GENWORTH FINANCIAL INC, 10-Q filed on 5/2/2013
Quarterly Report
Document and Entity Information
3 Months Ended
Mar. 31, 2013
Apr. 22, 2013
Document Information [Line Items]
 
 
Document Type
10-Q 
 
Amendment Flag
false 
 
Document Period End Date
Mar. 31, 2013 
 
Document Fiscal Year Focus
2013 
 
Document Fiscal Period Focus
Q1 
 
Trading Symbol
GNW 
 
Entity Registrant Name
GENWORTH FINANCIAL INC 
 
Entity Central Index Key
0001276520 
 
Current Fiscal Year End Date
--12-31 
 
Entity Filer Category
Large Accelerated Filer 
 
Entity Common Stock, Shares Outstanding
 
493,092,184 
Condensed Consolidated Balance Sheets (USD $)
In Millions, unless otherwise specified
Mar. 31, 2013
Dec. 31, 2012
Assets
 
 
Fixed maturity securities available-for-sale, at fair value
$ 61,082 
$ 62,161 
Equity securities available-for-sale, at fair value
490 
518 
Commercial mortgage loans
5,866 
5,872 
Restricted commercial mortgage loans related to securitization entities
324 
341 
Policy loans
1,606 
1,601 
Other invested assets
2,982 
3,493 
Restricted other invested assets related to securitization entities, at fair value
399 
393 
Total investments
72,749 
74,379 
Cash and cash equivalents
3,797 
3,632 
Accrued investment income
769 
715 
Deferred acquisition costs
5,050 
5,036 
Intangible assets
346 
366 
Goodwill
868 
868 
Reinsurance recoverable
17,211 
17,230 
Other assets
706 
710 
Separate account assets
10,140 
9,937 
Assets associated with discontinued operations
439 
439 
Total assets
112,075 
113,312 
Liabilities and stockholders' equity
 
 
Future policy benefits
33,601 
33,505 
Policyholder account balances
25,886 
26,262 
Liability for policy and contract claims
7,343 
7,509 
Unearned premiums
4,193 
4,333 
Other liabilities ($123 and $133 other liabilities related to securitization entities)
5,028 
5,239 
Borrowings related to securitization entities ($71 and $62 at fair value)
329 
336 
Non-recourse funding obligations
2,062 
2,066 
Long-term borrowings
4,766 
4,776 
Deferred tax liability
1,132 
1,507 
Separate account liabilities
10,140 
9,937 
Liabilities associated with discontinued operations
86 
61 
Total liabilities
94,566 
95,531 
Commitments and contingencies
   
   
Stockholders' equity:
 
 
Class A common stock, $0.001 par value; 1.5 billion shares authorized; 581 million and 580 million shares issued as of March 31, 2013 and December 31, 2012, respectively; 493 million and 492 million shares outstanding as of March 31, 2013 and December 31, 2012, respectively
Additional paid-in capital
12,131 
12,127 
Net unrealized investment gains (losses):
 
 
Net unrealized gains (losses) on securities not other-than-temporarily impaired
2,471 
2,692 
Net unrealized gains (losses) on other-than-temporarily impaired securities
(28)
(54)
Net unrealized investment gains (losses)
2,443 1
2,638 1
Derivatives qualifying as hedges
1,799 2
1,909 2
Foreign currency translation and other adjustments
582 
655 
Total accumulated other comprehensive income (loss)
4,824 
5,202 
Retained earnings
1,966 
1,863 
Treasury stock, at cost (88 million shares as of March 31, 2013 and December 31, 2012)
(2,700)
(2,700)
Total Genworth's stockholders' equity
16,222 
16,493 
Noncontrolling interests
1,287 
1,288 
Total stockholders' equity
17,509 
17,781 
Total liabilities and stockholders' equity
$ 112,075 
$ 113,312 
Condensed Consolidated Balance Sheets (Parenthetical) (USD $)
In Millions, except Share data, unless otherwise specified
Mar. 31, 2013
Dec. 31, 2012
Other liabilities, securitization entities
$ 123 
$ 133 
Borrowings related to securitization entities, at fair value
$ 71 
$ 62 
Class A Common Stock, par value
$ 0.001 
$ 0.001 
Class A Common Stock, shares authorized
1,500,000,000 
1,500,000,000 
Class A Common Stock, shares issued
581,000,000 
580,000,000 
Class A Common Stock, shares outstanding
493,000,000 
492,000,000 
Treasury stock, shares
88,000,000 
88,000,000 
Condensed Consolidated Statements of Income (USD $)
In Millions, except Per Share data, unless otherwise specified
3 Months Ended
Mar. 31, 2013
Mar. 31, 2012
Revenues:
 
 
Premiums
$ 1,261 
$ 1,106 
Net investment income
814 
832 
Net investment gains (losses)
(61)
37 
Insurance and investment product fees and other
289 
340 
Total revenues
2,303 
2,315 
Benefits and expenses:
 
 
Benefits and other changes in policy reserves
1,201 
1,232 
Interest credited
184 
195 
Acquisition and operating expenses, net of deferrals
433 
440 
Amortization of deferred acquisition costs and intangibles
122 
271 
Interest expense
126 
95 
Total benefits and expenses
2,066 
2,233 
Income from continuing operations before income taxes
237 
82 
Provision for income taxes
76 
15 
Income from continuing operations
161 
67 
Income (loss) from discontinued operations, net of taxes
(20)
12 
Net income
141 
79 
Less: net income attributable to noncontrolling interests
38 
33 
Net income available to Genworth's common stockholders
103 
46 
Income from continuing operations available to Genworth's common stockholders per common share:
 
 
Basic
$ 0.25 
$ 0.07 
Diluted
$ 0.25 
$ 0.07 
Net income available to Genworth's common stockholders per common share:
 
 
Basic
$ 0.21 
$ 0.09 
Diluted
$ 0.21 
$ 0.09 
Weighted-average common shares outstanding:
 
