Fourth Quarter 2016 Resultss1.q4cdn.com/.../Q4/MIC_Q4_2016_Earnings_Presentation.pdfQ4 2016 Results...

1 Genworth MI Canada Inc. Q4 2016 Results

February 7th, 2017

Fourth Quarter 2016 Results


Forward-looking and non-IFRS statements

DRIVING VALUE THROUGH CUSTOMIZED SERVICE EXPERIENCE

Public communications, including oral or written communications such as this document, relating to Genworth MI Canada Inc. (the

“Company”, “Genworth Canada” or “MIC”) often contain certain forward-looking statements. These forward-looking statements

include, but are not limited to, statements with respect to the implementation of the changes introduced by the Government and the

potential impact on new insurance written, as well as 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 Canadian housing market, and other statements that are not historical facts. These forward-looking

statements may be identified by their use of words such as “may”, “would”, “could”, “will,” “intend”, “plan”, “anticipate”, “believe”,

“seek”, “propose”, “estimate”, “expect”, and similar expressions. These statements are based on the Company’s current

assumptions, including assumptions regarding economic, global, political, business, competitive, market and regulatory matters.

These forward-looking statements are inherently subject to significant risks, uncertainties and changes in circumstances, many of

which are beyond the ability of the Company to control or predict. 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 the facts underlying the Company’s

assumptions, and the other risks described in the Company’s Annual Information Form dated March 16, 2016, its Short Form Base

Shelf Prospectus dated August 9, 2016, its most recently issued Management’s Discussion and Analysis and all documents

incorporated by reference in such documents. Management’s current views regarding the Company’s financial outlook are stated as

of the date hereof and may not be appropriate for other purposes. 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.

To supplement its financial statements, the Company uses select non-IFRS financial measures. Such non-IFRS financial measures

include net operating income, operating earnings per common share (basic), operating earnings per common share (diluted),

operating return on equity, insurance in-force, new insurance written, loss ratio, expense ratio, combined ratio, investment yield, and

Minimum Capital Test (MCT). 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 Company’s website at http://investor.genworthmicanada.ca. A reconciliation from

non-IFRS financial measures to the most readily comparable measures calculated in accordance with IFRS, where applicable, can

be found in the Company’s most recent Management’s Discussion and Analysis, which is posted on the Company’s website and is

also available at www.sedar.com.


2016 financial results

$MM except

ROE, EPS &

MCT

Q4

2016 Q / Q Y / Y FY

2016 Y / Y

Premiums

written $171 -23% -20% $760 -6%

Loss ratio 18% -7% -5% 22% +1 pt

Net Operating

Income $105 +13% +11% $388 +3%

Operating ROE 12% +1% Flat 11% Flat

Operating EPS

(dil.) $1.14 +12% +11% $4.23 +4%

MCT1 245% +8 pts +11 pts 245% +11 pts

Key highlights

Fourth quarter highlights:

• Loss ratio of 18%, down 5% Y/Y

• NOI of $105 MM, up 11% Y/Y, EPS of $1.14, up 12% Y/Y

Full year highlights:

• Premiums written decreased by 6%

• Loss ratio of 22%, lower than expected range of 25%-35%

• NOI increased by 3% and Operating EPS up 4% Y/Y

• ROE of 11%, marginally lower Y/Y

• Robust capital position with MCT ratio at 245%1

• Book value per share growth of 7% Y/Y

Operating EPS (diluted) Book Value Per Share (diluted, incl. AOCI)

$36.82 $37.23 $38.23

$39.01 $39.28

Q4 2015 Q1 2016 Q2 2016 Q3 2016 Q4 2016

+7%

YoY

1. MCT denotes ratio for operating insurance company.

Note: Amounts may not total due to rounding.

