Genworth MI Canada Inc. Reports Third Quarter 2013 Earnings

Net Operating Income of $91 million, 12% higher year-over-year
Operating Diluted EPS of $0.94/share, 15% higher year-over-year
Common Dividend Increase of 9% to $0.35 per share

TORONTO, Oct. 29, 2013 /CNW/ - Genworth MI Canada Inc. (the "Company") (TSX: MIC) today reported third quarter 2013 net income of $96 million or $0.99 per diluted common share, and net operating income of $91 million or $0.94 operating earnings per diluted common share.  As compared to the prior quarter, net income this quarter was 2% or $2 million lower, while net operating income was 3% or $3 million higher.  As compared to the prior year, net income for this quarter was 13% or $11 million higher and net operating income was 12% or $10 million higher.

"Our disciplined business execution and the strong quality of our insurance portfolio resulted in one of our best quarters to date," said Brian Hurley, Chairman and Chief Executive Officer.  "The low loss ratio of 22% is the principal driver of this quarter's results.  We are also pleased to announce that our Board of Directors has approved a 9% increase to the quarterly common share dividend.  This represents our fourth annual increase."

Third Quarter 2013 Key Financial Metrics:

  • Net premiums written of $161 million were $24 million, or 18%, higher than the prior quarter and $17 million, or 10%, lower year-over-year.   The sequential increase was primarily driven by seasonally higher volumes.  The year-over-year decrease was reflective of the smaller high loan-to-value mortgage insurance market and reduced low loan-to-value mortgage insurance volume.

  • Net premiums earned of $143 million were flat as compared to the prior quarter and $4 million lower year-over-year. Premiums earned this quarter primarily reflected the size of the 2010 and subsequent books of business.

  • Losses on claims of $32 million were $4 million lower than the prior quarter and $12 million lower than the same quarter in the prior year.  In both cases, the improvement was primarily due to a favourable shift in the geographic mix of delinquencies, a stabilizing economic environment, and strong credit quality of the recent books.  This resulted in a loss ratio of 22% for this quarter, as compared to 30% in the same quarter in the prior year.  The loss performance was 3 percentage points lower sequentially and 8 percentage points lower year-over-year.

  • Net Investment income excluding realized gains of $45 million was $1 million higher than the prior quarter and $6 million higher than the same quarter in the prior year.  Net investment income inclusive of realized gains and losses was $51 million, $8 million lower sequentially and $7 million higher than the same quarter in the prior year. Net investment income from the prior year included fees paid by the Company related to the government guarantee agreement which was replaced on January 1, 2013 by a legislative framework.

  • Net operating income of $91 million was $3 million higher relative to the prior quarter and $10 million higher year-over-year, primarily as a result of lower losses on claims, which was partially offset by lower premiums earned.

  • Operating return on equity was 13% for the quarter, relatively unchanged as compared to the prior quarter and 1 percentage point higher on a year-over-year basis. 

  • The expense ratio, as a ratio of net premiums earned, was 19% during the quarter.  This ratio was 1 percentage point higher than the prior quarter and 1 percentage point higher as compared to the same quarter in the prior year, consistent with the Company's expectations.

  • 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 218%, 2 percentage points higher than the prior quarter and 33 percentage points higher than the Company's internal target MCT ratio of 185%.  The Company currently intends to operate with a MCT ratio above 190% to maintain financial flexibility.

Third Quarter 2013 Key Highlights:

  • The high loan-to-value component of new insurance written during the quarter was $6.2 billion, representing an increase of $1.4 billion or 29% from the prior quarter, and a decline of $1 billion or 13% over the same quarter in the prior year.  The sequential increase was primarily due to typical seasonality.  The year-over-year decline was primarily due to a smaller market size for high loan-to-value mortgage origination.

  • During the quarter, the Company insured $4.1 billion of low loan-to-value mortgage portfolios, representing a decrease of $2.4 billion or 37% from the prior quarter volume of $6.5 billion, and a $1.4 billion or 52% increase over the same quarter in the prior year.  The volume of portfolio insurance fluctuates and varies from quarter to quarter based on the needs of lenders.

  • The net premiums written in the quarter from insurance of high loan-to-value mortgage portfolios was $144 million, accounting for 89% of the Company's net premiums written.  This represented an increase of $33 million, or 29%, from the prior quarter and a decrease of $26 million, or 15%, from the same quarter in the prior year.

