Fourth Quarter Net Income Of $267 Million And Adjusted Operating Income Of $173 Million; 2020 Full Year Net Income Of $178 Million And Adjusted Operating Income Of $317 Million

• U.S. Mortgage Insurance (MI) 2020 Full Year Adjusted Operating Income Of $381 Million; Record New Insurance Written (NIW)
• U.S. MI's PMIERs¹ Sufficiency Ratio Estimated At 137 Percent, $1,229 Million Above Published Requirements
• Annual U.S. GAAP Assumption Review Completed For U.S. Life Insurance:
  • Net Favorable Impacts Of $13 Million After-Tax In Long Term Care Insurance (LTC) And $10 Million After-Tax In Life Insurance
  • LTC Active Life U.S. GAAP Margins Of Approximately $0.5 To $1.0 Billion, Consistent With Prior Year
• Continued Progress Toward LTC Multi-Year Rate Action Plan (MYRAP) With $344 Million Incremental Annual Rate Increases Approved In 2020, With An Estimated Net Present Value (NPV) Of Approximately $2.0 Billion
• As Of December 31, 2020, Holding Company Cash And Liquid Assets Of $1.1 Billion, Including $71 Million Restricted; Company Fully Paid Its February 2021 Debt Of $338 Million Subsequent To Year End

Genworth Financial, Inc. (NYSE: GNW) today reported results for the quarter ended December 31, 2020. The company reported net income² of $267 million, or $0.52 per diluted share, in the fourth quarter of 2020, compared with a net loss of $17 million, or $0.03 per diluted share, in the fourth quarter of 2019. The company reported adjusted operating income³ of $173 million, or $0.34 per diluted share, in the fourth quarter of 2020, compared with adjusted operating income of $24 million, or $0.05 per diluted share, in the fourth quarter of 2019.

The company reported full year net income of $178 million, or $0.35 per diluted share, in 2020, compared with net income of $343 million, or $0.67 per diluted share, in 2019. The company reported adjusted operating income of $317 million, or $0.62 per diluted share, in 2020, compared with adjusted operating income of $420 million, or $0.82 per diluted share, in 2019.

Strategic Update

Genworth continues to focus on executing its contingency plan to raise liquidity to address its 2021 obligations and maximize shareholder value. The plan builds on actions the company has taken over the last several years to strengthen its financial position, including the sale of its Canadian mortgage insurance business, the completion of a debt offering at the U.S. MI holding company and the settlement with AXA S.A.

As previously disclosed, Genworth remains focused on preparing for a potential partial initial public offering (IPO) of its U.S. MI business, subject to market conditions as well as the satisfaction of various conditions and approvals. The company is also taking steps to align its expense structure with current business activities. Expense reduction initiatives completed to date are anticipated to result in annualized savings of approximately $50 million.

Additionally, the company continues to manage the U.S. life insurance companies on a standalone basis. Going forward, the U.S. life insurance businesses will continue to rely on their consolidated statutory capital of approximately $2.3 billion dollars (as of September 30, 2020), significant claim and active life reserves, prudent management of in force blocks and actuarially justified rate actions to satisfy policyholder obligations. Genworth made strong progress on its MYRAP in 2020, receiving approvals on $344 million of incremental annual premium increases during the year. In aggregate, the company estimates it has now achieved approximately $14.5 billion in NPV from approved rate increases since 2012. The company continues to work closely with the National Association of Insurance Commissioners and state regulators to demonstrate the broad-based need for actuarially justified rate increases in order to pay future claims.

"I am very pleased with Genworth's strong fourth quarter performance, which we were able to deliver despite the ongoing uncertainty in our current operating environment," said Tom McInerney, Genworth President and CEO. "In addition, we have made significant progress towards meeting our obligations in 2021 since our last update, including working towards the potential IPO of the U.S. MI business, streamlining our cost structure and paying our February debt obligation. I look forward to continuing to execute against our contingency plan to further strengthen our financial position and create long-term value."

On January 4, Genworth and China Oceanwide Holdings Group Co., Ltd (Oceanwide) announced that they decided not to extend the December 31, 2020 "end date" under their merger agreement. The merger agreement between Genworth and Oceanwide remains in effect, although either party is able to terminate the merger agreement at any time. The Oceanwide transaction previously received all U.S. regulatory approvals needed to close the transaction. If Oceanwide is able to secure the required funding to close the transaction, the parties would need to re-engage with their regulators to determine the re-approvals or confirmations that would be necessary to close the transaction.

Financial Performance

Net investment gains, net of taxes and other adjustments, increased net income by $125 million in the quarter. The investment gains were driven by mark-to-market gains on limited partnerships in the LTC business and net gains on derivatives, including gains due to guaranteed minimum withdrawal benefits on variable annuities and foreign exchange hedges in Australia MI due to strengthening of the Australian dollar. The net loss in the fourth quarter of 2019 included $12 million from investment gains, net of taxes and other adjustments.

