Genworth Financial Profile
Genworth Financial, Inc. provides insurance products in the United States and internationally. The company provides private mortgage insurance in the United States through its mortgage insurance subsidiaries. The company’s U.S. life insurance subsidiaries offer long-term care insurance and also manage in-force blocks of life insurance and annuity products which are no longer sold.
Segments
The company operates through three segments: Enact, U.S. Life Insurance, and Runoff.
Enact segment
This segment provides private mortgage insurance products and services in the United States and operates in all 50 states and the District of Columbia. Enact engages in the business of writing and assuming residential mortgage guaranty insurance. The insurance covers a portion of the unpaid principal balance of mortgage loans where the loan amount exceeds 80% of the value of the home (low down payment mortgages or high loan-to-value mortgages) and protects lenders and investors against certain losses resulting from nonpayment of loans secured by mortgages, deeds of trust, or other instruments constituting a first lien on residential real estate. Private mortgage insurance facilitates the sale of mortgages to the secondary market, including to private investors, as well as the Federal National Mortgage Association (Fannie Mae) and the Federal Home Loan Mortgage Corporation (Freddie Mac). Fannie Mae and Freddie Mac are government-sponsored enterprises and are collectively referred to as the GSEs. Credit protection and liquidity through secondary market sales allow mortgage lenders to increase their lending capacity, manage risk and expand financing access to prospective homeowners, many of whom are first time home buyers. At present, mortgage insurance products are primarily geared towards secondary market sales to the GSEs. Enact’s mortgage insurance products predominantly insure prime-based, individually underwritten residential mortgage loans.
Products and services
Enact offers the following mortgage insurance products:
Primary Mortgage Insurance
Substantially all of Enact’s policies are primary mortgage insurance, which provides protection on individual loans at specified coverage percentages. Primary mortgage insurance is placed on individual loans at the time of origination and is typically delivered to Enact on a loan-by-loan basis. Primary mortgage insurance can also be delivered to Enact on an aggregated basis, whereby each mortgage in a given loan portfolio is insured in a single transaction after the point of origination.
Customers who purchase primary mortgage insurance select a specific coverage level for each insured loan. A customer may choose the coverage percentage established by a GSE in order to be eligible for purchase by that particular GSE or for loans not sold to the GSEs, the customer determines its desired coverage percentage.
Enact files premium rates, as required, with the insurance departments of U.S. states and the District of Columbia. Premium rates cannot be changed after the issuance of coverage. Premium payments for primary mortgage insurance coverage are typically made by the borrower and are referred to as borrower-paid mortgage insurance. Loans for which premiums are paid by the lender are referred to as lender-paid mortgage insurance. In either case, the payment of premium to Enact is generally the responsibility of the insured. Premiums are generally calculated as a percentage of the original principal balance and may be paid on a monthly or annual basis, as a single premium paid at the time of mortgage origination or split, where an initial lump sum premium is paid at the time of mortgage origination in addition to subsequent monthly payments.
Pool Mortgage Insurance
Pool mortgage insurance transactions provide coverage on a finite set of individual loans identified by the pool policy. Pool policies contain coverage percentages and provisions limiting the insurer’s obligation to pay claims until a threshold amount is reached (known as a deductible) or capping the insurer’s potential aggregate liability for claims payments (known as a stop loss) or a combination of both provisions. Pool mortgage insurance is typically used to provide additional credit enhancement for certain secondary market mortgage transactions. Pool insurance generally covers the excess of the loss on a defaulted mortgage loan that exceeds the claim payment under the primary coverage, if such loan has primary coverage, as well as the total loss on a defaulted mortgage loan that did not have primary coverage. In another variation, generally referred to as modified pool insurance, policies are structured to include both an exposure limit for each individual loan, as well as an aggregate loss limit or a deductible for the entire pool. Enact has an insignificant amount of pool insurance in-force.
Enact also performs fee-based contract underwriting services for its customers. Contract underwriting services provide customers outsourced scalable capacity to underwrite mortgage loans. Enact’s underwriters can underwrite the loan on behalf of its customers for both investor compliance and mortgage insurance, thus reducing duplicative activities and increasing Enact’s ability to write mortgage insurance for these loans. Under contract underwriting agreement terms, Enact agrees to indemnify its customers against losses incurred in the event it makes material errors in determining whether loans underwritten by its contract underwriters meet specified underwriting or purchase criteria, subject to contractual limitations. As a result, Enact assumes credit and processing risk in connection with its contract underwriting services.