  • The number of reported delinquencies remained flat at 1,778 as compared to the prior quarter and decreased by 405 delinquencies as compared to the same quarter in the prior year, reflecting an improvement of 19%.  The current number of delinquencies was the lowest since 2008 and reflected the continuation of a favourable shift in the geographic mix of delinquencies, the strong credit quality in the portfolio and improving economic conditions across most regions.  These factors, in combination with the ongoing success of the Company's proactive loss mitigation strategies, contributed to the Company's delinquency performance.

  • The Company commenced its normal course issuer bid in May, 2013, under which the Company may purchase a maximum of 4,937,078 common shares over a period up to 12 months ending May 2014.  As at September 30, 2013, the Company had purchased and cancelled 3,903,117 of its common shares as part of its normal course issuer bid.  The aggregate value of the cancelled common shares was approximately $105 million, inclusive of common shares repurchased from Genworth Financial, Inc., which allowed Genworth Financial to maintain its proportional percentage ownership in the Company.

  • 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 3.7% and duration of 3.8 years as at September 30, 2013.  As a result of ongoing portfolio management, the Company had realized investment gains of $7 million in the quarter.

  • The ratings for the Company and its operating insurance company, Genworth Financial Mortgage Insurance Company Canada, were recently confirmed by Standard & Poor's Ratings Services (S&P) and DBRS Ratings Limited (DBRS).  The Company's issuer credit rating remains 'A' with a stable outlook from S&P and 'AA' (low) with stable trend from DBRS.  The financial strength of its operating insurance company remains rated 'AA-' with a stable outlook by S&P and 'AA' with stable trend by DBRS.

Dividends

On August 30, 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 increase to $0.35 per common share, payable on November 29, 2013, to shareholders of record at the close of business on November 15, 2013.  This dividend represents a 9% increase in the quarterly payment to the Company's common shareholders.

Shareholders' Equity

As of September 30, 2013, shareholders' equity was $3.0 billion, representing a book value of $31.82 per common share on a fully diluted basis.  Excluding accumulated other comprehensive income ("AOCI") shareholders' equity was $2.9 billion, or a book value of $30.50 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 third 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 third quarter earnings call will be held on October 30, 2013 at 10:00 am ET (Local: 416-644-3414, Toll free: 1-800-814-4859, Conference ID: 4641371).  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 November 30, 2013 (Local 416-640-1917, Toll Free 1-877-289-8525, Access Code 4641371#).  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 September 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 September 30
(Unaudited)
Year- to- date
Ended September 30
(Unaudited)
2013 2012 2013 2012
New insurance written 10,295 9,876 27,292 32,814
Insurance in-Force 309,650 294,685 309,650 294,685
Net premiums written 161 178 382 434
Net premiums earned 143 147 431 442
Losses on claims 32 44 111 148
Investment income (interest/dividends, net of expenses) 1 45 39 134 123
Realized and unrealized gains or losses on investments 7 5 25 11
Total investment income 51 44 160 134
Net income 96 85 282 244
Net operating income1 91 81 264 236
Fully diluted earnings per common share $0.99 $0.86 $2.88 $2.48
Fully diluted operating earnings per common share1 $0.94 $0.82 $2.70 $2.39
Fully diluted book value per common share, inc. AOCI $31.82 $28.72 $31.82 $28.72
Fully diluted book value per common share, excl. AOCI1 $30.50 $26.45 $30.50 $26.45
Basic weighted average common shares outstanding       96,426,269      98,691,648      97,772,710      98,681,032
Diluted weighted average common shares outstanding      96,561,756      98,691,648      97,907,664      98,910,753
Loss ratio 22% 30% 26% 33%
Combined ratio 41% 48% 44% 51%
Operating return on equity1 13% 12% 12% 12%
Minimum Capital Test ratio (MCT) 218% 164% 218% 164%
1 This is a financial measure not calculated based on International Financial Reporting Standards ("IFRS").
See the "IFRS and Non-IFRS Financial Measures" section of this press release for additional information.

IFRS and Non-IFRS Financial Measures

The Company's consolidated financial statements are prepared in accordance with IFRS.  To supplement its financial statements, the Company uses select non-IFRS 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-IFRS 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-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 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" link under "Investor Resources" subsection at the bottom of the page.   A reconciliation of non-IFRS financial measures to the most recently comparable measures calculated in accordance with IFRS can be found in the 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 dated March 18, 2013.  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 Canada

For further information:

Investors - Samantha Cheung, 905-287-5482  samantha.cheung@genworth.com
Media - Lisa Azzuolo, 905-287-5520 lisa.azzuolo@genworth.com


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