Net investment income was $854 million in the quarter, compared to $827 million in the prior quarter and $794 million in the prior year. Net investment income was higher than the prior quarter and prior year as a result of higher income from limited partnerships, bond calls and commercial mortgage loan (CML) prepayments, primarily in the LTC business. The reported yield and the core yield³ for the quarter were 4.94 percent and 4.67 percent, respectively, compared to 4.82 percent and 4.65 percent, respectively, in the prior quarter.

Genworth's effective tax rate on income from continuing operations for the quarter was approximately 22 percent. The effective tax rate was above 21 percent due primarily to the higher tax expense on foreign operations and state income taxes.

Adjusted operating income (loss) results by business line are summarized in the table below:

Adjusted operating income (loss) represents income (loss) from continuing operations excluding the after-tax effects of income (loss) from continuing operations attributable to noncontrolling interests, net investment gains (losses), goodwill impairments, gains (losses) on the sale of businesses, gains (losses) on the early extinguishment of debt, gains (losses) on insurance block transactions, restructuring costs and other adjustments, net of taxes. A reconciliation of net income (loss) to adjusted operating income is included at the end of this press release.

Unless specifically noted in the discussion of results for the Australia MI business, references to percentage changes exclude the impact of translating foreign denominated activity into U.S. dollars (foreign exchange). Percentage changes that include the impact of foreign exchange are found in a table at the end of this press release.

U.S. Mortgage Insurance

U.S. MI reported adjusted operating income of $95 million, compared with $141 million in the prior quarter and $160 million in the prior year. U.S. MI's primary insurance in force increased 14 percent versus the prior year from strong NIW, partially offset by lower persistency. Primary NIW increased two percent from the prior quarter due to continued strong mortgage originations and was up 49 percent versus the prior year primarily from higher mortgage originations and a larger private mortgage insurance market. Earned premiums in the quarter were flat to the prior quarter as insurance in force growth was offset by higher ceded reinsurance premiums and slightly lower average premium rates. Current quarter earned premiums increased versus the prior year mainly from higher insurance in force and from increased single premium policy cancellations driven by lower persistency from elevated mortgage refinancing, partially offset by a favorable $14 million pre-tax single premium earnings pattern adjustment in the prior year, higher ceded premiums from reinsurance transactions and lower average premium rates.

U.S. MI's current quarter results reflected losses of $89 million and a loss ratio of 35 percent, which were driven by $50 million of losses from new delinquencies and $37 million pre-tax reserve strengthening on existing delinquencies. New delinquencies decreased by 28 percent from 16,664 in the prior quarter to 11,923. The reserve strengthening in the quarter primarily reflects the company's expectation that previously reported delinquencies in forbearance plans will have a higher claim rate than the initial best estimate given the slower emergence of cures relative to original expectations, as well as the ongoing economic uncertainty related to the COVID-19 pandemic. Results in the prior quarter and prior year reflected losses of $45 million and $11 million, and a loss ratio of 18 percent and four percent, respectively. The sequential increase in losses was mainly driven by the reserve strengthening in the current quarter and the prior quarter incurred but not reported (IBNR) reserve release of $23 million pre-tax, or $18 million after-tax, partially offset by lower losses from new delinquencies. Approximately 56 percent of new primary delinquencies were reported in forbearance plans which may cure at elevated rates relative to historical performance. Current quarter losses increased versus the prior year driven primarily by the current quarter reserve strengthening and higher losses from new delinquencies. Additionally, U.S. MI had an unfavorable $6 million pre-tax charge related to accelerated amortization of deferred acquisition costs (DAC) in the current quarter driven by elevated lapse from high refinance activity.

Australia Mortgage Insurance

Australia MI reported an adjusted operating loss of $16 million, compared to adjusted operating income of $7 million in the prior quarter and adjusted operating income of $12 million in the prior year. Current quarter results included higher losses from reserve strengthening compared with the prior quarter and prior year. Australia MI flow NIW increased 18 percent sequentially and increased 29 percent versus the prior year from continued strong lender customer mortgage origination volume supported by ongoing low interest rates. As of the end of the current quarter, over 8,100 of Australia MI's insured loans in force continued to be enrolled in a payment deferral or payment holiday program, down from approximately 31,000 reported at the end of the prior quarter. Under regulatory guidance, these loans, unless previously delinquent, are reported as current. The business strengthened its loss reserves by $88 million pre-tax in the current quarter for both a refinement in its reserving methodology to more closely align with historical delinquency behavior and for loans in payment deferral programs. The reserve strengthening drove a loss ratio in the quarter of 122 percent, which was up 85 points sequentially and up 92 points versus the prior year.

U.S. Life Insurance

Adjusted Operating Income (Loss)
(Amounts in millions)		Q4 20			Q3 20			Q4 19
Long Term Care Insurance		$	129		$	59		$	19
Life Insurance			(20)			(69)			(164)
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