GENWORTH FINANCIAL, INC. The following discussion and analysis of our financial condition and results of
operations should be read in conjunction with our unaudited condensed
consolidated financial statements and related notes included herein and with our
2020 Annual Report on Form 10-K. Unless the context otherwise requires,
references to "
• we may be unable to successfully execute strategic plans to effectively
address our current business challenges
including: our debt maturities and other near-term liabilities and
financial obligations, reducing costs, stabilizing our U.S. life
insurance businesses without additional capital contributions, improving
overall capital and ratings; the risk that the impacts of or uncertainty
created by COVID-19 delay or hinder strategic transactions or otherwise
make strategic transactions less attractive; the inability to pursue
strategic transactions; our inability to attract buyers for any
businesses or other assets we may seek to sell, or securities we may seek
to issue (including a potential partial sale of Enact Holdings) in each
case, in a timely manner and on anticipated terms; an inability to
increase the capital needed in our businesses in a timely manner and on
anticipated terms, including through improved business performance,
reinsurance or similar transactions, asset sales, debt issuances,
securities offerings or otherwise, in each case as and when required; a
failure to obtain any required regulatory, stockholder, noteholder
approvals and/or other third-party approvals or consents for such
strategic transactions; market conditions that do not permit such a
strategic transaction to be completed or negatively impacts the overall
timing and final terms of such a strategic transaction; our challenges
changing or being more costly or difficult to successfully address than
currently anticipated or the benefits achieved being less than
anticipated; an inability to achieve anticipated cost-savings in a timely
manner; and adverse tax or accounting charges;
• risks relating to estimates, assumptions and valuations
including: inadequate reserves and the need to increase reserves
(including as a result of any changes we may make in the future to our
assumptions, methodologies or otherwise in connection with periodic or
other reviews); risks related to the impact of our annual review of
assumptions and methodologies related to our long-term care insurance
claim reserves and margin reviews, including risks that additional
information obtained in the future or other changes to assumptions or
methodologies materially affect margins; the inability to accurately
estimate the impacts of COVID-19; inaccurate models; deviations from our
estimates and actuarial assumptions or other reasons in our long-term
care insurance, life insurance and/or annuity businesses; accelerated
amortization of deferred acquisition costs ("DAC") and present value of
future profits ("PVFP") (including as a result of any future changes we
may make to our assumptions, methodologies or otherwise in connection
with periodic or other reviews); adverse impact on our financial results
as a result of projected profits followed by projected losses (as is
currently the case with our long-term care insurance business); and
changes in valuation of fixed maturity and equity securities;
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• liquidity, financial strength ratings, credit and counterparty risks
including: insufficient internal sources to meet liquidity needs and
limited or no access to capital, including the impact on our liquidity
due to the repayment of our September 2021 debt maturity; an inability to
obtain further financing or liquidity, either by raising capital through
issuing additional debt or equity, including convertible or equity-linked
securities, and/or selling a percentage of our ownership interest in
Enact Holdings prior to our future debt maturities, or an inability to
obtain a secured term loan or credit facility; the impact on holding
company liquidity caused by the inability to receive dividends or other
returns of capital from Enact Holdings, including as a result of
COVID-19; the impact of increased leverage as a result of the AXA S.A.
