Genworth MI Canada Inc. Reports Third Quarter 2020 Results Including Net Operating Income of $119 Million

Net Income:

$124 million

Up 12% Y/Y

Up 27% Q/Q

Net Operating Income:

$119 million

Up 4% Y/Y

Up 18% Q/Q

Fully Diluted Operating EPS:

$1.38

Up 3% Y/Y

Up 18% Q/Q





Transactional Premiums Written:

$291 million

Up 37% Y/Y

Up 75% Q/Q

Total Premiums Written:

$297 million

Up 36% Y/Y

Up 31% Q/Q

Premiums Earned:

$173 million

Up 1% Y/Y

Up 1% Q/Q

Loss Ratio:

13%

Down 5 pts Y/Y

Down 13 pts Q/Q

TORONTO, Nov. 2, 2020 /CNW/ - Genworth MI Canada Inc. (the "Company") (TSX: MIC) today reported third quarter 2020 net income of $124 million, earnings per fully diluted common share of $1.44, net operating income of $119 million, operating earnings per fully diluted common share of $1.38 and an operating return on equity of 13%. The relatively low loss ratio of 13% has benefitted from favourable reserve development, and the Company's loss ratio would have been 23% excluding this favourable item.

"We were pleased with our third quarter results, including positive top line momentum, a 13 percent loss ratio and 13 percent operating return on equity," said Stuart Levings, President and CEO. "While the economic environment continues to evolve in line with our expectations, there remains a high degree of uncertainty, especially as we enter the second wave of COVID-19. That said, the pace of economic recovery to date, strength of the housing market and downward trend in the balance of mortgage payment deferrals should help us manage through this period even when the deferral programs and government wage subsidy programs wind-down. We are also excited to enter into a new chapter with our rebranding as Sagen."

Key Third Quarter 2020 Financial Results and Operational Metrics:

  • New insurance written from transactional insurance was $8.3 billion, an increase of $2.2 billion, or 37%, as compared to the same quarter in the prior year, and an increase of $3.5 billion, or 74%, as compared to the prior quarter. The increases were primarily due to an increase in transactional mortgage originations resulting from a shift in the traditional spring market from the second quarter to the third quarter due to COVID-19 restrictions and an increase in market share.

  • Premiums written from transactional insurance were $291 million, representing an increase of $79 million, or 37%, from the same quarter in the prior year, and an increase of $125 million, or 75%, compared to the prior quarter primarily due to the aforementioned higher new insurance written.

  • New insurance written from portfolio insurance on low loan-to-value mortgages was $1.6 billion, an increase of $0.3 billion compared to the same quarter in the prior year. Compared to the prior quarter, there was a decrease of $11.8 billion primarily due to decreased demand from lenders following the very high levels of portfolio insurance in the second quarter after the onset of the COVID-19 pandemic and the temporary changes made by the Canadian federal government to eligibility criteria and funding programs for 2020.

  • Premiums written from portfolio insurance were $6 million, representing an increase of $0.2 million compared to the same quarter in the prior year and a decrease of $54 million compared to the prior quarter. The decrease compared to the prior quarter was primarily due to lower new insurance written.

  • Premiums earned of $173 million were $2 million, or 1%, higher than the same quarter in the prior year, and $1 million, or 1%, higher than the prior quarter, reflecting the relatively higher level of premiums written in 2019 and through the first nine months of 2020. The unearned premiums reserve was $2.2 billion at the end of the quarter, an increase of $0.1 billion from the unearned premium reserve as at December 31st, 2019. 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, were negative 8, consisting of 756 new delinquencies offset by 764 cures, and were 381 lower than the same quarter in the prior year. New delinquencies decreased by 194 due to the mortgage payment deferral program. Cures increased by 187 due to strong housing conditions and improved unemployment levels during the third quarter. Regionally, there were decreases in all regions including Alberta (145), Quebec (79) and the Atlantic region (77). Compared to the prior quarter, new delinquencies, net of cures, decreased by 499 with decreases in all regions including Alberta (171), Ontario (122), and Quebec (77).

