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Genworth MI Canada Inc. Reports Strong Second Quarter 2014 Earnings

Premiums Written of $160 million, up 17% Year-over-Year
Net Operating Income of $99 million, up 12% Year-over-Year
Operating Diluted EPS of $1.04 per share, up 17%, Year-over-Year

TORONTO, July 29, 2014 /CNW/ - Genworth MI Canada Inc. (the "Company") (TSX: MIC) today reported second quarter 2014 net income of $97 million or $1.02 per diluted common share, and net operating income of $99 million or $1.04 operating earnings per diluted common share.   Net operating income was positively impacted by the Company's improved loss experience, primarily a reflection of overall high quality insurance portfolio and continuing strong housing market conditions.  Premiums written increased 17% over the prior year with growth in both the high and low loan-to-value mortgage segments.  

"Strong business execution led to solid top line growth and our high quality insurance portfolio supported our trend of lower losses," said Brian Hurley, Chairman and Chief Executive Officer of the Company. "The business performance combined with the stable economic climate continues to drive our positive momentum."

Second Quarter 2014 Key Financial Metrics:

  • Premiums written of $160 million were $23 million, or 17% higher than the same quarter in the prior year and $76 million, or 91%, higher than the prior quarter. Premiums growth reflected the larger high loan-to-value market size in combination with the Company's strong market position. The Company's top line was further supported by premiums written from portfolio insurance on low loan-to-value mortgages. Premiums earned of $141 million were $2 million lower than the same quarter in the prior year and relatively flat to the prior quarter, reflecting the contribution from recent books of business. The unearned premium reserve was $1.7 billion at the end of the quarter, $19 million higher than the prior quarter.

  • Losses on claims of $17 million reflected an $18 million improvement over the same quarter in the prior year and an $11 million improvement over the prior quarter. During the quarter, the Company experienced lower delinquencies and lower losses primarily due to its high quality insurance portfolio, a stable economic environment and continued housing market strength. This resulted in a loss ratio of 12% for this quarter, 13 percentage points lower than the same quarter in the prior year and 8 percentage points lower than the prior quarter. Based on the current environment, the Company believes that its loss ratio for 2014 will be in the 15 to 25% range.

  • The expense ratio, as a percentage of premiums earned, was 19% during the quarter. This ratio was 1 percentage point higher as compared to the same quarter in the prior year and flat to the prior quarter. The expense ratio remains within the expected operating range.

  • Net Investment income, excluding realized gains, of $43 million was $1 million lower than the same quarter in the prior year and relatively flat to the prior quarter. Net Investment income remains a steady contributor to net operating income.

  • Net operating income of $99 million was $11 million higher than the same quarter in the prior year and $8 million higher than the prior quarter.

  • Operating return on equity was 13% for the quarter, one point higher than the same quarter in the prior year and prior quarter.

  • The regulatory capital ratio or Minimum Capital Test ("MCT") ratio was approximately 230%, 1 percentage point higher than the prior quarter and 14 percentage points higher than the same quarter in the prior year.  

Second Quarter 2014 Key Highlights:

  • New insurance written from the Company's high loan-to-value insured mortgages during the quarter totalled $5.4 billion, $0.6 billion or 13% higher than the same quarter in the prior year and $2.3 billion, or 75% higher than the prior quarter. Market share penetration and a larger mortgage origination market were the primary drivers of the higher volumes. The resulting premiums written in the quarter from insurance of high loan-to-value mortgages were $129 million, accounting for 80% of the Company's premiums written. This represented an increase of $18 million from the same quarter in the prior year and a $57 million over the prior quarter.

  • During the quarter, the Company realized $32 million of premiums written from portfolio insurance of low loan-to-value mortgages which totaled $8.2 billion. This represents an increase of $5.0 billion in new insurance written from the prior quarter and a $1.7 billion increase over the same quarter in the prior year.

  • The number of reported outstanding delinquencies was 1,703 at the end of the quarter. This represents a decrease of 4% when compared to the same quarter in the prior year and a decrease of 8% when compared to the prior quarter. The decline in delinquencies reflects the strong insurance portfolio credit quality and improving economic conditions across most regions.

  • 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 3.7 years as at June 30, 2014. As a result of ongoing active portfolio management, the Company realized investment gains of $5 million in the quarter related to its equity holdings.

  • On May 1, 2014, the Company retired its $150 million 4.59% December 2015 debentures, and incurred a one-time fee of $7.2 million in connection with this early redemption. This fee was not included in the calculation of net operating income.

  • In the normal course of business, the Company renewed its short form base shelf prospectus on June 18, 2014. The shelf prospectus remains available for a period of 25 months from the date of the prospectus.