1.03 0.99

0.99 1.07

1.00 1.02

1.03 1.14

2015 2016

Q1

Q2

Q3

$4.05 $4.23

Q4

+4%

YoY


Our environment today

STABLE TO IMPROVING MACROECONOMIC ENVIRONMENT

1 Source: GDP projections sourced from Bank of Canada Monetary Policy Report January 2017.

Risk Assessment

Economic

Housing

Insurance

Portfolio

Regulatory

Key takeaways

GDP growth projection supportive in 2017 (Canada 2.1%; US 2.2%)1

Oil prices stabilizing in the $50 to $60 per barrel range in 2017

Housing risk in Toronto and Vancouver remains elevated

Government changes contributing to soft landing

Longer term improvement in first-time homebuyer affordability

NIW quality & mix remains strong

Mortgage rate stress test to have positive long-term impact on portfolio

quality

Mortgage rate stress test impacting mkt. size; drives safety & soundness

New capital framework driving higher capital requirements and recently

announced premium rate increase

Private MI government guarantee limit increased to $350 billion

Risk sharing proposal could influence mortgage industry dynamics


$26 $18

$22

$78 $24

$22

$32

$22

2015 2016

Top line

$3.9 $3.4 $5.9 $4.5

$6.8 $5.8 $4.1

$25.9 $8.3

$6.9 $6.1

$6.5

$6.2 $5.1

$9.6

$4.9

2015 2016 2015 2016

New insurance written ($ billions) Premiums written ($ millions)

Note: Company sources. Note: Amounts may not total due to rounding.

$25.2 $25.7

Q1

Q2

Q3

Q4

Transactional insurance highlights

• NIW decreased, reflecting targeted underwriting

changes in select markets, and a smaller market size

• Expect volumes to decline 15%-25% in 2017

• Premium rate increases average ~18-20% driving an

average transactional premium rate of 330 – 335 bp for

2017 vs. 293 bp in 2016

Transactional Portfolio

$104 $99

$183 $170

$236 $201

$181

$149

2015 2016

$705

Q1

Q2

Q3

Q4

Transactional Portfolio

Average premium rate

2.79% 2.93%

$21.2

$41.9

$619

$140

Average premium rate

0.40% 0.34%

$104

Portfolio insurance highlights

• NIW increased, driven by higher demand from lenders

due to the July 1, 2016 regulatory changes

• Lower portfolio insurance average premium rate due to

lower LTVs and strong credit quality

• Expect volumes to decline ~25%-35% as compared to

the normalized run rate, post regulatory changes


$2

25

$2

32

$2

40

$2

55

$2

70

$2

75

$2

80

$2

91

$2

95

$2

98

'07

'08

'09

'10

'11

'12

'13

'14

'15

'16

16%

3% 716

751

'07

'08

'09

'10

'11

'12

'13

'14

'15

'16

% Score <660 (R) Avg score (L)

High portfolio quality

PORTFOLIO QUALITY SIGNIFICANTLY IMPROVED COMPARED TO ‘07/08

1 Company sources for transactional new insurance written. Average score for all borrowers. 2 Company sources for transactional new insurance written, purchase only. 3 Stacked risk factors: 90%+ LTV and <= 660 credit score, and >40 TDSR. GTA = Greater Toronto Area, GCA = Greater Calgary Area, GVA = Greater Vancouver Area.

Highlights

Credit score1

Stacked risk factors3

Steady credit score

improvement year-

over-year

Stable home

prices for First Time

Homebuyer

Stacked risks

decreased year-over-

year

Median home price2 (In ‘$000s)

0.0%

0.4%

0.8%

1.2%

1.6%

2.0%

20

10

20

11

20

12

20

13

20

14

20

15

20

16

GTA GCA GVA National


96 77 36 42 82

31 40 17 25

13

89 183

125

234 103

156

138

63

93

128

82

92

59

66

77

33

38

52

33

33

Q4'15 Q1'16 Q2'16 Q3'16 Q4'16

487

568

352

493 436

385 383 349 331 355

181 187 166 163 147

303 424 467 617 609

624 656 578

504 521

204 222

212 211 235 132 162

189 201 203

Q4'15 Q1'16 Q2'16 Q3'16 Q4'16

1,829

2,034 1,961 2,027 2,070

Delinquency trends

Ontario

Pacific2

Alberta

Quebec

Atlantic Prairies1

Delinquency ratio based on reported outstanding balances3

Q1’16 Q2’16 Q3’16 Q4’16

Transactional 0.34% 0.33% 0.33% 0.33%

Portfolio 0.09% 0.06% 0.07% 0.08%

Total 0.23% 0.20% 0.21% 0.21%

Company sources. 1 Prairies include MB and SK. 2 Pacific includes B.C. and the Territories. 3 Delinquency rates are based on outstanding insured mortgage balances as at

the end of the quarter and exclude delinquencies that have been incurred but not reported.

