Genworth MI Canada Inc. - BMO Fixed Income Conference

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Genworth MI Canada Inc. - BMO Fixed Income Conference

  1. 1. June, 2013Genworth MI Canada Inc. 1 PHILIP  MAYERS,  CFO   BMO  Fixed  Income  Conference   June  13,  2013  
  2. 2. June, 2013Genworth 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.      
  3. 3. June, 2013Genworth 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  porolio   §  Proac8ve  risk  management  plaorm   §  High  quality  investment  porolio   §  Seasoned  management  team       Driving  consistent  financial  performance  
  4. 4. June, 2013Genworth 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)  
  5. 5. June, 2013Genworth 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
  6. 6. June, 2013Genworth 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    
  7. 7. June, 2013Genworth 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  
  8. 8. June, 2013Genworth 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)
  9. 9. June, 2013Genworth 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  
  10. 10. June, 2013Genworth 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  
  11. 11. June, 2013Genworth 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  
  12. 12. June, 2013Genworth 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      
  13. 13. June, 2013Genworth 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
  14. 14. June, 2013Genworth 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
  15. 15. June, 2013Genworth MI Canada Inc. 15 Cash 5% Federal 35% Provincial 14% Corporates 40% Common Equity 6% Investment  porolio  remains  high  quality   §  Balanced    high  quality  porolio   •  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   porolio  (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
  16. 16. June, 2013Genworth 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
  17. 17. June, 2013Genworth MI Canada Inc. 17 Disciplined  execuNon   Proven  business  model   Solid  financial  foundaNon     Strategic  priori8es  remain  the  same! Profitability  remains  a  key  focus  

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