("AXA") settlement and related restrictions; continued availability of
capital and financing; future adverse rating agency actions against us or
Enact Holdings, including with respect to rating downgrades or potential
downgrades or being put on review for potential downgrade, all of which
could have adverse implications, including with respect to key business
relationships, product offerings, business results of operations,
financial condition and capital needs, strategic plans, collateral
obligations and availability and terms of hedging, reinsurance and
borrowings; defaults by counterparties to reinsurance arrangements or
derivative instruments; defaults or other events impacting the value of
our fixed maturity securities portfolio; defaults on our commercial
mortgage loans; defaults on mortgage loans or other assets underlying our
investments in our mortgage-backed and asset-backed securities and
volatility in performance;
• risks relating to economic, market and political conditions
including: downturns and volatility in global economies and equity and
credit markets, including as a result of prolonged unemployment, a
sustained low interest rate environment and other displacements caused by
COVID-19; interest rates and changes in rates have adversely impacted,
and may continue to materially adversely impact our business and
profitability; deterioration in economic conditions or a decline in home
prices that adversely affect our loss experience in our Enact segment;
political and economic instability or changes in government policies; and
fluctuations in foreign currency exchange rates and international
securities markets;
• regulatory and legal risks
including: extensive regulation of our businesses and changes in
applicable laws and regulations (including changes to tax laws and
regulations); litigation and regulatory investigations or other actions;
dependence on dividends and other distributions from Enact Holdings and
the inability of any subsidiaries to pay dividends or make other
distributions to us, including as a result of the performance of our
subsidiaries, heightened regulatory restrictions resulting from COVID-19,
and other insurance, regulatory or corporate law restrictions; the
inability to successfully seek in-force rate action increases (including
increased premiums and associated benefit reductions) in our long-term
care insurance business, including as a result of COVID-19; adverse
changes in regulatory requirements, including risk-based capital;
inability to continue to maintain the private mortgage insurer
eligibility requirements ("PMIERs"); risks on Enact Holdings' ability to
pay our holding company dividends as a result of the government-sponsored
enterprises ("GSEs") amendments to PMIERs in response to COVID-19 or
additional PMIERs requirements or other restrictions that the GSEs may
place on the ability of Enact Holdings to pay dividends to our holding
company, including additional potential PMIERs restrictions that the GSEs
may impose if the potential partial sale of Enact Holdings does not occur
prior to October 2021 ; the impact on capital levels of increased
delinquencies caused by COVID-19; inability of our U.S. mortgage
insurance subsidiaries to meet minimum statutory capital requirements;
the influence of Federal National Mortgage Association ("Fannie Mae"),
Federal Home Loan Mortgage Corporation ("Freddie Mac") and a small number
of large mortgage lenders in the U.S. mortgage insurance market and
adverse changes to the role or structure of Fannie Mae and Freddie Mac;
adverse changes in regulations affecting our Enact segment; additional
restrictions placed on our Enact segment by government and
government-owned and the GSEs in connection with a new debt financing
and/or sale of a percentage of our ownership interests therein; inability
to continue to implement actions to mitigate the impact of statutory
reserve requirements; changes in tax laws; and changes in accounting and
reporting standards;
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• operational risks
including: the inability to retain, attract and motivate qualified
employees or senior management; the impact on processes caused by
shelter-in-place or other governmental restrictions imposed as a result
of COVID-19; reliance on, and loss of, key customer or distribution
relationships; the design and effectiveness of our disclosure controls
and procedures and internal control over financial reporting may not
prevent all errors, misstatements or misrepresentations; and failure or
any compromise of the security of our computer systems, disaster recovery
systems, business continuity plans and failures to safeguard or breaches
of confidential information;
• insurance and product-related risks
including: our inability to increase premiums and reduce benefits
sufficiently, and in a timely manner, on our in-force long-term care
insurance policies, in each case, as currently anticipated and as may be
required from time to time in the future (including as a result of a
delay or failure to obtain any necessary regulatory approvals, including
as a result of COVID-19, or unwillingness or inability of policyholders
to pay increased premiums and/or accept reduced benefits), including to
offset any negative impact on our long-term care insurance margins;
availability, affordability and adequacy of reinsurance to protect us
against losses; decreases in the volume of mortgage originations or
increases in mortgage insurance cancellations; increases in the use of
alternatives to private mortgage insurance and reductions in the level of
coverage selected; potential liabilities in connection with our U.S.
contract underwriting services; and medical advances, such as genetic
research and diagnostic imaging, and related legislation that impact
policyholder behavior in ways adverse to us;
• other risks
including: the occurrence of natural or man-made disasters or a pandemic,
similar to COVID-19, could materially adversely affect our financial
condition and results of operations.
We provide additional information regarding these risks and uncertainties in our
Annual Report on
Form 10-K,
filed with the U.S. Securities and Exchange Commission ("SEC") on February 26,
2021 . Unlisted factors may present significant additional obstacles to the
realization of forward-looking statements. Accordingly, for the foregoing
reasons, we caution you against relying on any forward-looking statements. We
undertake no obligation to publicly update any forward-looking statement,
whether as a result of new information, future developments or otherwise, except
as may be required under applicable securities laws.
