Genworth MI Canada Inc. - BMO Fixed Income Conference
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Transcript of Genworth MI Canada Inc. - BMO Fixed Income Conference
June, 2013 Genworth MI Canada Inc. 1
PHILIP MAYERS, CFO BMO Fixed Income Conference June 13, 2013
June, 2013 Genworth MI Canada Inc. 2
Forward-‐looking and non-‐IFRS statements This presenta8on includes certain forward-‐looking statements. These forward-‐looking statements include, but are not limited to, statements with respect to the Company’s future opera8ng and financial results, expecta8ons regarding premiums wriDen, capital expenditure plans, dividend policy and the ability to execute on its future opera8ng, inves8ng and financial strategies, and other statements that are not historical facts. These forward-‐looking statements may be iden8fied by their use of words such as “may,” “would,” “could,” “will,” “expects,” “an8cipates,” “contemplates,” “intends,” “plans,” “believes,” “seeks,” “es8mates,” or words of similar meaning. These statements are based on the Company’s current assump8ons, including assump8ons regarding economic, global, poli8cal, business, compe88ve, market and regulatory maDers. These forward-‐looking statements are inherently subject to significant risks, uncertain8es and changes in circumstances, many of which are beyond the control of the Company. 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 assump8ons, and the other risks described in the Company’s Annual Informa8on Form dated March 29, 2013, its Short Form Base Shelf Prospectus dated May 31, 2012, the Prospectus Supplements thereto and all documents incorporated by reference in such documents. Other than as required by applicable laws, the Company undertakes no obliga8on to publicly update or revise any forward-‐looking statement, whether as a result of new informa8on, future developments or otherwise. To supplement its financial statements, the Company uses select non-‐IFRSs financial measures. Non-‐IFRSs measures used by the Company to analyze performance include underwri8ng ra8os such as loss ra8o, expense ra8o and combined ra8o, as well as other performance measures such as net opera8ng income and return on net opera8ng income. The Company believes that these non-‐IFRSs financial measures provide meaningful supplemental informa8on 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 opera8onal decision making. Non-‐IFRSs 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 hDp://investor.genworthmicanada.ca. A reconcilia8on from non-‐IFRSs financial measures to the most readily comparable measures calculated in accordance with IFRSs can be found in the Company’s most recent financial statements, which are posted on the Company’s website and are also available at www.sedar.com.
June, 2013 Genworth MI Canada Inc. 3
Leading private mortgage insurer § Providing residen8al mortgage insurance since 1995
§ ADrac8ve mortgage market
§ Proven track record of success
§ Long standing rela8onships with the Canadian lenders
§ High quality and diversified insurance por\olio
§ Proac8ve risk management pla\orm
§ High quality investment por\olio
§ Seasoned management team
Driving consistent financial performance
June, 2013 Genworth MI Canada Inc. 4
Solid Q1 2013 results
$ MM Q1 2013 Full Year 2012
UnderwriNng Results Premiums wriDen $84 $560 Loss ra8o 31% 33% Underwri8ng income (pre-‐tax) $74 $291 Profitability Net opera8ng income 1 $ 85 $339 Shareholders’ Equity (Incl. AOCI) $3,104 $3,037 Opera8ng Return on equity 12% 13%
Debt Outstanding $425 $425 1 (Note: 2012 net opera8ng income excludes posi8ve adjustment for reversal of government guarantee fund exit fees)
June, 2013 Genworth MI Canada Inc. 5
Risk management framework Risk Framework Key Focus Areas
§ Unemployment rate § Home prices § Housing market trends
Assessment of macro-economic environment
§ Underwriting fundamentals § Risk-based collateral adjudication § Avoid risk concentrations
Disciplined approach to new business origination
§ Portfolio analytics § Identifying emerging trends § Dynamic underwriting policies
Portfolio Risk Management
June, 2013 Genworth MI Canada Inc. 6
Performance drivers
§ Housing market headed for soft landing
§ Home prices expected to be flat in coming years
Source: Canadian Real Estate Association
Unemployment Rate (UE, right axis) and Mortgage Arrears (left axis)
Frequency Severity
Average Price ($000s)
200
250
300
350
400
07 08 09 10 11 12 13F 4%
6%
8%
10%
12%
0.0%
0.3%
0.5%
0.8%
1.0%
89 91 93 95 97 01 03 05 07 09 11
Unemployment
Mortgage arrears
Sources: Unemployment: Statistics Canada Mortgage Arrears: Canadian Bankers Association
§ Unemployment is the major driver of mortgage defaults & frequency of loss
§ Unemployment rate moderating towards historical level of 7%
Expected stability in Canadian housing market
June, 2013 Genworth MI Canada Inc. 7
