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Genworth MI Canada Inc. Reports Third Quarter 2018 Results Including Net Operating Income of $121 Million

 

Transactional Premiums Written:

$192 million

Down 1% Y/Y

Up 16% Q/Q

Premiums Earned:

$169 million

Flat Y/Y

Down 1% Q/Q

Loss Ratio:

14%

Flat Y/Y

Flat Q/Q

Net Income:

$128 million

Down 8% Y/Y

Up 10% Q/Q

Fully Diluted EPS:

Net Operating Income:

$1.42

$121 million

Down 7% Y/Y

Up 8% Y/Y

Up 10% Q/Q

Up 3% Q/Q

Fully Diluted Operating EPS:

$1.35

Up 10% Y/Y

Up 3% Q/Q

 

TORONTO, Oct. 30, 2018 /CNW/ - Genworth MI Canada Inc. (the "Company") (TSX: MIC) today reported third quarter 2018 net income of $128 million or $1.42 earnings per fully diluted common share, net operating income of $121 million or $1.35 operating earnings per fully diluted common share, and an operating return on equity of 12%.

"We continue to enjoy solid business results this year, with another low loss ratio of 14% for the third quarter," said Stuart Levings, President and CEO. "While housing markets continue to normalize, they are generally well balanced, and employment remains strong, which is positive for our longer term business performance. As part of our ongoing focus on capital efficiency, we are pleased to have completed another $50 million share buyback under our normal course issuer bid during the quarter, underscoring our view that business fundamentals remain strong."

Key Third Quarter 2018 Financial Results And Operational Metrics:

  • New insurance written from transactional insurance was $5.5 billion, a decrease of $0.1 billion, or 2%, compared to the same quarter in the prior year primarily due to a modestly smaller transactional mortgage originations market. Compared to the prior quarter, transactional new insurance written increased by $0.8 billion, or 16%, primarily as a result of typical seasonality.

  • Premiums written from transactional insurance were $192 million. This represents a decrease of $3 million, or 1%, from the third quarter of 2017, primarily due to lower new insurance written. Compared to the prior quarter, premiums written increased by $26 million, or 16%, primarily as a result of higher new insurance written.

  • New insurance written from portfolio insurance on low loan-to-value mortgages was $0.8 billion, consistent with the same quarter in the prior year. Compared to the prior quarter, portfolio new insurance written decreased by $0.3 billion.

  • Premiums written from portfolio insurance were $4 million, representing a decrease of $3 million compared to the same quarter in the prior year primarily due to a lower average premium rate resulting from a higher proportion of insured mortgages with a loan-to-value of less than 75%. Compared to the prior quarter, premiums written decreased by $1 million.

  • Premiums earned of $169 million were relatively unchanged with the same quarter in the prior year. Premiums earned decreased by $2 million, or 1%, compared to the prior quarter reflecting the relatively smaller recent books of business. The unearned premiums reserve was $2.1 billion at the end of the quarter, consistent with the balance at December 31, 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 328 were 9 lower than the third quarter of 2017, primarily due to decreases in Ontario (26), the Atlantic Region (23), and Quebec (18), partially offset by increases in Alberta (18), the Pacific region (23), and the Prairies region (17). Compared to the prior quarter, new delinquencies, net of cures, decreased by 32 primarily due to decreases in the Atlantic region (20) and Ontario (21).

  • The loss ratio, as a percentage of premiums earned, for the quarter was 14% compared to 13% in the same quarter in the prior year and 14% in the prior quarter. Losses on claims of $23 million were relatively consistent with the same quarter in 2017. Losses on claims decreased by $2 million, or 6%, from the prior quarter, primarily due to a decrease in new delinquencies, net of cures.

  • The number of delinquencies outstanding of 1,695 reflected a decrease of 64 delinquencies, as compared to the same quarter in the prior year, including decreases in Quebec (78), and the Pacific region (27). Compared to the prior quarter, the number of delinquencies outstanding decreased by 47, primarily due to decreases in Ontario (20), Quebec (19), and the Atlantic region (23).

