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Genworth MI Canada Inc. Reports Third Quarter 2017 Results

Increase in quarterly dividend of $0.03 or 7% from $0.44 to $0.47 per common share

Transactional Premiums Written:

$195 million

Down 3% Y/Y, up 21% Q/Q

Premiums Earned:

$170 million

Up 5% Y/Y, up 1% Q/Q

Loss Ratio:

13%

Down 12 pts Y/Y, up 10 pts Q/Q

Net Income:

$140 million

Up 42% Y/Y, down 7% Q/Q

Net Operating Income:

$112 million

Up 21% Y/Y, down 11% Q/Q

Fully Diluted Operating EPS:

$1.23

Up 21% Y/Y, down 10% Q/Q

 

TORONTO, Nov. 2, 2017 /CNW/ - Genworth MI Canada Inc. (the "Company") (TSX: MIC) today reported third quarter 2017 net income of $140 million or $1.52 earnings per fully diluted common share, net operating income of $112 million or $1.23 operating earnings per fully diluted common share, and an operating return on equity of 12%.

"We continue to experience solid operating performance reflecting our strong portfolio quality and premiums earned momentum," said Stuart Levings, President and CEO. "As expected, our loss ratio has begun to normalize from the unsustainably low level we experienced in the prior quarter. As part of our ongoing focus on prudent capital management, we increased our ordinary dividend and repurchased shares under our Normal Course Issuer Bid, highlighting the confidence we have in our business model."

Key Third Quarter 2017 Financial Results And Operational Metrics:

  • New insurance written from transactional insurance was $5.6 billion, a decrease of $1.2 billion, or 18%, compared to the same quarter in the prior year. This decrease was primarily due to a smaller high loan-to-value origination market following the introduction by the Canadian federal government of an insured mortgage rate stress test in the fourth quarter of 2016. Compared to the prior quarter, transactional new insurance written increased by $0.7 billion, primarily as a result of typical seasonality.

  • Premiums written from transactional insurance were $195 million.  This represents a decrease of $5 million, or 3%, from the prior year's period, primarily due to a decline in new insurance written, which was partially offset by an 18% higher average premium rate resulting from the impact of the March 2017 premium rate increase. Compared to the prior quarter, premiums written increased by $34 million, or 21%, primarily due to seasonality and a 7% higher average premium rate resulting from the impact of the March 2017 premium rate increase.
     
  • New insurance written from portfolio insurance on low loan-to-value mortgages was $0.8 billion, a decrease of $5.7 billion compared to the same quarter in the prior year. The decrease was primarily due to lower demand for portfolio insurance as a result of the prohibition of portfolio insurance on refinance transactions originated by lenders after November 30, 2016 and a substantial increase in portfolio insurance premium rates on mortgage applications received after December 31, 2016 in response to higher regulatory capital requirements. Compared to the prior quarter, new insurance written from portfolio insurance decreased by $0.3 billion.

  • Premiums written from portfolio insurance were $6 million, representing decreases of $16 million compared to the same quarter in the prior year and $2 million compared to the prior quarter, primarily due to the decrease in new insurance written.

  • Premiums earned of $170 million were $8 million, or 5%, higher than the same quarter in the prior year due to the relatively higher level of premiums written in recent years. When compared to the prior quarter, premiums earned were $1 million, or 1%, higher.  The unearned premiums reserve was $2.1 billion at the end of the quarter, relatively consistent with December 31, 2016 and up $32 million from June 30, 2017. 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 337 were 156 lower than the same quarter in the prior year primarily due to a decrease in Alberta (127). Compared to the prior quarter, new delinquencies, net of cures, increased 182, primarily due to an increase in Ontario (76), Quebec (68) and the Atlantic region (44).  

  • The loss ratio for the quarter was 13% as a percentage of premiums earned, compared to 25% in the same quarter in the prior year and 3% in the prior quarter. Losses on claims of $23 million were $18 million lower than the same quarter in the prior year primarily due to lower new delinquencies, net of cures, in Alberta and a modestly lower average reserve per delinquency in Ontario, the Pacific region, Quebec and the Atlantic region. Losses on claims increased by $17 million from the prior quarter primarily due to a  seasonal increase in new delinquencies, net of cures, and lower favourable reserve development as compared to the prior quarter. 

