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Genworth MI Canada Inc. Reports Third Quarter 2014 Earnings and
Announces Common Dividend Increase and Special Dividend

Net Premiums Written of $217 million, up 35% Year-over-Year

Third Quarter Net Operating Income of $93 Million

Operating Diluted EPS of $0.97

Common Dividend Increase of 11% to $0.39 per Common Share

Special Dividend of $0.43 per Common Share

 

Toronto, ON (November 5, 2014) – Genworth MI Canada Inc. (the “Company”) (TSX: MIC) today reported third quarter 2014 net income of $98 million or $1.01 per diluted common share, and net operating income of $93 million or $0.97 per diluted common share.   Net operating income was impacted by the normalization of losses on claims after the exceptionally low level experienced in the second quarter.  Premiums written increased 35% over the prior year with growth primarily coming from the high loan-to-value mortgage insurance segment.

“Strong top line growth was one of the key elements of our solid business performance this quarter,” said Brian Hurley, Chairman and Chief Executive Officer of the Company. “We are also pleased to announce that our Board of Directors has approved an 11% increase to the quarterly common share dividend and a special dividend of $0.43 per common share.  These dividends reflect our ongoing confidence in the Company’s business model.”

Third Quarter 2014 Key Financial Metrics:

  • Net premiums written of $217 million were $56 million, or 35%, higher than the same quarter in the prior year and $57 million, or 35%, higher than the prior quarter.   The strong premiums written growth reflected higher volumes of mortgage originations, continued market share penetration, and the higher premium rates which took effect on policies written after May 1, 2014.
  • Net premiums earned of $140 million were $3 million lower than the same quarter in the prior year and $1 million lower than the prior quarter, in line with the contribution from recent books of business.  The unearned premium reserve was $1.8 billion at the end of the quarter, $77 million higher than the prior quarter.
  • Losses on claims of $30 million reflected a $2 million decrease over the same quarter in the prior year and a $13 million increase over the prior quarter.  During the quarter, the number of new reported delinquencies normalized and this resulted in a loss ratio of 21% for this quarter, 1 point lower than the same quarter in the prior year and 9 points higher than the prior quarter.  On a year-to-date basis, the loss ratio was 18%, consistent with the Company’s 2014 anticipated loss ratio range of 15-25%.
  • The expense ratio, as a percentage of net premiums earned, was 17% during the quarter.  This ratio was 2 percentage points lower as compared to the same quarter in the prior year and quarter.    On a year- to- date basis, the expense ratio was 18%, consistent with the expected operating range.
  • Net Investment income, excluding realized gains, of $43 million was $2 million lower than the same quarter in the prior year and flat to the prior quarter.   Net investment income remains a steady contributor to net operating income.
  • Net operating income of $93 million was $2 million higher than the same quarter in the prior year and $6 million lower than the prior quarter.
  • Operating return on equity was 12% for the quarter, 1 percentage point lower when compared to both the same quarter in the prior year and the prior quarter.
  • The regulatory capital ratio or Minimum Capital Test (“MCT”) ratio was estimated to be 224%, 6 percentage points higher than the same quarter in the prior year and 6 percentage points lower than the prior quarter.   The Company’s MCT ratio at the end of the quarter was 4 percentage points higher than its MCT holding target of 220%.

Third Quarter 2014 Key Highlights:

  • New insurance written from the Company’s high loan-to-value insured mortgages during the quarter was $7.4 billion, $1.1 billion, or 18%, higher than the same quarter in the prior year and $1.9 billion, or 35%, higher than the prior quarter.   New insurance written from the high loan-to-value segment generated net premiums written of $192 million, accounting for 88% of the Company’s total net premiums written.  This represented an increase of $48 million, or 33% higher, as compared to the same quarter in the prior year and a $63 million increase, or 49% higher than the prior quarter.  The growth in high loan-to-value premiums is a result of the Company’s higher origination volumes, strengthened market position, and the premium rate increase.  The premium rate increase accounted for approximately $20 million in premiums written.
  • New insurance written from the Company’s low loan-to-value insured mortgages during the quarter was $6.0 billion, $2.0 billion, or 49%, higher than the same quarter in the prior year and $2.1 billion, or 26%, lower than the prior quarter, reflecting fluctuations in lender demand.  Premiums from this segment were $7.6 million or 44% higher than the same quarter in the prior year and $6.5 million or 21% lower than the prior quarter.
  • The number of reported delinquencies outstanding at the end of the quarter was 1708, representing a decline of 70 files as compared to the same quarter in the prior year, and flat as compared to the prior quarter.  The year-over-year improvement reflects lower delinquencies in Ontario, British Columbia and Alberta, partially offset by slightly higher delinquencies in the Quebec and Atlantic regions.
  • The Company’s investment portfolio had a market value of $5.5 billion at the end of the quarter.  The portfolio had a pre-tax equivalent book yield of 3.5% and duration of 3.6 years as at September 30, 2014.  As a result of ongoing active portfolio management, the Company realized investment gains of $8 million in the quarter.
  • During the quarter, the Office of the Superintendent of Financial Institutions (OSFI) released an advisory guideline, Interim Capital Requirements for Mortgage Insurance Companies, which will be used on an interim basis for 2015.   The Company used this guideline to calculate a pro forma MCT ratio as at September 30, 2014 and compared the result to its estimated MCT ratio using the existing calculation for the same time period.  Based on this comparison, the Company believes that the implementation of the 2015 MCT guideline will not have a material impact on its MCT ratio.
  • The ratings for the Company and its operating insurance company, Genworth Financial Mortgage Insurance Company Canada, were recently confirmed by DBRS Ratings Limited (DBRS) and Standard & Poor’s Ratings Services (S&P). The Company’s issuer credit rating remains ‘AA’ (low) with a stable trend from DBRS and ‘A-’ with a stable outlook from S&P.  The financial strength of its operating insurance company remains rated ‘AA’ with stable trend by DBRS and ‘AA-‘with a stable outlook by S&P.

Dividends

On August 29, 2014, the Company paid a quarterly dividend of $0.35 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 November 28, 2014, to shareholders of record at the close of business on November 17, 2014.  This dividend represents an increase of $0.04 or 11% over the Company’s last quarterly dividend. The Company has increased its dividend in each of the last 5 years.

The Board of Directors also announced that it has declared a special dividend of $0.43 per common share, for an aggregate amount of approximately $40 million.  This special dividend is to be paid on November 28, 2014, to shareholders of record at the close of business on November 17, 2014.

As the Company continues to generate capital in excess of its operating target, these dividend actions reflect management’s confidence in the Company’s business performance.

Shareholders’ Equity

As of September 30, 2014, shareholders’ equity was $3.3 billion, representing a book value of $34.57 per common share on a fully diluted basis.  Excluding accumulated other comprehensive income (“AOCI”), shareholders’ equity was $3.2 billion, or a book value of $32.87 per common share on a fully diluted basis.

Detailed Operating Results and Financial Supplement

For more information on the Company’s operating results, please refer to its 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 third 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 third quarter earnings call will be held on November 6, 2014 at 11:30 am ET (Local: 416-847-6330 or 1-866-530-1553; Conference ID: 6287693).  The call is accessible via telephone and by audio webcast on 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 December 6, 2014 (Local 647-436-0148 or 1-888-203-1112, Replay Passcode 6287693).  Participants are encouraged to pre-register for the webcast through the Company’s website.  A replay of the call will also be available from 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 September 30, 2014, Genworth Canada had $5.9 billion total assets and $3.3 billion total 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 September 30 (Unaudited)

2014

2013


New insurance written
1

$13,391

$10,295

Net Premiums written

217

161

Net Premiums earned

140

143

Losses on claims

30

32

Expenses

24

27

Investment income (interest/dividends, net of expenses) 1

43

45


Net investment gains

8

7


Total net investment income

51

51


Net income

$98

$96


Net operating income1

$93

$91

Fully diluted earnings per common share

$1.01

$0.99

Fully diluted operating earnings per common share1, 3

$0.97

$0.94

Fully diluted book value per common share, inc. AOCI3

$34.57

$31.82

Fully diluted book value per common share, excl. AOCI1, 3

$32.87

$30.50

Basic weighted average common shares outstanding

95,015,502

96,426,269

Diluted weighted average common shares outstanding3

95,572,195

96,561,756

Loss ratio1

21%

22%

Combined ratio1

38%

41%

Operating return on equity1

12%

13%

Minimum Capital Test ratio (MCT) 2 -operating insurance company

224%

218%

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.

2The MCT for September 30, 2014 is the Company’s estimate.

3The difference between the basic and diluted number of common shares outstanding is caused by the potentially dilutive impact of share-based compensation awards.

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 document include, but are not limited to, statements with respect to the Company’s expectations regarding the effect of the Canadian government guarantee legislative framework, 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; 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 AIF 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.

Latest Presentation
November 6, 2014 Q3 2014 Earnings Conference Call Slides
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November 25, 2014 - 5:00 PM ET Note: Minimum 20 minute delay