Strategic Update
We continue to focus on executing our strategic plan to raise liquidity to
address our future debt maturities, other near-term liabilities and financial
obligations, strengthen our financial position and create long-term shareholder
value, which could include returning capital to shareholders. Our plan builds on
actions we have taken over the last several years to strengthen our financial
position, including the sale of Genworth MI Canada Inc. , our former Canada
mortgage insurance business, the completion of a debt offering through Enact
Holdings, the settlement agreement reached with AXA and the sale of Genworth
Mortgage Insurance Australia Limited ("Genworth Australia"), our former
Australian mortgage insurance business in March 2021 . Most recently, on July 21,
2021 , Genworth Holdings, Inc. ("Genworth Holdings ") early redeemed its remaining
September 2021 senior notes. Subsequent to this redemption, Genworth Holdings
has outstanding approximately $1.7 billion of long-term debt, with no debt
maturities until August 2023 . However, prior to the August 2023 debt maturity,
the AXA promissory note of $344 million is due in September 2022 . Our priority
is to continue to reduce debt at Genworth Holdings , the issuer of our
outstanding public debt, to approximately $1 billion over time.
The potential partial sale of Enact Holdings is a key component of our strategic
plan; however, it is subject to various conditions and approvals, including
market conditions, and there can be no assurance as to whether or when the
offering may be completed, or as to the actual size or terms of the offering. We
also remain open to other potential strategic alternatives to address our future
holding company debt maturities while maximizing the value of Enact Holdings. In
assessing our strategic options, we are considering, among other factors, the
level of, and restrictions contained in, our existing indebtedness, tax
considerations, the views of regulators and rating agencies, and the performance
and prospects of our businesses. In addition, we have taken steps, and may take
additional actions to align our expense structure with our reduced business
activities. Expense reduction initiatives completed to date in 2021 are
anticipated to result in annualized savings of approximately $50 million .
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Table of Contents Ongoing Priorities Stabilizing ourU.S. life insurance businesses continues to be one of our long-term goals. We will continue to execute this objective primarily through our multi-year long-term care insurance in-force rate action plan. Premium rate increases and associated benefit reductions on our legacy long-term care insurance policies are critical to the business. We continue to manage ourU.S. life insurance businesses on a standalone basis and are planning for a new long-term care insurance joint venture inthe United States . Going forward, theU.S. life insurance businesses will continue to rely on their consolidated statutory capital, significant claim and future policy benefit reserves, prudent management of its in-force blocks and actuarially justified in-force rate actions to satisfy obligations to its policyholders. OurU.S. life insurance business continued to make strong progress on its multi-year rate action plan, receiving approvals of approximately$206 million of incremental annual premiums for the six months endedJune 30, 2021 . In aggregate, we estimate that we have achieved approximately$15.5 billion , on a net present value basis, of approved in-force rate increases since 2012. We continue to work closely with theNational Association of Insurance Commissioners ("NAIC") and state regulators to demonstrate the broad-based need for actuarially justified rate increases in order to pay future claims. Executive Summary of Financial Results Below is an executive summary of our consolidated financial results for the periods indicated. Amounts below are net of taxes, unless otherwise indicated. After-tax amounts assume a tax rate of 21%. Three Months EndedJune 30, 2021 Compared to Three Months EndedJune 30, 2020 • Net income available toGenworth Financial, Inc.'s common stockholders was$240 million for the three months endedJune 30, 2021 compared to a net loss of$441 million for the three months endedJune 30, 2020 . Adjusted operating income available toGenworth Financial, Inc.'s common stockholders was$194 million for the three months endedJune 30, 2021 compared to an adjusted operating loss of$23 million for the three months endedJune 30, 2020 . • Our Enact segment had adjusted operating income available toGenworth Financial, Inc.'s common stockholders of$135 million for the three months endedJune 30, 2021 compared to an adjusted operating loss of$3 million for the three months endedJune 30, 2020 . The change to income in the current year from a loss in the prior year was primarily from higher losses in the prior year from higher new delinquencies driven by a significant increase in borrower forbearance and unfavorable reserve adjustments as a result of COVID-19. The increase was partially offset by higher operating costs and interest expense associated with Enact Holdings' senior notes issued inAugust 2020 . • OurU.S. Life Insurance segment had adjusted operating income available toGenworth Financial, Inc.'s common stockholders of$71 million in the current year compared to an adjusted operating loss of$5 million in the prior year. • Our long-term care insurance business had adjusted operating income available toGenworth Financial, Inc.'s common stockholders of$98 million and$48 million for the three months endedJune 30, 2021 and 2020, respectively. The increase was primarily from higher reduced benefits in the current year from in-force rate actions approved and implemented, which included a net favorable impact from policyholder benefit reduction elections made as part of a legal settlement in the current year. The increase was also attributable to higher investment income and favorable development on incurred but not reported ("IBNR") claims, partially offset by a decrease in claim terminations driven mostly by lower mortality in the current year. • Our life insurance business had an adjusted operating loss available toGenworth Financial, Inc.'s common stockholders of$40 million and$81 million for the three months endedJune 30, 2021 and 2020, respectively. The decrease in the loss was mainly attributable to higher reserves recorded in the prior year on our 10-year term universal life insurance block entering its post-level premium period and from lower lapses primarily associated with our large 20-year term life insurance block written at the end of 2000 as it entered its post-level premium period. These 77
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decreases were partially offset by higher mortality in our term
universal life insurance product and a DAC impairment of $13 million
in our universal life insurance products in the current year.