  • The outstanding principal balance of insured mortgage loans reported under the mortgage payment deferral program totaled $12.2 billion, or approximately 6% of outstanding insured mortgage balances as at September 30th, 2020, down from approximately 14% as at June 30th, 2020. Regionally, mortgage payment deferrals were primarily driven by Alberta ($4.2 billion) and Ontario ($3.9 billion). Approximately 66% of mortgage balances subject to payment deferrals have an estimated effective loan-to-value of less than 80%.

  • The loss ratio, as a percentage of premiums earned, for the quarter was 13% compared to 18% in the same quarter in the prior year and 27% in the prior quarter. Losses on claims of $23 million were $8 million lower than the same quarter in the prior year, and $23 million lower than the prior quarter, primarily due to significant favorable development related to the strong housing market and improved unemployment. Excluding this favourable development, the loss ratio would have been 23%. The incurred but not reported reserve at the end of the quarter includes the Company's estimate of the losses from defaults that would otherwise have occurred in the quarter had the payment deferral program not been in place.
     
  • The number of delinquencies outstanding of 1,769 reflected an increase of 8 delinquencies, as compared to the same quarter in the prior year, primarily driven by increases in Ontario (48) and the Prairies region (29) partially offset by a decrease in Alberta (55). Compared to the prior quarter, the number of delinquencies outstanding decreased by 205, primarily driven by decreases in all regions including Alberta (60), the Atlantic region (40), and Quebec (32).

  • Expenses were $33 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, consistent with the prior quarter and within the Company's expected operating range of 18% to 20%.

  • The Company's investment portfolio had a market value of $6.7 billion at the end of the quarter. The portfolio had an average pre-tax equivalent book yield of 3.0%, compared to 3.3% in the same quarter in the prior year and the prior quarter, and decreased primarily due to the low interest rate environment. The portfolio had a duration of 3.6 years as at September 30th, 2020, which was relatively consistent with the same quarter in the prior year and the prior quarter.

  • Operating investment income of $48 million was $9 million lower than the same quarter in the prior year primarily due to a decrease in the average amount of invested assets and lower realized income from the Company's interest rate hedging program. Operating investment income was consistent with the prior quarter.

  • Realized and unrealized losses from derivatives and foreign exchange of $2 million excludes the realized income from the Company's interest rate hedging program of $4 million. This compares to a $10 million loss in the same quarter in the prior year, and a $7 million loss in the prior quarter, with the decrease in losses being primarily due to the impact of interest rates on the market value of the Company's interest rate swaps and interest rate floors and foreign exchange.

  • Net income of $124 million was $13 million higher than the same quarter in the prior year, primarily due to lower losses on claims, higher premiums earned, an increase in realized gains on sales of investments, and a lower level of realized and unrealized losses from investments, derivatives and foreign exchange, partially offset by lower operating investment income. Net income was $27 million higher than the prior quarter, primarily due lower losses on claims, an increase in realized gains on sale of investments and a lower level of realized and unrealized losses from investments, derivatives and foreign exchange.

  • Net operating income of $119 million was $4 million higher than the same quarter in the prior year, primarily due to lower losses on claims and higher premiums earned, partially offset by lower operating investment income. Net operating income was $18 million higher than the prior quarter primarily due to lower losses on claims.

  • Operating return on equity was 13% for the quarter, an increase of two percentage points compared to the same quarter in the prior year and the prior quarter.

  • The regulatory capital ratio or Mortgage Insurer Capital Adequacy Test ("MICAT") ratio was approximately 179%, 22 percentage points higher than the Company's internal MICAT ratio target of 157% and 29 percentage points higher than the Office of the Superintendent of Financial Institutions ("OSFI") Supervisory MICAT ratio target of 150%. 
     
  • The Company estimates that its outstanding principal balance of insured mortgages as at September 30th, 2020, was approximately $206 billion, or 37% of the original insured amount. The Company estimates, that as of June 30th, 2020, the outstanding principal balance for all privately insured mortgages was $282 billion relative to the $350 billion aggregate outstanding principal limit under the government guarantee legislation (Protection of Residential Mortgage or Hypothecary Insurance Act ("PRMHIA")). 