  • Expenses were $32 million during the quarter, resulting in an expense ratio of 19%, as a percentage of premiums earned. This ratio was one percentage point lower than the same quarter in the prior year and consistent with the prior quarter and the Company's expected operating range of 18% to 20%.

  • Net underwriting income of $114 million was $1 million higher relative to the same quarter in the prior year primarily due to lower expenses, partially offset by lower premiums earned. Net underwriting income was consistent with the prior quarter.

  • The Company's investment portfolio had a market value of $6.4 billion at the end of the quarter. The portfolio had a pre-tax equivalent book yield of 3.2% and duration of 3.7 years as at September 30, 2018, each of which were relatively consistent with the prior quarter.

  • Operating investment income, of $54 million was $10 million higher than the same quarter in the prior year primarily due to an increase in the amount of invested assets and realized income of $6 million from the interest rate hedging program. Compared to the prior quarter, operating investment income was $4 million higher, primarily due to the higher interest rate environment.

  • Realized and unrealized gains on derivatives and foreign exchange, excluding the realized income from the interest rate hedging program, of $10 million were $28 million lower than the same quarter in 2017 primarily due to a smaller increase in the market value of the Company's interest rate swaps. Compared to the prior quarter, there was an increase of $12 million primarily due to an increase in the market value of the Company's interest rate swaps, compared to a decrease in the prior quarter.

  • Net income of $128 million was $12 million lower relative to the same quarter in the prior year primarily due to lower total net investment income, partially offset by marginally higher net underwriting income. Net income was $12 million higher than the prior quarter primarily due to higher total net investment income.

  • Net operating income of $121 million was $9 million higher relative to the same quarter in the prior year primarily due to higher operating investment income and marginally higher net underwriting income. Net operating income was $4 million higher than the prior quarter primarily due to higher operating investment income.

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

  • The regulatory capital ratio or Minimum Capital Test ("MCT") ratio was approximately 171%, 14 percentage points higher than the Company's internal MCT ratio target of 157% and 21 percentage points higher than the Office of the Superintendent of Financial Institutions Supervisory MCT ratio target of 150%.

  • The Company estimates that its outstanding principal balance of insured mortgages as at September 30, 2018, was approximately $211 billion, or 42% of the original insured amount. The Company estimates, that as of June 30, 2018, the outstanding principal balance for all privately insured mortgages was $280 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 August 30, 2018, the Company paid a quarterly dividend of $0.47 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 November 29, 2018, to shareholders of record at the close of business on November 12, 2018. This represents an increase of $0.04, or 9%, per common share from the prior quarter's dividend.

Share Repurchase

During the quarter the Company repurchased 1,138,679 common shares for cancellation at an average price of $43.90, for an aggregate purchase price of $50 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 September 30, 2018, shareholders' equity was $4.0 billion, representing a book value including accumulated other comprehensive income ("AOCI") of $45.00 per common share on a fully diluted basis. Excluding AOCI, shareholders' equity was $4.0 billion, representing a book value of $45.07 per common share on a fully diluted basis.  

Credit and Debt Ratings

On September 5, 2018, S&P affirmed the Insurance Subsidiary's A+ rating and the Company's BBB+ rating. On August 20, 2018, DBRS confirmed the Insurance Subsidiary's AA financial strength rating and the Company's A (high) rating with stable trends.  

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 ("MD&A") as posted on SEDAR and available at www.sedar.com.

