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Genworth MI Canada Inc. Reports Fourth Quarter 2014 And Full Year Results

Net Premiums Written: $178 million in Q4, up 38% Y/Y; $640 million for 2014, up 25% Y/Y

Net Operating Income: $84 million in Q4, down 1% Y/Y; $366 million for 2014, up 5% Y/Y

Fully Diluted Operating EPS: $0.89 in Q4, down 1% Y/Y; $3.86 for 2014, up 7% Y/Y

 

Toronto, ON (February 10, 2015) – Genworth MI Canada Inc. (the “Company”) (TSX: MIC) today reported fourth quarter 2014 net income of $86 million or $0.91 per diluted common share, and fourth quarter 2014 net operating income of $84 million or $0.89 operating earnings per diluted common share.

On a full year basis, the Company reported $366 million of total net operating income, as compared to $349 million from the prior year.  This represents a $17 million or 5% increase in net operating income.  Full year operating earnings per diluted common share were $3.86 as compared to $3.60 in the prior year, representing a 7% increase.  The Company paid $1.44 per common share in total ordinary dividends in 2014 and during the fourth quarter, also paid $0.43 per common share in a special dividend.  The ordinary dividend paid in the fourth quarter represented an increase of 11%.  The Company also delivered an operating return on equity of 11% during the quarter and 12% on a full year basis.

“We are pleased with our strong 2014 results, particularly our growth in premiums written and profitability,” said Stuart Levings, President and Chief Executive Officer of the Company.  “Our value proposition continues to resonate with our customers, which combined with our prudent and proactive approach to risk management, positions us well for 2015.”

 

Key 2014 Annual Financial Metrics:

  • Net premiums written were $640 million, representing an increase of $128 million, or 25% higher as compared to 2013. The premiums written growth was primarily attributed to higher volumes of mortgage originations, premium rates and market penetration. The Company generated $555 million in premiums from the high loan-to-value segment, representing an increase of $108 million from 2013. From the low loan-to-value segment, Company generated $83 million in premiums written, representing an increase of $18 million from 2013.
  • Net premiums earned was $565 million, representing a decrease of $8 million or 1%, when compared to the prior year, primarily due to lower net premiums written in recent book years.
  • The loss ratio was 20%, consistent with the Company’s anticipated 2014 range of 15-25%. The full year loss ratio was lower by 5 percentage points when compared to 2013. The improvement in loss ratio was primarily due to strong insurance portfolio quality and stable economic conditions.
  • The expense ratio, was 19%, in line with management’s expectations.
  • Net Investment income, excluding realized gains, was $173 million, lower by $6 million as compared to 2013, primarily due to the low interest rate environment.
  • Net operating income was $366 million, an increase of $19 million or 5% from the prior year.
  • Book value (including AOCI) was $35.12 per diluted common share, an increase of $2.59 per common share or 8% relative to 2013.
  • Operating return on equity was 12%, consistent with the prior year.

Key Fourth Quarter 2014 Financial Metrics:

  • Net premiums written of $178 million represented a decrease of $39 million, or 18%, when compared to the prior quarter. The fourth quarter is typically characterized by seasonality resulting in lower mortgage origination volumes during the winter months. As well, this quarter experienced lower market demand for portfolio insurance on low loan-to-value mortgages. When compared to the same quarter in the prior year, net premiums written were higher by $49 million, or 38%. The year-over-year increase was primarily the result of higher volumes of mortgage originations, premium rates and market penetration.
  • Net premiums earned of $143 million were $2 million higher as compared to the prior quarter and flat as compared to the same quarter in the prior year. The unearned premium reserve was $1.8 billion at the end of the quarter, consistent with the prior quarter.
  • Losses on claims of $37 million reflected $7 million higher losses than the prior quarter due to typical seasonality that resulted in a 19% increase in new delinquencies, net of cures. When compared to the same quarter in the prior year, losses were $6 million higher due to a higher number of reported delinquencies, net of cures, from the Quebec and Atlantic regions. The loss ratio was 26% for the quarter, as compared to 21% in the prior quarter and 22% in the same quarter in the prior year.
  • The expense ratio was 21%, as a percentage of net premiums earned, or $30 million during the quarter. This ratio was 4 percentage points higher than the prior quarter and 3 percentage points lower than the same quarter in the prior year, primarily attributed to share price fluctuations impacting employee share-based compensation.
  • Net Investment income, excluding realized gains, of $43 million was essentially flat to the prior quarter and decreased by $2 million or 4% relative to the same quarter in the prior year.
  • Net operating income of $84 million was $9 million lower relative to the prior quarter, primarily driven by seasonally higher losses on claims, and $1 million lower compared to the net operating income in the same quarter in the prior year.
  • Operating return on equity was 11% for the quarter, 1 percentage point lower when compared to the prior quarter and the prior year.
  • The regulatory capital ratio or Minimum Capital Test (“MCT”) ratio was approximately 225%, 40 percentage points higher than the Company’s internal target MCT ratio of 185% and 5 percentage points higher than the Company’s operating holding target MCT ratio of 220%. The Company intends to operate with a MCT modestly above its operating holding target.