Canada housing market
200
300
400
500
600
700
07 08 09 10 11 12 13
Average Sales Price (CAD $000s)
National
Ontario
Alberta
Quebec
Pacific § Low rates and healthy employment levels con8nues to support market
§ Balanced market keeping prices rela8vely flat
§ Market adap8ng to lower but sustainable level of housing ac8vity
Source: Canadian Real Estate Associa8on
June, 2013 Genworth MI Canada Inc. 8
Mortgage origina8ons outlook
§ Goal of homeownership a strong influencing factor
§ Mortgage rule changes impac8ng demand
§ New to Canada a key component to growth
§ Affordability supported by low interest rates & flat home prices
Stable housing demand… Mortgage insurance penetraNon rate ~32%
Source: Canadian Real Estate Associa8on and Canadian Housing Observer
2009 2010 2011 2012 2013F
466 448 459 454 441
176 187 176 180 179
Resales Completions
Housing Resales and Completions (units in thousands)
June, 2013 Genworth MI Canada Inc. 9
Served market trends
720 726 727 727 730 731
08 09 10 11 12 Q1'13
08 09 10 11 12 Q1'13
256 266 284 296 301 307
23 22 24 25 24 24
08 09 10 11 12 Q1'13 Source: Company data
Average credit score § Improving quality § “A” quality borrowers only
Average home price § First-‐8me borrower segment § Modest increase in home prices § Flat home price outlook for the balance of
2013
Average gross debt § Interest rate shock built in § Fixed rate mortgages > 85% of approved
mortgages
Smaller market, but higher quality … focused on first Nme homebuyers
June, 2013 Genworth MI Canada Inc. 10
§ Lower number of delinquencies reflect improving employment trend
§ Declining trend in all regions § Alberta down by 48% YoY § Ontario down by 21% YoY § Quebec down by 18% YoY § BC down by 18% YoY
Stable employment is posiNve for delinquency trend
Source: Company Data
Q1 '12 Q2 '12 Q3 '12 Q4' 12 Q1 '13
2623 2408
2183 2153 1963
Number of Reported Delinquencies
Delinquency trends
25% Decline YoY
Ontario
BC
Alberta
Quebec
Other
June, 2013 Genworth MI Canada Inc. 11
Premiums cover losses during stress
2011 Book Example Full Cycle Scenario Stress Scenario (Early 90’s recession)
New Insurance in Force $22 B $22 B
Claim Severity 27% 35%
Gross Exposure $6 B $8 B
Claim Frequency 3% 6%
Loss Exposure $181 MM $480 MM
Premiums Written $514 MM $514 MM
Loss Ratio 35% 92%
Unemployment rose from 8 to 11% and home prices declined by 15% from 1991 to 1994
Target 35-‐40% loss raNo over an economic cycle
June, 2013 Genworth MI Canada Inc. 12
Strategic priori8es
§ Con8nue to strengthen market posi8on
§ Proac8ve risk management
§ Maintain strong government rela8ons
§ Rigorous capital management
§ Drive posi8ve and powerful customer experience
§ ADract, retain and engage top talent
Focused on strong business execuNon
June, 2013 Genworth MI Canada Inc. 13
Underwri8ng performance scorecard
`2009 `2010 `2011 `2012
355 536 514 473
359
552 533 550
HLTV Portfolio Insurance
$MM
Premiums Written Premiums Earned
`2009 `2010 `2011 `2012
42 33 37 33
14 17 17 18
Loss Ratio Expense Ratio
Combined Ratio
`2009 `2010 `2011 `2012
257 311 287 291
Underwriting Profit
`2009 `2010 `2011 `2012
610 621 612 589
June, 2013 Genworth MI Canada Inc. 14
Underwri8ng performance scorecard
0%
2%
4%
6%
8%
10%
12%
14%
16%
18%
20%
1 2 3 4 5 6 7
Earnings Curve Premiums Earned
`2009 `2010 `2011 `2012
610 621 612 589
1. Excludes $100 MM impact of change to the premium recognition curve in 2009
Q4
§ Single upfront premium results in significant unearned premiums of $1.7 Billion
§ Unearned premiums include embedded future underwri8ng profits
1
June, 2013 Genworth MI Canada Inc. 15
Cash5%
Federal35%
Provincial14%
Corporates 40%
Common Equity6%
Investment por\olio remains high quality
§ Balanced high quality por\olio • 49% federal & provincial bonds • 40% corporate bonds • 96% of bonds ‘A’ or higher
§ $324 million posi8ve mark-‐to-‐market Total
$5.3 billion
1Pre-‐tax equivalent book yield aoer dividend gross-‐up of general por\olio (as at March 31, 2013)
$ Billion Por]olio
Assets (MV) $5.3
Pre-‐tax yield1 3.7 %
Dura8on 3.6 years
2009 2010 2011 2012
120 124 126 142
$ MM
After Tax Investment Income
Excluding gains and losses
June, 2013 Genworth MI Canada Inc. 16
2010 2011 2012 Jan. 1, 2013
Mar. 31, 2013
145% 145% 145% 185% 185%
11% 17% 25%
25% 31% 156%
162% 170%
210% 216%
§ Focused on maintaining strong credit ra8ngs
§ Modest leverage with staggered debt maturi8es § $275 million 5.68% June 15, 2020
§ $150 million 4.59% Dec 15, 2015
§ Holding company cash & investments
§ Interest coverage ra8o 20 8mes
§ Debt to total capital ra8o of 13%
Strong capital posi8on with flexibility
Minimum Capital Test RaNo
Buffer
Internal Target
DBRS S&P
Senior unsecured debentures
AA (low) stable
A- stable
June, 2013 Genworth MI Canada Inc. 17
Disciplined execuNon
Proven business model
Solid financial foundaNon
Strategic priori8es remain the same!
Profitability remains a key focus