This News Release, as well as the Company's third quarter 2018 consolidated Financial Statements, 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 31, 2018 at 10:00 am ET (Local: 647-484-0475, Toll free: 1-888-220-8451, Conference ID: 7187671). 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 29, 2018 (Local: 647-436-0148, Toll-free 1-888-203-1112, Replay Passcode 7187671).  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 third-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, 2018, the Company had $7.0 billion total assets and $4.0 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

September 30 (Unaudited)

Nine Months Ended

September 30 (Unaudited)

2018

2017

2018

2017

Transactional new insurance written 1

$5,512

$5,641

$13,420

$13,671

Portfolio new insurance written 1

812

848

3,057

12,469

Total new insurance written 1

$6,325

$6,489

$16,477

$26,140

Premiums written

196

202

483

498

Premiums earned

169

170

511

505

Losses on claims

23

23

70

54

Expenses

32

34

97

99

Net underwriting income

$114

$113

$345

$353

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

49

45

141

135

Realized income (expense) from Interest rate hedging program

6

-

14

(2)

Realized gains (losses) on sale of investments

-

(1)

(1)

2

Realized and unrealized gains (losses) on derivatives and
foreign exchange

10

38

20

66

Total net investment income

$64

$82

$175

$201

Net income

$128

$140

$371

$396

Net operating income1

$121

$112

$358

$345

Basic weighted average common shares outstanding

89,516,972

91,554,357

90,026,289

91,800,214

Diluted weighted average common shares outstanding

90,007,035

91,715,512

90,533,114

91,992,976

Fully diluted earnings per common share

$1.42

$1.52

$4.10

$4.30

Fully diluted operating earnings per common share1

$1.35

$1.23

$3.95

$3.76

Fully diluted book value per common share, incl. AOCI 1, 4

$45.00

$42.04

$45.00

$42.04

Fully diluted book value per common share, excl. AOCI 1, 4

$45.07

$41.35

$45.07

$41.35

Loss ratio1

14%

13%

14%

11%

Combined ratio1

32%

33%

33%

30%

Operating return on equity1

12%

12%

12%

13%

MCT ratio 1, 3

171%

165%

171%

165%

Delinquency ratio1, 2

0.18%

0.18%

0.18%

0.18%

Note: Amounts may not total due to rounding.

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.

2

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

3

Company estimate at September 30, 2018.

4

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

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, operating investment income, 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 September 30,

Nine months ended September 30,

(in millions of dollars, unless otherwise specified)

2018

2017

2018

2017

Investment income

$ 64

$ 82

$ 175

$ 201

Adjustment to investment income:





Net investment gains¹

(10)

(37)

(19)

(68)

Operating investment income

54

44

155

132

Realized (income) expense from the interest rate hedging
program

(6)

-

(14)

2

Interest and dividend income, net of investment expenses

$ 49

$ 45

$ 141

$ 135

Net income

128

140

371

396

Adjustments to net income, net of taxes:





Net investment gains¹

(7)

(27)

(14)

(50)

Net operating income

$ 121

$ 112

$ 358

$ 345

Earnings per common share (basic)

$ 1.43

$ 1.52

$ 4.13

$ 4.31

Adjustment to earnings per common share, net of taxes:





Net investment gains¹

(0.08)

(0.30)

(0.15)

(0.54)

Operating earnings per common share (basic)

$ 1.35

$ 1.23

$ 3.97

$ 3.76

Earnings per common share (diluted)2

$ 1.42

$ 1.52

$ 4.10

$ 4.30

Adjustment to earnings per common share, net of taxes:





Share based compensation re-measurement amount

-

-

-

-

Net investment gains¹

(0.08)

(0.30)

(0.15)

(0.54)

Operating earnings per common share (diluted)2

$ 1.35

$ 1.23

$ 3.95

$ 3.76

Note: amounts may not total due to rounding.

1

Excludes realized income from the interest rate hedging program.

2

The difference between basic and diluted earnings per common share and 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 September 30, 2018.  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; potential conflicts of interest between the Company and its majority shareholder, Genworth Financial Inc.; 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 19, 2018. 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 security holders 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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November 14, 2018 - 4:00 PM ET Note: Minimum 20 minute delay