Key Fourth Quarter Highlights:

  • The high loan-to-value segment of new insurance written is the Company’s primary focus and during the quarter new insurance written from this segment was $6.2 billion. This represents a decrease of $1.2 billion or 16% from the prior quarter, primarily due to typical seasonality. When compared to the same quarter in the prior year, this was an increase of $1.0 billion or 20%. The year-over-year increase was attributed to higher volume of mortgage originations and market penetration.
  • The net premiums written in the quarter from insurance of high loan-to-value mortgages was $165 million. This represents a decrease of $27 million, or 14%, from the prior quarter, primarily due to lower volumes of mortgage originations during the winter months. When compared to the same quarter in the prior year, there was an increase of $46 million, or 39%, primarily due to higher volumes of high loan-to-value mortgages, premium rates and market penetration.
  • During the quarter, the Company insured $2.6 billion of low loan-to-value mortgage portfolios, representing a decrease of $3.4 billion or 57% from the prior quarter volume, and $0.1 billion or 3% decrease over the same quarter in the prior year. The volume of portfolio insurance varies from quarter to quarter based on lender demand.
  • The net premiums written in the quarter from insurance of low loan-to-value mortgages was $13 million. This represented a decrease of $12 million, or 49%, lower than the prior quarter and $2 million, or 20%, higher than the same quarter in the prior year.
  • The number of delinquencies outstanding was 1,756 at the end of the quarter, an increase of 48, as compared to the prior quarter, reflecting seasonality. When compared to the same quarter in the prior year, this was a decrease of 74 delinquencies, reflecting the stable credit quality in the portfolio and improving economic conditions across most regions.
  • During the quarter and pursuant to the Company’s Normal Course Issuer Bid which will expire on May 4, 2015, the Company repurchased 1,873,023 common shares for cancellation, representing 2% of the outstanding common shares, for an aggregate amount of $75 million.
  • On November 6, 2014, the Office of the Superintendent of Financial Institutions (“OSFI”) published the final B-21 Residential Mortgage Insurance Underwriting Practices and Procedures Guideline. This Guideline sets out principles to promote and support sound residential mortgage insurance underwriting. The Company believes that it is substantially in compliance with this Guideline, which has an implementation date of June 30, 2015.
  • The Company’s investment portfolio had a market value of $5.4 billion at the end of the quarter. The portfolio had a pre-tax equivalent book yield of 3.5% and a duration of 3.7 years as at December 31, 2014. As a result of ongoing active portfolio management, the Company realized investment gains of $4 million in the quarter, primarily related to a further reduction in its equity exposure.

Dividends

On November 28, 2014, the Company paid a quarterly dividend of $0.39 per common share and a special dividend of $0.43 per common share.

The Company also announced today that its Board of Directors approved a dividend payment of $0.39 per common share, payable on March 6, 2015, to shareholders of record at the close of business on February 23, 2015.

Shareholders’ Equity

As of December 31, 2014, shareholders’ equity was $3.3 billion, representing a book value of $35.02 per common share on a fully diluted basis. This represents an 8% increase to the same quarter in the prior year. Excluding accumulated other comprehensive income (“AOCI”), shareholders’ equity was $ 3.1 billion, or a book value of $33.04 per common share on a fully diluted basis.

Credit and Debt Ratings

The Company’s issuer credit rating by DBRS Ratings Limited (“DBRS”) is ‘AA’ low (stable) and the financial strength rating of the Company’s primary operating subsidiary is ‘AA’ (stable). The Company’s credit rating by Standard and Poor (S&P) is ‘BBB+’ (negative) and the financial strength of the Company’s primary operating subsidiary is ‘A+’ (negative).

Detailed Operating Results and Financial Supplement

For more information on the Company’s operating results, please refer to the Company’s Management’s Discussion and Analysis as posted on SEDAR and available at www.sedar.com.

This press release, the financial statements, the Company’s Management’s Discussion and Analysis and the fourth quarter 2014 financial supplement are also posted on the investor section of the Company’s website (http://investor.genworthmicanada.ca). Investors are encouraged to review all of these materials.