• Our fixed annuities business had adjusted operating income available
to Genworth Financial, Inc.'s common stockholders of $13 million and
$28 million for the three months ended June 30, 2021 and 2020,
respectively. The decrease was mainly attributable to lower mortality
in our single premium immediate annuities and higher reserves in our
fixed indexed annuities driven by a less favorable equity market and
interest rate changes in the current year.
• Our Runoff segment had adjusted operating income available to Genworth
Financial, Inc.'s common stockholders of $15 million and $24 million for
the three months ended June 30, 2021 and 2020, respectively. The decrease
was predominantly due to lower investment income and less favorable
equity market performance in the current year.
• Corporate and Other activities had an adjusted operating loss available
to Genworth Financial, Inc.'s common stockholders of $27 million and $39
million for the three months ended June 30, 2021 and 2020, respectively.
The decrease in the loss was primarily related to lower interest expense
in the current year.
Six Months Ended
• Net income available to Genworth Financial, Inc.'s common stockholders
was $427 million for the six months ended June 30, 2021 compared to a net
loss of $507 million for the six months ended June 30, 2020 . Adjusted
operating income available to Genworth Financial, Inc.'s common
stockholders was $362 million for the six months ended June 30, 2021
compared to an adjusted operating loss of $3 million for the six months
ended June 30, 2020 .
• Our Enact segment had adjusted operating income available to Genworth
Financial, Inc.'s common stockholders of $261 million and $145 million
for the six months ended June 30, 2021 and 2020, respectively. The
increase was primarily attributable to higher losses in the prior year
from higher new delinquencies driven by a significant increase in
borrower forbearance and higher unfavorable reserve adjustments as a
result of COVID-19. The increase was also driven by higher premiums
mainly attributable to higher insurance in-force, partially offset by
higher ceded premiums, continued lapse of older higher priced policies
and a decrease in single premium policy cancellations in the current
year. These increases were partially offset by interest expense
associated with Enact Holdings' senior notes issued in August 2020 and
higher operating costs in the current year.
• Our U.S. Life Insurance segment had adjusted operating income available
to Genworth Financial, Inc.'s common stockholders of $133 million in the
current year compared to an adjusted operating loss of $75 million in the
prior year.
• Our long-term care insurance business had adjusted operating income
available to Genworth Financial, Inc.'s common stockholders of $193
million and $49 million for the six months ended June 30, 2021 and
2020, respectively. The increase was primarily from favorable
development on IBNR claims, higher investment income and higher
premiums and reduced benefits of $75 million from in-force rate
actions approved and implemented, which included a net favorable
impact from policyholder benefit reduction elections made as part of a
legal settlement in the current year. We also increased reserves by
$66 million in the current year compared to $29 million in the prior
year to account for changes to incidence and mortality experience
driven by COVID-19, which we believe are temporary.