  • The number of delinquencies outstanding of 1,759 reflected a decrease of 50 delinquencies, as compared to the prior quarter, including decreases in Alberta (31), Quebec (19), and the Pacific region (19). Compared to the same quarter in the prior year, the number of delinquencies outstanding decreased by 268, including decreases in Alberta (97), Quebec (77), Ontario (68), and the Pacific region (33).

  • Expenses were $34 million during the quarter, resulting in an expense ratio of 20%, as a percentage of premiums earned.  This ratio was consistent with the same quarter in the prior year, and two percentage points higher than the prior quarter. The expense ratio remained consistent with the Company's expected operating range of 18% to 20%.

  • Interest and dividend income, net of investment expenses, of $45 million was relatively unchanged as compared to the same quarter in the prior year and $1 million higher compared to the prior quarter.

  • Realized and unrealized gains on derivatives and foreign exchange, of $37 million were $32 million higher than the same quarter in the prior year and $8 million higher compared to the prior quarter. These increases were primarily due to an increase in the market value of the Company's interest rate swaps partially offset by movements in foreign exchange rates on the Company's invested assets denominated in U.S. Dollars.   

  • The Company's investment portfolio had a market value of $6.5 billion at the end of the quarter.  The portfolio had a pre-tax equivalent book yield of 3.1% and duration of 3.9 years as at September 30, 2017, each of which were consistent with the prior quarter.

  • Net income of $140 million was $41 million higher relative to the same quarter in the prior year primarily due to higher total net investment income, lower losses on claims and higher premiums earned. Net income was $10 million lower than the prior quarter primarily due to higher losses on claims and higher expenses, partially offset by higher total net investment income, and higher premiums earned.

  • Net operating income of $112 million was $19 million higher than the same quarter in the prior year primarily due to lower losses on claims and higher premiums earned. Net operating income was $13 million lower than the prior quarter primarily due to higher losses on claims and higher expenses, partially offset by higher premiums earned.

  • Operating return on equity was 12% for the quarter, two percentage points lower than the prior quarter, and one percentage point higher than the same quarter in the prior year.

  • The regulatory capital ratio or Minimum Capital Test ("MCT") ratio was approximately 165%, 8 percentage points higher than the internal MCT ratio target of 157% and 15 percentage points higher than the Office of the Superintendent of Financial Institutions ("OSFI") Supervisory MCT ratio target of 150%. 

  • The Company estimates that its outstanding principal balance of insured mortgages as at September 30, 2017, was approximately $222 billion, or 45% of the original insured amount.

 

Dividends

On August 30, 2017, the Company paid a quarterly dividend of $0.44 per common share.

The Company also announced today that its Board of Directors approved a dividend payment of $0.47 per common share, payable on November 30, 2017, to shareholders of record at the close of business on November 15, 2017. This represents an increase of $0.03 or 7% per common share from the prior quarter's dividend. 

Shareholders' Equity

As at September 30, 2017, shareholders' equity was $3.9 billion, representing a book value including accumulated other comprehensive income ("AOCI") of $42.04 per common share on a fully diluted basis. Excluding AOCI, shareholders' equity was $3.8 billion, representing a book value of $41.35 per common share on a fully diluted basis.  

Credit and Debt Ratings

On August 15, 2017, S&P affirmed the Insurance Subsidiary's A+ rating and the Company's BBB+ rating. On July 21, 2017, DBRS confirmed the Insurance Subsidiary's AA financial strength rating and the Company's A (high) rating with stable trends.

Share Repurchase

During the quarter the Company repurchased 1,114,260 common shares for cancellation, for an aggregate purchase price of $40 million, under the terms of its normal course issuer bid. The Company's majority shareholder, Genworth Financial, Inc., through its subsidiaries, participated proportionately in the normal course issuer bid to maintain its approximately 57.1% ownership interest in the Company. 

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 third quarter 2017 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 Third quarter earnings call will be held on November 3, 2017 at 9:00 am ET (Local: 416-640-5944, Toll free: 1-800-289-0438, Conference ID: 6754408).  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 December 2, 2017 (Local: 647-436-0148, Toll-free 1-888-203-1112, Replay Passcode 6754408).  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 September 30, 2017, the Company had $6.8 billion total assets and $3.9 billion shareholders' equity. Find out more at www.genworth.ca.  