 
Basic
492.5 
491.2 
Diluted
496.8 
495.7 
Supplemental disclosures:
 
 
Total other-than-temporary impairments
(12)
(16)
Portion of other-than-temporary impairments included in other comprehensive income (loss)
 
(1)
Net other-than-temporary impairments
(12)
(17)
Other investments gains (losses)
(49)
54 
Net investment gains (losses)
$ (61)
$ 37 
Condensed Consolidated Statements of Comprehensive Income (USD $)
In Millions, unless otherwise specified
3 Months Ended
Mar. 31, 2013
Mar. 31, 2012
Net income
$ 141 
$ 79 
Other comprehensive income (loss), net of taxes:
 
 
Net unrealized gains (losses) on securities not other-than-temporarily impaired
(217)
(185)
Net unrealized gains (losses) on other-than-temporarily impaired securities
26 
21 
Derivatives qualifying as hedges
(110)1
(329)1
Foreign currency translation and other adjustments
(104)
116 
Total other comprehensive income (loss)
(405)
(377)
Total comprehensive income (loss)
(264)
(298)
Less: comprehensive income attributable to noncontrolling interests
11 
47 
Total comprehensive income (loss) available to Genworth's common stockholders
$ (275)
$ (345)
Condensed Consolidated Statement of Changes in Stockholders' Equity (USD $)
In Millions, unless otherwise specified
Total
Common stock
Additional paid-in capital
Accumulated other comprehensive income (loss)
Retained earnings
Treasury stock, at cost
Total Genworth's stockholders' equity
Noncontrolling interests
Balances at Dec. 31, 2011
$ 16,132 
$ 1 
$ 12,136 
$ 4,047 
$ 1,538 
$ (2,700)
$ 15,022 
$ 1,110 
Comprehensive income (loss):
 
 
 
 
 
 
 
 
Net income
79 
   
   
   
46 
   
46 
33 
Net unrealized gains (losses) on securities not other-than-temporarily impaired
(185)
   
   
(179)
   
   
(179)
(6)
Net unrealized gains (losses) on other-than-temporarily impaired securities
21 
   
   
21 
   
   
21 
   
Derivatives qualifying as hedges
(329)1
   
   
(329)
   
   
(329)
   
Foreign currency translation and other adjustments
116 
   
   
96 
   
   
96 
20 
Total comprehensive income (loss)
(298)
 
 
 
 
 
(345)
47 
Dividends to noncontrolling interests
(12)
   
   
   
   
   
   
(12)
Stock-based compensation expense and exercises and other
14 
   
14 
   
   
   
14 
   
Balances at Mar. 31, 2012
15,836 
12,150 
3,656 
1,584 
(2,700)
14,691 
1,145 
Balances at Dec. 31, 2012
17,781 
12,127 
5,202 
1,863 
(2,700)
16,493 
1,288 
Comprehensive income (loss):
 
 
 
 
 
 
 
 
Net income
141 
   
   
   
103 
   
103 
38 
Net unrealized gains (losses) on securities not other-than-temporarily impaired
(217)
   
   
(221)
   
   
(221)
Net unrealized gains (losses) on other-than-temporarily impaired securities
26 
   
   
26 
   
   
26 
   
Derivatives qualifying as hedges
(110)1
   
   
(110)
   
   
(110)
   
Foreign currency translation and other adjustments
(104)
   
   
(73)
   
   
(73)
(31)
Total comprehensive income (loss)
(264)
 
 
 
 
 
(275)
11 
Dividends to noncontrolling interests
(13)
   
   
   
   
   
   
(13)
Stock-based compensation expense and exercises and other
   
   
   
   
Balances at Mar. 31, 2013
$ 17,509 
$ 1 
$ 12,131 
$ 4,824 
$ 1,966 
$ (2,700)
$ 16,222 
$ 1,287 
Condensed Consolidated Statements of Cash Flows (USD $)
In Millions, unless otherwise specified
3 Months Ended
Mar. 31, 2013
Mar. 31, 2012
Cash flows from operating activities:
 
 
Net income
$ 141 
$ 79 
Less (income) loss from discontinued operations, net of taxes
20 
(12)
Adjustments to reconcile net income to net cash from operating activities:
 
 
Amortization of fixed maturity discounts and premiums and limited partnerships
(5)
(19)
Net investment losses (gains)
61 
(37)
Charges assessed to policyholders
(202)
(187)
Acquisition costs deferred
(105)
(154)
Amortization of deferred acquisition costs and intangibles
122 
271 
Deferred income taxes
(182)
21 
Net increase (decrease) in trading securities, held-for-sale investments and derivative instruments
(27)
(45)
Stock-based compensation expense
Change in certain assets and liabilities:
 
 
Accrued investment income and other assets
(42)
(99)
Insurance reserves
541 
369 
Current tax liabilities
202 
(87)
Other liabilities and other policy-related balances
(474)
(370)
Cash from operating activities-discontinued operations
Net cash from operating activities
60 
(252)
Cash flows from investing activities:
 
 
Fixed maturity securities
1,212 
969 
Commercial mortgage loans
212 
142 
Restricted commercial mortgage loans related to securitization entities
17 
14 
Proceeds from sales of investments:
 
 
Fixed maturity and equity securities
1,310 
1,717 
Purchases and originations of investments:
 
 
Fixed maturity and equity securities
(2,069)
(3,049)
Commercial mortgage loans
(203)
(81)
Other invested assets, net
(26)
436 
Policy loans, net
 
(6)
Cash from investing activities-discontinued operations
 
(18)
Net cash from investing activities
453 
124 
Cash flows from financing activities:
 
 
Deposits to universal life and investment contracts
445 
662 
Withdrawals from universal life and investment contracts
(678)
(600)
Redemption and repurchase of non-recourse funding obligations
(4)
(563)
Proceeds from the issuance of long-term debt
 
361 
Repayment of borrowings related to securitization entities
(17)
(19)
Dividends paid to noncontrolling interests
(13)
(12)
Other, net
(32)
(17)
Cash from financing activities-discontinued operations
 
