First Quarter Net Operating Income of $85 million, Operating Diluted EPS of $0.86/share
Normal Course Issuer Bid Announced
Toronto, ON (April 30, 2013) – Genworth MI Canada Inc. (the “Company”) (TSX: MIC) today reported first quarter 2013 net income of $88 million or $0.89 per diluted common share, and net operating income of $85 million or $0.86 operating earnings per diluted common share.
"We started 2013 with solid results that exceeded our expectations for the quarter,” said Brian Hurley, Chairman and Chief Executive Officer. “We are also pleased to announce that our Board has authorized, a share repurchase through a normal course issuer bid. Our strong balance sheet allows us to return capital to our shareholders, while maintaining our financial flexibility going forward."
First Quarter 2013 Key Financial Metrics:
(Note: Comparisons to prior quarter exclude impact from exit fee reversal in the fourth quarter of 2012)
Net premiums written of $84 million were $33 million lower than the prior quarter and $5 million higher year-over-year. The sequential decrease was primarily driven by typical winter seasonality. The year-over-year increase reflects a higher market penetration by the Company in a smaller high loan-to-value mortgage insurance market and increased volumes of portfolio insurance on low loan-to-value mortgages.
- Net premiums earned of $144 million were $3 million lower as compared to the prior quarter and $2 million lower year-over-year. The slightly lower premiums earned are primarily the result of continued aging of the older books.
- Losses on claims of $44 million were $2 million lower than the prior quarter due to fewer new reported delinquencies across most regions, particularly in Alberta. On a year-over-year basis, losses on claims were $12 million lower, reflecting lower new reported delinquencies due to an improving economic environment. This resulted in a loss ratio of 31% for the quarter, flat sequentially and 7 percentage points lower year-over-year.
- Net Investment income excluding realized gains of $45 million was $1 million lower than the prior quarter and $2 million higher year-over-year. The decline in investment income continued to be reflective of lower reinvestment yields.
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- Net operating income of $85 million was $4 million lower than the prior quarter primarily due to lower premiums earned and $9 million higher year-over-year primarily as a result of lower losses on claim, which was partially offset by lower earned premiums.
- Operating return on equity was 12% for the quarter, 1 percentage point lower than the prior quarter and flat year-over-year.
- The expense ratio, as a ratio of net premiums earned, was 18%. This ratio was 1 percentage point lower than the prior quarter and flat year-over-year, but consistent with the Company’s expected range.
- The unearned premium reserve was $1.7 billion at the end of the quarter. These premiums will be earned over time in accordance with the Company’s premium recognition curve which follows the Company’s historical loss emergence pattern.
- The regulatory capital ratio or Minimum Capital Test (“MCT”) ratio was approximately 216%, 6 percentage points higher than the Company’s ratio as at January 1, 2013 and 31 points higher than its internal target MCT ratio of 185%. The Company intends to operate with a MCT ratio above 190% to maintain financial flexibility.
First Quarter 2013 Key Highlights:
The Company continued to make solid progress towards its operational targets. As a result of its strategic efforts, the Company consistently remains the leader in the Canadian private mortgage insurance industry.
- Total new insurance written this quarter was $5.7 billion as compared to $8.5 billion in the prior quarter and 38% higher than the same period last year, primarily due to larger volumes of portfolio insurance. The high loan-to-value component of new insurance written during the quarter was $3.3 billion, representing a decline of 25% from $4.4 billion in the fourth quarter of the prior year and a decline of 8% over the same quarter last year. The sequential decline in volumes of high loan-to-value mortgages was attributed to a combination of seasonality and general housing market slowdown, while the year-over-year decline was attributed to insured product changes resulting from government guarantee product changes in July 2012.
- The Company insured $2.4 billion of low loan-to-value mortgage portfolios, lower than the prior quarter volume of $4.1 billion, and $1.9 billion higher than the same period last year. The premiums written in the quarter from insurance of low loan-to-value mortgage portfolios represented approximately 13% of the Company’s net premiums written. The volume of portfolio insurance varies from quarter to quarter based on the needs of lenders.
- The total delinquency rate based on original insurance in-force was 0.14%, flat to the prior quarter and 5 basis points lower than the same period last year. The number of reported delinquencies declined modestly from the prior quarter, reflecting the aging of the 2007 and 2008 books, improving economic conditions and portfolio quality in combination with ongoing success of the Company’s proactive loss mitigation strategies.
- The Company’s investment portfolio had a market value of $5.3 billion at the end of the quarter. During the quarter, the Company’s formerly segregated government guarantee fund investment portfolio was combined with the Company’s general investment portfolio. The portfolio had a pre-tax equivalent book yield of 3.7% and duration of 3.6 years as at March 31, 2013.
- As part of an ongoing effort to improve its estimate of the outstanding insurance exposure, the Company recently surveyed its largest customers and obtained the amount of the outstanding balances. As a result, the Company estimates that the outstanding balance of insured mortgages was approximately $150 billion as at December 31, 2012 and believes that this does not have an impact on the premium recognition curve, which is based on the pattern of loss emergence. Under the $300 billion outstanding insurance cap for private mortgage insurers as set by the Minister of Finance, the Company believes that the private sector industry has ample remaining capacity.
