First Quarter Net Operating Income of $91 million, up 7% Year-over-Year
Operating Diluted EPS of $0.96 per share, up 12%, Year-over-Year
15% Average Premium Rate Increase Will Take Effect May 1, 2014
Toronto, ON (April 29, 2014) – Genworth MI Canada Inc. (the “Company”) (TSX: MIC) today reported first quarter 2014 net income of $95 million or $1.00 per diluted common share, and net operating income of $91 million or $0.96 operating earnings per diluted common share. Net operating income was positively impacted by the Company’s improving loss experience primarily a reflection of continuing strong market conditions.
“Our strong business execution and continued trend of lower losses produced solid first quarter results,” said Brian Hurley, Chairman and Chief Executive Officer of the Company. “The stable economy and housing market, and the 15% average price increase effective May 1, 2014, should bode well for our business going forward.”
First Quarter 2014 Key Financial Metrics:
- Net premiums written of $84 million were flat to the same quarter in the prior year and $45 million lower than the prior quarter, consistent with typical seasonality. The top line reflects an improved market position offset by delays in home closings related to the harsh and prolonged winter.
- Net premiums earned of $141 million were $3 million lower than the same quarter in the prior year and lower by $1 million as compared to the prior quarter. The unearned premium reserve was $1.7 billion at the end of the quarter, $57 million lower than the prior quarter.
- Losses on claims of $28 million reflected a $16 million improvement over the same quarter in the prior year and a $3 million improvement over the prior quarter. During the quarter, the Company experienced lower losses primarily due to a favourable shift in the regional mix of delinquencies, a stable economic environment, and continued housing market strength. This resulted in a loss ratio of 20% for this quarter, 11 points lower than the same quarter in the prior year and 2 points lower than the prior quarter.
- The expense ratio was 19%, as a percentage of net premiums earned, during the quarter. This ratio was 1 percentage point higher as compared to the same quarter in the prior year and 4 percentage points lower than the prior quarter.
- Net Investment income, excluding realized gains, of $44 million was $2 million lower than the same quarter in the prior year and $1 million lower than the prior quarter.
- Net operating income of $91 million was $6 million higher relative to both the same quarter in the prior year and the prior quarter.
- Operating return on equity was 12% for the quarter, flat when compared to both the same quarter in the prior year and prior quarter.
- The regulatory capital ratio or Minimum Capital Test (“MCT”) ratio was approximately 229%, 6 percentage points higher than the prior quarter and 44 percentage points higher than the Company’s internal target MCT ratio of 185%. The Company currently intends to operate with a MCT ratio above 190% to maintain financial strength and flexibility.
First Quarter 2014 Key Highlights:
- The high loan-to-value component of new insurance written during the quarter was $3.1 billion, essentially flat to the same quarter in the prior year and $2 billion lower than the prior quarter due to typical seasonality. Mortgage insurance approvals increased by 9% year over year reflecting marginally higher housing resale activity and modest improvements in market penetration. The resulting net premiums written in the quarter from insurance of high loan-to-value mortgages was $71 million, accounting for 85% of the Company’s net premiums written. This represented a decrease of $2 million from the same quarter in the prior year and $47 million lower than the prior quarter.
- During the quarter, the Company realized $13 million of premiums written from new insurance written from its portfolio of low loan-to-value mortgages totaling $3.2 billion. This represents an increase of $0.7 billion in new insurance written from the prior quarter volume, and a $0.8 billion increase over the same quarter in the prior year. The volume of portfolio insurance varies from quarter to quarter based on lender demand.
- The number of reported delinquencies was 1,860 outstanding at the end of the quarter. This represents a decrease of 5% as compared to the same quarter in the prior year and a marginal increase of 2% in the current quarter due to typical seasonality. The year-over-year decline in delinquencies reflects the strong credit quality in the portfolio and improving economic conditions across most regions.
