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Genworth MI Canada Inc. Reports First Quarter 2016 Results

Premiums Earned: $154 million, up 8% Y/Y
Loss Ratio: 24%, up 2 points Y/Y
Net Operating Income: $91 million, down 5% Y/Y
Fully Diluted Operating EPS:  $0.99, down 4% Y/Y

TORONTO, April 28, 2016 /CNW/ - Genworth MI Canada Inc. (the "Company") (TSX: MIC) today reported first quarter 2016 net income of $88 million or $0.96 earnings per fully diluted common share, net operating income of $91 million or $0.99 operating earnings per fully diluted common share, and an operating return on equity of 11%.

"We are pleased with our solid results this quarter, which continue to demonstrate the strength of our business model," said Stuart Levings, President and CEO, Genworth Canada. "In particular, we are encouraged by our loss ratio this quarter, and continue to apply a prudent and dynamic underwriting approach, helping to ensure that responsible homeownership remains accessible and affordable to homebuyers across Canada."

Key First Quarter 2016 Financial Results And Operational Metrics:

  • New insurance written from transactional insurance was $3.4 billion, a decrease of $0.5 billion, or 13%, compared to the same quarter in the prior year primarily as a result of targeted underwriting changes and a slowing housing market in oil-producing regions. As a result of typical seasonality transactional new insurance written decreased by $2.8 billion, or 45%, as compared to the prior quarter.

  • Premiums written from the transactional insurance business line were $99 million. This represents a decrease of $5 million, or 5%, from the prior year's period, primarily due to a decline in new insurance written partially offset by a higher average premium rate resulting from the June 2015 premium rate increase. Compared to the prior quarter, this represented a decrease of $82 million, or 45%, primarily due to seasonality.

  • New insurance written from portfolio insurance on low loan-to-value mortgages was $4.5 billion, a decrease of $1.4 billion, or 24%, compared to the same quarter in the prior year. Compared to the prior quarter, new insurance written from portfolio insurance decreased by $5.1 billion, or 53%. The volume and mix of portfolio insurance varies from quarter to quarter based on lender demand.

  • Premiums written from portfolio insurance were $18 million, representing a decrease of $8 million, or 32%, as compared to the same quarter in the prior year and $15 million, or 45%, compared to the prior quarter primarily due to a decline in new insurance written.

  • Net premiums earned of $154 million were $11 million, or 8%, 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 $2 million, or 2% higher. The unearned premiums reserve was $2.0 billion at the end of the quarter, consistent with the balance at December 31, 2015. These unearned premiums will be recognized as premiums earned over time in accordance with the Company's historical pattern of loss emergence.

  • New delinquencies, net of cures, of 568 were 136 higher than the same quarter in the prior year. Compared to the prior quarter, new delinquencies, net of cures, increased 81 primarily due to an increase of 94 in Alberta partially offset by a modest decrease in Ontario and Quebec.

  • The loss ratio was 24% for the quarter as a percentage of premiums earned, as compared to 23% in the prior quarter and 22% in the same quarter in the prior year period. Losses on claims of $37 million were $5 million, or 17%, higher than the same quarter in the prior year, primarily due to a modest increase in the average reserve per delinquency and an increase in new delinquencies, net of cures, from oil-producing regions. Losses on claims represented an increase of $2 million, or 6%, from the prior quarter, primarily due to an increase in new delinquencies, net of cures, from oil-producing regions.

  • The number of delinquencies outstanding was 2,034, an increase of 205 as compared to the prior quarter. This increase primarily reflects seasonality and the current economic conditions in oil-producing regions. Compared to the same quarter in the prior year, this represented an increase of 242 delinquencies including an increase of 204 in Alberta.

  • Expenses were $28 million during the quarter resulting in an expense ratio of 19%, as a percentage of premiums earned. This ratio was two percentage points higher than the same quarter in the prior year and one percentage point higher than the prior quarter. The expense ratio remained consistent with the Company's expected operating range of 18% to 20%.

  • Net Investment income, excluding realized and unrealized investment gains and losses, of $41 million was generally consistent with the same quarter in the prior year primarily due to an increase in the amount of invested assets offset by the impact of the low interest rate environment on the reinvestment of fixed income maturities. Net investment income, excluding realized and unrealized investment gains and losses, was $2 million lower than the prior quarter.

  • The Company's investment portfolio had a market value of $5.9 billion at the end of the quarter. The portfolio had a pre-tax equivalent book yield of 3.1% and duration of 3.7 years as at March 31, 2016.