Earnings Call

The Company’s fourth quarter and full year earnings call will be held on February 11, 2015 at 10:00 am ET (Local: 416-847-6330, Toll free: 1-866-530-1554, Conference ID: 8989363). The call is accessible via telephone and by audio webcast on the Company’s website. If listening via webcast, participants are encouraged to pre-register for the webcast through the Company’s website. Slides to accompany the call will be posted just prior to its start. A replay of the call will be available until March 12, 2015 (Local: 647-436-0148, Toll-free 1-888-203-1112, Replay Passcode 8989363#). The webcast will also be available for replay on the Company's website for a period of at least 45 days following the conference call.

About Genworth MI Canada Inc.

Genworth MI Canada Inc. (TSX: MIC) through its subsidiary, Genworth Financial Mortgage Insurance Company Canada (Genworth Canada), is the largest private residential mortgage insurer in Canada. The Company provides mortgage default insurance to Canadian residential mortgage lenders, making homeownership more accessible to first-time homebuyers. Genworth Canada differentiates itself through customer service excellence, innovative processing technology, and a robust risk management framework. For almost two decades, Genworth Canada has supported the housing market by providing thought leadership and a focus on the safety and soundness of the mortgage finance system. As at December 31, 2014, Genworth Canada had $5.8 billion total assets and $3.3 billion shareholders' equity. Find out more at www.genworth.ca.

Contact Information:

Investors – Samantha Cheung, 905-287-5482 samantha.cheung@genworth.com

Media – Lisa Azzuolo, 905-287-5520 lisa.azzuolo@genworth.com

Consolidated Financial Highlights

($ millions, except per share amounts)

Three Months
Ended December 31
(Unaudited)

Full Year
Ended December 31
(Unaudited)

 

2014

2013

2014

2013


New insurance written
1

$8,785

$7,693

42,153

34,985

Insurance in-Force1
 356,318  316,702  356,318  316,702

Net Premiums written

178

129

640

512

Net Premiums earned

143

142

565

573

Losses on claims

37

31

111

142

Expenses

30

33

107

113

Interest and dividend income, net of investment expenses

43

44

173

179


Net investment gains

4

11

22

37


Total net investment income

47

56

195

215


Net income

86

93

377

375


Net operating income1

84

85

366

349

Fully diluted earnings per common share

$0.91

$0.98

$3.97

$3.86

Fully diluted operating earnings per common share1

$0.89

$0.90

$3.86

$3.60

Fully diluted book value per common share, inc. AOCI

$35.02

$32.53

$35.02

$32.53

Fully diluted book value per common share, excl. AOCI1

$33.04

$31.22

$33.04

$31.22

Basic weighted average common shares outstanding

94,239,672

94,904,567

94,787,064

97,049,781

Diluted weighted average common shares outstanding

94,284,878

94,907,933

94,966,380

97,067,722

Loss ratio1

26%

22%

20%

25%

Combined ratio1

47%

45%

39%

44%

Operating return on equity1

11%

12%

12%

12%

Minimum Capital Test ratio (MCT) 1

225%

223%

225%

223%

1This is a financial measure not calculated based on International Financial Reporting Standards (“IFRS”).  See the “Non-IFRS Financial Measures” section of this press release for additional information.

Non-IFRS Financial Measures

To supplement the Company’s consolidated financial statements, which are prepared in accordance with IFRS, the Company uses non-IFRS financial measures to analyze performance. Non-IFRS financial measures include net operating income (excluding fees on early retirement of debt, as applicable), operating earnings per common share (basic), operating earnings per common share (diluted), shareholders’ equity excluding accumulated other comprehensive income (“AOCI”), operating return on equity and underwriting ratios such as loss ratio, expense ratio and combined ratio. Non-IFRS financial measures used by the Company to analyze the impact of the reversal of the government guarantee fund exit fee include adjusted net investment income, adjusted net income, adjusted earnings per common share (basic), adjusted earnings per common share (diluted), adjusted net operating income, adjusted operating earnings per common share (basic), adjusted operating earnings per common share (diluted), and adjusted operating return on equity. Other non-IFRS measures used by the Company to analyze performance include insurance in-force, new insurance written, pro forma Minimum Capital Test (“MCT”) ratio, delinquency ratio, severity on claims paid, investment yield, book value per common share (basic) including AOCI, book value per common share (basic) excluding AOCI, book value per common share (diluted) including AOCI, book value per common share (diluted) excluding AOCI, and dividends paid per common share. The Company believes that these non-IFRS financial measures provide meaningful supplemental information regarding its performance and may be useful to investors because they allow for greater transparency with respect to key metrics used by management in its financial and operational decision making. Non-IFRS financial measures do not have standardized meanings and are unlikely to be comparable to any similar measures presented by other companies.

