news-release-details

Genworth MI Canada Inc. Reports Second Quarter 2019 Results Including Net Operating Income of $120 Million

July 30, 2019

Net Income:

$110 million

Down 5% Y/Y

Up 13% Q/Q

Net Operating Income:

$120 million

Up 2% Y/Y

Up 1% Q/Q

Fully Diluted Operating EPS:

$1.38

Up 5% Y/Y

Up 2% Q/Q





Transactional Premiums Written:

$187 million

Up 12% Y/Y

Up 86% Q/Q

Total Premiums Written:

$195 million

Up 14% Y/Y

Up 85% Q/Q

Premiums Earned:

$169 million

Down 2% Y/Y

Flat Q/Q

Loss Ratio:

15%

Up 1 pt Y/Y

Flat Q/Q

 

TORONTO, July 30, 2019 /CNW/ - Genworth MI Canada Inc. (the "Company") (TSX: MIC) today reported second quarter 2019 net income of $110 million and earnings per fully diluted common share of $1.26. The Company also reported net operating income of $120 million, operating earnings per fully diluted common share of $1.38 and an operating return on equity of 12%.

"Having recently marked our 10-year anniversary as a public company, we are pleased with our solid track record of performance, including this quarter, which reflected a 15 per cent loss ratio and a 12 per cent operating return on equity," said Stuart Levings, President and CEO. "We are encouraged by growth in our premiums written, largely driven by a stronger transactional insurance market. Additionally, we are pleased to have returned capital to shareholders in the quarter of approximately $100 million in the form of share repurchases and a special dividend, in line with our focus on capital efficiency."

Key Second Quarter 2019 Financial Results And Operational Metrics:

  • New insurance written from transactional insurance was $5.3 billion, an increase of $0.6 billion, or 12%, compared to the same quarter in the prior year, primarily due to increased housing market activity. Compared to the prior quarter, transactional new insurance written increased by $2.4 billion, primarily as a result of typical seasonality.

  • Premiums written from transactional insurance were $187 million, representing an increase of $20 million, or 12%, from the second quarter of 2018, consistent with the increase in new insurance written. Compared to the prior quarter, transactional premiums written increased $86 million, or 86%, primarily related to higher new insurance written as a result of typical seasonality.

  • New insurance written from portfolio insurance on low loan-to-value mortgages was $2.4 billion, an increase of $1.3 billion compared to the same quarter in the prior year and an increase of $1.4 billion versus the prior quarter, primarily due to a $1.5 billion bank transaction.

  • Premiums written from portfolio insurance were $8 million, representing an increase of $3 million compared to the same quarter in the prior year, and prior quarter, primarily due to an increase in new insurance written, partly offset by a lower average premium rate.

  • Premiums earned of $169 million were $3 million, or 2%, lower than the same quarter in the prior year, reflecting the relatively lower level of premiums written in recent years. Premiums earned were flat compared to the prior quarter. The unearned premiums reserve was $2.1 billion at the end of the quarter, essentially flat with the prior quarter. 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 281 were 79 lower than the second quarter of 2018 primarily due to decreases in Québec (56), and Ontario (35), partly offset by an increase in Alberta (41). Compared to the prior quarter, new delinquencies, net of cures, decreased by 124 primarily due to decreases in Ontario (45), and Québec (29), partly offset by an increase in Alberta (4).

  • The loss ratio, as a percentage of premiums earned, for the quarter was 15% as compared to 14% in the same quarter in the prior year and flat with the prior quarter. Losses on claims of $26 million were $1 million higher than the same quarter in the prior year, primarily due to a higher average reserve per delinquency, partly offset by a decrease in new delinquencies, net of cures. Losses on claims were relatively flat compared with the prior quarter.

  • The number of delinquencies outstanding of 1,701 reflected a decrease of 41 delinquencies, as compared to the same quarter in the prior year, including a decrease in Québec (93), and Ontario (48), partly offset by an increase in Alberta (126). Compared to the prior quarter, the number of delinquencies outstanding decreased by 59, primarily driven by decreases in Québec (51), and Ontario (26), partly offset by an increase in Alberta (57).

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

  • 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 3.3% and duration of 3.7 years as at June 30, 2019, each of which were consistent with the prior quarter.

  • Operating investment income, of $56 million was $5 million higher than the same quarter in the prior year primarily due to a higher level of invested assets and an increase of $2 million of realized income from the Company's interest rate hedging program. Compared to the prior quarter, operating investment income decreased by $1 million.