Consolidated Financial Highlights

($ millions, except per share amounts)

Three Months Ended

September 30 (Unaudited)

Nine Months Ended

September 30 (Unaudited)

2017

2016

2017

2016

Transactional new insurance written1

$5,641

$6,868

$13,671

$16,050

Portfolio new insurance written1

848

6,539

12,469

36,963

Total new insurance written1

$6,489

$13,407

$26,140

$53,013

Premiums written

202

223

498

588

Premiums earned

170

162

505

474

Losses on claims

23

41

54

110

Expenses

34

33

99

91

Net underwriting income

$113

$88

$353

$272

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

45

44

135

130

Realized gains (losses) on sale of investments

(1)

2

2

2

Impairment loss

-

-

-

(3)

Realized and unrealized gains on derivatives and foreign exchange

37

5

64

(8)

Total net investment income

$82

$52

$201

$121

Net income

$140

$98

$396

$277

Net operating income1

$112

$93

$345

$283

Basic weighted average common shares outstanding

91,554,357

91,852,491

91,800,214

91,819,480

Diluted weighted average common shares outstanding

91,715,512

91,857,866

91,992,976

91,831,211

Fully diluted earnings per common share

$1.52

$1.07

$4.30

$3.01

Fully diluted operating earnings per common share1

$1.23

$1.02

$3.76

$3.09

Fully diluted book value per common share, incl. AOCI1

$42.04

$39.01

$42.04

$39.01

Fully diluted book value per common share, excl. AOCI1

$41.35

$37.21

$41.35

$37.21

Loss ratio1

13%

25%

11%

23%

Combined ratio1

33%

45%

30%

43%

Operating return on equity1

12%

11%

13%

11%

Internal MCT target (2017)/MCT holding target (2016)1,3

150%

220%

150%

220%

MCT ratio 1,4

165%

236%

165%

236%

Delinquency ratio1, 2

0.08%

0.10%

0.08%

0.10%

 


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.

2 

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

3 

Effective January 1, 2017, the 2016 holding target MCT ratio of 220% was recalibrated to the OSFI Supervisory MCT ratio target of 150% and the minimum MCT ratio under the Protection of Residential Mortgage of Hypothecary Insurance Act was reduced to 150%.

4 

Company estimate at September 30, 2017.

 

Non-IFRS financial measures


Three months ended September 30,

Nine months ended September 30,

(in millions of dollars, unless otherwise specified)

2017

2016

2017

2016

Investment income

$82

$52

$201

$121

Adjustment to investment income:





Net investment (gains)

(37)

(7)

(66)

9

Interest and dividend income, net of investment expenses

$45

$44

135

$130






Net income

140

98

396

277

Adjustments to net income, net of taxes:





Net investment (gains)

(27)

(5)

(50)

7

Net operating income

$112

$93

$345

$283






Earnings per common share (basic)

$1.52

$1.07

$4.31

$3.02

Adjustment to earnings per common share, net of taxes:





Net investment (gains)

(0.30)

(0.06)

(0.54)

0.07

Operating earnings per common share (basic)

$1.23

$1.02

$3.76

$3.09






Earnings per common share (diluted) 1

$1.52

$1.07

$4.30

$3.01

Adjustment to earnings per common share, net of taxes:





Share based compensation re-measurement amount

-

-

-

-

Net investment (gains)

(0.30)

(0.06)

(0.54)

0.07

Operating earnings per common share (diluted) 1

$1.23

$1.02

$3.76

$3.09

  


Note: Amounts may not total due to rounding.

1  

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

 

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, among others, interest and dividend income, net of investment expenses, net operating income, operating earnings per common share (basic) and operating earnings per common share (diluted). 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.

Non-IFRS financial measures reconciled to comparable IFRS measures for such periods

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 Company's Management's Discussion and Analysis for the quarter ended September 30, 2017 ("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.

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, the Company's future operating and financial results; and the operating range for the Company's expense ratio as a percentage of premiums earned.

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; potential conflicts of interest between the Company and its majority shareholder, Genworth Financial Inc.; and Genworth Financial Inc. entering on or failing to execute on a merger agreement entered into with subsidiaries of China Oceanwide Holdings Group Co., Ltd.

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 15, 2017. 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 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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December 6, 2017 Investor Day Presentation - Toronto
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December 13, 2017 - 4:15 PM ET Note: Minimum 20 minute delay