Distribution and Customers
Enact distributes its mortgage insurance products through a dedicated sales force located throughout the United States, including in-house sales representatives. Enact’s sales force utilizes a digital marketing program designed to expand its customer reach beyond traditional sales. Enact’s sales force primarily markets to financial institutions and mortgage originators that impose a requirement for mortgage insurance as part of the borrower’s financing.
Enact’s industry presence has enabled it to build active customer relationships with mortgage lenders across the United States. Enact’s customers are broadly diversified by size, type and geography and include large money center banks, non-bank lenders, national and local mortgage bankers, community banks and credit unions. Enact’s principal mortgage insurance customers are originators of residential mortgage loans who typically determine which mortgage insurer or insurers they will use for the placement of mortgage insurance written on loans they originate. For the year ended December 31, 2022, approximately 30% of new insurance written in Enact was attributable to its largest five lender customers, of which 18% was attributable to its largest customer. No other customer exceeded 10% of Enact’s new insurance written during 2022.
U.S. Life Insurance segment
This segment includes long-term care insurance, life insurance and fixed annuity products, and services and solutions that help families address the financial challenges of aging. The company offers individual long-term care insurance policies to customers who contact it directly (subject to state availability).
Long-Term Care Insurance
The company established itself as a leader in long-term care insurance over 40 years ago and remain a leading insurer.
In-Force Rate Actions
As part of its strategy for its long-term care insurance business, the company has been implementing, and expects 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.
Life Insurance
Life insurance products provide protection against financial hardship after the death of an insured. Some of these products also offers a savings element that can help accumulate funds to meet future financial needs. The company’s U.S. life insurance subsidiaries previously sold term, whole, universal and term universal life insurance products, and also previously sold an index universal life insurance product and linked-benefit products, combining a universal life insurance contract with a long-term care insurance rider. The company’s U.S. life insurance subsidiaries continue to hold in-force blocks of these products.
Fixed Annuities
The company’s U.S. life insurance subsidiaries previously sold traditional fixed annuity product offerings, including single premium deferred annuities, single premium immediate annuities and structured settlements. The external indices the company uses are the S&P 500 and the Barclay’s U.S. Low Volatility ER II Index. The company’s fixed indexed annuity product may also provide guaranteed minimum withdrawal benefits (GMWBs). The company’s U.S. life insurance subsidiaries continue to hold in-force blocks of these products.
Runoff segment
This segment includes the results of products which have not been actively sold since 2011, but the company continues to service its existing blocks of business. These products primarily include variable annuity, variable life insurance and corporate-owned life insurance, as well as funding agreements.
Risk Management
Risk management is a critical part of the company’s business. The company has an enterprise risk management framework that includes risk management processes relating to strategic priorities and risks (including emerging risks), product development and pricing, management of in-force business, including certain mitigating strategies and claims risk management, credit risk management, asset-liability management, liquidity management, investment activities (including derivatives), model risk management, portfolio diversification, underwriting and loss mitigation, financial databases and information systems, information technology risk management, data security and cybersecurity, business acquisitions and dispositions, operational risk assessment capabilities and overall operational risk management.
The company has identified the following as the most significant risk types to its business: credit risk, market risk, insurance risk, housing risk, model risk, operational risk and information technology risk. In addition, the company attempts to identify, understand and manage emerging risks.
The company’s risk management framework includes seven key components: risk type key attributes (to ensure full coverage); identification of risk exposures to identify top risks; business strategy and planning; governance; risk assessment (both qualitative and quantitative); risk appetite and limits; and stress testing. The company’s risk management framework also includes an assessment and implementation of company and business risk appetites, the identification and assessment of risks, a proactive decision process to determine which risks are acceptable to be retained (based on risk and reward considerations, among other factors) and the ongoing management, monitoring and reporting of material risks.
The company’s U.S. life insurance business continues to pursue significant premium rate increases and associated benefit reductions on its long-term care insurance in-force block. In support of this initiative, the company has developed processes that include experience studies to analyze emerging experience, reviews of in-force product performance, an assumption review process, and comprehensive monitoring and reporting. In connection with these processes, the company’s risk management team works closely with the U.S. life insurance business to ensure proper governance and to better align the development of assumptions with the identified risks.
As part of its evaluation of overall in-force product performance, new product initiatives and risk mitigation alternatives, the company monitors regulatory and rating agency capital models, as well as internal economic capital models to determine the appropriate level of risk-adjusted capital required. The company utilizes a stress testing framework to assess the risk of loss to its capital resources based upon the portfolio of risks it underwrites and retains and upon its asset and operational risk profiles.