Dividends

The Company paid a quarterly dividend of $0.54 per common share on September 2nd, 2020.

The Company also announced today that its Board of Directors had declared a dividend of $0.54 per common share, payable on November 30th, 2020, to shareholders of record at the close of business on November 16th, 2020. Due to regulatory restrictions on increasing dividends, the quarterly dividend remains unchanged from the prior quarter.

Shareholders' Equity

As at September 30th, 2020, shareholders' equity was $3.8 billion, representing a book value including accumulated other comprehensive income ("AOCI") of $43.39 per common share on a fully diluted basis. Excluding AOCI, shareholders' equity was $3.6 billion, representing a book value of $41.97 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, as well as the Company's third quarter 2020 consolidated Financial Statements, Management's Discussion and Analysis ("MD&A") and Financial Supplement are also posted on the Investor section of the Company's website, https://www.sagen.ca/about/investor-relations/.  Investors are encouraged to review all of these materials. 

Earnings Call

The Company's third quarter earnings call will be held on November 3rd, 2020 at 10:00 am ET (Local: 647-792-1240, Toll free: 1-800-430-8332, Conference ID: 1665720). 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 December 3rd, 2020 (647-436-0148 or 1-888-203-1112, replay passcode: 1665720). The webcast will also be available for replay on the Company's website for a period of approximately 45 days following the call.                 

About Genworth MI Canada Inc. 

Genworth MI Canada Inc. (TSX: MIC) changed its brand from Genworth MI Canada to Sagen MI CanadaTM[i] effective October 13th, 2020. The Company, operating through its subsidiary, Genworth Financial Mortgage Insurance Company Canada doing business as SagenTM, is the largest private sector residential mortgage insurer in Canada.  The Company provides mortgage default insurance to Canadian residential mortgage lenders, making homeownership more accessible to first-time homebuyers. Sagen differentiates itself through customer service excellence, innovative processing technology, and a robust risk management framework. For more than two decades, Sagen 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 30th, 2020, the Company had $7.1 billion total assets and $3.8 billion shareholders' equity. Find out more at www.sagen.ca.

Contact Information:

Investors – Aaron Williams, 905-287-5504 aaron.williams@sagen.com
Media Susan Carter, 905-287-5520  susan.carter@sagen.com

Consolidated Financial Highlights


($ millions, except per share amounts)

Three Months Ended

September 30th (unaudited),

Nine Months Ended

September 30th (unaudited),

2020

2019

2020

2019

Transactional new insurance written1

$8,291

$6,070

$16,258

$14,283

Portfolio new insurance written1

1,607

1,290

16,003

4,730


Total new insurance written
1

$9,898

$7,360

$32,261

$19,013

 

Premiums written

297

218

568

518

 

Premiums earned

173

171

516

508

 

Losses on claims

23

31

94

82

Expenses

33

33

102

101

Net underwriting income

$117

$106

$320

$325

 

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

44

50

134

147

Interest rate hedging program income

4

7

15

23


Realized gains on sale of investments

9

5

16

17

Realized and unrealized losses on derivatives, foreign exchange

(2)

(10)

(43)

(63)


Total net investment income

$55

$52

$122

$125


Net income

$124

$111

$317

$318

Net operating income1

$119

$115

$338

$354

Basic weighted average common shares outstanding

86,291,079

85,998,556

86,280,183

86,853,210

Diluted weighted average common shares outstanding

86,546,306

85,998,704

86,599,187

86,866,645

Fully diluted earnings per common share

$1.44

$1.29

$3.57

$3.66

Fully diluted operating earnings per common share1

$1.38

$1.34

$3.90

$4.07

Fully diluted book value per common share, incl. AOCI1

$43.39

$46.37

$43.39

$46.37

Fully diluted book value per common share, excl. AOCI1

$41.97

$46.01

$41.97

$46.01

Loss ratio1

13%

18%

18%

16%

Combined ratio1

32%

38%

38%

36%

Operating return on equity1

13%

11%

12%

12%

MICAT ratio 1,3

179%

172%

179%

172%

Transactional delinquency ratio1, 2

0.27%

0.27%

0.27%

0.27%

Portfolio delinquency ratio1, 2

0.11%

0.10%

0.11%

0.10%

Delinquency ratio1, 2

0.20%

0.20%

0.20%

0.20%


Note: Amounts may not total due to rounding.