  • Realized and unrealized losses from derivatives and foreign exchange, of $23 million excludes the realized income from the interest rate hedging program of $7 million. This was $20 million higher than the prior year period primarily due to the impact of lower interest rates on the market value of the Company's interest rate swaps, and foreign exchange. Compared to the prior quarter, losses improved by $8 million primarily due to the impact of higher interest rates on the market value of the Company's interest rate swaps, partly offset by foreign exchange.

  • Net income of $110 million was $6 million lower than the same quarter in the prior year, primarily due to the realized and unrealized losses from derivatives and foreign exchange, and modestly lower premiums earned, and modestly higher losses on claims. Net income was $13 million higher than the prior quarter, primarily due to a lower level of realized and unrealized losses from derivatives and foreign exchange.

  • Net operating income of $120 million increased by $3 million compared to the same quarter in the prior year. Net operating income was relatively consistent with the prior quarter.

  • Operating return on equity was 12% for the quarter, consistent with the same quarter in the prior year and the prior quarter.

  • The regulatory capital ratio or Mortgage Insurer Capital Adequacy Test ("MICAT") ratio was approximately 169%, 12 percentage points higher than the Company's internal MICAT ratio target of 157% and 19 percentage points higher than the OSFI Supervisory MICAT ratio target of 150%.

  • The Company estimates that its outstanding principal balance of insured mortgages as at June 30, 2019, was approximately $205 billion, or 40% of the original insured amount. The Company estimates, that as of June 30, 2019, the outstanding principal balance for all privately insured mortgages was approximately $274 billion relative to the $350 billion aggregate outstanding principal limit under the government guarantee legislation (Protection of Residential Mortgage or Hypothecary Insurance Act).

Dividends

On May 29, 2019, the Company paid a quarterly dividend of $0.51 per common share.

The Company also announced today that its Board of Directors approved a dividend payment of $0.51 per common share, payable on Aug. 28th, 2019, to shareholders of record at the close of business on Aug. 14th, 2019.

Special Dividend

On June 5, 2019, the Board of Directors announced that it declared a special dividend of $0.40 per common share, for an aggregate amount of $34 million. This special dividend was paid on June 28, 2019, to shareholders of record at the close of business on June 17, 2019.

Share Repurchase

During the quarter, the Company repurchased 1,650,951 common shares for cancellation at an average price of $41.45, for an aggregate purchase price of approximately $68 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% ownership interest in the Company.

Shareholders' Equity

As at June 30, 2019, shareholders' equity was $4.1 billion, representing a book value including accumulated other comprehensive income ("AOCI") of $47.17 per common share on a fully diluted basis. Excluding AOCI, shareholders' equity was $4.0 billion, representing a book value of $46.67 per common share on a fully diluted basis.  

Credit and Debt Ratings

The Company's issuer credit rating by DBRS Ratings Limited is 'A' high (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 second quarter 2019 consolidated Financial Statements and Management's Discussion and Analysis as posted on SEDAR and available at www.sedar.com.

This Press Release, as well as the Company's second quarter 2019 consolidated Financial Statements, Management's Discussion and Analysis ("MD&A") 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 second quarter earnings call will be held on July 31st, 2019 at 10:00 am ET (Local: 647-484-0478, Toll free: 1-888-208-1711, Conference ID: 1715676).  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 August 29th, 2019 (647-436-0148 or 1-888-203-1112, replay passcode: 1715676). The webcast will also be available for replay on the Company's website for a period of approximately 45 days following the 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 sector 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 June 30th, 2019, the Company had $6.9 billion total assets and $4.1 billion shareholders' equity. Find out more at www.genworth.ca.

Contact Information :

Investors – Jonathan Pinto, 905-287-5482   jonathan.pinto@genworth.com
Media – Susan Carter, 905-287-5520  susan.carter@genworth.com

Consolidated Financial Highlights

($ millions, except per share amounts)

Three Months Ended

June 30 (Unaudited)

Six Months Ended

June 30 (Unaudited)

2019

2018

2019

2018

Transactional new insurance written 1

$5,310

$4,751

$8,212

$7,907

Portfolio new insurance written 1

2,426

1,092

3,441

2,245

Total new insurance written 1

$7,736

$5,844

$11,653

$10,152

Premiums written

195

172

300

287

Premiums earned

169

171

337

342

Losses on claims

26

25

51

47

Expenses

34

33

67

65

Net underwriting income

$109

$114

$219

$231

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

49

46

97

93

Interest rate hedging program income

7

5

16

8

Realized gains (losses) on sale of investments

12

0

13

(1)

