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Genworth MI Canada Inc. Reports First Quarter 2017 Results

Premiums Earned: $167 million, up 9% Y/Y
Loss Ratio: 15%, down 9 points Y/Y
Net Income: $106 million, up 21% Y/Y
Net Operating Income: $107 million, up 17% Y/Y
Fully Diluted Operating EPS:  $1.17, up 17% Y/Y

TORONTO, May 2, 2017 /CNW/ - Genworth MI Canada Inc. (the "Company") (TSX: MIC) today reported first quarter 2017 net income of $106 million and earnings per fully diluted common share of $1.15, net operating income of $107 million and operating earnings per fully diluted common share of $1.17 and an operating return on equity of 12%.

"We are pleased with our strong results this quarter. While our loss ratio was low in the quarter, it comes on the back of strong macroeconomic tailwinds and particularly robust housing markets. We recognize that the current pace of loss development is likely to normalize as housing markets gradually respond to government actions and market forces. Our Company is also supportive of the recent actions taken by the Ontario government to address affordability in the Greater Toronto Area housing market."

Key First Quarter 2017 Financial Results And Operational Metrics:

  • New insurance written from transactional insurance was $3.0 billion, a decrease of $0.4 billion, or 11%, compared to the same quarter in the prior year, primarily due to a smaller high loan-to-value origination market resulting from regulatory changes in the fourth quarter of 2016. Compared to the prior quarter, transactional new insurance written decreased by $2.1 billion, primarily as a result of typical seasonality and the regulatory changes.

  • Premiums written from transactional insurance were $89 million. This represents a decrease of $10 million, or 10%, from the prior year period, and $60 million from the prior quarter, consistent with the decline in new insurance written.

  • New insurance written from portfolio insurance on low loan-to-value mortgages was $10.5 billion, an increase of $6.0 billion compared to the same quarter in the prior year and an increase of $5.6 billion compared to the prior quarter. These increases were primarily due to the closing of several large portfolio insurance transactions on applications received in the fourth quarter of 2016.

  • Premiums written from portfolio insurance were $38 million, representing an increase of $20 million compared to the same quarter in the prior year and $16 million compared to the prior quarter consistent with the increase in new insurance written.

  • Premiums earned of $167 million were $13 million, or 9%, 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, premiums earned were $3 million, or 2%, higher. The unearned premiums reserve was $2.1 billion at the end of the quarter, consistent with the balance at December 31, 2016. 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 491 were 55 higher than the prior quarter due to seasonal increases in Alberta (38), the Pacific region (21), the Atlantic region (24) and the Prairies (17), partially offset by decreases in Ontario (26) and Quebec (19). Compared to the same period in the prior year, new delinquencies, net of cures, were lower by 77 primarily due to decreases in Alberta (42), Quebec (29) and Ontario (21).

  • The loss ratio for the quarter was 15% as a percentage of premiums earned, compared to 18% in the prior quarter and 24% in the same quarter in the prior year. Losses on claims of $26 million were $11 million lower than the same quarter in the prior year, primarily due to a decrease in new delinquencies, net of cures. Losses on claims decreased by $3 million from the prior quarter, primarily due to a lower average reserve per delinquency and favourable development related to stable or higher house prices in most regions.

  • The number of delinquencies outstanding of 2,082 reflected an increase of 48 delinquencies, as compared to the same quarter in the prior year, including an increase of 170 delinquencies in Alberta. Compared to the prior quarter, the number of delinquencies outstanding increased by 12 delinquencies.

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

  • Interest and dividend income, net of investment expenses, of $45 million was $3 million higher than the same quarter in the prior year primarily due to an increase in the amount of invested assets and was relatively unchanged from the prior quarter.

  • The Company's investment portfolio had a market value of $6.3 billion at the end of the quarter. The portfolio had a pre-tax equivalent book yield of 3.2% and duration of 3.8 years as at March 31, 2017, each of which were consistent with the prior quarter.

  • Net income of $106 million was $18 million higher relative to the same quarter in the prior year, primarily due to higher premiums earned, higher total net investment income and lower losses on claims, partially offset by higher expenses. Net income was $34 million lower than the prior quarter, primarily due to lower total net investment income as a result of unrealized gains on derivatives in the prior quarter, partially offset by lower losses on claims and higher premiums earned.

  • Net operating income of $107 million was $16 million higher relative to the same quarter in the prior year, and $2 million higher than the prior quarter.

  • Operating return on equity was 12% for the quarter, consistent with 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 162%, 5 percentage points higher than the Company's internal MCT ratio target of 157% and 12 percentage points higher than the OSFI Supervisory MCT ratio target of 150%.

  • The Company estimates that its outstanding principal balance of insured mortgages as at March 31, 2017, was approximately $226 billion, or 47% of the original insured amount. The Company estimates, that as of December 31, 2016, the outstanding principal balance for all privately insured mortgages was $284 billion.

 

Dividends

On March 8, 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 $0.44 per common share, payable on May 30, 2017, to shareholders of record at the close of business on May 12, 2017. 

Shareholders' Equity

As at March 31, 2017, shareholders' equity was $3.8 billion, representing a book value including accumulated other comprehensive income ("AOCI") of $40.42 per common share on a fully diluted basis. Excluding AOCI, shareholders' equity was $3.6 billion, representing a book value of $39.00 per common share on a fully diluted basis.  

