Genworth MI Canada Inc. Reports Fourth Quarter and Full Year 2016 Results

Premiums Earned: $164 million in Q4, up 9% Y/Y; $638 million for 2016, up 9% Y/Y
Loss Ratio: 18% in Q4, down 5 points Y/Y; 22% for 2016, up one point Y/Y
Net Income: $140 million in Q4, up 43% Y/Y, $417 million for 2016, up 5% Y/Y
Net Operating Income: $105 million in Q4, up 10% Y/Y; $388 million for 2016, up 3% Y/Y
Fully Diluted Operating EPS:  $1.14 in Q4, up 11% Y/Y; $4.23 for 2016, up 4% Y/Y

TORONTO, Feb. 7, 2017 /CNW/ - Genworth MI Canada Inc. (the "Company") (TSX: MIC) today reported fourth quarter 2016 net income of $140 million or $1.52 earnings per fully diluted common share, and net operating income of $105 million or $1.14 operating earnings per fully diluted common share.

On a full year basis, the Company reported net income of $417 million or $4.54 earnings per fully diluted common share, and net operating income of $388 million or $4.23 operating earnings per fully diluted common share. The Company paid ordinary dividends of $1.70 per common share in 2016. The Company also delivered an operating return on equity of 12% during the quarter and 11% on a full year basis.

On January 17, 2017, the Company announced premium rate increases for its transactional mortgage insurance products. The new pricing is a reflection of higher regulatory capital requirements that became effective January 1, 2017, which supports the long-term safety and sustainability of the Canadian housing finance system. The average transactional premium rate increase is approximately 18% to 20% and this is expected to result in an average transactional premium rate of 330 to 335 basis points for 2017, compared to 293 basis points in 2016.

"Our strong financial results in 2016 reflect the benefits of our well-diversified and high quality portfolio," said Stuart Levings, President and CEO. "We are pleased with the outcome of the recent pricing review, which appropriately reflects the new capital requirements, and remain focused on proactive risk management, prudent underwriting, and strong lender relationships."

Key Fourth Quarter 2016 Financial Results and Operational Metrics:

• New insurance written from transactional insurance was $5.1 billion, a decrease of $1.1 billion, or 18%, compared to the same quarter in the prior year, primarily as a result of targeted underwriting changes in select markets and a smaller transactional insurance market size. Compared to the prior quarter, transactional new insurance written decreased by $1.7 billion, or 25%, as a result of typical seasonality.
  
  
• Premiums written from transactional insurance were $149 million.  This represents a decrease of $32 million, or 17%, from the prior year period, primarily due to a decline in new insurance written. Compared to the prior quarter, premiums written decreased by $51 million, or 26%, primarily due to seasonality.
  
  
• New insurance written from portfolio insurance on low loan-to-value mortgages was $4.9 billion, a decrease of $4.7 billion compared to the same quarter in the prior year and $1.6 billion compared to the prior quarter. This decrease was primarily due to lower lender demand for portfolio insurance.
  
  
• Premiums written from portfolio insurance were $22 million, representing a decrease of $10 million compared to the same quarter in the prior year and consistent with the prior quarter.
  
  
• Premiums earned of $164 million were $13 million, or 9%, higher than the same quarter in the prior year due to the higher level of premiums written in recent years. When compared to the prior quarter, premiums earned were $2 million, or 1% higher.  The unearned premiums reserve was $2.1 billion at the end of the quarter, up $122 million from December 31, 2015. 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, of 436, were 57 lower than the prior quarter due to a decrease in Alberta (131) and the Pacific region (12), partially offset by increases in Ontario (40), Quebec (35), and the Atlantic region (11). The decrease in Alberta was primarily driven by an increase in cures (80) including 36 in the Fort McMurray area. Compared to the same period in the prior year, new delinquencies, net of cures, decreased by 51, primarily due to a decrease in Quebec (28), Pacific (18) and Ontario (14), partially offset by an increase in Alberta (14).
  
  
• The loss ratio for the quarter was 18% as a percentage of premiums earned, compared to 25% in the third quarter and 23% in the same quarter in the prior year. Losses on claims of $29 million were $6 million lower than the same quarter in the prior year, primarily due to ongoing strength in the Pacific region and favourable development from Quebec case reserves related to improved economic and housing market conditions, partially offset by pressure in oil-producing regions. Losses on claims decreased by $11 million from the prior quarter, primarily due to increased cures in Alberta and favourable development from Quebec case reserves.
  
  
• The number of delinquencies outstanding of 2,070 reflected an increase of 241 delinquencies, as compared to the same quarter in the prior year, including an increase of 306 delinquencies in Alberta. Compared to the prior quarter, the number of delinquencies outstanding increased by 43 delinquencies.
  
  
• Expenses were $33 million during the quarter, resulting in an expense ratio of 20%, as a percentage of premiums earned.  This ratio was two percentage points higher than the same quarter in the prior year, consistent with the prior quarter, and consistent with the Company's expected operating range of 18% to 20%.
  
