Mr. Stuart Levings reports

GENWORTH MI CANADA INC. REPORTS SECOND QUARTER 2020 RESULTS INCLUDING NET OPERATING INCOME OF $101 MILLION

Genworth MI Canada Inc. had second quarter 2020 net income of $98-million, earnings per fully diluted common share of $1.13, net operating income of $101-million, operating earnings per fully diluted common share of $1.17 and an operating return on equity of 11 per cent.

"We were pleased with our second quarter results, including positive top-line momentum, a 27-per-cent loss ratio and 11-per-cent operating return on equity," said Stuart Levings, president and chief executive officer. "While the environment since the onset of COVID-19 has evolved in line with our expectations, there continues to be economic uncertainty. We take comfort in the strength of our business model and capital position, along with our disciplined risk management and proven loss mitigation strategies as we manage through this period of economic stress."

Key second quarter 2020 financial results and operational metrics:

• New insurance written from transactional insurance was $4.8-billion, a decrease of $500-million, or 10 per cent, as compared with the same quarter in the prior year, primarily due to a smaller transactional mortgage origination market in response to the impact of the COVID-19 pandemic on housing activity. Compared with the prior quarter, transactional new insurance written increased by $1.6-billion, or 50 per cent, primarily as a result of typical seasonality, partially offset by slower housing activity in April through the first half of May.
• Premiums written from transactional insurance were $167-million, representing a decrease of $20-million, or 11 per cent, from the same quarter in the prior year, primarily due to the aforementioned level of lower new insurance written. Compared with the prior quarter, premiums written increased by $57-million, or 51 per cent, primarily due to the higher new insurance written.
• New insurance written from portfolio insurance on low loan to value mortgages was $13.4-billion, an increase of $11.0-billion compared with the same quarter in the prior year and $12.5-billion from the prior quarter primarily due to increased demand from lenders resulting from the temporary changes made by the Canadian federal government to eligibility criteria and funding programs in response to the impact of the COVID-19 pandemic.
• Premiums written from portfolio insurance were $60-million, representing an increase of $52-million compared with the same quarter in the prior year and $56-million from the prior quarter primarily due to higher new insurance written.
• Premiums earned of $172-million were $3-million, or 2 per cent, higher than the same quarter in the prior year, and $1-million, or 1 per cent, higher than the prior quarter, reflecting the relatively higher level of premiums written in 2019. The unearned premiums reserve was $2.1-billion at the end of the quarter, consistent with the unearned premium reserve as at Dec. 31, 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, of 491, were 210 higher than the same quarter in the prior year primarily as a result of process interruptions and the significant increase in unemployment as a result of the COVID-19 pandemic. Regionally, there were increases in Ontario (99), Quebec (56), the Prairies region (35) and Alberta (18). Compared with the prior quarter, new delinquencies, net of cures, increased by 207 primarily due to increases in Ontario (92), Alberta (68), Quebec (44) and the Prairies region (14). The increase in new delinquencies, net of cures, included an increase of 96 from portfolio insurance, for which the average reserve per delinquency is relatively low in comparison with that for transactional insurance.
• The outstanding principal balance of insured mortgage loans reported under the payment deferral program totalled $28.0-billion, or approximately 14 per cent of outstanding insured mortgage balances, as at June 30, 2020. Regionally, mortgage deferrals were primarily driven by Alberta ($8.8-billion) and Ontario ($9.7-billion). Approximately 65 per cent of these mortgages have an estimated effective loan to value of less than 80 per cent.
• The loss ratio, as a percentage of premiums earned, for the quarter, was 27 per cent compared with 15 per cent in the same quarter in the prior year and 14 per cent in the prior quarter. Losses on claims of $46-million were $21-million higher than the same quarter in the prior year, and $22-million higher than the prior quarter, primarily due to a higher incurred but not reported reserve (IBNR) and modest development. The IBNR 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 1,974 reflected an increase of 273 delinquencies, as compared with the same quarter in the prior year, with increases in all regions, including Alberta (77), the Prairies region (57) and Ontario (53). Compared with the prior quarter, the number of delinquencies outstanding increased by 220, primarily driven by increases in Ontario (88), Alberta (80) and Quebec (37).
• Expenses were $32-million during the quarter, resulting in an expense ratio of 19 per cent, as a percentage of premiums earned. This ratio was two percentage points lower than the same quarter in the prior year, three percentage points lower than the prior quarter and within the company's expected operating range of 18 per cent to 20 per cent.
• The company's investment portfolio had a market value of $6.5-billion at the end of the quarter. The portfolio had an average pretax equivalent book yield of 3.0 per cent, compared with 3.3 per cent 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 June 30, 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. Compared with the prior quarter, operating investment income was approximately $6-million lower, primarily due to the low-interest-rate environment and lower realized income from the company's interest rate hedging program.
• Realized and unrealized losses from derivatives and foreign exchange of $7-million exclude the realized income from the company's interest rate hedging program of $5-million. This compares with a $23-million loss in the same quarter in the prior year, and a $34-million loss in the prior quarter, with the decrease in losses being primarily due to the impact of lower interest rates on the market value of the company's interest rate swaps and foreign exchange.
• Net income of $98-million was $12-million lower than the same quarter in the prior year, primarily due to higher losses on claims and lower operating investment income, partially offset by a lower level of realized and unrealized losses from investments, derivatives and foreign exchange, lower expenses, and higher premiums earned. Net income was $3-million higher than the prior quarter, primarily due to a lower level of realized and unrealized losses from investments, derivatives and foreign exchange, and lower expenses, partially offset by higher losses on claims and lower operating investment income.
• Net operating income of $101-million was $19-million lower than the same quarter in the prior year, primarily due to higher losses on claims and lower operating investment income, partially offset by higher premiums earned and lower expenses. Net operating income was $16-million lower than the prior quarter primarily due to higher losses on claims and lower operating investment income, partially offset by lower expenses.
• Operating return on equity was 11 per cent for the quarter, consistent with the same quarter in the prior year and down one percentage point from the prior quarter.
• The regulatory capital ratio or mortgage insurer capital adequacy test (MICAT) ratio was approximately 169 per cent, 12 percentage points higher than the company's internal MICAT ratio target of 157 per cent and 19 percentage points higher than the Office of the Superintendent of Financial Institutions (OSFI) supervisory MICAT ratio target of 150 per cent.
• The company estimates that its outstanding principal balance of insured mortgages as at June 30, 2020, was approximately $205-billion, or 38 per cent of the original insured amount. The company estimates that, as of March 31, 2020, the outstanding principal balance for all privately insured mortgages was $270-billion relative to the $350-billion aggregate outstanding principal limit under the government guarantee legislation (Protection of Residential Mortgage or Hypothecary Insurance Act).