  • Net operating income of $91 million was $5 million lower relative to the same quarter in the prior year primarily as a result of an increase in the corporate tax rate and a favourable non-recurring adjustment of $5 million in respect of taxes recorded in the prior year. Excluding the impact of these tax items, net operating income was flat. Net operating income was $4 million lower than the prior quarter primarily as a result of higher losses and higher expenses which was partially offset by higher earned premium.

  • Operating return on equity was 11% for the quarter, a modest decrease from the same quarter in the prior year and the prior quarter.

  • The regulatory capital ratio or Minimum Capital Test ("MCT") ratio was approximately 234%, 49 percentage points higher than the Company's internal target MCT ratio of 185% and 14 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.

  • The Company estimates that its outstanding balance of insured mortgages as at December 31, 2016, was approximately $193 billion, which is approximately 48% of the original insured amount. The outstanding balance of insured mortgages are reported on a one quarter lag.

 

Dividends

On March 2, 2016, the Company paid a quarterly dividend of $0.42 per common share.

The Company also announced today that its Board of Directors approved a dividend payment of $0.42 per common share, payable on May 27, 2016, to shareholders of record at the close of business on May 13, 2016. 

Shareholders' Equity

As at March 31, 2016, shareholders' equity was $3.5 billion, representing a book value including accumulated other comprehensive income ("AOCI") of $37.23 per common share on a fully diluted basis. Excluding AOCI, shareholders' equity was $3.3 billion, representing a book value of $35.95 per common share on a fully diluted basis.  

Credit and Debt Ratings

The Company's issuer credit rating by DBRS Ratings Limited 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 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, as well as the Company's first quarter 2016 consolidated Financial Statements, Management's Discussion and Analysis and 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, 2016 at 10:00 am ET (Local: 416-204-9269, Toll free: 1-800-499-4035, Conference ID: 2345112).  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, 2016 (Local: 647-436-0148, Toll-free 1-888-203-1112, Replay Passcode 2345112).  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 more than 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, 2016, the Company had $6.2 billion total assets and $3.5 billion shareholders' equity. Find out more at www.genworth.ca.

Consolidated Financial Highlights


($ millions, except per share amounts)

Three Months

Ended March 31 (Unaudited)

2016

2015

Transactional new insurance written1

$3,413

$3,909

Portfolio new insurance written1

4,493

5,878

Total new insurance written1

7,906

9,787

Premiums written

117

130

Premiums earned

154

143

Losses on claims

37

31

Expenses

28

24

Net underwriting income

88

87

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

41

42

Realized investment gains

-

10

Unrealized investment gains (losses)

(5)

5

Total net investment income

37

57

Net income

$88

$107

Net operating income1

$91

$97

Basic weighted average common shares outstanding

91,797,652

93,157,954

Diluted weighted average common shares outstanding

91,835,231

93,614,487

Fully diluted earnings per common share

$0.96

$1.08

Fully diluted operating earnings per common share1

$0.99

$1.03

Fully diluted book value per common share, inc. AOCI1

$37.23

$36.07

Fully diluted book value per common share, excl. AOCI1

$35.95

$33.48

Loss ratio1

24%

22%

Combined ratio1

42%

39%

Operating return on equity1

11%

12%

Minimum Capital Test ratio (MCT) 1

234%

233%

Delinquency ratio2

0.11%

0.11%

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 as at March 31, 2016 is based on the Company's estimate.

2 Based on original insured loans in-force for which coverage term has not expired and excludes delinquencies that been incurred but not reported.

 

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. The Company's key performance indicators and certain other information included in this press release include non-IFRS financial measures. Such non-IFRS financial measures used by the Company to analyze performance include net operating income, 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. Other non-IFRS financial measures used by the Company to analyze performance include insurance in-force, new insurance written, MCT ratio, delinquency ratio, severity on claims paid, 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 addition, where applicable, non-IFRS measures used by the Company have been adjusted to analyze the impact of the reversal of the government guarantee fund exit fee.

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, 2016 ("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.

Caution regarding forward looking information and 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 the Office of the Superintendent of Financial Institutions Canada and legislation introduced in connection with the Protection of Residential Mortgage or Hypothecary Insurance Act 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 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 originations; 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 (the "AIF") dated March 16, 2016. 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 System for Electronic Document Analysis and Retrieval ("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 are presented for the purpose of assisting the Company's securityholders 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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July 27, 2016 - 3:59 PM ET Note: Minimum 20 minute delay