  
• Net Investment income, excluding realized and unrealized gains on derivatives, foreign exchange and impairment loss, of $46 million was $2 million higher than the same quarter in the prior year and $1 million higher than the prior quarter, primarily due to an increase in the amount of invested assets.
  
  
• The Company's investment portfolio had a market value of $6.3 billion at the end of the quarter.  The portfolio had a pre-tax equivalent book yield of 3.2% and duration of 3.8 years as at December 31, 2016 each of which were consistent with the prior quarter.
  
  
• Net income of $140 million was $42 million higher relative to the same quarter in the prior year, primarily due to higher realized and unrealized gains on derivatives and foreign exchange, higher premiums earned and lower losses on claims, partially offset by higher expenses. Net income was $42 million higher than the prior quarter, primarily due to higher realized and unrealized gains on derivatives and foreign exchange, lower losses on claims and higher premiums earned.
  
  
• Net operating income of $105 million was $10 million higher relative to the same quarter in the prior year, primarily due to higher premiums earned and lower losses on claims, partially offset by higher expenses. Net operating income was $12 million higher than the prior quarter, primarily due to lower losses on claims and higher premiums earned.
  
  
• Operating return on equity was 12% for the quarter, compared to 12% in the same quarter in the prior year and 11% in the prior quarter.

Key 2016 Annual Financial Results and Operational Metrics:

• New insurance written from transactional insurance was $21.2 billion, a decrease of $4.1 billion, or 16%, compared to 2015 as a result of targeted underwriting changes in select markets and a smaller transactional insurance market size. New insurance written from portfolio insurance on low loan-to-value mortgages was $41.9 billion, an increase of $16.2 billion compared to 2015. This increase was driven by higher demand from lenders prior to the July 1, 2016 regulatory changes which limit portfolio insurance to only those mortgages that will be used in government securitization programs.
  
  
• Premiums written from transactional insurance were $619 million. This represents a decrease of $86 million, or 12%, compared to 2015, primarily due to a decline in new insurance written, partially offset by a 5% higher average premium rate resulting from the June 2015 premium rate increase. Premiums written from portfolio insurance were $140 million, representing an increase of $37 million compared to 2015.
  
  
• Net premiums earned were $638 million, representing an increase of $52 million or 9%, when compared to the prior year, primarily due to higher premiums written in recent years.
   
• The loss ratio for the year was 22% as a percentage of premiums earned, compared to 21% in the prior year. Losses on claims of $139 million were $17 million higher than the prior year, primarily due to an increase in new delinquencies, net of cures, and an increase in the average reserve per delinquency from oil-producing regions.
  
  
• Expenses were $124 million during the year resulting in an expense ratio of 19%, as a percentage of premiums earned. This ratio was one percentage point higher than the prior year and consistent with the Company's expected operating range of 18% to 20%.
  
  
• Net investment income, excluding realized and unrealized gains on derivatives, foreign exchange and impairment loss, of $176 million was higher by $7 million as compared to 2015, primarily due to an increase in the amount of invested assets.
  
  
• Net income of $417 million was $19 million higher compared to 2015, primarily due to higher realized and unrealized gains on derivatives and foreign exchange, higher premiums earned and higher investment income, partially offset by higher losses on claims, higher expenses and lower realized gains on sale of investments.
  
  
• Net operating income of $388 million was $13 million higher compared to 2015, primarily due to higher premiums earned, partially offset by higher losses on claims and higher expenses.
  
  
• Operating return on equity was 11%, compared to 12% in the prior year.
  
  
• The regulatory capital ratio or Minimum Capital Test ("MCT") ratio was approximately 245%, 25 percentage points higher than the Company's holding target MCT ratio of 220%.
  
  
• The Company estimates that its outstanding balance of insured mortgages as at December 31, 2016, was approximately $223 billion, or 48% of the original insured amount. On December 15, 2016, the maximum outstanding insured exposure for all private insured mortgages permitted by the Protection of Residential Mortgage or Hypothecary Insurance Act ("PRMHIA") was increased to $350 billion from the previous maximum of $300 billion. The Company estimates, that as of September 30, 2016, the outstanding principal amount for all privately insured mortgages was $282 billion.

Dividends

On November 25, 2016, the Company paid a quarterly dividend of $0.44 per common share. This dividend represented an increase of $0.02, or 5%, over the Company's prior quarterly dividend.

Shareholders' Equity

As at December 31, 2016, shareholders' equity was $3,649 million, representing a book value including accumulated other comprehensive income ("AOCI") of $39.28 per common share on a fully diluted basis, which was 7% higher than the same quarter in the prior year. Excluding AOCI, shareholders' equity was $3,556 million, representing a book value of $38.28 per common share on a fully diluted basis, which was 8% higher than the same quarter in the prior year. 

New Regulatory Capital Framework

On December 15, 2016, OSFI released the final capital advisory titled "Capital Requirements for Federally Regulated Mortgage Insurers". This advisory provides a new standard framework for determining the capital requirements for residential mortgage insurance companies. The advisory came into effect on January 1, 2017, replacing OSFI's current advisory. Under the new capital framework, the holding target MCT ratio of 220% has been recalibrated to the OSFI Supervisory MCT ratio target of 150% and the minimum MCT ratio under PRMHIA has been reduced to 150%. Based on the new framework, the Company has established an internal MCT ratio target of 157% for 2017 and estimates that its pro forma MCT ratio as at December 31, 2016 would have been in the range of 158% to 162%.