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.

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

Company estimate at September 30th, 2020.

Non-IFRS Financial Measures

To supplement the Company's consolidated financial statements, which are prepared in accordance with IFRS, the Company uses certain 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 (excluding fee on early redemption of long-term debt), 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.


($ millions, unless otherwise specific)

Three Months Ended

September 30th (unaudited),

Nine Months Ended

September 30th (unaudited),

2020

2019

2020

2019

Total investment income

$55

$52

$122

$125

Adjustment to investment income:





     Net Losses from Investments, derivatives and foreign exchange1

(7)

5

27

45

Operating investment income

48

57

149

170

Realized expense (income) from the interest rate hedging program

(4)

(7)

(15)

(23)

Interest and dividend income, net of investment expenses

$44

$50

$134

$147

Net income

124

111

317

318

Adjustments to net income, net of taxes:





     Fee on early redemption of long-term debt

-

-

1

2

     Net Losses from Investments, derivatives and foreign exchange1

(5)

4

20

33

Net operating income

$119

$115

$338

$354

Earnings per common share (basic) 2

$1.44

$1.29

$3.67

$3.66

Adjustments to earnings per common share, net of taxes:





     Fee on early redemption of long-term debt

-

-

0.02

0.03

     Net Losses from Investments, derivatives and foreign exchange1

(0.06)

0.04

0.23

0.38

Operating earnings per common share (basic) 2

$1.38

$1.34

$3.91

$4.07

Earnings per common share (diluted) 2 

$1.44

$1.29

$3.57

$3.67

Adjustments to earnings per common share, net of taxes:





     Fee on early redemption of long-term debt

-

-

0.02

0.03

     Share based compensation re-measurement amount

-

-

0.08

-

     Net Losses from Investments, derivatives and foreign exchange1

(0.06)

0.04

0.23

0.38

Operating earnings per common share (diluted) 2

$1.38

$1.34

$3.90

$4.07


Note: Amounts may not total due to rounding.

1 Includes realized and unrealized gains and losses from derivatives and foreign exchange, excluding realized income and expense from the interest rate hedging program. 2 The difference between basic and diluted earnings per common share and basic and diluted operating earnings per common share is caused by the potentially dilutive impact of share-based compensation awards.

Non-IFRS financial measures reconciled to comparable IFRS measures for such periods

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 three and nine months ended September 30th, 2020.  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 news release contain forward-looking information within the meaning of applicable securities laws ("forward-looking statements"). When used in this news 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 impact of any potential guideline changes by OSFI or legislative changes introduced in connection with the PRMHIA; the effect of changes to the mortgage insurance rules, including government guarantee mortgage eligibility rules, the effect of the government measures and programs in response to the COVID-19 pandemic, the Company's beliefs as to housing demand and home price appreciation, key macroeconomic factors, unemployment rates; the Company's future operating and financial results; the operating range for the Company's expense ratio; expectations regarding premiums written; and 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 potential impact of the COVID-19 pandemic on the Company's business 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, Brookfield Business Partners L.P. ("Brookfield Business Partners"); 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 or potential cyber threats; potential conflicts of interest between the Company and its majority shareholder, Brookfield Business Partners.

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 11th, 2020. 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 SEDAR and available at www.sedar.com. The forward-looking statements contained in this news release represent the Company's views only as of the date hereof. Forward-looking statements contained in this news 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.

Sagen MI Canada and Sagen are trademarks owned by Genworth MI Canada Inc.

SOURCE Genworth MI Canada

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