneficially owns 52.0% of the ordinary shares of Genworth Australia through subsidiaries. The majority of the net proceeds of the offering were distributed to Genworth Holdings. The net proceeds of the offering were approximately $226 million.
On October 30, 2015, Genworth Australia announced its intention to commence an on-market share buy-back program. Pursuant to the program, in November and December 2015, Genworth Australia repurchased 54.6 million of its shares for AUD$150 million. As the majority shareholder, we participated in on-market sales transactions during the buy-back period to maintain our ownership position of 52.0% and received $55 million in cash.
Consistent with applicable accounting guidance, changes in noncontrolling interests that do not result in a change of control are accounted for as equity transactions. When there are changes in noncontrolling interests of a subsidiary that do not result in a change of control, any difference between carrying value and fair value related to the change in ownership is recorded as an adjustment to stockholders’ equity. A summary of the changes in ownership interests and the effect on stockholders’ equity as a result of the initial public offering of Genworth Australia was as follows for the years ended December 31:
(Amounts in millions) |
2015 | 2014 | ||||||
Net loss available to Genworth Financial, Inc.’s common stockholders |
$ | (615 | ) | $ | (1,244 | ) | ||
Transfers to the noncontrolling interests: |
||||||||
Decrease in Genworth Financial, Inc.’s additional paid-in capital for initial sale of Genworth Australia shares to noncontrolling interests |
— | (145 | ) | |||||
Decrease in Genworth Financial, Inc.’s additional paid-in capital for additional sale of Genworth Australia shares to noncontrolling interests |
(65 | ) | — | |||||
|
|
|
|
|||||
Net transfers to noncontrolling interests |
(65 | ) | (145 | ) | ||||
|
|
|
|
|||||
Change from net loss available to Genworth Financial, Inc.’s common stockholders and transfers to noncontrolling interests |
$ | (680 | ) | $ | (1,389 | ) | ||
|
|
|
|
In 2015 and 2014, dividends of $108 million and $6 million, respectively, were paid to the noncontrolling interests of Genworth Australia.
|
European mortgage insurance business
As discussed in note 1, GMICO entered into an agreement to sell our European mortgage insurance business to AmTrust Financial Services, Inc. that is expected to result in net proceeds of approximately $55 million. As the held-for-sale criteria were satisfied during 2015, we recorded an estimated after-tax loss of approximately $141 million related to the sale, net of taxes of $1 million. In accordance with the accounting guidance for groups of assets that are held-for-sale, we recorded an impairment of $135 million to record the carrying value of the business at its fair value, which was based on estimated proceeds less $5 million closing costs. The transaction is expected to close in the first quarter of 2016 and is subject to customary conditions, including requisite regulatory approvals.
The major assets and liability categories of our European mortgage insurance business were as follows as of December 31:
(Amounts in millions) |
2015 | 2014 | ||||||
Assets |
||||||||
Investments: |
||||||||
Fixed maturity securities available-for-sale, at fair value |
$ | 195 | $ | 199 | ||||
Other invested assets |
6 | 36 | ||||||
|
|
|
|
|||||
Total investments |
201 | 235 | ||||||
Cash and cash equivalents |
28 | 71 | ||||||
Accrued investment income |
3 | 4 | ||||||
Intangible assets |
— | 1 | ||||||
Reinsurance recoverable |
21 | 23 | ||||||
Other assets |
14 | — | ||||||
|
|
|
|
|||||
Assets held for sale |
267 | 334 | ||||||
Fair value less closing costs impairment |
(140 | ) | — | |||||
|
|
|
|
|||||
Total assets held for sale |
$ | 127 | $ | 334 | ||||
|
|
|
|
|||||
Liabilities |
||||||||
Liability for policy and contract claims |
$ | 56 | $ | 56 | ||||
Unearned premiums |
58 | 62 | ||||||
Other liabilities |
12 | 48 | ||||||
Deferred tax liability |
1 | — | ||||||
|
|
|
|
|||||
Liabilities held for sale |
$ | 127 | $ | 166 | ||||
|
|
|
|
Deferred tax liabilities that result in future taxable or deductible amounts to the remaining consolidated group have been reflected in liabilities of continuing operations and not reflected in liabilities held for sale.
Lifestyle protection insurance
As discussed in note 1, our lifestyle protection insurance business is reported as discontinued operations. The assets and liabilities held for sale for this business were segregated in our consolidated balance sheets until the closing of the sale on December 1, 2015. The major assets and liability categories of our lifestyle protection insurance business were as follows as of December 31:
(Amounts in millions) |
2015 | 2014 | ||||||
Assets |
||||||||
Investments: |
||||||||
Fixed maturity securities available-for-sale, at fair value |
$ | — | $ | 1,171 | ||||
Equity securities available-for-sale, at fair value |
— | 7 | ||||||
Other invested assets |
— | 52 | ||||||
|
|
|
|
|||||
Total investments |
— | 1,230 | ||||||
Cash and cash equivalents |
— | 202 | ||||||
Accrued investment income |
— | 21 | ||||||
Deferred acquisition costs |
— | 193 | ||||||
Intangible assets |
— | 22 | ||||||
Reinsurance recoverable |
— | 32 | ||||||
Other assets |
— | 109 | ||||||
|
|
|
|
|||||
Assets held for sale |
$ | — | $ | 1,809 | ||||
|
|
|
|
|||||
Liabilities |
||||||||
Policyholder account balances |
$ | — | $ | 11 | ||||
Liability for policy and contract claims |
— | 106 | ||||||
Unearned premiums |
— | 439 | ||||||
Other liabilities |
— | 322 | ||||||
Deferred tax liability |
— | 50 | ||||||
|
|
|
|
|||||
Liabilities held for sale |
$ | — | $ | 928 | ||||
|
|
|
|
Deferred tax assets and liabilities that result in future taxable or deductible amounts to the remaining consolidated group have been reflected in assets or liabilities of continuing operations and not reflected in assets or liabilities held for sale.
Summary operating results of discontinued operations were as follows for the years ended December 31:
(Amounts in millions) |
2015 | 2014 | 2013 | |||||||||
Revenues: |
||||||||||||
Premiums |
$ | 627 | $ | 731 | $ | 632 | ||||||
Net investment income |
74 | 100 | 116 | |||||||||
Net investment gains (losses) |
— | 2 | 27 | |||||||||
Policy fees and other income |
— | 3 | 3 | |||||||||
|
|
|
|
|
|
|||||||
Total revenues |
701 | 836 | 778 | |||||||||
|
|
|
|
|
|
|||||||
Benefits and expenses: |
||||||||||||
Benefits and other changes in policy reserves |
182 | 202 | 158 | |||||||||
Acquisition and operating expenses |
396 | 447 | 415 | |||||||||
Amortization of deferred acquisition costs and intangibles |
83 | 118 | 106 | |||||||||
Interest expense |
29 | 46 | 42 | |||||||||
|
|
|
|
|
|
|||||||
Total benefits and expenses |
690 | 813 | 721 | |||||||||
|
|
|
|
|
|
|||||||
Income (loss) before income taxes and loss on sale |
11 | 23 | 57 | |||||||||
Provision (benefit) for income taxes |
37 | (134 | ) | 11 | ||||||||
|
|
|
|
|
|
|||||||
Income (loss) before loss on sale |
(26 | ) | 157 | 46 | ||||||||
Loss on sale, net of taxes |
(381 | ) | — | — | ||||||||
|
|
|
|
|
|
|||||||
Income (loss) from discontinued operations, net of taxes |
$ | (407 | ) | $ | 157 | $ | 46 | |||||
|
|
|
|
|
|
On December 1, 2015, we completed the sale of our lifestyle protection insurance business and received approximately $493 million with net proceeds of approximately $400 million, subject to the finalization of closing balance sheet purchase price adjustments. During 2015, we recorded an after-tax loss of approximately $381 million, net of taxes of $155 million, including $63 million in the fourth quarter of 2015. The additional loss in the fourth quarter of 2015 was primarily related to the write off of currency translation adjustments on a holding company that was not part of the sale but related to our lifestyle protection insurance business and was substantially liquidated in the fourth quarter of 2015.
We retained liabilities for the U.K. pension plan, as described in note 11, as well as taxes and certain claims and sales practices that occurred while we owned the lifestyle protection insurance business. We have established our current best estimates for these liabilities, where appropriate; however, there may be future adjustments to these estimates.
Wealth management
In 2013, we completed the sale of our wealth management business to AqGen Liberty Acquisition, Inc., a subsidiary of AqGen Liberty Holdings LLC, a partnership of Aquiline Capital Partners and Genstar Capital, for approximately $412 million with net proceeds of approximately $360 million. The loss on sale was approximately $29 million. Historically, this business had been reported as a separate segment. As a result of the sale agreement, this business was accounted for as discontinued operations and its results of operations and cash flows were separately reported for all periods presented.
Summary operating results of discontinued operations related to our wealth management business were as follows for the year ended December 31:
(Amounts in millions) |
2013 | |||
Revenues: |
||||
Policy fees and other income |
$ | 211 | ||
|
|
|||
Total revenues |
211 | |||
|
|
|||
Benefits and expenses: |
||||
Acquisition and operating expenses, net of deferrals |
178 | |||
Amortization of deferred acquisition costs and intangibles |
4 | |||
|
|
|||
Total benefits and expenses |
182 | |||
|
|
|||
Income before income taxes and other items |
29 | |||
Provision for income taxes |
12 | |||
|
|
|||
Income before other items |
17 | |||
Goodwill impairment and other loss from sale, net of taxes |
(29 | ) | ||
|
|
|||
Loss from discontinued operations, net of taxes |
$ | (12 | ) | |
|
|
Reverse mortgage business
Effective April 1, 2013 (immediately prior to the holding company reorganization), Genworth Holdings completed the sale of its reverse mortgage business (which had been part of Corporate and Other activities) for total proceeds of $22 million. The gain on the sale was not significant.
|
(25) Condensed Consolidating Financial Information
Genworth Financial provides a full and unconditional guarantee to the trustee of Genworth Holdings’ outstanding senior notes and the holders of the senior notes, on an unsecured unsubordinated basis, 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 the full and punctual payment of all other amounts payable by Genworth Holdings under the senior notes indenture in respect of such senior notes. Genworth Financial also provides a full and unconditional guarantee to the trustee of Genworth Holdings’ outstanding subordinated notes and the holders of the subordinated notes, on an unsecured subordinated basis, of the full and punctual payment of the principal of, premium, if any and interest on, and all other amounts payable under, the outstanding subordinated notes, and the full and punctual payment of all other amounts payable by Genworth Holdings under the subordinated notes indenture in respect of the subordinated notes.
The following condensed consolidating financial information of Genworth Financial and its direct and indirect subsidiaries have been prepared pursuant to rules regarding the preparation of consolidating financial information of Regulation S-X. The condensed consolidating financial information has been prepared as if the guarantee had been in place during the periods presented herein.
The condensed consolidating financial information presents the condensed consolidating balance sheet information as of December 31, 2015 and 2014 and the condensed consolidating income statement information, condensed consolidating comprehensive income statement information and condensed consolidating cash flow statement information for the years ended December 31, 2015, 2014 and 2013.
The condensed consolidating financial information reflects Genworth Financial (“Parent Guarantor”), Genworth Holdings (“Issuer”) and each of Genworth Financial’s other direct and indirect subsidiaries (the “All Other Subsidiaries”) on a combined basis, none of which guarantee the senior notes or subordinated notes, as well as the eliminations necessary to present Genworth Financial’s financial information on a consolidated basis and total consolidated amounts.
The accompanying condensed consolidating financial information is presented based on the equity method of accounting for all periods presented. Under this method, investments in subsidiaries are recorded at cost and adjusted for the subsidiaries’ cumulative results of operations, capital contributions and distributions, and other changes in equity. Elimination entries include consolidating and eliminating entries for investments in subsidiaries and intercompany activity.
The following table presents the condensed consolidating balance sheet information as of December 31, 2015:
(Amounts in millions) |
Parent Guarantor |
Issuer | All Other Subsidiaries |
Eliminations | Consolidated | |||||||||||||||
Assets |
||||||||||||||||||||
Investments: |
||||||||||||||||||||
Fixed maturity securities available-for-sale, at fair value |
$ | — | $ | 150 | $ | 58,247 | $ | (200 | ) | $ | 58,197 | |||||||||
Equity securities available-for-sale, at fair value |
— | — | 310 | — | 310 | |||||||||||||||
Commercial mortgage loans |
— | — | 6,170 | — | 6,170 | |||||||||||||||
Restricted commercial mortgage loans related to securitization entities |
— | — | 161 | — | 161 | |||||||||||||||
Policy loans |
— | — | 1,568 | — | 1,568 | |||||||||||||||
Other invested assets |
— | 114 | 2,198 | (3 | ) | 2,309 | ||||||||||||||
Restricted other invested assets related to securitization entities, at fair value |
— | — | 413 | — | 413 | |||||||||||||||
Investments in subsidiaries |
12,814 | 12,989 | — | (25,803 | ) | — | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total investments |
12,814 | 13,253 | 69,067 | (26,006 | ) | 69,128 | ||||||||||||||
Cash and cash equivalents |
— | 1,124 | 4,841 | — | 5,965 | |||||||||||||||
Accrued investment income |
— | — | 657 | (4 | ) | 653 | ||||||||||||||
Deferred acquisition costs |
— | — | 4,398 | — | 4,398 | |||||||||||||||
Intangible assets and goodwill |
— | — | 357 | — | 357 | |||||||||||||||
Reinsurance recoverable |
— | — | 17,245 | — | 17,245 | |||||||||||||||
Other assets |
— | 199 | 323 | (2 | ) | 520 | ||||||||||||||
Intercompany notes receivable |
— | 2 | 458 | (460 | ) | — | ||||||||||||||
Deferred tax assets |
25 | 1,038 | (908 | ) | — | 155 | ||||||||||||||
Separate account assets |
— | — | 7,883 | — | 7,883 | |||||||||||||||
Assets held for sale |
— | — | 127 | — | 127 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total assets |
$ | 12,839 | $ | 15,616 | $ | 104,448 | $ | (26,472 | ) | $ | 106,431 | |||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Liabilities and stockholders’ equity |
||||||||||||||||||||
Liabilities: |
||||||||||||||||||||
Future policy benefits |
$ | — | $ | — | $ | 36,475 | $ | — | $ | 36,475 | ||||||||||
Policyholder account balances |
— | — | 26,209 | — | 26,209 | |||||||||||||||
Liability for policy and contract claims |
— | — | 8,095 | — | 8,095 | |||||||||||||||
Unearned premiums |
— | — | 3,308 | — | 3,308 | |||||||||||||||
Other liabilities |
13 | 279 | 2,722 | (10 | ) | 3,004 | ||||||||||||||
Intercompany notes payable |
2 | 658 | — | (660 | ) | — | ||||||||||||||
Borrowings related to securitization entities |
— | — | 179 | — | 179 | |||||||||||||||
Non-recourse funding obligations |
— | — | 1,920 | — | 1,920 | |||||||||||||||
Long-term borrowings |
— | 4,078 | 492 | — | 4,570 | |||||||||||||||
Deferred tax liability |
— | — | 24 | — | 24 | |||||||||||||||
Separate account liabilities |
— | — | 7,883 | — | 7,883 | |||||||||||||||
Liabilities held for sale |
— | — | 127 | — | 127 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total liabilities |
15 | 5,015 | 87,434 | (670 | ) | 91,794 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Equity: |
||||||||||||||||||||
Common stock |
1 | — | — | — | 1 | |||||||||||||||
Additional paid-in capital |
11,949 | 9,097 | 17,007 | (26,104 | ) | 11,949 | ||||||||||||||
Accumulated other comprehensive income (loss) |
3,010 | 3,116 | 3,028 | (6,144 | ) | 3,010 | ||||||||||||||
Retained earnings |
564 | (1,612 | ) | (5,134 | ) | 6,746 | 564 | |||||||||||||
Treasury stock, at cost |
(2,700 | ) | — | — | — | (2,700 | ) | |||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total Genworth Financial, Inc.’s stockholders’ equity |
12,824 | 10,601 | 14,901 | (25,502 | ) | 12,824 | ||||||||||||||
Noncontrolling interests |
— | — | 2,113 | (300 | ) | 1,813 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total equity |
12,824 | 10,601 | 17,014 | (25,802 | ) | 14,637 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total liabilities and equity |
$ | 12,839 | $ | 15,616 | $ | 104,448 | $ | (26,472 | ) | $ | 106,431 | |||||||||
|
|
|
|
|
|
|
|
|
|
The following table presents the condensed consolidating balance sheet information as of December 31, 2014:
(Amounts in millions) |
Parent Guarantor |
Issuer | All Other Subsidiaries |
Eliminations | Consolidated | |||||||||||||||
Assets |
||||||||||||||||||||
Investments: |
||||||||||||||||||||
Fixed maturity securities available-for-sale, at fair value |
$ | — | $ | 150 | $ | 61,127 | $ | (200 | ) | $ | 61,077 | |||||||||
Equity securities available-for-sale, at fair value |
— | — | 275 | — | 275 | |||||||||||||||
Commercial mortgage loans |
— | — | 6,100 | — | 6,100 | |||||||||||||||
Restricted commercial mortgage loans related to securitization entities |
— | — | 201 | — | 201 | |||||||||||||||
Policy loans |
— | — | 1,501 | — | 1,501 | |||||||||||||||
Other invested assets |
— | 14 | 2,199 | (5 | ) | 2,208 | ||||||||||||||
Restricted other invested assets related to securitization entities, at fair value |
— | — | 411 | — | 411 | |||||||||||||||
Investments in subsidiaries |
14,895 | 15,003 | — | (29,898 | ) | — | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total investments |
14,895 | 15,167 | 71,814 | (30,103 | ) | 71,773 | ||||||||||||||
Cash and cash equivalents |
— | 953 | 3,692 | — | 4,645 | |||||||||||||||
Accrued investment income |
— | — | 664 | (4 | ) | 660 | ||||||||||||||
Deferred acquisition costs |
— | — | 4,852 | — | 4,852 | |||||||||||||||
Intangible assets and goodwill |
— | — | 265 | — | 265 | |||||||||||||||
Reinsurance recoverable |
— | — | 17,291 | — | 17,291 | |||||||||||||||
Other assets |
2 | 183 | 295 | (1 | ) | 479 | ||||||||||||||
Intercompany notes receivable |
9 | 267 | 395 | (671 | ) | — | ||||||||||||||
Separate account assets |
— | — | 9,208 | — | 9,208 | |||||||||||||||
Assets held for sale |
— | — | 2,143 | — | 2,143 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total assets |
$ | 14,906 | $ | 16,570 | $ | 110,619 | $ | (30,779 | ) | $ | 111,316 | |||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Liabilities and stockholders’ equity |
||||||||||||||||||||
Liabilities: |
||||||||||||||||||||
Future policy benefits |
$ | — | $ | — | $ | 35,915 | $ | — | $ | 35,915 | ||||||||||
Policyholder account balances |
— | — | 26,032 | — | 26,032 | |||||||||||||||
Liability for policy and contract claims |
— | — | 7,881 | — | 7,881 | |||||||||||||||
Unearned premiums |
— | — | 3,485 | — | 3,485 | |||||||||||||||
Other liabilities |
3 | 251 | 2,991 | (11 | ) | 3,234 | ||||||||||||||
Intercompany notes payable |
— | 604 | 267 | (871 | ) | — | ||||||||||||||
Borrowings related to securitization entities |
— | — | 219 | — | 219 | |||||||||||||||
Non-recourse funding obligations |
— | — | 1,981 | — | 1,981 | |||||||||||||||
Long-term borrowings |
— | 4,127 | 485 | — | 4,612 | |||||||||||||||
Deferred tax liability |
(20 | ) | (970 | ) | 1,848 | — | 858 | |||||||||||||
Separate account liabilities |
— | — | 9,208 | — | 9,208 | |||||||||||||||
Liabilities held for sale |
— | — | 1,094 | — | 1,094 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total liabilities |
(17 | ) | 4,012 | 91,406 | (882 | ) | 94,519 | |||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Equity: |
||||||||||||||||||||
Common stock |
1 | — | — | — | 1 | |||||||||||||||
Additional paid-in capital |
11,997 | 9,162 | 17,080 | (26,242 | ) | 11,997 | ||||||||||||||
Accumulated other comprehensive income (loss) |
4,446 | 4,449 | 4,459 | (8,908 | ) | 4,446 | ||||||||||||||
Retained earnings |
1,179 | (1,053 | ) | (4,205 | ) | 5,258 | 1,179 | |||||||||||||
Treasury stock, at cost |
(2,700 | ) | — | — | — | (2,700 | ) | |||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total Genworth Financial, Inc.’s stockholders’ equity |
14,923 | 12,558 | 17,334 | (29,892 | ) | 14,923 | ||||||||||||||
Noncontrolling interests |
— | — | 1,879 | (5 | ) | 1,874 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total equity |
14,923 | 12,558 | 19,213 | (29,897 | ) | 16,797 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total liabilities and equity |
$ | 14,906 | $ | 16,570 | $ | 110,619 | $ | (30,779 | ) | $ | 111,316 | |||||||||
|
|
|
|
|
|
|
|
|
|
The following table presents the condensed consolidating income statement information for the year ended December 31, 2015:
(Amounts in millions) |
Parent Guarantor |
Issuer | All Other Subsidiaries |
Eliminations | Consolidated | |||||||||||||||
Revenues: |
||||||||||||||||||||
Premiums |
$ | — | $ | — | $ | 4,579 | $ | — | $ | 4,579 | ||||||||||
Net investment income |
(3 | ) | 1 | 3,154 | (14 | ) | 3,138 | |||||||||||||
Net investment gains (losses) |
— | 43 | (118 | ) | — | (75 | ) | |||||||||||||
Policy fees and other income |
— | (32 | ) | 940 | (2 | ) | 906 | |||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total revenues |
(3 | ) | 12 | 8,555 | (16 | ) | 8,548 | |||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Benefits and expenses: |
||||||||||||||||||||
Benefits and other changes in policy reserves |
— | — | 5,149 | — | 5,149 | |||||||||||||||
Interest credited |
— | — | 720 | — | 720 | |||||||||||||||
Acquisition and operating expenses, net of deferrals |
32 | 2 | 1,275 | — | 1,309 | |||||||||||||||
Amortization of deferred acquisition costs and intangibles |
— | — | 966 | — | 966 | |||||||||||||||
Interest expense |
— | 307 | 128 | (16 | ) | 419 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total benefits and expenses |
32 | 309 | 8,238 | (16 | ) | 8,563 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Income (loss) from continuing operations before income taxes and equity in income (loss) of subsidiaries |
(35 | ) | (297 | ) | 317 | — | (15 | ) | ||||||||||||
Provision (benefit) for income taxes |
(8 | ) | (103 | ) | 102 | — | (9 | ) | ||||||||||||
Equity in income (loss) of subsidiaries |
(579 | ) | (463 | ) | — | 1,042 | — | |||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Income (loss) from continuing operations |
(606 | ) | (657 | ) | 215 | 1,042 | (6 | ) | ||||||||||||
Income (loss) from discontinued operations, net of taxes |
(9 | ) | — | (398 | ) | — | (407 | ) | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Net income (loss) |
(615 | ) | (657 | ) | (183 | ) | 1,042 | (413 | ) | |||||||||||
Less: net income attributable to noncontrolling interests |
— | — | 202 | — | 202 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Net income (loss) available to Genworth Financial, Inc.’s common stockholders |
$ | (615 | ) | $ | (657 | ) | $ | (385 | ) | $ | 1,042 | $ | (615 | ) | ||||||
|
|
|
|
|
|
|
|
|
|
The following table presents the condensed consolidating income statement information for the year ended December 31, 2014:
(Amounts in millions) |
Parent Guarantor |
Issuer | All Other Subsidiaries |
Eliminations | Consolidated | |||||||||||||||
Revenues: |
||||||||||||||||||||
Premiums |
$ | — | $ | — | $ | 4,700 | $ | — | $ | 4,700 | ||||||||||
Net investment income |
(2 | ) | — | 3,159 | (15 | ) | 3,142 | |||||||||||||
Net investment gains (losses) |
— | 4 | (26 | ) | — | (22 | ) | |||||||||||||
Policy fees and other income |
— | (4 | ) | 914 | (1 | ) | 909 | |||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total revenues |
(2 | ) | — | 8,747 | (16 | ) | 8,729 | |||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Benefits and expenses: |
||||||||||||||||||||
Benefits and other changes in policy reserves |
— | — | 6,418 | — | 6,418 | |||||||||||||||
Interest credited |
— | — | 737 | — | 737 | |||||||||||||||
Acquisition and operating expenses, net of deferrals |
21 | — | 1,117 | — | 1,138 | |||||||||||||||
Amortization of deferred acquisition costs and intangibles |
— | — | 453 | — | 453 | |||||||||||||||
Goodwill impairment |
— | — | 849 | — | 849 | |||||||||||||||
Interest expense |
— | 321 | 128 | (16 | ) | 433 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total benefits and expenses |
21 | 321 | 9,702 | (16 | ) | 10,028 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Income (loss) from continuing operations before income taxes and equity in income (loss) of subsidiaries |
(23 | ) | (321 | ) | (955 | ) | — | (1,299 | ) | |||||||||||
Provision (benefit) for income taxes |
(8 | ) | (112 | ) | 30 | (4 | ) | (94 | ) | |||||||||||
Equity in income (loss) of subsidiaries |
(1,229 | ) | (1,147 | ) | — | 2,376 | — | |||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Income (loss) from continuing operations |
(1,244 | ) | (1,356 | ) | (985 | ) | 2,380 | (1,205 | ) | |||||||||||
Income (loss) from discontinued operations, net of taxes |
— | — | 157 | — | 157 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Net income (loss) |
(1,244 | ) | (1,356 | ) | (828 | ) | 2,380 | (1,048 | ) | |||||||||||
Less: net income attributable to noncontrolling interests |
— | — | 196 | — | 196 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Net income (loss) available to Genworth Financial, Inc.’s common stockholders |
$ | (1,244 | ) | $ | (1,356 | ) | $ | (1,024 | ) | $ | 2,380 | $ | (1,244 | ) | ||||||
|
|
|
|
|
|
|
|
|
|
The following table presents the condensed consolidating income statement information for the year ended December 31, 2013:
(Amounts in millions) |
Parent Guarantor |
Issuer | All Other Subsidiaries |
Eliminations | Consolidated | |||||||||||||||
Revenues: |
||||||||||||||||||||
Premiums |
$ | — | $ | — | $ | 4,516 | $ | — | $ | 4,516 | ||||||||||
Net investment income |
(1 | ) | 1 | 3,170 | (15 | ) | 3,155 | |||||||||||||
Net investment gains (losses) |
— | 6 | (70 | ) | — | (64 | ) | |||||||||||||
Policy fees and other income |
— | — | 1,022 | (4 | ) | 1,018 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total revenues |
(1 | ) | 7 | 8,638 | (19 | ) | 8,625 | |||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Benefits and expenses: |
||||||||||||||||||||
Benefits and other changes in policy reserves |
— | — | 4,737 | — | 4,737 | |||||||||||||||
Interest credited |
— | — | 738 | — | 738 | |||||||||||||||
Acquisition and operating expenses, net of deferrals |
33 | 32 | 1,179 | — | 1,244 | |||||||||||||||
Amortization of deferred acquisition costs and intangibles |
— | — | 463 | — | 463 | |||||||||||||||
Interest expense |
— | 322 | 147 | (19 | ) | 450 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total benefits and expenses |
33 | 354 | 7,264 | (19 | ) | 7,632 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Income (loss) from continuing operations before income taxes and equity in income (loss) of subsidiaries |
(34 | ) | (347 | ) | 1,374 | — | 993 | |||||||||||||
Provision (benefit) for income taxes |
13 | (120 | ) | 420 | — | 313 | ||||||||||||||
Equity in income (loss) of subsidiaries |
607 | 796 | — | (1,403 | ) | — | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Income from continuing operations |
560 | 569 | 954 | (1,403 | ) | 680 | ||||||||||||||
Income (loss) from discontinued operations, net of taxes |
— | (29 | ) | 63 | — | 34 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Net income |
560 | 540 | 1,017 | (1,403 | ) | 714 | ||||||||||||||
Less: net income attributable to noncontrolling interests |
— | — | 154 | — | 154 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Net income available to Genworth Financial, Inc.’s common stockholders |
$ | 560 | $ | 540 | $ | 863 | $ | (1,403 | ) | $ | 560 | |||||||||
|
|
|
|
|
|
|
|
|
|
The following table presents the condensed consolidating comprehensive income statement information for the year ended December 31, 2015:
(Amounts in millions) |
Parent Guarantor |
Issuer | All Other Subsidiaries |
Eliminations | Consolidated | |||||||||||||||
Net income (loss) |
$ | (615 | ) | $ | (657 | ) | $ | (183 | ) | $ | 1,042 | $ | (413 | ) | ||||||
Other comprehensive income (loss), net of taxes: |
||||||||||||||||||||
Net unrealized gains (losses) on securities not other-than-temporarily impaired |
(1,181 | ) | (1,158 | ) | (1,210 | ) | 2,340 | (1,209 | ) | |||||||||||
Net unrealized gains (losses) on other-than-temporarily impaired securities |
(4 | ) | (4 | ) | (4 | ) | 8 | (4 | ) | |||||||||||
Derivatives qualifying as hedges |
(25 | ) | (24 | ) | (19 | ) | 43 | (25 | ) | |||||||||||
Foreign currency translation and other adjustments |
(250 | ) | (171 | ) | (530 | ) | 421 | (530 | ) | |||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total other comprehensive income (loss) |
(1,460 | ) | (1,357 | ) | (1,763 | ) | 2,812 | (1,768 | ) | |||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total comprehensive income (loss) |
(2,075 | ) | (2,014 | ) | (1,946 | ) | 3,854 | (2,181 | ) | |||||||||||
Less: comprehensive income attributable to noncontrolling interests |
— | — | (106 | ) | — | (106 | ) | |||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total comprehensive income (loss) available to Genworth Financial, Inc.’s common stockholders |
$ | (2,075 | ) | $ | (2,014 | ) | $ | (1,840 | ) | $ | 3,854 | $ | (2,075 | ) | ||||||
|
|
|
|
|
|
|
|
|
|
The following table presents the condensed consolidating comprehensive income statement information for the year ended December 31, 2014:
(Amounts in millions) |
Parent Guarantor |
Issuer | All Other Subsidiaries |
Eliminations | Consolidated | |||||||||||||||
Net income (loss) |
$ | (1,244 | ) | $ | (1,356 | ) | $ | (828 | ) | $ | 2,380 | $ | (1,048 | ) | ||||||
Other comprehensive income (loss), net of taxes: |
||||||||||||||||||||
Net unrealized gains (losses) on securities not other-than-temporarily impaired |
1,539 | 1,510 | 1,573 | (3,049 | ) | 1,573 | ||||||||||||||
Net unrealized gains (losses) on other-than- temporarily impaired securities |
10 | 11 | 10 | (21 | ) | 10 | ||||||||||||||
Derivatives qualifying as hedges |
751 | 751 | 794 | (1,545 | ) | 751 | ||||||||||||||
Foreign currency translation and other adjustments |
(339 | ) | (273 | ) | (537 | ) | 612 | (537 | ) | |||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total other comprehensive income (loss) |
1,961 | 1,999 | 1,840 | (4,003 | ) | 1,797 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total comprehensive income (loss) |
717 | 643 | 1,012 | (1,623 | ) | 749 | ||||||||||||||
Less: comprehensive income attributable to noncontrolling interests |
— | — | 32 | — | 32 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total comprehensive income (loss) available to Genworth Financial, Inc.’s common stockholders |
$ | 717 | $ | 643 | $ | 980 | $ | (1,623 | ) | $ | 717 | |||||||||
|
|
|
|
|
|
|
|
|
|
The following table presents the condensed consolidating comprehensive income statement information for the year ended December 31, 2013:
(Amounts in millions) |
Parent Guarantor |
Issuer | All Other Subsidiaries |
Eliminations | Consolidated | |||||||||||||||
Net income |
$ | 560 | $ | 540 | $ | 1,017 | $ | (1,403 | ) | $ | 714 | |||||||||
Other comprehensive income (loss), net of taxes: |
||||||||||||||||||||
Net unrealized gains (losses) on securities not other-than-temporarily impaired |
(1,778 | ) | (1,733 | ) | (1,817 | ) | 3,511 | (1,817 | ) | |||||||||||
Net unrealized gains (losses) on other-than- temporarily impaired securities |
66 | 65 | 66 | (131 | ) | 66 | ||||||||||||||
Derivatives qualifying as hedges |
(590 | ) | (590 | ) | (615 | ) | 1,205 | (590 | ) | |||||||||||
Foreign currency translation and other adjustments |
(358 | ) | (335 | ) | (442 | ) | 693 | (442 | ) | |||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total other comprehensive income (loss) |
(2,660 | ) | (2,593 | ) | (2,808 | ) | 5,278 | (2,783 | ) | |||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total comprehensive income (loss) |
(2,100 | ) | (2,053 | ) | (1,791 | ) | 3,875 | (2,069 | ) | |||||||||||
Less: comprehensive income attributable to noncontrolling interests |
— | — | 31 | — | 31 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total comprehensive income (loss) available to Genworth Financial, Inc.’s common stockholders |
$ | (2,100 | ) | $ | (2,053 | ) | $ | (1,822 | ) | $ | 3,875 | $ | (2,100 | ) | ||||||
|
|
|
|
|
|
|
|
|
|
The following table presents the condensed consolidating cash flow statement information for the year ended December 31, 2015:
(Amounts in millions) |
Parent Guarantor |
Issuer | All Other Subsidiaries |
Eliminations | Consolidated | |||||||||||||||
Cash flows from operating activities: |
||||||||||||||||||||
Net income (loss) |
$ | (615 | ) | $ | (657 | ) | $ | (183 | ) | $ | 1,042 | $ | (413 | ) | ||||||
Less (income) loss from discontinued operations, net of taxes |
9 | — | 398 | — | 407 | |||||||||||||||
Adjustments to reconcile net income (loss) to net cash from operating activities: |
||||||||||||||||||||
Equity in (income) loss from subsidiaries |
579 | 463 | — | (1,042 | ) | — | ||||||||||||||
Dividends from subsidiaries |
— | 530 | (530 | ) | — | — | ||||||||||||||
Loss on sale of subsidiaries |
— | — | 141 | — | 141 | |||||||||||||||
Amortization of fixed maturity discounts and premiums and limited partnerships |
— | — | (106 | ) | — | (106 | ) | |||||||||||||
Net investment losses (gains) |
— | (43 | ) | 118 | — | 75 | ||||||||||||||
Charges assessed to policyholders |
— | — | (788 | ) | — | (788 | ) | |||||||||||||
Acquisition costs deferred |
— | — | (293 | ) | — | (293 | ) | |||||||||||||
Amortization of deferred acquisition costs and intangibles |
— | — | 966 | — | 966 | |||||||||||||||
Deferred income taxes |
(4 | ) | (65 | ) | (127 | ) | — | (196 | ) | |||||||||||
Net increase (decrease) in trading securities, held-for-sale investments and derivative instruments |
— | 41 | (280 | ) | — | (239 | ) | |||||||||||||
Stock-based compensation expense |
21 | — | (5 | ) | — | 16 | ||||||||||||||
Change in certain assets and liabilities: |
||||||||||||||||||||
Accrued investment income and other assets |
3 | 13 | (123 | ) | 1 | (106 | ) | |||||||||||||
Insurance reserves |
— | — | 1,847 | — | 1,847 | |||||||||||||||
Current tax liabilities |
(3 | ) | 18 | (30 | ) | — | (15 | ) | ||||||||||||
Other liabilities, policy and contract claims and other policy-related balances |
2 | (38 | ) | 328 | 1 | 293 | ||||||||||||||
Cash from operating activities—held for sale |
— | — | 2 | — | 2 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Net cash from operating activities |
(8 | ) | 262 | 1,335 | 2 | 1,591 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Cash flows from investing activities: |
||||||||||||||||||||
Proceeds from maturities and repayments of investments: |
||||||||||||||||||||
Fixed maturity securities |
— | 1 | 4,540 | — | 4,541 | |||||||||||||||
Commercial mortgage loans |
— | — | 882 | — | 882 | |||||||||||||||
Restricted commercial mortgage loans related to securitization entities |
— | — | 41 | — | 41 | |||||||||||||||
Proceeds from sales of investments: |
||||||||||||||||||||
Fixed maturity and equity securities |
— | — | 4,391 | — | 4,391 | |||||||||||||||
Purchases and originations of investments: |
||||||||||||||||||||
Fixed maturity and equity securities |
— | — | (9,750 | ) | — | (9,750 | ) | |||||||||||||
Commercial mortgage loans |
— | — | (956 | ) | — | (956 | ) | |||||||||||||
Other invested assets, net |
— | (100 | ) | 277 | (2 | ) | 175 | |||||||||||||
Policy loans, net |
— | — | 25 | — | 25 | |||||||||||||||
Intercompany notes receivable |
9 | 265 | (63 | ) | (211 | ) | — | |||||||||||||
Capital contributions to subsidiaries |
— | (25 | ) | 25 | — | — | ||||||||||||||
Proceeds from sale of a subsidiary, net of cash transferred |
— | — | 273 | — | 273 | |||||||||||||||
Payments for businesses purchased, net of cash acquired |
— | (197 | ) | 197 | — | — | ||||||||||||||
Cash from investing activities—held for sale |
— | — | (26 | ) | — | (26 | ) | |||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Net cash from investing activities |
9 | (56 | ) | (144 | ) | (213 | ) | (404 | ) | |||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Cash flows from financing activities: |
||||||||||||||||||||
Deposits to universal life and investment contracts |
— | — | 2,257 | — | 2,257 | |||||||||||||||
Withdrawals from universal life and investment contracts |
— | — | (2,144 | ) | — | (2,144 | ) | |||||||||||||
Redemption and repurchase of non-recourse funding obligations |
— | — | (61 | ) | — | (61 | ) | |||||||||||||
Proceeds from the issuance of long-term debt |
— | — | 150 | — | 150 | |||||||||||||||
Repayment and repurchase of long-term debt |
— | (50 | ) | (70 | ) | — | (120 | ) | ||||||||||||
Repayment of borrowings related to securitization entities |
— | — | (36 | ) | — | (36 | ) | |||||||||||||
Proceeds from intercompany notes payable |
2 | 54 | (267 | ) | 211 | — | ||||||||||||||
Repurchase of subsidiary shares |
— | — | (68 | ) | — | (68 | ) | |||||||||||||
Dividends paid to noncontrolling interests |
— | — | (157 | ) | — | (157 | ) | |||||||||||||
Proceeds from the sale of subsidiary shares to noncontrolling interests |
— | — | 226 | — | 226 | |||||||||||||||
Other, net |
(3 | ) | (39 | ) | (56 | ) | — | (98 | ) | |||||||||||
Cash from financing activities—held for sale |
— | — | 9 | — | 9 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Net cash from financing activities |
(1 | ) | (35 | ) | (217 | ) | 211 | (42 | ) | |||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Effect of exchange rate changes on cash and cash equivalents |
— | — | (70 | ) | — | (70 | ) | |||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Net change in cash and cash equivalents |
— | 171 | 904 | — | 1,075 | |||||||||||||||
Cash and cash equivalents at beginning of period |
— | 953 | 3,965 | — | 4,918 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Cash and cash equivalents at end of period |
— | 1,124 | 4,869 | — | 5,993 | |||||||||||||||
Less cash and cash equivalents held for sale at end of period |
— | — | 28 | — | 28 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Cash and cash equivalents of continuing operations at end of period |
$ | — | $ | 1,124 | $ | 4,841 | $ | — | $ | 5,965 | ||||||||||
|
|
|
|
|
|
|
|
|
|
The following table presents the condensed consolidating cash flow statement information for the year ended December 31, 2014:
(Amounts in millions) |
Parent Guarantor |
Issuer | All Other Subsidiaries |
Eliminations | Consolidated | |||||||||||||||
Cash flows from operating activities: |
||||||||||||||||||||
Net income (loss) |
$ | (1,244 | ) | $ | (1,356 | ) | $ | (828 | ) | $ | 2,380 | $ | (1,048 | ) | ||||||
Less (income) loss from discontinued operations, net of taxes |
— | — | (157 | ) | — | (157 | ) | |||||||||||||
Adjustments to reconcile net income (loss) to net cash from operating activities: |
||||||||||||||||||||
Equity in (income) loss from subsidiaries |
1,229 | 1,147 | — | (2,376 | ) | — | ||||||||||||||
Dividends from subsidiaries |
— | 630 | (630 | ) | — | — | ||||||||||||||
Amortization of fixed maturity discounts and premiums and limited partnerships |
— | — | (111 | ) | — | (111 | ) | |||||||||||||
Net investment losses (gains) |
— | (4 | ) | 26 | — | 22 | ||||||||||||||
Charges assessed to policyholders |
— | — | (777 | ) | — | (777 | ) | |||||||||||||
Acquisition costs deferred |
— | — | (383 | ) | — | (383 | ) | |||||||||||||
Amortization of deferred acquisition costs and intangibles |
— | — | 453 | — | 453 | |||||||||||||||
Goodwill impairment |
— | — | 849 | — | 849 | |||||||||||||||
Deferred income taxes |
4 | (146 | ) | (195 | ) | (4 | ) | (341 | ) | |||||||||||
Net increase (decrease) in trading securities, held-for-sale investments and derivative instruments |
— | 1 | 205 | — | 206 | |||||||||||||||
Stock-based compensation expense |
21 | — | 7 | — | 28 | |||||||||||||||
Change in certain assets and liabilities: |
||||||||||||||||||||
Accrued investment income and other assets |
(4 | ) | (9 | ) | (151 | ) | 1 | (163 | ) | |||||||||||
Insurance reserves |
— | — | 2,497 | — | 2,497 | |||||||||||||||
Current tax liabilities |
(2 | ) | (77 | ) | (117 | ) | — | (196 | ) | |||||||||||
Other liabilities, policy and contract claims and other policy-related balances |
11 | 91 | 1,421 | (6 | ) | 1,517 | ||||||||||||||
Cash from operating activities-held for sale |
— | — | 42 | — | 42 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Net cash from operating activities |
15 | 277 | 2,151 | (5 | ) | 2,438 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Cash flows from investing activities: |
||||||||||||||||||||
Proceeds from maturities and repayments of investments: |
||||||||||||||||||||
Fixed maturity securities |
— | 150 | 5,048 | — | 5,198 | |||||||||||||||
Commercial mortgage loans |
— | — | 765 | — | 765 | |||||||||||||||
Restricted commercial mortgage loans related to securitization entities |
— | — | 32 | — | 32 | |||||||||||||||
Proceeds from sales of investments: |
||||||||||||||||||||
Fixed maturity and equity securities |
— | — | 2,386 | — | 2,386 | |||||||||||||||
Purchases and originations of investments: |
||||||||||||||||||||
Fixed maturity and equity securities |
— | (150 | ) | (9,038 | ) | — | (9,188 | ) | ||||||||||||
Commercial mortgage loans |
— | — | (967 | ) | — | (967 | ) | |||||||||||||
Other invested assets, net |
— | — | (40 | ) | 5 | (35 | ) | |||||||||||||
Policy loans, net |
— | — | 12 | — | 12 | |||||||||||||||
Intercompany notes receivable |
(1 | ) | (19 | ) | (2 | ) | 22 | — | ||||||||||||
Capital contributions to subsidiaries |
(12 | ) | — | 12 | — | — | ||||||||||||||
Cash from investing activities-held for sale |
— | — | (39 | ) | — | (39 | ) | |||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Net cash from investing activities |
(13 | ) | (19 | ) | (1,831 | ) | 27 | (1,836 | ) | |||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Cash flows from financing activities: |
||||||||||||||||||||
Deposits to universal life and investment contracts |
— | — | 2,993 | — | 2,993 | |||||||||||||||
Withdrawals from universal life and investment contracts |
— | — | (2,588 | ) | — | (2,588 | ) | |||||||||||||
Redemption and repurchase of non-recourse funding obligations |
— | — | (42 | ) | — | (42 | ) | |||||||||||||
Proceeds from the issuance of long-term debt |
— | — | 144 | — | 144 | |||||||||||||||
Repayment and repurchase of long-term debt |
— | (485 | ) | (136 | ) | — | (621 | ) | ||||||||||||
Repayment of borrowings related to securitization entities |
— | — | (32 | ) | — | (32 | ) | |||||||||||||
Proceeds from intercompany notes payable |
— | 3 | 19 | (22 | ) | — | ||||||||||||||
Repurchase of subsidiary shares |
— | — | (28 | ) | — | (28 | ) | |||||||||||||
Dividends paid to noncontrolling interests |
— | — | (75 | ) | — | (75 | ) | |||||||||||||
Proceeds from the sale of subsidiary shares to noncontrolling interests |
— | — | 517 | — | 517 | |||||||||||||||
Other, net |
(2 | ) | (42 | ) | 14 | — | (30 | ) | ||||||||||||
Cash from financing activities-held for sale |
— | — | (33 | ) | — | (33 | ) | |||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Net cash from financing activities |
(2 | ) | (524 | ) | 753 | (22 | ) | 205 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Effect of exchange rate changes on cash and cash equivalents |
— | — | (103 | ) | — | (103 | ) | |||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Net change in cash and cash equivalents |
— | (266 | ) | 970 | — | 704 | ||||||||||||||
Cash and cash equivalents at beginning of period |
— | 1,219 | 2,995 | — | 4,214 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Cash and cash equivalents at end of period |
— | 953 | 3,965 | — | 4,918 | |||||||||||||||
Less cash and cash equivalents held for sale at end of period |
— | — | 273 | — | 273 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Cash and cash equivalents of continuing operations at end of period |
$ | — | $ | 953 | $ | 3,692 | $ | — | $ | 4,645 | ||||||||||
|
|
|
|
|
|
|
|
|
|
The following table presents the condensed consolidating cash flow statement information for the year ended December 31, 2013:
(Amounts in millions) |
Parent Guarantor |
Issuer | All Other Subsidiaries |
Eliminations | Consolidated | |||||||||||||||
Cash flows from operating activities: |
||||||||||||||||||||
Net income (loss) |
$ | 560 | $ | 540 | $ | 1,017 | $ | (1,403 | ) | $ | 714 | |||||||||
Less income from discontinued operations, net of taxes |
— | 29 | (63 | ) | — | (34 | ) | |||||||||||||
Adjustments to reconcile net income (loss) to net cash from operating activities: |
||||||||||||||||||||
Equity in (income) loss from subsidiaries |
(607 | ) | (796 | ) | — | 1,403 | — | |||||||||||||
Dividends from subsidiaries |
535 | 376 | (497 | ) | (414 | ) | — | |||||||||||||
Amortization of fixed maturity discounts and premiums and limited partnerships |
— | — | (105 | ) | — | (105 | ) | |||||||||||||
Net investment losses (gains) |
— | (6 | ) | 70 | — | 64 | ||||||||||||||
Charges assessed to policyholders |
— | — | (812 | ) | — | (812 | ) | |||||||||||||
Acquisition costs deferred |
— | — | (363 | ) | — | (363 | ) | |||||||||||||
Amortization of deferred acquisition costs and intangibles |
— | — | 463 | — | 463 | |||||||||||||||
Deferred income taxes |
24 | (138 | ) | 14 | — | (100 | ) | |||||||||||||
Net increase (decrease) in trading securities, held-for-sale investments and derivative instruments |
— | 1 | (60 | ) | — | (59 | ) | |||||||||||||
Stock-based compensation expense |
26 | — | 13 | — | 39 | |||||||||||||||
Change in certain assets and liabilities: |
||||||||||||||||||||
Accrued investment income and other assets |
2 | 67 | (122 | ) | — | (53 | ) | |||||||||||||
Insurance reserves |
— | — | 1,644 | — | 1,644 | |||||||||||||||
Current tax liabilities |
3 | 45 | 293 | — | 341 | |||||||||||||||
Other liabilities, policy and contract claims and other policy-related balances |
(4 | ) | (11 | ) | (346 | ) | — | (361 | ) | |||||||||||
Cash from operating activities—held for sale |
— | — | 21 | — | 21 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Net cash from operating activities |
539 | 107 | 1,167 | (414 | ) | 1,399 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Cash flows from investing activities: |
||||||||||||||||||||
Proceeds from maturities and repayments of investments: |
||||||||||||||||||||
Fixed maturity securities |
— | — | 4,891 | — | 4,891 | |||||||||||||||
Commercial mortgage loans |
— | — | 896 | — | 896 | |||||||||||||||
Restricted commercial mortgage loans related to securitization entities |
— | — | 60 | — | 60 | |||||||||||||||
Proceeds from sales of investments: |
||||||||||||||||||||
Fixed maturity and equity securities |
— | 150 | 3,997 | — | 4,147 | |||||||||||||||
Purchases and originations of investments: |
||||||||||||||||||||
Fixed maturity and equity securities |
— | (150 | ) | (10,308 | ) | — | (10,458 | ) | ||||||||||||
Commercial mortgage loans |
— | — | (873 | ) | — | (873 | ) | |||||||||||||
Other invested assets, net |
— | — | 65 | — | 65 | |||||||||||||||
Policy loans, net |
— | — | 242 | — | 242 | |||||||||||||||
Intercompany notes receivable |
(8 | ) | (3 | ) | 95 | (84 | ) | — | ||||||||||||
Capital contributions to subsidiaries |
(531 | ) | (1 | ) | 532 | — | — | |||||||||||||
Proceeds from sale of a subsidiary, net of cash transferred |
— | 425 | (60 | ) | — | 365 | ||||||||||||||
Cash from investing activities—held for sale |
— | (30 | ) | 115 | — | 85 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Net cash from investing activities |
(539 | ) | 391 | (348 | ) | (84 | ) | (580 | ) | |||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Cash flows from financing activities: |
||||||||||||||||||||
Deposits to universal life and investment contracts |
— | — | 2,999 | — | 2,999 | |||||||||||||||
Withdrawals from universal life and investment contracts |
— | — | (3,269 | ) | — | (3,269 | ) | |||||||||||||
Redemption and repurchase of non-recourse funding obligations |
— | — | (28 | ) | — | (28 | ) | |||||||||||||
Proceeds from the issuance of long-term debt |
— | 793 | — | — | 793 | |||||||||||||||
Repayment and repurchase of long-term debt |
— | (365 | ) | — | — | (365 | ) | |||||||||||||
Repayment of borrowings related to securitization entities |
— | — | (108 | ) | — | (108 | ) | |||||||||||||
Proceeds from intercompany notes payable |
— | (87 | ) | 3 | 84 | — | ||||||||||||||
Repurchase of subsidiary shares |
— | — | (43 | ) | — | (43 | ) | |||||||||||||
Dividends paid to noncontrolling interests |
— | — | (52 | ) | — | (52 | ) | |||||||||||||
Dividends paid to parent |
— | (414 | ) | — | 414 | — | ||||||||||||||
Other, net |
— | (49 | ) | (4 | ) | — | (53 | ) | ||||||||||||
Cash from financing activities—held for sale |
— | — | (23 | ) | — | (23 | ) | |||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Net cash from financing activities |
— | (122 | ) | (525 | ) | 498 | (149 | ) | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Effect of exchange rate changes on cash and cash equivalents |
— | — | (109 | ) | — | (109 | ) | |||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Net change in cash and cash equivalents |
— | 376 | 185 | — | 561 | |||||||||||||||
Cash and cash equivalents at beginning of period |
— | 843 | 2,810 | — | 3,653 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Cash and cash equivalents at end of period |
— | 1,219 | 2,995 | — | 4,214 | |||||||||||||||
Less cash and cash equivalents held for sale at end of period |
— | — | 557 | — | 557 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Cash and cash equivalents of continuing operations at end of period |
$ | — | $ | 1,219 | $ | 2,438 | $ | — | $ | 3,657 | ||||||||||
|
|
|
|
|
|
|
|
|
|
For information on significant restrictions on dividends by, or loans or advances from, subsidiaries of Genworth Financial and Genworth Holdings, and the restricted net assets of those subsidiaries, see note 18.