Credit and Debt Ratings

The Company's issuer credit rating by DBRS Ratings Limited is 'A' high (stable) and the financial strength rating of the Company's primary operating subsidiary is 'AA' (stable).  The Company's credit rating by Standard & Poor's is 'BBB+' (stable) and the financial strength of the Company's primary operating subsidiary is 'A+' (stable). 

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 full year 2016 consolidated Financial Statements, Management's Discussion and Analysis and the Company's 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 fourth quarter earnings call will be held on February 8, 2017 at 10:00 am ET (Local: 647-794-1827, Toll free: 1-866-564-7439 (Conference ID: 6145325).  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 March 9, 2017 (Local: 647-436-0148, Toll-free 1-888-203-1112, Replay Passcode 6145325).  The webcast will also be available for replay on 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 more than 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, 2016, the Company had $6.6 billion total assets and $3.6 billion shareholders' equity. Find out more at www.genworth.ca.

Consolidated Financial Highlights

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($ millions, except per share amounts)	Fourth Quarter  (Unaudited)		Full Year  (Audited)
	2016	2015	2016	2015
Transactional new insurance written^1	$5,120	$6,231	$21,171	$25,243
Portfolio new insurance written^1	4,918	9,595	41,881	25,696
Total new insurance written^1	10,038	15,826	$63,051	$50,938
Premiums written	171	213	760	809
Premiums earned	164	151	638	586
Losses on claims	29	35	139	122
Expenses	33	27	124	108
Net underwriting income	103	90	375	356
Investment income (interest and dividends, net of expenses)^1	46	44	176	169
Realized gains (losses) on sale of investments	1	(2)	3	23
Realized and unrealized gains on derivatives, foreign exchange and impairment loss	46	5	35	9
Total net investment income	93	47	214	201
Net income	$140	$98	$417	$398
Net operating income^1	$105	$95	$388	$375
Basic weighted average common shares outstanding	91,856,165	91,795,125	91,828,701	92,296,521
Diluted weighted average common shares outstanding	92,266,264	92,218,209	91,874,244	92,771,849
Fully diluted earnings per common share	$1.52	$1.03	$4.54	$4.22
Fully diluted operating earnings per common share^1	$1.14	$1.03	$4.23	$4.05
Fully diluted book value per common share, incl. AOCI^1	$39.28	$36.82	$39.28	$36.82
Fully diluted book value per common share, excl. AOCI^1	$38.28	$35.46	$38.28	$35.46
Loss ratio^1	18%	23%	22%	21%
Combined ratio^1	38%	41%	41%	39%
Operating return on equity^1	12%	12%	11%	12%
Minimum Capital Test ratio (MCT)^1	245%	234%	245%	234%
Delinquency ratio^1, 2	0.10%	0.10%	0.10%	0.10%

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. 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 net operating income, 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.

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

	Fourth Quarter				Full Year
(in millions of dollars, unless otherwise specified)		2016		2015		2016		2015
Investment income	$	93	$	47	$	214	$	201
Adjustment to investment income:
Net investment (gains) losses		(47)		(3)		(38)		(32)
Interest and dividend income, net of investment expenses	$	46	$	44		176	$	169
Net income		140		98		417		398
Adjustments to net income, net of taxes:
Net investment (gains) losses		(35)		(3)		(29)		(23)
Net operating income	$	105	$	95	$	388	$	375
Earnings per common share (basic)	$	1.52	$	1.06	$	4.54	$	4.32
Adjustment to earnings per common share, net of taxes:
Net investment (gains) losses		(0.38)		(0.03)		(0.31)		(0.25)
Operating earnings per common share (basic)	$	1.15	$	1.04	$	4.23	$	4.07
Earnings per common share (diluted)	$	1.52	$	1.03	$	4.54	$	4.22
Adjustment to earnings per common share, net of taxes:
Share based compensation re-measurement amount		0.00		0.03		0.00		0.08
Net investment (gains) losses		(0.38)		(0.03)		(0.31)		(0.25)
Operating earnings per common share (diluted)	$	1.14	$	1.03	$	4.23	$	4.05

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 Management's Discussion and Analysis for the year ended December 31, 2016 ("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.

Caution regarding forward looking information and 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 the Office of the Superintendent of Financial Institutions Canada and legislation introduced in connection with the Protection of Residential Mortgage or Hypothecary Insurance Act 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 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, Genworth Financial, Inc.; 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; 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 Annual Information Form (the "AIF") dated March 16, 2016. 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 System for Electronic Document Analysis and Retrieval ("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 are presented for the purpose of assisting the Company's securityholders 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

Contact Information: Investors - Jonathan Pinto, 905-287-5482 or [email protected]; Media - Susan Carter, 905-287-5520 or [email protected]

Related Links

http://www.genworth.com