Fourth Quarter Net Operating Income of $226 million, Operating Diluted EPS of $2.28/share
Adjusted Q4 Net Operating Income of $89 million, Adjusted Operating Diluted EPS of $0.90/share
Adjusted Full Year Net Operating Income of $339 million and Adjusted Operating Diluted EPS of $3.43/share
TORONTO, Feb. 5, 2013 /CNW/ - Genworth MI Canada Inc. (the "Company") (TSX: MIC) today reported fourth quarter 2012 net income of $226 million or $2.29 per diluted common share. On an adjusted basis, the Company reported fourth quarter net operating income of $89 million or $0.90 per diluted common share, excluding the one-time favourable impact of $137 million from the reversal of previously accrued federal government guarantee fund exit fees. The adjusted net operating income was $8 million or 10% higher than the prior quarter and $10 million or 13% higher year-over-year.
On a full year basis, the Company reported $462 million in total net operating income. On an adjusted basis, the Company reported $339 million in total net operating income as compared to $318 million in 2011. This represents a $21 million or 7% increase in net operating income.
"In 2012, we continued to deliver strong profitability including higher premiums written and loss ratio improvement," said Brian Hurley, Chairman and Chief Executive Officer. "This momentum, combined with stronger lender relationships and improved borrower quality, positions us well for 2013."
As reported in the Company's December 20, 2012 press release, the Protection of Residential Mortgage or Hypothecary Insurance Act (Canada) ("PRMHIA") became effective on January 1, 2013 and established a legislative framework that replaced the previous guarantee agreement the Company had with the federal government. Under PRMHIA, all obligations related to the previous federal government guarantee fund and related exit fees were terminated. As a result, the Company has reversed the previously accrued exit fees of $186 million, or $137 million after taxes, in the fourth quarter. This consisted of $166 million ($122 million after taxes) accrued in 2011 and prior years and $20 million ($15 million after taxes) accrued for the first nine months of 2012. The following table provides a summary of the fourth quarter and full year results including and excluding the impact of the reversal of such exit fees. The Company's Review of Performance for this quarter includes a full description of this impact.
Fourth Quarter 2012 Key Financial Metrics:
Summary of Financial Adjustments
|$millions except as noted||Fourth Quarter 2012||Full Year 2012|
|Net investment income||233||47||367||201|
|Net Operating Income1||226||89||462||339|
|Operating EPS (diluted)1||$2.28||$0.90||$4.67||$3.43|
|Operating Return on Equity1||33%||13%||17%||13%|
|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.|
- Net premiums written of $117 million were $61 million lower than the prior quarter and $6 million lower year-over-year. The sequential decrease was primarily driven by typical seasonality resulting in lower mortgage volumes in the fourth quarter in combination with a smaller high loan-to-value mortgage market that resulted from changes to the mortgage insurance eligibility rules in July 2012. The year-over-year decrease was also attributable to the smaller high loan-to-value market.
- Net premiums earned of $147 million were flat as compared to the prior quarter and $9 million lower year-over-year.
- Losses on claims of $46 million were $2 million higher than the prior quarter due to typical seasonality. On a year-over-year basis, losses on claims were $15 million lower, reflecting lower new reported delinquencies due to an improving economic environment, particularly in Alberta. This resulted in a loss ratio of 31% for the quarter, 1 percentage point higher sequentially and 8 percentage points lower year-over-year.
- Adjusted net Investment income excluding realized gains of $46 million was $7 million higher than the prior quarter and $4 million higher year-over-year. The increases were primarily due to the inclusion of exit fees in the prior quarter and year-over-year results.
- Adjusted net operating income of $89 million was $8 million higher than the prior quarter, which included exit fees, and $10 million higher year-over-year, due to loss ratio improvement.
- Adjusted operating return on equity was 13% for the quarter, 1 percentage point higher than the prior quarter and flat year-over-year.
- The expense ratio, as a ratio of net premiums earned, was 19%. This ratio was 1 percentage point higher than the prior quarter and 2 percentage points higher year-over-year, but consistent with the Company's expected range.
- The unearned premium reserve was $1.8 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 170%, 6 percentage points higher than the prior quarter and 8 percentage points higher year-over-year.
Fourth Quarter 2012 Key Highlights:
The Company continued to make solid progress towards its operational targets. As a result of its strategic efforts, Genworth Canada consistently remains the leader in the Canadian private mortgage insurance industry.