|
Schedule II
Genworth Financial, Inc.
(Parent Company Only)
Balance Sheets
(Amounts in millions)
December 31, | ||||||||
2015 | 2014 | |||||||
Assets |
||||||||
Investments in subsidiaries |
$ | 12,814 | $ | 14,895 | ||||
Deferred tax asset |
25 | 20 | ||||||
Other assets |
— | 2 | ||||||
Intercompany notes receivable |
— | 9 | ||||||
|
|
|
|
|||||
Total assets |
$ | 12,839 | $ | 14,926 | ||||
|
|
|
|
|||||
Liabilities and stockholders’ equity |
||||||||
Liabilities: |
||||||||
Other liabilities |
$ | 13 | $ | 3 | ||||
Intercompany notes payable |
2 | — | ||||||
|
|
|
|
|||||
Total liabilities |
15 | 3 | ||||||
|
|
|
|
|||||
Commitments and contingencies |
||||||||
Stockholders’ equity: |
||||||||
Common stock |
1 | 1 | ||||||
Additional paid-in capital |
11,949 | 11,997 | ||||||
|
|
|
|
|||||
Accumulated other comprehensive income (loss): |
||||||||
Net unrealized investment gains (losses): |
||||||||
Net unrealized gains (losses) on securities not other-than-temporarily impaired |
1,236 | 2,431 | ||||||
Net unrealized gains (losses) on other-than-temporarily impaired securities |
18 | 22 | ||||||
|
|
|
|
|||||
Net unrealized investment gains (losses) |
1,254 | 2,453 | ||||||
|
|
|
|
|||||
Derivatives qualifying as hedges |
2,045 | 2,070 | ||||||
Foreign currency translation and other adjustments |
(289 | ) | (77 | ) | ||||
|
|
|
|
|||||
Total accumulated other comprehensive income (loss) |
3,010 | 4,446 | ||||||
Retained earnings |
564 | 1,179 | ||||||
Treasury stock, at cost |
(2,700 | ) | (2,700 | ) | ||||
|
|
|
|
|||||
Total Genworth Financial, Inc.’s stockholders’ equity |
12,824 | 14,923 | ||||||
|
|
|
|
|||||
Total liabilities and stockholders’ equity |
$ | 12,839 | $ | 14,926 | ||||
|
|
|
|
See Notes to Schedule II
See Accompanying Report of Independent Registered Public Accounting Firm
Schedule II
Genworth Financial, Inc.
(Parent Company Only)
Statements of Income
(Amounts in millions)
Years ended December 31, | ||||||||||||
2015 | 2014 | 2013 | ||||||||||
Revenues: |
||||||||||||
Net investment income |
$ | (3 | ) | $ | (2 | ) | $ | (1 | ) | |||
|
|
|
|
|
|
|||||||
Total revenues |
(3 | ) | (2 | ) | (1 | ) | ||||||
|
|
|
|
|
|
|||||||
Expenses: |
||||||||||||
Acquisition and operating expenses, net of deferrals |
32 | 21 | 33 | |||||||||
|
|
|
|
|
|
|||||||
Total expenses |
32 | 21 | 33 | |||||||||
|
|
|
|
|
|
|||||||
Loss before income taxes and equity in income (loss) of subsidiaries |
(35 | ) | (23 | ) | (34 | ) | ||||||
Provision (benefit) from income taxes |
(8 | ) | (8 | ) | 13 | |||||||
Equity in income (loss) of subsidiaries |
(579 | ) | (1,229 | ) | 607 | |||||||
Loss from discontinued operations, net of taxes |
(9 | ) | — | — | ||||||||
|
|
|
|
|
|
|||||||
Net income (loss) available to Genworth Financial, Inc.’s common stockholders |
$ | (615 | ) | $ | (1,244 | ) | $ | 560 | ||||
|
|
|
|
|
|
See Notes to Schedule II
See Accompanying Report of Independent Registered Public Accounting Firm
Schedule II
Genworth Financial, Inc.
(Parent Company Only)
Statements of Comprehensive Income
(Amounts in millions)
Years ended December 31, | ||||||||||||
2015 | 2014 | 2013 | ||||||||||
Net income (loss) available to Genworth Financial, Inc.’s common stockholders |
$ | (615 | ) | $ | (1,244 | ) | $ | 560 | ||||
Other comprehensive income (loss), net of taxes: |
||||||||||||
Net unrealized gains (losses) on securities not other-than-temporarily impaired |
(1,181 | ) | 1,539 | (1,778 | ) | |||||||
Net unrealized gains (losses) on other-than-temporarily impaired securities |
(4 | ) | 10 | 66 | ||||||||
Derivatives qualifying as hedges |
(25 | ) | 751 | (590 | ) | |||||||
Foreign currency translation and other adjustments |
(250 | ) | (339 | ) | (358 | ) | ||||||
|
|
|
|
|
|
|||||||
Total other comprehensive income (loss) |
(1,460 | ) | 1,961 | (2,660 | ) | |||||||
|
|
|
|
|
|
|||||||
Total comprehensive income (loss) available to Genworth Financial, Inc.’s common stockholders |
$ | (2,075 | ) | $ | 717 | $ | (2,100 | ) | ||||
|
|
|
|
|
|
See Notes to Schedule II
See Accompanying Report of Independent Registered Public Accounting Firm
Schedule II
Genworth Financial, Inc.
(Parent Company Only)
Statements of Cash Flows
(Amounts in millions)
Years ended December 31, | ||||||||||||
2015 | 2014 | 2013 | ||||||||||
Cash flows from operating activities: |
||||||||||||
Net income (loss) available to Genworth Financial, Inc.’s common stockholders |
$ | (615 | ) | $ | (1,244 | ) | $ | 560 | ||||
Less loss from discontinued operations, net of taxes |
9 | — | — | |||||||||
Adjustments to reconcile net income (loss) available to Genworth Financial, Inc.’s common stockholders to net cash from operating activities: |
||||||||||||
Equity in (income) loss from subsidiaries |
579 | 1,229 | (607 | ) | ||||||||
Dividends from subsidiaries |
— | — | 535 | |||||||||
Deferred income taxes |
(4 | ) | 4 | 24 | ||||||||
Stock-based compensation expense |
21 | 21 | 26 | |||||||||
Change in certain assets and liabilities: |
||||||||||||
Accrued investment income and other assets |
3 | (4 | ) | 2 | ||||||||
Current tax liabilities |
(3 | ) | (2 | ) | 3 | |||||||
Other liabilities and other policy-related balances |
2 | 11 | (4 | ) | ||||||||
|
|
|
|
|
|
|||||||
Net cash from operating activities |
(8 | ) | 15 | 539 | ||||||||
|
|
|
|
|
|
|||||||
Cash flows from investing activities: |
||||||||||||
Intercompany notes receivable |
9 | (1 | ) | (8 | ) | |||||||
Capital contribution paid to subsidiaries |
— | (12 | ) | (531 | ) | |||||||
|
|
|
|
|
|
|||||||
Net cash from investing activities |
9 | (13 | ) | (539 | ) | |||||||
|
|
|
|
|
|
|||||||
Cash flows from financing activities: |
||||||||||||
Other, net |
(3 | ) | (2 | ) | — | |||||||
Intercompany notes payable |
2 | — | — | |||||||||
|
|
|
|
|
|
|||||||
Net cash from financing activities |
(1 | ) | (2 | ) | — | |||||||
|
|
|
|
|
|
|||||||
Effect of exchange rate changes on cash and cash equivalents |
— | — | ||||||||||
|
|
|
|
|
|
|||||||
Cash and cash equivalents at beginning of year |
— | — | — | |||||||||
|
|
|
|
|
|
|||||||
Cash and cash equivalents at end of year |
$ | — | $ | — | $ | — | ||||||
|
|
|
|
|
|
See Notes to Schedule II
See Accompanying Report of Independent Registered Public Accounting Firm
Schedule II
Genworth Financial, Inc.
(Parent Company Only)
Notes to Schedule II
Years Ended December 31, 2015, 2014 and 2013
(1) Organization and Purpose
Genworth Holdings, Inc. (“Genworth Holdings”) (formerly known as Genworth Financial, Inc.) was incorporated in Delaware in 2003 in preparation for an initial public offering of Genworth common stock, which was completed on May 28, 2004. On April 1, 2013, Genworth Holdings completed a holding company reorganization pursuant to which Genworth Holdings became a direct, 100% owned subsidiary of a new public holding company that it had formed. The new public holding company was incorporated in Delaware on December 5, 2012, in connection with the reorganization, under the name Sub XLVI, Inc., and was renamed Genworth Financial, Inc. (“Genworth Financial”) upon the completion of the reorganization.
To implement the reorganization, Genworth Holdings formed Genworth Financial and Genworth Financial, in turn, formed Sub XLII, Inc. (“Merger Sub”). The holding company structure was implemented pursuant to Section 251(g) of the General Corporation Law of the State of Delaware (“DGCL”) by the merger of Merger Sub with and into Genworth Holdings (the “Merger”). Genworth Holdings survived the Merger as a direct, 100% owned subsidiary of Genworth Financial and each share of Genworth Holdings Class A Common Stock, par value $0.001 per share (“Genworth Holdings Class A Common Stock”), issued and outstanding immediately prior to the Merger and each share of Genworth Holdings Class A Common Stock held in the treasury of Genworth Holdings immediately prior to the Merger converted into one issued and outstanding or treasury, as applicable, share of Genworth Financial Class A Common Stock, par value $0.001 per share, having the same designations, rights, powers and preferences and the qualifications, limitations and restrictions as the Genworth Holdings Class A Common Stock being converted.
Immediately after the consummation of the Merger, Genworth Financial had the same authorized, outstanding and treasury capital stock as Genworth Holdings immediately prior to the Merger. Each share of Genworth Financial common stock outstanding immediately prior to the Merger was cancelled. Effective upon the consummation of the Merger, Genworth Financial adopted an amended and restated certificate of incorporation and amended and restated bylaws that were identical to those of Genworth Holdings immediately prior to the consummation of the Merger (other than provisions regarding certain technical matters, as permitted by Section 251(g) of the DGCL). Genworth Financial’s directors and executive officers immediately after the consummation of the Merger were the same as the directors and executive officers of Genworth Holdings immediately prior to the consummation of the Merger. Immediately after the consummation of the Merger, Genworth Financial had, on a consolidated basis, the same assets, businesses and operations as Genworth Holdings had immediately prior to the consummation of the Merger.
On April 1, 2013, in connection with the reorganization, immediately following the consummation of the Merger, Genworth Holdings distributed to Genworth Financial (as its sole stockholder), through a dividend (the “Distribution”), the 84.6% membership interest in one of its subsidiaries (Genworth Mortgage Holdings, LLC (“GMHL”)) that it held directly, and 100% of the shares of another of its subsidiaries (Genworth Mortgage Holdings, Inc. (“GMHI”)), that held the remaining 15.4% of outstanding membership interests of GMHL. At the time of the Distribution, GMHL and GMHI together owned (directly or indirectly) 100% of the shares or other equity interests of all of the subsidiaries that conducted Genworth Holdings’ U.S. mortgage insurance business (these subsidiaries also owned the subsidiaries that conducted Genworth Holdings’ European mortgage insurance business). As part of the comprehensive U.S. mortgage insurance capital plan, on April 1, 2013, immediately prior to the Distribution, Genworth Holdings contributed $100 million to the U.S. mortgage insurance subsidiaries.
The financial information contained herein has been prepared as if the reorganization occurred on January 1, 2013.
Genworth Financial is a holding company whose subsidiaries offer mortgage and long-term care insurance products and service life insurance, as well as annuities and other investment products.
(2) Commitments
Genworth Financial provides a full and unconditional guarantee to the trustee of Genworth Holdings’ outstanding senior notes and the holders of the senior notes, on an unsecured unsubordinated basis, 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 the full and punctual payment of all other amounts payable by Genworth Holdings under the senior notes indenture in respect of such senior notes. Genworth Financial also provides a full and unconditional guarantee to the trustee of Genworth Holdings’ outstanding subordinated notes and the holders of the subordinated notes, on an unsecured subordinated basis, of the full and punctual payment of the principal of, premium, if any and interest on, and all other amounts payable under, the outstanding subordinated notes, and the full and punctual payment of all other amounts payable by Genworth Holdings under the subordinated notes indenture in respect of the subordinated notes. Genworth Financial also provides a full and unconditional guarantee of Genworth Holdings’ obligations associated with Rivermont Life Insurance Company I and the Tax Matters Agreement.
Any obligations under Genworth Holdings’ credit agreement are unsecured and payment of Genworth Holdings’ obligations is fully and unconditionally guaranteed by Genworth Financial.
(3) Income Taxes
As of December 31, 2015 and 2014, Genworth Financial had a deferred tax asset of $25 million and $20 million, respectively, primarily comprised of share-based compensation. These amounts are undiscounted pursuant to the applicable rules governing deferred taxes. Genworth Financial’s current income tax receivable was zero and $3 million as of December 31, 2015 and 2014, respectively. Net cash received for taxes was $1 million, $23 million and $5 million for the years ended December 31, 2015, 2014 and 2013, respectively.
|
Schedule III
Genworth Financial, Inc.
Supplemental Insurance Information
(Amounts in millions)
Segment |
Deferred Acquisition Costs |
Future Policy Benefits |
Policyholder Account Balances |
Liability for Policy and Contract Claims |
Unearned Premiums |
|||||||||||||||
December 31, 2015 |
||||||||||||||||||||
U.S. Mortgage Insurance |
$ | 22 | $ | — | $ | — | $ | 849 | $ | 258 | ||||||||||
Canada Mortgage Insurance |
108 | — | — | 87 | 1,460 | |||||||||||||||
Australia Mortgage Insurance |
35 | — | — | 165 | 963 | |||||||||||||||
U.S. Life Insurance |
3,963 | 36,471 | 23,009 | 6,969 | 621 | |||||||||||||||
Runoff |
270 | 4 | 3,200 | 18 | 6 | |||||||||||||||
Corporate and Other |
— | — | — | 7 | — | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total |
$ | 4,398 | $ | 36,475 | $ | 26,209 | $ | 8,095 | $ | 3,308 | ||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
December 31, 2014 |
||||||||||||||||||||
U.S. Mortgage Insurance |
$ | 16 | $ | — | $ | — | $ | 1,180 | $ | 178 | ||||||||||
Canada Mortgage Insurance |
112 | — | — | 91 | 1,548 | |||||||||||||||
Australia Mortgage Insurance |
41 | — | — | 152 | 1,112 | |||||||||||||||
U.S. Life Insurance |
4,390 | 35,911 | 22,874 | 6,434 | 639 | |||||||||||||||
Runoff |
293 | 4 | 3,158 | 15 | 7 | |||||||||||||||
Corporate and Other |
— | — | — | 9 | 1 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total |
$ | 4,852 | $ | 35,915 | $ | 26,032 | $ | 7,881 | $ | 3,485 | ||||||||||
|
|
|
|
|
|
|
|
|
|
See Accompanying Report of Independent Registered Public Accounting Firm
Schedule III—Continued
Genworth Financial, Inc.
Supplemental Insurance Information
(Amounts in millions)
Segment |
Premium Revenue |
Net Investment Income |
Interest Credited and Benefits and Other Changes in Policy Reserves |
Amortization of Deferred Acquisition Costs |
Other Operating Expenses |
Premiums Written |
||||||||||||||||||
December 31, 2015 |
||||||||||||||||||||||||
U.S. Mortgage Insurance |
$ | 602 | $ | 58 | $ | 222 | $ | 7 | $ | 158 | $ | 682 | ||||||||||||
Canada Mortgage Insurance |
466 | 130 | 96 | 35 | 85 | 641 | ||||||||||||||||||
Australia Mortgage Insurance |
357 | 114 | 81 | 16 | 110 | 328 | ||||||||||||||||||
U.S. Life Insurance |
3,128 | 2,701 | 5,288 | 816 | 832 | 3,115 | ||||||||||||||||||
Runoff |
1 | 138 | 168 | 28 | 78 | 1 | ||||||||||||||||||
Corporate and Other |
25 | (3 | ) | 14 | — | 529 | 27 | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total |
$ | 4,579 | $ | 3,138 | $ | 5,869 | $ | 902 | $ | 1,792 | $ | 4,794 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
December 31, 2014 |
||||||||||||||||||||||||
U.S. Mortgage Insurance |
$ | 578 | $ | 59 | $ | 357 | $ | 5 | $ | 142 | $ | 628 | ||||||||||||
Canada Mortgage Insurance |
515 | 155 | 102 | 35 | 114 | 583 | ||||||||||||||||||
Australia Mortgage Insurance |
406 | 144 | 78 | 15 | 113 | 509 | ||||||||||||||||||
U.S. Life Insurance |
3,169 | 2,665 | 6,438 | 291 | 1,648 | 3,172 | ||||||||||||||||||
Runoff |
3 | 129 | 156 | 37 | 87 | 2 | ||||||||||||||||||
Corporate and Other |
29 | (10 | ) | 24 | — | 386 | 19 | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total |
$ | 4,700 | $ | 3,142 | $ | 7,155 | $ | 383 | $ | 2,490 | $ | 4,913 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
December 31, 2013 |
||||||||||||||||||||||||
U.S. Mortgage Insurance |
$ | 554 | $ | 60 | $ | 412 | $ | 4 | $ | 146 | $ | 567 | ||||||||||||
Canada Mortgage Insurance |
560 | 170 | 139 | 31 | 121 | 499 | ||||||||||||||||||
Australia Mortgage Insurance |
398 | 159 | 134 | 17 | 126 | 519 | ||||||||||||||||||
U.S. Life Insurance |
2,957 | 2,621 | 4,594 | 298 | 841 | 2,963 | ||||||||||||||||||
Runoff |
5 | 139 | 151 | 4 | 85 | 4 | ||||||||||||||||||
Corporate and Other |
42 | 6 | 45 | — | 484 | 28 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total |
$ | 4,516 | $ | 3,155 | $ | 5,475 | $ | 354 | $ | 1,803 | $ | 4,580 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
See Accompanying Report of Independent Registered Public Accounting Firm
|
a) Premiums
For traditional long-duration insurance contracts, we report premiums as earned when due. For short-duration insurance contracts, we report premiums as revenue over the terms of the related insurance policies on a pro-rata basis or in proportion to expected claims.
For single premium mortgage insurance contracts, we report premiums over the estimated policy life in accordance with the expected pattern of risk emergence as further described in our accounting policy for unearned premiums. In addition, we have a practice of refunding the post-delinquent premiums in our U.S. mortgage insurance business to the insured party if the delinquent loan goes to claim. We record a liability for premiums received on the delinquent loans where our practice is to refund post-delinquent premiums.
Premiums received under annuity contracts without significant mortality risk and premiums received on investment and universal life insurance products are not reported as revenues but rather as deposits and are included in liabilities for policyholder account balances.
b) Net Investment Income and Net Investment Gains and Losses
Investment income is recognized when earned. Income or losses upon call or prepayment of available-for-sale fixed maturity securities is recognized in net investment income, except for hybrid securities where the income or loss upon call is recognized in net investment gains and losses. Investment gains and losses are calculated on the basis of specific identification on the trade date.
Investment income on mortgage-backed and asset-backed securities is initially based upon yield, cash flow and prepayment assumptions at the date of purchase. Subsequent revisions in those assumptions are recorded using the retrospective or prospective method. Under the retrospective method used for mortgage-backed and asset-backed securities of high credit quality (ratings equal to or greater than “AA” or that are backed by a U.S. agency) which cannot be contractually prepaid in such a manner that we would not recover a substantial portion of the initial investment, amortized cost of the security is adjusted to the amount that would have existed had the revised assumptions been in place at the date of purchase. The adjustments to amortized cost are recorded as a charge or credit to net investment income. Under the prospective method, which is used for all other mortgage-backed and asset-backed securities, future cash flows are estimated and interest income is recognized going forward using the new internal rate of return.
c) Policy Fees and Other Income
Policy fees and other income consists primarily of insurance charges assessed on universal and term universal life insurance contracts and fees assessed against customer account values. For universal and term universal life insurance contracts, charges to policyholder accounts for cost of insurance are recognized as revenue when due. Variable product fees are charged to variable annuity contractholders and variable life insurance policyholders based upon the daily net assets of the contractholder’s and policyholder’s account values and are recognized as revenue when charged. Policy surrender fees are recognized as income when the policy is surrendered.
d) Investment Securities
At the time of purchase, we designate our investment securities as either available-for-sale or trading and report them in our consolidated balance sheets at fair value. Our portfolio of fixed maturity securities comprises primarily investment grade securities. Changes in the fair value of available-for-sale investments, net of the effect on deferred acquisition costs (“DAC”), present value of future profits (“PVFP”), benefit reserves and deferred income taxes, are reflected as unrealized investment gains or losses in a separate component of accumulated other comprehensive income (loss). Realized and unrealized gains and losses related to trading securities are reflected in net investment gains (losses). Trading securities are included in other invested assets in our consolidated balance sheets and primarily represent fixed maturity securities where we utilized the fair value option.
Other-Than-Temporary Impairments On Available-For-Sale Securities
As of each balance sheet date, we evaluate securities in an unrealized loss position for other-than-temporary impairments. For debt securities, we consider all available information relevant to the collectability of the security, including information about past events, current conditions, and reasonable and supportable forecasts, when developing the estimate of cash flows expected to be collected. More specifically for mortgage-backed and asset-backed securities, we also utilize performance indicators of the underlying assets including default or delinquency rates, loan to collateral value ratios, third-party credit enhancements, current levels of subordination, vintage and other relevant characteristics of the security or underlying assets to develop our estimate of cash flows. Estimating the cash flows expected to be collected is a quantitative and qualitative process that incorporates information received from third-party sources along with certain internal assumptions and judgments regarding the future performance of the underlying collateral. Where possible, this data is benchmarked against third-party sources.
We recognize other-than-temporary impairments on debt securities in an unrealized loss position when one of the following circumstances exists:
• | we do not expect full recovery of our amortized cost basis, |
• | the present value of cash flows expected to be collected is less than our amortized cost basis, |
• | we intend to sell a security or |
• | it is more likely than not that we will be required to sell a security prior to recovery. |
For other-than-temporary impairments recognized during the period, we present the total other-than-temporary impairments, the portion of other-than-temporary impairments included in other comprehensive income (loss) (“OCI”) and the net other-than-temporary impairments as supplemental disclosure presented on the face of our consolidated statements of income.
Total other-than-temporary impairments that emerged in the current period are calculated as the difference between the amortized cost and fair value. For other-than-temporarily impaired securities where we do not intend to sell the security and it is not more likely than not that we will be required to sell the security prior to recovery, total other-than-temporary impairments are adjusted by the portion of other-than-temporary impairments recognized in OCI (“non-credit”). Net other-than-temporary impairments recorded in net income (loss) represent the credit loss on the other-than-temporarily impaired securities with the offset recognized as an adjustment to the amortized cost to determine the new amortized cost basis of the securities.
For securities that were deemed to be other-than-temporarily impaired and a non-credit loss was recorded in OCI, the amount recorded as an unrealized gain (loss) represents the difference between the current fair value and the new amortized cost for each period presented. The unrealized gain (loss) on an other-than-temporarily impaired security is recorded as a separate component in OCI until the security is sold or until we record an other-than-temporary impairment where we intend to sell the security or will be required to sell the security prior to recovery.
To estimate the amount of other-than-temporary impairment attributed to credit losses on debt securities where we do not intend to sell the security and it is not more likely than not that we will be required to sell the security prior to recovery, we determine our best estimate of the present value of the cash flows expected to be collected from a security using the effective yield on the security prior to recording any other-than-temporary impairment. If the present value of the discounted cash flows is lower than the amortized cost of the security, the difference between the present value and amortized cost represents the credit loss associated with the security with the remaining difference between fair value and amortized cost recorded as a non-credit other-than-temporary impairment in OCI.
The evaluation of other-than-temporary impairments is subject to risks and uncertainties and is intended to determine the appropriate amount and timing for recognizing an impairment charge. The assessment of whether such impairment has occurred is based on management’s best estimate of the cash flows expected to be collected at the individual security level. We regularly monitor our investment portfolio to ensure that securities that may be other-than-temporarily impaired are identified in a timely manner and that any impairment charge is recognized in the proper period.
While the other-than-temporary impairment model for debt securities generally includes fixed maturity securities, there are certain hybrid securities that are classified as fixed maturity securities where the application of a debt impairment model depends on whether there has been any evidence of deterioration in credit of the issuer, such as a downgrade to below investment grade. Under certain circumstances, evidence of deterioration in credit of the issuer may result in the application of the equity securities impairment model.
For equity securities, we recognize an impairment charge in the period in which we determine that the security will not recover to book value within a reasonable period. We determine what constitutes a reasonable period on a security-by-security basis based upon consideration of all the evidence available to us, including the magnitude of an unrealized loss and its duration. In any event, this period does not exceed 18 months for common equity securities. We measure other-than-temporary impairments based upon the difference between the amortized cost of a security and its fair value.
e) Fair Value Measurements
Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. We have fixed maturity, equity and trading securities, derivatives, embedded derivatives, securities held as collateral, separate account assets and certain other financial instruments, which are carried at fair value.
Fair value measurements are based upon observable and unobservable inputs. Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect our view of market assumptions in the absence of observable market information. We utilize valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs. All assets and liabilities carried at fair value are classified and disclosed in one of the following three categories:
• | Level 1—Quoted prices for identical instruments in active markets. |
• | Level 2—Quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; and model-derived valuations whose inputs are observable or whose significant value drivers are observable. |
• | Level 3—Instruments whose significant value drivers are unobservable. |
Level 1 primarily consists of financial instruments whose value is based on quoted market prices such as exchange-traded derivatives and actively traded mutual fund investments.
Level 2 includes those financial instruments that are valued using industry-standard pricing methodologies, models or other valuation methodologies. These models are primarily industry-standard models that consider various inputs, such as interest rate, credit spread and foreign exchange rates for the underlying financial instruments. All significant inputs are observable, or derived from observable, information in the marketplace or are supported by observable levels at which transactions are executed in the marketplace. Financial instruments in this category primarily include: certain public and private corporate fixed maturity and equity securities; government or agency securities; certain mortgage-backed and asset-backed securities; securities held as collateral; and certain non-exchange-traded derivatives such as interest rate or cross currency swaps.
Level 3 comprises financial instruments whose fair value is estimated based on industry-standard pricing methodologies and internally developed models utilizing significant inputs not based on, nor corroborated by, readily available market information. In certain instances, this category may also utilize non-binding broker quotes. This category primarily consists of certain less liquid fixed maturity, equity and trading securities and certain derivative instruments or embedded derivatives where we cannot corroborate the significant valuation inputs with market observable data.
As of each reporting period, all assets and liabilities recorded at fair value are classified in their entirety based on the lowest level of input that is significant to the fair value measurement. Our assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment, and considers factors specific to the asset or liability, such as the relative impact on the fair value as a result of including a particular input. We review the fair value hierarchy classifications each reporting period. Changes in the observability of the valuation attributes may result in a reclassification of certain financial assets or liabilities. Such reclassifications are reported as transfers in and out of Level 3 at the beginning fair value for the reporting period in which the changes occur. See note 16 for additional information related to fair value measurements.
f) Commercial Mortgage Loans
The carrying value of commercial mortgage loans is stated at original cost, net of principal payments, amortization and allowance for loan losses. Interest on loans is recognized on an accrual basis at the applicable interest rate on the principal amount outstanding. Loan origination fees and direct costs, as well as premiums and discounts, are amortized as level yield adjustments over the respective loan terms. Unamortized net fees or costs are recognized upon early repayment of the loans. Loan commitment fees are deferred and amortized on an effective yield basis over the term of the loan. Commercial mortgage loans are considered past due when contractual payments have not been received from the borrower by the required payment date.
“Impaired” loans are defined by U.S. GAAP as loans for which it is probable that the lender will be unable to collect all amounts due according to original contractual terms of the loan agreement. In determining whether it is probable that we will be unable to collect all amounts due, we consider current payment status, debt service coverage ratios, occupancy levels and current loan-to-value. Impaired loans are carried on a non-accrual status. Loans are placed on non-accrual status when, in management’s opinion, the collection of principal or interest is unlikely, or when the collection of principal or interest is 90 days or more past due. Income on impaired loans is not recognized until the loan is sold or the cash received exceeds the carrying amount recorded.
We evaluate the impairment of commercial mortgage loans first on an individual loan basis. If an individual loan is not deemed impaired, then we evaluate the remaining loans collectively to determine whether an impairment should be recorded.
For individually impaired loans, we record an impairment charge when it is probable that a loss has been incurred. The impairment is recorded as an increase in the allowance for loan losses. All losses of principal are charged to the allowance for loan losses in the period in which the loan is deemed to be uncollectible.
For loans that are not individually impaired where we evaluate the loans collectively, the allowance for loan losses is maintained at a level that we determine is adequate to absorb estimated probable incurred losses in the loan portfolio. Our process to determine the adequacy of the allowance utilizes an analytical model based on historical loss experience adjusted for current events, trends and economic conditions that would result in a loss in the loan portfolio over the next 12 months. Key inputs into our evaluation include debt service coverage ratios, loan-to-value, property-type, occupancy levels, geographic region, and probability weighting of the scenarios generated by the model. The actual amounts realized could differ in the near term from the amounts assumed in arriving at the allowance for loan losses reported in the consolidated financial statements. Additions and reductions to the allowance through periodic provisions or benefits are recorded in net investment gains (losses).
For commercial mortgage loans classified as held-for-sale, each loan is carried at the lower of cost or market and is included in commercial mortgage loans in our consolidated balance sheets. See note 4 for additional disclosures related to commercial mortgage loans.
g) Repurchase Agreements
We have a repurchase program in which we sell an investment security at a specified price and agree to repurchase that security at another specified price at a later date. Repurchase agreements are treated as collateralized financing transactions and are carried at the amounts at which the securities will be subsequently reacquired, including accrued interest, as specified in the respective agreement. The fair value of securities to be repurchased is monitored and collateral levels are adjusted where appropriate to protect the counterparty against credit exposure. Cash received is invested in fixed maturity securities. See note 12 for additional information related to our repurchase agreements.
h) Securities Lending Activity
In the United States and Canada, we engage in certain securities lending transactions for the purpose of enhancing the yield on our investment securities portfolio. We maintain effective control over all loaned securities and, therefore, continue to report such securities as fixed maturity securities on the consolidated balance sheets. We are currently indemnified against counterparty credit risk by the intermediary. See note 12 for additional information related to our securities lending activity.
i) Cash and Cash Equivalents
Certificates of deposit, money market funds and other time deposits with original maturities of 90 days or less are considered cash equivalents in the consolidated balance sheets and consolidated statements of cash flows. Items with maturities greater than 90 days but less than one year at the time of acquisition are considered short-term investments.
j) Deferred Acquisition Costs
Acquisition costs include costs that are directly related to the successful acquisition of new or renewal insurance contracts. Acquisition costs are deferred and amortized to the extent they are recoverable from future profits.
Long-Duration Contracts. Acquisition costs include commissions in excess of ultimate renewal commissions and for contracts issued, certain other costs such as underwriting, medical inspection and issuance expenses. DAC for traditional long-duration insurance contracts, including term life and long-term care insurance, is amortized as a level percentage of premiums based on assumptions, including, investment returns, health care experience (including type of care and cost of care), policyholder persistency or lapses (i.e., the probability that a policy or contract will remain in-force from one period to the next), insured life expectancy or longevity, insured morbidity (i.e., frequency and severity of claim, including claim termination rates and benefit utilization rates) and expenses, established when the contract is issued. Amortization is adjusted each period to reflect actual lapse or termination rates.
Amortization for deferred annuity and universal life insurance contracts is based on expected gross profits. Expected gross profits are adjusted quarterly to reflect actual experience to date or for changes in underlying assumptions relating to future gross profits. Estimates of gross profits for DAC amortization are based on assumptions including interest rates, policyholder persistency or lapses, insured life expectancy or longevity and expenses.
Short-Duration Contracts. Acquisition costs primarily consist of commissions and premium taxes and are amortized ratably over the terms of the underlying policies.
We regularly review our assumptions and test DAC for recoverability at least annually. For deferred annuity and universal life insurance contracts, if the present value of expected future gross profits is less than the unamortized DAC for a line of business, a charge to income is recorded for additional DAC amortization. For traditional long-duration and short-duration contracts, if the benefit reserve plus anticipated future premiums and interest income for a line of business are less than the current estimate of future benefits and expenses (including any unamortized DAC), a charge to income is recorded for additional DAC amortization or for increased benefit reserves. See note 6 for additional information related to DAC including loss recognition and recoverability.
k) Intangible Assets
Present Value of Future Profits. In conjunction with the acquisition of a block of insurance policies or investment contracts, a portion of the purchase price is assigned to the right to receive future gross profits arising from existing insurance and investment contracts. This intangible asset, called PVFP, represents the actuarially estimated present value of future cash flows from the acquired policies. PVFP is amortized, net of accreted interest, in a manner similar to the amortization of DAC.
We regularly review our PVFP assumptions and periodically test PVFP for recoverability similar to our treatment of DAC. See note 7 for additional information related to PVFP including loss recognition and recoverability.
Deferred Sales Inducements to Contractholders. We defer sales inducements to contractholders for features on variable annuities that entitle the contractholder to an incremental amount to be credited to the account value upon making a deposit, and for fixed annuities with crediting rates higher than the contract’s expected ongoing crediting rates for periods after the inducement. Deferred sales inducements to contractholders are reported as a separate intangible asset and amortized in benefits and other changes in policy reserves using the same methodology and assumptions used to amortize DAC.
Other Intangible Assets. We amortize the costs of other intangibles over their estimated useful lives unless such lives are deemed indefinite. Amortizable intangible assets are tested for impairment based on undiscounted cash flows, which requires the use of estimates and judgment, and, if impaired, written down to fair value based on either discounted cash flows or appraised values. Intangible assets with indefinite lives are tested at least annually for impairment using a qualitative or quantitative assessment and are written down to fair value as required.
l) Goodwill
Goodwill is not amortized but is tested for impairment annually or between annual tests if an event occurs or circumstances change that would more likely than not reduce the fair value of the reporting unit below its carrying value. The determination of fair value requires the use of estimates and judgment, at the “reporting unit” level. A reporting unit is the operating segment, or a business, one level below that operating segment (the “component” level) if discrete financial information is prepared and regularly reviewed by management at the component level. If the reporting unit’s fair value is below its carrying value, we must determine the amount of implied goodwill that would be established if the reporting unit was hypothetically purchased on the impairment assessment date. We recognize an impairment charge for any amount by which the carrying amount of a reporting unit’s goodwill exceeds the amount of implied goodwill.
See note 7 for additional information related to goodwill and impairments recorded.
m) Reinsurance
Premium revenue, benefits and acquisition and operating expenses, net of deferrals, are reported net of the amounts relating to reinsurance ceded to and assumed from other companies. Amounts due from reinsurers for incurred and estimated future claims are reflected in the reinsurance recoverable asset. Amounts received from reinsurers that represent recovery of acquisition costs are netted against DAC so that the net amount is capitalized. The cost of reinsurance is accounted for over the terms of the related treaties using assumptions consistent with those used to account for the underlying reinsured policies. Premium revenue, benefits and acquisition and operating expenses, net of deferrals, for reinsurance contracts that do not qualify for reinsurance accounting are accounted for under the deposit method of accounting.
n) Derivatives
Derivative instruments are used to manage risk through one of four principal risk management strategies including: (i) liabilities; (ii) invested assets; (iii) portfolios of assets or liabilities; and (iv) forecasted transactions.
On the date we enter into a derivative contract, management designates the derivative as a hedge of the identified exposure (fair value, cash flow or foreign currency). If a derivative does not qualify for hedge accounting, the changes in its fair value and all scheduled periodic settlement receipts and payments are reported in income.
