Genworth MI Canada Inc. Reports Third Quarter 2019 Results Including Net Operating Income of $115 Million

 

Increase in quarterly ordinary dividend of $0.03 or 6% from $0.51 to $0.54 per common share 

TORONTO, Oct. 29, 2019 /CNW/ – Genworth MI Canada Inc. (the “Company“) (TSX: MIC) today reported third quarter 2019 net income of $111 million and earnings per fully diluted common share of $1.29. The Company also reported net operating income of $115 million, operating earnings per fully diluted common share of $1.34 and an operating return on equity of 11%, which ratio was essentially flat quarter over quarter.

“The business had another strong quarter particularly in terms of growth in premiums written and capital redeployment” said Stuart Levings. “We were pleased to announce an increase of 6% in our ordinary dividend, which together with the special dividend of $1.45 per share paid on October 11^th, 2019, reflects our ongoing focus on capital efficiency and the strong earnings profile of our business model.”

Key Third Quarter 2019 Financial Results And Operational Metrics:

• New insurance written from transactional insurance was $6.1 billion, an increase of $0.6 billion, or 10%, compared to the same quarter in the prior year, primarily due to increased housing market activity and ongoing market share momentum. Compared to the prior quarter, transactional new insurance written increased by $0.8 billion, or 14%, primarily as a result of typical seasonality and increased housing market activity.

• Premiums written from transactional insurance were $213 million, representing an increase of $20 million, or 10%, from the third quarter of 2018 and $26 million, or 14%, compared to the prior quarter, consistent with the increase in new insurance written.

• New insurance written from portfolio insurance on low loan-to-value mortgages was $1.3 billion, an increase of $0.5 billion compared to the same quarter in the prior year and a decrease of $1.1 billion versus the prior quarter, primarily due to the impact of a one-time $1.5 billion bank transaction in the prior quarter.  

• Premiums written from portfolio insurance were $6 million, representing an increase of $2 million compared to the same quarter in the prior year and a decrease of $2 million versus the prior quarter.

• Premiums earned of $171 million were $1 million, or 1%, higher than the same quarter in the prior year, and $2 million or 1% higher than the prior quarter.  The unearned premiums reserve was $2.1 billion at the end of the quarter, relatively 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 373 were 45 more than the third quarter of 2018 primarily due to increases in Alberta (42), and the Atlantic region (22), partly offset by a decrease in Ontario (22). Compared to the prior quarter, new delinquencies, net of cures, increased by 92, primarily due to increases in Québec (58), the Atlantic region (21), the Pacific region (15) and the Prairies region (14).

• The loss ratio, as a percentage of premiums earned, for the quarter was 18% as compared to 14% in the same quarter in the prior year and 15% in the prior quarter. Losses on claims of $31 million were $8 million higher than the same quarter in the prior year, primarily due to an increase in new delinquencies, net of cures, in Alberta and a higher average reserve per delinquency driven by unemployment and housing pressure in Alberta and the Prairies region. Losses on claims were $5 million higher compared with the prior quarter primarily due to an increase in new delinquencies, net of cures as Québec and the Atlantic region normalized following a low level of losses in the prior quarter and a higher average reserve per delinquency arising from a seasonal increase in the incurred but not reported reserve.
• The number of delinquencies outstanding of 1,761 reflected an increase of 66 delinquencies, as compared to the same quarter in the prior year, including an increase in Alberta (155), partly offset by a decrease in Québec (54), and Ontario (51). Compared to the prior quarter, the number of delinquencies outstanding increased by 60, primarily driven by an increase in Alberta (31), the Atlantic region (22) and Québec (20).
• Expenses were $33 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 $6.7 billion at the end of the quarter.  The portfolio had a pre-tax equivalent book yield of 3.2% and duration of 3.6 years as at September 30, 2019, each of which were consistent with the prior quarter.
• Operating investment income of $57 million was $2 million higher than the same quarter in the prior year primarily due to a higher level of invested assets and an increase of $1 million of realized income from the Company’s interest rate hedging program. Compared to the prior quarter, operating investment income increased by less than $1 million.

• Realized and unrealized losses from derivatives and foreign exchange of $10 million excludes the realized income from the Company’s interest rate hedging program of $7 million. This compares to a $10 million gain in 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 decreased by $13 million primarily due to the impact of higher interest rates on the market value of the Company’s interest rate swaps, and foreign exchange.

• Net income of $111 million was $17 million lower than the same quarter in the prior year, primarily due to a higher level of realized and unrealized losses from derivatives and foreign exchange and higher losses on claims. Net income was $1 million higher than the prior quarter, primarily due to a lower level of realized and unrealized losses from derivatives and foreign exchange partially offset by higher losses on claims.

• Net operating income of $115 million decreased by $6 million compared to the same quarter in the prior year and by $5 million compared to the prior quarter primarily due to higher losses on claims.

• Operating return on equity was 11% for the quarter, a decrease of less than one percentage point from 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 172%, 15 percentage points higher than the Company’s internal MICAT ratio target of 157% and 22 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 September 30, 2019, was approximately $203 billion, or 39% 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 $275 billion relative to the $350 billion aggregate outstanding principal limit under the government guarantee legislation (Protection of Residential Mortgage or Hypothecary Insurance Act). 

Ordinary Dividends

On August 28^th, 2019, the Company paid a quarterly dividend of $0.51 per common share.

The Company also announced today that its Board of Directors of the Company approved a dividend payment of $0.54 per common share for the fourth quarter of 2019. This dividend will be paid on November 27th, 2019 to shareholders of record at the close of business on November 8th, 2019. This represents an increase of $0.03 or 6% per common share from the prior quarter’s dividend.

Special Dividend

On September 12^th, 2019, the Board of Directors announced that it declared a special dividend of $1.45 per common share, for an aggregate amount of $125 million. This special dividend was paid on October 11^th, 2019, to shareholders of record at the close of business on September 26^th, 2019.

Shareholders’ Equity

As at September 30, 2019, shareholders’ equity was $4.0 billion, representing a book value including accumulated other comprehensive income (“AOCI”) of $46.37 per common share on a fully diluted basis after declaration of a special dividend of $1.45 per common share. Excluding AOCI, shareholders’ equity was $4.0 billion, representing a book value of $46.01 per common share on a fully diluted basis after declaration of a special dividend of $1.45 per common share.  

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 third 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 third 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 third quarter earnings call will be held on October 30^th, 2019 at 9:00 am ET (Local: 647-484-0477, Toll free: 1-800-458-4121, Conference ID: 9176220).  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 November 28^th, 2019 (647-436-0148 or 1-888-203-1112, replay passcode: 9176220). 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 September 30^th, 2019, the Company had $7.1 billion total assets and $4.0 billion shareholders’ equity. Find out more at www.genworth.ca.

Contact Information:

Investors â€“ Aaron Williams, 905-287-5504   aaron.williams@genworth.com
Media – Susan Carter, 905-287-5520  susan.carter@genworth.com

Consolidated Financial Highlights

 

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

 

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 September 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 proposed disposition by Genworth Financial, Inc. of its equity interests in the Company to an affiliate of Brookfield Business Partners L.P., including the timing of closing of such transaction or the failure to close such transaction; 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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