(1)
Net cash from financing activities
(299)
(189)
Effect of exchange rate changes on cash and cash equivalents
(48)
16 
Net change in cash and cash equivalents
166 
(301)
Cash and cash equivalents at beginning of period
3,653 
4,488 
Cash and cash equivalents at end of period
3,819 
4,187 
Less cash and cash equivalents of discontinued operations at end of period
22 
35 
Cash and cash equivalents of continuing operations at end of period
$ 3,797 
$ 4,152 
Formation of Genworth and Basis of Presentation
Formation of Genworth and Basis of Presentation

(1) Formation of Genworth and Basis of Presentation

Genworth Holdings, Inc. (formerly known as Genworth Financial, Inc.) was incorporated in Delaware on October 23, 2003. On April 1, 2013, Genworth completed a holding company reorganization as further described in note 11. The accompanying condensed 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. All intercompany accounts and transactions have been eliminated in consolidation.

We have the following operating segments:

 

   

U.S. Life Insurance. We offer and manage a variety of insurance and fixed annuity products. Our primary insurance products include life insurance, long-term care insurance and fixed annuities.

 

   

International Mortgage Insurance. We are a leading provider of mortgage insurance products and related services in Canada and Australia and also participate in select European and other countries. Our products predominantly insure prime-based, individually underwritten residential mortgage loans, also known as flow mortgage insurance. On a selective basis, we also provide mortgage insurance on a structured, or bulk, basis that aids in the sale of mortgages to the capital markets and helps lenders manage capital and risk. Additionally, we offer services, analytical tools and technology that enable lenders to operate efficiently and manage risk.

 

   

U.S. Mortgage Insurance. In the United States, we offer mortgage insurance products predominantly insuring prime-based, individually underwritten residential mortgage loans, also known as flow mortgage insurance. We selectively provide mortgage insurance on a bulk basis with essentially all of our bulk writings prime-based. Additionally, we offer services, analytical tools and technology that enable lenders to operate efficiently and manage risk.

 

   

International Protection. We are a leading provider of payment protection coverages (referred to as lifestyle protection) in multiple European countries and have operations in select other countries. Our lifestyle protection insurance products primarily help consumers meet specified payment obligations should they become unable to pay due to accident, illness, involuntary unemployment, disability or death.

 

   

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”). In January 2011, we discontinued new sales of retail and group variable annuities while continuing to service our existing blocks of business.

We also have Corporate and Other activities which include debt financing expenses that are incurred at our holding company 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. On March 27, 2013, we announced that we had agreed to sell 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, and the sale is expected to close in the second half of 2013. As a result, this business has been accounted for as discontinued operations and its financial position, results of operations and cash flows are separately reported for all periods presented. Our wealth management business, previously a separate segment, is separately presented as discontinued operations and all prior periods reflected herein have been re-presented on this basis. See note 10 for additional information.

The accompanying condensed consolidated financial statements are unaudited and have been prepared in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”) and rules and regulations of the U.S. Securities and Exchange Commission (“SEC”). 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. These condensed consolidated financial statements include all adjustments (including normal recurring adjustments) considered necessary by management to present a fair statement of the financial position, results of operations and cash flows for the periods presented. The results reported in these condensed consolidated financial statements should not be regarded as necessarily indicative of results that may be expected for the entire year. The condensed consolidated financial statements included herein should be read in conjunction with the audited consolidated financial statements and related notes contained in our 2012 Annual Report on Form 10-K. Certain prior year amounts have been reclassified to conform to the current year presentation.

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. Our historical accounting practice was to account for these premium refunds as a reduction in premiums upon payment. In the first quarter of 2013, we determined that we should have been recording a liability for premiums received on the delinquent loans where our practice was to refund post-delinquent premiums. This error was not material to our consolidated financial condition, results of operations or cash flows as presented in our previously filed annual and quarterly financial statements; however, the adjustment to correct the cumulative effect of this error would have been material if recorded in the first quarter of 2013. We restated our financial statements to correct this error for all periods presented herein. The cumulative decrease to retained earnings was $46 million as of January 1, 2012.

The following table summarizes the impact on our consolidated balance sheet as of December 31, 2012 to reflect the recording of a liability for premiums received on the delinquent loans expected to be refunded upon claim in our U.S. mortgage insurance business:

 

(Amounts in millions)

   As previously
reported(1)
     Premium
restatement
    As restated  

Liabilities and stockholders’ equity

       

Liabilities:

       

Other liabilities

   $ 5,171       $ 68      $ 5,239   

Deferred tax liability

   $ 1,531       $ (24   $ 1,507   

Total liabilities

   $ 95,487       $ 44      $ 95,531   

Stockholders’ equity:

       

Retained earnings

   $ 1,907       $ (44   $ 1,863   

Total Genworth’s stockholders’ equity

   $ 16,537       $ (44   $ 16,493   

 

(1) 

Previously reported has been adjusted for our wealth management business that is now reported as discontinued operations. See note 10 for additional information on discontinued operations.

 

The following table summarizes the impact on our consolidated statement of income for the three months ended March 31, 2012 to reflect the recording of a liability for premiums received on the delinquent loans expected to be refunded upon claim in our U.S. mortgage insurance business:

 

(Amounts in millions)

   As previously
reported(1)
     Premium
restatement
    As restated  

Revenues:

       

Premiums

   $ 1,107       $   (1)    $ 1,106   

Total revenues

   $ 2,316       $   (1)    $ 2,315   

Income from continuing operations before income taxes

   $ 83       $   (1)    $ 82   

Income from continuing operations

   $ 68       $   (1)    $ 67   

Net income

   $ 80       $   (1)    $ 79   

Net income available to Genworth’s common stockholders

   $ 47       $   (1)    $ 46   

Net income available to Genworth’s common stockholders per common share:

       

Basic

   $ 0.09       $ —       $ 0.09   

Diluted

   $ 0.09       $ —       $ 0.09   

 

(1) 

Previously reported has been adjusted for our wealth management business that is now reported as discontinued operations. See note 10 for additional information on discontinued operations.

