Genworth MI Canada Inc. Reports Solid Second Quarter 2013 Earnings

Second Quarter Net Operating Income of $88 million, 11% higher year-over-year
Operating Diluted EPS of $0.89/share, 13% higher year-over-year

TORONTO, July 30, 2013 /CNW/ - Genworth MI Canada Inc. (the "Company") (TSX: MIC) today reported second quarter 2013 net income of $98 million or $1.00 per diluted common share, and net operating income of $88 million or $0.89 operating earnings per diluted common share.  As compared to the prior quarter, net income this quarter was 11% or $10 million higher while net operating income was 4% or $3 million higher.  As compared to the second quarter 2012, net income this quarter was 24% or $19 million higher and net operating income was 11% or $9 million higher.

"Our business continues to perform well," said Brian Hurley, Chairman and Chief Executive Officer.  "A balanced housing market, stable economic climate and strong portfolio quality have all contributed to the positive trends in our business, in particular our loss performance."

Second Quarter 2013 Key Financial Metrics:

  • Net premiums written of $137 million were $53 million, or 63%, higher than the prior quarter and $39 million lower year-over-year.   The sequential increase was primarily driven by seasonally higher volumes resulting from the spring housing market.  The year-over-year decrease reflects a smaller high loan-to-value mortgage insurance market as compared to last year and lower volumes of portfolio insurance on low loan-to-value mortgages.

  • Net premiums earned of $143 million were $1 million lower as compared to the prior quarter and $5 million lower year-over-year. The lower premiums earned on a year-over-year basis are primarily the result of continued aging of the 2008 and prior year books.

  • Losses on claims of $35 million were $9 million lower than the prior quarter primarily due to fewer new reported delinquencies across most regions.  On a year-over-year basis, losses on claims were $13 million lower, reflecting lower new reported delinquencies due to an improving economic environment, seasonality, and strong credit quality of the recent books.  This resulted in a loss ratio of 25% for the quarter as compared to 32% in the same quarter in the prior year.  The loss performance was 6 percentage points lower sequentially and 8 percentage points lower year-over-year.

  • Net Investment income excluding realized gains of $44 million was $1 million lower than the prior quarter and $5 million higher year-over-year.  The sequential decline in investment income during the current year continues to reflect  lower reinvestment yields.  The prior year period included $7 million of exit fees related to the government guarantee fund which was eliminated on January 1, 2013.

  • Net operating income of $88 million was $3 million higher relative to the prior quarter and $9 million higher year-over-year primarily as a result of lower losses on claims, which was partially offset by lower earned premiums.

  • Operating return on equity was 12% for the quarter, unchanged from the prior quarter and flat year-over-year.

  • The expense ratio, as a ratio of net premiums earned, was 18%.  This ratio was flat to the prior quarter and 1 percentage point higher year-over-year, but consistent with the Company's expected range.

  • The unearned premium reserve was $1.7 billion at the end of the quarter.  These premiums will be earned over time in accordance with the Company's premium recognition curve which follows the Company's historical loss emergence pattern.

  • The regulatory capital ratio or Minimum Capital Test ("MCT") ratio was approximately 216%, unchanged from the last quarter and 31 points higher than its internal target MCT ratio of 185%.  The Company intends to operate with a MCT ratio above 190% to maintain financial flexibility.

Second Quarter 2013 Key Highlights:

  • The high loan-to-value component of new insurance written during the quarter was $4.8 billion, representing an increase of 48% from $3.3 billion in the prior quarter and a decline of 16% over the same quarter in the prior year.  The sequential increase of $1.6 billion in the high loan-to-value component was primarily due to seasonally higher volumes experienced during the spring. The year-over-year decline is consistent with the anticipated decline in market size from regulatory changes.

  • During the quarter, the Company insured $6.5 billion of low loan-to-value mortgage portfolios, $4.1 billion higher than the prior quarter volume of $2.4 billion, and $6.6 billion lower than the same period last year.  The volume of portfolio insurance varies from quarter to quarter based on the needs of lenders.

  • On an aggregate basis, total new insurance written this quarter was $11.3 billion as compared to $5.7 billion in the prior quarter and $18.8 billion during the same quarter in the prior year. 

  • The net premiums written in the quarter from insurance of high loan-to-value mortgage portfolios was $111 million or 81% of the Company's net premiums written.  On a comparative basis, the high loan-to-value component comprised 87% of net premiums written in the prior quarter and 74% in the prior year.   Premiums written from high loan-to-value mortgages represented an increase of $38 million or 52% higher than the prior quarter and $20 million or 14% lower than the same period in the prior year, in line with the Company's expectation given regulatory changes.

  • The number of reported delinquencies declined to 1,778 from 2,408 in the prior year, reflecting an improvement of 26%.  The lower number of delinquencies results from higher credit quality in the portfolio and improving economic conditions across most regions in combination with ongoing success of the Company's proactive loss mitigation strategies.    The total delinquency rate based on original insurance in-force was 0.12%, 2 basis points lower than the prior quarter and 5 basis points lower than the same period last year.

  • During the quarter, the Company commenced a normal course issuer bid under which the Company may purchase up to an aggregate of 4,937,078 common shares over a period of 12 months ending May 2, 2014.  As at June 30, 2013, the Company has purchased and cancelled 2,010,474 of its common shares with an aggregate value of approximately $50 million, inclusive of shares repurchased from Genworth Financial, Inc., which allowed them to maintain their proportional ownership.