We formally document all relationships between hedging instruments and hedged items, as well as our risk management objective and strategy for undertaking various hedge transactions. In this documentation, we specifically identify the asset, liability or forecasted transaction that has been designated as a hedged item, state how the hedging instrument is expected to hedge the risks related to the hedged item, and set forth the method that will be used to retrospectively and prospectively assess the hedging instrument’s effectiveness and the method that will be used to measure hedge ineffectiveness. We generally determine hedge effectiveness based on total changes in fair value of the hedged item attributable to the hedged risk and the total changes in fair value of the derivative instrument.
We discontinue hedge accounting prospectively when: (i) it is determined that the derivative is no longer effective in offsetting changes in the fair value or cash flows of a hedged item; (ii) the derivative expires or is sold, terminated or exercised; (iii) the derivative is de-designated as a hedge instrument; or (iv) it is no longer probable that the forecasted transaction will occur.
For all qualifying and highly effective cash flow hedges, the effective portion of changes in fair value of the derivative instrument is reported as a component of OCI. The ineffective portion of changes in fair value of the derivative instrument is reported as a component of income. When hedge accounting is discontinued because it is probable that a forecasted transaction will not occur, the derivative continues to be carried in the consolidated balance sheets at its fair value, and gains and losses that were accumulated in OCI are recognized immediately in income. When the hedged forecasted transaction is no longer probable, but is reasonably possible, the accumulated gain or loss remains in OCI and is recognized when the transaction affects income; however, prospective hedge accounting for the transaction is terminated. In all other situations in which hedge accounting is discontinued on a cash flow hedge, amounts previously deferred in OCI are reclassified into income when income is impacted by the variability of the cash flow of the hedged item.
For all qualifying and highly effective fair value hedges, the changes in fair value of the derivative instrument are reported in income. In addition, changes in fair value attributable to the hedged portion of the underlying instrument are reported in income. When hedge accounting is discontinued because it is determined that the derivative no longer qualifies as an effective fair value hedge, the derivative continues to be carried in the consolidated balance sheets at its fair value, but the hedged asset or liability will no longer be adjusted for changes in fair value. In all other situations in which hedge accounting is discontinued, the derivative is carried at its fair value in the consolidated balance sheets, with changes in its fair value recognized in current period income.
We may enter into contracts that are not themselves derivative instruments but contain embedded derivatives. For each contract, we assess whether the economic characteristics of the embedded derivative are clearly and closely related to those of the host contract and determine whether a separate instrument with the same terms as the embedded instrument would meet the definition of a derivative instrument.
If it is determined that the embedded derivative possesses economic characteristics that are not clearly and closely related to the economic characteristics of the host contract, and that a separate instrument with the same terms would qualify as a derivative instrument, the embedded derivative is separated from the host contract and accounted for as a stand-alone derivative. Such embedded derivatives are recorded in the consolidated balance sheets at fair value and are classified consistent with their host contract. Changes in their fair value are recognized in current period income. If we are unable to properly identify and measure an embedded derivative for separation from its host contract, the entire contract is carried in the consolidated balance sheets at fair value, with changes in fair value recognized in current period income.
Changes in the fair value of non-qualifying derivatives, including embedded derivatives, changes in fair value of certain derivatives and related hedged items in fair value hedge relationships and hedge ineffectiveness on cash flow hedges are reported in net investment gains (losses).
The majority of our derivative arrangements require the posting of collateral upon meeting certain net exposure thresholds. The amounts recognized for derivative counterparty collateral received by us was recorded in cash and cash equivalents with a corresponding amount recorded in other liabilities to represent our obligation to return the collateral retained by us. We also receive non-cash collateral that is not recognized in our balance sheet unless we exercise our right to sell or re-pledge the underlying asset. As of December 31, 2015 and 2014, the fair value of non-cash collateral received was $86 million and $287 million, respectively, and the underlying assets were not sold or re-pledged. Additionally, we have pledged $263 million and $49 million of fixed maturity securities as of December 31, 2015 and 2014, respectively. We have not pledged any cash as collateral to derivative counterparties. Fixed maturity securities that we pledge as collateral remain on our balance sheet within fixed maturity securities available-for-sale. Any cash collateral pledged to a derivative counterparty is derecognized with a receivable recorded in other assets for the right to receive our cash collateral back from the counterparty.
o) Separate Accounts and Related Insurance Obligations
Separate account assets represent funds for which the investment income and investment gains and losses accrue directly to the contractholders and are reflected in our consolidated balance sheets at fair value, reported as summary total separate account assets with an equivalent summary total reported for liabilities. Amounts assessed against the contractholders for mortality, administrative and other services are included in revenues. Changes in liabilities for minimum guarantees are included in benefits and other changes in policy reserves. Net investment income, net investment gains (losses) and the related liability changes associated with the separate account are offset within the same line item in the consolidated statements of income. There were no gains or losses on transfers of assets from the general account to the separate account.
We offer certain minimum guarantees associated with our variable annuity contracts. Our variable annuity contracts usually contain a basic guaranteed minimum death benefit (“GMDB”) which provides a minimum benefit to be paid upon the annuitant’s death equal to the larger of account value and the return of net deposits. Some variable annuity contracts permit contractholders to purchase through riders, at an additional charge, enhanced death benefits such as the highest contract anniversary value (“ratchets”), accumulated net deposits at a stated rate (“rollups”), or combinations thereof.
Additionally, some of our variable annuity contracts provide the contractholder with living benefits such as a guaranteed minimum withdrawal benefit (“GMWB”) or certain types of guaranteed annuitization benefits. The GMWB allows contractholders to withdraw a pre-defined percentage of account value or benefit base each year, either for a specified period of time or for life. The guaranteed annuitization benefit generally provides for a guaranteed minimum level of income upon annuitization accompanied by the potential for upside market participation.
Most of our reserves for additional insurance and annuitization benefits are calculated by applying a benefit ratio to accumulated contractholder assessments, and then deducting accumulated paid claims. The benefit ratio is equal to the ratio of benefits to assessments, accumulated with interest and considering both past and anticipated future experience. The projections utilize stochastic scenarios of separate account returns incorporating reversion to the mean, as well as assumptions for mortality and lapses. Some of our minimum guarantees, mainly GMWBs, are accounted for as embedded derivatives; see notes 5 and 16 for additional information on these embedded derivatives and related fair value measurement disclosures.
p) Insurance Reserves
Future Policy Benefits
The liability for future policy benefits is equal to the present value of expected benefits and expenses less the present value of expected future net premiums based on assumptions, including, investment returns, health care experience (including type of care and cost of care), policyholder persistency or lapses (i.e., the probability that a policy or contract will remain in-force from one period to the next), insured life expectancy or longevity, insured morbidity (i.e., frequency and severity of claim, including claim termination rates and benefit utilization rates) and expenses, all of which are locked-in at the time the policies are issued or acquired. Claim termination rates refer to the expected rates at which claims end. Benefit utilization rates estimate how much of the available policy benefits are expected to be used.
The liability for future policy benefits is evaluated at least annually to determine if a premium deficiency exists. Loss recognition testing is generally performed at the line of business level, with acquired blocks and certain reinsured blocks tested separately. If the liability for future policy benefits plus the current present value of expected future premiums are less than the current present value of expected future benefits and expenses (including any unamortized DAC), a charge to income is recorded for accelerated DAC amortization and, if necessary, a premium deficiency reserve is established. If a charge is recorded, DAC amortization and the liability for future policy benefits are measured using updated assumptions, which become the new locked-in assumptions utilized going forward unless another premium deficiency charge is recorded. Our estimates of future premiums used in loss recognition testing for our long-term care insurance business include assumptions for significant premium rate increases that have been filed and approved or are anticipated to be approved. Beginning in the fourth quarter of 2014, estimates of future premiums also include significant anticipated (but not yet filed) future rate increases or benefit reductions. These anticipated future increases are based on our best estimate of the rate increases we expect to obtain, considering, among other factors, our historical experience from prior rate increase approvals and based on our best estimate of expected claim costs.
We are also required to accrue additional future policy benefit reserves when the overall reserve is adequate, but profits are projected in early periods followed by losses projected in later periods. When this pattern of profits followed by losses exists, we ratably accrue this additional profits followed by losses liability over time, increasing reserves in the profitable periods to offset estimated losses expected during the periods that follow. We calculate and adjust the additional reserves using our current best estimate of the amount necessary to offset the losses in future periods, based on the pattern of expected income and current best estimate assumptions consistent with our loss recognition testing. We adjust the accrual rate prospectively, going forward over the remaining profit periods, without any catch-up adjustment.
For long-term care insurance products, benefit reductions are treated as partial lapse of coverage with the balance of our future policy benefits and DAC both reduced in proportion to the reduced coverage. For level premium term life insurance products, we floor the liability for future policy benefits on each policy at zero.
Estimates and actuarial assumptions used for establishing the liability for future policy benefits and in loss recognition testing involve the exercise of significant judgment, and changes in assumptions or deviations of actual experience from assumptions can have material impacts on our liability for future policy benefits and net income (loss). Because these assumptions relate to factors that 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. Small changes in assumptions or small deviations of actual experience from assumptions can have, and in the past have had, material impacts on our reserves, results of operations and financial condition. The risk that our claims experience may differ significantly from our pricing and valuation assumptions is particularly significant for our long-term care insurance products. Long-term care insurance policies provide for long-duration coverage and, therefore, our actual claims experience will emerge over many years after pricing and locked-in valuation assumptions have been established.
Policyholder Account Balances
The liability for policyholder account balances represents the contract value that has accrued to the benefit of the policyholder as of the balance sheet date for investment-type and universal life insurance contracts. We are also required to establish additional benefit reserves for guarantees or product features in addition to the contract value where the additional benefit reserves are calculated by applying a benefit ratio to accumulated contractholder assessments, and then deducting accumulated paid claims. The benefit ratio is equal to the ratio of benefits to assessments, accumulated with interest and considering both past and anticipated future experience.
Investment-type contracts are broadly defined to include contracts without significant mortality or morbidity risk. Payments received from sales of investment contracts are recognized by providing a liability equal to the current account value of the policyholders’ contracts. Interest rates credited to investment contracts are guaranteed for the initial policy term with renewal rates determined as necessary by management.
q) Liability for Policy and Contract Claims
The liability for policy and contract claims, or claim reserves, represents the amount needed to provide for the estimated ultimate cost of settling claims relating to insured events that have occurred on or before the end of the respective reporting period. The estimated liability includes requirements for future payments of: (a) claims that have been reported to the insurer; (b) claims related to insured events that have occurred but that have not been reported to the insurer as of the date the liability is estimated; and (c) claim adjustment expenses. Claim adjustment expenses include costs incurred in the claim settlement process such as legal fees and costs to record, process and adjust claims.
Our liability for policy and contract claims is reviewed regularly, with changes in our estimates of future claims recorded through net income (loss). Estimates and actuarial assumptions used for establishing the liability for policy and contract claims involve the exercise of significant judgment, and changes in assumptions or deviations of actual experience from assumptions can have material impacts on our liability for policy and contract claims and net income (loss). Because these assumptions relate to factors that 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. Small changes in assumptions or small deviations of actual experience from assumptions can have, and in the past have had, material impacts on our reserves, results of operations and financial condition.
The liability for policy and contract claims for our long-term care insurance products represents the present value of the amount needed to provide for the estimated ultimate cost of settling claims relating to insured events that have occurred on or before the end of the respective reporting period. Key assumptions include investment returns, health care experience (including type of care and cost of care), policyholder persistency or lapses (i.e., the probability that a policy or contract will remain in-force from one period to the next), insured mortality (i.e., life expectancy or longevity), insured morbidity (i.e., frequency and severity of claim, including claim termination rates and benefit utilization rates) and expenses. Claim termination rates refer to the expected rates at which claims end. Benefit utilization rates estimate how much of the available policy benefits are expected to be used. Both claim termination rates and benefit utilization rates are influenced by, among other things, gender, age at claim, diagnosis, type of care needed, benefit period, and daily benefit amount. Because these assumptions relate to factors that 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. Small changes in assumptions or small deviations of actual experience from assumptions can have, and in the past have had, material impacts on our reserves, results of operations and financial condition.
The liabilities for our mortgage insurance policies represent our best estimates of the liabilities at the time based on known facts, trends and other external factors, including economic conditions, housing prices and employment rates. For our mortgage insurance policies, reserves for losses and loss adjustment expenses are based on notices of mortgage loan defaults and estimates of defaults that have been incurred but have not been reported by loan servicers, using assumptions of claim rates for loans in default and the average amount paid for loans that result in a claim. As is common accounting practice in the mortgage insurance industry and in accordance with U.S. GAAP, we begin to provide for the ultimate claim payment relating to a potential claim on a defaulted loan when the status of that loan first goes delinquent. Over time, as the status of the underlying delinquent loans move toward foreclosure and the likelihood of the associated claim loss increases, the amount of the loss reserves associated with the potential claims may also increase.
Management considers the liability for policy and contract claims provided to be satisfactory to cover the losses that have occurred. Management monitors actual experience, and where circumstances warrant, will revise its assumptions. The methods of determining such estimates and establishing the reserves are reviewed periodically and any adjustments are reflected in operations in the period in which they become known. Future developments may result in losses and loss expenses greater or less than the liability for policy and contract claims provided.
r) Unearned Premiums
For single premium insurance contracts, we recognize premiums over the policy life in accordance with the expected pattern of risk emergence. We recognize a portion of the revenue in premiums earned in the current period, while the remaining portion is deferred as unearned premiums and earned over time in accordance with the expected pattern of risk emergence. If single premium policies are cancelled and the premium is non-refundable, then the remaining unearned premium related to each cancelled policy is recognized to earned premiums upon notification of the cancellation. Expected pattern of risk emergence on which we base premium recognition is inherently judgmental and is based on actuarial analysis of historical experience. We periodically review our premium earnings recognition models with any adjustments to the estimates reflected in current period income. For the years ended December 31, 2015, 2014 and 2013, we updated our premium recognition factors for our international mortgage insurance businesses. These updates included the consideration of recent and projected loss experience, policy cancellation experience and refinement of actuarial methods. In 2015, 2014 and 2013, adjustments associated with this update resulted in an increase in earned premiums of $8 million, $6 million and $12 million, respectively.
s) Stock-Based Compensation
We determine a grant date fair value and recognize the related compensation expense, adjusted for expected forfeitures, through the income statement over the respective vesting period of the awards.
t) Employee Benefit Plans
We provide employees with a defined contribution pension plan and recognize expense throughout the year based on the employee’s age, service and eligible pay. We make an annual contribution to the plan. We also provide employees with defined contribution savings plans. We recognize expense for our contributions to the savings plans at the time employees make contributions to the plans.
Some employees participate in defined benefit pension and postretirement benefit plans. We recognize expense for these plans based upon actuarial valuations performed by external experts. We estimate aggregate benefits by using assumptions for employee turnover, future compensation increases, rates of return on pension plan assets and future health care costs. We recognize an expense for differences between actual experience and estimates over the average future service period of participants. We recognize the overfunded or underfunded status of a defined benefit plan as an asset or liability in our consolidated balance sheets and recognize changes in that funded status in the year in which the changes occur through OCI.
u) Income Taxes
We determine deferred tax assets and/or liabilities by multiplying the differences between the financial reporting and tax reporting bases for assets and liabilities by the enacted tax rates expected to be in effect when such differences are recovered or settled if there is no change in law. The effect on deferred taxes of a change in tax rates is recognized in income in the period that includes the enactment date. Valuation allowances on deferred tax assets are estimated based on our assessment of the realizability of such amounts.
We do not record U.S. deferred taxes on foreign income that we do not expect to remit or repatriate to U.S. corporations within our consolidated group. Under U.S. GAAP, we are generally required to record U.S. deferred taxes on the anticipated repatriation of foreign income as the income is recognized for financial reporting purposes. An exception under certain accounting guidance permits us not to record a U.S. deferred tax liability for foreign income that we expect to reinvest in our foreign operations and for which remittance will be postponed indefinitely. If it becomes apparent that we cannot positively assert that some or all undistributed income will be reinvested indefinitely, the related deferred taxes are recorded in that period. In determining indefinite reinvestment, we regularly evaluate the capital needs of our domestic and foreign operations considering all available information, including operating and capital plans, regulatory capital requirements, parent company financing and cash flow needs, as well as the applicable tax laws to which our domestic and foreign subsidiaries are subject. Our estimates are based on our historical experience and our expectation of future performance. Our judgments and assumptions are subject to change given the inherent uncertainty in predicting future capital needs, which are impacted by such things as regulatory requirements, policyholder behavior, competitor pricing, new product introductions, and specific industry and market conditions.
Similarly, under another exception to the recognition of deferred taxes under U.S. GAAP, we do not record deferred taxes on U.S. domestic subsidiary entities for the excess of the financial statement carrying amount over the tax basis in the stock of the subsidiary (commonly referred to as “outside basis difference”) if we have the ability under the tax law and intent to recover the basis difference in a tax free manner. Deferred taxes would be recognized in the period of a change to our ability or intent.
Our companies have elected to file a single U.S. consolidated income tax return (the “life/non-life consolidated return”). All companies domesticated in the United States and our Bermuda and Guernsey subsidiaries, which have elected to be taxed as U.S. domestic companies, are included in the life/non-life consolidated return as allowed by the tax law and regulations. We have a tax sharing agreement (the “life/non-life tax sharing agreement”) in place and all intercompany balances related to this agreement are settled at least annually.
Our subsidiaries based in Bermuda and Guernsey are treated as U.S. insurance companies under provisions of the U.S. Internal Revenue Code, are included in the life/non-life consolidated return, and have adopted the life-non/life tax sharing agreement. Jurisdictions outside the United States in which our various subsidiaries incur significant taxes include Australia and Canada.
v) Foreign Currency Translation
The determination of the functional currency is made based on the appropriate economic and management indicators. The assets and liabilities of foreign operations are translated into U.S. dollars at the exchange rates in effect at the balance sheet date. Translation adjustments are included as a separate component of accumulated other comprehensive income (loss). Revenues and expenses of the foreign operations are translated into U.S. dollars at the average rates of exchange during the period of the transaction. Gains and losses from foreign currency transactions are reported in income and have not been material in any years presented in our consolidated statements of income.
w) Variable Interest Entities
We are involved in certain entities that are considered VIEs as defined under U.S. GAAP, and, accordingly, we evaluate the VIE to determine whether we are the primary beneficiary and are required to consolidate the assets and liabilities of the entity. The primary beneficiary of a VIE is the enterprise that has the power to direct the activities of a VIE that most significantly impacts the VIE’s economic performance and has the obligation to absorb losses or receive benefits that could potentially be significant to the VIE. The determination of the primary beneficiary for a VIE can be complex and requires management judgment regarding the expected results of the entity and how those results are absorbed by beneficial interest holders, as well as which party has the power to direct activities that most significantly impact the performance of the VIEs.
Our primary involvement related to VIEs includes securitization transactions, certain investments and certain mortgage insurance policies.
We have retained interests in VIEs where we are the servicer and transferor of certain assets that were sold to a newly created VIE. Additionally, for certain securitization transactions, we were the transferor of certain assets that were sold to a newly created VIE but did not retain any beneficial interest in the VIE other than acting as the servicer of the underlying assets.
We hold investments in certain structures that are considered VIEs. Our investments represent beneficial interests that are primarily in the form of structured securities or alternative investments. Our involvement in these structures typically represent a passive investment in the returns generated by the VIE and typically do not result in having significant influence over the economic performance of the VIE.
We also provide mortgage insurance on certain residential mortgage loans originated and securitized by third parties using VIEs to issue mortgage-backed securities. While we provide mortgage insurance on the underlying loans, we do not typically have any ongoing involvement with the VIE other than our mortgage insurance coverage and do not act in a servicing capacity for the underlying loans held by the VIE.
See note 17 for additional information related to these consolidated entities.
x) Accounting Changes
Debt Issuance Costs
On December 31, 2015, we early adopted new accounting guidance related to the presentation of debt issuance costs. The new guidance requires that debt issuance costs be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability. This guidance was applied on a retrospective basis. Upon adoption, in our consolidated balance sheet as of December 31, 2014, we recorded a reduction in other assets and total assets of $42 million, with a related reduction in long-term debt of $27 million, a reduction in non-recourse funding obligations of $15 million and a reduction in total liabilities of $42 million. We also adopted new guidance that allows debt issuance costs related to revolving credit facilities to be presented as either an asset or as a direct deduction from the carrying amount of that debt liability. We elected to continue to present debt issuance costs related to revolving credit facilities in other assets in our consolidated balance sheet. See note 12 for more information related to our long-term debt and non-recourse funding obligations.
Financial Assets and Liabilities of a Collateralized Financing Entity
On January 1, 2015, we early adopted new accounting guidance related to measuring the financial assets and financial liabilities of a consolidated collateralized financing entity. The guidance addresses the accounting for the measurement difference between the fair value of financial assets and the fair value of financial liabilities of a collateralized financing entity. The new guidance provides an alternative whereby a reporting entity could measure the financial assets and financial liabilities of the collateralized financing entity in its consolidated financial statements using the more observable of the fair values. There was no impact on our consolidated financial statements.
Repurchase Financings
On January 1, 2015, we adopted new accounting guidance related to the accounting for repurchase-to-maturity transactions and repurchase financings. The new guidance changed the accounting for repurchase-to-maturity transactions and repurchase financing such that they were consistent with secured borrowing accounting. In addition, the guidance required new disclosures for all repurchase agreements and securities lending transactions which were effective beginning in the second quarter of 2015. We do not have repurchase-to-maturity transactions, but have repurchase agreements and securities lending transactions that are subject to additional disclosures. This new guidance did not have an impact on our consolidated financial statements but did impact our disclosures.
Investments In Affordable Housing Projects
On January 1, 2015, we adopted new accounting guidance related to the accounting for investments in affordable housing projects that qualify for the low-income housing tax credit. The new guidance permits reporting entities to make an accounting policy election to account for investments in qualified affordable housing projects by amortizing the initial cost of the investment in proportion to the tax benefits received and recognize the net investment performance as a component of income tax expense (called the proportional amortization method) if certain conditions are met. The new guidance requires use of the equity method or cost method for investments in qualified affordable housing projects not accounted for using the proportional amortization method. The adoption of this new guidance did not have a material impact on our consolidated financial statements.
Share-Based Payment Awards
On January 1, 2015, we early adopted new accounting guidance related to the accounting for share-based payment awards when the terms of an award provide that a performance target can be achieved after the requisite service period. The guidance requires that such performance targets should not be reflected in estimating the grant-date fair value of an award, and that compensation cost should be recognized in the period in which it becomes probable that the performance target will be achieved. We have performance stock unit grants where awards for employees who are retirement eligible can vest on a pro-rata basis upon retirement even if retirement occurs before the performance target is achieved. There was no impact on our consolidated financial statements from the adoption of this accounting guidance.
Investment Companies
On January 1, 2014, we adopted new accounting guidance on the scope, measurement and disclosure requirements for investment companies. The new guidance clarified the characteristics of an investment company, provided comprehensive guidance for assessing whether an entity is an investment company, required investment companies to measure noncontrolling ownership interest in other investment companies at fair value rather than using the equity method of accounting and required additional disclosures. The adoption of this accounting guidance did not have any impact on our consolidated financial statements.
Benchmarking Interest Rates Used When Applying Hedge Accounting
In July 2013, we adopted new accounting guidance to provide additional flexibility in the benchmark interest rates used when applying hedge accounting. The new guidance permits the use of the Federal Funds Effective Swap Rate as a benchmark interest rate for hedge accounting purposes and removes certain restrictions on being able to apply hedge accounting for similar hedges using different benchmark interest rates. The adoption of this accounting guidance did not have a material impact on our consolidated financial statements.
y) Accounting Pronouncements Not Yet Adopted
In January 2016, the Financial Accounting Standards Board (the “FASB”) issued new accounting guidance related to the recognition and measurement of financial assets and financial liabilities. Changes to the current financial instruments accounting primarily affects equity investments, financial liabilities under the fair value option, and the presentation and disclosure requirements for financial instruments. Under the new guidance, equity investments with readily determinable fair value, except those accounted for under the equity method of accounting, will be measured at fair value with changes in fair value recognized in net income. The new guidance also clarifies that the need for a valuation allowance on a deferred tax asset related to available-for-sale securities should be evaluated in combination with other deferred tax assets. This new guidance will be effective for us on January 1, 2018. We are still in process of evaluating the impact the guidance may have on our consolidated financial statements.
In May 2015, the FASB issued new disclosure requirements for short-duration insurance contracts. The new guidance requires additional disclosures on short-duration policy and contract claims liabilities for incurred and paid claims development, unpaid claims and claims frequency. These new disclosures will be effective for us on December 31, 2016 with early adoption permitted and will only impact our disclosures.
In February 2015, the FASB issued new accounting guidance related to consolidation. This guidance primarily impacts limited partnerships and similar legal entities, evaluation of fees paid to a decision maker as a variable interest, the effect of fee arrangements and related parties on the primary beneficiary determination and certain investment funds. This guidance is effective for us on January 1, 2016, with early adoption permitted. We do not expect any significant impact on our consolidated financial statements.
In May 2014, the FASB issued new accounting guidance related to revenue from contracts with customers, effective for us on January 1, 2018. The key principle of the new guidance is that entities should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for such goods or services. The standard permits the use of either the retrospective or modified retrospective (cumulative effect) transition method. Insurance contracts are specifically excluded from this new guidance. The FASB has proposed a technical correction to clarify the scope that both insurance and investment contracts are excluded from the scope of this new guidance. In addition, we believe that mortgage insurance, although excluded from insurance revenue guidance, is not within scope of the new revenue recognition rules and will continue to follow existing industry revenue practices. As such, while we are still evaluating the full impact, at this time we do not expect any significant impacts from this new guidance on our consolidated financial statements.
z) Cash Flow Statement Reclassification
We have revised our consolidated statements of cash flows previously reported in our 2014 Annual Report on Form 10-K for the years ended December 31, 2014 and 2013 to reflect a correction related to the calculation of the change in reinsurance recoverable that impacted the lines “insurance reserves” and “other liabilities, policy and contract claims and other policy-related balances.” As a result, the change in insurance reserves decreased by $720 million and $613 million, respectively, and the change in other liabilities, policy and contract claims and other policy-related balances increased by $720 million and $613 million, respectively, for the years ended December 31, 2014 and 2013. The revisions had no impact on net cash flows from operating activities or the total change in cash and cash equivalents within our consolidated statements of cash flows. Additionally, there was no impact on our consolidated balance sheets or consolidated statements of income.
|
Sources of net investment income were as follows for the years ended December 31:
(Amounts in millions) |
2015 | 2014 | 2013 | |||||||||
Fixed maturity securities—taxable |
$ | 2,558 | $ | 2,598 | $ | 2,603 | ||||||
Fixed maturity securities—non-taxable |
12 | 12 | 9 | |||||||||
Commercial mortgage loans |
337 | 333 | 335 | |||||||||
Restricted commercial mortgage loans related to securitization entities (1) |
14 | 14 | 23 | |||||||||
Equity securities |
15 | 14 | 17 | |||||||||
Other invested assets (2) |
135 | 105 | 108 | |||||||||
Restricted other invested assets related to securitization entities (1) |
5 | 5 | 4 | |||||||||
Policy loans |
137 | 129 | 129 | |||||||||
Cash, cash equivalents and short-term investments |
13 | 24 | 19 | |||||||||
|
|
|
|
|
|
|||||||
Gross investment income before expenses and fees |
3,226 | 3,234 | 3,247 | |||||||||
Expenses and fees |
(88 | ) | (92 | ) | (92 | ) | ||||||
|
|
|
|
|
|
|||||||
Net investment income |
$ | 3,138 | $ | 3,142 | $ | 3,155 | ||||||
|
|
|
|
|
|
(1) | See note 17 for additional information related to consolidated securitization entities. |
(2) | Included in other invested assets was $9 million, $8 million and $13 million of net investment income related to trading securities for the years ended December 31, 2015, 2014 and 2013, respectively. |
The following table sets forth net investment gains (losses) for the years ended December 31:
(Amounts in millions) |
2015 | 2014 | 2013 | |||||||||
Available-for-sale securities: |
||||||||||||
Realized gains |
$ | 102 | $ | 72 | $ | 149 | ||||||
Realized losses |
(82 | ) | (46 | ) | (184 | ) | ||||||
|
|
|
|
|
|
|||||||
Net realized gains (losses) on available-for-sale securities |
20 | 26 | (35 | ) | ||||||||
|
|
|
|
|
|
|||||||
Impairments: |
||||||||||||
Total other-than-temporary impairments |
(28 | ) | (9 | ) | (16 | ) | ||||||
Portion of other-than-temporary impairments included in other comprehensive income (loss) |
1 | — | (9 | ) | ||||||||
|
|
|
|
|
|
|||||||
Net other-than-temporary impairments |
(27 | ) | (9 | ) | (25 | ) | ||||||
|
|
|
|
|
|
|||||||
Trading securities |
(7 | ) | 39 | (23 | ) | |||||||
Commercial mortgage loans |
7 | 11 | 4 | |||||||||
Net gains (losses) related to securitization entities (1) |
5 | 16 | 69 | |||||||||
Derivative instruments (2) |
(76 | ) | (103 | ) | (49 | ) | ||||||
Contingent consideration adjustment |
2 | (2 | ) | — | ||||||||
Other |
1 | — | (5 | ) | ||||||||
|
|
|
|
|
|
|||||||
Net investment gains (losses) |
$ | (75 | ) | $ | (22 | ) | $ | (64 | ) | |||
|
|
|
|
|
|
(1) | See note 17 for additional information related to consolidated securitization entities. |
(2) | See note 5 for additional information on the impact of derivative instruments included in net investment gains (losses). |
The following represents the activity for credit losses recognized in net income (loss) on debt securities where an other-than-temporary impairment was identified and a portion of other-than-temporary impairments was included in OCI as of and for the years ended December 31:
(Amounts in millions) |
2015 | 2014 | 2013 | |||||||||
Beginning balance |
$ | 83 | $ | 101 | $ | 387 | ||||||
Additions: |
||||||||||||
Other-than-temporary impairments not previously recognized |
— | 1 | 4 | |||||||||
Increases related to other-than-temporary impairments previously recognized |
— | 1 | 11 | |||||||||
Reductions: |
||||||||||||
Securities sold, paid down or disposed |
(19 | ) | (20 | ) | (301 | ) | ||||||
|
|
|
|
|
|
|||||||
Ending balance |
$ | 64 | $ | 83 | $ | 101 | ||||||
|
|
|
|
|
|
Net unrealized gains and losses on available-for-sale investment securities reflected as a separate component of accumulated other comprehensive income (loss) were as follows as of December 31:
(Amounts in millions) |
2015 | 2014 | 2013 | |||||||||
Net unrealized gains (losses) on investment securities: |
||||||||||||
Fixed maturity securities |
$ | 3,140 | $ | 5,560 | $ | 2,346 | ||||||
Equity securities |
(10 | ) | 32 | 23 | ||||||||
Other invested assets |
— | (2 | ) | (4 | ) | |||||||
|
|
|
|
|
|
|||||||
Subtotal |
3,130 | 5,590 | 2,365 | |||||||||
Adjustments to DAC, PVFP, sales inducements and benefit reserves |
(1,070 | ) | (1,656 | ) | (869 | ) | ||||||
Income taxes, net |
(711 | ) | (1,372 | ) | (517 | ) | ||||||
|
|
|
|
|
|
|||||||
Net unrealized investment gains (losses) |
1,349 | 2,562 | 979 | |||||||||
Less: net unrealized investment gains (losses) attributable to noncontrolling interests |