Total comprehensive income (loss) for the three months ended March 31, 2012 changed by an amount consistent with net income above.

In our previously reported condensed consolidated statement of cash flows for the three months ended March 31, 2012, net income in cash flows from operating activities has been restated by a decrease of $1 million with an offsetting increase to other liabilities and other policy-related balances in cash flows from operating activities. The restatement had no effect on total cash flows from operating, investing or financing activities in the three months ended March 31, 2012.

Accounting Changes
Accounting Changes

(2) Accounting Changes

On January 1, 2013, we adopted new accounting guidance for disclosures about offsetting assets and liabilities. This guidance requires an entity to disclose information about offsetting and related arrangements to enable users to understand the effect of those arrangements on its financial position. The adoption of this accounting guidance impacted our disclosures only and did not impact our consolidated results.

On January 1, 2013, we adopted new accounting guidance related to the presentation of the reclassification of items out of accumulated other comprehensive income into net income. The adoption of this accounting guidance impacted our disclosures only and did not impact our consolidated results.

Earnings Per Share
Earnings Per Share

(3) Earnings Per Share

Basic and diluted earnings per share are calculated by dividing each income category presented below by the weighted-average basic and diluted shares outstanding for the periods indicated:

 

     Three months ended
March 31,
 

(Amounts in millions, except per share amounts)

   2013     2012  

Weighted-average shares used in basic earnings per common share calculations

     492.5        491.2   

Potentially dilutive securities:

    

Stock options, restricted stock units and stock appreciation rights

     4.3        4.5   
  

 

 

   

 

 

 

Weighted-average shares used in diluted earnings per common share calculations

     496.8        495.7   
  

 

 

   

 

 

 
    

Income from continuing operations:

    

Income from continuing operations

   $ 161      $ 67   

Less: income from continuing operations attributable to noncontrolling interests

     38        33   
  

 

 

   

 

 

 

Income from continuing operations available to Genworth’s common stockholders

   $ 123      $ 34   
  

 

 

   

 

 

 

Basic per common share

   $ 0.25      $ 0.07   
  

 

 

   

 

 

 

Diluted per common share

   $ 0.25      $ 0.07   
  

 

 

   

 

 

 

Income (loss) from discontinued operations:

    

Income (loss) from discontinued operations, net of taxes

   $ (20   $ 12   

Less: income from discontinued operations, net of taxes, attributable to noncontrolling interests

     —         —    
  

 

 

   

 

 

 

Income (loss) from discontinued operations, net of taxes, available to Genworth’s common stockholders

   $ (20   $ 12   
  

 

 

   

 

 

 

Basic per common share

   $ (0.04   $ 0.03   
  

 

 

   

 

 

 

Diluted per common share

   $ (0.04   $ 0.02   
  

 

 

   

 

 

 

Net income:

    

Income from continuing operations

   $ 161      $ 67   

Income (loss) from discontinued operations, net of taxes

     (20     12   
  

 

 

   

 

 

 

Net income

     141        79   

Less: net income attributable to noncontrolling interests

     38        33   
  

 

 

   

 

 

 

Net income available to Genworth’s common stockholders

   $ 103      $ 46   
  

 

 

   

 

 

 

Basic per common share

   $ 0.21      $ 0.09   
  

 

 

   

 

 

 

Diluted per common share

   $ 0.21      $ 0.09   
  

 

 

   

 

 

 
Investments
Investments

(4) Investments

(a) Net Investment Income

Sources of net investment income were as follows for the periods indicated:

 

     Three months ended
March 31,
 

(Amounts in millions)

   2013     2012  

Fixed maturity securities—taxable

   $ 656      $ 660   

Fixed maturity securities—non-taxable

     2        4   

Commercial mortgage loans

     82        84   

Restricted commercial mortgage loans related to securitization entities

     7        9   

Equity securities

     4        4   

Other invested assets

     48        53   

Policy loans

     32        31   

Cash, cash equivalents and short-term investments

     7        10   
  

 

 

   

 

 

 

Gross investment income before expenses and fees

     838        855   

Expenses and fees

     (24     (23
  

 

 

   

 

 

 

Net investment income

   $ 814      $ 832   
  

 

 

   

 

 

 

(b) Net Investment Gains (Losses)

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

 

     Three months ended
March 31,
 

(Amounts in millions)

   2013     2012  

Available-for-sale securities:

    

Realized gains

   $ 40      $ 63   

Realized losses

     (66     (46
  

 

 

   

 

 

 

Net realized gains (losses) on available-for-sale securities

     (26     17   
  

 

 

   

 

 

 

Impairments:

    

Total other-than-temporary impairments

     (12     (16

Portion of other-than-temporary impairments included in other comprehensive income (loss)

     —         (1
  

 

 

   

 

 

 

Net other-than-temporary impairments

     (12     (17
  

 

 

   

 

 

 

Trading securities

     10        (25

Commercial mortgage loans

     2        2   

Net gains related to securitization entities

     7        34   

Derivative instruments (1)

     (42     26   

Contingent consideration adjustment

     1        —    

Other

     (1     —    
  

 

 

   

 

 

 

Net investment gains (losses)

   $ (61   $ 37   
  

 

 

   

 

 

 

 

(1) 

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 periods ended March 31, 2013 and 2012 was $577 million and $357 million, respectively, which was approximately 90% of book value for both periods.