Ontario Government Fair Housing Plan

On April 20, 2017, the Ontario Government released its "Ontario's Fair Housing Plan", which  includes the introduction of a 15% Non Resident Speculation Tax on the price of homes in the Greater Toronto Area and surrounding regions purchased by individuals who are not citizens or permanent residents of Canada or by foreign corporations. The plan consists of sixteen strategies addressing: housing demand; consumer protection for renters and buyers; rent control measures; expediting new housing supply; and actions to increase information sharing between governments and external stakeholders. Genworth welcomes the measures aimed at addressing affordability for first time homebuyers. 

Price Increase

The Company announced premium rate increases for its transactional mortgage insurance products effective March 17, 2017. The new pricing is a reflection of higher regulatory capital requirements that became effective on January 1, 2017, which supports the long-term safety and sustainability of the Canadian housing finance system. The average transactional premium rate increase is approximately 18% to 20% and this is expected to result in an average transactional premium rate of 330 to 335 basis points for 2017, compared to 293 basis points in 2016.

Changes to the Regulatory Capital Framework

On January 1, 2017, the capital advisory titled "Capital Requirements for Federally Regulated Mortgage Insurers" came into effect. This advisory provides a new standard framework for determining the capital requirements for residential mortgage insurance companies. Under the new capital framework, the 2016 holding target MCT ratio of 220% has been recalibrated to the OSFI Supervisory MCT ratio target of 150% and the minimum MCT ratio under the Protection of Residential Mortgage or Hypothecary Insurance Act ("PRMHIA") has been reduced to 150%. Based on the new framework, the Company has established an internal MCT ratio target of 157% for 2017.

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 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 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 first quarter earnings call will be held on May 3, 2017 at 10:00 am ET (Local: 416-642-5210, Toll free: 1-800-274-0251, Conference ID: 2109063).  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 June 1, 2017 (Local: 647-436-0148, Toll-free 1-888-203-1112, Replay Passcode 2109063).  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, 2017, the Company had $6.7 billion total assets and $3.8 billion shareholders' equity. Find out more at www.genworth.ca.

Consolidated Financial Highlights

($ millions, except per share amounts)

Three Months Ended

March 31 (Unaudited)

2017

2016

Transactional new insurance written1

$3,047

$3,413

Portfolio new insurance written1

10,513

4,493

Total new insurance written1

13,559

7,906

Premiums written

127

117

Premiums earned

167

154

Losses on claims

26

37

Expenses

34

28

Net underwriting income

107

88

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

45

41

Realized gains (losses) on sale of investments

1

-

Realized and unrealized gains on derivatives, foreign exchange and impairment loss

(3)

(5)

Total net investment income

43

37

Net income

$106

$88

Net operating income1

$107

$91

Basic weighted average common shares outstanding

91,902,409

91,797,652

Diluted weighted average common shares outstanding

91,939,376

91,835,231

Fully diluted earnings per common share

$1.15

$0.96

Fully diluted operating earnings per common share1

$1.17

$0.99

Fully diluted book value per common share, incl. AOCI1

$40.42

$37.23

Fully diluted book value per common share, excl. AOCI1

$39.00

$35.95

Loss ratio1

15%

24%

Combined ratio1

36%

42%

Operating return on equity1

12%

11%

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

157%

220%

MCT ratio 1,4

162%

234%

Delinquency ratio1, 2

0.10%

0.11%

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.

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 PRMHIA was reduced to 150%.

4 Company estimate at March 31, 2017.

 

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, 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


Three months ended March 31,

(in millions of dollars, unless otherwise specified)

2017

2016

Investment income

$43

$37

Adjustment to investment income:



Net investment losses

2

5

Interest and dividend income, net of investment expenses

$45

$41

Net income

106

88

Adjustments to net income, net of taxes:



Net investment losses

1

3

Net operating income

$107

$91

Earnings per common share (basic)

$1.16

$0.96

Adjustment to earnings per common share, net of taxes:



Net investment losses

0.01

0.04

Operating earnings per common share (basic)

$1.17

$1.00

Earnings per common share (diluted) 1

$1.15

$0.96

Adjustment to earnings per common share, net of taxes:



Share based compensation re-measurement amount

0.00

0.00

Net investment losses

0.01

0.04

Operating earnings per common share (diluted) 1

$1.17

$0.99

Note: Amounts may not total due to rounding.

1The difference between basic and diluted number of common shares outstanding 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 Management's Discussion and Analysis for the quarter ended March 31, 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, statements with respect to the Company's expectations regarding the effect of the Canadian government guarantee legislative framework; the impact of guideline changes by the Office of the Superintendent of Financial Institutions Canada and legislation introduced in connection with PRMHIA; the effect of changes to mortgage insurance rules, including the government guarantee mortgage eligibility rules; the Company's beliefs as to housing demand and home price appreciation and unemployment rates; and 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; potential conflicts of interest between the Company and its majority shareholder, Genworth Financial Inc.; and Genworth Financial Inc. entering into a definitive agreement with China Oceanwide Inc. under which China Oceanwide Inc. has agreed to acquire all of the outstanding shares of Genworth Financial Inc. through a merger. Risks associated with the Company being majority held by Genworth Financial Inc. will also apply to China Oceanwide 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 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 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 21, 2017 - 3:59 PM ET Note: Minimum 20 minute delay