New delinquencies, net of cures, by region

Ontario

Pacific2

Alberta

Quebec

Atlantic

Prairies1

Total

Delinquencies outstanding

Total

Loss ratio 23% 24% 21% 25% 18%

QoQ

∆

-57

-

+11

+35

-131

-12 +40

Alberta delinquencies

Q1’16 Q2’16 Q3’16 Q4’16

New delinquencies 293 277 386 335

Cures 110 152 152 232

New delqs, net of cures 183 125 234 103

2017 FULL YEAR LOSS RATIO RANGE EXPECTED TO BE 25% - 35%


Solid financial performance

$MM except EPS & BVPS Q4’16 Q3’16 Q4’15

Transactional premiums written $149 $201 $181

Portfolio premiums written 22 22 32

Total premiums written $171 $223 $213

Premiums earned 164 162 151

Losses on claims (29) (41) (35)

Expenses (33) (33) (27)

Underwriting income $103 $88 $90

Net investment income (excl. realized gains / losses)

46 44 44

Net operating income $105 $93 $95

Operating EPS (diluted)

$1.14 $1.02 $1.03

Book value per share (diluted, incl. AOCI)

$39.28 $39.01 $36.82

Q4 highlights

• Transactional premiums written lower by

17% Y/Y, due to lower NIW

• Premiums earned increased Y/Y by $13

million due to higher level of premiums

written in recent years

• Loss ratio of 18%, down 7 pts Q/Q on

increased cures in Alberta and favourable

case reserve developments in Quebec

• Net investment income modestly up Q/Q at

$46 million

• Net operating income up $12 million Q/Q

primarily due to lower losses on claims and

higher premiums earned

• Book value per share up 7% Y/Y to $39.28

Company sources. Note: Amounts may not total due to rounding.


60 60 75

170 125

240

180

280 240

310 360

400

0

50

100

150

200

250

300

350

400

450

Announced price increases

Transactional price by LTV (price in basis points)1

TRANSACTIONAL AVG. PREMIUM

RATE OF 293 BP IN 2016 SHOULD

INCREASE TO 330-335 BP IN 2017

2X+ HIGHER PORTFOLIO

INSURANCE PREMIUM

RATE IN 2017

Up to

65% LTV

Up to

75% LTV

Up to

80% LTV

Up to

85% LTV

Up to

90% LTV

Up to

95% LTV

New pricing (effective March 17th, 2017)

Previous pricing (prior to March 17th, 2017)

2016 2017E

330

to

335

bps

0%

+127%

+92%

+56%

+29%

+11%

~+14%

293

bps

0% 1% 3% 4% 27% 65% Expected

NIW MIX

%

Average

Premium Rate2

1. Standard, owner-occupied purchase-only funded business written. 2. Represents average premium rate on 2016 and 2017 estimate for transactional new insurance written.


Solid underwriting profitability

90 88 95 88 103

27 28 30

33

33

35 37 32 41

29

Q4' 15 Q1' 16 Q2' 16 Q3' 16 Q4' 16

Underwriting profitability ($ millions)

Net underwriting

income

Expenses

Losses on claims

Loss ratio 23% 24% 21% 25% 18%

Expense ratio 18% 19% 19% 20% 20%

Combined

ratio 41% 42% 40% 45% 38%

Avg. reserve

per delq. ($000s) $71.9 $70.9 $75.4 $79.5 $79.0

New delqs.

net of cures 487 568 352 493 436

Premiums earned $162 $151 $154 $158 $164

Highlights

• Higher level of premiums written in last three

years driving trend of increased premiums

earned…nine consecutive quarters of Q/Q

increases

• Modest Y/Y increase in premiums earned

expected for 2017; premium rate increases

positive for premiums earned in future years

• Q4 loss ratio of 18% driven by discrete items

• Alberta cures increased by 80

• Favourable development of Quebec case

reserves

• Average reserve per delinquency essentially

flat Q/Q

• 2016 loss ratio of 22%; 2017 full year expected

range remains 25% to 35%

Company sources.