The following represents the activity for credit losses recognized in net income on debt securities where an other-than-temporary impairment was identified and a portion of other-than-temporary impairments was included in other comprehensive income (loss) (“OCI”) as of and for the three months ended March 31:

 

(Amounts in millions)

   2013     2012  

Beginning balance

   $ 387      $ 646   

Additions:

    

Other-than-temporary impairments not previously recognized

     2        2   

Increases related to other-than-temporary impairments previously recognized

     4        13   

Reductions:

    

Securities sold, paid down or disposed

     (142     (51
  

 

 

   

 

 

 

Ending balance

   $ 251      $ 610   
  

 

 

   

 

 

 

(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 the dates indicated:

 

(Amounts in millions)

   March 31, 2013     December 31, 2012  

Net unrealized gains (losses) on investment securities:

    

Fixed maturity securities

   $ 5,684      $ 6,086   

Equity securities

     44        34   

Other invested assets

     (5     (8
  

 

 

   

 

 

 

Subtotal

     5,723        6,112   

Adjustments to deferred acquisition costs, present value of future profits, sales inducements and benefit reserves

     (1,820     (1,925

Income taxes, net

     (1,364     (1,457
  

 

 

   

 

 

 

Net unrealized investment gains (losses)

     2,539        2,730   

Less: net unrealized investment gains (losses) attributable to noncontrolling interests

     96        92   
  

 

 

   

 

 

 

Net unrealized investment gains (losses) attributable to Genworth

   $ 2,443      $ 2,638   
  

 

 

   

 

 

 

 

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 three months ended March 31:

 

(Amounts in millions)

   2013     2012  

Beginning balance

   $ 2,638      $ 1,485   

Unrealized gains (losses) arising during the period:

    

Unrealized gains (losses) on investment securities

     (427     (212

Adjustment to deferred acquisition costs

     16        (47

Adjustment to present value of future profits

     1        11   

Adjustment to sales inducements

     (3     (10

Adjustment to benefit reserves

     91        1   

Provision for income taxes

     106        93   
  

 

 

   

 

 

 

Change in unrealized gains (losses) on investment securities

     (216     (164

Reclassification adjustments to net investment (gains) losses, net of taxes of $(13) and $—

     25        —    
  

 

 

   

 

 

 

Change in net unrealized investment gains (losses)

     (191     (164

Less: change in net unrealized investment gains (losses) attributable to noncontrolling interests

     4        (6
  

 

 

   

 

 

 

Ending balance

   $ 2,443      $ 1,327   
  

 

 

   

 

 

 

(d) Fixed Maturity and Equity Securities

As of March 31, 2013, 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:

 

          Gross unrealized gains     Gross unrealized losses        

(Amounts in millions)

  Amortized
cost or
cost
    Not other-than-
temporarily
impaired
    Other-than-
temporarily
impaired
    Not other-than-
temporarily
impaired
    Other-than-
temporarily
impaired
    Fair
value
 

Fixed maturity securities:

           

U.S. government, agencies and government-sponsored enterprises

  $ 4,510      $ 924      $ —       $ (53   $ —       $ 5,381   

Tax-exempt

    277        14        —         (21     —         270   

Government—non-U.S.

    2,132        215        —         (2     —         2,345   

U.S. corporate

    22,954        3,073        20        (111     —         25,936   

Corporate—non-U.S.

    14,421        1,158        —         (39     —         15,540   

Residential mortgage-backed

    5,542        535        10        (82     (63     5,942   

Commercial mortgage-backed

    2,948        162        3        (46     (11     3,056   

Other asset-backed

    2,620        51        —         (57     (2     2,612   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total fixed maturity securities

    55,404        6,132        33        (411     (76     61,082   

Equity securities

    446        47        —         (3     —         490   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total available-for-sale securities

  $ 55,850      $ 6,179      $ 33      $ (414   $ (76   $ 61,572   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

As of December 31, 2012, 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:

 

           Gross unrealized gains     Gross unrealized losses        

(Amounts in millions)

  Amortized
cost or

cost
    Not other-than-
temporarily
impaired
    Other-than-
temporarily
impaired
    Not other-than-
temporarily
impaired
    Other-than-
temporarily
impaired
    Fair
value
 

Fixed maturity securities:

           

U.S. government, agencies and government-sponsored enterprises

  $ 4,484      $ 1,025      $ —       $ (18   $ —        $ 5,491   

Tax-exempt

    308        16        —          (30     —          294   

Government—non-U.S.

    2,173        250        —          (1     —          2,422   

U.S. corporate

    22,873        3,317        19        (104     —          26,105   

Corporate—non-U.S.

    14,577        1,262        —          (47     —          15,792   

Residential mortgage-backed

    5,744        549        13        (124     (101     6,081   

Commercial mortgage-backed

    3,253        178        5        (82     (21     3,333   

Other asset-backed

    2,660        50        —          (65     (2     2,643   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total fixed maturity securities

    56,072        6,647        37        (471     (124     62,161   

Equity securities

    483        41        —          (6     —          518   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total available-for-sale securities

  $ 56,555      $ 6,688      $ 37      $ (477   $ (124   $ 62,679   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

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 March 31, 2013:

 

    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 (2)
    Number of
securities
 

Description of Securities

                 

Fixed maturity securities:

                 

U.S. government, agencies and government-sponsored enterprises

  $ 766      $ (53     22      $ —        $ —          —        $ 766      $ (53     22   

Tax-exempt

    —          —          —          112        (21 )       10        112        (21 )       10   

Government—non-U.S.

    133        (2     18        —          —          —          133        (2 )       18   

U.S. corporate

    1,579        (50     211        529        (61 )       47        2,108        (111     258   

Corporate—non-U.S.