• Our life insurance business had an adjusted operating loss available
to Genworth Financial, Inc.'s common stockholders of $103 million and
$158 million for the six months ended June 30, 2021 and 2020,
respectively. The decrease in the loss was mainly attributable to
higher reserves recorded in the prior year on our 10-year term
universal life insurance block entering its post-level
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premium period and from lower lapses primarily associated with our
large 20-year term life insurance block written at the end of 2000 as
it entered its post-level premium period. These decreases were
partially offset by higher mortality in our universal and term
universal life insurance products and DAC impairments of $30 million
in our universal life insurance products in the current year.
• Our fixed annuities business had adjusted operating income available
to Genworth Financial, Inc.'s common stockholders of $43 million and
$34 million for the six months ended June 30, 2021 and 2020,
respectively. The increase was mainly attributable to lower reserves
and DAC amortization in our fixed indexed annuities driven by
favorable equity market and interest rate changes in the current year
and higher mortality in our single premium immediate annuities.
• Our Runoff segment had adjusted operating income available to Genworth
Financial, Inc.'s common stockholders of $27 million and $11 million for
the six months ended June 30, 2021 and 2020, respectively. The increase
was primarily due to favorable equity market and interest rate
performance, partially offset by lower investment income in the current
year.
• Corporate and Other activities had an adjusted operating loss available
to Genworth Financial, Inc.'s common stockholders of $59 million and $84
million for the six months ended June 30, 2021 and 2020, respectively.
The decrease in the loss was primarily related to lower interest expense
and operating costs in the current year.
Other Significant Developments
The periods under review include, among others, the following significant
developments.
Enact
• Incurred losses.
Incurred losses were $30 million for the three months ended June 30,
2021 , a decrease of $198 million compared to the three months ended
June 30, 2020 . New primary delinquencies of 6,862 contributed to $30
million of loss expense for the three months ended June 30, 2021 . The
prior year included $170 million of losses from new delinquencies driven
primarily by a significant increase in borrower forbearance as a result
of COVID-19 and additional reserves of $28 million for IBNR
delinquencies. In addition, existing reserves were strengthened by $28
million in the prior year primarily driven by the deterioration of early
cure emergence patterns impacting claim frequency along with a modest
increase in claim severity.
• Borrower forbearance.
Approximately 45% of our primary new delinquencies in the second quarter
of 2021 were subject to a forbearance plan as compared to less than 5% in
recent quarters prior to COVID-19. Servicer reported forbearance slowed
meaningfully beginning in June 2020 and ended the second quarter of 2021
with approximately 4% or 36,271 of our active primary policies reported
in a forbearance plan, of which approximately 59% were reported as
delinquent.
• PMIERs compliance.
As of June 30, 2021 , our Enact segment had estimated available assets of
$4,926 million against $2,985 million net required assets under PMIERs
compared to available assets of $4,769 million against $3,005 million net
required assets as of March 31, 2021 . The sufficiency ratio as of
June 30, 2021 was 165% or $1,941 million above the published PMIERs
requirements, compared to 159% or $1,764 million above the published
PMIERs requirements as of March 31, 2021 . PMIERs sufficiency is based on
the published requirements applicable to private mortgage insurers and
does not give effect to the GSE restrictions imposed on our Enact
segment. The increase in the PMIERs sufficiency was driven in part by the
completion of an insurance linked notes transaction, which added $303
million of additional PMIERs capital credit as of June 30, 2021 , elevated
lapse driven by prevailing low interest rates, business cash flows and
lower delinquencies, partially offset by elevated new insurance written.
In addition, elevated lapse continued to drive an acceleration of the
amortization of our reinsurance transactions executed prior to the second
quarter of 2021, which caused a reduction
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in PMIERs capital credit in the second quarter of 2021. Our PMIERs
required assets as of June 30, 2021 and March 31, 2021 benefited from the
application of a 0.30 multiplier applied to the risk-based required asset
amount factor for certain non-performing loans. The application of the
0.30 multiplier to all eligible delinquencies provided $760 million of
benefit to our June 30, 2021 PMIERs required assets compared to $1,012
million of benefit as of March 31, 2021 . See "Item 2-Enact segment-Trends
and conditions" for additional details.
• Persistency.