95 | 109 | 53 | |||||||||
|
|
|
|
|
|
|||||||
Net unrealized investment gains (losses) attributable to Genworth Financial, Inc. |
$ | 1,254 | $ | 2,453 | $ | 926 | ||||||
|
|
|
|
|
|
The change in net unrealized gains (losses) on available-for-sale investment securities reported in accumulated other comprehensive income (loss) was as follows as of and for the years ended December 31:
(Amounts in millions) |
2015 | 2014 | 2013 | |||||||||
Beginning balance |
$ | 2,453 | $ | 926 | $ | 2,638 | ||||||
Unrealized gains (losses) arising during the period: |
||||||||||||
Unrealized gains (losses) on investment securities |
(2,467 | ) | 3,244 | (3,780 | ) | |||||||
Adjustment to DAC |
177 | (172 | ) | 248 | ||||||||
Adjustment to PVFP |
89 | (66 | ) | 95 | ||||||||
Adjustment to sales inducements |
30 | (15 | ) | 40 | ||||||||
Adjustment to benefit reserves |
290 | (534 | ) | 673 | ||||||||
Provision for income taxes |
663 | (862 | ) | 952 | ||||||||
|
|
|
|
|
|
|||||||
Change in unrealized gains (losses) on investment securities |
(1,218 | ) | 1,595 | (1,772 | ) | |||||||
Reclassification adjustments to net investment (gains) losses, net of taxes of $(2), $7 and $(12) |
5 | (12 | ) | 21 | ||||||||
|
|
|
|
|
|
|||||||
Change in net unrealized investment gains (losses) |
(1,213 | ) | 1,583 | (1,751 | ) | |||||||
Less: change in net unrealized investment gains (losses) attributable to noncontrolling interests |
(14 | ) | 56 | (39 | ) | |||||||
|
|
|
|
|
|
|||||||
Ending balance |
$ | 1,254 | $ | 2,453 | $ | 926 | ||||||
|
|
|
|
|
|
As of December 31, 2015, the amortized cost or cost, gross unrealized gains (losses) and fair value of our fixed maturity and equity securities classified as available-for-sale were as follows:
Amortized cost or cost |
Gross unrealized gains | Gross unrealized losses | Fair value |
|||||||||||||||||||||
(Amounts in millions) |
Not other-than- temporarily impaired |
Other-than- temporarily impaired |
Not other-than- temporarily impaired |
Other-than- temporarily impaired |
||||||||||||||||||||
Fixed maturity securities: |
||||||||||||||||||||||||
U.S. government, agencies and government-sponsored enterprises |
$ | 5,487 | $ | 732 | $ | — | $ | (16 | ) | $ | — | $ | 6,203 | |||||||||||
State and political subdivisions |
2,287 | 181 | — | (30 | ) | — | 2,438 | |||||||||||||||||
Non-U.S. government |
1,910 | 110 | — | (5 | ) | — | 2,015 | |||||||||||||||||
U.S. corporate: |
||||||||||||||||||||||||
Utilities |
3,355 | 364 | — | (26 | ) | — | 3,693 | |||||||||||||||||
Energy |
2,560 | 103 | — | (162 | ) | — | 2,501 | |||||||||||||||||
Finance and insurance |
5,268 | 392 | 15 | (43 | ) | — | 5,632 | |||||||||||||||||
Consumer—non-cyclical |
3,755 | 371 | — | (30 | ) | — | 4,096 | |||||||||||||||||
Technology and communications |
2,108 | 123 | — | (38 | ) | — | 2,193 | |||||||||||||||||
Industrial |
1,164 | 53 | — | (44 | ) | — | 1,173 | |||||||||||||||||
Capital goods |
1,774 | 188 | — | (12 | ) | — | 1,950 | |||||||||||||||||
Consumer—cyclical |
1,602 | 95 | — | (22 | ) | — | 1,675 | |||||||||||||||||
Transportation |
1,023 | 75 | — | (12 | ) | — | 1,086 | |||||||||||||||||
Other |
385 | 22 | — | (5 | ) | — | 402 | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total U.S. corporate |
22,994 | 1,786 | 15 | (394 | ) | — | 24,401 | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Non-U.S. corporate: |
||||||||||||||||||||||||
Utilities |
815 | 37 | — | (9 | ) | — | 843 | |||||||||||||||||
Energy |
1,700 | 64 | — | (78 | ) | — | 1,686 | |||||||||||||||||
Finance and insurance |
2,327 | 152 | 2 | (8 | ) | — | 2,473 | |||||||||||||||||
Consumer—non-cyclical |
746 | 24 | — | (18 | ) | — | 752 | |||||||||||||||||
Technology and communications |
978 | 36 | — | (26 | ) | — | 988 | |||||||||||||||||
Industrial |
1,063 | 19 | — | (96 | ) | — | 986 | |||||||||||||||||
Capital goods |
602 | 19 | — | (17 | ) | — | 604 | |||||||||||||||||
Consumer—cyclical |
522 | 8 | — | (4 | ) | — | 526 | |||||||||||||||||
Transportation |
559 | 52 | — | (6 | ) | — | 605 | |||||||||||||||||
Other |
2,574 | 187 | — | (25 | ) | — | 2,736 | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total non-U.S. corporate |
11,886 | 598 | 2 | (287 | ) | — | 12,199 | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Residential mortgage-backed |
4,777 | 330 | 11 | (17 | ) | — | 5,101 | |||||||||||||||||
Commercial mortgage-backed |
2,492 | 84 | 3 | (20 | ) | — | 2,559 | |||||||||||||||||
Other asset-backed |
3,328 | 11 | 1 | (59 | ) | — | 3,281 | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total fixed maturity securities |
55,161 | 3,832 | 32 | (828 | ) | — | 58,197 | |||||||||||||||||
Equity securities |
325 | 8 | — | (23 | ) | — | 310 | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total available-for-sale securities |
$ | 55,486 | $ | 3,840 | $ | 32 | $ | (851 | ) | $ | — | $ | 58,507 | |||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2014, the amortized cost or cost, gross unrealized gains (losses) and fair value of our fixed maturity and equity securities classified as available-for-sale were as follows:
Amortized cost or cost |
Gross unrealized gains | Gross unrealized losses | Fair value |
|||||||||||||||||||||
(Amounts in millions) |
Not other-than- temporarily impaired |
Other-than- temporarily impaired |
Not other-than- temporarily impaired |
Other-than- temporarily impaired |
||||||||||||||||||||
Fixed maturity securities: |
||||||||||||||||||||||||
U.S. government, agencies and government-sponsored enterprises |
$ | 5,006 | $ | 995 | $ | — | $ | (1 | ) | $ | — | $ | 6,000 | |||||||||||
State and political subdivisions |
2,013 | 236 | — | (27 | ) | — | 2,222 | |||||||||||||||||
Non-U.S. government |
1,761 | 143 | — | (2 | ) | — | 1,902 | |||||||||||||||||
U.S. corporate: |
||||||||||||||||||||||||
Utilities |
3,292 | 577 | — | (5 | ) | — | 3,864 | |||||||||||||||||
Energy |
2,498 | 265 | — | (21 | ) | — | 2,742 | |||||||||||||||||
Finance and insurance |
5,102 | 537 | 20 | (13 | ) | — | 5,646 | |||||||||||||||||
Consumer—non-cyclical |
3,483 | 538 | — | (8 | ) | — | 4,013 | |||||||||||||||||
Technology and communications |
2,112 | 217 | — | (4 | ) | — | 2,325 | |||||||||||||||||
Industrial |
1,195 | 100 | — | (8 | ) | — | 1,287 | |||||||||||||||||
Capital goods |
1,748 | 263 | — | (5 | ) | — | 2,006 | |||||||||||||||||
Consumer—cyclical |
1,750 | 158 | — | (8 | ) | — | 1,900 | |||||||||||||||||
Transportation |
929 | 114 | — | (4 | ) | — | 1,039 | |||||||||||||||||
Other |
370 | 31 | — | — | — | 401 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total U.S. corporate |
22,479 | 2,800 | 20 | (76 | ) | — | 25,223 | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Non-U.S. corporate: |
||||||||||||||||||||||||
Utilities |
857 | 48 | — | (2 | ) | — | 903 | |||||||||||||||||
Energy |
1,911 | 163 | — | (38 | ) | — | 2,036 | |||||||||||||||||
Finance and insurance |
2,757 | 203 | — | (3 | ) | — | 2,957 | |||||||||||||||||
Consumer—non-cyclical |
764 | 41 | — | (9 | ) | — | 796 | |||||||||||||||||
Technology and communications |
986 | 71 | — | (4 | ) | — | 1,053 | |||||||||||||||||
Industrial |
1,166 | 65 | — | (18 | ) | — | 1,213 | |||||||||||||||||
Capital goods |
592 | 31 | — | (5 | ) | — | 618 | |||||||||||||||||
Consumer—cyclical |
520 | 14 | — | — | — | 534 | ||||||||||||||||||
Transportation |
521 | 70 | — | (1 | ) | — | 590 | |||||||||||||||||
Other |
3,153 | 257 | — | (15 | ) | — | 3,395 | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total non-U.S. corporate |
13,227 | 963 | — | (95 | ) | — | 14,095 | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Residential mortgage-backed |
4,871 | 362 | 13 | (17 | ) | (1 | ) | 5,228 | ||||||||||||||||
Commercial mortgage-backed |
2,564 | 143 | 4 | (9 | ) | — | 2,702 | |||||||||||||||||
Other asset-backed |
3,735 | 23 | 1 | (54 | ) | — | 3,705 | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total fixed maturity securities |
55,656 | 5,665 | 38 | (281 | ) | (1 | ) | 61,077 | ||||||||||||||||
Equity securities |
250 | 32 | — | (7 | ) | — | 275 | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total available-for-sale securities |
$ | 55,906 | $ | 5,697 | $ | 38 | $ | (288 | ) | $ | (1 | ) | $ | 61,352 | ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
The following table presents the gross unrealized losses and fair values of our investment securities, aggregated by investment type and length of time that individual investment securities have been in a continuous unrealized loss position, as of December 31, 2015:
Less than 12 months | 12 months or more | Total | ||||||||||||||||||||||||||||||||||
(Dollar amounts in millions) |
Fair value |
Gross unrealized losses |
Number of securities |
Fair value |
Gross unrealized losses |
Number of securities |
Fair value |
Gross unrealized losses |
Number of securities |
|||||||||||||||||||||||||||
Description of Securities |
||||||||||||||||||||||||||||||||||||
Fixed maturity securities: |
||||||||||||||||||||||||||||||||||||
U.S. government, agencies and government-sponsored enterprises |
$ | 883 | $ | (16 | ) | 32 | $ | — | $ | — | — | $ | 883 | $ | (16 | ) | 32 | |||||||||||||||||||
State and political subdivisions |
464 | (15 | ) | 81 | 163 | (15 | ) | 17 | 627 | (30 | ) | 98 | ||||||||||||||||||||||||
Non-U.S. government |
366 | (5 | ) | 49 | — | — | — | 366 | (5 | ) | 49 | |||||||||||||||||||||||||
U.S. corporate |
5,836 | (332 | ) | 817 | 466 | (62 | ) | 83 | 6,302 | (394 | ) | 900 | ||||||||||||||||||||||||
Non-U.S. corporate |
3,016 | (170 | ) | 400 | 486 | (117 | ) | 87 | 3,502 | (287 | ) | 487 | ||||||||||||||||||||||||
Residential mortgage-backed |
756 | (10 | ) | 88 | 103 | (7 | ) | 38 | 859 | (17 | ) | 126 | ||||||||||||||||||||||||
Commercial mortgage-backed |
780 | (19 | ) | 116 | 39 | (1 | ) | 13 | 819 | (20 | ) | 129 | ||||||||||||||||||||||||
Other asset-backed |
1,944 | (22 | ) | 349 | 336 | (37 | ) | 55 | 2,280 | (59 | ) | 404 | ||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||
Subtotal, fixed maturity securities |
14,045 | (589 | ) | 1,932 | 1,593 | (239 | ) | 293 | 15,638 | (828 | ) | 2,225 | ||||||||||||||||||||||||
Equity securities |
153 | (23 | ) | 64 | — | — | — | 153 | (23 | ) | 64 | |||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||
Total for securities in an unrealized loss position |
$ | 14,198 | $ | (612 | ) | 1,996 | $ | 1,593 | $ | (239 | ) | 293 | $ | 15,791 | $ | (851 | ) | 2,289 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||
% Below cost—fixed maturity securities: |
||||||||||||||||||||||||||||||||||||
<20% Below cost |
$ | 13,726 | $ | (472 | ) | 1,877 | $ | 1,259 | $ | (78 | ) | 238 | $ | 14,985 | $ | (550 | ) | 2,115 | ||||||||||||||||||
20%-50% Below cost |
319 | (116 | ) | 54 | 316 | (139 | ) | 50 | 635 | (255 | ) | 104 | ||||||||||||||||||||||||
>50% Below cost |
— | (1 | ) | 1 | 18 | (22 | ) | 5 | 18 | (23 | ) | 6 | ||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||
Total fixed maturity securities |
14,045 | (589 | ) | 1,932 | 1,593 | (239 | ) | 293 | 15,638 | (828 | ) | 2,225 | ||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||
% Below cost—equity securities: |
||||||||||||||||||||||||||||||||||||
<20% Below cost |
133 | (18 | ) | 56 | — | — | — | 133 | (18 | ) | 56 | |||||||||||||||||||||||||
20%-50% Below cost |
20 | (5 | ) | 8 | — | — | — | 20 | (5 | ) | 8 | |||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||
Total equity securities |
153 | (23 | ) | 64 | — | — | — | 153 | (23 | ) | 64 | |||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||
Total for securities in an unrealized loss position |
$ | 14,198 | $ | (612 | ) | 1,996 | $ | 1,593 | $ | (239 | ) | 293 | $ | 15,791 | $ | (851 | ) | 2,289 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||
Investment grade |
$ | 13,342 | $ | (524 | ) | 1,834 | $ | 1,245 | $ | (135 | ) | 225 | $ | 14,587 | $ | (659 | ) | 2,059 | ||||||||||||||||||
Below investment grade |
856 | (88 | ) | 162 | 348 | (104 | ) | 68 | 1,204 | (192 | ) | 230 | ||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||
Total for securities in an unrealized loss position |
$ | 14,198 | $ | (612 | ) | 1,996 | $ | 1,593 | $ | (239 | ) | 293 | $ | 15,791 | $ | (851 | ) | 2,289 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table presents the gross unrealized losses and fair values of our corporate securities, aggregated by investment type and length of time that individual investment securities have been in a continuous unrealized loss position, based on industry, as of December 31, 2015:
Less than 12 months | 12 months or more | Total | ||||||||||||||||||||||||||||||||||
(Dollar amounts in millions) |
Fair value |
Gross unrealized losses |
Number of securities |
Fair value |
Gross unrealized losses |
Number of securities |
Fair value |
Gross unrealized losses |
Number of securities |
|||||||||||||||||||||||||||
Description of Securities |
||||||||||||||||||||||||||||||||||||
U.S. corporate: |
||||||||||||||||||||||||||||||||||||
Utilities |
$ | 485 | $ | (25 | ) | 74 | $ | 14 | $ | (1 | ) | 7 | $ | 499 | $ | (26 | ) | 81 | ||||||||||||||||||
Energy |
1,162 | (134 | ) | 163 | 131 | (28 | ) | 22 | 1,293 | (162 | ) | 185 | ||||||||||||||||||||||||
Finance and insurance |
1,142 | (35 | ) | 160 | 94 | (8 | ) | 15 | 1,236 | (43 | ) | 175 | ||||||||||||||||||||||||
Consumer—non-cyclical |
836 | (26 | ) | 107 | 51 | (4 | ) | 10 | 887 | (30 | ) | 117 | ||||||||||||||||||||||||
Technology and communications |
658 | (36 | ) | 95 | 23 | (2 | ) | 5 | 681 | (38 | ) | 100 | ||||||||||||||||||||||||
Industrial |
476 | (33 | ) | 64 | 44 | (11 | ) | 9 | 520 | (44 | ) | 73 | ||||||||||||||||||||||||
Capital goods |
293 | (10 | ) | 48 | 26 | (2 | ) | 4 | 319 | (12 | ) | 52 | ||||||||||||||||||||||||
Consumer—cyclical |
427 | (18 | ) | 60 | 63 | (4 | ) | 10 | 490 | (22 | ) | 70 | ||||||||||||||||||||||||
Transportation |
273 | (10 | ) | 38 | 20 | (2 | ) | 1 | 293 | (12 | ) | 39 | ||||||||||||||||||||||||
Other |
84 | (5 | ) | 8 | — | — | — | 84 | (5 | ) | 8 | |||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||
Subtotal, U.S. corporate securities |
5,836 | (332 | ) | 817 | 466 | (62 | ) | 83 | 6,302 | (394 | ) | 900 | ||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||
Non-U.S. corporate: |
||||||||||||||||||||||||||||||||||||
Utilities |
130 | (6 | ) | 20 | 32 | (3 | ) | 6 | 162 | (9 | ) | 26 | ||||||||||||||||||||||||
Energy |
589 | (48 | ) | 71 | 127 | (30 | ) | 20 | 716 | (78 | ) | 91 | ||||||||||||||||||||||||
Finance and insurance |
478 | (7 | ) | 77 | 30 | (1 | ) | 8 | 508 | (8 | ) | 85 | ||||||||||||||||||||||||
Consumer—non-cyclical |
261 | (14 | ) | 27 | 37 | (4 | ) | 4 | 298 | (18 | ) | 31 | ||||||||||||||||||||||||
Technology and communications |
324 | (15 | ) | 37 | 33 | (11 | ) | 9 | 357 | (26 | ) | 46 | ||||||||||||||||||||||||
Industrial |
495 | (54 | ) | 67 | 110 | (42 | ) | 18 | 605 | (96 | ) | 85 | ||||||||||||||||||||||||
Capital goods |
154 | (8 | ) | 22 | 41 | (9 | ) | 9 | 195 | (17 | ) | 31 | ||||||||||||||||||||||||
Consumer—cyclical |
155 | (4 | ) | 20 | — | — | — | 155 | (4 | ) | 20 | |||||||||||||||||||||||||
Transportation |
147 | (6 | ) | 17 | — | — | — | 147 | (6 | ) | 17 | |||||||||||||||||||||||||
Other |
283 | (8 | ) | 42 | 76 | (17 | ) | 13 | 359 | (25 | ) | 55 | ||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||
Subtotal, non-U.S. corporate securities |
3,016 | (170 | ) | 400 | 486 | (117 | ) | 87 | 3,502 | (287 | ) | 487 | ||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||
Total for corporate securities in an unrealized loss position |
$ | 8,852 | $ | (502 | ) | 1,217 | $ | 952 | $ | (179 | ) | 170 | $ | 9,804 | $ | (681 | ) | 1,387 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table presents the gross unrealized losses and fair values of our investment securities, aggregated by investment type and length of time that individual investment securities have been in a continuous unrealized loss position, as of December 31, 2014:
Less than 12 months | 12 months or more | Total | ||||||||||||||||||||||||||||||||||
(Dollar amounts in millions) |
Fair value |
Gross unrealized losses |
Number of securities |
Fair value |
Gross unrealized losses (1) |
Number of securities |
Fair value |
Gross unrealized losses (1) |
Number of securities |
|||||||||||||||||||||||||||
Description of Securities |
||||||||||||||||||||||||||||||||||||
Fixed maturity securities: |
||||||||||||||||||||||||||||||||||||
U.S. government, agencies and government-sponsored enterprises |
$ | — | $ | — | — | $ | 75 | $ | (1 | ) | 10 | $ | 75 | $ | (1 | ) | 10 | |||||||||||||||||||
State and political subdivision |
9 | — | 7 | 267 | (27 | ) | 45 | 276 | (27 | ) | 52 | |||||||||||||||||||||||||
Non-U.S. government |
64 | (1 | ) | 15 | 22 | (1 | ) | 4 | 86 | (2 | ) | 19 | ||||||||||||||||||||||||
U.S. corporate |
1,639 | (33 | ) | 231 | 1,201 | (43 | ) | 174 | 2,840 | (76 | ) | 405 | ||||||||||||||||||||||||
Non-U.S. corporate |
1,456 | (67 | ) | 199 | 504 | (28 | ) | 67 | 1,960 | (95 | ) | 266 | ||||||||||||||||||||||||
Residential mortgage-backed |
180 | (1 | ) | 24 | 249 | (17 | ) | 87 | 429 | (18 | ) | 111 | ||||||||||||||||||||||||
Commercial mortgage-backed |
163 | — | 21 | 362 | (9 | ) | 49 | 525 | (9 | ) | 70 | |||||||||||||||||||||||||
Other asset-backed |
1,551 | (12 | ) | 215 | 487 | (42 | ) | 55 | 2,038 | (54 | ) | 270 | ||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||
Subtotal, fixed maturity securities |
5,062 | (114 | ) | 712 | 3,167 | (168 | ) | 491 | 8,229 | (282 | ) | 1,203 | ||||||||||||||||||||||||
Equity securities |
30 | (3 | ) | 46 | 48 | (4 | ) | 6 | 78 | (7 | ) | 52 | ||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||
Total for securities in an unrealized loss position |
$ | 5,092 | $ | (117 | ) | 758 | $ | 3,215 | $ | (172 | ) | 497 | $ | 8,307 | $ | (289 | ) | 1,255 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||
% Below cost—fixed maturity securities: |
||||||||||||||||||||||||||||||||||||
<20% Below cost |
$ | 5,025 | $ | (103 | ) | 708 | $ | 3,036 | $ | (114 | ) | 470 | $ | 8,061 | $ | (217 | ) | 1,178 | ||||||||||||||||||
20%-50% Below cost |
37 | (11 | ) | 4 | 131 | (53 | ) | 15 | 168 | (64 | ) | 19 | ||||||||||||||||||||||||
>50% Below cost |
— | — | — | — | (1 | ) | 6 | — | (1 | ) | 6 | |||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||
Total fixed maturity securities |
5,062 | (114 | ) | 712 | 3,167 | (168 | ) | 491 | 8,229 | (282 | ) | 1,203 | ||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||
% Below cost—equity securities: |
||||||||||||||||||||||||||||||||||||
<20% Below cost |
26 | (2 | ) | 40 | 48 | (4 | ) | 6 | 74 | (6 | ) | 46 | ||||||||||||||||||||||||
20%-50% Below cost |
4 | (1 | ) | 6 | — | — | — | 4 | (1 | ) | 6 | |||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||
Total equity securities |
30 | (3 | ) | 46 | 48 | (4 | ) | 6 | 78 | (7 | ) | 52 | ||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||
Total for securities in an unrealized loss position |
$ | 5,092 | $ | (117 | ) | 758 | $ | 3,215 | $ | (172 | ) | 497 | $ | 8,307 | $ | (289 | ) | 1,255 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||
Investment grade |
$ | 4,501 | $ | (75 | ) | 631 | $ | 2,918 | $ | (145 | ) | 424 | $ | 7,419 | $ | (220 | ) | 1,055 | ||||||||||||||||||
Below investment grade (2) |
591 | (42 | ) | 127 | 297 | (27 | ) | 73 | 888 | (69 | ) | 200 | ||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||
Total for securities in an unrealized loss position |
$ | 5,092 | $ | (117 | ) | 758 | $ | 3,215 | $ | (172 | ) | 497 | $ | 8,307 | $ | (289 | ) | 1,255 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) | Amounts included $1 million of unrealized losses on other-than-temporarily impaired securities. |
(2) | Amounts that have been in a continuous unrealized loss position for 12 months or more included $1 million of unrealized losses on other-than-temporarily impaired securities. |
The following table presents the gross unrealized losses and fair values of our corporate securities, aggregated by investment type and length of time that individual investment securities have been in a continuous unrealized loss position, based on industry, as of December 31, 2014:
Less than 12 months | 12 months or more | Total | ||||||||||||||||||||||||||||||||||
(Dollar amounts in millions) |
Fair value |
Gross unrealized losses |
Number of securities |
Fair value |
Gross unrealized losses |
Number of securities |
Fair value |
Gross unrealized losses |
Number of securities |
|||||||||||||||||||||||||||
Description of Securities |
||||||||||||||||||||||||||||||||||||
U.S. corporate: |
||||||||||||||||||||||||||||||||||||
Utilities |
$ | 55 | $ | — | 10 | $ | 164 | $ | (5 | ) | 23 | $ | 219 | $ | (5 | ) | 33 | |||||||||||||||||||
Energy |
404 | (16 | ) | 56 | 96 | (5 | ) | 15 | 500 | (21 | ) | 71 | ||||||||||||||||||||||||
Finance and insurance |
399 | (3 | ) | 56 | 257 | (10 | ) | 35 | 656 | (13 | ) | 91 | ||||||||||||||||||||||||
Consumer—non-cyclical |
160 | (3 | ) | 20 | 182 | (5 | ) | 32 | 342 | (8 | ) | 52 | ||||||||||||||||||||||||
Technology and communications |
181 | (3 | ) | 27 | 97 | (1 | ) | 15 | 278 | (4 | ) | 42 | ||||||||||||||||||||||||
Industrial |
151 | (4 | ) | 21 | 80 | (4 | ) | 11 | 231 | (8 | ) | 32 | ||||||||||||||||||||||||
Capital goods |
85 | — | 13 | 122 | (5 | ) | 18 | 207 | (5 | ) | 31 | |||||||||||||||||||||||||
Consumer—cyclical |
132 | (2 | ) | 17 | 139 | (6 | ) | 18 | 271 | (8 | ) | 35 | ||||||||||||||||||||||||
Transportation |
52 | (2 | ) | 9 | 57 | (2 | ) | 6 | 109 | (4 | ) | 15 | ||||||||||||||||||||||||
Other |
20 | — | 2 | 7 | — | 1 | 27 | — | 3 | |||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||
Subtotal, U.S. corporate securities |
1,639 | (33 | ) | 231 | 1,201 | (43 | ) | 174 | 2,840 | (76 | ) | 405 | ||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||
Non-U.S. corporate: |
||||||||||||||||||||||||||||||||||||
Utilities |
79 | — | 13 | 43 | (2 | ) | 5 | 122 | (2 | ) | 18 | |||||||||||||||||||||||||
Energy |
442 | (33 | ) | 57 | 58 | (5 | ) | 13 | 500 | (38 | ) | 70 | ||||||||||||||||||||||||
Finance and insurance |
237 | (2 | ) | 32 | 29 | (1 | ) | 6 | 266 | (3 | ) | 38 | ||||||||||||||||||||||||
Consumer—non-cyclical |
134 | (6 | ) | 10 | 83 | (3 | ) | 9 | 217 | (9 | ) | 19 | ||||||||||||||||||||||||
Technology and communications |
77 | (2 | ) | 13 | 81 | (2 | ) | 8 | 158 | (4 | ) | 21 | ||||||||||||||||||||||||
Industrial |
214 | (9 | ) | 30 | 116 | (9 | ) | 15 | 330 | (18 | ) | 45 | ||||||||||||||||||||||||
Capital goods |
63 | (2 | ) | 7 | 38 | (3 | ) | 4 | 101 | (5 | ) | 11 | ||||||||||||||||||||||||
Consumer—cyclical |
8 | — | 1 | — | — | — | 8 | — | 1 | |||||||||||||||||||||||||||
Transportation |
30 | — | 6 | 14 | (1 | ) | 1 | 44 | (1 | ) | 7 | |||||||||||||||||||||||||
Other |
172 | (13 | ) | 30 | 42 | (2 | ) | 6 | 214 | (15 | ) | 36 | ||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||
Subtotal, non-U.S. corporate securities |
1,456 | (67 | ) | 199 | 504 | (28 | ) | 67 | 1,960 | (95 | ) | 266 | ||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||
Total for corporate securities in an unrealized loss position |
$ | 3,095 | $ | (100 | ) | 430 | $ | 1,705 | $ | (71 | ) | 241 | $ | 4,800 | $ | (171 | ) | 671 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following tables present the concentration of gross unrealized losses and fair values of fixed maturity securities that were more than 20% below cost and in a continuous unrealized loss position for 12 months or more by asset class as of December 31, 2015:
Investment Grade | ||||||||||||||||||||||||||||||||
20% to 50% | Greater than 50% | |||||||||||||||||||||||||||||||
(Dollar amounts in millions) |
Fair value |
Gross unrealized losses |
% of total gross unrealized losses |
Number of securities |
Fair value |
Gross unrealized losses |
% of total gross unrealized losses |
Number of securities |
||||||||||||||||||||||||
Fixed maturity securities: |
||||||||||||||||||||||||||||||||
State and political subdivisions |
$ | 9 | $ | (3 | ) | — | % | 1 | $ | — | $ | — | — | % | — | |||||||||||||||||
U.S. corporate: |
||||||||||||||||||||||||||||||||
Energy |
23 | (8 | ) | 1 | 4 | — | — | — | — | |||||||||||||||||||||||
Industrial |
18 | (9 | ) | 1 | 3 | — | — | — | — | |||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||
Total U.S. corporate |
41 | (17 | ) | 2 | 7 | — | — | — | — | |||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||
Non-U.S. corporate: |
||||||||||||||||||||||||||||||||
Utilities |
8 | (2 | ) | — | 1 | — | — | — | — | |||||||||||||||||||||||
Energy |
21 | (8 | ) | 1 | 2 | — | — | — | — | |||||||||||||||||||||||
Industrial |
29 | (14 | ) | 2 | 4 | — | — | — | — | |||||||||||||||||||||||
Capital goods |
6 | (5 | ) | 1 | 2 | — | — | — | — | |||||||||||||||||||||||
Other |
5 | (2 | ) | — | 1 | — | — | — | — | |||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||
Total non-U.S. corporate |
69 | (31 | ) | 4 | 10 | — | — | — | — | |||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||
Structured securities: |
||||||||||||||||||||||||||||||||
Other asset-backed |
66 | (25 | ) | 3 | 4 | — | — | — | — | |||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||
Total structured securities |
66 | (25 | ) | 3 | 4 | — | — | — | — | |||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||
Total |
$ | 185 | $ | (76 | ) | 9 | % | 22 | $ | — | $ | — | — | % | — | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Below Investment Grade | ||||||||||||||||||||||||||||||||
20% to 50% | Greater than 50% | |||||||||||||||||||||||||||||||
(Dollar amounts in millions) |
Fair value |
Gross unrealized losses |
% of total gross unrealized losses |
Number of securities |
Fair value |
Gross unrealized losses |
% of total gross unrealized losses |
Number of securities |
||||||||||||||||||||||||
Fixed maturity securities: |
||||||||||||||||||||||||||||||||
U.S. corporate: |
||||||||||||||||||||||||||||||||
Energy |
$ | 21 | $ | (9 | ) | 1 | % | 6 | $ | — | $ | — | — | % | — | |||||||||||||||||
Finance and insurance |
7 | (3 | ) | 1 | 1 | — | — | — | — | |||||||||||||||||||||||
Technology and communications |
5 | (2 | ) | — | 1 | — | — | — | — | |||||||||||||||||||||||
Industrial |
4 | (1 | ) | — | 1 | — | — | — | — | |||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||
Total U.S. corporate |
37 | (15 | ) | 2 | 9 | — | — | — | — | |||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||
Non-U.S. corporate: |
||||||||||||||||||||||||||||||||
Energy |
44 | (20 | ) | 2 | 8 | — | — | — | — | |||||||||||||||||||||||
Technology and communications |
5 | (4 | ) | 1 | 2 | 4 | (5 | ) | 1 | 1 | ||||||||||||||||||||||
Industrial |
10 | (6 | ) | 1 | 2 | 14 | (17 | ) | 2 | 4 | ||||||||||||||||||||||
Capital goods |
3 | (2 | ) | 1 | 1 | — | — | — | — | |||||||||||||||||||||||
Other |
24 | (10 | ) | — | 5 | — | — | — | — | |||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||
Total non-U.S. corporate |
86 | (42 | ) | 5 | 18 | 18 | (22 | ) | 3 | 5 | ||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||
Structured securities: |
||||||||||||||||||||||||||||||||
Other asset-backed |
8 | (6 | ) | 1 | 1 | — | — | — | — | |||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||
Total structured securities |
8 | (6 | ) | 1 | 1 | — | — | — | — | |||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||
Total |
$ | 131 | $ | (63 | ) | 8 | % | 28 | $ | 18 | $ | (22 | ) | 3 | % | 5 | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The scheduled maturity distribution of fixed maturity securities as of December 31, 2015 is set forth below. Actual maturities may differ from contractual maturities because issuers of securities may have the right to call or prepay obligations with or without call or prepayment penalties.
(Amounts in millions) |
Amortized cost or cost |
Fair value |
||||||
Due one year or less |
$ | 1,729 | $ | 1,744 | ||||
Due after one year through five years |
9,814 | 10,192 | ||||||
Due after five years through ten years |
11,772 | 11,917 | ||||||
Due after ten years |
21,249 | 23,403 | ||||||
|
|
|
|
|||||
Subtotal |
44,564 | 47,256 | ||||||
Residential mortgage-backed |
4,777 | 5,101 | ||||||
Commercial mortgage-backed |
2,492 | 2,559 | ||||||
Other asset-backed |
3,328 | 3,281 | ||||||
|
|
|
|
|||||
Total |
$ | 55,161 | $ | 58,197 | ||||
|
|
|
|
The following tables set forth the distribution across property type and geographic region for commercial mortgage loans as of December 31:
2015 | 2014 | |||||||||||||||
(Amounts in millions) |
Carrying value |
% of total |
Carrying value |
% of total |
||||||||||||
Property type: |
||||||||||||||||
Retail |
$ | 2,355 | 38 | % | $ | 2,150 | 35 | % | ||||||||
Industrial |
1,562 | 25 | 1,597 | 26 | ||||||||||||
Office |
1,516 | 24 | 1,643 | 27 | ||||||||||||
Apartments |
465 | 8 | 494 | 8 | ||||||||||||
Mixed use/other |
289 | 5 | 239 | 4 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Subtotal |
6,187 | 100 | % | 6,123 | 100 | % | ||||||||||
|
|
|
|
|||||||||||||
Unamortized balance of loan origination fees and costs |
(2 | ) | (1 | ) | ||||||||||||
Allowance for losses |
(15 | ) | (22 | ) | ||||||||||||
|
|
|
|
|||||||||||||
Total |
$ | 6,170 | $ | 6,100 | ||||||||||||
|
|
|
|
2015 | 2014 | |||||||||||||||
(Amounts in millions) |
Carrying value |
% of total |
Carrying value |
% of total |
||||||||||||
Geographic region: |
||||||||||||||||
Pacific |
$ | 1,581 | 26 | % | $ | 1,636 | 27 | % | ||||||||
South Atlantic |
1,574 | 25 | 1,673 | 27 | ||||||||||||
Middle Atlantic |
890 | 14 | 826 | 14 | ||||||||||||
Mountain |
585 | 10 | 536 | 9 | ||||||||||||
West North Central |
416 | 7 | 382 | 6 | ||||||||||||
East North Central |
386 | 6 | 397 | 7 | ||||||||||||
West South Central |
294 | 5 | 268 | 4 | ||||||||||||
New England |
268 | 4 | 264 | 4 | ||||||||||||
East South Central |
193 | 3 | 141 | 2 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Subtotal |
6,187 | 100 | % | 6,123 | 100 | % | ||||||||||
|
|
|
|
|||||||||||||
Unamortized balance of loan origination fees and costs |
(2 | ) | (1 | ) | ||||||||||||
Allowance for losses |
(15 | ) | (22 | ) | ||||||||||||
|
|
|
|
|||||||||||||
Total |
$ | 6,170 | $ | 6,100 | ||||||||||||
|
|
|
|
The following tables set forth the aging of past due commercial mortgage loans by property type as of December 31:
2015 | ||||||||||||||||||||||||
(Amounts in millions) |
31 - 60 days past due |
61 - 90 days past due |
Greater than 90 days past due |
Total past due |
Current | Total | ||||||||||||||||||
Property type: |
||||||||||||||||||||||||
Retail |
$ | — | $ | — | $ | — | $ | — | $ | 2,355 | $ | 2,355 | ||||||||||||
Industrial |
— | — | — | — | 1,562 | 1,562 | ||||||||||||||||||
Office |
6 | — | 5 | 11 | 1,505 | 1,516 | ||||||||||||||||||
Apartments |
— | — | — | — | 465 | 465 | ||||||||||||||||||
Mixed use/other |
— | — | — | — | 289 | 289 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total recorded investment |
$ | 6 | $ | — | $ | 5 | $ | 11 | $ | 6,176 | $ | 6,187 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
% of total commercial mortgage loans |
— | % | — | % | — | % | — | % | 100 | % | 100 | % | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
2014 | ||||||||||||||||||||||||
(Amounts in millions) |
31 - 60 days past due |
61 - 90 days past due |
Greater than 90 days past due |
Total past due |
Current | Total | ||||||||||||||||||
Property type: |
||||||||||||||||||||||||
Retail |
$ | — | $ | — | $ | — | $ | — | $ | 2,150 | $ | 2,150 | ||||||||||||
Industrial |
— | — | 2 | 2 | 1,595 | 1,597 | ||||||||||||||||||
Office |
— | — | 6 | 6 | 1,637 | 1,643 | ||||||||||||||||||
Apartments |
— | — | — | — | 494 | 494 | ||||||||||||||||||
Mixed use/other |
— | — | — | — | 239 | 239 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total recorded investment |
$ | — | $ | — | $ | 8 | $ | 8 | $ | 6,115 | $ | 6,123 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
% of total commercial mortgage loans |
— | % | — | % | — | % | — | % | 100 | % | 100 | % | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
The following table sets forth the allowance for credit losses and recorded investment in commercial mortgage loans as of or for the years ended December 31:
(Amounts in millions) |
2015 | 2014 | 2013 | |||||||||
Allowance for credit losses: |
||||||||||||
Beginning balance |
$ | 22 | $ | 33 | $ | 42 | ||||||
Charge-offs |
(4 | ) | (1 | ) | (2 | ) | ||||||
Recoveries |
— | — | — | |||||||||
Provision |
(3 | ) | (10 | ) | (7 | ) | ||||||
|
|
|
|
|
|
|||||||
Ending balance |
$ | 15 | $ | 22 | $ | 33 | ||||||
|
|
|
|
|
|
|||||||
Ending allowance for individually impaired loans |
$ | — | $ | — | $ | — | ||||||
|
|
|
|
|
|
|||||||
Ending allowance for loans not individually impaired that were evaluated collectively for impairment |
$ | 15 | $ | 22 | $ | 33 | ||||||
|
|
|
|
|
|
|||||||
Recorded investment: |
||||||||||||
Ending balance |
$ | 6,187 | $ | 6,123 | $ | 5,932 | ||||||
|
|
|
|
|
|
|||||||
Ending balance of individually impaired loans |
$ | 19 | $ | 15 | $ | 2 | ||||||
|
|
|
|
|
|
|||||||
Ending balance of loans not individually impaired that were evaluated collectively for impairment |
$ | 6,168 | $ | 6,108 | $ | 5,930 | ||||||
|
|
|
|
|
|
The following tables set forth the loan-to-value of commercial mortgage loans by property type as of December 31:
2015 | ||||||||||||||||||||||||
(Amounts in millions) |
0%-50% | 51%-60% | 61%-75% | 76%-100% | Greater than 100% (1) |
Total | ||||||||||||||||||
Property type: |
||||||||||||||||||||||||
Retail |
$ | 846 | $ | 465 | $ | 924 | $ | 106 | $ | 14 | $ | 2,355 | ||||||||||||
Industrial |
515 | 478 | 499 | 65 | 5 | 1,562 | ||||||||||||||||||
Office |
493 | 341 | 580 | 83 | 19 | 1,516 | ||||||||||||||||||
Apartments |
196 | 66 | 182 | 21 | — | 465 | ||||||||||||||||||
Mixed use/other |
49 | 55 | 185 | — | — | 289 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total recorded investment |
$ | 2,099 | $ | 1,405 | $ | 2,370 | $ | 275 | $ | 38 | $ | 6,187 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
% of total |
34 | % | 23 | % | 38 | % | 4 | % | 1 | % | 100 | % | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Weighted-average debt service coverage ratio |
2.13 | 1.82 | 1.57 | 1.12 | 0.55 | 1.79 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
(1) | Included $38 million of loans in good standing, where borrowers continued to make timely payments, with a total weighted-average loan-to-value of 123%. |
2014 | ||||||||||||||||||||||||
(Amounts in millions) |
0%-50% | 51%-60% | 61%-75% | 76%-100% | Greater than 100% (1) |
Total | ||||||||||||||||||
Property type: |
||||||||||||||||||||||||
Retail |
$ | 671 | $ | 419 | $ | 967 | $ | 75 | $ | 18 | $ | 2,150 | ||||||||||||
Industrial |
451 | 285 | 778 | 60 | 23 | 1,597 | ||||||||||||||||||
Office |
383 | 278 | 782 | 164 | 36 | 1,643 | ||||||||||||||||||
Apartments |
211 | 76 | 199 | 8 | — | 494 | ||||||||||||||||||
Mixed use/other |
45 | 43 | 145 | 6 | — | 239 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total recorded investment |
$ | 1,761 | $ | 1,101 | $ | 2,871 | $ | 313 | $ | 77 | $ | 6,123 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
% of total |
29 | % | 18 | % | 47 | % | 5 | % | 1 | % | 100 | % | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Weighted-average debt service coverage ratio |
2.27 | 1.75 | 1.61 | 1.02 | 0.72 | 1.78 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
(1) | Included $15 million of impaired loans, $6 million of loans past due and not individually impaired and $56 million of loans in good standing, where borrowers continued to make timely payments, with a total weighted-average loan-to-value of 120%. |
The following tables set forth the debt service coverage ratio for fixed rate commercial mortgage loans by property type as of December 31:
2015 | ||||||||||||||||||||||||
(Amounts in millions) |
Less than 1.00 | 1.00-1.25 | 1.26-1.50 | 1.51-2.00 | Greater than 2.00 |
Total | ||||||||||||||||||
Property type: |
||||||||||||||||||||||||
Retail |
$ | 70 | $ | 232 | $ | 466 | $ | 1,017 | $ | 570 | $ | 2,355 | ||||||||||||
Industrial |
94 | 181 | 208 | 672 | 407 | 1,562 | ||||||||||||||||||
Office |
85 | 114 | 265 | 699 | 346 | 1,509 | ||||||||||||||||||
Apartments |
6 | 41 | 74 | 199 | 145 | 465 | ||||||||||||||||||
Mixed use/other |
— | 58 | 141 | 60 | 30 | 289 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total recorded investment |
$ | 255 | $ | 626 | $ | 1,154 | $ | 2,647 | $ | 1,498 | $ | 6,180 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
% of total |
4 | % | 10 | % | 19 | % | 43 | % | 24 | % | 100 | % | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Weighted-average loan-to-value |
74 | % | 64 | % | 58 | % | 58 | % | 43 | % | 56 | % | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
2014 | ||||||||||||||||||||||||
(Amounts in millions) |
Less than 1.00 | 1.00-1.25 | 1.26-1.50 | 1.51-2.00 | Greater than 2.00 |
Total | ||||||||||||||||||
Property type: |
||||||||||||||||||||||||
Retail |
$ | 80 | $ | 253 | $ | 524 | $ | 870 | $ | 423 | $ | 2,150 | ||||||||||||
Industrial |
158 | 142 | 246 | 706 | 343 | 1,595 | ||||||||||||||||||
Office |
119 | 101 | 247 | 780 | 389 | 1,636 | ||||||||||||||||||
Apartments |
1 | 48 | 88 | 186 | 171 | 494 | ||||||||||||||||||
Mixed use/other |
6 | 1 | 61 | 135 | 36 | 239 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total recorded investment |
$ | 364 | $ | 545 | $ | 1,166 | $ | 2,677 | $ | 1,362 | $ | 6,114 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
% of total |
6 | % | 9 | % | 19 | % | 44 | % | 22 | % | 100 | % | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Weighted-average loan-to-value |
77 | % | 64 | % | 64 | % | 59 | % | 45 | % | 59 | % | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table sets forth our positions in derivative instruments as of December 31:
Derivative assets |
Derivative liabilities |
|||||||||||||||||||
Balance sheet |
Fair value |
Balance sheet |
Fair value | |||||||||||||||||
(Amounts in millions) |
2015 | 2014 | 2015 | 2014 | ||||||||||||||||
Derivatives designated as hedges |
||||||||||||||||||||
Cash flow hedges: |
||||||||||||||||||||
Interest rate swaps |
Other invested assets | $ | 629 | $ | 639 | Other liabilities | $ | 37 | $ | 27 | ||||||||||
Inflation indexed swaps |
Other invested assets | — | — | Other liabilities | 33 | 42 | ||||||||||||||
Foreign currency swaps |
Other invested assets | 8 | 6 | Other liabilities | — | — | ||||||||||||||
|
|
|
|
|
|
|
|
|||||||||||||
Total cash flow hedges |
637 | 645 | 70 | 69 | ||||||||||||||||
|
|
|
|
|
|
|
|
|||||||||||||
Total derivatives designated as hedges |
637 | 645 | 70 | 69 | ||||||||||||||||
|
|
|
|
|
|
|
|
|||||||||||||
Derivatives not designated as hedges |
||||||||||||||||||||
Interest rate swaps |
Other invested assets | 425 | 452 | Other liabilities | 183 | 177 | ||||||||||||||
Interest rate swaps related to securitization entities (1) |
Restricted other invested assets | — | — | Other liabilities | 30 | 26 | ||||||||||||||
Credit default swaps |
Other invested assets | 1 | 4 | Other liabilities | — | — | ||||||||||||||
Credit default swaps related to securitization entities (1) |
Restricted other invested assets | — | — | Other liabilities | 14 | 17 | ||||||||||||||
Foreign currency swaps |
Other invested assets | — | — | Other liabilities | 27 | 7 | ||||||||||||||
Equity index options |
Other invested assets | 30 | 17 | Other liabilities | — | — | ||||||||||||||
Financial futures |
Other invested assets | — | — | Other liabilities | — | — | ||||||||||||||
Equity return swaps |
Other invested assets | 2 | — | Other liabilities | 1 | 1 | ||||||||||||||
Other foreign currency contracts |
Other invested assets | 17 | 14 | Other liabilities | 34 | 13 | ||||||||||||||
GMWB embedded derivatives |
Reinsurance recoverable (2) | 17 | 13 | Policyholder account balances (3) | 352 | 291 | ||||||||||||||
Fixed index annuity embedded derivatives |
Other assets | — | — | Policyholder account balances (4) | 342 | 276 | ||||||||||||||
Indexed universal life embedded derivatives |
Reinsurance recoverable | — | — | Policyholder account balances (5) | 10 | 7 | ||||||||||||||
|
|
|
|
|
|
|
|
|||||||||||||
Total derivatives not designated as hedges |
492 | 500 | 993 | 815 | ||||||||||||||||
|
|
|
|
|
|
|
|
|||||||||||||
Total derivatives |
$ | 1,129 | $ | 1,145 | $ | 1,063 | $ | 884 | ||||||||||||
|
|
|
|
|
|
|
|
(1) | See note 17 for additional information related to consolidated securitization entities. |
(2) | Represents embedded derivatives associated with the reinsured portion of our GMWB liabilities. |
(3) | Represents the embedded derivatives associated with our GMWB liabilities, excluding the impact of reinsurance. |
(4) | Represents the embedded derivatives associated with our fixed index annuity liabilities. |
(5) | Represents the embedded derivatives associated with our indexed universal life liabilities. |
The following tables represent activity associated with derivative instruments as of the dates indicated:
(Notional in millions) |
Measurement |
December 31, 2014 |
Additions | Maturities/ terminations |
December 31, 2015 |
|||||||||||||
Derivatives designated as hedges |
||||||||||||||||||
Cash flow hedges: |
||||||||||||||||||
Interest rate swaps |
Notional | $ | 11,961 | $ | — | $ | (747 | ) | $ | 11,214 | ||||||||
Inflation indexed swaps |
Notional | 571 | 13 | (13 | ) | 571 | ||||||||||||
Foreign currency swaps |
Notional | 35 | — | — | 35 | |||||||||||||
|
|
|
|
|
|
|
|
|||||||||||
Total cash flow hedges |
12,567 | 13 | (760 | ) | 11,820 | |||||||||||||
|
|
|
|
|
|
|
|
|||||||||||
Total derivatives designated as hedges |
12,567 | 13 | (760 | ) | 11,820 | |||||||||||||
|
|
|
|
|
|
|
|
|||||||||||
Derivatives not designated as hedges |
||||||||||||||||||
Interest rate swaps |
Notional | 5,074 | 2,100 | (2,242 | ) | 4,932 | ||||||||||||
Interest rate swaps related to securitization entities (1) |
Notional | 77 | — | (10 | ) | 67 | ||||||||||||
Credit default swaps |
Notional | 394 | — | (250 | ) | 144 | ||||||||||||
Credit default swaps related to securitization entities (1) |
Notional | 312 | — | — | 312 | |||||||||||||