    1,184        (17     138        241        (22 )       20        1,425        (39 )       158   

Residential mortgage-backed

    277        (2     42        360        (143     227        637        (145     269   

Commercial mortgage-backed

    172        (2     23        533        (55 )       92        705        (57 )       115   

Other asset-backed

    153        (1     31        150        (58 )       16        303        (59 )       47   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Subtotal, fixed maturity
securities

    4,264        (127     485        1,925        (360     412        6,189        (487     897   

Equity securities

    43        (2     47        12        (1 )       6        55        (3 )       53   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total for securities in an unrealized loss position

  $ 4,307      $ (129     532      $ 1,937      $ (361     418      $ 6,244      $ (490     950   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

% Below cost—fixed maturity securities:

                 

<20% Below cost

  $ 4,257      $ (125     479      $ 1,624      $ (143     267      $ 5,881      $ (268     746   

20%-50% Below cost

    7        (2     6        272        (138     92        279        (140     98   

>50% Below cost

    —          —          —          29        (79 )       53        29        (79 )       53   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total fixed maturity securities

    4,264        (127     485        1,925        (360     412        6,189        (487     897   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

% Below cost—equity securities:

                 

<20% Below cost

    43        (2     47        12        (1 )       6        55        (3 )       53   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total equity securities

    43        (2     47        12        (1 )       6        55        (3 )       53   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total for securities in an unrealized loss position

  $ 4,307      $ (129     532      $ 1,937      $ (361     418      $ 6,244      $ (490     950   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Investment grade

  $ 4,070      $ (121     439      $ 1,157      $ (162     175      $ 5,227      $ (283     614   

Below investment grade (3)

    237        (8     93        780        (199     243        1,017        (207     336   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total for securities in an unrealized loss position

  $ 4,307      $ (129     532      $ 1,937      $ (361     418      $ 6,244      $ (490     950   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

(1) 

Amounts included $75 million of unrealized losses on other-than-temporarily impaired securities.

(2) 

Amounts included $76 million of unrealized losses on other-than-temporarily impaired securities.

(3) 

Amounts that have been in a continuous loss position for 12 months or more included $74 million of unrealized losses on other-than-temporarily impaired securities.

As indicated in the table 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 lower credit ratings since acquisition for corporate securities across various industry sectors. For securities that have been in a continuous unrealized loss for less than 12 months, the average fair value percentage below cost was approximately 3% as of March 31, 2013.

Fixed Maturity Securities In A Continuous Unrealized Loss Position For 12 Months Or More

Of the $143 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 61% of the unrealized losses were related to investment grade securities as of March 31, 2013. These unrealized losses were attributable to the lower credit ratings for these securities since acquisition, primarily associated with corporate securities in the finance and insurance sector. The average fair value percentage below cost for these securities was approximately 8% as of March 31, 2013. See below for additional discussion related to fixed maturity securities that have been in a continuous 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 loss position for 12 months or more by asset class as of March 31, 2013:

 

    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:

               

Tax-exempt

  $ 16      $ (6     1     2      $ —        $ —          —       —     

U.S. corporate

    18        (5     1        1        —          —          —          —     

Corporate—non-U.S.

    32        (15     3        7        —          —          —          —     

Structured securities:

               

Residential mortgage-backed

    21        (12     2        9        2        (3     1        6   

Commercial mortgage-backed

    2        (1     —          2        —          (1     —          1   

Other asset-backed

    51        (32     7        3        —          —          —          —     
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total structured securities

    74        (45     9        14        2        (4     1        7   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total

  $ 140      $ (71     14     24      $ 2      $ (4     1     7   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

     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

  $ 2      $ (1     —       3      $ —        $ —          —       —     

Structured securities:

               

Residential mortgage-backed

    94        (44     9        52        18        (61     12        41   

Commercial

               

mortgage-backed

    22        (12     2        12        3        (4     1        3   

Other asset-backed

    14        (10     2        1        6        (10     2        2   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total structured securities

    130        (66     13        65        27        (75     15        46   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total

  $ 132      $ (67     13     68      $ 27      $ (75     15     46   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

For all securities in an unrealized loss position, we expect to recover the amortized cost based on our estimate of cash flows to be collected. We do not intend to sell and it is not more likely than not that we will be required to sell these securities prior to recovering our amortized cost. See the following for further discussion of gross unrealized losses by asset class.

Corporate Debt Securities

The following tables present the concentration of gross unrealized losses and fair values related to corporate debt fixed maturity securities that were more than 20% below cost and in a continuous loss position for 12 months or more by industry as of March 31, 2013:

 

     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
 

Industry:

                    

Finance and insurance

   $ 50       $ (20     4     8       $ —         $ —           —       —     
  

 

 

    

 

 

   

 

 

   

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

Total

   $ 50       $ (20     4     8       $ —         $ —           —       —     
  

 

 

    

 

 

   

 

 

   

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

 

     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
 

Industry:

                    

Consumer-cyclical

   $ 2       $ (1     —       3       $ —         $ —           —       —     
  

 

 

    

 

 

   

 

 

   

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

Total

   $ 2       $ (1     —       3       $ —         $ —           —       —     
  

 

 

    

 

 

   

 

 

   

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

 

Of the total unrealized losses of $21 million for corporate fixed maturity securities presented in the preceding tables, $20 million, or 95%, of the unrealized losses related to issuers in the finance and insurance sector that were 29% below cost on average. Given the current market conditions, including current financial industry events and uncertainty around global economic conditions, the fair value of these debt securities has declined due to credit spreads that have widened since acquisition. In our examination of these securities, we considered all available evidence, including the issuers’ financial condition and current industry events to develop our conclusion on the amount and timing of the cash flows expected to be collected. Based on this evaluation, we determined that the unrealized losses on these debt securities represented temporary impairments as of March 31, 2013. The $20 million of unrealized losses related to the finance and insurance industry related to financial hybrid securities on which a debt impairment model was employed. Most of our hybrid securities retained a credit rating of investment grade. The fair value of these hybrid securities has been impacted by credit spreads that have widened since acquisition and reflect uncertainty surrounding the extent and duration of government involvement, potential capital restructuring of these institutions, and continued but diminishing risk that income payments may be deferred. We continue to receive our contractual payments and expect to fully recover our amortized cost.

We expect that our investments in 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 at least reasonably possible that issuers of our investments in corporate securities will perform worse than current expectations. Such events may lead us to recognize write-downs within our portfolio of corporate securities in the future.