Primary persistency in our Enact segment increased to 63% during the
second quarter of 2021 compared to 59% during the second quarter of 2020
but remained below historic norms. The increase in persistency was
primarily driven by a modest increase in interest rates and a decline in
the percentage of our in-force policies with mortgage rates above current
interest rates. Suppressed persistency has impacted business performance
trends in several ways including, but not limited to, offsetting
insurance in-force growth from new insurance written, elevated single
premium policy cancellations, accelerating the amortization of our
existing reinsurance transactions reducing their associated PMIERs
capital credit in the current year and shifting the concentration of our
primary insurance in-force to more recent years of policy origination.
• In-force rate actions in our long-term care insurance business.
As part of our strategy for our long-term care insurance business, we
have been implementing, and expect to continue to pursue, significant
premium rate increases and associated benefit reductions on older
generation blocks of business in order to bring those blocks closer to a
break-even point over time and reduce the strain on earnings and capital.
We are also requesting premium rate increases and associated benefit
reductions on newer blocks of business, as needed, some of which may be
significant, to help bring their loss ratios back towards their original
pricing. For all of these in-force rate action filings, we received 74
filing approvals from 29 states during the six months ended June 30,
2021 , representing a weighted-average increase of 43% on approximately
$477 million in annualized in-force premiums, or approximately $206
million of incremental annual premiums. We also submitted 34 new filings
in 14 states during the six months ended June 30, 2021 on approximately
$163 million in annualized in-force premiums.
• Profits followed by losses in our long-term care insurance business.
With respect to our long-term care insurance block, excluding the
acquired block, our future projections indicate we have projected profits
in earlier periods followed by projected losses in later periods. As a
result of this pattern of projected profits followed by projected losses,
we will ratably accrue additional future policy benefit reserves over the
profitable periods, currently expected to be through 2031, by the amounts
necessary to offset estimated losses during the periods that follow. As
of June 30, 2021 and December 31, 2020 , the total amount accrued for
profits followed by losses was $957 million and $625 million ,
respectively.
Liquidity and Capital Resources
• Redemption of Genworth Holdings' February 2021 senior notes.
On February 16, 2021 , Genworth Holdings redeemed its 7.20% senior notes
with a principal balance of $338 million . The senior notes were fully
redeemed with a cash payment of $350 million , comprised of the
outstanding principal balance and accrued interest.
• Repurchase and redemption of Genworth Holdings' September 2021 senior
notes.
During the six months ended June 30, 2021 , Genworth Holdings repurchased
$146 million principal amount of its September 2021 senior notes for a
pre-tax loss of $4 million . In July 2021 , Genworth Holdings early
redeemed the remainder of its 7.625% senior notes originally scheduled to
mature in September 2021 . The senior notes were fully redeemed with a
cash payment of $532 million , comprised of the outstanding principal
balance of $513 million , accrued interest of approximately $13 million
and a make-whole premium of approximately $6 million .
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• Mandatory payment of the AXA promissory note.
In connection with the Genworth Australia sale, we made a mandatory
principal payment to AXA of approximately £176 million ($245 million ) in
March 2021 . The mandatory payment fully repaid the first installment
obligation originally due to AXA in June 2022 and partially prepaid the
September 2022 installment payment. AXA and Genworth amended certain
mandatory prepayment provisions of the promissory note permitting
Genworth to retain a greater amount of the Genworth Australia sale
proceeds. As of June 30, 2021 , the remaining amount of the promissory
note, including expected future claims, is $344 million and is due in
September 2022 . As a result of the mandatory payment, interest on the
promissory note was retroactively reduced and now accrues at a rate of
2.75%. See note 13 in our unaudited condensed consolidated financial
statements for additional information.
• Liquidity and contractual obligations
. For additional details related to Genworth Holdings' liquidity in
relation to its contractual obligations, see note 1 to our unaudited
condensed consolidated financial statements under "Item 1-Financial
Statements" and "Item 2-Liquidity and Capital Resources."
Dispositions
• Sale of our Australian mortgage insurance business.
On March 3, 2021 , we completed the sale of our entire ownership interest
of approximately 52% in Genworth Australia through an underwritten
agreement. We sold our approximately 214.3 million shares of Genworth
Australia for AUD2.28 per share and received approximately AUD483 million
($370 million ) in net cash proceeds. In the first quarter of 2021, we
recognized an after-tax loss on sale of $3 million . See note 13 in our
unaudited condensed consolidated financial statements for additional
information.