See the “Non‐IFRS financial measures” section at the end of the MD&A for the Company’s current quarter for a reconciliation of net operating income to net income, operating earnings per common share (basic) to earnings per common share (basic), operating earnings per common share (diluted) to earnings per common share (diluted), and shareholders’ equity excluding AOCI to shareholders’ equity. Definitions of key non‐IFRS financial measures as well as an explanation of why these measures are useful to investors and the additional purposes for which management uses the measures can be found in the Company’s “Glossary for non‐IFRS financial measures”, in the “Non‐IFRS Financial Measures” section at the end of the MD&A. The MD&A, along with the Company’s most recent financial statements, are available on the Company’s website and on SEDAR at www.sedar.com.

Special Note Regarding Forward-Looking Statements

Certain statements made in this press release contain forward-looking information within the meaning of applicable securities laws (“forward-looking statements”). When used in this press release, the words “may”, “would”, “could”, “will”, “intend”, “plan”, “anticipate”, “believe”, “seek”, “propose”, “estimate”, “expect”, and similar expressions, as they relate to the Company are intended to identify forward-looking statements. Specific forward-looking statements in this press release include, but are not limited to, statements with respect to the Company’s expectations regarding the impact of guideline changes by OSFI, and the effect of changes to the government guarantee mortgage eligibility rules, and the Company’s beliefs as to housing demand and home price appreciation, unemployment rates, the Company’s future operating and financial results, sales expectations regarding premiums written, capital expenditure plans, dividend policy and the ability to execute on its future operating, investing and financial strategies.

The forward-looking statements contained herein are based on certain factors and assumptions, certain of which appear proximate to the applicable forward-looking statements contained herein. Inherent in the forward-looking statements are known and unknown risks, uncertainties and other factors beyond the Company’s ability to control or predict, that may cause the actual results, performance or achievements of the Company, or developments in the Company’s business or in its industry, to differ materially from the anticipated results, performance, achievements or developments expressed or implied by such forward-looking statements. Actual results or developments may differ materially from those contemplated by the forward-looking statements.

The Company’s actual results and performance could differ materially from those anticipated in these forward-looking statements as a result of both known and unknown risks, including the continued availability of the Canadian government’s guarantee of private mortgage insurance on terms satisfactory to the Company; the Company’s expectations regarding its revenues, expenses and operations; the Company’s plans to implement its strategy and operate its business; the Company’s expectations regarding the redemption of its existing debentures; Company’s expectations regarding the compensation of directors and officers; the Company’s anticipated cash needs and its estimates regarding its capital expenditures, capital requirements, reserves and its needs for additional financing; the Company’s plans for and timing of expansion of service and products; the Company’s ability to accurately assess and manage risks associated with the policies that are written; the Company’s ability to accurately manage market, interest and credit risks; the Company’s ability to maintain ratings, which may be affected by the ratings of its majority shareholder, Genworth Financial, Inc.; interest rate fluctuations; a decrease in the volume of high loan-to-value mortgage orientations; the cyclical nature of the mortgage insurance industry; changes in government regulations and laws mandating mortgage insurance; the acceptance by the Company’s lenders of new technologies and products; the Company’s ability to attract lenders and develop and maintain lender relationships; the Company’s competitive position and its expectations regarding competition from other providers of mortgage insurance in Canada; anticipated trends and challenges in the Company’s business and the markets in which it operates; changes in the global or Canadian economies; a decline in the Company’s regulatory capital or an increase in its regulatory capital requirements; loss of members of the Company’s senior management team; potential legal, tax and regulatory investigations and actions; the failure of the Company’s computer systems; and potential conflicts of interest between the Company and its majority shareholder, Genworth Financial, Inc.

This is not an exhaustive list of the factors that may affect any of the Company’s forward-looking statements. Some of these and other factors are discussed in more detail in the Company’s Annual Information Form dated March 17, 2014. Investors and others should carefully consider these and other factors and not place undue reliance on the forward-looking statements. Further information regarding these and other risk factors is included in the Company’s public filings with provincial and territorial securities regulatory authorities (including the Company’s AIF) and can be found on the SEDAR website at www.sedar.com. The forward-looking statements contained in this press release represent the Company’s views only as of the date hereof. Forward-looking statements contained in this press release are based on management’s current plans, estimates, projections, beliefs and opinions and the assumptions related to these plans, estimates, projections, beliefs and opinions may change, and therefore are presented for the purpose of assisting the Company’s security holders in understanding management’s current views regarding those future outcomes and may not be appropriate for other purposes. While the Company anticipates that subsequent events and developments may cause the Company’s views to change, the Company does not undertake to update any forward-looking statements, except to the extent required by applicable securities laws.

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April 7, 2015 Genworth Canada Homeownership Education Week Seminar
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April 20, 2015 - 5:00 PM ET Note: Minimum 20 minute delay