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Genworth MI Canada Inc. Reports Second Quarter 2015

Premiums Written: $205 million, up 28% Y/Y
Loss Ratio:  17%, down 5 points Q/Q
Net Operating Income: $92 million
Fully Diluted Operating EPS:  $0.99

TORONTO, Aug. 4, 2015 /CNW/ - Genworth MI Canada Inc. (the "Company") (TSX: MIC) today reported second quarter 2015 net income of $103 million or $1.12 earnings per diluted common share, and net operating income of $92 million or $0.99 operating earnings per diluted common share.  The Company also delivered an operating return on equity of 12% for the quarter.  Premiums written for the quarter increased 28% over the prior year primarily related to the transactional mortgage insurance segment.

"We are pleased with this quarter's solid profitability and strong top line growth which reflects our improving market share" said Stuart Levings, President and Chief Executive Officer. "Our efforts remain focused on prudent risk management, building a high quality portfolio, and being the mortgage insurer of choice."

Key Second Quarter 2015 Financial Metrics:

  • Premiums written of $205 million represented an increase of $45 million, or 28%, compared to the same quarter in the prior year. This increase was primarily the result of improved market penetration and higher average premium rates resulting from the 2014 premium rate increase. When compared to the prior quarter, premiums written were higher by $75 million, or 57%, primarily due to seasonally higher mortgage origination volumes in the spring. The impact of the June 1, 2015 price increase on transactional mortgage insurance will gradually increase over the course of the year due to the time lag between mortgage approvals and mortgage closings.

  • Net premiums earned of $144 million were $3 million, or 2%, higher, than the same quarter in the prior year due to the higher level of premiums written in recent years. When compared to the prior quarter, net premiums earned were $1 million, or 1% higher. The unearned premium reserve was $1.8 billion at the end of the quarter, up modestly $61 million from the prior quarter.

  • Losses on claims of $25 million reflected $8 million higher losses than the same quarter in the prior year, primarily due to a modest increase in new delinquencies, net of cures, and a higher average reserve per delinquency related to regional mix. Losses on claims represented an improvement of $7 million or 22% from the prior quarter, primarily due to a seasonally lower number of new delinquencies, net of cures. The loss ratio was 17% for the quarter, as compared to 22% in the prior quarter and 12% in the same quarter in the prior year.

  • Expenses were $29 million during the quarter resulting in an expense ratio of 20%, as a percentage of net premiums earned. This ratio was 1 percentage point higher than the same quarter in the prior year and 3 percentage points higher than the prior quarter. The expense ratio remains in the Company's expected operating range.

  • Net Investment income, excluding realized gains, of $42 million was $2 million lower than the same quarter in the prior year due to the impact of the lower reinvestment rates. Net investment income, excluding realized gains, was consistent with the prior quarter.

  • Net operating income of $92 million was $8 million or 8% lower relative to the same quarter in the prior year primarily due to unusually low losses on claims in the second quarter of 2014. Compared to the prior quarter, net operating income was lower due to a $5 million favourable tax adjustment in the first quarter of 2015.

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

  • The regulatory capital ratio or Minimum Capital Test ("MCT") ratio was approximately 231%, 46 percentage points higher than the Company's internal target MCT ratio of 185% and 11 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 Second Quarter 2015 Highlights:

  • The transactional segment of new insurance written is the Company's primary focus and during the quarter new insurance written from this segment was $6.8 billion. Compared to the same quarter in the prior year, new insurance written was up by $1.3 billion or 24%, driven by higher market penetration and a larger origination market. As a result of typical seasonality, new insurance written increased by $2.9 billion as compared to the prior quarter.

  • Premiums written from the transactional insurance segment were $183 million. This represents an increase of $55 million, or 43%, from the same quarter in the prior year, primarily due to higher market penetration and higher average premium rates resulting from the 2014 premium rate increase. Compared to the prior quarter, there was an increase of $79 million, or 76%, primarily due to seasonality.

  • On June 1, 2015, the Company implemented a 15% increase on its mortgage insurance premium rates on mortgages with less than a 10 percent down. The new pricing reflects the higher current capital requirements and supports the long term health of Canada's housing system. As a result of this price increase, the incremental premiums written and earned premium in 2015 are expected to be approximately $25 to $30 million and $1 million, respectively.