  • The Company regularly reviews its operating MCT holding target. After consultations with the Company's regulator, The Office of the Superintendent of Financial Institutions (OSFI), the Company established its operating holding target at 220% MCT, pending the development of a new regulatory capital test for mortgage insurers.

Dividends

On May 30, 2014, the Company paid a quarterly dividend of $0.35 per common share.

The Company also announced today that its Board of Directors approved a dividend payment of $0.35 per common share, payable on August 29, 2014, to shareholders of record at the close of business on August 15, 2014. 

Shareholders' Equity

As of June 30, 2014, shareholders' equity was $3.3 billion, representing a book value of $34.17 per common share on a fully diluted basis.  Excluding accumulated other comprehensive income ("AOCI") shareholders' equity was $3.1 billion, or a book value of $32.36 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 its Management's Discussion and Analysis as posted on SEDAR and available at www.sedar.com.

This press release, the financial statements, the Company's Management's Discussion and Analysis, and the second quarter 2014 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 30, 2014 at 10:00 am ET (Local: 416-847-6330, Toll free: 1-866-530-1553, Conference ID: 7859221).  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 30, 2014 (Local 647-436-0148, Toll Free 1-888-203-1112, Replay Passcode 7859221).  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, 2014, Genworth Canada had $5.7 billion total assets and $3.3 billion total shareholders' equity. Find out more at www.genworth.ca.

Consolidated Financial Highlights

($ millions, except per share amounts)

Three Months

Ended June 30 (Unaudited)

2014

2013

 

New insurance written1

$13,628

$11,312

 

Premiums written

160

137

 

Premiums earned

141

143

 

Losses on claims

17

35

 

Expenses

27

26

 

Net underwriting income

97

82

 

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

43

44

 

Net investment gains

5

15

 

Total net investment income

48

59

 

Net income

$97

$98

 

Net operating income1

$99

$88

Fully diluted earnings per common share

$1.02

$1.00

Fully diluted operating earnings per common share1

$1.04

$0.89

Fully diluted book value per common share, inc. AOCI1

$34.17

$30.94

Fully diluted book value per common share, excl. AOCI1

$32.36

$29.55

Basic weighted average common shares outstanding

94,976,887

98,200,843

Diluted weighted average common shares outstanding

95,220,039

98,453,184

Loss ratio1

12%

25%

Combined ratio1

31%

43%

Operating return on equity1

13%

12%

Minimum Capital Test ratio (MCT) 1

230%

216%

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.

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. Non-IFRS financial measures include net operating income, interest and dividend income (net of investment expenses), operating earnings per common share (basic), operating earnings per common share (diluted), shareholders' equity excluding accumulated other comprehensive income ("AOCI"), operating return on equity and underwriting ratios such as loss ratio, expense ratio and combined ratio. Non-IFRS financial measures used by the Company to analyze the impact of the reversal of the government guarantee fund exit fee include adjusted net investment income, adjusted net income, adjusted earnings per common share (basic), adjusted earnings per common share (diluted), adjusted net operating income, adjusted operating earnings per common share (basic), adjusted operating earnings per common share (diluted), and adjusted operating return on equity. Other non-IFRS measures used by the Company to analyze performance include insurance in-force, new insurance written, Minimum Capital Test ("MCT") ratio, delinquency ratio, severity on claims paid, investment yield, book value per common share (basic) including AOCI, book value per common share (basic) excluding AOCI, book value per common share (diluted) including AOCI, book value per common share (diluted) excluding AOCI, and dividends paid per common share. 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.

The Company revised its definition of net operating income (loss) to exclude the fee on the early retirement of debt to better reflect the basis on which the performance of its business is internally assessed and to reflect management's opinion that they are not indicative of overall operating trends.  Changes were not required for prior periods.

See the "Non‐IFRS financial measures" section at the end of the MD&A for a reconciliation of net operating income to net income, operating earnings per common share (basic) to earnings per common share (basic), operating earnings per common share (diluted) to earnings per common share (diluted), and shareholders' equity excluding AOCI to shareholders' equity.  Definitions of key Non‐IFRS financial measures as well as an explanation of why these measures are useful to investors and the additional purposes for which management uses the measures can be found in the Company's "Glossary for non‐IFRS financial measures", in the "Non‐IFRS financial measures" section at the end of the 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.

Special Note Regarding Forward-Looking 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 proposed guideline changes by OSFI, and the effect of 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.

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 redemption of its existing debentures; 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; interest rate fluctuations; a decrease in the volume of high loan-to-value mortgage orientations; 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; and potential conflicts of interest between the Company and its majority shareholder, Genworth Financial, 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 AIF dated March 17, 2014.  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 therefore 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.

SOURCE Genworth MI Canada

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