Operations and Technology
Service and support
Enact Holdings and its U.S. mortgage insurance subsidiaries have introduced technology enabled services to help their customers (lenders and servicers) as well as their consumers (borrowers and homeowners). Enact Holdings heavily relies upon information technology and a number of critical aspects are highly automated. The U.S. life insurance companies also heavily rely upon information technology to support and improve their overall operations. Enact Holdings and the U.S. life insurance companies both accept insurance applications, issue approvals, process claims and reconcile premium remittance through electronic submissions. For Enact Holdings, in order to facilitate these processes, direct connections have been established with many of its customers and servicers’ systems to enable the selection of its mortgage insurance products and to allow for direct communication. Enact Holdings and the U.S. life insurance companies also provide their customers secure access to their web-based portals to facilitate transactions and provide customers with access to their account information. Enact Holdings and the U.S. life insurance companies regularly upgrade and enhance their systems and technology in an effort to achieve their goals of expanding their capabilities, improve productivity and enhance the customer experience.
Operating centers
The company has established scalable, low-cost operating centers in Virginia and North Carolina. In addition, through an arrangement with an outsourcing provider, the company has a team of professionals in India and the Philippines who provide a variety of services primarily to its U.S. life insurance subsidiaries and certain corporate functions, including data entry, transaction processing and functional support.
Strategy
The key elements of the company’s strategy include maximizing the value of Enact; achieving economic breakeven on and stabilizing the legacy long-term care insurance in-force block; advancing Genworth’s senior care growth initiatives; and returning capital to Genworth Financial shareholders.
Regulation
The company’s insurance operations are subject to a wide variety of laws and regulations. The U.S. state insurance laws and regulations (Insurance Laws) regulate most aspects of the company’s the U.S. insurance businesses, and its U.S. insurers are regulated by the insurance departments of the states in which they are domiciled and licensed. The company’s non-U.S. insurance operations are principally regulated by insurance regulatory authorities in the jurisdictions in which they are domiciled. The company’s insurance products and businesses also are affected by U.S. federal, state and local tax laws, and the tax laws of non-U.S. jurisdictions.
The company’s securities operations, including its insurance products that are regulated as securities, such as variable annuities and variable life insurance, also are subject to the U.S. federal and state and non-U.S. securities laws and regulations. The U.S. Securities and Exchange Commission (SEC), the U.S. Financial Industry Regulatory Authority (FINRA), state securities authorities and similar non-U.S. authorities regulate and supervise these products. The company’s U.S. life insurance subsidiaries reported risk-based capital (RBC) ratio measures the ratio of total adjusted capital (TAC) to its Company Action Level.
Most of the company’s U.S. life insurance subsidiaries’ variable annuity products, some of their fixed guaranteed products, and all of their variable life insurance products are registered under the Securities Act of 1933 and are subject to regulation by the SEC. The entities that offer these products that are broker/dealers, as defined by the SEC, are also regulated by FINRA.
Certain of the company’s the U.S. subsidiaries and certain policies, contracts and services offered by them, are subject to regulation under federal and state securities laws and regulations of the SEC, state securities regulators and FINRA. Most of the company’s U.S. life insurance subsidiaries’ separate accounts are registered under the Investment Company Act of 1940. Most of the company’s U.S. life insurance subsidiaries’ variable annuity contracts and all of their variable life insurance policies are registered under the Securities Act of 1933. One of the company’s the U.S. subsidiaries is registered and regulated as a broker/dealer under the Securities Exchange Act of 1934 and is a member of, and subject to regulation by FINRA, as well as by various state and local regulators. The registered representatives of the company’s broker/dealer are also regulated by the SEC and FINRA, and are subject to applicable state and local laws.
The company provides certain products and services to employee benefit plans that are subject to the Employee Retirement Income Security Act of 1974 (ERISA) or the Internal Revenue Code. As such, the company’s activities are subject to the restrictions imposed by ERISA and the Internal Revenue Code, including the requirement under ERISA that fiduciaries must perform their duties solely in the interests of ERISA plan participants and beneficiaries, and fiduciaries may not cause or permit a covered plan to engage in certain prohibited transactions with persons who have certain relationships with respect to such plans. The applicable provisions of ERISA and the Internal Revenue Code are subject to enforcement by the U.S. Department of Labor, the Internal Revenue Service and the Pension Benefit Guaranty Corporation.
The company has implemented, and that it maintains, appropriate internal practices, procedures and controls to enable it to comply with the provisions of the USA PATRIOT Act of 2001 (the Patriot Act).
History
Genworth Financial, Inc. was founded in 1871.