Dividends

The company paid a quarterly dividend of 54 cents per common share on June 3, 2020.

The company also announced today that its board of directors had declared a dividend of 54 cents per common share, payable on Sept. 2, 2020, to shareholders of record at the close of business on Aug. 18, 2020.

Shareholders' equity

As at June 30, 2020, shareholders' equity was $3.6-billion, representing a book value, including accumulated other comprehensive income (AOCI), of $41.97 per common share on a fully diluted basis. Excluding AOCI, shareholders' equity was $3.6-billion, representing a book value of $41.14 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 SEDAR.

This press release, as well as the company's second quarter 2020 consolidated financial statements, management's discussion and analysis, and financial supplement, is 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 second quarter earnings call will be held on Aug. 6, 2020, at 10 a.m. ET (local: 647-792-1240, toll-free: 1-800-437-2398 and conference ID: 7890283). The call is accessible by telephone and by audio webcast on the company's website. If listening by webcast, participants are encouraged to preregister 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 Sept. 5, 2020 (647-436-0148 or 1-888-203-1112, and replay passcode: 7890283). 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 through its subsidiary, Genworth Financial Mortgage Insurance Company Canada, is the largest private-sector residential mortgage insurer in Canada. The company provides mortgage default insurance to Canadian residential mortgage lenders, making home ownership 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 June 30, 2020, the company had $6.9-billion in total assets and $3.6-billion in shareholders' equity.

                                      CONSOLIDATED FINANCIAL HIGHLIGHTS 
                                   ($ millions, except per-share amounts) 

                                                                      Three months ended        Six months ended
                                                                            June 30,                June 30, 
                                                                        2020        2019        2020        2019

Transactional new insurance written (1)                               $4,777      $5,310      $7,967      $8,212
Portfolio new insurance written (1)                                   13,444       2,426      14,397       3,441
Total new insurance written (1)                                      $18,221      $7,736     $22,363     $11,653
Premiums written                                                         227         195         341         300
Premiums earned                                                          172         169         343         337
(Losses) on claims                                                        46          26          71          51
Expenses                                                                  32          34          69          67
Net underwriting income                                                  $94        $109        $203        $219
Investment income (interest and dividends, net of expenses) (1)           43          49          90          97
Interest rate hedging program income                                       5           7          11          16
Realized gains on sale of investments                                      2          12           7          13
Realized and unrealized (losses) on derivatives, foreign exchange         (7)        (23)        (41)        (53)
Total net investment income                                              $43         $46         $68         $73
Net income                                                               $98        $110        $192        $207
Net operating income (1)                                                $101        $120        $218        $239
Fully diluted earnings per common share                                $1.13       $1.26       $2.14       $2.37
Fully diluted operating earnings per common share (1)                  $1.17       $1.38       $2.52       $2.73
Fully diluted book value per common share, incl. AOCI (1)             $41.97      $47.17      $41.97      $47.17
Fully diluted book value per common share, excl. AOCI (1)             $41.14      $46.67      $41.14      $46.67
Loss ratio (1)                                                            27%         15%         21%         15%
Combined ratio (1)                                                        45%         35%         41%         35%
Operating return on equity (1)                                            11%         12%         12%         12%
MICAT ratio (1, 3)                                                       169%        170%        169%        170%
Transactional delinquency ratio (1, 2)                                  0.31%       0.27%       0.31%       0.27%
Portfolio delinquency ratio (1, 2)                                      0.12%       0.09%       0.12%       0.09%
Delinquency ratio (1, 2)                                                0.22%       0.19%       0.22%       0.19%

Note: Amounts may not total due to rounding.
(1) This is a financial measure not calculated based on international financial reporting standards (IFRS).
(2) Based on outstanding balance and excludes delinquencies that have been incurred but not reported. 
(3) Company estimate at June 30, 2020.    

We seek Safe Harbor.