Structured Securities

Of the $190 million of unrealized losses related to structured securities that have been in an unrealized loss position for 12 months or more and were more than 20% below cost, $64 million related to other-than-temporarily impaired securities where the unrealized losses represented the portion of the other-than-temporary impairment recognized in OCI. The extent and duration of the unrealized loss position on our structured securities was primarily due to the ongoing concern and uncertainty about the residential and commercial real estate market and unemployment, resulting in credit spreads that have widened since acquisition. Additionally, the fair value of certain structured securities has been significantly impacted from high risk premiums being incorporated into the valuation as a result of the amount of potential losses that may be absorbed by the security in the event of additional deterioration in the U.S. housing market.

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 March 31, 2013.

Despite the considerable analysis and rigor employed on our structured securities, it is at least 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, 2012:

 

    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 (2)
    Number of
securities
 

Description of Securities

                 

Fixed maturity securities:

                 

U.S. government, agencies and government-sponsored enterprises

  $ 655      $ (18     19      $ —        $ —          —        $ 655      $ (18     19   

Tax-exempt

    —          —          —          137        (30 )       13        137        (30 )       13   

Government—non-U.S.

    103        (1     21        —          —          —          103        (1 )       21   

U.S. corporate

    859        (19     154        646        (85 )       65        1,505        (104     219   

Corporate—non-U.S.

    665        (9     105        436        (38 )       41        1,101        (47 )       146   

Residential mortgage-backed

    152        (1     32        494        (224     278        646        (225     310   

Commercial mortgage-backed

    183        (1     20        749        (102     130        932        (103     150   

Other asset-backed

    282        (1     42        185        (66 )       18        467        (67 )       60   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Subtotal, fixed maturity securities

    2,899        (50     393        2,647        (545     545        5,546        (595     938   

Equity securities

    52        (4     32        14        (2 )       13        66        (6 )       45   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total for securities in an unrealized loss position

  $ 2,951      $ (54     425      $ 2,661      $ (547     558      $ 5,612      $ (601     983   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

% Below cost—fixed maturity securities:

                 

<20% Below cost

  $ 2,899      $ (50     393      $ 2,151      $ (194     337      $ 5,050      $ (244     730   

20%-50% Below cost

    —          —          —          445        (218     128        445        (218     128   

>50% Below cost

    —          —          —          51        (133     80        51        (133     80   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total fixed maturity securities

    2,899        (50     393        2,647        (545     545        5,546        (595     938   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

% Below cost—equity securities:

                 

<20% Below cost

    47        (2     29        12        (1 )       11        59        (3 )       40   

20%-50% Below cost

    5        (2     3        2        (1 )       2        7        (3 )       5   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total equity securities

    52        (4     32        14        (2 )       13        66        (6 )       45   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total for securities in an unrealized loss position

  $ 2,951      $ (54     425      $ 2,661      $ (547     558      $ 5,612      $ (601     983   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Investment grade

  $ 2,761      $ (43     356      $ 1,616      $ (209     235      $ 4,377      $ (252     591   

Below investment grade (3)

    190        (11     69        1,045        (338     323        1,235        (349     392   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total for securities in an unrealized loss position

  $ 2,951      $ (54     425      $ 2,661      $ (547     558      $ 5,612      $ (601     983   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

(1) 

Amounts included $123 million of unrealized losses on other-than-temporarily impaired securities.

(2) 

Amounts included $124 million of unrealized losses on other-than-temporarily impaired securities.

(3) 

Amounts that have been in a continuous loss position for 12 months or more included $119 million of unrealized losses on other-than-temporarily impaired securities.

 

The scheduled maturity distribution of fixed maturity securities as of March 31, 2013 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

   $ 2,704       $ 2,731   

Due after one year through five years

     10,398         10,997   

Due after five years through ten years

     11,176         12,243   

Due after ten years

     20,016         23,501   
  

 

 

    

 

 

 

Subtotal

     44,294         49,472   

Residential mortgage-backed

     5,542         5,942   

Commercial mortgage-backed

     2,948         3,056   

Other asset-backed

     2,620         2,612   
  

 

 

    

 

 

 

Total

   $ 55,404       $ 61,082   
  

 

 

    

 

 

 

As of March 31, 2013, $5,278 million of our investments (excluding mortgage-backed and asset-backed securities) were subject to certain call provisions.

As of March 31, 2013, securities issued by utilities and energy, finance and insurance, and consumer—non-cyclical industry groups represented approximately 24%, 20% and 12% of our domestic and foreign corporate fixed maturity securities portfolio, respectively. No other industry group comprised more than 10% of our investment portfolio. This portfolio is widely diversified among various geographic regions in the United States and internationally, and is not dependent on the economic stability of one particular region.

As of March 31, 2013, 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.

(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 prepayments, 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 the dates indicated:

 

     March 31, 2013     December 31, 2012  

(Amounts in millions)

   Carrying
value
    % of
total
    Carrying
value
    % of
total
 

Property type:

        

Retail

   $ 1,953        33   $ 1,895        32

Office

     1,595        27        1,580        27   

Industrial

     1,584        27        1,603        27   

Apartments

     542        9        552        9   

Mixed use/other

     230        4        282        5   
  

 

 

   

 

 

   

 

 

   

 

 

 

Subtotal

     5,904        100     5,912        100
    

 

 

     

 

 

 

Unamortized balance of loan origination fees and costs

     2          2     

Allowance for losses

     (40       (42  
  

 

 

     

 

 

   

Total

   $ 5,866        $ 5,872     
  

 

 

     

 

 

   

 

     March 31, 2013     December 31, 2012  

(Amounts in millions)

   Carrying
value
    % of
total
    Carrying
value
    % of
total
 

Geographic region:

        

Pacific

   $ 1,582        27   $ 1,553        26

South Atlantic

     1,549        26        1,587        27   

Middle Atlantic

     750        13        739        13   

Mountain

     458        8        463        8   

East North Central

     451        8        468        8   

West North Central

     374        6        353        6   

New England

     341        6        343        6   

West South Central

     259        4        265        4   

East South Central

     140        2        141        2   
  

 

 

   

 

 

   

 

 

   

 

 

 

