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Genworth MI Canada Inc. Reports First Quarter 2015

Premiums Written: $130 million, up 55% Y/Y

Loss Ratio:  22%, down 4 points Q/Q

Net Operating Income: $97 million, up 16% Q/Q

Fully Diluted Operating EPS:  $1.03, up 16% Q/Q

TORONTO, April 28, 2015 /CNW/ - Genworth MI Canada Inc. (the "Company") (TSX: MIC) today reported first quarter 2015 net income of $107 million or $1.08 per diluted common share, and net operating income of $97 million or $1.03 operating earnings per diluted common share.  The Company also delivered an operating return on equity of 12% for the quarter. 

When compared to the prior quarter, net income increased $21 million or 24% and net operating income increased $13 million or 15%.  When compared to the same quarter in the prior year, net income was $13 million or 13% higher and net operating income was $6 million or 6% higher.  During the quarter, the Company recorded a favourable adjustment of $4.5 million in respect of taxes for the prior periods.

"We are pleased with our first quarter results, particularly our year-over-year top line growth, our solid loss ratio of 22%, and higher net operating income," said Stuart Levings , President and Chief Executive Officer.  "Our business fundamentals remain strong, and the recently announced premium increase should bode well for our business going forward."

Key First Quarter 2015 Financial Metrics:

  • Premiums written of $130 million represented an increase of $46 million, or 55%, compared to the same quarter in the prior year. The premium growth outpaced market growth in real estate activity and was primarily the result of strong market penetration and higher premium rates. When compared to the prior quarter, premiums written were lower by $48 million, or 27%, due to seasonality. The first quarter is typically characterized by lower mortgage origination volumes during the winter months.

  • Net premiums earned of $143 million were $2 million, or 2% higher, than the same quarter in the prior year. When compared to the prior quarter, net premiums earned were flat. The unearned premium reserve was $1.8 billion at the end of the quarter, consistent with the prior quarter.

  • Losses on claims of $31 million reflected $4 million higher losses than the same quarter in the prior year, primarily due to a higher average reserve per delinquency, which was partially offset by a decrease in the number of new delinquencies, net of cures. Losses on claims represented an improvement of $5 million or 15% from the prior quarter, primarily due to lower number of new delinquencies, net of cures. The loss ratio was 22% for the quarter, as compared to 26% in the prior quarter and 20% in the same quarter in the prior year.

  • The expense ratio was 17%, as a percentage of net premiums earned, or $24 million during the quarter. This ratio was 2 percentage point lower than the same quarter in the prior year and 4 percentage points lower than the prior quarter, in each case due to lower employee share-based compensation expense.

  • Net Investment income, excluding realized gains, of $42 million was $2 million lower than the same quarter in the prior year and $1 million lower as compared to the prior quarter due to the impact of the low interest rate environment on the reinvestment of bond maturities.

  • Net operating income of $97 million was $6 million or 6% higher relative to the same quarter in the prior year and $13 million or 15% higher as compared to the prior quarter. During the quarter, the Company recorded a favourable adjustment of $5 million in respect of taxes for the prior periods. Excluding this adjustment, net operating income would have been $92 million.

  • Operating return on equity was 12% for the quarter, flat when compared to the same quarter in the prior year and an increase of 1 percentage point compared to the prior quarter.

  • The regulatory capital ratio or Minimum Capital Test ("MCT") ratio was approximately 233%, 48 percentage points higher than the Company's internal target MCT ratio of 185% and 13 percentage points higher than the Company's holding target MCT ratio of 220%. The Company intends to operate with a MCT ratio modestly above its holding target.

 

Key First Quarter 2015 Highlights:

  • The transactional, or 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 $3.9 billion. Compared to the same quarter in the prior year, new insurance written was up by $0.8 billion or 25% driven by higher market penetration and stronger real estate activity. As a result of typical seasonality, this volume decreased by $2.3 billion as compared to the prior quarter.

  • Premiums from transactional new insurance written were $104 million. This represents an increase of $33 million, or 46%, from the same quarter in the prior year, primarily due to higher market penetration and higher premium rates. Compared to the prior quarter, there was a decrease of $61 million, or 37%, primarily due to seasonality.

  • The Company wrote $5.9 billion of portfolio insurance on low loan-to-value mortgages, representing an increase of $2.7 billion or 82% as compared to the same quarter in the prior year. Compared to the prior quarter, new insurance written from portfolio insurance was $3.3 billion, or 127% higher. The volume of portfolio insurance varies from quarter to quarter based on lender demand.

  • Premiums written from portfolio insurance were $26 million. Compared to the same quarter in the prior year and the prior quarter, this represented an increase of $13 million.