- The Company’s investment portfolio had a market value of $5.2 billion at the end of the quarter. The portfolio had a pre-tax equivalent book yield of 3.6% and duration of 3.7 years as at March 31, 2014. As a result of ongoing active portfolio management, the Company realized investment gains of $5 million in the quarter related to its equity holdings.
- During the quarter, the Company received confirmation from OSFI that the Company will be subject to a customized Minimum Capital Test (“MCT”) for mortgage insurers starting in 2015. The Company is awaiting the final details of the customized MCT, but does not anticipate a material impact on the calculation of the MCT ratio.
- In a press release dated February 28, 2014, the Company announced that it will increase its mortgage insurance premium rates by an average of 15% effective May 1, 2014. The Company believes the new pricing structure is reflective of increased regulatory capital requirements and supportive of the long-term safety and stability of the housing market.
- The draft form of Regulation B-21, entitled “Residential Mortgage Insurance Underwriting Practices and Procedures”, was released by OSFI on April 14, 2014, for public commentary. These guidelines set out principles based on four main areas: governance of the underwriting decisions, interactions with lenders, risk management and disclosure. The Company believes that the ongoing oversight by the regulator is prudent for the industry in preserving the long term safety and soundness of the housing market. Based upon the Company’s interpretation of the draft, the Company believes its current practices are generally aligned with these guidelines.
- On April 29, 2014, 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, 2015, the Company may, if considered advisable, purchase up to an aggregate of 4,746,504 of its issued and outstanding common shares (“Common Shares”), being approximately 5% of the Common Shares issued and outstanding as of April 23, 2014. 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 57.4%.
- Subsequent to the quarter, the Company successfully completed a $160 million senior unsecured debenture issue at a coupon of 4.242% with a maturity date of April 1, 2024. In doing so, the Company took advantage of favourable market conditions and extended its debt maturity profile. The net proceeds from the issue will primarily be used to early redeem the Company’s outstanding $150 million 4.59% December 2015 debentures on May 1, 2014. The Company expects to incur a make whole cost of approximately $7.2 million in connection with the early redemption.
On February 28, 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 $0.35 per common share, payable on May 30, 2014, to shareholders of record at the close of business on May 15, 2014.
As of March 31, 2014, shareholders’ equity was $3.2 billion, representing a book value of $33.52 per common share on a fully diluted basis. Excluding accumulated other comprehensive income (“AOCI”) shareholders’ equity was $ 3.0 billion, or a book value of $31.83 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 first 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.
The Company’s first quarter earnings call will be held on April 30, 2014 at 10:00 am ET (Local: 416-644-3415, Toll free: 1-877-974-0445, Conference ID: 4678076). 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 June 1, 2014 (Local 416-640-1917, Toll Free 1-877-289-8525, Access Code 4678076#). 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 March 31, 2014, Genworth Canada had $5.5 billion total assets and $3.2 billion total shareholders' equity. Find out more at www.genworth.ca.
Investors – Samantha Cheung, 905-287-5482 firstname.lastname@example.org
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Consolidated Financial Highlights
|($ millions, except per share amounts)
Ended March 31 (Unaudited)
|New insurance written
|Net premiums written
|Net premiums earned
|Losses on claims
|Investment income (interest/dividends, net of expenses) 1
|Net investment gains
|Total net investment income
|Net operating income1
|Fully diluted earnings per common share
|Fully diluted operating earnings per common share1
|Fully diluted book value per common share, inc. AOCI
|Fully diluted book value per common share, excl. AOCI1
|Basic weighted average common shares outstanding
|Diluted weighted average common shares outstanding
|Operating return on equity1
|Minimum Capital Test ratio (MCT)
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, 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, 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.
In the first quarter of 2014, the Company revised its definition of net operating income (loss) to exclude gains (losses) on the early extinguishment of debt to better reflect the basis on which the performance of its business is internally assessed and to reflect management’s opinion that they are not indicative of overall operating trends. Changes were not required for prior periods.
See the “Non‐IFRS financial measures” section at the end of the MD&A 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 proposed 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.