Equity index options |
Notional | 994 | 1,455 | (1,369 | ) | 1,080 | ||||||||||||
Financial futures |
Notional | 1,331 | 5,700 | (5,700 | ) | 1,331 | ||||||||||||
Equity return swaps |
Notional | 108 | 386 | (360 | ) | 134 | ||||||||||||
Foreign currency swaps |
Notional | 104 | 58 | — | 162 | |||||||||||||
Forward bond purchase commitments |
Notional | — | 1,140 | (1,140 | ) | — | ||||||||||||
Other foreign currency contracts |
Notional | 425 | 2,516 | (1,285 | ) | 1,656 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||||
Total derivatives not designated as hedges |
8,819 | 13,355 | (12,356 | ) | 9,818 | |||||||||||||
|
|
|
|
|
|
|
|
|||||||||||
Total derivatives |
$ | 21,386 | $ | 13,368 | $ | (13,116 | ) | $ | 21,638 | |||||||||
|
|
|
|
|
|
|
|
(1) | See note 17 for additional information related to consolidated securitization entities. |
(Number of policies) |
Measurement | December 31, 2014 |
Additions | Maturities/ terminations |
December 31, 2015 |
|||||||||||||||
Derivatives not designated as hedges |
||||||||||||||||||||
GMWB embedded derivatives |
Policies | 39,015 | — | (2,869 | ) | 36,146 | ||||||||||||||
Fixed index annuity embedded derivatives |
Policies | 13,901 | 3,939 | (358 | ) | 17,482 | ||||||||||||||
Indexed universal life embedded derivatives |
Policies | 421 | 595 | (34 | ) | 982 |
The following table provides information about the pre-tax income (loss) effects of cash flow hedges for the year ended December 31, 2015:
(Amounts in millions) |
Gain (loss) recognized in OCI |
Gain (loss) reclassified into net income (loss) from OCI |
Classification of gain (loss) reclassified into net income (loss) |
Gain (loss) recognized in net income (loss) (1) |
Classification of gain (loss) recognized in net income (loss) |
|||||||||||
Interest rate swaps hedging assets |
$ | 78 | $ | 85 | Net investment income |
$ | — | Net investment gains (losses) |
||||||||
Interest rate swaps hedging liabilities |
(10 | ) | — | Interest expense |
— | Net investment gains (losses) |
||||||||||
Inflation indexed swaps |
9 | — | Net investment income |
— | Net investment gains (losses) |
|||||||||||
Foreign currency swaps |
2 | — | Net investment income |
— | Net investment gains (losses) |
|||||||||||
Forward bond purchase commitments |
— | 1 | Net investment income |
— | Net investment gains (losses) |
|||||||||||
Forward bond purchase commitments |
— | 32 | Net investment gains (losses) |
— | Net investment gains (losses) |
|||||||||||
|
|
|
|
|
|
|||||||||||
Total |
$ | 79 | $ | 118 | $ | — | ||||||||||
|
|
|
|
|
|
(1) | Represents ineffective portion of cash flow hedges as there were no amounts excluded from the measurement of effectiveness. |
The following table provides information about the pre-tax income (loss) effects of cash flow hedges for the year ended December 31, 2014:
(Amounts in millions) |
Gain (loss) recognized in OCI |
Gain (loss) reclassified into net income (loss) from OCI |
Classification of gain (loss) reclassified into net income (loss) |
Gain (loss) recognized in net income (loss) (1) |
Classification of gain (loss) recognized in net income (loss) |
|||||||||||
Interest rate swaps hedging assets |
$ | 1,229 | $ | 63 | Net investment income |
$ | 15 | Net investment gains (losses) |
||||||||
Interest rate swaps hedging assets |
— | 2 | Net investment gains (losses) |
— | Net investment gains (losses) |
|||||||||||
Interest rate swaps hedging liabilities |
(69 | ) | 1 | Interest expense | — | Net investment gains (losses) |
||||||||||
Inflation indexed swaps |
17 | (9 | ) | Net investment income |
— | Net investment gains (losses) |
||||||||||
Foreign currency swaps |
4 | — | Interest expense | — | Net investment gains (losses) |
|||||||||||
Forward bond purchase commitments |
34 | — | Net investment income |
— | Net investment gains (losses) |
|||||||||||
|
|
|
|
|
|
|||||||||||
Total |
$ | 1,215 | $ | 57 | $ | 15 | ||||||||||
|
|
|
|
|
|
(1) | Represents ineffective portion of cash flow hedges, as there were no amounts excluded from the measurement of effectiveness. |
The following table provides information about the pre-tax income (loss) effects of cash flow hedges for the year ended December 31, 2013:
(Amounts in millions) |
Gain (loss) recognized in OCI |
Gain (loss) reclassified into net income (loss) from OCI |
Classification of gain (loss) reclassified into net income (loss) |
Gain (loss) recognized in net income (loss) (1) |
Classification of gain (loss) recognized in net income (loss) |
|||||||||||
Interest rate swaps hedging assets |
$ | (892 | ) | $ | 47 | Net investment income |
$ | (14 | ) | Net investment gains (losses) |
||||||
Interest rate swaps hedging assets |
— | 1 | Net investment gains (losses) |
— | Net investment gains (losses) |
|||||||||||
Interest rate swaps hedging liabilities |
42 | 2 | Interest expense | — | Net investment gains (losses) |
|||||||||||
Inflation indexed swaps |
45 | (5 | ) | Net investment income |
— | Net investment gains (losses) |
||||||||||
Foreign currency swaps |
(1 | ) | — | Interest expense | — | Net investment gains (losses) |
||||||||||
Forward bond purchase commitments |
(60 | ) | — | Net investment income |
— | Net investment gains (losses) |
||||||||||
|
|
|
|
|
|
|||||||||||
Total |
$ | (866 | ) | $ | 45 | $ | (14 | ) | ||||||||
|
|
|
|
|
|
(1) | Represents ineffective portion of cash flow hedges, as there were no amounts excluded from the measurement of effectiveness. |
The following table provides a reconciliation of current period changes, net of applicable income taxes, for these designated derivatives presented in the separate component of stockholders’ equity labeled “derivatives qualifying as hedges,” for the years ended December 31:
(Amounts in millions) |
2015 | 2014 | 2013 | |||||||||
Derivatives qualifying as effective accounting hedges as of January 1 |
$ | 2,070 | $ | 1,319 | $ | 1,909 | ||||||
Current period increases (decreases) in fair value, net of deferred taxes of $(29), $(427) and $305 |
50 | 788 | (561 | ) | ||||||||
Reclassification to net (income) loss, net of deferred taxes of $43, $20 and $16 |
(75 | ) | (37 | ) | (29 | ) | ||||||
|
|
|
|
|
|
|||||||
Derivatives qualifying as effective accounting hedges as of December 31 |
$ | 2,045 | $ | 2,070 | $ | 1,319 | ||||||
|
|
|
|
|
|
The following table provides information about the pre-tax income (loss) effects of fair value hedges and related hedged items for the year ended December 31, 2013:
Derivative instrument | Hedged item | |||||||||||||||||
(Amounts in |
Gain (loss) recognized in net income (loss) |
Classification of gain (losses) recognized in net income (loss) |
Other impacts to net income (loss) |
Classification of other impacts to net income (loss) |
Gain (loss) recognized in net income (loss) |
Classification of gain (losses) recognized in net income (loss) |
||||||||||||
Interest rate swaps hedging liabilities |
$ | (11 | ) | Net investment gains (losses) |
$ | 13 | Interest credited | $ | 11 | Net investment gains (losses) |
||||||||
Foreign currency swaps |
(31 | ) | Net investment gains (losses) |
— | Interest credited | 31 | Net investment gains (losses) |
|||||||||||
|
|
|
|
|
|
|||||||||||||
Total |
$ | (42 | ) | $ | 13 | $ | 42 | |||||||||||
|
|
|
|
|
|
The following table provides the pre-tax gain (loss) recognized in net income (loss) for the effects of derivatives not designated as hedges for the years ended December 31:
(Amounts in millions) |
2015 | 2014 | 2013 |
Classification of gain (loss) recognized |
||||||||||
Interest rate swaps |
$ | (11 | ) | $ | 1 | $ | (7 | ) | Net investment gains (losses) | |||||
Interest rate swaps related to securitization entities (1) |
(4 | ) | (9 | ) | 9 | Net investment gains (losses) | ||||||||
Credit default swaps |
1 | 1 | 14 | Net investment gains (losses) | ||||||||||
Credit default swaps related to securitization entities (1) |
7 | 19 | 77 | Net investment gains (losses) | ||||||||||
Equity index options |
(25 | ) | (31 | ) | (43 | ) | Net investment gains (losses) | |||||||
Financial futures |
(34 | ) | 90 | (232 | ) | Net investment gains (losses) | ||||||||
Equity return swaps |
(3 | ) | 5 | (33 | ) | Net investment gains (losses) | ||||||||
Other foreign currency contracts |
10 | (4 | ) | 6 | Net investment gains (losses) | |||||||||
Foreign currency swaps |
(22 | ) | (7 | ) | — | Net investment gains (losses) | ||||||||
Forward bond purchase commitments |
2 | — | — | Net investment gains (losses) | ||||||||||
GMWB embedded derivatives |
(25 | ) | (147 | ) | 277 | Net investment gains (losses) | ||||||||
Fixed index annuity embedded derivatives |
(7 | ) | (27 | ) | (18 | ) | Net investment gains (losses) | |||||||
Indexed universal life embedded derivatives |
6 | (1 | ) | — | Net investment gains (losses) | |||||||||
|
|
|
|
|
|
|||||||||
Total derivatives not designated as hedges |
$ | (105 | ) | $ | (110 | ) | $ | 50 | ||||||
|
|
|
|
|
|
(1) | See note 17 for additional information related to consolidated securitization entities. |
The following table presents additional information about derivative assets and liabilities subject to an enforceable master netting arrangement as of December 31:
2015 | 2014 | |||||||||||||||||||||||
(Amounts in millions) |
Derivatives assets (1) |
Derivatives liabilities (2) |
Net derivatives |
Derivatives assets (1) |
Derivatives liabilities (2) |
Net derivatives |
||||||||||||||||||
Amounts presented in the balance sheet: |
||||||||||||||||||||||||
Gross amounts recognized |
$ | 1,135 | $ | 320 | $ | 815 | $ | 1,157 | $ | 273 | $ | 884 | ||||||||||||
Gross amounts offset in the balance sheet |
— | — | — | — | — | — | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Net amounts presented in the balance sheet |
1,135 | 320 | 815 | 1,157 | 273 | 884 | ||||||||||||||||||
Gross amounts not offset in the balance sheet: |
||||||||||||||||||||||||
Financial instruments (3) |
(231 | ) | (231 | ) | — | (227 | ) | (227 | ) | — | ||||||||||||||
Collateral received |
(642 | ) | — | (642 | ) | (884 | ) | — | (884 | ) | ||||||||||||||
Collateral pledged |
— | (263 | ) | 263 | — | (49 | ) | 49 | ||||||||||||||||
Over collateralization |
3 | 174 | (171 | ) | 1 | 5 | (4 | ) | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Net amount |
$ | 265 | $ | — | $ | 265 | $ | 47 | $ | 2 | $ | 45 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
(1) | Included $24 million and $25 million of accruals on derivatives classified as other assets and does not include amounts related to embedded derivatives as of December 31, 2015 and 2014, respectively. |
(2) | Included $6 million of accruals on derivatives classified as other liabilities and does not include amounts related to embedded derivatives and derivatives related to securitization entities as of December 31, 2015 and 2014. |
(3) | Amounts represent derivative assets and/or liabilities that are presented gross within the balance sheet but are held with the same counterparty where we have a master netting arrangement. This adjustment results in presenting the net asset and net liability position for each counterparty. |
The following table sets forth our credit default swaps where we sell protection on single name reference entities and the fair values as of December 31:
2015 | 2014 | |||||||||||||||||||||||
(Amounts in millions) |
Notional value |
Assets | Liabilities | Notional value |
Assets | Liabilities | ||||||||||||||||||
Investment grade |
||||||||||||||||||||||||
Matures in less than one year |
$ | — | $ | — | $ | — | $ | — | $ | — | $ | — | ||||||||||||
Matures after one year through five years |
39 | — | — | 39 | 1 | — | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total credit default swaps on single name reference entities |
$ | 39 | $ | — | $ | — | $ | 39 | $ | 1 | $ | — | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
The following table sets forth our credit default swaps where we sell protection on credit default swap index tranches and the fair values as of December 31:
2015 | 2014 | |||||||||||||||||||||||
(Amounts in millions) |
Notional value |
Assets | Liabilities | Notional value |
Assets | Liabilities | ||||||||||||||||||
Original index tranche attachment/detachment point and maturity: |
||||||||||||||||||||||||
7% - 15% matures in less than one year (1) |
$ | 100 | $ | 1 | $ | — | $ | — | $ | — | $ | — | ||||||||||||
7% - 15% matures after one year through five years (1) |
— | — | — | 100 | 1 | — | ||||||||||||||||||
9% - 12% matures in less than one year (2) |
— | — | — | 250 | 2 | — | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total credit default swap index tranches |
100 | 1 | — | 350 | 3 | — | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Customized credit default swap index tranches related to securitization entities: |
||||||||||||||||||||||||
Portion backing third-party borrowings maturing 2017 (3) |
12 | — | 2 | 12 | — | — | ||||||||||||||||||
Portion backing our interest maturing 2017 (4) |
300 | — | 12 | 300 | — | 17 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total customized credit default swap index tranches related to securitization entities |
312 | — | 14 | 312 | — | 17 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total credit default swaps on index tranches |
$ | 412 | $ | 1 | $ | 14 | $ | 662 | $ | 3 | $ | 17 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
(1) | The current attachment/detachment as of December 31, 2015 and 2014 was 7% – 15%. |
(2) | The current attachment/detachment as of December 31, 2015 and 2014 was 9% – 12%. |
(3) | Original notional value was $39 million. |
(4) | Original notional value was $300 million. |
|
The following table presents the activity impacting DAC as of and for the years ended December 31:
(Amounts in millions) |
2015 | 2014 | 2013 | |||||||||
Unamortized balance as of January 1 |
$ | 5,200 | $ | 5,214 | $ | 5,220 | ||||||
Impact of foreign currency translation |
(23 | ) | (15 | ) | (16 | ) | ||||||
Costs deferred |
295 | 385 | 365 | |||||||||
Amortization, net of interest accretion |
(448 | ) | (384 | ) | (355 | ) | ||||||
Impairment |
(455 | ) | — | — | ||||||||
|
|
|
|
|
|
|||||||
Unamortized balance as of December 31 |
4,569 | 5,200 | 5,214 | |||||||||
Accumulated effect of net unrealized investment (gains) losses |
(171 | ) | (348 | ) | (176 | ) | ||||||
|
|
|
|
|
|
|||||||
Balance as of December 31 |
$ | 4,398 | $ | 4,852 | $ | 5,038 | ||||||
|
|
|
|
|
|
|
The following table presents our intangible assets as of December 31:
2015 | 2014 | |||||||||||||||
(Amounts in millions) |
Gross carrying amount |
Accumulated amortization |
Gross carrying amount |
Accumulated amortization |
||||||||||||
PVFP |
$ | 2,084 | $ | (1,941 | ) | $ | 1,995 | $ | (1,917 | ) | ||||||
Capitalized software |
665 | (571 | ) | 641 | (532 | ) | ||||||||||
Deferred sales inducements to contractholders |
268 | (178 | ) | 209 | (153 | ) | ||||||||||
Other |
66 | (50 | ) | 55 | (49 | ) | ||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total |
$ | 3,083 | $ | (2,740 | ) | $ | 2,900 | $ | (2,651 | ) | ||||||
|
|
|
|
|
|
|
|
The following table presents the activity in PVFP as of and for the years ended December 31:
(Amounts in millions) |
2015 | 2014 | 2013 | |||||||||
Unamortized balance as of January 1 |
$ | 229 | $ | 246 | $ | 297 | ||||||
Interest accreted at 6.45%, 5.89% and 5.52% |
14 | 14 | 15 | |||||||||
Amortization |
(38 | ) | (31 | ) | (66 | ) | ||||||
|
|
|
|
|
|
|||||||
Unamortized balance as of December 31 |
205 | 229 | 246 | |||||||||
Accumulated effect of net unrealized investment (gains) losses |
(62 | ) | (151 | ) | (85 | ) | ||||||
|
|
|
|
|
|
|||||||
Balance as of December 31 |
$ | 143 | $ | 78 | $ | 161 | ||||||
|
|
|
|
|
|
The percentage of the December 31, 2015 PVFP balance net of interest accretion, before the effect of unrealized investment gains or losses, estimated to be amortized over each of the next five years is as follows:
2016 |
15.1 | % | ||
2017 |
13.7 | % | ||
2018 |
11.7 | % | ||
2019 |
10.0 | % | ||
2020 |
8.7 | % |
|
The following table sets forth net domestic life insurance in-force as of December 31:
(Amounts in millions) |
2015 | 2014 | 2013 | |||||||||
Direct life insurance in-force |
$ | 686,446 | $ | 701,797 | $ | 708,271 | ||||||
Amounts assumed from other companies |
899 | 935 | 1,070 | |||||||||
Amounts ceded to other companies (1) |
(411,340 | ) | (393,244 | ) | (313,593 | ) | ||||||
|
|
|
|
|
|
|||||||
Net life insurance in-force |
$ | 276,005 | $ | 309,488 | $ | 395,748 | ||||||
|
|
|
|
|
|
|||||||
Percentage of amount assumed to net |
— | % | — | % | — | % | ||||||
|
|
|
|
|
|
(1) | Includes amounts accounted for under the deposit method. |
The following table sets forth the effects of reinsurance on premiums written and earned for the years ended December 31:
Written | Earned | |||||||||||||||||||||||
(Amounts in millions) |
2015 | 2014 | 2013 | 2015 | 2014 | 2013 | ||||||||||||||||||
Direct: |
||||||||||||||||||||||||
Life insurance |
$ | 1,030 | $ | 1,131 | $ | 1,088 | $ | 1,030 | $ | 1,131 | $ | 1,088 | ||||||||||||
Accident and health insurance |
2,764 | 2,706 | 2,584 | 2,778 | 2,697 | 2,565 | ||||||||||||||||||
Mortgage insurance |
1,754 | 1,814 | 1,682 | 1,514 | 1,588 | 1,608 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total direct |
5,548 | 5,651 | 5,354 | 5,322 | 5,416 | 5,261 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Assumed: |
||||||||||||||||||||||||
Life insurance |
34 | 34 | 3 | 34 | 34 | 3 | ||||||||||||||||||
Accident and health insurance |
342 | 343 | 345 | 347 | 348 | 350 | ||||||||||||||||||
Mortgage insurance |
10 | 20 | 19 | 22 | 31 | 33 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total assumed |
386 | 397 | 367 | 403 | 413 | 386 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Ceded: |
||||||||||||||||||||||||
Life insurance |
(372 | ) | (332 | ) | (340 | ) | (372 | ) | (332 | ) | (340 | ) | ||||||||||||
Accident and health insurance |
(682 | ) | (708 | ) | (709 | ) | (688 | ) | (706 | ) | (700 | ) | ||||||||||||
Mortgage insurance |
(86 | ) | (95 | ) | (92 | ) | (86 | ) | (91 | ) | (91 | ) | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total ceded |
(1,140 | ) | (1,135 | ) | (1,141 | ) | (1,146 | ) | (1,129 | ) | (1,131 | ) | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Net premiums |
$ | 4,794 | $ | 4,913 | $ | 4,580 | $ | 4,579 | $ | 4,700 | $ | 4,516 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Percentage of amount assumed to net |
9 | % | 9 | % | 9 | % | ||||||||||||||||||
|
|
|
|
|
|
|
The following table sets forth our recorded liabilities and the major assumptions underlying our future policy benefits as of December 31:
(Amounts in millions) |
Mortality/ morbidity assumption |
Interest rate |
2015 | 2014 | ||||||||||
Long-term care insurance contracts |
(a | ) | 3.50% - 7.50% | $ | 20,563 | $ | 19,310 | |||||||
Structured settlements with life contingencies |
(b | ) | 1.50% - 8.00% | 8,991 | 9,133 | |||||||||
Annuity contracts with life contingencies |
(b | ) | 1.50% - 8.00% | 4,010 | 4,470 | |||||||||
Traditional life insurance contracts |
(c | ) | 3.00% - 7.50% | 2,638 | 2,733 | |||||||||
Supplementary contracts with life contingencies |
(b | ) | 1.50% - 8.00% | 269 | 265 | |||||||||
Accident and health insurance contracts |
(d | ) | 3.50% - 7.00% | 4 | 4 | |||||||||
|
|
|
|
|||||||||||
Total future policy benefits |
$ | 36,475 | $ | 35,915 | ||||||||||
|
|
|
|
(a) | The 1983 Individual Annuitant Mortality Table or 2000 U.S. Annuity Table, or 1983 Group Annuitant Mortality Table or 1994 Group Annuitant Mortality Table and company experience. |
(b) | Assumptions for limited-payment contracts come from either the U.S. Population Table, 1983 Group Annuitant Mortality Table, 1983 Individual Annuitant Mortality Table, Annuity 2000 Mortality Table or 2012 Individual Annuity Reserving Table. |
(c) | Principally modifications based on company experience of the Society of Actuaries 1965-70 or 1975-80 Select and Ultimate Tables, 1941, 1958, 1980 and 2001 Commissioner’s Standard Ordinary Tables, 1980 Commissioner’s Extended Term table and (IA) Standard Table 1996 (modified). |
(d) | The 1958 and 1980 Commissioner’s Standard Ordinary Tables, or 2000 U.S. Annuity Table, or 1983 Group Annuitant Mortality. |
The following table sets forth our recorded liabilities for policyholder account balances as of December 31:
(Amounts in millions) |
2015 | 2014 | ||||||
Annuity contracts |
$ | 14,376 | $ | 14,406 | ||||
GICs, funding agreements and FABNs |
410 | 493 | ||||||
Structured settlements without life contingencies |
1,694 | 1,828 | ||||||
Supplementary contracts without life contingencies |
762 | 742 | ||||||
Other |
16 | 17 | ||||||
|
|
|
|
|||||
Total investment contracts |
17,258 | 17,486 | ||||||
Universal life insurance contracts |
8,951 | 8,546 | ||||||
|
|
|
|
|||||
Total policyholder account balances |
$ | 26,209 | $ | 26,032 | ||||
|
|
|
|
The following table sets forth information about our variable annuity products with death and living benefit guarantees as of December 31:
(Dollar amounts in millions) |
2015 | 2014 | ||||||
Account values with death benefit guarantees (net of reinsurance): |
||||||||
Standard death benefits (return of net deposits) account value |
$ | 2,512 | $ | 2,877 | ||||
Net amount at risk |
$ | 5 | $ | 5 | ||||
Average attained age of contractholders |
73 | 72 | ||||||
Enhanced death benefits (ratchet, rollup) account value |
$ | 2,866 | $ | 3,443 | ||||
Net amount at risk |
$ | 188 | $ | 119 | ||||
Average attained age of contractholders |
73 | 73 | ||||||
Account values with living benefit guarantees: |
||||||||
GMWBs |
$ | 3,111 | $ | 3,675 | ||||
Guaranteed annuitization benefits |
$ | 1,181 | $ | 1,362 |
Account balances of variable annuity contracts with death or living benefit guarantees were invested in separate account investment options as follows as of December 31:
(Amounts in millions) |
2015 | 2014 | ||||||
Balanced funds |
$ | 3,304 | $ | 3,848 | ||||
Equity funds |
1,387 | 1,639 | ||||||
Bond funds |
576 | 707 | ||||||
Money market funds |
85 | 96 | ||||||
|
|
|
|
|||||
Total |
$ | 5,352 | $ | 6,290 | ||||
|
|
|
|
|
The following table sets forth our recorded liability for policy and contract claims by business as of December 31:
(Amounts in millions) |
2015 | 2014 | ||||||
Long-term care insurance |
$ | 6,749 | $ | 6,216 | ||||
U.S. mortgage insurance |
849 | 1,180 | ||||||
Life insurance |
202 | 197 | ||||||
Australia mortgage insurance |
165 | 152 | ||||||
Canada mortgage insurance |
87 | 91 | ||||||
Fixed annuities |
18 | 21 | ||||||
Runoff |
18 | 15 | ||||||
Other mortgage insurance |
7 | 9 | ||||||
|
|
|
|
|||||
Total liability for policy and contract claims |
$ | 8,095 | $ | 7,881 | ||||
|
|
|
|
The following table sets forth changes in the liability for policy and contract claims for our long-term care insurance business for the dates indicated:
(Amounts in millions) |
2015 | 2014 | 2013 | |||||||||
Beginning balance as of January 1 |
$ | 6,216 | $ | 4,999 | $ | 4,655 | ||||||
Less reinsurance recoverables |
(1,926 | ) | (1,707 | ) | (1,574 | ) | ||||||
|
|
|
|
|
|
|||||||
Net balance as of January 1 |
4,290 | 3,292 | 3,081 | |||||||||
|
|
|
|
|
|
|||||||
Incurred related to insured events of: |
||||||||||||
Current year |
1,655 | 1,474 | 1,323 | |||||||||
Prior years |
39 | 726 | 3 | |||||||||
|
|
|
|
|
|
|||||||
Total incurred |
1,694 | 2,200 | 1,326 | |||||||||
|
|
|
|
|
|
|||||||
Paid related to insured events of: |
||||||||||||
Current year |
(151 | ) | (134 | ) | (131 | ) | ||||||
Prior years |
(1,371 | ) | (1,263 | ) | (1,160 | ) | ||||||
|
|
|
|
|
|
|||||||
Total paid |
(1,522 | ) | (1,397 | ) | (1,291 | ) | ||||||
|
|
|
|
|
|
|||||||
Interest on liability for policy and contract claims |
232 | 195 | 176 | |||||||||
|
|
|
|
|
|
|||||||
Net balance as of December 31 |
4,694 | 4,290 | 3,292 | |||||||||
Add reinsurance recoverables |
2,055 | 1,926 | 1,707 | |||||||||
|
|
|
|
|
|
|||||||
Ending balance as of December 31 |
$ | 6,749 | $ | 6,216 | $ | 4,999 | ||||||
|
|
|
|
|
|
The following table sets forth changes in the liability for policy and contract claims for our U.S. mortgage insurance business for the dates indicated:
(Amounts in millions) |
2015 | 2014 | 2013 | |||||||||
Beginning balance as of January 1 |
$ | 1,180 | $ | 1,482 | $ | 2,009 | ||||||
Less reinsurance recoverables |
(24 | ) | (44 | ) | (80 | ) | ||||||
|
|
|
|
|
|
|||||||
Net balance as of January 1 |
1,156 | 1,438 | 1,929 | |||||||||
|
|
|
|
|
|
|||||||
Incurred related to insured events of: |
||||||||||||
Current year |
236 | 328 | 476 | |||||||||
Prior years |
(14 | ) | 29 | (63 | ) | |||||||
|
|
|
|
|
|
|||||||
Total incurred |
222 | 357 | 413 | |||||||||
|
|
|
|
|
|
|||||||
Paid related to insured events of: |
||||||||||||
Current year |
(13 | ) | (21 | ) | (45 | ) | ||||||
Prior years |
(521 | ) | (618 | ) | (859 | ) | ||||||
|
|
|
|
|
|
|||||||
Total paid |
(534 | ) | (639 | ) | (904 | ) | ||||||
|
|
|
|
|
|
|||||||
Net balance as of December 31 |
844 | 1,156 | 1,438 | |||||||||
Add reinsurance recoverables |
5 | 24 | 44 | |||||||||
|
|
|
|
|
|
|||||||
Ending balance as of December 31 |
$ | 849 | $ | 1,180 | $ | 1,482 | ||||||
|
|
|
|
|
|
|
The following table sets forth total long-term borrowings as of December 31:
(Amounts in millions) |
2015 | 2014 | ||||||
Genworth Holdings |
||||||||
8.625% Senior Notes, due 2016 |
$ | 298 | $ | 300 | ||||
6.52% Senior Notes, due 2018 |
598 | 600 | ||||||
7.70% Senior Notes, due 2020 |
397 | 400 | ||||||
7.20% Senior Notes, due 2021 |
389 | 399 | ||||||
7.625% Senior Notes, due 2021 |
724 | 758 | ||||||
4.90% Senior Notes, due 2023 |
399 | 399 | ||||||
4.80% Senior Notes, due 2024 |
400 | 400 | ||||||
6.50% Senior Notes, due 2034 |
297 | 297 | ||||||
6.15% Fixed-to-Floating Rate Junior Subordinated Notes, due 2066 |
598 | 598 | ||||||
|
|
|
|
|||||
Subtotal |
4,100 | 4,151 | ||||||
Deferred borrowing charges |
(21 | ) | (24 | ) | ||||
|
|
|
|
|||||
Total Genworth Holdings |
4,079 | 4,127 | ||||||
|
|
|
|
|||||
Canada |
||||||||
5.68% Senior Notes, due 2020 |
199 | 236 | ||||||
4.24% Senior Notes, due 2024 |
116 | 138 | ||||||
|
|
|
|
|||||
Subtotal |
315 | 374 | ||||||
Deferred borrowing charges |
(2 | ) | (2 | ) | ||||
|
|
|
|
|||||
Total Canada |
313 | 372 | ||||||
|
|
|
|
|||||
Australia |
||||||||
Floating Rate Junior Notes, due 2021 |
36 | 114 | ||||||
Floating Rate Junior Notes, due 2025 |
146 | — | ||||||
|
|
|
|
|||||
Subtotal |
182 | 114 | ||||||
Deferred borrowing charges |
(4 | ) | (1 | ) | ||||
|
|
|
|
|||||
Total Australia |
178 | 113 | ||||||
|
|
|
|
|||||
Total |
$ | 4,570 | $ | 4,612 | ||||
|
|
|
|
The following table sets forth the non-recourse funding obligations (surplus notes) of our wholly-owned, special purpose consolidated captive insurance subsidiaries as of December 31:
(Amounts in millions) |
||||||||
Issuance |
2015 | 2014 | ||||||
River Lake Insurance Company (a), due 2033 |
$ | 570 | $ | 570 | ||||
River Lake Insurance Company (b), due 2033 |
405 | 435 | ||||||
River Lake Insurance Company II (a), due 2035 |
192 | 192 | ||||||
River Lake Insurance Company II (b), due 2035 |
453 | 484 | ||||||
Rivermont Life Insurance Company I (a), due 2050 |
315 | 315 | ||||||
|
|
|
|
|||||
Subtotal |
1,935 | 1,996 | ||||||
Deferred borrowing charges |
(15 | ) | (15 | ) | ||||
|
|
|
|
|||||
Total |
$ | 1,920 | $ | 1,981 | ||||
|
|
|
|
(a) | Accrual of interest based on one-month LIBOR that resets every 28 days plus a fixed margin. |
(b) | Accrual of interest based on one-month LIBOR that resets on a specified date each month plus a contractual margin. |
Principal amounts under our long-term borrowings (including senior notes) and non-recourse funding obligations by maturity were as follows as of December 31, 2015:
(Amounts in millions) |
Amount | |||
2016 |
$ | 298 | ||
2017 |
— | |||
2018 |
598 | |||
2019 |
— | |||
2020 and thereafter (1) |
5,636 | |||
|
|
|||
Total |
$ | 6,532 | ||
|
|
(1) | Repayment of $1.9 billion of our non-recourse funding obligations requires regulatory approval. |
|
Income (loss) from continuing operations before income taxes included the following components for the years ended December 31:
(Amounts in millions) |
2015 | 2014 | 2013 | |||||||||
Domestic |
$ | (468 | ) | $ | (2,022 | ) | $ | 283 | ||||
Foreign |
453 | 723 | 710 | |||||||||
|
|
|
|
|
|
|||||||
Income (loss) from continuing operations before income taxes |
$ | (15 | ) | $ | (1,299 | ) | $ | 993 | ||||
|
|
|
|
|
|
The total provision (benefit) for income taxes was as follows for the years ended December 31:
(Amounts in millions) |
2015 | 2014 | 2013 | |||||||||
Current federal income taxes |
$ | 1 | $ | (3 | ) | $ | (12 | ) | ||||
Deferred federal income taxes |
(199 | ) | (305 | ) | 137 | |||||||
|
|
|
|
|
|
|||||||
Total federal income taxes |
(198 | ) | (308 | ) | 125 | |||||||
|
|
|
|
|
|
|||||||
Current state income taxes |
— | 4 | (1 | ) | ||||||||
Deferred state income taxes |
4 | (4 | ) | (9 | ) | |||||||
|
|
|
|
|
|
|||||||
Total state income taxes |
4 | — | (10 | ) | ||||||||
|
|
|
|
|
|
|||||||
Current foreign income taxes |
186 | 246 | 426 | |||||||||
Deferred foreign income taxes |
(1 | ) | (32 | ) | (228 | ) | ||||||
|
|
|
|
|
|
|||||||
Total foreign income taxes |
185 | 214 | 198 | |||||||||
|
|
|
|
|
|
|||||||
Total provision (benefit) for income taxes |
$ | (9 | ) | $ | (94 | ) | $ | 313 | ||||
|
|
|
|
|
|
The reconciliation of the federal statutory tax rate to the effective income tax rate was as follows for the years ended December 31:
(Amounts in millions) |
2015 | 2014 | 2013 | |||||||||||||||||||||
Pre-tax income (loss) |
$ | (15 | ) | $ | (1,299 | ) | $ | 993 | ||||||||||||||||
|
|
|
|
|
|
|||||||||||||||||||
Statutory U.S. federal income tax rate |
$ | (5 | ) | 35.0 | % | $ | (455 | ) | 35.0 | % | $ | 348 | 35.0 | % | ||||||||||
Increase (reduction) in rate resulting from: |
||||||||||||||||||||||||
State income tax, net of federal income tax effect |
2 | (18.0 | ) | — | — | (2 | ) | (0.2 | ) | |||||||||||||||
Benefit on tax favored investments |
(14 | ) | 93.3 | (19 | ) | 1.4 | (18 | ) | (1.8 | ) | ||||||||||||||
Effect of foreign operations |
(20 | ) | 129.2 | (66 | ) | 5.1 | (66 | ) | (6.6 | ) | ||||||||||||||
Net impact of repatriating foreign earnings |
— | — | 205 | (15.8 | ) | — | — | |||||||||||||||||
Interest on uncertain tax positions |
— | — | (2 | ) | 0.1 | (1 | ) | (0.1 | ) | |||||||||||||||
Non-deductible expenses |
(3 | ) | 22.0 | 4 | (0.3 | ) | 2 | 0.2 | ||||||||||||||||
Non-deductible goodwill |
— | — | 245 | (18.8 | ) | — | — | |||||||||||||||||
Valuation allowance |
25 | (165.0 | ) | (6 | ) | 0.5 | 16 | 1.6 | ||||||||||||||||
Stock-based compensation |
5 | (31.7 | ) | 4 | (0.3 | ) | 25 | 2.5 | ||||||||||||||||
Other, net |
1 | (6.8 | ) | (4 | ) | 0.3 | 9 | 0.9 | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Effective rate |
$ | (9 | ) | 58.0 | % | $ | (94 | ) | 7.2 | % | $ | 313 | 31.5 | % | ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
The components of the net deferred income tax liability were as follows as of December 31:
(Amounts in millions) |
2015 | 2014 | ||||||
Assets: |
||||||||
Foreign tax credit carryforwards |
$ | 787 | $ | 666 | ||||
Accrued commission and general expenses |
199 | 203 | ||||||
State income taxes |
302 | 275 | ||||||
Net operating loss carryforwards |
1,727 | 1,797 | ||||||
Other |
51 | 21 | ||||||
|
|
|
|
|||||
Gross deferred income tax assets |
3,066 | 2,962 | ||||||
Valuation allowance |
(353 | ) | (296 | ) | ||||
|
|
|
|
|||||
Total deferred income tax assets |
2,713 | 2,666 | ||||||
|
|
|
|
|||||
Liabilities: |
||||||||
Investments |
29 | 86 | ||||||
Net unrealized gains on investment securities |
639 | 1,260 | ||||||
Net unrealized gains on derivatives |
218 | 222 | ||||||
Insurance reserves |
751 | 491 | ||||||
DAC |
863 | 1,115 | ||||||
PVFP and other intangibles |
20 | 3 | ||||||
Investment in foreign subsidiaries |
10 | 310 | ||||||
Other |
52 | 37 | ||||||
|
|
|
|
|||||
Total deferred income tax liabilities |
2,582 | 3,524 | ||||||
|
|
|
|
|||||
Net deferred income tax asset (liability) |
$ | 131 | $ | (858 | ) | |||
|
|
|
|
A reconciliation of the beginning and ending amount of unrecognized tax benefits was as follows:
(Amounts in millions) |
2015 | 2014 | 2013 | |||||||||
Balance as of January 1 |
$ | 49 | $ | 41 | $ | 55 | ||||||
Tax positions related to the current period: |
||||||||||||
Gross additions |
5 | 7 | 3 | |||||||||
Gross reductions |
— | (3 | ) | — | ||||||||
Tax positions related to the prior years: |
||||||||||||
Gross additions |
— | 17 | 4 | |||||||||
Gross reductions |
(26 | ) | (13 | ) | (21 | ) | ||||||
|
|
|
|
|
|
|||||||
Balance as of December 31 |
$ | 28 | $ | 49 | $ | 41 | ||||||
|
|
|
|
|
|
|
The following table contains the stock option and SAR weighted-average grant-date fair value information and related valuation assumptions for the years ended December 31:
Stock Options and SARs | ||||||||||||||||
2015 | 2014 | 2013 | ||||||||||||||
Black-Scholes Model |
Black-Scholes Model |
Black-Scholes Model |
Monte-Carlo Simulation (1) |
|||||||||||||
Awards granted (in thousands) |
1,378 | 2,960 | 3,404 | 1,200 | ||||||||||||
Maximum share value at exercise of SARs |
$ | 75.00 | $ | 75.00 | $ | 75.00 | $ | 75.00 | ||||||||
Fair value per options and SARs |
$ | 3.43 | $ | 3.05 | $ | 2.53 | $ | 5.88 | ||||||||
Valuation assumptions: |
||||||||||||||||
Expected term (years) |
6.0 | 6.0 | 5.9 | NA | ||||||||||||
Expected volatility |
66.0 | % | 100.2 | % | 100.7 | % | 102.5 | % | ||||||||
Expected dividend yield |
— | % | 0.5 | % | 0.5 | % | 0.5 | % | ||||||||
Risk-free interest rate |
1.9 | % | 1.9 | % | 1.1 | % | 1.1 | % |
(1) | For purposes of determining the fair value of 1.2 million shares of performance-accelerated SARs that were issued in January 2013, we used a Monte-Carlo Simulation technique. Monte-Carlo Simulation is a method used to simulate future stock price movements in order to determine the fair value due to unique vesting and exercising provisions. The performance-accelerated SARs have a derived service period of one year on average and have a grant price of $7.90. The performance-accelerated SARs vest on the third anniversary of the grant date but are subject to earlier vesting on or after the one year anniversary of the grant date based on the closing price of our Class A Common Stock exceeding certain specified amounts ($12.00, $16.00 and $20.00, respectively) for 45 consecutive trading days. Based on the closing price of our Class A Common Stock, the first tranche at $12.00 vested in January 2014 and the second tranche at $16.00 vested in June 2014. |
The following table summarizes stock option activity as of December 31, 2015 and 2014:
(Shares in thousands) |
Shares subject to option |
Weighted-average exercise price |
||||||
Balance as of January 1, 2014 |
4,310 | $ | 13.17 | |||||
Granted |
— | $ | — | |||||
Exercised |
(921 | ) | $ | 8.10 | ||||
Expired and forfeited |
(885 | ) | $ | 19.32 | ||||
|
|
|||||||
Balance as of January 1, 2015 |
2,504 | $ | 12.86 | |||||
Granted |
— | $ | — | |||||
Exercised |
(47 | ) | $ | 4.39 | ||||
Expired and forfeited |
(317 | ) | $ | 17.62 | ||||
|
|
|||||||
Balance as of December 31, 2015 |
2,140 | $ | 12.34 | |||||
|
|
|||||||
Exercisable as of December 31, 2015 |
2,140 | $ | 12.34 | |||||
|
|
The following table summarizes information about stock options outstanding as of December 31, 2015:
Outstanding and Exercisable | ||||||||||||
Exercise price range |
Shares in thousands |
Average life (1) |
Average exercise price |
|||||||||
$2.00 - $2.46(2) |
362 | 3.04 | $ | 2.43 | ||||||||
$7.36 - $7.80 |
433 | 1.77 | $ | 7.79 | ||||||||
$9.10 - $14.18 |
1,119 | 3.95 | $ | 14.14 | ||||||||
$14.92 - $22.80 |
100 | 2.33 | $ | 21.80 | ||||||||
$30.52 - $34.13 |
126 | 0.99 | $ | 32.86 | ||||||||
|
|
|||||||||||
2,140 | $ | 12.34 | ||||||||||
|
|
(1) | Average contractual life remaining in years. |
(2) | These shares have an aggregate intrinsic value of $1 million each for total options outstanding and exercisable. |
The following tables summarize the status of our other equity-based awards as of December 31, 2015 and 2014:
RSUs | PSUs | DSUs | SARs | |||||||||||||||||||||||||||||
(Awards in thousands) |
Number of awards |
Weighted- average grant date fair value |
Number of awards |
Weighted- average fair value |
Number of awards |
Weighted- average fair value |
Number of awards |
Weighted- average grant date fair value |
||||||||||||||||||||||||
Balance as of January 1, 2014 |
2,887 | $ | 10.21 | — | $ | — | 579 | $ | 9.43 | 12,365 | $ | 4.00 | ||||||||||||||||||||
Granted |
1,226 | $ | 15.00 | 343 | $ | 15.31 | 113 | $ | 12.98 | 2,960 | $ | 3.05 | ||||||||||||||||||||
Exercised |
(938 | ) | $ | 10.06 | — | $ | — | (58 | ) | $ | 6.65 | (1,353 | ) | $ | 3.88 | |||||||||||||||||
Terminated |
(262 | ) | $ | 12.16 | (39 | ) | $ | 15.23 | — | $ | — | (1,905 | ) | $ | 5.23 | |||||||||||||||||
|
|
|
|
|
|
|
|
|||||||||||||||||||||||||
Balance as of January 1, 2015 |
2,913 | $ | 12.09 | 304 | $ | 15.32 | 634 | $ | 9.96 | 12,067 | $ | 3.62 | ||||||||||||||||||||
Granted |
2,087 | $ | 7.50 | 535 | $ | 7.75 | 256 | $ | 3.90 | 1,378 | $ | 3.43 | ||||||||||||||||||||
Exercised |
(1,390 | ) | $ | 11.60 | — | $ | — | (10 | ) | $ | 2.14 | (59 | ) | $ | 1.28 | |||||||||||||||||
Terminated |
(355 | ) | $ | 10.10 | (129 | ) | $ | 9.72 | — | $ | — | (1,238 | ) | $ | 4.05 | |||||||||||||||||
|
|
|
|
|
|
|
|
|||||||||||||||||||||||||
Balance as of December 31, 2015 |
3,255 | $ | 9.22 | 710 | $ | 10.63 | 880 | $ | 8.18 | 12,148 | $ | 3.56 | ||||||||||||||||||||
|
|
|
|
|
|
|
|
The following table summarizes the status of Genworth Canada’s stock option activity and other equity-based awards as of December 31, 2015 and 2014:
Stock options | RSUs and PSUs | DSUs |
Executive deferred stock units (“EDSUs”) |
|||||||||||||
(Shares and awards in thousands) |
Shares subject to option |
Number of awards |
Number of awards |
Number of awards |
||||||||||||
Balance as of January 1, 2014 |
987 | 177 | 45 | 20 | ||||||||||||
Granted |
114 | 93 | 9 | 1 | ||||||||||||
Exercised |
(93 | ) | (67 | ) | — | — | ||||||||||
Terminated |
(6 | ) | — | — | — | |||||||||||
|
|
|
|
|
|
|
|
|||||||||
Balance as of January 1, 2015 |
1,002 | 203 | 54 | 21 | ||||||||||||
Granted |
53 | 78 | 14 | 10 | ||||||||||||
Exercised |
(88 | ) | (60 | ) | (14 | ) | — | |||||||||
Terminated |
(12 | ) | (27 | ) | — | — | ||||||||||
|
|
|
|
|
|
|
|
|||||||||
Balance as of December 31, 2015 |
955 | 194 | 54 | 31 | ||||||||||||
|
|
|
|
|
|
|
|
The following table summarizes the status of Genworth Australia’s restricted share rights as of December 31, 2015 and 2014:
Restricted share rights | ||||
(Shares in thousands) |
Shares subject
to option |
|||
Balance as of January 1, 2014 |
— | |||
Granted |
2,846 | |||
Exercised |
(5 | ) | ||
Terminated |
(38 | ) | ||
|
|
|||
Balance as of January 1, 2015 |
2,803 | |||
Granted |
147 | |||
Exercised |
(40 | ) | ||
Terminated |
(145 | ) | ||
|
|
|||
Balance as of December 31, 2015 |
2,765 | |||
|
|
|
The following represents our estimated fair value of financial assets and liabilities that are not required to be carried at fair value as of December 31:
2015 | ||||||||||||||||||||||||
Notional amount |
Carrying amount |
Fair value | ||||||||||||||||||||||
(Amounts in millions) |
Total | Level 1 | Level 2 | Level 3 | ||||||||||||||||||||
Assets: |
||||||||||||||||||||||||
Commercial mortgage loans |
$ | (1) | $ | 6,170 | $ | 6,476 | $ | — | $ | — | $ | 6,476 | ||||||||||||
Restricted commercial mortgage loans (2) |
(1) | 161 | 179 | — | — | 179 | ||||||||||||||||||
Other invested assets |
(1) | 273 | 279 | — | 197 | 82 | ||||||||||||||||||
Liabilities: |
||||||||||||||||||||||||
Long-term borrowings (3) |
(1) | 4,570 | 3,518 | — | 3,343 | 175 | ||||||||||||||||||
Non-recourse funding obligations (3) |
(1) | 1,920 | 1,401 | — | — | 1,401 | ||||||||||||||||||
Borrowings related to securitization entities (2) |
(1) | 98 | 104 | — | 104 | — | ||||||||||||||||||
Investment contracts |
(1) | 17,258 | 17,910 | — | 5 | 17,905 | ||||||||||||||||||
Other firm commitments: |
||||||||||||||||||||||||
Commitments to fund limited partnerships |
131 | — | — | — | — | — | ||||||||||||||||||
Ordinary course of business lending commitments |
40 | — | — | — | — | — |
2014 | ||||||||||||||||||||||||
Notional amount |
Carrying amount |
Fair value | ||||||||||||||||||||||
(Amounts in millions) |
Total | Level 1 | Level 2 | Level 3 | ||||||||||||||||||||
Assets: |
||||||||||||||||||||||||
Commercial mortgage loans |
$ | (1) | $ | 6,100 | $ | 6,573 | $ | — | $ | — | $ | 6,573 | ||||||||||||
Restricted commercial mortgage loans (2) |
(1) | 201 | 228 | — | — | 228 | ||||||||||||||||||
Other invested assets |
(1) | 311 | 323 | — | 238 | 85 | ||||||||||||||||||
Liabilities: |
||||||||||||||||||||||||
Long-term borrowings (3) |
(1) | 4,612 | 4,273 | — | 4,155 | 118 | ||||||||||||||||||
Non-recourse funding obligations (3) |
(1) | 1,981 | 1,423 | — | — | 1,423 | ||||||||||||||||||
Borrowings related to securitization entities (2) |
(1) | 134 | 146 | — | 146 | — | ||||||||||||||||||
Investment contracts |
(1) | 17,486 | 18,012 | — | 7 | 18,005 | ||||||||||||||||||
Other firm commitments: |
||||||||||||||||||||||||
Commitments to fund limited partnerships |
53 | — | — | — | — | — | ||||||||||||||||||
Ordinary course of business lending commitments |
155 | — | — | — | — | — |
(1) | These financial instruments do not have notional amounts. |
(2) | See note 17 for additional information related to consolidated securitization entities. |
(3) | See note 12 for additional information related to borrowings. |
The following table presents a summary of the significant inputs used by our third-party pricing services for certain fair value measurements of fixed maturity securities that are classified as Level 2 as of December 31, 2015:
(Amounts in millions) |
Fair value |
Primary methodologies |
Significant inputs |
|||||
U.S. government, agencies and government-sponsored enterprises |
$ | 6,200 | Price quotes from trading desk, broker feeds | Bid side prices, trade prices, Option Adjusted Spread (“OAS”) to swap curve, Bond Market Association (“BMA”) OAS, Treasury Curve, Agency Bullet Curve, maturity to issuer spread | ||||