Federals

Provincials

Preferred shares

Emerging markets debt4

Investment grade

corporates3

Cash5

32%

16%

33%

7%

7%

5%

Investments contribute steady income

Duration: 3.8 years

Book yield: 3.2%2

Invested assets (C$ millions, unless noted)

Note: Company sources.

1. Represents market value. 2. Investment yield represents pre-tax equivalent book yield after dividend gross-up of portfolio (as at Dec. 31st, 2016).

3. Market value, includes CLOs. 4. ~99% Investment grade. 5. Cash includes short-term investments. 6. Excludes realized and unrealized gains and losses.

Total Invested Assets ($6.2B portfolio1) Net Investment Income ($ millions)6

$5,917

$5,867

MAINTAINING QUALITY FOCUS IN LOW RATE ENVIRONMENT ... SELECTIVELY ADDING

INVESTMENT GRADE PREFERRED SHARES WITH ATTRACTIVE YIELD

$441 million of

bond maturities in

2017

5,642 6,014

276 212

Q4 2015 Q4 2016

Book value

Net

unrealized

gain

$5.9B $6.2B

Investment

yield 3.3% 3.2%

$42 $41

$42 $44

$42 $44

$44 $46

2015 2016

Q1

Q2

Q3

Q4

$169 $176


MCT ratio 245% 158% to 162%

Internal MCT target 185% 157%

Holding Target 220% n.a.

MCT Supervisory

Target 150% 150%

Holdco cash2 $180 million $180 million

Capital management

Note: Company sources. MCT denotes ratio for operating insurance company. 1. Market risk includes interest rate, credit, equity risk, and foreign exchange risk.

2. Represents liquid investments and cash held in addition to capital in operating insurance company

3. Jan. 1, 2017 Proforma MCT is the Company’s estimate under the new capital framework that become effective January 1, 2017..

Regulatory capital as at December 31st, 2016 (by category, $ millions unless otherwise noted)

Highlights

Strong capital position as we transition

to new capital framework for 2017

• 2016 holding target of 220% recalibrated

to OSFI supervisory target of 150%

• Minimum MCT for government guarantee

reduced to 150%

• New internal MCT target of 157%

• Pro-forma MCT at Jan. 1, 2017 estimated

to be in the range of 158%-162%

• Normal course operating range of

160% to 165%

Government guarantee limit for private

mortgage insurers increased to $350

billion

3,827

Insurance Risk

Market Risk1

Operational Risk

Capital in excess

of 220%

Capital in

excess of

150%

2,501

358

572

397

2016 MCT Jan. 1, 2017 Proforma MCT3


2017 outlook

Smaller MI market size could lead to moderate decline in premiums

written despite rate increases

Estimated 25% to 35% loss ratio range for 2017

Investment income expected to be modestly higher in 2017

Premiums earned expected to modestly increase in 2017

due to large recent books of business

Managing capital to 160%-165% MCT under new framework


Strategic priorities

BUILDING ON SOLID BUSINESS FUNDAMENTALS

1

Invest in

process

innovation to

drive prudent

market share

expansion

4

Maintain an

efficient capital

structure to

ensure capital

strength while

maximizing

ROE

3

Leverage our

strong

government

relations

strategy to

influence our

regulatory

environment

2

Continue to

exercise prudent

risk

management

and proactive

loss mitigation

5

Explore a

private

mortgage

insurance

offering to

address low

ratio mortgage

rule changes


Keen focus on risk management

Proactive loss mitigation

programs

Investing in our customer

experience strategy

Key takeaways

Proven business model has positioned

MIC for future

performance

Balanced approach to writing

new business


[email protected] investor.genworthmicanada.ca

Investor Relations

Jonathan A. Pinto, MBA, LL.M

Vice President, Investor Relations

[email protected] 905.287.5482

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