  • The number of delinquencies outstanding was 1,792, an increase of 36 as compared to the prior quarter, reflecting seasonality. Compared to the same quarter in the prior year, this was a decrease of 68 delinquencies, reflecting the stable credit quality in the portfolio and favourable economic and housing conditions in Ontario and British Columbia.

  • The Company's investment portfolio had a market value of $5.6 billion at the end of the quarter. The portfolio had a pre-tax equivalent book yield of 3.4% and duration of 3.8 years as at March 31, 2015. As a result of ongoing active portfolio management, the Company realized investment gains of $15 million in the quarter, primarily related to the reduction of its common share holdings.

  • On April 6, 2015, the Company announced that effective June 1, 2015, it will increase its mortgage insurance premium rates for homebuyers with less than 10% down payment by approximately 15%.

  • The Company estimates that its outstanding balance of insured mortgages was approximately $169 billion as at December 31, 2014. As the information is based on reported data from lenders, this balance is reported on a one quarter lag.

  • On April 28, 2015, the Company also announced its acceptance by the Toronto Stock Exchange of its Notice of Intention to make a Normal Course Issuer Bid ("NCIB"). Until its expiry on May 4, 2016, the Company may, if considered advisable, purchase up to an aggregate of 4,658,577 of its issued and outstanding common shares ("Common Shares"), being approximately 5% of the Common Shares issued and outstanding as of April 20, 2015. The Company's major shareholder, Genworth Financial intends to participate in the NCIB in order to maintain its proportionate ownership in Genworth Canada at approximately 57.3%.

 

Dividends

On March 6, 2015, the Company paid a quarterly dividend of $0.39 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 May 29, 2015, to shareholders of record at the close of business on May 15, 2015. 

Shareholders' Equity

As of March 31, 2015, shareholders' equity was $3.4 billion, representing a book value of $36.07 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 $3.2 billion, or a book value of $33.48 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).  DBRS reaffirmed the Company's credit ratings on March 27, 2015.  The Company's credit rating by Standard & Poor's (S&P) is 'BBB+' (stable) and the financial strength of the Company's primary operating subsidiary is 'A+' (stable). 

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 first quarter 2015 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 first quarter earnings call will be held on April 29, 2015 at 10:00 am ET (Local: 416-204-9702, Toll free: 1-800-524-8850, Conference ID: 5229793).  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 May 28, 2015 (Local: 647-436-0148, Toll-free 1-888-203-1112, Replay Passcode 5229793).  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 March 31, 2015, Genworth Canada had $5.9 billion total assets and $3.4 billion shareholders' equity. Find out more at www.genworth.ca.

Consolidated Financial Highlights



($ millions, except per share amounts)

Quarter

Ended March 31
(Unaudited)

2015

2014


New insurance written
1

9,787

6,348

   Transactional new insurance written (high loan-to-value mortgages)

3,909

3,117

   Portfolio new insurance written (low loan-to-value mortgages)

5,878

3,232

Premiums written

130

84

Net premiums earned

143

141

Losses on claims

31

28

Expenses

24

27

Net underwriting income

87

86

Interest and dividend income, net of investment expenses

42

44


Net investment gains

15

5


Total net investment income

57

49


Net income

107

95


Net operating income1

97

91

Fully diluted earnings per common share

$1.08

$1.00

Fully diluted operating earnings per common share1

$1.03

$0.96

Fully diluted book value per common share, inc. AOCI

$36.07

$33.52

Fully diluted book value per common share, excl. AOCI1

$33.48

$31.83

Basic weighted average common shares outstanding

93,157,954

94,921,173

Diluted weighted average common shares outstanding

93,614,487

94,983,507

Loss ratio1

22%

20%

Combined ratio1

39%

39%

Operating return on equity1

12%

12%

Minimum Capital Test ratio (MCT) 1

233%

229%

1 This 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. The MCT ratio for March 31, 2015 is based on the Company's estimate.

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, interest and dividend income, net of investment expenses, operating earnings per common share (basic), operating earnings per common share (diluted), shareholders' equity excluding AOCI, operating return on equity and underwriting ratios such as loss ratio, expense ratio and combined ratio. Non-IFRS measures used by the Company to analyze performance include insurance in-force, new insurance written, 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 Company's Management's Discussion and Analysis for the quarter ended March 31, 2015 ("MD&A") for a reconciliation of net operating income to net income, total net investment income to interest and dividend income, net of investment expenses, 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 and explanations of why these measures are useful to investors and management can be found in the Company's "Glossary", 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 23, 2015.  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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July 30, 2015 - 11:51 AM ET Note: Minimum 20 minute delay