State and political subdivisions |
$ | 2,403 | Multi-dimensional attribute-based modeling systems, third-party pricing vendors | Trade prices, material event notices, Municipal Market Data benchmark yields, broker quotes | ||||
Non-U.S. government |
$ | 1,996 | Matrix pricing, spread priced to benchmark curves, price quotes from market makers | Benchmark yields, trade prices, broker quotes, comparative transactions, issuer spreads, bid-offer spread, market research publications, third-party pricing sources | ||||
U.S. corporate |
$ | 21,505 | Multi-dimensional attribute-based modeling systems, broker quotes, price quotes from market makers, internal models, OAS-based models | Bid side prices to Treasury Curve, Issuer Curve, which includes sector, quality, duration, OAS percentage and change for spread matrix, trade prices, comparative transactions, Trade Reporting and Compliance Engine (“TRACE”) reports | ||||
Non-U.S. corporate |
$ | 10,364 | Multi-dimensional attribute-based modeling systems, OAS-based models, price quotes from market makers | Benchmark yields, trade prices, broker quotes, comparative transactions, issuer spreads, bid-offer spread, market research publications, third-party pricing sources | ||||
Residential mortgage-backed |
$ | 4,985 | OAS-based models, To Be Announced pricing models, single factor binomial models, internally priced | Prepayment and default assumptions, aggregation of bonds with similar characteristics, including collateral type, vintage, tranche type, weighted-average life, weighted-average loan age, issuer program and delinquency ratio, pay up and pay down factors, TRACE reports | ||||
Commercial |
$ | 2,549 | Multi-dimensional attribute-based modeling systems, pricing matrix, spread matrix priced to swap curves, Trepp commercial mortgage-backed securities analytics model | Credit risk, interest rate risk, prepayment speeds, new issue data, collateral performance, origination year, tranche type, original credit ratings, weighted-average life, cash flows, spreads derived from broker quotes, bid side prices, spreads to daily updated swaps curves | ||||
Other asset-backed |
$ | 2,139 | Multi-dimensional attribute-based modeling systems, spread matrix priced to swap curves, price quotes from market makers, internal models | Spreads to daily updated swaps curves, spreads derived from trade prices and broker quotes, bid side prices, new issue data, collateral performance, analysis of prepayment speeds, cash flows, collateral loss analytics, historical issue analysis, trade data from market makers, TRACE reports |
• | Internal models: A portion of our non-U.S. government, U.S. corporate and non-U.S. corporate securities are valued using internal models. The fair value of these fixed maturity securities were $19 million, $567 million and $290 million, respectively, as of December 31, 2015. Internally modeled securities are primarily private fixed maturity securities where we use market observable inputs such as an interest rate yield curve, published credit spreads for similar securities based on the external ratings of the instrument and related industry sector of the issuer. Additionally, we may apply certain price caps and liquidity premiums in the valuation of private fixed maturity securities. Price caps and liquidity premiums are established using inputs from market participants. |
The following tables set forth our assets by class of instrument that are measured at fair value on a recurring basis as of December 31:
2015 | ||||||||||||||||
(Amounts in millions) |
Total | Level 1 | Level 2 | Level 3 | ||||||||||||
Assets |
||||||||||||||||
Investments: |
||||||||||||||||
Fixed maturity securities: |
||||||||||||||||
U.S. government, agencies and government-sponsored enterprises |
$ | 6,203 | $ | — | $ | 6,200 | $ | 3 | ||||||||
State and political subdivisions |
2,438 | — | 2,403 | 35 | ||||||||||||
Non-U.S. government |
2,015 | — | 2,015 | — | ||||||||||||
U.S. corporate: |
||||||||||||||||
Utilities |
3,693 | — | 3,244 | 449 | ||||||||||||
Energy |
2,501 | — | 2,248 | 253 | ||||||||||||
Finance and insurance |
5,632 | — | 4,917 | 715 | ||||||||||||
Consumer—non-cyclical |
4,096 | — | 3,987 | 109 | ||||||||||||
Technology and communications |
2,193 | — | 2,158 | 35 | ||||||||||||
Industrial |
1,173 | — | 1,112 | 61 | ||||||||||||
Capital goods |
1,950 | — | 1,770 | 180 | ||||||||||||
Consumer—cyclical |
1,675 | — | 1,436 | 239 | ||||||||||||
Transportation |
1,086 | — | 980 | 106 | ||||||||||||
Other |
402 | — | 220 | 182 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total U.S. corporate |
24,401 | — | 22,072 | 2,329 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Non-U.S. corporate: |
||||||||||||||||
Utilities |
843 | — | 556 | 287 | ||||||||||||
Energy |
1,686 | — | 1,434 | 252 | ||||||||||||
Finance and insurance |
2,473 | — | 2,282 | 191 | ||||||||||||
Consumer—non-cyclical |
752 | — | 583 | 169 | ||||||||||||
Technology and communications |
988 | — | 926 | 62 | ||||||||||||
Industrial |
986 | — | 902 | 84 | ||||||||||||
Capital goods |
604 | — | 391 | 213 | ||||||||||||
Consumer—cyclical |
526 | — | 455 | 71 | ||||||||||||
Transportation |
605 | — | 461 | 144 | ||||||||||||
Other |
2,736 | — | 2,664 | 72 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total non-U.S. corporate |
12,199 | — | 10,654 | 1,545 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Residential mortgage-backed |
5,101 | — | 4,985 | 116 | ||||||||||||
Commercial mortgage-backed |
2,559 | — | 2,549 | 10 | ||||||||||||
Other asset-backed |
3,281 | — | 2,139 | 1,142 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total fixed maturity securities |
58,197 | — | 53,017 | 5,180 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Equity securities |
310 | 270 | 2 | 38 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Other invested assets: |
||||||||||||||||
Trading securities |
447 | — | 447 | — | ||||||||||||
Derivative assets: |
||||||||||||||||
Interest rate swaps |
1,054 | — | 1,054 | — | ||||||||||||
Foreign currency swaps |
8 | — | 8 | — | ||||||||||||
Credit default swaps |
1 | — | — | 1 | ||||||||||||
Equity index options |
30 | — | — | 30 | ||||||||||||
Equity return swaps |
2 | — | 2 | — | ||||||||||||
Other foreign currency contracts |
17 | — | 14 | 3 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total derivative assets |
1,112 | — | 1,078 | 34 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Securities lending collateral |
347 | — | 347 | — | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total other invested assets |
1,906 | — | 1,872 | 34 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Restricted other invested assets related to securitization entities (1) |
413 | — | 181 | 232 | ||||||||||||
Reinsurance recoverable (2) |
17 | — | — | 17 | ||||||||||||
Separate account assets |
7,883 | 7,883 | — | — | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total assets |
$ | 68,726 | $ | 8,153 | $ | 55,072 | $ | 5,501 | ||||||||
|
|
|
|
|
|
|
|
(1) | See note 17 for additional information related to consolidated securitization entities. |
(2) | Represents embedded derivatives associated with the reinsured portion of our GMWB liabilities. |
2014 | ||||||||||||||||
(Amounts in millions) |
Total | Level 1 | Level 2 | Level 3 | ||||||||||||
Assets |
||||||||||||||||
Investments: |
||||||||||||||||
Fixed maturity securities: |
||||||||||||||||
U.S. government, agencies and government-sponsored enterprises |
$ | 6,000 | $ | — | $ | 5,996 | $ | 4 | ||||||||
State and political subdivisions |
2,222 | — | 2,192 | 30 | ||||||||||||
Non-U.S. government |
1,902 | — | 1,895 | 7 | ||||||||||||
U.S. corporate: |
||||||||||||||||
Utilities |
3,864 | — | 3,420 | 444 | ||||||||||||
Energy |
2,742 | — | 2,457 | 285 | ||||||||||||
Finance and insurance |
5,646 | — | 5,030 | 616 | ||||||||||||
Consumer—non-cyclical |
4,013 | — | 3,873 | 140 | ||||||||||||
Technology and communications |
2,325 | — | 2,280 | 45 | ||||||||||||
Industrial |
1,287 | — | 1,251 | 36 | ||||||||||||
Capital goods |
2,006 | — | 1,840 | 166 | ||||||||||||
Consumer—cyclical |
1,900 | — | 1,537 | 363 | ||||||||||||
Transportation |
1,039 | — | 886 | 153 | ||||||||||||
Other |
401 | — | 230 | 171 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total U.S. corporate |
25,223 | — | 22,804 | 2,419 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Non-U.S. corporate: |
||||||||||||||||
Utilities |
903 | — | 575 | 328 | ||||||||||||
Energy |
2,036 | — | 1,712 | 324 | ||||||||||||
Finance and insurance |
2,957 | — | 2,736 | 221 | ||||||||||||
Consumer—non-cyclical |
796 | — | 599 | 197 | ||||||||||||
Technology and communications |
1,053 | — | 1,011 | 42 | ||||||||||||
Industrial |
1,213 | — | 1,082 | 131 | ||||||||||||
Capital goods |
618 | — | 381 | 237 | ||||||||||||
Consumer—cyclical |
534 | — | 445 | 89 | ||||||||||||
Transportation |
590 | — | 436 | 154 | ||||||||||||
Other |
3,395 | — | 3,314 | 81 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total non-U.S. corporate |
14,095 | — | 12,291 | 1,804 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Residential mortgage-backed |
5,228 | — | 5,163 | 65 | ||||||||||||
Commercial mortgage-backed |
2,702 | — | 2,697 | 5 | ||||||||||||
Other asset-backed |
3,705 | — | 2,285 | 1,420 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total fixed maturity securities |
61,077 | — | 55,323 | 5,754 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Equity securities |
275 | 237 | 4 | 34 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Other invested assets: |
||||||||||||||||
Trading securities |
241 | — | 241 | — | ||||||||||||
Derivative assets: |
||||||||||||||||
Interest rate swaps |
1,091 | — | 1,091 | — | ||||||||||||
Foreign currency swaps |
6 | — | 6 | — | ||||||||||||
Credit default swaps |
4 | — | 1 | 3 | ||||||||||||
Equity index options |
17 | — | — | 17 | ||||||||||||
Other foreign currency contracts |
14 | — | 14 | — | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total derivative assets |
1,132 | — | 1,112 | 20 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Securities lending collateral |
289 | — | 289 | — | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total other invested assets |
1,662 | — | 1,642 | 20 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Restricted other invested assets related to securitization entities (1) |
411 | — | 181 | 230 | ||||||||||||
Reinsurance recoverable (2) |
13 | — | — | 13 | ||||||||||||
Separate account assets |
9,208 | 9,208 | — | — | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total assets |
$ | 72,646 | $ | 9,445 | $ | 57,150 | $ | 6,051 | ||||||||
|
|
|
|
|
|
|
|
(1) | See note 17 for additional information related to consolidated securitization entities. |
(2) | Represents embedded derivatives associated with the reinsured portion of our GMWB liabilities. |
The following tables present additional information about assets measured at fair value on a recurring basis and for which we have utilized significant unobservable (Level 3) inputs to determine fair value as of or for the dates indicated:
(Amounts in millions) |
Beginning balance as of January 1, 2015 |
Total realized and unrealized gains (losses) |
Purchases | Sales | Issuances | Settlements | Transfer into Level 3 (1) |
Transfer out of Level 3 (1) |
Ending balance as of December 31, 2015 |
Total gains (losses) included in net income (loss) attributable to assets still held |
||||||||||||||||||||||||||||||||||
Included in net income (loss) |
Included in OCI |
|||||||||||||||||||||||||||||||||||||||||||
Fixed maturity securities: |
||||||||||||||||||||||||||||||||||||||||||||
U.S. government, agencies and government-sponsored enterprises |
$ | 4 | $ | — | $ | — | $ | — | $ | — | $ | — | $ | (1 | ) | $ | — | $ | — | $ | 3 | $ | — | |||||||||||||||||||||
State and political subdivisions |
30 | 3 | $ | 7 | $ | 5 | $ | — | $ | — | $ | — | $ | — | $ | (10 | ) | $ | 35 | $ | 3 | |||||||||||||||||||||||
Non-U.S. government |
7 | — | $ | (1 | ) | $ | — | $ | — | $ | — | $ | (1 | ) | $ | — | $ | (5 | ) | $ | — | $ | — | |||||||||||||||||||||
U.S. corporate: |
||||||||||||||||||||||||||||||||||||||||||||
Utilities |
444 | — | (14 | ) | 67 | — | — | (16 | ) | 10 | (42 | ) | 449 | — | ||||||||||||||||||||||||||||||
Energy |
285 | — | (13 | ) | 4 | (4 | ) | — | (11 | ) | — | (8 | ) | 253 | — | |||||||||||||||||||||||||||||
Finance and insurance |
616 | 16 | (28 | ) | 90 | — | — | (33 | ) | 97 | (43 | ) | 715 | 14 | ||||||||||||||||||||||||||||||
Consumer—non-cyclical |
140 | 2 | (3 | ) | 29 | (9 | ) | — | (40 | ) | — | (10 | ) | 109 | — | |||||||||||||||||||||||||||||
Technology and communications |
45 | 3 | (2 | ) | — | — | — | — | — | (11 | ) | 35 | 3 | |||||||||||||||||||||||||||||||
Industrial |
36 | — | (3 | ) | 28 | — | — | — | — | — | 61 | — | ||||||||||||||||||||||||||||||||
Capital goods |
166 | — | (6 | ) | 30 | (3 | ) | — | (1 | ) | — | (6 | ) | 180 | — | |||||||||||||||||||||||||||||
Consumer—cyclical |
363 | 1 | (8 | ) | 39 | — | — | (52 | ) | 11 | (115 | ) | 239 | — | ||||||||||||||||||||||||||||||
Transportation |
153 | 1 | (5 | ) | 7 | — | — | (31 | ) | — | (19 | ) | 106 | 1 | ||||||||||||||||||||||||||||||
Other |
171 | 1 | (2 | ) | — | — | — | (7 | ) | 19 | — | 182 | 1 | |||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||||
Total U.S. corporate |
2,419 | 24 | (84 | ) | 294 | (16 | ) | — | (191 | ) | 137 | (254 | ) | 2,329 | 19 | |||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||||
Non-U.S. corporate: |
||||||||||||||||||||||||||||||||||||||||||||
Utilities |
328 | — | (4 | ) | 18 | — | — | (46 | ) | — | (9 | ) | 287 | — | ||||||||||||||||||||||||||||||
Energy |
324 | (1 | ) | (21 | ) | 15 | (24 | ) | — | (41 | ) | — | — | 252 | (1 | ) | ||||||||||||||||||||||||||||
Finance and insurance |
221 | 5 | (6 | ) | 21 | — | — | (26 | ) | — | (24 | ) | 191 | 3 | ||||||||||||||||||||||||||||||
Consumer—non-cyclical |
197 | — | (1 | ) | 15 | — | — | (41 | ) | — | (1 | ) | 169 | — | ||||||||||||||||||||||||||||||
Technology and communications |
42 | — | (4 | ) | 24 | — | — | — | — | — | 62 | — | ||||||||||||||||||||||||||||||||
Industrial |
131 | — | (4 | ) | 7 | — | — | (18 | ) | 1 | (33 | ) | 84 | — | ||||||||||||||||||||||||||||||
Capital goods |
237 | — | (7 | ) | — | — | — | (17 | ) | — | — | 213 | — | |||||||||||||||||||||||||||||||
Consumer—cyclical |
89 | — | (2 | ) | — | — | — | — | 15 | (31 | ) | 71 | — | |||||||||||||||||||||||||||||||
Transportation |
154 | — | (2 | ) | — | — | — | (8 | ) | — | — | 144 | — | |||||||||||||||||||||||||||||||
Other |
81 | — | 2 | — | — | — | (11 | ) | — | — | 72 | — | ||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||||
Total non-U.S. corporate |
1,804 | 4 | (49 | ) | 100 | (24 | ) | — | (208 | ) | 16 | (98 | ) | 1,545 | 2 | |||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||||
Residential mortgage-backed |
65 | — | (1 | ) | 58 | — | — | (10 | ) | 76 | (72 | ) | 116 | — | ||||||||||||||||||||||||||||||
Commercial mortgage-backed |
5 | — | (1 | ) | 9 | — | — | (2 | ) | 13 | (14 | ) | 10 | — | ||||||||||||||||||||||||||||||
Other asset-backed |
1,420 | 2 | 2 | 152 | (190 | ) | — | (267 | ) | 164 | (141 | ) | 1,142 | — | ||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||||
Total fixed maturity securities |
5,754 | 33 | (127 | ) | 618 | (230 | ) | — | (680 | ) | 406 | (594 | ) | 5,180 | 24 | |||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||||
Equity securities |
34 | — | — | 1 | (6 | ) | — | — | 9 | — | 38 | — | ||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||||
Other invested assets: |
||||||||||||||||||||||||||||||||||||||||||||
Derivative assets: |
||||||||||||||||||||||||||||||||||||||||||||
Credit default swaps |
3 | 1 | — | — | — | — | (3 | ) | — | — | 1 | 1 | ||||||||||||||||||||||||||||||||
Equity index options |
17 | (25 | ) | — | 38 | — | — | — | — | — | 30 | (3 | ) | |||||||||||||||||||||||||||||||
Other foreign currency contracts |
— | (2 | ) | — | 5 | — | — | — | — | — | 3 | (1 | ) | |||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||||
Total derivative assets |
20 | (26 | ) | — | 43 | — | — | (3 | ) | — | — | 34 | (3 | ) | ||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||||
Total other invested assets |
20 | (26 | ) | — | 43 | — | — | (3 | ) | — | — | 34 | (3 | ) | ||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||||
Restricted other invested assets related to securitization entities (2) |
230 | 2 | — | — | — | — | — | — | — | 232 | 2 | |||||||||||||||||||||||||||||||||
Reinsurance recoverable (3) |
13 | 1 | — | — | — | 3 | — | — | — | 17 | 1 | |||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||||
Total Level 3 assets |
$ | 6,051 | $ | 10 | $ | (127 | ) | $ | 662 | $ | (236 | ) | $ | 3 | $ | (683 | ) | $ | 415 | $ | (594 | ) | $ | 5,501 | $ | 24 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) | The transfers into and out of Level 3 for fixed maturity securities were related to changes in the primary pricing source and changes in the observability of external information used in determining the fair value, such as external ratings or credit spreads, as well as changes in the industry sectors assigned to specific securities. |
(2) | See note 17 for additional information related to consolidated securitization entities. |
(3) | Represents embedded derivatives associated with the reinsured portion of our GMWB liabilities. |
(Amounts in millions) |
Beginning balance as of January 1, 2014 |
Total realized and unrealized gains (losses) |
Purchases | Sales | Issuances | Settlements | Transfer into Level 3 (1) |
Transfer out of Level 3 (1) |
Ending balance as of December 31, 2014 |
Total gains (losses) included in net income (loss) attributable to assets still held |
||||||||||||||||||||||||||||||||||
Included in net income (loss) |
Included in OCI |
|||||||||||||||||||||||||||||||||||||||||||
Fixed maturity securities: |
||||||||||||||||||||||||||||||||||||||||||||
U.S. government, agencies and government-sponsored enterprises |
$ | 5 | $ | — | $ | — | $ | — | $ | — | $ | — | $ | (1 | ) | $ | — | $ | — | $ | 4 | $ | — | |||||||||||||||||||||
State and political subdivisions |
27 | 2 | (4 | ) | 5 | — | — | — | — | — | 30 | 2 | ||||||||||||||||||||||||||||||||
Non-U.S. government |
23 | — | — | 2 | — | — | (2 | ) | — | (16 | ) | 7 | — | |||||||||||||||||||||||||||||||
U.S. corporate: |
||||||||||||||||||||||||||||||||||||||||||||
Utilities |
420 | — | 11 | 12 | — | — | (5 | ) | 58 | (52 | ) | 444 | — | |||||||||||||||||||||||||||||||
Energy |
281 | — | — | 40 | — | — | (4 | ) | 27 | (59 | ) | 285 | — | |||||||||||||||||||||||||||||||
Finance and insurance |
433 | 14 | 23 | 39 | (1 | ) | — | (10 | ) | 155 | (37 | ) | 616 | 3 | ||||||||||||||||||||||||||||||
Consumer—non-cyclical |
224 | 2 | 2 | — | (38 | ) | — | (60 | ) | 10 | — | 140 | — | |||||||||||||||||||||||||||||||
Technology and communications |
60 | 3 | 5 | — | (20 | ) | — | (13 | ) | 10 | — | 45 | 3 | |||||||||||||||||||||||||||||||
Industrial |
24 | 2 | 1 | 27 | — | — | (15 | ) | — | (3 | ) | 36 | — | |||||||||||||||||||||||||||||||
Capital goods |
139 | — | 3 | 8 | — | — | — | 31 | (15 | ) | 166 | — | ||||||||||||||||||||||||||||||||
Consumer—cyclical |
386 | 1 | 1 | 62 | (1 | ) | — | (86 | ) | — | — | 363 | 1 | |||||||||||||||||||||||||||||||
Transportation |
196 | 2 | 4 | 10 | — | — | (11 | ) | — | (48 | ) | 153 | 2 | |||||||||||||||||||||||||||||||
Other |
210 | 2 | 8 | 8 | — | — | (47 | ) | 10 | (20 | ) | 171 | 1 | |||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||||
Total U.S. corporate |
2,373 | 26 | 58 | 206 | (60 | ) | — | (251 | ) | 301 | (234 | ) | 2,419 | 10 | ||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||||
Non-U.S. corporate: |
||||||||||||||||||||||||||||||||||||||||||||
Utilities |
260 | — | 6 | 54 | — | — | (14 | ) | 22 | — | 328 | — | ||||||||||||||||||||||||||||||||
Energy |
320 | — | (14 | ) | 55 | — | — | (48 | ) | 20 | (9 | ) | 324 | — | ||||||||||||||||||||||||||||||
Finance and insurance |
181 | 3 | 32 | 71 | (42 | ) | — | (8 | ) | 21 | (37 | ) | 221 | 2 | ||||||||||||||||||||||||||||||
Consumer—non-cyclical |
212 | — | (4 | ) | 35 | — | — | (46 | ) | — | — | 197 | — | |||||||||||||||||||||||||||||||
Technology and communications |
58 | — | (1 | ) | 20 | (35 | ) | — | — | — | — | 42 | — | |||||||||||||||||||||||||||||||
Industrial |
151 | — | 2 | — | (12 | ) | — | — | — | (10 | ) | 131 | — | |||||||||||||||||||||||||||||||
Capital goods |
299 | 1 | (3 | ) | 30 | (35 | ) | — | (52 | ) | 10 | (13 | ) | 237 | — | |||||||||||||||||||||||||||||
Consumer—cyclical |
96 | — | — | 6 | — | — | (13 | ) | — | — | 89 | — | ||||||||||||||||||||||||||||||||
Transportation |
153 | — | 1 | 11 | — | — | (25 | ) | 14 | — | 154 | — | ||||||||||||||||||||||||||||||||
Other |
89 | — | (11 | ) | — | — | — | (17 | ) | 20 | — | 81 | — | |||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||||
Total non-U.S. corporate |
1,819 | 4 | 8 | 282 | (124 | ) | — | (223 | ) | 107 | (69 | ) | 1,804 | 2 | ||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||||
Residential mortgage-backed |
104 | — | (3 | ) | 16 | (23 | ) | — | (9 | ) | 13 | (33 | ) | 65 | — | |||||||||||||||||||||||||||||
Commercial mortgage-backed |
6 | — | 2 | — | — | — | (2 | ) | 7 | (8 | ) | 5 | — | |||||||||||||||||||||||||||||||
Other asset-backed |
1,166 | 5 | (3 | ) | 298 | (15 | ) | — | (181 | ) | 244 | (94 | ) | 1,420 | 1 | |||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||||
Total fixed maturity securities |
5,523 | 37 | 58 | 809 | (222 | ) | — | (669 | ) | 672 | (454 | ) | 5,754 | 15 | ||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||||
Equity securities |
78 | — | — | 1 | (38 | ) | — | — | — | (7 | ) | 34 | — | |||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||||
Other invested assets: |
||||||||||||||||||||||||||||||||||||||||||||
Trading securities |
34 | — | — | — | — | — | (3 | ) | — | (31 | ) | — | — | |||||||||||||||||||||||||||||||
Derivative assets: |
||||||||||||||||||||||||||||||||||||||||||||
Credit default swaps |
10 | — | — | — | — | — | (7 | ) | — | — | 3 | — | ||||||||||||||||||||||||||||||||
Equity index options |
12 | (31 | ) | — | 36 | — | — | — | — | — | 17 | (28 | ) | |||||||||||||||||||||||||||||||
Other foreign currency contracts |
3 | (2 | ) | — | — | (1 | ) | — | — | — | — | — | — | |||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||||
Total derivative assets |
25 | (33 | ) | — | 36 | (1 | ) | — | (7 | ) | — | — | 20 | (28 | ) | |||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||||
Total other invested assets |
59 | (33 | ) | — | 36 | (1 | ) | — | (10 | ) | — | (31 | ) | 20 | (28 | ) | ||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||||
Restricted other invested assets related to securitization entities (2) |
211 | 19 | — | — | — | — | — | — | — | 230 | 18 | |||||||||||||||||||||||||||||||||
Reinsurance recoverable (3) |
(1 | ) | 11 | — | — | — | 3 | — | — | — | 13 | 11 | ||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||||
Total Level 3 assets |
$ | 5,870 | $ | 34 | $ | 58 | $ | 846 | $ | (261 | ) | $ | 3 | $ | (679 | ) | $ | 672 | $ | (492 | ) | $ | 6,051 | $ | 16 | |||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) | The transfers into and out of Level 3 for fixed maturity securities were related to changes in the primary pricing source and changes in the observability of external information used in determining the fair value, such as external ratings or credit spreads. |
(2) | See note 17 for additional information related to consolidated securitization entities. |
(3) | Represents embedded derivatives associated with the reinsured portion of our GMWB liabilities. |
(Amounts in millions) |
Beginning balance as of January 1, 2013 |
Total realized and unrealized gains (losses) |
Purchases | Sales | Issuances | Settlements | Transfer into Level 3 (1) |
Transfer out of Level 3 (1) |
Ending balance as of December 31, 2013 |
Total gains (losses) included in net income (loss) attributable to assets still held |
||||||||||||||||||||||||||||||||||
Included in net income (loss) |
Included in OCI |
|||||||||||||||||||||||||||||||||||||||||||
Fixed maturity securities: |
||||||||||||||||||||||||||||||||||||||||||||
U.S. government, agencies and government-sponsored enterprises |
$ | 9 | $ | — | $ | — | $ | — | $ | — | $ | — | $ | (4 | ) | $ | — | $ | — | $ | 5 | $ | — | |||||||||||||||||||||
State and political subdivisions |
25 | 2 | — | — | — | — | — | — | — | 27 | 2 | |||||||||||||||||||||||||||||||||
Non-U.S. government |
9 | — | 1 | — | — | — | (2 | ) | 16 | (1 | ) | 23 | — | |||||||||||||||||||||||||||||||
U.S. corporate: |
||||||||||||||||||||||||||||||||||||||||||||
Utilities |
414 | — | 15 | 6 | (15 | ) | — | (20 | ) | 57 | (37 | ) | 420 | — | ||||||||||||||||||||||||||||||
Energy |
240 | — | 12 | 42 | (10 | ) | — | (25 | ) | 26 | (4 | ) | 281 | — | ||||||||||||||||||||||||||||||
Finance and insurance |
453 | 13 | (3 | ) | 33 | (11 | ) | — | (9 | ) | 21 | (64 | ) | 433 | 12 | |||||||||||||||||||||||||||||
Consumer—non-cyclical |
243 | (4 | ) | 12 | 42 | (13 | ) | — | (64 | ) | 8 | — | 224 | (6 | ) | |||||||||||||||||||||||||||||
Technology and communications |
73 | 2 | (6 | ) | 6 | (6 | ) | — | (1 | ) | 3 | (11 | ) | 60 | 2 | |||||||||||||||||||||||||||||
Industrial |
29 | — | 1 | — | — | — | (6 | ) | — | — | 24 | — | ||||||||||||||||||||||||||||||||
Capital goods |
169 | 1 | 4 | 15 | (35 | ) | — | (14 | ) | — | (1 | ) | 139 | 1 | ||||||||||||||||||||||||||||||
Consumer—cyclical |
496 | 1 | 8 | 27 | (46 | ) | — | (107 | ) | 35 | (28 | ) | 386 | — | ||||||||||||||||||||||||||||||
Transportation |
205 | 1 | — | 9 | — | — | (36 | ) | 18 | (1 | ) | 196 | 1 | |||||||||||||||||||||||||||||||
Other |
354 | 1 | (58 | ) | — | (14 | ) | — | (66 | ) | 17 | (24 | ) | 210 | 1 | |||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||||
Total U.S. corporate |
2,676 | 15 | (15 | ) | 180 | (150 | ) | — | (348 | ) | 185 | (170 | ) | 2,373 | 11 | |||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||||
Non-U.S. corporate: |
||||||||||||||||||||||||||||||||||||||||||||
Utilities |
242 | — | 8 | 10 | — | — | — | — | — | 260 | — | |||||||||||||||||||||||||||||||||
Energy |
286 | 1 | 7 | 7 | (14 | ) | — | (17 | ) | 50 | — | 320 | — | |||||||||||||||||||||||||||||||
Finance and insurance |
245 | 2 | (16 | ) | 21 | (19 | ) | — | (9 | ) | 18 | (61 | ) | 181 | 2 | |||||||||||||||||||||||||||||
Consumer—non-cyclical |
194 | — | (1 | ) | 42 | — | — | (23 | ) | — | — | 212 | — | |||||||||||||||||||||||||||||||
Technology and communications |
69 | — | 1 | — | — | — | (12 | ) | — | — | 58 | — | ||||||||||||||||||||||||||||||||
Industrial |
207 | — | 1 | 21 | — | — | (77 | ) | — | (1 | ) | 151 | — | |||||||||||||||||||||||||||||||
Capital goods |
329 | — | 11 | 4 | — | — | (45 | ) | — | — | 299 | — | ||||||||||||||||||||||||||||||||
Consumer—cyclical |
106 | — | 4 | 15 | — | — | (30 | ) | 1 | — | 96 | — | ||||||||||||||||||||||||||||||||
Transportation |
147 | — | 7 | — | — | — | (1 | ) | — | — | 153 | — | ||||||||||||||||||||||||||||||||
Other |
135 | — | (46 | ) | — | — | — | — | — | — | 89 | — | ||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||||
Total non-U.S. corporate |
1,960 | 3 | (24 | ) | 120 | (33 | ) | — | (214 | ) | 69 | (62 | ) | 1,819 | 2 | |||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||||
Residential mortgage-backed |
143 | (9 | ) | 7 | — | (8 | ) | — | (27 | ) | 14 | (16 | ) | 104 | — | |||||||||||||||||||||||||||||
Commercial mortgage-backed |
35 | (5 | ) | (1 | ) | — | — | — | (32 | ) | 11 | (2 | ) | 6 | (4 | ) | ||||||||||||||||||||||||||||
Other asset-backed |
864 | 4 | 10 | 200 | (49 | ) | — | (89 | ) | 246 | (20 | ) | 1,166 | 4 | ||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||||
Total fixed maturity securities |
5,721 | 10 | (22 | ) | 500 | (240 | ) | — | (716 | ) | 541 | (271 | ) | 5,523 | 15 | |||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||||
Equity securities |
99 | 2 | — | 1 | (24 | ) | — | — | — | — | 78 | — | ||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||||
Other invested assets: |
||||||||||||||||||||||||||||||||||||||||||||
Trading securities |
76 | 7 | — | — | (40 | ) | — | (9 | ) | — | — | 34 | 2 | |||||||||||||||||||||||||||||||
Derivative assets: |
||||||||||||||||||||||||||||||||||||||||||||
Interest rate swaps |
2 | (1 | ) | — | — | — | — | (1 | ) | — | — | — | (1 | ) | ||||||||||||||||||||||||||||||
Credit default swaps |
7 | 12 | — | — | — | — | (9 | ) | — | — | 10 | 6 | ||||||||||||||||||||||||||||||||
Equity index options |
25 | (43 | ) | — | 39 | — | — | (9 | ) | — | — | 12 | (40 | ) | ||||||||||||||||||||||||||||||
Other foreign currency contracts |
— | (1 | ) | — | 4 | — | — | — | — | — | 3 | (1 | ) | |||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||||
Total derivative assets |
34 | (33 | ) | — | 43 | — | — | (19 | ) | — | — | 25 | (36 | ) | ||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||||
Total other invested assets |
110 | (26 | ) | — | 43 | (40 | ) | — | (28 | ) | — | — | 59 | (34 | ) | |||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||||
Restricted other invested assets related to securitization entities (2) |
194 | (1 | ) | — | 19 | — | — | (20 | ) | 19 | — | 211 | (1 | ) | ||||||||||||||||||||||||||||||
Other assets (3) |
9 | — | — | — | — | — | (9 | ) | — | — | — | — | ||||||||||||||||||||||||||||||||
Reinsurance recoverable (4) |
10 | (14 | ) | — | — | — | 3 | — | — | — | (1 | ) | (14 | ) | ||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||||
Total Level 3 assets |
$ | 6,143 | $ | (29 | ) | $ | (22 | ) | $ | 563 | $ | (304 | ) | $ | 3 | $ | (773 | ) | $ | 560 | $ | (271 | ) | $ | 5,870 | $ | (34 | ) | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) | The transfers into and out of Level 3 for fixed maturity securities were related to changes in the primary pricing source and changes in the observability of external information used in determining the fair value, such as external ratings or credit spreads. |
(2) | See note 17 for additional information related to consolidated securitization entities. |
(3) | Represents contingent receivables associated with recent business dispositions. |
(4) | Represents embedded derivatives associated with the reinsured portion of our GMWB liabilities. |
The following table presents the gains and losses included in net income (loss) from assets measured at fair value on a recurring basis and for which we have utilized significant unobservable (Level 3) inputs to determine fair value and the related income statement line item in which these gains and losses were presented for the years ended December 31:
(Amounts in millions) |
2015 | 2014 | 2013 | |||||||||
Total realized and unrealized gains (losses) included in net income (loss): |
||||||||||||
Net investment income |
$ | 42 | $ | 44 | $ | 36 | ||||||
Net investment gains (losses) |
(32 | ) | (10 | ) | (65 | ) | ||||||
|
|
|
|
|
|
|||||||
Total |
$ | 10 | $ | 34 | $ | (29 | ) | |||||
|
|
|
|
|
|
|||||||
Total gains (losses) included in net income (loss) attributable to assets still held: |
||||||||||||
Net investment income |
$ | 33 | $ | 19 | $ | 35 | ||||||
Net investment gains (losses) |
(9 | ) | (3 | ) | (69 | ) | ||||||
|
|
|
|
|
|
|||||||
Total |
$ | 24 | $ | 16 | $ | (34 | ) | |||||
|
|
|
|
|
|
The following table presents the gains and losses included in net (income) loss from liabilities measured at fair value on a recurring basis and for which we have utilized significant unobservable (Level 3) inputs to determine fair value and the related income statement line item in which these gains and losses were presented for the years ended December 31:
(Amounts in millions) |
2015 | 2014 | 2013 | |||||||||
Total realized and unrealized (gains) losses included in net (income) loss: |
||||||||||||
Net investment income |
$ | — | $ | — | $ | — | ||||||
Net investment (gains) losses |
16 | 177 | (339 | ) | ||||||||
|
|
|
|
|
|
|||||||
Total |
$ | 16 | $ | 177 | $ | (339 | ) | |||||
|
|
|
|
|
|
|||||||
Total (gains) losses included in net (income) loss attributable to liabilities still held: |
||||||||||||
Net investment income |
$ | — | $ | — | $ | — | ||||||
Net investment (gains) losses |
48 | 178 | (337 | ) | ||||||||
|
|
|
|
|
|
|||||||
Total |
$ | 48 | $ | 178 | $ | (337 | ) | |||||
|
|
|
|
|
|
The following tables set forth our liabilities by class of instrument that are measured at fair value on a recurring basis as of December 31:
2015 | ||||||||||||||||
(Amounts in millions) |
Total | Level 1 | Level 2 | Level 3 | ||||||||||||
Liabilities |
||||||||||||||||
Policyholder account balances: |
||||||||||||||||
GMWB embedded derivatives (1) |
$ | 352 | $ | — | $ | — | $ | 352 | ||||||||
Fixed index annuity embedded derivatives |
342 | — | — | 342 | ||||||||||||
Indexed universal life embedded derivatives |
10 | — | — | 10 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total policyholder account balances |
704 | — | — | 704 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Derivative liabilities: |
||||||||||||||||
Interest rate swaps |
220 | — | 220 | — | ||||||||||||
Interest rate swaps related to securitization entities (2) |
30 | — | 30 | — | ||||||||||||
Inflation indexed swaps |
33 | — | 33 | — | ||||||||||||
Foreign currency swaps |
27 | — | 27 | — | ||||||||||||
Credit default swaps related to securitization entities (2) |
14 | — | — | 14 | ||||||||||||
Equity return swaps |
1 | — | 1 | — | ||||||||||||
Other foreign currency contracts |
34 | — | 34 | — | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total derivative liabilities |
359 | — | 345 | 14 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Borrowings related to securitization entities (2) |
81 | — | — | 81 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total liabilities |
$ | 1,144 | $ | — | $ | 345 | $ | 799 | ||||||||
|
|
|
|
|
|
|
|
(1) | Represents embedded derivatives associated with our GMWB liabilities, excluding the impact of reinsurance. |
(2) | See note 17 for additional information related to consolidated securitization entities. |
2014 | ||||||||||||||||
(Amounts in millions) |
Total | Level 1 | Level 2 | Level 3 | ||||||||||||
Liabilities |
||||||||||||||||
Policyholder account balances: |
||||||||||||||||
GMWB embedded derivatives (1) |
$ | 291 | $ | — | $ | — | $ | 291 | ||||||||
Fixed index annuity embedded derivatives |
276 | — | — | 276 | ||||||||||||
Indexed universal life embedded derivatives |
7 | — | — | 7 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total policyholder account balances |
574 | — | — | 574 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Derivative liabilities: |
||||||||||||||||
Interest rate swaps |
204 | — | 204 | — | ||||||||||||
Interest rate swaps related to securitization entities (2) |
26 | — | 26 | — | ||||||||||||
Inflation indexed swaps |
42 | — | 42 | — | ||||||||||||
Foreign currency swaps |
7 | — | 7 | — | ||||||||||||
Credit default swaps related to securitization entities (2) |
17 | — | — | 17 | ||||||||||||
Equity return swaps |
1 | — | 1 | — | ||||||||||||
Other foreign currency contracts |
13 | — | 13 | — | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total derivative liabilities |
310 | — | 293 | 17 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Borrowings related to securitization entities (2) |
85 | — | — | 85 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total liabilities |
$ | 969 | $ | — | $ | 293 | $ | 676 | ||||||||
|
|
|
|
|
|
|
|
(1) | Represents embedded derivatives associated with our GMWB liabilities, excluding the impact of reinsurance. |
(2) | See note 17 for additional information related to consolidated securitization entities. |
The following tables present additional information about liabilities measured at fair value on a recurring basis and for which we have utilized significant unobservable (Level 3) inputs to determine fair value as of or for the dates indicated:
(Amounts in millions) |
Beginning balance as of January 1, 2015 |
Total realized and unrealized (gains) losses |
Purchases | Sales | Issuances | Settlements | Transfer into Level 3 |
Transfer out of Level 3 |
Ending balance as of December 31, 2015 |
Total (gains) losses included in net (income) loss attributable to liabilities still held |
||||||||||||||||||||||||||||||||||
Included in net (income) loss |
Included in OCI |
|||||||||||||||||||||||||||||||||||||||||||
Policyholder account balances: |
||||||||||||||||||||||||||||||||||||||||||||
GMWB embedded derivatives (1) |
$ | 291 | $ | 26 | $ | — | $ | — | $ | — | $ | 35 | $ | — | $ | — | $ | — | $ | 352 | $ | 30 | ||||||||||||||||||||||
Fixed index annuity embedded derivatives |
276 | 7 | — | — | — | 65 | (6 | ) | — | — | 342 | 7 | ||||||||||||||||||||||||||||||||
Indexed universal life embedded derivatives |
7 | (6 | ) | — | — | — | 9 | — | — | — | 10 | (6 | ) | |||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||||
Total policyholder account balances |
574 | 27 | — | — | — | 109 | (6 | ) | — | — | 704 | 31 | ||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||||
Derivative liabilities: |
||||||||||||||||||||||||||||||||||||||||||||
Credit default swaps related to securitization entities (2) |
17 | (7 | ) | — | 4 | — | — | — | — | — | 14 | 21 | ||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||||
Total derivative liabilities |
17 | (7 | ) | — | 4 | — | — | — | — | — | 14 | 21 | ||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||||
Borrowings related to securitization entities (2) |
85 | (4 | ) | — | — | — | — | — | — | — | 81 | (4 | ) | |||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||||
Total Level 3 liabilities |
$ | 676 | $ | 16 | $ | — | $ | 4 | $ | — | $ | 109 | $ | (6 | ) | $ | — | $ | — | $ | 799 | $ | 48 | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) | Represents embedded derivatives associated with our GMWB liabilities, excluding the impact of reinsurance. |
(2) | See note 17 for additional information related to consolidated securitization entities. |
Beginning balance as of January 1, 2014 |
Total realized and unrealized (gains) losses |
Purchases | Sales | Issuances | Settlements | Transfer into Level 3 |
Transfer out of Level 3 |
Ending balance as of December 31, 2014 |
Total (gains) losses included in net (income) loss attributable to liabilities still held |
|||||||||||||||||||||||||||||||||||
(Amounts in millions) |
Included in net (income) loss |
Included in OCI |
||||||||||||||||||||||||||||||||||||||||||
Policyholder account balances: |
||||||||||||||||||||||||||||||||||||||||||||
GMWB embedded derivatives (1) |
$ | 96 | $ | 158 | $ | — | $ | — | $ | — | $ | 37 | $ | — | $ | — | $ | — | $ | 291 | $ | 160 | ||||||||||||||||||||||
Fixed index annuity embedded derivatives |
143 | 27 | — | — | — | 108 | (2 | ) | — | — | 276 | 27 | ||||||||||||||||||||||||||||||||
Indexed universal life embedded derivatives |
— | 1 | — | — | — | 6 | — | — | — | 7 | 1 | |||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||||
Total policyholder account balances |
239 | 186 | — | — | — | 151 | (2 | ) | — | — | 574 | 188 | ||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||||
Derivative liabilities: |
||||||||||||||||||||||||||||||||||||||||||||
Credit default swaps related to securitization entities (2) |
32 | (19 | ) | — | 4 | — | — | — | — | — | 17 | (19 | ) | |||||||||||||||||||||||||||||||
Other foreign currency contracts |
1 | 1 | — | — | (2 | ) | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||||
Total derivative liabilities |
33 | (18 | ) | — | 4 | (2 | ) | — | — | — | — | 17 | (19 | ) | ||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||||
Borrowings related to securitization entities (2) |
75 | 9 | — | — | — | 1 | — | — | — | 85 | 9 | |||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||||
Total Level 3 liabilities |
$ | 347 | $ | 177 | $ | — | $ | 4 | $ | (2 | ) | $ | 152 | $ | (2 | ) | $ | — | $ | — | $ | 676 | $ | 178 | ||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) | Represents embedded derivatives associated with our GMWB liabilities, excluding the impact of reinsurance. |
(2) | See note 17 for additional information related to consolidated securitization entities. |
Beginning balance as of January 1, 2013 |
Total realized and unrealized (gains) losses |
Purchases | Sales | Issuances | Settlements |
Transfer into Level 3 |
Transfer out of Level 3 |
Ending balance as of December 31, 2013 |
Total (gains) losses included in net (income) loss attributable to liabilities still held |
|||||||||||||||||||||||||||||||||||
(Amounts in millions) |
Included in net (income) loss |
Included in OCI |
||||||||||||||||||||||||||||||||||||||||||
Policyholder account balances: |
||||||||||||||||||||||||||||||||||||||||||||
GMWB embedded derivatives (1) |
$ | 350 | $ | (291 | ) | $ | — | $ | — | $ | — | $ | 37 | $ | — | $ | — | $ | — | $ | 96 | $ | (289 | ) | ||||||||||||||||||||
Fixed index annuity embedded derivatives |
27 | 18 | — | — | — | 98 | — | — | — | 143 | 18 | |||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||||
Total policyholder account balances |
377 | (273 | ) | — | — | — | 135 | — | — | — | 239 | (271 | ) | |||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||||
Derivative liabilities: |
||||||||||||||||||||||||||||||||||||||||||||
Credit default swaps |
1 | (1 | ) | — | — | — | — | — | — | — | — | (1 | ) | |||||||||||||||||||||||||||||||
Credit default swaps related to securitization entities (2) |
104 | (77 | ) | — | 5 | — | — | — | — | — | 32 | (77 | ) | |||||||||||||||||||||||||||||||
Equity index options |
— | 1 | — | — | — | — | (1 | ) | — | — | — | 1 | ||||||||||||||||||||||||||||||||
Other foreign current contracts |
— | (2 | ) | — | 3 | — | — | — | — | — | 1 | (2 | ) | |||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||||
Total derivative liabilities |
105 | (79 | ) | — | 8 | — | — | (1 | ) | — | — | 33 | (79 | ) | ||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||||
Borrowings related to securitization entities (2) |
62 | 13 | — | — | — | — | — | — | — | 75 | 13 | |||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||||