Financial Strength Ratings
On May 20, 2021 , Moody's Investors Service, Inc. ("Moody's") affirmed the "Baa3"
(Adequate) financial strength rating of Genworth Mortgage Insurance Corporation
("GMICO"), our principal U.S. mortgage insurance subsidiary, and revised its
outlook from positive to review for upgrade. In addition, Moody's affirmed the
"Caa1" (Speculative) credit rating of Genworth Holdings' senior unsecured debt
and revised its outlook from developing to review for upgrade.
On May 4, 2021 , Standard & Poor's Financial Services, LLC ("S&P") modified its
outlook for both Genworth and GMICO from Negative Outlook to Creditwatch
Positive. The ratings of Genworth and GMICO were unchanged, although S&P
indicated that they would likely raise the ratings if Genworth is successful in
the execution of its strategic plan, including the potential partial sale of
Enact Holdings.
For a further discussion of the financial strength ratings of our insurance
subsidiaries and the credit ratings of our holding companies, see "Item
1-Ratings" in our 2020 Annual Report on Form 10-K.
Consolidated
General Trends and Conditions
The stability of both the financial markets and global economies in which we
operate impacts the sales, revenue growth and profitability trends of our
businesses as well as the value of assets and liabilities.
Varied levels of economic performance, coupled with uncertain economic outlooks,
changes in government policy, global trade, regulatory and tax reforms, and
other changes in market conditions, such as inflation, will continue to
influence investment and spending decisions by consumers and businesses as they
adjust their consumption, debt, capital and risk profiles in response to these
conditions, including as a result of COVID-19. These trends change as investor
confidence in the markets and the outlook for some consumers and businesses
shift. As a result, our sales, revenues and profitability trends of certain
insurance and investment products as well as the value of assets and liabilities
could be impacted going forward. In particular, factors such as the length of
COVID-19 and the speed of the economic recovery, government responses to
COVID-19 (such as government
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Table of Contents stimulus), government spending, monetary policies (such as reducing quantitative easing), the volatility and strength of the capital markets, changes in tax policy and/or inU.S. tax legislation, inflation, international trade and the impact of global financial regulation reform will continue to affect economic and business outlooks, level of interest rates, consumer confidence and consumer behavior moving forward.U.S. Treasury markets fluctuated during the second quarter of 2021 due in part to the expected shifts in theU.S. Federal Reserve's monetary policy and from inflation concerns, including whether inflation is only transitory until theU.S. economy fully re-opens and supply chains return to full capacity. We do not believe that inflation has had a material effect on our results of operations, except insofar as inflation may affect current and/or future interest rates andU.S. Federal Reserve policy. In addition, continued inflation can impact healthcare costs and the cost of care in our long-term care insurance business. Historically, our long-term care insurance business has experienced higher claim severity due in part to the rising costs of healthcare. TheU.S. and international governments, theU.S. Federal Reserve , other central banks and other legislative and regulatory bodies have taken certain actions in response to COVID-19 to support the global economy and capital markets. These policies and actions have generally been supportive to the worldwide economy, however, in spite of these supportive policies theU.S. economy contracted in 2020 and the world economy fell into a recession. Gross domestic product rebounded sharply in the first quarter of 2021 due in part to the continued rollout of the vaccine. This growth continued into the second quarter of 2021 albeit at a more moderate pace. Most economic forecasts predict a healthy full year 2021 U.S. economy with strong gross domestic product growth, however, given the risk of virus re-emergence due to variants, the slower than expected vaccination uptake and the potential for future actions to be taken to mitigate the risk of a virus re-emergence, it is possible actual economic results could differ materially from forecasts. In the event this occurs, our full year 2021 financial results would be adversely impacted. Moreover, we continue to closely monitor the operating results and financial position of our Enact segment, particularly related to new delinquency trends and whether borrowers in a forbearance plan ultimately cure or result in a claim payment. If these trends move in an unfavorable direction in contrast to our current projections, our financial position and results of operations could be adversely impacted. Consolidated Results of Operations The following is a discussion of our consolidated results of operations. For a discussion of our segment results, see "-Results of Operations and Selected Financial and Operating Performance Measures by Segment." 82
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Three Months Ended
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