  • The Company wrote $4.1 billion of portfolio insurance on low loan-to-value mortgages, representing a decrease of $4.1 billion or 50% as compared to the same quarter in the prior year. Compared to the prior quarter, new insurance written from portfolio insurance was $1.8 billion, or 30% lower. The volume of portfolio insurance varies from quarter to quarter based on lender demand.

  • Premiums written from portfolio insurance were $22 million, representing a decrease of $10 million or 32% as compared to the same quarter in the prior year. Compared to the prior quarter, there was a decrease of $4 million or 17%.

  • The number of delinquencies outstanding was 1,666, a decrease of 126 as compared to the prior quarter, primarily reflecting seasonality. Compared to the same quarter in the prior year, this represented a decrease of 37 delinquencies arising primarily from a decrease in Ontario and British Columbia partially offset by an increase in Quebec.

  • The Company's investment portfolio had a market value of $5.7 billion at the end of the quarter. The portfolio had a pre-tax equivalent book yield of 3.3% and duration of 3.6 years as at June 30, 2015. As a result of ongoing active portfolio management, the Company realized investment gains of $17 million in the quarter, primarily related to the reduction of its common share holdings.

  • The Company estimates that its outstanding balance of insured mortgages as at March 31, 2015, was approximately $173 billion.

  • During the quarter and pursuant to the Company's Normal Course Issuer Bid which will expire on May 4, 2016, the Company repurchased 1,454,196 common shares for cancellation, representing approximately 2% of the outstanding common shares, for an aggregate amount of $50 million.

Dividends

On May 29, 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 August 31, 2015, to shareholders of record at the close of business on August 17, 2015. 

Shareholders' Equity

As at June 30, 2015, shareholders' equity was $3.4 billion, representing a book value of $36.18 per common share on a fully diluted basis. Excluding accumulated other comprehensive income ("AOCI"), shareholders' equity was $3.2 billion, representing a book value of $34.23 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 & 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 second 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 second quarter earnings call will be held on August 5, 2015 at 10:00 am ET (Local: 416-260-0113, Toll free: 1-800-524-8950, Conference ID: 9329253).  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 September 3, 2015 (Local: 647-436-0148, Toll-free 1-888-203-1112, Replay Passcode 9329253).  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 June 30, 2015, Genworth Canada had $6.2 billion total assets and $3.4 billion shareholders' equity. Find out more at www.genworth.ca.

Consolidated Financial Highlights

($ millions, except per share amounts)

Three Months

Ended June 30 (Unaudited)

Six Months

Ended June 30 (Unaudited)

2015

2014

2015

2014


New insurance written
1

$10,862

$13,628

$20,649

$19,977

Premiums written

205

160

335

245

Premiums earned

144

141

287

282

Losses on claims

25

17

56

45

Expenses

29

27

54

54

Net underwriting income

90

97

178

183

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

42

43

83

87


Net investment gains

17

5

32

11


Total net investment income

58

49

115

98


Net income

$103

$97

$211

$192


Net operating income1

$92

$99

$188

$190

Fully diluted earnings per common share

$1.12

$1.02

$2.23

$2.02

Fully diluted operating earnings per common share1

$0.99

$1.04

$2.02

$2.00

Fully diluted book value per common share, inc. AOCI1

$36.18

$34.17

$36.18

$34.17

Fully diluted book value per common share, excl. AOCI1

$34.23

$32.36

$34.23

$32.36

Basic weighted average common shares outstanding

92,459,207

94,976,887

92,806,650

94,949,184

Diluted weighted average common shares outstanding

92,475,757

95,220,039

93,267,763

95,097,485

Loss ratio1

17%

12%

19%

16%

Combined ratio1

37%

31%

38%

35%

Operating return on equity1

12%

13%

12%

13%

Minimum Capital Test ratio (MCT) 1

231%

231%

231%

231%

 

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. The MCT ratio as at June 30, 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 June 30, 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.

Investors - Philip Mayers, 905-287-5393, philip.mayers@genworth.com; Media - Lisa Azzuolo, 905-287-5520, lisa.azzuolo@genworth.com
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September 3, 2015 - 3:59 PM ET Note: Minimum 20 minute delay