Total Level 3 liabilities |
$ | 544 | $ | (339 | ) | $ | — | $ | 8 | $ | — | $ | 135 | $ | (1 | ) | $ | — | $ | — | $ | 347 | $ | (337 | ) | |||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) | Represents embedded derivatives associated with our GMWB liabilities, excluding the impact of reinsurance. |
(2) | See note 17 for additional information related to consolidated securitization entities. |
The following table presents a summary of the significant unobservable inputs used for certain fair value measurements that are based on internal models and classified as Level 3 as of December 31, 2015:
(Amounts in millions) |
Valuation technique | Fair value | Unobservable input | Range | Weighted-average | |||||||
Fixed maturity securities: |
||||||||||||
U.S. corporate: |
||||||||||||
Utilities |
Internal models | $ | 425 | Credit spreads | 100bps - 346bps | 177bps | ||||||
Energy |
Internal models | 141 | Credit spreads | 124bps - 365bps | 208bps | |||||||
Finance and insurance |
Internal models | 598 | Credit spreads | 96bps - 644bps | 252bps | |||||||
Consumer—non-cyclical |
Internal models | 109 | Credit spreads | 150bps - 495bps | 280bps | |||||||
Technology and communications |
Internal models | 35 | Credit spreads | 403bps | Not applicable | |||||||
Industrial |
Internal models | 61 | Credit spreads | 252bps - 354bps | 305bps | |||||||
Capital goods |
Internal models | 180 | Credit spreads | 94bps - 516bps | 226bps | |||||||
Consumer—cyclical |
Internal models | 239 | Credit spreads | 94bps - 350bps | 230bps | |||||||
Transportation |
Internal models | 95 | Credit spreads | 66bps - 335bps | 223bps | |||||||
Other |
Internal models | 167 | Credit spreads | 82bps - 495bps | 154bps | |||||||
|
|
|||||||||||
Total U.S. corporate |
Internal models | $ | 2,050 | Credit spreads | 66bps - 644bps | 225bps | ||||||
|
|
|||||||||||
Non-U.S. corporate: |
||||||||||||
Utilities |
Internal models | $ | 287 | Credit spreads | 112bps - 212bps | 157bps | ||||||
Energy |
Internal models | 213 | Credit spreads | 146bps - 552bps | 265bps | |||||||
Finance and insurance |
Internal models | 181 | Credit spreads | 125bps - 230bps | 147bps | |||||||
Consumer—non-cyclical |
Internal models | 155 | Credit spreads | 94bps - 332bps | 213bps | |||||||
Technology and communications |
Internal models | 62 | Credit spreads | 179bps - 552bps | 312bps | |||||||
Industrial |
Internal models | 70 | Credit spreads | 150bps - 280bps | 253bps | |||||||
Capital goods |
Internal models | 180 | Credit spreads | 150bps - 440bps | 259bps | |||||||
Consumer—cyclical |
Internal models | 71 | Credit spreads | 109bps - 354bps | 236bps | |||||||
Transportation |
Internal models | 144 | Credit spreads | 120bps - 354bps | 197bps | |||||||
Other |
Internal models | 55 | Credit spreads | 354bps - 714bps | 464bps | |||||||
|
|
|||||||||||
Total non-U.S. corporate |
Internal models | $ | 1,418 | Credit spreads | 85bps - 690bps | 222bps | ||||||
|
|
|||||||||||
Derivative assets: |
||||||||||||
Credit default swaps (1) |
Discounted cash flows |
$ | 1 | Credit spreads | 5bps | Not applicable | ||||||
Equity index options |
Discounted cash flows |
$ | 30 | Equity index volatility |
—% - 23% | 17% | ||||||
Interest rate volatility | 24% - 25% | 25% | ||||||||||
Other foreign currency contracts |
Discounted cash flows |
$ | 3 | Foreign exchange rate volatility |
9% - 13% | 12% | ||||||
Policyholder account balances: |
||||||||||||
Withdrawal | ||||||||||||
utilization rate | —% - 98% | 66% | ||||||||||
Lapse rate | —% - 15% | 6% | ||||||||||
Non-performance risk (credit spreads) |
40bps - 85bps | 70bps | ||||||||||
GMWB embedded derivatives (2) |
Stochastic cash flow model |
$ | 352 | Equity index volatility |
17% - 24% | 21% | ||||||
Fixed index annuity embedded derivatives |
Option budget method |
$ | 342 | Expected future interest credited |
—% - 3% | 2% | ||||||
Indexed universal life embedded derivatives |
Option budget method |
$ | 10 | Expected future interest credited |
3% - 10% | 6% |
(1) | Unobservable input valuation based on the current market credit default swap premium. |
(2) | Represents embedded derivatives associated with our GMWB liabilities, excluding the impact of reinsurance. |
|
The following table summarizes the total securitized assets as of December 31:
(Amounts in millions) |
2015 | 2014 | ||||||
Receivables secured by: |
||||||||
Other assets |
$ | 136 | $ | 142 | ||||
|
|
|
|
|||||
Total securitized assets not required to be consolidated |
136 | 142 | ||||||
|
|
|
|
|||||
Total securitized assets required to be consolidated |
267 | 300 | ||||||
|
|
|
|
|||||
Total securitized assets |
$ | 403 | $ | 442 | ||||
|
|
|
|
The following table shows the assets and liabilities that were recorded for the consolidated securitization entities as of December 31:
(Amounts in millions) |
2015 | 2014 | ||||||
Assets |
||||||||
Investments: |
||||||||
Restricted commercial mortgage loans |
$ | 161 | $ | 201 | ||||
Restricted other invested assets: |
||||||||
Trading securities |
413 | 411 | ||||||
|
|
|
|
|||||
Total restricted other invested assets |
413 | 411 | ||||||
|
|
|
|
|||||
Total investments |
574 | 612 | ||||||
Cash and cash equivalents |
1 | 1 | ||||||
Accrued investment income |
1 | 1 | ||||||
Other assets |
5 | — | ||||||
|
|
|
|
|||||
Total assets |
$ | 581 | $ | 614 | ||||
|
|
|
|
|||||
Liabilities |
||||||||
Other liabilities: |
||||||||
Derivative liabilities |
$ | 44 | $ | 43 | ||||
Other liabilities |
2 | 2 | ||||||
|
|
|
|
|||||
Total other liabilities |
46 | 45 | ||||||
Borrowings related to securitization entities |
179 | 219 | ||||||
|
|
|
|
|||||
Total liabilities |
$ | 225 | $ | 264 | ||||
|
|
|
|
The following table shows the activity presented in our consolidated statement of income related to the consolidated securitization entities for the years ended December 31:
(Amounts in millions) |
2015 | 2014 | 2013 | |||||||||
Revenues: |
||||||||||||
Net investment income: |
||||||||||||
Restricted commercial mortgage loans |
$ | 14 | $ | 14 | $ | 23 | ||||||
Restricted other invested assets |
5 | 5 | 4 | |||||||||
|
|
|
|
|
|
|||||||
Total net investment income |
19 | 19 | 27 | |||||||||
|
|
|
|
|
|
|||||||
Net investment gains (losses): |
||||||||||||
Trading securities |
(2 | ) | 15 | (4 | ) | |||||||
Derivatives |
3 | 10 | 86 | |||||||||
Borrowings related to securitization entities recorded at fair value |
4 | (9 | ) | (13 | ) | |||||||
|
|
|
|
|
|
|||||||
Total net investment gains (losses) |
5 | 16 | 69 | |||||||||
|
|
|
|
|
|
|||||||
Total revenues |
24 | 35 | 96 | |||||||||
|
|
|
|
|
|
|||||||
Expenses: |
||||||||||||
Interest expense |
9 | 10 | 16 | |||||||||
|
|
|
|
|
|
|||||||
Total expenses |
9 | 10 | 16 | |||||||||
|
|
|
|
|
|
|||||||
Income before income taxes |
15 | 25 | 80 | |||||||||
Provision for income taxes |
5 | 9 | 27 | |||||||||
|
|
|
|
|
|
|||||||
Net income |
$ | 10 | $ | 16 | $ | 53 | ||||||
|
|
|
|
|
|
Borrowings related to securitization entities were as follows as of December 31:
2015 | 2014 | |||||||||||||||
(Amounts in millions) |
Principal amount |
Carrying value |
Principal amount |
Carrying value |
||||||||||||
GFCM LLC, due 2035, 5.2541% |
$ | — | $ | — | $ | 21 | $ | 21 | ||||||||
GFCM LLC, due 2035, 5.7426% |
98 | 98 | 113 | 113 | ||||||||||||
Marvel Finance 2007-4 LLC, due 2017 (1),(2) |
12 | 10 | 12 | 12 | ||||||||||||
Genworth Special Purpose Five, LLC, due 2040 (1),(2) |
NA | (3) | 71 | NA | (3) | 73 | ||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total |
$ | 110 | $ | 179 | $ | 146 | $ | 219 | ||||||||
|
|
|
|
|
|
|
|
(1) | Accrual of interest based on three-month LIBOR that resets every three months plus a fixed margin. |
(2) | Carrying value represents fair value as a result of electing fair value option for these liabilities. |
(3) | Principal amount not applicable. Notional balance was $118 million and $115 million as of December 31, 2015 and 2014, respectively. |
|
The tables below include the combined statutory net income (loss) and statutory capital and surplus for our U.S. domiciled insurance subsidiaries for the periods indicated:
Years ended December 31, | ||||||||||||
(Amounts in millions) |
2015 | 2014 | 2013 | |||||||||
Combined statutory net income (loss): |
||||||||||||
Life insurance subsidiaries, excluding captive life reinsurance subsidiaries |
$ | (330 | ) | $ | (179 | ) | $ | 359 | ||||
Mortgage insurance subsidiaries |
287 | 198 | 85 | |||||||||
|
|
|
|
|
|
|||||||
Combined statutory net income (loss), excluding captive reinsurance subsidiaries |
(43 | ) | 19 | 444 | ||||||||
Captive life insurance subsidiaries |
(276 | ) | (281 | ) | (102 | ) | ||||||
|
|
|
|
|
|
|||||||
Combined statutory net income (loss) |
$ | (319 | ) | $ | (262 | ) | $ | 342 | ||||
|
|
|
|
|
|
As of December 31, | ||||||||
(Amounts in millions) |
2015 | 2014 | ||||||
Combined statutory capital and surplus: |
||||||||
Life insurance subsidiaries, excluding captive life reinsurance subsidiaries |
$ | 2,548 | $ | 2,560 | ||||
Mortgage insurance subsidiaries |
1,722 | 1,792 | ||||||
|
|
|
|
|||||
Combined statutory capital and surplus |
$ | 4,270 | $ | 4,352 | ||||
|
|
|
|
|
The following is a summary of our segments and Corporate and Other activities as of or for the years ended December 31:
2015 |
U.S. Mortgage Insurance |
Canada Mortgage Insurance |
Australia Mortgage Insurance |
U.S. Life Insurance |
Runoff | Corporate and Other |
Total | |||||||||||||||||||||
(Amounts in millions) |
||||||||||||||||||||||||||||
Premiums |
$ | 602 | $ | 466 | $ | 357 | $ | 3,128 | $ | 1 | $ | 25 | $ | 4,579 | ||||||||||||||
Net investment income |
58 | 130 | 114 | 2,701 | 138 | (3 | ) | 3,138 | ||||||||||||||||||||
Net investment gains (losses) |
1 | (32 | ) | 6 | (10 | ) | (69 | ) | 29 | (75 | ) | |||||||||||||||||
Policy fees and other income |
4 | — | (3 | ) | 726 | 189 | (10 | ) | 906 | |||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Total revenues |
665 | 564 | 474 | 6,545 | 259 | 41 | 8,548 | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Benefits and other changes in policy reserves |
222 | 96 | 81 | 4,692 | 44 | 14 | 5,149 | |||||||||||||||||||||
Interest credited |
— | — | — | 596 | 124 | — | 720 | |||||||||||||||||||||
Acquisition and operating expenses, net of deferrals |
155 | 66 | 98 | 684 | 76 | 230 | 1,309 | |||||||||||||||||||||
Amortization of deferred acquisition costs and intangibles |
10 | 36 | 18 | 872 | 29 | 1 | 966 | |||||||||||||||||||||
Interest expense |
— | 18 | 10 | 92 | 1 | 298 | 419 | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Total benefits and expenses |
387 | 216 | 207 | 6,936 | 274 | 543 | 8,563 | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Income (loss) from continuing operations before income taxes |
278 | 348 | 267 | (391 | ) | (15 | ) | (502 | ) | (15 | ) | |||||||||||||||||
Provision (benefit) for income taxes |
99 | 90 | 80 | (138 | ) | (10 | ) | (130 | ) | (9 | ) | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Income (loss) from continuing operations |
179 | 258 | 187 | (253 | ) | (5 | ) | (372 | ) | (6 | ) | |||||||||||||||||
Income (loss) from discontinued operations, net of taxes |
— | — | — | — | — | (407 | ) | (407 | ) | |||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Net income (loss) |
179 | 258 | 187 | (253 | ) | (5 | ) | (779 | ) | (413 | ) | |||||||||||||||||
Less: net income attributable to noncontrolling interests |
— | 118 | 84 | — | — | — | 202 | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Net income (loss) available to Genworth Financial, Inc.’s common stockholders |
$ | 179 | $ | 140 | $ | 103 | $ | (253 | ) | $ | (5 | ) | $ | (779 | ) | $ | (615 | ) | ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Segment assets |
$ | 2,899 | $ | 4,520 | $ | 2,987 | $ | 79,530 | $ | 12,115 | $ | 4,253 | $ | 106,304 | ||||||||||||||
Assets held for sale |
— | — | — | — | — | 127 | 127 | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Total assets |
$ | 2,899 | $ | 4,520 | $ | 2,987 | $ | 79,530 | $ | 12,115 | $ | 4,380 | $ | 106,431 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2014 |
U.S. Mortgage Insurance |
Canada Mortgage Insurance |
Australia Mortgage Insurance |
U.S. Life Insurance |
Runoff | Corporate and Other |
Total | |||||||||||||||||||||
(Amounts in millions) |
||||||||||||||||||||||||||||
Premiums |
$ | 578 | $ | 515 | $ | 406 | $ | 3,169 | $ | 3 | $ | 29 | $ | 4,700 | ||||||||||||||
Net investment income |
59 | 155 | 144 | 2,665 | 129 | (10 | ) | 3,142 | ||||||||||||||||||||
Net investment gains (losses) |
— | (2 | ) | 3 | 41 | (66 | ) | 2 | (22 | ) | ||||||||||||||||||
Policy fees and other income |
2 | 1 | (16 | ) | 712 | 209 | 1 | 909 | ||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Total revenues |
639 | 669 | 537 | 6,587 | 275 | 22 | 8,729 | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Benefits and other changes in policy reserves |
357 | 102 | 78 | 5,820 | 37 | 24 | 6,418 | |||||||||||||||||||||
Interest credited |
— | — | — | 618 | 119 | — | 737 | |||||||||||||||||||||
Acquisition and operating expenses, net of deferrals |
140 | 90 | 97 | 658 | 84 | 69 | 1,138 | |||||||||||||||||||||
Amortization of deferred acquisition costs and intangibles |
7 | 38 | 21 | 345 | 39 | 3 | 453 | |||||||||||||||||||||
Goodwill impairment |
— | — | — | 849 | — | — | 849 | |||||||||||||||||||||
Interest expense |
— | 21 | 10 | 87 | 1 | 314 | 433 | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Total benefits and expenses |
504 | 251 | 206 | 8,377 | 280 | 410 | 10,028 | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Income (loss) from continuing operations before income taxes |
135 | 418 | 331 | (1,790 | ) | (5 | ) | (388 | ) | (1,299 | ) | |||||||||||||||||
Provision (benefit) for income taxes |
44 | 111 | 248 | (385 | ) | (19 | ) | (93 | ) | (94 | ) | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Income (loss) from continuing operations |
91 | 307 | 83 | (1,405 | ) | 14 | (295 | ) | (1,205 | ) | ||||||||||||||||||
Income from discontinued operations, net of taxes |
— | — | — | — | — | 157 | 157 | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Net income (loss) |
91 | 307 | 83 | (1,405 | ) | 14 | (138 | ) | (1,048 | ) | ||||||||||||||||||
Less: net income attributable to noncontrolling interests |
— | 140 | 56 | — | — | — | 196 | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Net income (loss) available to Genworth Financial, Inc.’s common stockholders |
$ | 91 | $ | 167 | $ | 27 | $ | (1,405 | ) | $ | 14 | $ | (138 | ) | $ | (1,244 | ) | |||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Segment assets |
$ | 2,324 | $ | 4,920 | $ | 3,494 | $ | 82,891 | $ | 12,971 | $ | 2,573 | $ | 109,173 | ||||||||||||||
Assets held for sale |
— | — | — | — | — | 2,143 | 2,143 | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Total assets |
$ | 2,324 | $ | 4,920 | $ | 3,494 | $ | 82,891 | $ | 12,971 | $ | 4,716 | $ | 111,316 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2013 |
U.S. Mortgage Insurance |
Canada Mortgage Insurance |
Australia Mortgage Insurance |
U.S. Life Insurance |
Runoff | Corporate and Other |
Total | |||||||||||||||||||||
(Amounts in millions) |
||||||||||||||||||||||||||||
Premiums |
$ | 554 | $ | 560 | $ | 398 | $ | 2,957 | $ | 5 | $ | 42 | $ | 4,516 | ||||||||||||||
Net investment income |
60 | 170 | 159 | 2,621 | 139 | 6 | 3,155 | |||||||||||||||||||||
Net investment gains (losses) |
— | 31 | (2 | ) | (3 | ) | (58 | ) | (32 | ) | (64 | ) | ||||||||||||||||
Policy fees and other income |
2 | (1 | ) | — | 755 | 216 | 46 | 1,018 | ||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Total revenues |
616 | 760 | 555 | 6,330 | 302 | 62 | 8,625 | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Benefits and other changes in policy reserves |
412 | 139 | 134 | 3,975 | 32 | 45 | 4,737 | |||||||||||||||||||||
Interest credited |
— | — | — | 619 | 119 | — | 738 | |||||||||||||||||||||
Acquisition and operating expenses, net of deferrals |
144 | 93 | 110 | 658 | 81 | 158 | 1,244 | |||||||||||||||||||||
Amortization of deferred acquisition costs and intangibles |
6 | 37 | 22 | 384 | 6 | 8 | 463 | |||||||||||||||||||||
Interest expense |
— | 22 | 11 | 97 | 2 | 318 | 450 | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Total benefits and expenses |
562 | 291 | 277 | 5,733 | 240 | 529 | 7,632 | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Income (loss) from continuing operations before income taxes |
54 | 469 | 278 | 597 | 62 | (467 | ) | 993 | ||||||||||||||||||||
Provision (benefit) for income taxes |
17 | 133 | 51 | 213 | 13 | (114 | ) | 313 | ||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Income (loss) from continuing operations |
37 | 336 | 227 | 384 | 49 | (353 | ) | 680 | ||||||||||||||||||||
Income from discontinued operations, net of taxes |
— | — | — | — | — | 34 | 34 | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Net income (loss) |
37 | 336 | 227 | 384 | 49 | (319 | ) | 714 | ||||||||||||||||||||
Less: net income attributable to noncontrolling interests |
— | 154 | — | — | — | — | 154 | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Net income (loss) available to Genworth Financial, Inc.’s common stockholders |
$ | 37 | $ | 182 | $ | 227 | $ | 384 | $ | 49 | $ | (319 | ) | $ | 560 | |||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following is a summary of revenues of major product groups for our segments and Corporate and Other activities for the years ended December 31:
(Amounts in millions) |
2015 | 2014 | 2013 | |||||||||
Revenues: |
||||||||||||
U.S. Mortgage Insurance segment’s revenues |
$ | 665 | $ | 639 | $ | 616 | ||||||
|
|
|
|
|
|
|||||||
Canada Mortgage Insurance segment’s revenues |
564 | 669 | 760 | |||||||||
|
|
|
|
|
|
|||||||
Australia Mortgage Insurance segment’s revenues |
474 | 537 | 555 | |||||||||
|
|
|
|
|
|
|||||||
U.S. Life Insurance segment: |
||||||||||||
Long-term care insurance |
3,752 | 3,523 | 3,316 | |||||||||
Life insurance |
1,902 | 1,981 | 1,982 | |||||||||
Fixed annuities |
891 | 1,083 | 1,032 | |||||||||
|
|
|
|
|
|
|||||||
U.S. Life Insurance segment’s revenues |
6,545 | 6,587 | 6,330 | |||||||||
|
|
|
|
|
|
|||||||
Runoff segment’s revenues |
259 | 275 | 302 | |||||||||
|
|
|
|
|
|
|||||||
Corporate and Other’s revenues |
41 | 22 | 62 | |||||||||
|
|
|
|
|
|
|||||||
Total revenues |
$ | 8,548 | $ | 8,729 | $ | 8,625 | ||||||
|
|
|
|
|
|
The following is a summary of net operating income (loss) for our segments and Corporate and Other activities and a reconciliation of net operating income (loss) for our segments and Corporate and Other activities to net income (loss) available to Genworth Financial, Inc.’s common stockholders for the years ended December 31:
(Amounts in millions) |
2015 | 2014 | 2013 | |||||||||
U.S. Mortgage Insurance segment’s net operating income |
$ | 179 | $ | 91 | $ | 37 | ||||||
|
|
|
|
|
|
|||||||
Canada Mortgage Insurance segment’s net operating income |
152 | 170 | 170 | |||||||||
|
|
|
|
|
|
|||||||
Australia Mortgage Insurance segment’s net operating income |
102 | 200 | 228 | |||||||||
|
|
|
|
|
|
|||||||
U.S. Life Insurance segment: |
||||||||||||
Long-term care insurance |
29 | (815 | ) | 129 | ||||||||
Life insurance |
(80 | ) | 74 | 173 | ||||||||
Fixed annuities |
94 | 100 | 92 | |||||||||
|
|
|
|
|
|
|||||||
U.S. Life Insurance segment’s net operating income (loss) |
43 | (641 | ) | 394 | ||||||||
|
|
|
|
|
|
|||||||
Runoff segment’s net operating income |
27 | 48 | 66 | |||||||||
|
|
|
|
|
|
|||||||
Corporate and Other’s net operating loss |
(248 | ) | (266 | ) | (310 | ) | ||||||
|
|
|
|
|
|
|||||||
Net operating income (loss) |
255 | (398 | ) | 585 | ||||||||
Net investment gains (losses), net |
(19 | ) | (5 | ) | (29 | ) | ||||||
Goodwill impairment, net |
— | (791 | ) | — | ||||||||
Gains (losses) from sale of businesses, net |
(141 | ) | — | — | ||||||||
Gains (losses) on early extinguishment of debt, net |
(2 | ) | (2 | ) | (20 | ) | ||||||
Gains (losses) from life block transactions, net |
(296 | ) | — | — | ||||||||
Expenses related to restructuring, net |
(5 | ) | — | (10 | ) | |||||||
Tax impact from potential business portfolio changes |
— | (205 | ) | — | ||||||||
|
|
|
|
|
|
|||||||
Income (loss) from continuing operations available to Genworth Financial, Inc.’s common stockholders |
(208 | ) | (1,401 | ) | 526 | |||||||
Net income attributable to noncontrolling interests |
202 | 196 | 154 | |||||||||
|
|
|
|
|
|
|||||||
Income (loss) from continuing operations |
(6 | ) | (1,205 | ) | 680 | |||||||
Income (loss) from discontinued operations, net of taxes |
(407 | ) | 157 | 34 | ||||||||
|
|
|
|
|
|
|||||||
Net income (loss) |
(413 | ) | (1,048 | ) | 714 | |||||||
Less: net income attributable to noncontrolling interests |
202 | 196 | 154 | |||||||||
|
|
|
|
|
|
|||||||
Net income (loss) available to Genworth Financial, Inc.’s common stockholders |
$ | (615 | ) | $ | (1,244 | ) | $ | 560 | ||||
|
|
|
|
|
|
The following is a summary of geographic region activity as of or for the years ended December 31:
2015 |
||||||||||||||||||||
(Amounts in millions) |
United States | Canada | Australia | Other Countries |
Total | |||||||||||||||
Total revenues |
$ | 7,483 | $ | 564 | $ | 474 | $ | 27 | $ | 8,548 | ||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Income (loss) from continuing operations |
$ | (430 | ) | $ | 258 | $ | 187 | $ | (21 | ) | $ | (6 | ) | |||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Net income (loss) |
$ | (430 | ) | $ | 258 | $ | 187 | $ | (428 | ) | $ | (413 | ) | |||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Segment assets |
$ | 98,738 | $ | 4,520 | $ | 2,987 | $ | 59 | $ | 106,304 | ||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Assets held for sale |
$ | — | $ | — | $ | — | $ | 127 | $ | 127 | ||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total assets |
$ | 98,738 | $ | 4,520 | $ | 2,987 | $ | 186 | $ | 106,431 | ||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
2014 |
||||||||||||||||||||
(Amounts in millions) |
United States | Canada | Australia | Other Countries |
Total | |||||||||||||||
Total revenues |
$ | 7,487 | $ | 669 | $ | 537 | $ | 36 | $ | 8,729 | ||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Income (loss) from continuing operations |
$ | (1,570 | ) | $ | 307 | $ | 83 | $ | (25 | ) | $ | (1,205 | ) | |||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Net income (loss) |
$ | (1,570 | ) | $ | 307 | $ | 83 | $ | 132 | $ | (1,048 | ) | ||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Segment assets |
$ | 100,690 | $ | 4,920 | $ | 3,494 | $ | 69 | $ | 109,173 | ||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Assets held for sale |
$ | — | $ | — | $ | — | $ | 2,143 | $ | 2,143 | ||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total assets |
$ | 100,690 | $ | 4,920 | $ | 3,494 | $ | 2,212 | $ | 111,316 | ||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
2013 |
||||||||||||||||||||
(Amounts in millions) |
United States | Canada | Australia | Other Countries |
Total | |||||||||||||||
Total revenues |
$ | 7,259 | $ | 760 | $ | 555 | $ | 51 | $ | 8,625 | ||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Income (loss) from continuing operations |
$ | 153 | $ | 336 | $ | 227 | $ | (36 | ) | $ | 680 | |||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Net income |
$ | 141 | $ | 336 | $ | 227 | $ | 10 | $ | 714 | ||||||||||
|
|
|
|
|
|
|
|
|
|
|
Our unaudited quarterly results of operations for the year ended December 31, 2015 are summarized in the table below.
Three months ended | ||||||||||||||||
(Amounts in millions, except per share amounts) |
March 31, 2015 |
June 30, 2015 |
September 30, 2015 |
December 31, 2015 |
||||||||||||
Total revenues (1) |
$ | 2,135 | $ | 2,157 | $ | 2,100 | $ | 2,156 | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Total benefits and expenses (2) |
$ | 1,841 | $ | 1,912 | $ | 2,451 | $ | 2,359 | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Income (loss) from continuing operations (3) |
$ | 203 | $ | 175 | $ | (217 | ) | $ | (167 | ) | ||||||
|
|
|
|
|
|
|
|
|||||||||
Income (loss) from discontinued operations, net of taxes (4) |
$ | 1 | $ | (314 | ) | $ | (21 | ) | $ | (73 | ) | |||||
|
|
|
|
|
|
|
|
|||||||||
Net income (loss) (3), (4) |
$ | 204 | $ | (139 | ) | $ | (238 | ) | $ | (240 | ) | |||||
|
|
|
|
|
|
|
|
|||||||||
Net income attributable to noncontrolling interests |
$ | 50 | $ | 54 | $ | 46 | $ | 52 | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Net income (loss) available to Genworth Financial, Inc.’s common stockholders |
$ | 154 | $ | (193 | ) | $ | (284 | ) | $ | (292 | ) | |||||
|
|
|
|
|
|
|
|
|||||||||
Income (loss) from continuing operations available to Genworth Financial, Inc.’s common stockholders per common share: |
||||||||||||||||
Basic |
$ | 0.31 | $ | 0.24 | $ | (0.53 | ) | $ | (0.44 | ) | ||||||
|
|
|
|
|
|
|
|
|||||||||
Diluted |
$ | 0.31 | $ | 0.24 | $ | (0.53 | ) | $ | (0.44 | ) | ||||||
|
|
|
|
|
|
|
|
|||||||||
Net income (loss) available to Genworth Financial, Inc.’s common stockholders per common share: |
||||||||||||||||
Basic |
$ | 0.31 | $ | (0.39 | ) | $ | (0.57 | ) | $ | (0.59 | ) | |||||
|
|
|
|
|
|
|
|
|||||||||
Diluted |
$ | 0.31 | $ | (0.39 | ) | $ | (0.57 | ) | $ | (0.59 | ) | |||||
|
|
|
|
|
|
|
|
|||||||||
Weighted-average common shares outstanding: |
||||||||||||||||
Basic |
497.0 | 497.4 | 497.4 | 497.6 | ||||||||||||
Diluted (5) |
498.9 | 499.3 | 497.4 | 497.6 |
(1) | We completed our annual review of assumptions in the fourth quarter of 2015, which primarily resulted in $12 million of higher revenue, which included $5 million of corrections related to reinsurance inputs, in our universal and term universal life insurance products. The updated assumptions reflected changes to persistency, long-term interest rates, mortality and other refinements. |
(2) | We completed our annual review of assumptions in the fourth quarter of 2015, which primarily resulted in $310 million of charges, which included $60 million of corrections related to reinsurance inputs, in our universal and term universal life insurance products. The updated assumptions reflected changes to persistency, long-term interest rates, mortality and other refinements. We also recorded an expected loss of $140 million related to the planned sale of our mortgage insurance business in Europe in the fourth quarter of 2015. |
(3) | We completed our annual review of assumptions in the fourth quarter of 2015, which primarily resulted in $194 million, net of taxes, of charges, which included $36 million, net of taxes, of corrections related to reinsurance inputs, in our universal and term universal life insurance products. We also recorded an expected loss of $134 million, net of taxes, related to the planned sale of our mortgage insurance business in Europe in the fourth quarter of 2015. |
(4) | We completed the sale of our lifestyle protection insurance business on December 1, 2015 and recorded an additional loss of $63 million, net of taxes, in the fourth quarter of 2015. The additional loss in the fourth quarter of 2015 was primarily related to the write off of currency translation adjustments on a holding company that was not part of the sale but related to our lifestyle protection insurance business that was substantially liquidated after the completion of the sale. |
(5) | Under applicable accounting guidance, companies in a loss position are required to use basic weighted-average common shares outstanding in the calculation of diluted loss per share. Therefore, as a result of our loss from continuing operations available to Genworth Financial, Inc.’s common stockholders and net loss available to Genworth Financial, Inc.’s common stockholders for the three months ended September 30, 2015 and December 31, 2015, we were required to use basic weighted-average common shares outstanding in the calculation of diluted loss per share for the three months ended September 30, 2015 and December 31, 2015, as the inclusion of shares for stock options, RSUs and SARs of 1.3 million and 1.4 million, respectively, would have been antidilutive to the calculation. If we had not incurred a loss from continuing operations available to Genworth Financial, Inc.’s common stockholders and net loss available to Genworth Financial, Inc.’s common stockholders for the three months ended September 30, 2015 and December 31, 2015, dilutive potential weighted-average common shares outstanding would have been 498.7 and 499.0 million, respectively. |
Our unaudited quarterly results of operations for the year ended December 31, 2014 are summarized in the table below.
Three months ended | ||||||||||||||||
(Amounts in millions, except per share amounts) |
March 31, 2014 |
June 30, 2014 |
September 30, 2014 |
December 31, 2014 |
||||||||||||
Total revenues |
$ | 2,116 | $ | 2,194 | $ | 2,190 | $ | 2,229 | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Total benefits and expenses (1) |
$ | 1,819 | $ | 1,886 | $ | 3,170 | $ | 3,153 | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Income (loss) from continuing operations (2) |
$ | 210 | $ | 224 | $ | (793 | ) | $ | (846 | ) | ||||||
|
|
|
|
|
|
|
|
|||||||||
Income from discontinued operations, net of taxes |
$ | 9 | $ | 4 | $ | 6 | $ | 138 | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Net income (loss) (2) |
$ | 219 | $ | 228 | $ | (787 | ) | $ | (708 | ) | ||||||
|
|
|
|
|
|
|
|
|||||||||
Net income attributable to noncontrolling interests |
$ | 35 | $ | 52 | $ | 57 | $ | 52 | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Net income (loss) available to Genworth Financial, Inc.’s common stockholders (2) |
$ | 184 | $ | 176 | $ | (844 | ) | $ | (760 | ) | ||||||
|
|
|
|
|
|
|
|
|||||||||
Income (loss) from continuing operations available to Genworth Financial, Inc.’s common stockholders per common share: |
||||||||||||||||
Basic |
$ | 0.35 | $ | 0.35 | $ | (1.71 | ) | $ | (1.81 | ) | ||||||
|
|
|
|
|
|
|
|
|||||||||
Diluted |
$ | 0.35 | $ | 0.34 | $ | (1.71 | ) | $ | (1.81 | ) | ||||||
|
|
|
|
|
|
|
|
|||||||||
Net income (loss) available to Genworth Financial, Inc.’s common stockholders per common share: |
||||||||||||||||
Basic |
$ | 0.37 | $ | 0.35 | $ | (1.70 | ) | $ | (1.53 | ) | ||||||
|
|
|
|
|
|
|
|
|||||||||
Diluted |
$ | 0.37 | $ | 0.35 | $ | (1.70 | ) | $ | (1.53 | ) | ||||||
|
|
|
|
|
|
|
|
|||||||||
Weighted-average common shares outstanding: |
||||||||||||||||
Basic |
495.8 | 496.6 | 496.6 | 496.7 | ||||||||||||
Diluted (3) |
502.7 | 503.6 | 496.6 | 496.7 |
(1) | During the fourth quarter of 2014, we completed our annual loss recognition testing of our long-term care insurance business which resulted in additional expenses of $735 million. During the fourth quarter of 2014, we also recorded goodwill impairments of $299 million in our U.S. Life Insurance segment. In the fourth quarter of 2014, we recorded a correction of $49 million in our life insurance business related to reserves on a reinsurance transaction. Our long-term care insurance claim reserves also increased in the fourth quarter of 2014 as a result of a $67 million unfavorable correction related to claims in course of settlement arising in connection with the implementation of our updated assumptions and methodologies as part of our comprehensive claims review completed in the third quarter of 2014, partially offset by a $43 million favorable refinement of assumptions for claim termination rates. |
(2) | During the fourth quarter of 2014, we completed our annual loss recognition testing of our long-term care insurance business which resulted in additional charges of $478 million, net of taxes. During the fourth quarter of 2014, we also recorded goodwill impairments of $274 million, net of taxes, in our U.S. Life Insurance segment. There was $205 million net tax impact in the fourth quarter of 2014 from potential business portfolio changes. We recognized a tax charge of $174 million in the fourth quarter of 2014 associated with our Australian mortgage insurance business as we can no longer assert our intent to permanently reinvest earnings in that business. In addition, in connection with our plans to sell our lifestyle protection insurance business, we made a change to the permanent reinvestment assertion of one of its legal entities recognizing tax expense of $31 million in the fourth quarter of 2014. We recorded a correction of $32 million, net of taxes, in our life insurance business related to reserves on a reinsurance transaction in the fourth quarter of 2014. Our long-term care insurance claim reserves also increased in the fourth quarter of 2014 as a result of a $44 million unfavorable correction related to claims in course of settlement arising in connection with the implementation of our updated assumptions and methodologies as part of our comprehensive claims review completed in the third quarter of 2014, partially offset by a $28 million favorable refinement of assumptions for claim termination rates. |
(3) | Under applicable accounting guidance, companies in a loss position are required to use basic weighted-average common shares outstanding in the calculation of diluted loss per share. Therefore, as a result of our loss from continuing operations available to Genworth Financial, Inc.’s common stockholders and net loss available to Genworth Financial, Inc.’s common stockholders for the three months ended September 30, 2014 and December 31, 2014, we were required to use basic weighted-average common shares outstanding in the calculation of diluted loss per share for the three months ended September 30, 2014 and December 31, 2014, as the inclusion of shares for stock options, RSUs and SARs of 5.4 million and 3.2 million, respectively, would have been antidilutive to the calculation. If we had not incurred a loss from continuing operations available to Genworth Financial, Inc.’s common stockholders and net loss available to Genworth Financial, Inc.’s common stockholders for the three months ended September 30, 2014 and December 31, 2014, dilutive potential weighted-average common shares outstanding would have been 502.0 million and 499.9 million, respectively. |
|
The following tables show the changes in accumulated other comprehensive income (loss), net of taxes, by component as of and for the periods indicated:
(Amounts in millions) |
Net unrealized investment gains (losses) (1) |
Derivatives qualifying as hedges (2) |
Foreign currency translation and other adjustments |
Total | ||||||||||||
Balances as of January 1, 2015 |
$ | 2,453 | $ | 2,070 | $ | (77 | ) | $ | 4,446 | |||||||
OCI before reclassifications |
(1,218 | ) | 50 | (530 | ) | (1,698 | ) | |||||||||
Amounts reclassified from (to) OCI |
5 | (75 | ) | — | (70 | ) | ||||||||||
|
|
|
|
|
|
|
|
|||||||||
Current period OCI |
(1,213 | ) | (25 | ) | (530 | ) | (1,768 | ) | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Balances as of December 31, 2015 before noncontrolling interests |
1,240 | 2,045 | (607 | ) | 2,678 | |||||||||||
Less: change in OCI attributable to noncontrolling interests |
(14 | ) | — | (318 | ) | (332 | ) | |||||||||
|
|
|
|
|
|
|
|
|||||||||
Balances as of December 31, 2015 |
$ | 1,254 | $ | 2,045 | $ | (289 | ) | $ | 3,010 | |||||||
|
|
|
|
|
|
|
|
(1) | Net of adjustments to DAC, PVFP, sales inducements and benefit reserves. See note 4 for additional information. |
(2) | See note 5 for additional information. |
(Amounts in millions) |
Net unrealized investment gains (losses) (1) |
Derivatives qualifying as hedges (2) |
Foreign currency translation and other adjustments |
Total | ||||||||||||
Balances as of January 1, 2014 |
$ | 926 | $ | 1,319 | $ | 297 | $ | 2,542 | ||||||||
OCI before reclassifications |
1,595 | 788 | (537 | ) | 1,846 | |||||||||||
Amounts reclassified from (to) OCI |
(12 | ) | (37 | ) | — | (49 | ) | |||||||||
|
|
|
|
|
|
|
|
|||||||||
Current period OCI |
1,583 | 751 | (537 | ) | 1,797 | |||||||||||
|
|
|
|
|
|
|
|
|||||||||
Balances as of December 31, 2014 before noncontrolling interests |
2,509 | 2,070 | (240 | ) | 4,339 | |||||||||||
Less: change in OCI attributable to noncontrolling interests |
56 | — | (163 | ) | (107 | ) | ||||||||||
|
|
|
|
|
|
|
|
|||||||||
Balances as of December 31, 2014 |
$ | 2,453 | $ | 2,070 | $ | (77 | ) | $ | 4,446 | |||||||
|
|
|
|
|
|
|
|
(1) | Net of adjustments to DAC, PVFP, sales inducements and benefit reserves. See note 4 for additional information. |
(2) | See note 5 for additional information. |
(Amounts in millions) |
Net unrealized investment gains (losses) (1) |
Derivatives qualifying as hedges (2) |
Foreign currency translation and other adjustments |
Total | ||||||||||||
Balances as of January 1, 2013 |
$ | 2,638 | $ | 1,909 | $ | 655 | $ | 5,202 | ||||||||
OCI before reclassifications |
(1,772 | ) | (561 | ) | (442 | ) | (2,775 | ) | ||||||||
Amounts reclassified from (to) OCI |
21 | (29 | ) | — | (8 | ) | ||||||||||
|
|
|
|
|
|
|
|
|||||||||
Current period OCI |
(1,751 | ) | (590 | ) | (442 | ) | (2,783 | ) | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Balances as of December 31, 2013 before noncontrolling interests |
887 | 1,319 | 213 | 2,419 | ||||||||||||
Less: change in OCI attributable to noncontrolling interests |
(39 | ) | — | (84 | ) | (123 | ) | |||||||||
|
|
|
|
|
|
|
|
|||||||||
Balances as of December 31, 2013 |
$ | 926 | $ | 1,319 | $ | 297 | $ | 2,542 | ||||||||
|
|
|
|
|
|
|
|
(1) | Net of adjustments to DAC, PVFP, sales inducements and benefit reserves. See note 4 for additional information. |
(2) | See note 5 for additional informatio |
The following table shows reclassifications out of accumulated other comprehensive income (loss), net of taxes, for the periods presented:
Amount reclassified from accumulated other comprehensive income (loss) |
Affected line item in the consolidated statements of income |
|||||||||||||
Years ended December 31, | ||||||||||||||
(Amounts in millions) |
2015 | 2014 | 2013 | |||||||||||
Net unrealized investment (gains) losses: |
||||||||||||||
Unrealized (gains) losses on investments (1) |
$ | 7 | $ | (19 | ) | $ | 33 | Net investment (gains) losses | ||||||
Provision for income taxes |
(2 | ) | 7 | (12 | ) | Provision for income taxes | ||||||||
|
|
|
|
|
|
|||||||||
Total |
$ | 5 | $ | (12 | ) | $ | 21 | |||||||
|
|
|
|
|
|
|||||||||
Derivatives qualifying as hedges: |
||||||||||||||
Interest rate swaps hedging assets |
$ | (85 | ) | $ | (63 | ) | $ | (47 | ) | Net investment income | ||||
Interest rate swaps hedging assets |
— | (2 | ) | (1 | ) | Net investment (gains) losses | ||||||||
Interest rate swaps hedging liabilities |
— | (1 | ) | (2 | ) | Interest expense | ||||||||
Inflation indexed swaps |
— | 9 | 5 | Net investment income | ||||||||||
Forward bond purchase commitments |
(1 | ) | — | — | Net investment income | |||||||||
Forward bond purchase commitments |
(32 | ) | — | — | Net investment (gains) losses | |||||||||
Provision for income taxes |
43 | 20 | 16 | Provision for income taxes | ||||||||||
|
|
|
|
|
|
|||||||||
Total |
$ | (75 | ) | $ | (37 | ) | $ | (29 | ) | |||||
|
|
|
|
|
|
(1) | Amounts exclude adjustments to DAC, PVFP, sales inducements and benefit reserves. |
|
A summary of the changes in ownership interests and the effect on stockholders’ equity as a result of the initial public offering of Genworth Australia was as follows for the years ended December 31:
(Amounts in millions) |
2015 | 2014 | ||||||
Net loss available to Genworth Financial, Inc.’s common stockholders |
$ | (615 | ) | $ | (1,244 | ) | ||
Transfers to the noncontrolling interests: |
||||||||
Decrease in Genworth Financial, Inc.’s additional paid-in capital for initial sale of Genworth Australia shares to noncontrolling interests |
— | (145 | ) | |||||
Decrease in Genworth Financial, Inc.’s additional paid-in capital for additional sale of Genworth Australia shares to noncontrolling interests |
(65 | ) | — | |||||
|
|
|
|
|||||
Net transfers to noncontrolling interests |
(65 | ) | (145 | ) | ||||
|
|
|
|
|||||
Change from net loss available to Genworth Financial, Inc.’s common stockholders and transfers to noncontrolling interests |
$ | (680 | ) | $ | (1,389 | ) | ||
|
|
|
|
|
The major assets and liability categories of our European mortgage insurance business were as follows as of December 31:
(Amounts in millions) |
2015 | 2014 | ||||||
Assets |
||||||||
Investments: |
||||||||
Fixed maturity securities available-for-sale, at fair value |
$ | 195 | $ | 199 | ||||
Other invested assets |
6 | 36 | ||||||
|
|
|
|
|||||
Total investments |
201 | 235 | ||||||
Cash and cash equivalents |
28 | 71 | ||||||
Accrued investment income |
3 | 4 | ||||||
Intangible assets |
— | 1 | ||||||
Reinsurance recoverable |
21 | 23 | ||||||
Other assets |
14 | — | ||||||
|
|
|
|
|||||
Assets held for sale |
267 | 334 | ||||||
Fair value less closing costs impairment |
(140 | ) | — | |||||
|
|
|
|
|||||
Total assets held for sale |
$ | 127 | $ | 334 | ||||
|
|
|
|
|||||
Liabilities |
||||||||
Liability for policy and contract claims |
$ | 56 | $ | 56 | ||||
Unearned premiums |
58 | 62 | ||||||
Other liabilities |
12 | 48 | ||||||
Deferred tax liability |
1 | — | ||||||
|
|
|
|
|||||
Liabilities held for sale |
$ | 127 | $ | 166 | ||||
|
|
|
|
The major assets and liability categories of our lifestyle protection insurance business were as follows as of December 31:
(Amounts in millions) |
2015 | 2014 | ||||||
Assets |
||||||||
Investments: |
||||||||
Fixed maturity securities available-for-sale, at fair value |
$ | — | $ | 1,171 | ||||
Equity securities available-for-sale, at fair value |
— | 7 | ||||||
Other invested assets |
— | 52 | ||||||
|
|
|
|
|||||
Total investments |
— | 1,230 | ||||||
Cash and cash equivalents |
— | 202 | ||||||
Accrued investment income |
— | 21 | ||||||
Deferred acquisition costs |
— | 193 | ||||||
Intangible assets |
— | 22 | ||||||
Reinsurance recoverable |
— | 32 | ||||||
Other assets |
— | 109 | ||||||
|
|
|
|
|||||
Assets held for sale |
$ | — | $ | 1,809 | ||||
|
|
|
|
|||||
Liabilities |
||||||||
Policyholder account balances |
$ | — | $ | 11 | ||||
Liability for policy and contract claims |
— | 106 | ||||||