Subtotal

     5,904        100     5,912        100
    

 

 

     

 

 

 

Unamortized balance of loan origination fees and costs

     2          2     

Allowance for losses

     (40       (42  
  

 

 

     

 

 

   

Total

   $ 5,866        $ 5,872     
  

 

 

     

 

 

   

 

The following tables set forth the aging of past due commercial mortgage loans by property type as of the dates indicated:

 

     March 31, 2013  

(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

   $ 7      $ 5      $ —        $ 12      $ 1,941      $ 1,953   

Office

     1        —          —          1        1,594        1,595   

Industrial

     6        2        —          8        1,576        1,584   

Apartments

     —          —          4        4        538        542   

Mixed use/other

     1        —          —          1        229        230   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total recorded investment

   $ 15      $ 7      $ 4      $ 26      $ 5,878      $ 5,904   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

% of total commercial mortgage loans

     —       —       —       —        100     100
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

     December 31, 2012  

(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

   $ —       $ 3      $ —       $ 3      $ 1,892      $ 1,895   

Office

     2        —         —         2        1,578        1,580   

Industrial

     —         —         —         —         1,603        1,603   

Apartments

     —         —         4        4        548        552   

Mixed use/other

     66        —         —         66        216        282   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total recorded investment

   $ 68      $ 3      $ 4      $ 75      $ 5,837      $ 5,912   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

% of total commercial mortgage loans

     1     —       —       1     99     100
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

As of March 31, 2013 and December 31, 2012, 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 March 31, 2013 and December 31, 2012.

As of and for the three months ended March 31, 2013 and the year ended December 31, 2012, we modified or extended 12 and 38 commercial mortgage loans, respectively, with a total carrying value of $76 million and $279 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 periods indicated:

 

     Three months ended
March 31,
 

(Amounts in millions)

     2013         2012    

Allowance for credit losses:

    

Beginning balance

   $ 42      $ 51   

Charge-offs

     —          (1

Recoveries

     —          —     

Provision

     (2     (1
  

 

 

   

 

 

 

Ending balance

   $ 40      $ 49   
  

 

 

   

 

 

 

Ending allowance for individually impaired loans

   $ —        $ —     
  

 

 

   

 

 

 

Ending allowance for loans not individually impaired that were evaluated collectively for impairment

   $ 40      $ 49   
  

 

 

   

 

 

 

Recorded investment:

    

Ending balance

   $ 5,904      $ 6,076   
  

 

 

   

 

 

 

Ending balance of individually impaired loans

   $ —        $ 2   
  

 

 

   

 

 

 

Ending balance of loans not individually impaired that were evaluated collectively for impairment

   $ 5,904      $ 6,074   
  

 

 

   

 

 

 

As of March 31, 2013 and December 31, 2012, we had no individually impaired commercial mortgage loans.

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 the dates indicated:

 

     March 31, 2013  

(Amounts in millions)

   0% - 50%     51% - 60%     61% - 75%     76% - 100%     Greater
than 100%  (1)
    Total  

Property type:

            

Retail

   $ 553      $ 277      $ 920      $ 172      $ 31      $ 1,953   

Office

     318        224        721        295        37        1,595   

Industrial

     451        235        671        188        39        1,584   

Apartments

     165        85        248        29        15        542   

Mixed use/other

     73        24        112        15        6        230   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total recorded investment

   $ 1,560      $ 845      $ 2,672      $ 699      $ 128      $ 5,904   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

% of total

     26     14     46     12     2     100
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Weighted-average debt service coverage ratio

     2.27        1.76        2.07        1.17        1.05        1.95   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

(1) 

Included $128 million of loans in good standing, with a total weighted-average loan-to-value of 145%, where borrowers continued to make timely payments.

 

     December 31, 2012  

(Amounts in millions)

   0% - 50%     51% - 60%     61% - 75%     76% - 100%     Greater
than 100% 
(1)
    Total  

Property type:

            

Retail

   $ 548      $ 280      $ 874      $ 162      $ 31      $ 1,895   

Office

     323        237        688        288        44        1,580   

Industrial

     462        242        671        188        40        1,603   

Apartments

     167        140        201        29        15        552   

Mixed use/other

     68        24        103        81        6        282   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total recorded investment

   $ 1,568      $ 923      $ 2,537      $ 748      $ 136      $ 5,912   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

% of total

     27     16     42     13     2     100
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Weighted-average debt service coverage ratio

     2.13        1.73        2.09        1.18        2.48        1.95   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

(1) 

Included $136 million of loans in good standing, with a total weighted-average loan-to-value of 144%, where borrowers continued to make timely payments.

 

The following tables set forth the debt service coverage ratio for fixed rate commercial mortgage loans by property type as of the dates indicated:

 

     March 31, 2013  

(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

   $ 100      $ 290      $ 401      $ 673      $ 385      $ 1,849   

Office

     147        167        280        625        292        1,511   

Industrial

     172        145        279        649        334        1,579   

Apartments

     8        48        99        242        145        542   

Mixed use/other

     27        25        52        90        36        230   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total recorded investment

   $ 454      $ 675      $ 1,111      $ 2,279      $ 1,192      $ 5,711   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

% of total

     8     12     19     40     21     100
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Weighted-average loan-to-value

     79     70     66     62     45     61
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

     December 31, 2012  

(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

   $ 87      $ 295      $ 391      $ 634      $ 384      $ 1,791   

Office

     148        174        312        559        303        1,496   

Industrial

     164        148        311        629        345        1,597   

Apartments

     9        62        90        279        112        552   

Mixed use/other

     32        21        49        64        50        216   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total recorded investment

   $ 440      $ 700      $ 1,153      $ 2,165      $ 1,194      $ 5,652   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

% of total

     8     12     20     39     21     100
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Weighted-average loan-to-value

     81     71     66     61     45     61
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

The following tables set forth the debt service coverage ratio for floating rate commercial mortgage loans by property type as of the dates indicated:

 

     March 31, 2013  

(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

   $ —       $