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Genworth MI Canada Inc
Symbol C : MIC
Shares Issued 98,698,018
Close 2013-02-05 C$ 23.68
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Genworth MI Canada earns $470-million in 2012

2013-02-05 17:31 ET - News Release

Mr. Brian Hurley reports

GENWORTH MI CANADA INC. REPORTS SOLID FOURTH QUARTER 2012 AND FULL YEAR RESULTS

Genworth MI Canada Inc. had fourth-quarter 2012 net income of $226-million or $2.29 per diluted common share. On an adjusted basis, the company reported fourth-quarter net operating income of $89-million or 90 cents per diluted common share, excluding the one-time favourable impact of $137-million from the reversal of previously accrued federal government guarantee fund exit fees. The adjusted net operating income was $8-million or 10 per cent higher than the prior quarter and $10-million or 13 per cent higher year over year.

On a full-year basis, the company reported $462-million in total net operating income. On an adjusted basis, the company reported $339-million in total net operating income as compared with $318-million in 2011. This represents a $21-million or 7-per-cent increase in net operating income.

"In 2012, we continued to deliver strong profitability, including higher premiums written and loss ratio improvement," said Brian Hurley, chairman and chief executive officer. "This momentum, combined with stronger lender relationships and improved borrower quality, positions us well for 2013."

As reported in the company's Dec. 20, 2012, news release, the Protection of Residential Mortgage or Hypothecary Insurance Act (Canada) became effective on Jan. 1, 2013, and established a legislative framework that replaced the previous guarantee agreement the company had with the federal government. Under PRMHIA, all obligations related to the previous federal government guarantee fund and related exit fees were terminated. As a result, the company has reversed the previously accrued exit fees of $186-million, or $137-million after taxes, in the fourth quarter. This consisted of $166-million ($122-million after taxes) accrued in 2011 and prior years and $20-million ($15-million after taxes) accrued for the first nine months of 2012. The table provides a summary of the fourth-quarter and full-year results, including and excluding the impact of the reversal of such exit fees. The company's review of performance for this quarter includes a full description of this impact.


  FOURTH-QUARTER 2012 KEY FINANCIAL METRICS: SUMMARY OF FINANCIAL ADJUSTMENTS
                    (in millions of dollars except as noted)
  
                                  Fourth-quarter 2012            Full-year 2012  
                               Reported  Adjusted (1)   Reported   Adjusted (1)

Underwriting income                  73            73        291            291
Net investment income               233            47        367            201
Net income                          226            89        470            348
Net operating income (1)            226            89        462            339
Operating EPS (diluted) (1)       $2.28         $0.90      $4.67          $3.43
Operating return on equity (1)      33%           13%        17%            13%

(1) This is a financial measure not calculated based on international financial 
reporting standards. 

Net premiums written of $117-million were $61-million lower than the prior quarter and $6-million lower year over year. The sequential decrease was primarily driven by typical seasonality resulting in lower mortgage volumes in the fourth quarter in combination with a smaller high-loan-to-value mortgage market that resulted from changes to the mortgage insurance eligibility rules in July, 2012. The year-over-year decrease was also attributable to the smaller high-loan-to-value market.

Net premiums earned of $147-million were flat as compared with the prior quarter and $9-million lower year over year.

Losses on claims of $46-million were $2-million higher than the prior quarter due to typical seasonality. On a year-over-year basis, losses on claims were $15-million lower, reflecting lower new reported delinquencies due to an improving economic environment, particularly in Alberta. This resulted in a loss ratio of 31 per cent for the quarter, one percentage point higher sequentially and eight percentage points lower year over year.

Adjusted net investment income excluding realized gains of $46-million was $7-million higher than the prior quarter and $4-million higher year over year. The increases were primarily due to the inclusion of exit fees in the prior quarter and year-over-year results.

Adjusted net operating income of $89-million was $8-million higher than the prior quarter, which included exit fees, and $10-million higher year over year, due to loss ratio improvement.

Adjusted operating return on equity was 13 per cent for the quarter, one percentage point higher than the prior quarter and flat year over year.

The expense ratio, as a ratio of net premiums earned, was 19 per cent. This ratio was one percentage point higher than the prior quarter and two percentage points higher year over year, but consistent with the company's expected range.

The unearned premium reserve was $1.8-billion at the end of the quarter. These premiums will be earned over time in accordance with the company's premium recognition curve, which follows the company's historical loss-emergence pattern.

The regulatory capital ratio or minimum capital test (MCT) ratio was approximately 170 per cent, six percentage points higher than the prior quarter and eight percentage points higher year over year.

Fourth-quarter 2012 key highlights

The company continued to make solid progress toward its operational targets. As a result of its strategic efforts, Genworth Canada consistently remains the leader in the Canadian private mortgage insurance industry.

Total new insurance written this quarter increased to $8.5-billion as compared with $6.2-billion in the fourth quarter of the prior year, largely driven by higher volumes of portfolio insurance, which were offset in part by lower high-loan-to-value volumes resulting from the July, 2012, changes in the mortgage insurance eligibility rules. The high-loan-to-value component of new insurance written during the quarter was $4.4-billion, representing a decline of 16 per cent from $5.2-billion in the fourth quarter of the prior year.

The company insured $4.1-billion of low-loan-to-value mortgage portfolios, higher than the prior-quarter volume of $2.7-billion. The company continued to take advantage of selected portfolio insurance opportunities under its clearly defined risk appetite and disciplined pricing approach.

The total delinquency rate was 0.14 per cent, one basis point lower than the prior quarter and six basis points lower year over year. The delinquency rate continues to be positively influenced by improving economic conditions in combination with continuing success of the company's active loss-mitigation strategies.

The company's investment portfolio had a market value of $5.4-billion at the end of the quarter. Going forward with the implementation of PRHMIA, the funds previously segregated under their own investment mandate in the government guarantee fund will be combined with the company's general portfolio. The combined portfolio had a pretax equivalent book yield of 3.7 per cent and duration of 3.8 years as at Dec. 31, 2012.

Effective Jan. 1, 2013, with the implementation of the new legislation, the Minister of Finance set the minimum MCT ratio for Genworth Financial Mortgage Insurance Company Canada, the company's insurance subsidiary, at 175 per cent. In conjunction with this, the company increased its internal MCT target capital ratio to 185 per cent. As at Jan. 1, 2013, the company's MCT ratio increased to approximately 211 per cent. The company expects to operate above 190 per cent MCT ratio in the normal course of business.

Dividends

On Nov. 15, 2012, the company paid a quarterly dividend of 32 cents per common share.

The company also announced today that its board of directors approved a dividend payment of 32 cents per common share, payable on March 1, 2013, to shareholders of record at the close of business on Feb. 15, 2013.

Shareholders' equity

As of Dec. 31, 2012, shareholders' equity was $3.04-billion, representing a book value of $30.62 per common share on a fully diluted basis. Excluding accumulated other comprehensive income (AOCI) or loss, shareholders' equity was $2.82-billion or a book value of $28.40 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 review of performance as posted on SEDAR.

This news release, the financial statements, review of performance and the fourth-quarter 2012 financial supplement are also posted on the investor section of the company's website. Investors are encouraged to review all of these materials.

Earnings call

The company's fourth-quarter earnings call will be held on Feb. 6, 2013, at 10:30 a.m. ET (local: 416-644-3414, toll-free: 1-800-814-4859). The call is accessible by 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 March 6, 2013 (local: 416-640-1917, toll-free: 1-877-289-8525, access code 4589899 followed by the pound sign). Participants are encouraged to preregister 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.

We seek Safe Harbor.

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