  • The Company's investment portfolio had a market value of $5.3 billion at the end of the quarter.  The portfolio had a pre-tax equivalent book yield of 3.6% and duration of 3.6 years as at June 30, 2013.  As a result of ongoing portfolio management, the Company had realized investment gains of $15 million primarily due to sales of equities.

Dividends

On May 31, 2013, the Company paid a quarterly dividend of $0.32 per common share.

The Company also announced today that its Board of Directors approved a dividend payment of $0.32 per common share, payable on August 30, 2013 to shareholders of record at the close of business on August 15, 2013.

Shareholders' Equity

As of June 30, 2013, shareholders' equity was $3.0 billion representing a book value of $30.94 per common share on a fully diluted basis.  Excluding accumulated other comprehensive income ("AOCI") or loss, shareholders' equity was $2.9 billion or a book value of $29.55 per common share on a fully diluted basis.

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, the financial statements, Management's Discussion and Analysis, and the second quarter 2013 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 31, 2013 at 10:00 am ET (Local: 416-644-3415, Toll free: 1-877-974-0445, #4628573).  The call is accessible via telephone and by audio webcast on 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 31, 2013 (Local 416-640-1917, Toll Free 1-877-289-8525, Access Code 4628573#).  Participants are encouraged to pre-register for the webcast through the Company's website. A replay of the call will also be available from 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 almost 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 30, 2013, Genworth Canada had $5.6 billion total assets and $3.0 billion shareholders' equity. Find out more at www.genworth.ca.

Consolidated Financial Highlights

     
($ millions, except per share amounts) Three Months Ended June 30
(Unaudited)
2013 2012
New Insurance Written 11,312 $18,833
Insurance In Force 299,953 286,343
Net Premiums Written 137 176
Net Premiums Earned 143 148
Losses on Claims 35 48
Investment Income (Interest and Dividends, net of expenses) 1 44 40
Realized and Unrealized Gains or Losses on Investments 15 -
Total investment income 59 40
Net Income 98 79
Net Operating Income1 88 79
Fully Diluted Earnings Per Share $1.00 $0.79
Fully Diluted Operating Earnings Per Share1 $0.89 $0.79
Fully Diluted Book Value Per Common Share, including AOCI $30.94 $27.88
Fully Diluted Book Value Per Common Share, excluding AOCI1 $29.55 $25.81
Basic weighted average common shares outstanding 98,200,843 98,678,960
Diluted weighted average common shares outstanding 98,453,184 98,915,552
Loss Ratio 25% 32%
Combined Ratio 43% 49%
Operating Return on Equity1 12% 12%
Minimum Capital Test Ratio (MCT) 216% 160%

1 This is a financial measure not calculated based on International Financial Reporting Standards ("IFRSs").  See the "IFRSs and Non-IFRSs Financial Measures" section of this press release for additional information.

IFRSs and Non-IFRSs Financial Measures

The Company's consolidated financial statements are prepared in accordance with IFRSs.  To supplement its financial statements, the Company uses select non-IFRSs financial measures. Non-IFRSs measures used by the Company to analyze performance include underwriting ratios such as loss ratio, expense ratio and combined ratio, as well as other performance measures such as net operating income and return on operating income. Other non-IFRSs measures used by the Company include shareholders' equity excluding AOCI, insurance in-force, new insurance written, MCT ratio, delinquency ratio, severity on claims paid, operating earnings per common share of the Company (basic and diluted), book value per common share (basic and diluted; including and excluding AOCI), dividends paid per common share of the Company, and portfolio duration. The Company believes that these non-IFRSs 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-IFRSs measures do not have standardized meanings and are unlikely to be comparable to any similar measures presented by other companies. These measures are defined in the Company's glossary, which is posted on the investor section of the Company's website. To access the glossary, click on the "Glossary of Terms" link under "Investor Resources" subsection on the left navigation bar.   A reconciliation of non-IFRSs financial measures to the most recently comparable measures calculated in accordance with IFRSs can be found in Management's Discussion and Analysis filed with the Company's most recent financial statements, which are available on the Company's website and on SEDAR at www.sedar.com.

Cautionary Note Regarding Forward-Looking Statements

This press release includes certain forward-looking statements.  These forward-looking statements include, but are not limited to, the Company's plans, objectives, expectations and intentions, and other statements contained in this release that are not historical facts.  These statements may be identified by their use of words such as "may", "would", "could", "will", "intend", "plan", "anticipate", "believe", "seek", "propose", "estimate", "expect", or 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's new government guarantee legislative framework, the effect of the changes to the government guarantee mortgage eligibility rules, and the Company's beliefs as to housing demand and home price appreciation, unemployment rates, 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.  These statements are inherently subject to significant risks, uncertainties and changes in circumstances, many of which are beyond the Company's control. The Company's actual results may differ materially from those expressed or implied by such forward-looking statements, including as a result of changes in global, political, economic, business, competitive, market and regulatory factors, and the other risks described in the Company's Annual Information Form.  Other than as required by applicable laws, the Company undertakes no obligation to publicly update or revise any forward-looking statement, whether as a result of new information, future developments or otherwise.

SOURCE Genworth MI Canada




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