Unearned premiums |
— | 439 | ||||||
Other liabilities |
— | 322 | ||||||
Deferred tax liability |
— | 50 | ||||||
|
|
|
|
|||||
Liabilities held for sale |
$ | — | $ | 928 | ||||
|
|
|
|
Summary operating results of discontinued operations were as follows for the years ended December 31:
(Amounts in millions) |
2015 | 2014 | 2013 | |||||||||
Revenues: |
||||||||||||
Premiums |
$ | 627 | $ | 731 | $ | 632 | ||||||
Net investment income |
74 | 100 | 116 | |||||||||
Net investment gains (losses) |
— | 2 | 27 | |||||||||
Policy fees and other income |
— | 3 | 3 | |||||||||
|
|
|
|
|
|
|||||||
Total revenues |
701 | 836 | 778 | |||||||||
|
|
|
|
|
|
|||||||
Benefits and expenses: |
||||||||||||
Benefits and other changes in policy reserves |
182 | 202 | 158 | |||||||||
Acquisition and operating expenses |
396 | 447 | 415 | |||||||||
Amortization of deferred acquisition costs and intangibles |
83 | 118 | 106 | |||||||||
Interest expense |
29 | 46 | 42 | |||||||||
|
|
|
|
|
|
|||||||
Total benefits and expenses |
690 | 813 | 721 | |||||||||
|
|
|
|
|
|
|||||||
Income (loss) before income taxes and loss on sale |
11 | 23 | 57 | |||||||||
Provision (benefit) for income taxes |
37 | (134 | ) | 11 | ||||||||
|
|
|
|
|
|
|||||||
Income (loss) before loss on sale |
(26 | ) | 157 | 46 | ||||||||
Loss on sale, net of taxes |
(381 | ) | — | — | ||||||||
|
|
|
|
|
|
|||||||
Income (loss) from discontinued operations, net of taxes |
$ | (407 | ) | $ | 157 | $ | 46 | |||||
|
|
|
|
|
|
Summary operating results of discontinued operations related to our wealth management business were as follows for the year ended December 31:
(Amounts in millions) |
2013 | |||
Revenues: |
||||
Policy fees and other income |
$ | 211 | ||
|
|
|||
Total revenues |
211 | |||
|
|
|||
Benefits and expenses: |
||||
Acquisition and operating expenses, net of deferrals |
178 | |||
Amortization of deferred acquisition costs and intangibles |
4 | |||
|
|
|||
Total benefits and expenses |
182 | |||
|
|
|||
Income before income taxes and other items |
29 | |||
Provision for income taxes |
12 | |||
|
|
|||
Income before other items |
17 | |||
Goodwill impairment and other loss from sale, net of taxes |
(29 | ) | ||
|
|
|||
Loss from discontinued operations, net of taxes |
$ | (12 | ) | |
|
|
|
The following table presents the condensed consolidating balance sheet information as of December 31, 2015:
(Amounts in millions) |
Parent Guarantor |
Issuer | All Other Subsidiaries |
Eliminations | Consolidated | |||||||||||||||
Assets |
||||||||||||||||||||
Investments: |
||||||||||||||||||||
Fixed maturity securities available-for-sale, at fair value |
$ | — | $ | 150 | $ | 58,247 | $ | (200 | ) | $ | 58,197 | |||||||||
Equity securities available-for-sale, at fair value |
— | — | 310 | — | 310 | |||||||||||||||
Commercial mortgage loans |
— | — | 6,170 | — | 6,170 | |||||||||||||||
Restricted commercial mortgage loans related to securitization entities |
— | — | 161 | — | 161 | |||||||||||||||
Policy loans |
— | — | 1,568 | — | 1,568 | |||||||||||||||
Other invested assets |
— | 114 | 2,198 | (3 | ) | 2,309 | ||||||||||||||
Restricted other invested assets related to securitization entities, at fair value |
— | — | 413 | — | 413 | |||||||||||||||
Investments in subsidiaries |
12,814 | 12,989 | — | (25,803 | ) | — | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total investments |
12,814 | 13,253 | 69,067 | (26,006 | ) | 69,128 | ||||||||||||||
Cash and cash equivalents |
— | 1,124 | 4,841 | — | 5,965 | |||||||||||||||
Accrued investment income |
— | — | 657 | (4 | ) | 653 | ||||||||||||||
Deferred acquisition costs |
— | — | 4,398 | — | 4,398 | |||||||||||||||
Intangible assets and goodwill |
— | — | 357 | — | 357 | |||||||||||||||
Reinsurance recoverable |
— | — | 17,245 | — | 17,245 | |||||||||||||||
Other assets |
— | 199 | 323 | (2 | ) | 520 | ||||||||||||||
Intercompany notes receivable |
— | 2 | 458 | (460 | ) | — | ||||||||||||||
Deferred tax assets |
25 | 1,038 | (908 | ) | — | 155 | ||||||||||||||
Separate account assets |
— | — | 7,883 | — | 7,883 | |||||||||||||||
Assets held for sale |
— | — | 127 | — | 127 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total assets |
$ | 12,839 | $ | 15,616 | $ | 104,448 | $ | (26,472 | ) | $ | 106,431 | |||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Liabilities and stockholders’ equity |
||||||||||||||||||||
Liabilities: |
||||||||||||||||||||
Future policy benefits |
$ | — | $ | — | $ | 36,475 | $ | — | $ | 36,475 | ||||||||||
Policyholder account balances |
— | — | 26,209 | — | 26,209 | |||||||||||||||
Liability for policy and contract claims |
— | — | 8,095 | — | 8,095 | |||||||||||||||
Unearned premiums |
— | — | 3,308 | — | 3,308 | |||||||||||||||
Other liabilities |
13 | 279 | 2,722 | (10 | ) | 3,004 | ||||||||||||||
Intercompany notes payable |
2 | 658 | — | (660 | ) | — | ||||||||||||||
Borrowings related to securitization entities |
— | — | 179 | — | 179 | |||||||||||||||
Non-recourse funding obligations |
— | — | 1,920 | — | 1,920 | |||||||||||||||
Long-term borrowings |
— | 4,078 | 492 | — | 4,570 | |||||||||||||||
Deferred tax liability |
— | — | 24 | — | 24 | |||||||||||||||
Separate account liabilities |
— | — | 7,883 | — | 7,883 | |||||||||||||||
Liabilities held for sale |
— | — | 127 | — | 127 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total liabilities |
15 | 5,015 | 87,434 | (670 | ) | 91,794 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Equity: |
||||||||||||||||||||
Common stock |
1 | — | — | — | 1 | |||||||||||||||
Additional paid-in capital |
11,949 | 9,097 | 17,007 | (26,104 | ) | 11,949 | ||||||||||||||
Accumulated other comprehensive income (loss) |
3,010 | 3,116 | 3,028 | (6,144 | ) | 3,010 | ||||||||||||||
Retained earnings |
564 | (1,612 | ) | (5,134 | ) | 6,746 | 564 | |||||||||||||
Treasury stock, at cost |
(2,700 | ) | — | — | — | (2,700 | ) | |||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total Genworth Financial, Inc.’s stockholders’ equity |
12,824 | 10,601 | 14,901 | (25,502 | ) | 12,824 | ||||||||||||||
Noncontrolling interests |
— | — | 2,113 | (300 | ) | 1,813 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total equity |
12,824 | 10,601 | 17,014 | (25,802 | ) | 14,637 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total liabilities and equity |
$ | 12,839 | $ | 15,616 | $ | 104,448 | $ | (26,472 | ) | $ | 106,431 | |||||||||
|
|
|
|
|
|
|
|
|
|
The following table presents the condensed consolidating balance sheet information as of December 31, 2014:
(Amounts in millions) |
Parent Guarantor |
Issuer | All Other Subsidiaries |
Eliminations | Consolidated | |||||||||||||||
Assets |
||||||||||||||||||||
Investments: |
||||||||||||||||||||
Fixed maturity securities available-for-sale, at fair value |
$ | — | $ | 150 | $ | 61,127 | $ | (200 | ) | $ | 61,077 | |||||||||
Equity securities available-for-sale, at fair value |
— | — | 275 | — | 275 | |||||||||||||||
Commercial mortgage loans |
— | — | 6,100 | — | 6,100 | |||||||||||||||
Restricted commercial mortgage loans related to securitization entities |
— | — | 201 | — | 201 | |||||||||||||||
Policy loans |
— | — | 1,501 | — | 1,501 | |||||||||||||||
Other invested assets |
— | 14 | 2,199 | (5 | ) | 2,208 | ||||||||||||||
Restricted other invested assets related to securitization entities, at fair value |
— | — | 411 | — | 411 | |||||||||||||||
Investments in subsidiaries |
14,895 | 15,003 | — | (29,898 | ) | — | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total investments |
14,895 | 15,167 | 71,814 | (30,103 | ) | 71,773 | ||||||||||||||
Cash and cash equivalents |
— | 953 | 3,692 | — | 4,645 | |||||||||||||||
Accrued investment income |
— | — | 664 | (4 | ) | 660 | ||||||||||||||
Deferred acquisition costs |
— | — | 4,852 | — | 4,852 | |||||||||||||||
Intangible assets and goodwill |
— | — | 265 | — | 265 | |||||||||||||||
Reinsurance recoverable |
— | — | 17,291 | — | 17,291 | |||||||||||||||
Other assets |
2 | 183 | 295 | (1 | ) | 479 | ||||||||||||||
Intercompany notes receivable |
9 | 267 | 395 | (671 | ) | — | ||||||||||||||
Separate account assets |
— | — | 9,208 | — | 9,208 | |||||||||||||||
Assets held for sale |
— | — | 2,143 | — | 2,143 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total assets |
$ | 14,906 | $ | 16,570 | $ | 110,619 | $ | (30,779 | ) | $ | 111,316 | |||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Liabilities and stockholders’ equity |
||||||||||||||||||||
Liabilities: |
||||||||||||||||||||
Future policy benefits |
$ | — | $ | — | $ | 35,915 | $ | — | $ | 35,915 | ||||||||||
Policyholder account balances |
— | — | 26,032 | — | 26,032 | |||||||||||||||
Liability for policy and contract claims |
— | — | 7,881 | — | 7,881 | |||||||||||||||
Unearned premiums |
— | — | 3,485 | — | 3,485 | |||||||||||||||
Other liabilities |
3 | 251 | 2,991 | (11 | ) | 3,234 | ||||||||||||||
Intercompany notes payable |
— | 604 | 267 | (871 | ) | — | ||||||||||||||
Borrowings related to securitization entities |
— | — | 219 | — | 219 | |||||||||||||||
Non-recourse funding obligations |
— | — | 1,981 | — | 1,981 | |||||||||||||||
Long-term borrowings |
— | 4,127 | 485 | — | 4,612 | |||||||||||||||
Deferred tax liability |
(20 | ) | (970 | ) | 1,848 | — | 858 | |||||||||||||
Separate account liabilities |
— | — | 9,208 | — | 9,208 | |||||||||||||||
Liabilities held for sale |
— | — | 1,094 | — | 1,094 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total liabilities |
(17 | ) | 4,012 | 91,406 | (882 | ) | 94,519 | |||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Equity: |
||||||||||||||||||||
Common stock |
1 | — | — | — | 1 | |||||||||||||||
Additional paid-in capital |
11,997 | 9,162 | 17,080 | (26,242 | ) | 11,997 | ||||||||||||||
Accumulated other comprehensive income (loss) |
4,446 | 4,449 | 4,459 | (8,908 | ) | 4,446 | ||||||||||||||
Retained earnings |
1,179 | (1,053 | ) | (4,205 | ) | 5,258 | 1,179 | |||||||||||||
Treasury stock, at cost |
(2,700 | ) | — | — | — | (2,700 | ) | |||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total Genworth Financial, Inc.’s stockholders’ equity |
14,923 | 12,558 | 17,334 | (29,892 | ) | 14,923 | ||||||||||||||
Noncontrolling interests |
— | — | 1,879 | (5 | ) | 1,874 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total equity |
14,923 | 12,558 | 19,213 | (29,897 | ) | 16,797 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total liabilities and equity |
$ | 14,906 | $ | 16,570 | $ | 110,619 | $ | (30,779 | ) | $ | 111,316 | |||||||||
|
|
|
|
|
|
|
|
|
|
The following table presents the condensed consolidating income statement information for the year ended December 31, 2015:
(Amounts in millions) |
Parent Guarantor |
Issuer | All Other Subsidiaries |
Eliminations | Consolidated | |||||||||||||||
Revenues: |
||||||||||||||||||||
Premiums |
$ | — | $ | — | $ | 4,579 | $ | — | $ | 4,579 | ||||||||||
Net investment income |
(3 | ) | 1 | 3,154 | (14 | ) | 3,138 | |||||||||||||
Net investment gains (losses) |
— | 43 | (118 | ) | — | (75 | ) | |||||||||||||
Policy fees and other income |
— | (32 | ) | 940 | (2 | ) | 906 | |||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total revenues |
(3 | ) | 12 | 8,555 | (16 | ) | 8,548 | |||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Benefits and expenses: |
||||||||||||||||||||
Benefits and other changes in policy reserves |
— | — | 5,149 | — | 5,149 | |||||||||||||||
Interest credited |
— | — | 720 | — | 720 | |||||||||||||||
Acquisition and operating expenses, net of deferrals |
32 | 2 | 1,275 | — | 1,309 | |||||||||||||||
Amortization of deferred acquisition costs and intangibles |
— | — | 966 | — | 966 | |||||||||||||||
Interest expense |
— | 307 | 128 | (16 | ) | 419 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total benefits and expenses |
32 | 309 | 8,238 | (16 | ) | 8,563 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Income (loss) from continuing operations before income taxes and equity in income (loss) of subsidiaries |
(35 | ) | (297 | ) | 317 | — | (15 | ) | ||||||||||||
Provision (benefit) for income taxes |
(8 | ) | (103 | ) | 102 | — | (9 | ) | ||||||||||||
Equity in income (loss) of subsidiaries |
(579 | ) | (463 | ) | — | 1,042 | — | |||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Income (loss) from continuing operations |
(606 | ) | (657 | ) | 215 | 1,042 | (6 | ) | ||||||||||||
Income (loss) from discontinued operations, net of taxes |
(9 | ) | — | (398 | ) | — | (407 | ) | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Net income (loss) |
(615 | ) | (657 | ) | (183 | ) | 1,042 | (413 | ) | |||||||||||
Less: net income attributable to noncontrolling interests |
— | — | 202 | — | 202 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Net income (loss) available to Genworth Financial, Inc.’s common stockholders |
$ | (615 | ) | $ | (657 | ) | $ | (385 | ) | $ | 1,042 | $ | (615 | ) | ||||||
|
|
|
|
|
|
|
|
|
|
The following table presents the condensed consolidating income statement information for the year ended December 31, 2014:
(Amounts in millions) |
Parent Guarantor |
Issuer | All Other Subsidiaries |
Eliminations | Consolidated | |||||||||||||||
Revenues: |
||||||||||||||||||||
Premiums |
$ | — | $ | — | $ | 4,700 | $ | — | $ | 4,700 | ||||||||||
Net investment income |
(2 | ) | — | 3,159 | (15 | ) | 3,142 | |||||||||||||
Net investment gains (losses) |
— | 4 | (26 | ) | — | (22 | ) | |||||||||||||
Policy fees and other income |
— | (4 | ) | 914 | (1 | ) | 909 | |||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total revenues |
(2 | ) | — | 8,747 | (16 | ) | 8,729 | |||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Benefits and expenses: |
||||||||||||||||||||
Benefits and other changes in policy reserves |
— | — | 6,418 | — | 6,418 | |||||||||||||||
Interest credited |
— | — | 737 | — | 737 | |||||||||||||||
Acquisition and operating expenses, net of deferrals |
21 | — | 1,117 | — | 1,138 | |||||||||||||||
Amortization of deferred acquisition costs and intangibles |
— | — | 453 | — | 453 | |||||||||||||||
Goodwill impairment |
— | — | 849 | — | 849 | |||||||||||||||
Interest expense |
— | 321 | 128 | (16 | ) | 433 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total benefits and expenses |
21 | 321 | 9,702 | (16 | ) | 10,028 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Income (loss) from continuing operations before income taxes and equity in income (loss) of subsidiaries |
(23 | ) | (321 | ) | (955 | ) | — | (1,299 | ) | |||||||||||
Provision (benefit) for income taxes |
(8 | ) | (112 | ) | 30 | (4 | ) | (94 | ) | |||||||||||
Equity in income (loss) of subsidiaries |
(1,229 | ) | (1,147 | ) | — | 2,376 | — | |||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Income (loss) from continuing operations |
(1,244 | ) | (1,356 | ) | (985 | ) | 2,380 | (1,205 | ) | |||||||||||
Income (loss) from discontinued operations, net of taxes |
— | — | 157 | — | 157 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Net income (loss) |
(1,244 | ) | (1,356 | ) | (828 | ) | 2,380 | (1,048 | ) | |||||||||||
Less: net income attributable to noncontrolling interests |
— | — | 196 | — | 196 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Net income (loss) available to Genworth Financial, Inc.’s common stockholders |
$ | (1,244 | ) | $ | (1,356 | ) | $ | (1,024 | ) | $ | 2,380 | $ | (1,244 | ) | ||||||
|
|
|
|
|
|
|
|
|
|
The following table presents the condensed consolidating income statement information for the year ended December 31, 2013:
(Amounts in millions) |
Parent Guarantor |
Issuer | All Other Subsidiaries |
Eliminations | Consolidated | |||||||||||||||
Revenues: |
||||||||||||||||||||
Premiums |
$ | — | $ | — | $ | 4,516 | $ | — | $ | 4,516 | ||||||||||
Net investment income |
(1 | ) | 1 | 3,170 | (15 | ) | 3,155 | |||||||||||||
Net investment gains (losses) |
— | 6 | (70 | ) | — | (64 | ) | |||||||||||||
Policy fees and other income |
— | — | 1,022 | (4 | ) | 1,018 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total revenues |
(1 | ) | 7 | 8,638 | (19 | ) | 8,625 | |||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Benefits and expenses: |
||||||||||||||||||||
Benefits and other changes in policy reserves |
— | — | 4,737 | — | 4,737 | |||||||||||||||
Interest credited |
— | — | 738 | — | 738 | |||||||||||||||
Acquisition and operating expenses, net of deferrals |
33 | 32 | 1,179 | — | 1,244 | |||||||||||||||
Amortization of deferred acquisition costs and intangibles |
— | — | 463 | — | 463 | |||||||||||||||
Interest expense |
— | 322 | 147 | (19 | ) | 450 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total benefits and expenses |
33 | 354 | 7,264 | (19 | ) | 7,632 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Income (loss) from continuing operations before income taxes and equity in income (loss) of subsidiaries |
(34 | ) | (347 | ) | 1,374 | — | 993 | |||||||||||||
Provision (benefit) for income taxes |
13 | (120 | ) | 420 | — | 313 | ||||||||||||||
Equity in income (loss) of subsidiaries |
607 | 796 | — | (1,403 | ) | — | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Income from continuing operations |
560 | 569 | 954 | (1,403 | ) | 680 | ||||||||||||||
Income (loss) from discontinued operations, net of taxes |
— | (29 | ) | 63 | — | 34 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Net income |
560 | 540 | 1,017 | (1,403 | ) | 714 | ||||||||||||||
Less: net income attributable to noncontrolling interests |
— | — | 154 | — | 154 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Net income available to Genworth Financial, Inc.’s common stockholders |
$ | 560 | $ | 540 | $ | 863 | $ | (1,403 | ) | $ | 560 | |||||||||
|
|
|
|
|
|
|
|
|
|
The following table presents the condensed consolidating comprehensive income statement information for the year ended December 31, 2015:
(Amounts in millions) |
Parent Guarantor |
Issuer | All Other Subsidiaries |
Eliminations | Consolidated | |||||||||||||||
Net income (loss) |
$ | (615 | ) | $ | (657 | ) | $ | (183 | ) | $ | 1,042 | $ | (413 | ) | ||||||
Other comprehensive income (loss), net of taxes: |
||||||||||||||||||||
Net unrealized gains (losses) on securities not other-than-temporarily impaired |
(1,181 | ) | (1,158 | ) | (1,210 | ) | 2,340 | (1,209 | ) | |||||||||||
Net unrealized gains (losses) on other-than-temporarily impaired securities |
(4 | ) | (4 | ) | (4 | ) | 8 | (4 | ) | |||||||||||
Derivatives qualifying as hedges |
(25 | ) | (24 | ) | (19 | ) | 43 | (25 | ) | |||||||||||
Foreign currency translation and other adjustments |
(250 | ) | (171 | ) | (530 | ) | 421 | (530 | ) | |||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total other comprehensive income (loss) |
(1,460 | ) | (1,357 | ) | (1,763 | ) | 2,812 | (1,768 | ) | |||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total comprehensive income (loss) |
(2,075 | ) | (2,014 | ) | (1,946 | ) | 3,854 | (2,181 | ) | |||||||||||
Less: comprehensive income attributable to noncontrolling interests |
— | — | (106 | ) | — | (106 | ) | |||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total comprehensive income (loss) available to Genworth Financial, Inc.’s common stockholders |
$ | (2,075 | ) | $ | (2,014 | ) | $ | (1,840 | ) | $ | 3,854 | $ | (2,075 | ) | ||||||
|
|
|
|
|
|
|
|
|
|
The following table presents the condensed consolidating comprehensive income statement information for the year ended December 31, 2014:
(Amounts in millions) |
Parent Guarantor |
Issuer | All Other Subsidiaries |
Eliminations | Consolidated | |||||||||||||||
Net income (loss) |
$ | (1,244 | ) | $ | (1,356 | ) | $ | (828 | ) | $ | 2,380 | $ | (1,048 | ) | ||||||
Other comprehensive income (loss), net of taxes: |
||||||||||||||||||||
Net unrealized gains (losses) on securities not other-than-temporarily impaired |
1,539 | 1,510 | 1,573 | (3,049 | ) | 1,573 | ||||||||||||||
Net unrealized gains (losses) on other-than- temporarily impaired securities |
10 | 11 | 10 | (21 | ) | 10 | ||||||||||||||
Derivatives qualifying as hedges |
751 | 751 | 794 | (1,545 | ) | 751 | ||||||||||||||
Foreign currency translation and other adjustments |
(339 | ) | (273 | ) | (537 | ) | 612 | (537 | ) | |||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total other comprehensive income (loss) |
1,961 | 1,999 | 1,840 | (4,003 | ) | 1,797 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total comprehensive income (loss) |
717 | 643 | 1,012 | (1,623 | ) | 749 | ||||||||||||||
Less: comprehensive income attributable to noncontrolling interests |
— | — | 32 | — | 32 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total comprehensive income (loss) available to Genworth Financial, Inc.’s common stockholders |
$ | 717 | $ | 643 | $ | 980 | $ | (1,623 | ) | $ | 717 | |||||||||
|
|
|
|
|
|
|
|
|
|
The following table presents the condensed consolidating comprehensive income statement information for the year ended December 31, 2013:
(Amounts in millions) |
Parent Guarantor |
Issuer | All Other Subsidiaries |
Eliminations | Consolidated | |||||||||||||||
Net income |
$ | 560 | $ | 540 | $ | 1,017 | $ | (1,403 | ) | $ | 714 | |||||||||
Other comprehensive income (loss), net of taxes: |
||||||||||||||||||||
Net unrealized gains (losses) on securities not other-than-temporarily impaired |
(1,778 | ) | (1,733 | ) | (1,817 | ) | 3,511 | (1,817 | ) | |||||||||||
Net unrealized gains (losses) on other-than- temporarily impaired securities |
66 | 65 | 66 | (131 | ) | 66 | ||||||||||||||
Derivatives qualifying as hedges |
(590 | ) | (590 | ) | (615 | ) | 1,205 | (590 | ) | |||||||||||
Foreign currency translation and other adjustments |
(358 | ) | (335 | ) | (442 | ) | 693 | (442 | ) | |||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total other comprehensive income (loss) |
(2,660 | ) | (2,593 | ) | (2,808 | ) | 5,278 | (2,783 | ) | |||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total comprehensive income (loss) |
(2,100 | ) | (2,053 | ) | (1,791 | ) | 3,875 | (2,069 | ) | |||||||||||
Less: comprehensive income attributable to noncontrolling interests |
— | — | 31 | — | 31 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total comprehensive income (loss) available to Genworth Financial, Inc.’s common stockholders |
$ | (2,100 | ) | $ | (2,053 | ) | $ | (1,822 | ) | $ | 3,875 | $ | (2,100 | ) | ||||||
|
|
|
|
|
|
|
|
|
|
The following table presents the condensed consolidating cash flow statement information for the year ended December 31, 2015:
(Amounts in millions) |
Parent Guarantor |
Issuer | All Other Subsidiaries |
Eliminations | Consolidated | |||||||||||||||
Cash flows from operating activities: |
||||||||||||||||||||
Net income (loss) |
$ | (615 | ) | $ | (657 | ) | $ | (183 | ) | $ | 1,042 | $ | (413 | ) | ||||||
Less (income) loss from discontinued operations, net of taxes |
9 | — | 398 | — | 407 | |||||||||||||||
Adjustments to reconcile net income (loss) to net cash from operating activities: |
||||||||||||||||||||
Equity in (income) loss from subsidiaries |
579 | 463 | — | (1,042 | ) | — | ||||||||||||||
Dividends from subsidiaries |
— | 530 | (530 | ) | — | — | ||||||||||||||
Loss on sale of subsidiaries |
— | — | 141 | — | 141 | |||||||||||||||
Amortization of fixed maturity discounts and premiums and limited partnerships |
— | — | (106 | ) | — | (106 | ) | |||||||||||||
Net investment losses (gains) |
— | (43 | ) | 118 | — | 75 | ||||||||||||||
Charges assessed to policyholders |
— | — | (788 | ) | — | (788 | ) | |||||||||||||
Acquisition costs deferred |
— | — | (293 | ) | — | (293 | ) | |||||||||||||
Amortization of deferred acquisition costs and intangibles |
— | — | 966 | — | 966 | |||||||||||||||
Deferred income taxes |
(4 | ) | (65 | ) | (127 | ) | — | (196 | ) | |||||||||||
Net increase (decrease) in trading securities, held-for-sale investments and derivative instruments |
— | 41 | (280 | ) | — | (239 | ) | |||||||||||||
Stock-based compensation expense |
21 | — | (5 | ) | — | 16 | ||||||||||||||
Change in certain assets and liabilities: |
||||||||||||||||||||
Accrued investment income and other assets |
3 | 13 | (123 | ) | 1 | (106 | ) | |||||||||||||
Insurance reserves |
— | — | 1,847 | — | 1,847 | |||||||||||||||
Current tax liabilities |
(3 | ) | 18 | (30 | ) | — | (15 | ) | ||||||||||||
Other liabilities, policy and contract claims and other policy-related balances |
2 | (38 | ) | 328 | 1 | 293 | ||||||||||||||
Cash from operating activities—held for sale |
— | — | 2 | — | 2 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Net cash from operating activities |
(8 | ) | 262 | 1,335 | 2 | 1,591 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Cash flows from investing activities: |
||||||||||||||||||||
Proceeds from maturities and repayments of investments: |
||||||||||||||||||||
Fixed maturity securities |
— | 1 | 4,540 | — | 4,541 | |||||||||||||||
Commercial mortgage loans |
— | — | 882 | — | 882 | |||||||||||||||
Restricted commercial mortgage loans related to securitization entities |
— | — | 41 | — | 41 | |||||||||||||||
Proceeds from sales of investments: |
||||||||||||||||||||
Fixed maturity and equity securities |
— | — | 4,391 | — | 4,391 | |||||||||||||||
Purchases and originations of investments: |
||||||||||||||||||||
Fixed maturity and equity securities |
— | — | (9,750 | ) | — | (9,750 | ) | |||||||||||||
Commercial mortgage loans |
— | — | (956 | ) | — | (956 | ) | |||||||||||||
Other invested assets, net |
— | (100 | ) | 277 | (2 | ) | 175 | |||||||||||||
Policy loans, net |
— | — | 25 | — | 25 | |||||||||||||||
Intercompany notes receivable |
9 | 265 | (63 | ) | (211 | ) | — | |||||||||||||
Capital contributions to subsidiaries |
— | (25 | ) | 25 | — | — | ||||||||||||||
Proceeds from sale of a subsidiary, net of cash transferred |
— | — | 273 | — | 273 | |||||||||||||||
Payments for businesses purchased, net of cash acquired |
— | (197 | ) | 197 | — | — | ||||||||||||||
Cash from investing activities—held for sale |
— | — | (26 | ) | — | (26 | ) | |||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Net cash from investing activities |
9 | (56 | ) | (144 | ) | (213 | ) | (404 | ) | |||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Cash flows from financing activities: |
||||||||||||||||||||
Deposits to universal life and investment contracts |
— | — | 2,257 | — | 2,257 | |||||||||||||||
Withdrawals from universal life and investment contracts |
— | — | (2,144 | ) | — | (2,144 | ) | |||||||||||||
Redemption and repurchase of non-recourse funding obligations |
— | — | (61 | ) | — | (61 | ) | |||||||||||||
Proceeds from the issuance of long-term debt |
— | — | 150 | — | 150 | |||||||||||||||
Repayment and repurchase of long-term debt |
— | (50 | ) | (70 | ) | — | (120 | ) | ||||||||||||
Repayment of borrowings related to securitization entities |
— | — | (36 | ) | — | (36 | ) | |||||||||||||
Proceeds from intercompany notes payable |
2 | 54 | (267 | ) | 211 | — | ||||||||||||||
Repurchase of subsidiary shares |
— | — | (68 | ) | — | (68 | ) | |||||||||||||
Dividends paid to noncontrolling interests |
— | — | (157 | ) | — | (157 | ) | |||||||||||||
Proceeds from the sale of subsidiary shares to noncontrolling interests |
— | — | 226 | — | 226 | |||||||||||||||
Other, net |
(3 | ) | (39 | ) | (56 | ) | — | (98 | ) | |||||||||||
Cash from financing activities—held for sale |
— | — | 9 | — | 9 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Net cash from financing activities |
(1 | ) | (35 | ) | (217 | ) | 211 | (42 | ) | |||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Effect of exchange rate changes on cash and cash equivalents |
— | — | (70 | ) | — | (70 | ) | |||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Net change in cash and cash equivalents |
— | 171 | 904 | — | 1,075 | |||||||||||||||
Cash and cash equivalents at beginning of period |
— | 953 | 3,965 | — | 4,918 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Cash and cash equivalents at end of period |
— | 1,124 | 4,869 | — | 5,993 | |||||||||||||||
Less cash and cash equivalents held for sale at end of period |
— | — | 28 | — | 28 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Cash and cash equivalents of continuing operations at end of period |
$ | — | $ | 1,124 | $ | 4,841 | $ | — | $ | 5,965 | ||||||||||
|
|
|
|
|
|
|
|
|
|
The following table presents the condensed consolidating cash flow statement information for the year ended December 31, 2014:
(Amounts in millions) |
Parent Guarantor |
Issuer | All Other Subsidiaries |
Eliminations | Consolidated | |||||||||||||||
Cash flows from operating activities: |
||||||||||||||||||||
Net income (loss) |
$ | (1,244 | ) | $ | (1,356 | ) | $ | (828 | ) | $ | 2,380 | $ | (1,048 | ) | ||||||
Less (income) loss from discontinued operations, net of taxes |
— | — | (157 | ) | — | (157 | ) | |||||||||||||
Adjustments to reconcile net income (loss) to net cash from operating activities: |
||||||||||||||||||||
Equity in (income) loss from subsidiaries |
1,229 | 1,147 | — | (2,376 | ) | — | ||||||||||||||
Dividends from subsidiaries |
— | 630 | (630 | ) | — | — | ||||||||||||||
Amortization of fixed maturity discounts and premiums and limited partnerships |
— | — | (111 | ) | — | (111 | ) | |||||||||||||
Net investment losses (gains) |
— | (4 | ) | 26 | — | 22 | ||||||||||||||
Charges assessed to policyholders |
— | — | (777 | ) | — | (777 | ) | |||||||||||||
Acquisition costs deferred |
— | — | (383 | ) | — | (383 | ) | |||||||||||||
Amortization of deferred acquisition costs and intangibles |
— | — | 453 | — | 453 | |||||||||||||||
Goodwill impairment |
— | — | 849 | — | 849 | |||||||||||||||
Deferred income taxes |
4 | (146 | ) | (195 | ) | (4 | ) | (341 | ) | |||||||||||
Net increase (decrease) in trading securities, held-for-sale investments and derivative instruments |
— | 1 | 205 | — | 206 | |||||||||||||||
Stock-based compensation expense |
21 | — | 7 | — | 28 | |||||||||||||||
Change in certain assets and liabilities: |
||||||||||||||||||||
Accrued investment income and other assets |
(4 | ) | (9 | ) | (151 | ) | 1 | (163 | ) | |||||||||||
Insurance reserves |
— | — | 2,497 | — | 2,497 | |||||||||||||||
Current tax liabilities |
(2 | ) | (77 | ) | (117 | ) | — | (196 | ) | |||||||||||
Other liabilities, policy and contract claims and other policy-related balances |
11 | 91 | 1,421 | (6 | ) | 1,517 | ||||||||||||||
Cash from operating activities-held for sale |
— | — | 42 | — | 42 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Net cash from operating activities |
15 | 277 | 2,151 | (5 | ) | 2,438 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Cash flows from investing activities: |
||||||||||||||||||||
Proceeds from maturities and repayments of investments: |
||||||||||||||||||||
Fixed maturity securities |
— | 150 | 5,048 | — | 5,198 | |||||||||||||||
Commercial mortgage loans |
— | — | 765 | — | 765 | |||||||||||||||
Restricted commercial mortgage loans related to securitization entities |
— | — | 32 | — | 32 | |||||||||||||||
Proceeds from sales of investments: |
||||||||||||||||||||
Fixed maturity and equity securities |
— | — | 2,386 | — | 2,386 | |||||||||||||||
Purchases and originations of investments: |
||||||||||||||||||||
Fixed maturity and equity securities |
— | (150 | ) | (9,038 | ) | — | (9,188 | ) | ||||||||||||
Commercial mortgage loans |
— | — | (967 | ) | — | (967 | ) | |||||||||||||
Other invested assets, net |
— | — | (40 | ) | 5 | (35 | ) | |||||||||||||
Policy loans, net |
— | — | 12 | — | 12 | |||||||||||||||
Intercompany notes receivable |
(1 | ) | (19 | ) | (2 | ) | 22 | — | ||||||||||||
Capital contributions to subsidiaries |
(12 | ) | — | 12 | — | — | ||||||||||||||
Cash from investing activities-held for sale |
— | — | (39 | ) | — | (39 | ) | |||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Net cash from investing activities |
(13 | ) | (19 | ) | (1,831 | ) | 27 | (1,836 | ) | |||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Cash flows from financing activities: |
||||||||||||||||||||
Deposits to universal life and investment contracts |
— | — | 2,993 | — | 2,993 | |||||||||||||||
Withdrawals from universal life and investment contracts |
— | — | (2,588 | ) | — | (2,588 | ) | |||||||||||||
Redemption and repurchase of non-recourse funding obligations |
— | — | (42 | ) | — | (42 | ) | |||||||||||||
Proceeds from the issuance of long-term debt |
— | — | 144 | — | 144 | |||||||||||||||
Repayment and repurchase of long-term debt |
— | (485 | ) | (136 | ) | — | (621 | ) | ||||||||||||
Repayment of borrowings related to securitization entities |
— | — | (32 | ) | — | (32 | ) | |||||||||||||
Proceeds from intercompany notes payable |
— | 3 | 19 | (22 | ) | — | ||||||||||||||
Repurchase of subsidiary shares |
— | — | (28 | ) | — | (28 | ) | |||||||||||||
Dividends paid to noncontrolling interests |
— | — | (75 | ) | — | (75 | ) | |||||||||||||
Proceeds from the sale of subsidiary shares to noncontrolling interests |
— | — | 517 | — | 517 | |||||||||||||||
Other, net |
(2 | ) | (42 | ) | 14 | — | (30 | ) | ||||||||||||
Cash from financing activities-held for sale |
— | — | (33 | ) | — | (33 | ) | |||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Net cash from financing activities |
(2 | ) | (524 | ) | 753 | (22 | ) | 205 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Effect of exchange rate changes on cash and cash equivalents |
— | — | (103 | ) | — | (103 | ) | |||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Net change in cash and cash equivalents |
— | (266 | ) | 970 | — | 704 | ||||||||||||||
Cash and cash equivalents at beginning of period |
— | 1,219 | 2,995 | — | 4,214 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Cash and cash equivalents at end of period |
— | 953 | 3,965 | — | 4,918 | |||||||||||||||
Less cash and cash equivalents held for sale at end of period |
— | — | 273 | — | 273 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Cash and cash equivalents of continuing operations at end of period |
$ | — | $ | 953 | $ | 3,692 | $ | — | $ | 4,645 | ||||||||||
|
|
|
|
|
|
|
|
|
|
The following table presents the condensed consolidating cash flow statement information for the year ended December 31, 2013:
(Amounts in millions) |
Parent Guarantor |
Issuer | All Other Subsidiaries |
Eliminations | Consolidated | |||||||||||||||
Cash flows from operating activities: |
||||||||||||||||||||
Net income (loss) |
$ | 560 | $ | 540 | $ | 1,017 | $ | (1,403 | ) | $ | 714 | |||||||||
Less income from discontinued operations, net of taxes |
— | 29 | (63 | ) | — | (34 | ) | |||||||||||||
Adjustments to reconcile net income (loss) to net cash from operating activities: |
||||||||||||||||||||
Equity in (income) loss from subsidiaries |
(607 | ) | (796 | ) | — | 1,403 | — | |||||||||||||
Dividends from subsidiaries |
535 | 376 | (497 | ) | (414 | ) | — | |||||||||||||
Amortization of fixed maturity discounts and premiums and limited partnerships |
— | — | (105 | ) | — | (105 | ) | |||||||||||||
Net investment losses (gains) |
— | (6 | ) | 70 | — | 64 | ||||||||||||||
Charges assessed to policyholders |
— | — | (812 | ) | — | (812 | ) | |||||||||||||
Acquisition costs deferred |
— | — | (363 | ) | — | (363 | ) | |||||||||||||
Amortization of deferred acquisition costs and intangibles |
— | — | 463 | — | 463 | |||||||||||||||
Deferred income taxes |
24 | (138 | ) | 14 | — | (100 | ) | |||||||||||||
Net increase (decrease) in trading securities, held-for-sale investments and derivative instruments |
— | 1 | (60 | ) | — | (59 | ) | |||||||||||||
Stock-based compensation expense |
26 | — | 13 | — | 39 | |||||||||||||||
Change in certain assets and liabilities: |
||||||||||||||||||||
Accrued investment income and other assets |
2 | 67 | (122 | ) | — | (53 | ) | |||||||||||||
Insurance reserves |
— | — | 1,644 | — | 1,644 | |||||||||||||||
Current tax liabilities |
3 | 45 | 293 | — | 341 | |||||||||||||||
Other liabilities, policy and contract claims and other policy-related balances |
(4 | ) | (11 | ) | (346 | ) | — | (361 | ) | |||||||||||
Cash from operating activities—held for sale |
— | — | 21 | — | 21 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Net cash from operating activities |
539 | 107 | 1,167 | (414 | ) | 1,399 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Cash flows from investing activities: |
||||||||||||||||||||
Proceeds from maturities and repayments of investments: |
||||||||||||||||||||
Fixed maturity securities |
— | — | 4,891 | — | 4,891 | |||||||||||||||
Commercial mortgage loans |
— | — | 896 | — | 896 | |||||||||||||||
Restricted commercial mortgage loans related to securitization entities |
— | — | 60 | — | 60 | |||||||||||||||
Proceeds from sales of investments: |
||||||||||||||||||||
Fixed maturity and equity securities |
— | 150 | 3,997 | — | 4,147 | |||||||||||||||
Purchases and originations of investments: |
||||||||||||||||||||
Fixed maturity and equity securities |
— | (150 | ) | (10,308 | ) | — | (10,458 | ) | ||||||||||||
Commercial mortgage loans |
— | — | (873 | ) | — | (873 | ) | |||||||||||||
Other invested assets, net |
— | — | 65 | — | 65 | |||||||||||||||
Policy loans, net |
— | — | 242 | — | 242 | |||||||||||||||
Intercompany notes receivable |
(8 | ) | (3 | ) | 95 | (84 | ) | — | ||||||||||||
Capital contributions to subsidiaries |
(531 | ) | (1 | ) | 532 | — | — | |||||||||||||
Proceeds from sale of a subsidiary, net of cash transferred |
— | 425 | (60 | ) | — | 365 | ||||||||||||||
Cash from investing activities—held for sale |
— | (30 | ) | 115 | — | 85 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Net cash from investing activities |
(539 | ) | 391 | (348 | ) | (84 | ) | (580 | ) | |||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Cash flows from financing activities: |
||||||||||||||||||||
Deposits to universal life and investment contracts |
— | — | 2,999 | — | 2,999 | |||||||||||||||
Withdrawals from universal life and investment contracts |
— | — | (3,269 | ) | — | (3,269 | ) | |||||||||||||
Redemption and repurchase of non-recourse funding obligations |
— | — | (28 | ) | — | (28 | ) | |||||||||||||
Proceeds from the issuance of long-term debt |
— | 793 | — | — | 793 | |||||||||||||||
Repayment and repurchase of long-term debt |
— | (365 | ) | — | — | (365 | ) | |||||||||||||
Repayment of borrowings related to securitization entities |
— | — | (108 | ) | — | (108 | ) | |||||||||||||
Proceeds from intercompany notes payable |
— | (87 | ) | 3 | 84 | — | ||||||||||||||
Repurchase of subsidiary shares |
— | — | (43 | ) | — | (43 | ) | |||||||||||||
Dividends paid to noncontrolling interests |
— | — | (52 | ) | — | (52 | ) | |||||||||||||
Dividends paid to parent |
— | (414 | ) | — | 414 | — | ||||||||||||||
Other, net |
— | (49 | ) | (4 | ) | — | (53 | ) | ||||||||||||
Cash from financing activities—held for sale |
— | — | (23 | ) | — | (23 | ) | |||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Net cash from financing activities |
— | (122 | ) | (525 | ) | 498 | (149 | ) | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Effect of exchange rate changes on cash and cash equivalents |
— | — | (109 | ) | — | (109 | ) | |||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Net change in cash and cash equivalents |
— | 376 | 185 | — | 561 | |||||||||||||||
Cash and cash equivalents at beginning of period |
— | 843 | 2,810 | — | 3,653 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Cash and cash equivalents at end of period |
— | 1,219 | 2,995 | — | 4,214 | |||||||||||||||
Less cash and cash equivalents held for sale at end of period |
— | — | 557 | — | 557 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Cash and cash equivalents of continuing operations at end of period |
$ | — | $ | 1,219 | $ | 2,438 | $ | — | $ | 3,657 | ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
|
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
|
|||||||||||||||||||||||||||||||||||||||||
|
|
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
|
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
|
|
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
|
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
|
|
|
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
|
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
|
|||||||||||||||||||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
|
|
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
|
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
|
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
|
|||||||||||||||||||||||||||||
|
|
|
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
|
|
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
|
|||||||||||||||||||||||||||||||||||||||||||
|
|
|
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
|
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||||||||||||||
|
|
|
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
|
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
|
|
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
|
|
|
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
|
|
|
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
|
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
|
|
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
|
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
|
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
|
|
|
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
|
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
|
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
|
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
|
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
|
|
|
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
|
|
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
|
|
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
|
|
|
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
|
|
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
|
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
|
|
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
|
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
|
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
|
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
|
|
|