- Total new insurance written this quarter increased to $8.5 billion as compared to $6.2 billion in the fourth quarter of the prior year, largely driven by higher volumes of portfolio insurance, which were offset in part by lower high loan-to-value volumes resulting from the July 2012 changes in the mortgage insurance eligibility rules. The high loan-to-value component of new insurance written during the quarter was $4.4 billion, representing a decline of 16% from $5.2 billion in the fourth quarter of the prior year.
- The Company insured $4.1 billion of low-loan-to-value mortgage portfolios, higher than the prior quarter volume of $2.7 billion. The Company continued to take advantage of selected portfolio insurance opportunities under its clearly defined risk appetite and disciplined pricing approach.
- The total delinquency rate was 0.14%, 1 basis points lower than the prior quarter and 6 basis points lower year-over-year. The delinquency rate continues to be positively influenced by improving economic conditions in combination with ongoing success of the Company's proactive loss mitigation strategies.
- The Company's investment portfolio had a market value of $5.4 billion at the end of the quarter. Going forward with the implementation of PRHMIA, the funds previously segregated under their own investment mandate in the Government Guarantee fund will be combined with the Company's general portfolio. The combined portfolio had a pre-tax equivalent book yield of 3.7% and duration of 3.8 years as at December 31, 2012.
- Effective January 1, 2013, with the implementation of the new legislation, the Minister of Finance set the minimum MCT ratio for the Genworth Financial Mortgage Insurance Company Canada, the Company's Insurance subsidiary, at 175%. In conjunction with this, the Company increased its internal MCT target capital ratio to 185%. As at January 1, 2013, the Company's MCT ratio increased to approximately 211%. The Company expects to operate above 190% MCT ratio in the normal course of business.
On November 15, 2012, 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 March 1, 2013 to shareholders of record at the close of business on February 15, 2013.
As of December 31, 2012, shareholders' equity was $3.04 billion representing a book value of $30.62 per common share on a fully diluted basis. Excluding accumulated other comprehensive income ("AOCI") or loss, shareholders' equity was $2.82 billion or a book value of $28.40 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 Review of Performance as posted on SEDAR and available at www.sedar.com.
This press release, the financial statements, Review of Performance, and the fourth quarter 2012 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.
The Company's fourth quarter earnings call will be held on February 6, 2013 at 10:30 am ET (Local: 416-644-3414, Toll free: 1-800-814-4859). 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 March 6, 2013 (Local: 416-640-1917, Toll Free: 1-877-289-8525 Access Code 4589899#). 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 innovative processing technology, superior customer service, 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 December 31, 2012, Genworth Canada, had $5.7 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 December 31 (Unaudited)||Full Year Ended December 31 (Unaudited)|
|New Insurance Written||8,472||6,224||41,286||26,586|
|Insurance In Force||301,456||265,776||301,456||265,776|
|Net Premiums Written||117||123||550||533|
|Net Premiums Earned||147||156||589||612|
|Losses on Claims||46||62||194||225|
|Adjusted Investment Income (Interest and Dividends, net of expenses) 1||46||42||162||169|
|Impact of reversal of government guarantee exit fee||186||-||186||-|
|Realized and Unrealized Gains or Losses on Investments||1||1||12||7|
|Total investment income||233||43||367||179|
|Net Operating Income1||226||79||462||318|
|Adjusted Net Operating Income1||89||79||339||318|
|Fully Diluted Earnings Per Share||$2.29||$0.80||$4.76||$3.13|
|Fully Diluted Operating Earnings Per Share1||$2.28||$0.80||$4.67||$3.08|
|Adjusted Fully Diluted Earnings Per Share1||$0.90||$0.80||$3.52||$3.13|
|Adjusted Diluted Operating Earnings Per Share1||$0.90||$0.80||$3.43||$3.08|
|Fully Diluted Book Value Per Common Share, including AOCI||$30.62||$26.94||$30.62||$26.94|
|Fully Diluted Book Value Per Common Share, excluding AOCI1||$28.40||$24.78||$28.40||$24.78|
|Operating Return on Equity1||33%||13%||17%||13%|
|Adjusted Operating Return on Equity1||13%||-||13%||-|
|Minimum Capital Test Ratio (MCT)||170%||162%||170%||162%|
|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, 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