Realized and unrealized gains on derivatives, foreign exchange

(23)

(2)

(53)

10

Total net investment income

$46

$49

$73

$111

Net income

$110

$116

$207

$244

Net operating income1

$120

$117

$239

$237

Basic weighted average common shares outstanding

86,985,187

89,822,762

87,287,620

90,285,170

Diluted weighted average common shares outstanding

87,103,687

89,947,816

87,535,129

90,780,422

Fully diluted earnings per common share

$1.26

$1.29

$2.37

$2.68

Fully diluted operating earnings per common share1

$1.38

$1.31

$2.73

$2.61

Fully diluted book value per common share, incl. AOCI 1

$47.17

$44.40

$47.17

$44.40

Fully diluted book value per common share, excl. AOCI 1

$46.67

$44.11

$46.67

$44.11

Loss ratio1

15%

14%

15%

14%

Combined ratio1

35%

33%

35%

33%

Operating return on equity1

12%

12%

12%

12%

MICAT ratio 1,3

169%

170%

169%

170%

Transactional delinquency ratio1, 2

0.27%

0.28%

0.27%

0.28%

Portfolio delinquency ratio1, 2

0.09%

0.08%

0.09%

0.08%

Delinquency ratio1, 2

0.19%

0.19%

0.19%

0.19%


Note: Amounts may not total due to rounding.

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.

Based on outstanding balance and excludes delinquencies that have been incurred but not reported.

Company estimate at June 30th, 2019. Effective January 1, 2019, the MCT ratio was replaced with the MICAT ratio. The OSFI supervisory MICAT target ratio and minimum MICAT ratio under the Protection of Residential Mortgage or Hypothecary Insurance Act (PRMHIA) for 2019 remains at 150% and the Company's internal target ratio for 2019 under the MICAT remains unchanged at 157%.

 

Non-IFRS Financial Measures

To supplement the Company's consolidated financial statements, which are prepared in accordance with IFRS, the Company uses certain 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, operating investment income, net operating income (excluding fee on early redemption of long-term debt), 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





Three months ended June 30,

Six months ended June 30,

(in millions of dollars, unless otherwise specified)


2019


2018


2019


2018

Total investment income

$

46

$

49

$

73

$

111

Adjustment to investment income:









Net losses (gains) from investments, derivatives 
and foreign exchange¹


10


2


40


(10)

Operating investment income


56


51


113


101

Realized expense (income) from the interest rate  
hedging program


(7)


(5)


(16)


(8)

Interest and dividend income, net of investment
expenses

$

49

$

46


97

$

93

Net income


110


116


207


244

Adjustments to net income, net of taxes:









Fee on early redemption of long-term debt


2


-


2


-

Net losses (gains) from investments, derivatives
 and foreign exchange¹


8


1


29


(7)

Net operating income

$

120

$

117

$

239

$

237

Earnings per common share (basic)

$

1.26

$

1.29

$

2.37

$

2.70

Adjustment to earnings per common share, net of taxes:









Fee on early redemption of long-term debt


0.03


-


0.03


-

Net losses (gains) from investments, derivatives
and foreign exchange¹


0.09


0.02


0.34


(0.08)

Operating earnings per common share (basic)

$

1.38

$

1.31

$

2.74

$

2.62

Earnings per common share (diluted)2

$

1.26

$

1.29

$

2.37

$

2.68

Adjustment to earnings per common share, net of taxes:









Fee on early redemption of long-term debt


0.03


-


0.03


-

Share based compensation re-measurement amount


-


-


-


-

Net losses (gains) from investments, derivatives
and foreign exchange¹


0.09


0.02


0.34


(0.08)

Operating earnings per common share (diluted)2

$

1.38

$

1.31

$

2.73

$

2.61


Note: Amounts may not total due to rounding.

1 Includes realized and unrealized losses (gains) from derivatives and foreign exchange, excluding realized expense (income) from the interest rate hedging program.

 2 The difference between basic and diluted earnings per common share and basic and diluted operating earnings per common share is caused by the potentially dilutive impact of share-based compensation awards.

 

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 MD&A for the quarter ended June 30, 2019.  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, the payment of dividends; 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; or potential cyber threats; potential conflicts of interest between the Company and its majority shareholder, Genworth Financial Inc.; the potential disposition by Genworth Financial, Inc. of its equity interests in the Company; and Genworth Financial Inc. closing 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 22, 2019. 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.

SOURCE Genworth MI Canada

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