The Company was also pleased to announce today that its Board of Directors has authorized a normal course issuer bid (“NCIB”) to purchase up to 4,937,078 shares, representing approximately 5% of its outstanding common shares. As at April 29, 2013, there were 98,741,567 shares issued and outstanding. Under the terms of the NCIB, the Company will purchase the common shares for cancellation on the open market, including from the Company’s major shareholder, Genworth Financial, Inc. Purchases of common shares may commence on May 3, 2013 and will expire on the earlier of May 2, 2014 and the date on which the Company has purchased the maximum number of shares under the NCIB. The Company’s major shareholder, Genworth Financial Inc., is expected to maintain its 57.4% ownership interest in the Company throughout the course of the NCIB.
On March 15, 2013, the Company paid a quarterly dividend of $0.32 per common share.
The Company also announced today that its Board of Directors approved a dividend payment of $0.32 per common share, payable on May 31, 2013 to shareholders of record at the close of business on May 15, 2013.
As of March 31, 2013, shareholders’ equity was $3.1 billion representing a book value of $31.32 per common share on a fully diluted basis. Excluding accumulated other comprehensive income (“AOCI”) or loss, shareholders’ equity was $2.9 billion or a book value of $28.99 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 the Company’s Management’s Discussion and Analysis as posted on SEDAR and available at www.sedar.com.
This press release, the financial statements, Management’s Discussion and Analysis, and the first quarter 2013 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 May 1, 2013 at 10:30 am ET (Local: 416-644-3414, Toll free: 1-800-814-4859). 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, 2013 (Local: 416-640-1917, Toll Free: 1-877-289-8525 Access Code 4611636#). 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 superior customer service, 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, 2013, Genworth Canada had $5.7 billion total assets and $3.1 billion shareholders' equity. Find out more at www.genworth.ca.
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Consolidated Financial Highlights
1 This is a financial measure not calculated based on International Financial Reporting Standards (“IFRSs”). See the “IFRSs and Non-IFRSs Financial Measures” section of this press release for additional information.
($ millions, except per share amounts)
||Three Months Ended March 31 (Unaudited)
|New Insurance Written
|Insurance In Force
|Net Premiums Written
|Net Premiums Earned
|Losses on Claims
|Investment Income (Interest and Dividends, net of expenses) 1
|Realized and Unrealized Gains or Losses on Investments
|Total investment income
|Net Operating Income1
|Fully Diluted Earnings Per Share
|Fully Diluted Operating Earnings Per Share1
|Fully Diluted Book Value Per Common Share, including AOCI
|Fully Diluted Book Value Per Common Share, excluding AOCI1
|Operating Return on Equity1
|Minimum Capital Test Ratio (MCT)
IFRSs and Non-IFRSs Financial Measures
The Company’s consolidated financial statements are prepared in accordance with IFRSs. To supplement its financial statements, the Company uses select non-IFRSs financial measures. Non-IFRSs measures used by the Company to analyze performance include underwriting ratios such as loss ratio, expense ratio and combined ratio, as well as other performance measures such as net operating income and return on operating income. Other non-IFRSs measures used by the Company include shareholders’ equity, insurance in-force, new insurance written, MCT ratio, delinquency ratio, severity on claims paid, operating earnings per common share of the Company (basic and diluted), book value per common share (basic and diluted; including and excluding AOCI), dividends paid per common share of the Company, and portfolio duration. The Company believes that these non-IFRSs 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-IFRSs measures do not have standardized meanings and are unlikely to be comparable to any similar measures presented by other companies. These measures are defined in the Company’s glossary, which is posted on the investor section of the Company’s website. To access the glossary, click on the “Glossary of Terms” link under “Investor Resources” subsection on the left navigation bar. A reconciliation of non-IFRSs financial measures to the most recently comparable measures calculated in accordance with IFRSs can be found in Management’s Discussion and Analysis filed with the Company’s most recent financial statements, which are available on the Company’s website and on SEDAR at www.sedar.com.
Cautionary Note Regarding Forward-Looking Statements
This press release includes certain forward-looking statements. These forward-looking statements include, but are not limited to, the Company’s plans, objectives, expectations and intentions, and other statements contained in this release that are not historical facts. These statements may be identified by their use of words such as “may”, “would”, “could”, “will”, “intend”, “plan”, “anticipate”, “believe”, “seek”, “propose”, “estimate”, “expect”, or 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’s new government guarantee legislative framework, the effect of the changes to the government guarantee mortgage eligibility rules, the timing and extent of repurchases of the Company’s common shares under the NCIB, 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. These statements are inherently subject to significant risks, uncertainties and changes in circumstances, many of which are beyond the Company’s control. The Company’s actual results may differ materially from those expressed or implied by such forward-looking statements, including as a result of changes in global, political, economic, business, competitive, market and regulatory factors, and the other risks described in the Company’s Annual Information Form. Other than as required by applicable laws, the Company undertakes no obligation to publicly update or revise any forward-looking statement, whether as a result of new information, future developments or otherwise.