investor presentation february 2015
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MIC Fixed Income Presentation – March 24, 2014 1 1 Genworth MI Canada Inc.
Genworth MI Canada
Genworth MI Canada BUILDING ON GROWTH MOMENTUM
FEBRUARY 2015
MIC Fixed Income Presentation – March 24, 2014 2 2 Genworth MI Canada Inc.
Genworth MI Canada > FORWARD-LOOKING AND NON-IFRS STATEMENTS
This presentation relating to Genworth MI Canada Inc. (the “Company”, “Genworth Canada” or “MIC”) includes certain forward-looking statements. These forward-looking statements include, but are not limited to, statements with respect to the Company’s future operating and financial results, expectations regarding premiums written, losses on claims and investment income, 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 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 assumptions, and the other risks described in the Company’s Annual Information Form dated March 17, 2014, its Short Form Base Shelf Prospectus dated June 18, 2014, the Prospectus Supplements thereto, its most recently issued Management’s Discussion and Analysis and all documents incorporated by reference in such documents. 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. Non-IFRS financial measures include net operating income, interest and dividend income (net of investment expenses), operating earnings per common share (basic), operating earnings per common share (diluted), shareholders’ equity excluding accumulated other comprehensive income (“AOCI”), operating return on equity and underwriting ratios such as loss ratio, expense ratio and combined ratio. 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.
> STUART LEVINGS, PRESIDENT AND CEO
SOLID AND SUSTAINABLE BUSINESS
MIC Fixed Income Presentation – March 24, 2014 4 4 Genworth MI Canada Inc.
Genworth MI Canada
LARGEST PRIVATE RESIDENTIAL
MORTGAGE INSURER IN CANADA
Since 1995 helped 1.5 million families COAST TO COAST achieve homeownership.
We support more than 250 Canadian lenders.
MARKET FACTS (as at December 31, 2014)
$5.8 billion Total Assets
$3.3 billion Shareholders’ Equity
$2.9 billion Market Capitalization
94 million Shares Outstanding
COMPETITIVE STRENGTHS
Strong Market Presence
Long-Standing Customer Relationships
Best-in Class Technology and Processes
Prudent Risk Management
Impressive Long-Term Track Record
Experienced and Engaged Workforce
> WHO WE ARE
MIC Fixed Income Presentation – March 24, 2014 5 5 Genworth MI Canada Inc.
Genworth MI Canada > STRONG PERFORMANCE
0.22
0.26 0.29
0.32
0.35
0.15
0.25
0.35
0.45
Dividends Paid/Share
2010 2011 2012 2013 2014
$2.67
$3.02
$3.08
$3.43
$3.60
$3.86
$0.00 $1.00 $2.00 $3.00 $4.00 $5.00
09
10
11
12
13
14
Operating earning per share (diluted)
$22.40
$24.44
$26.94
$30.62
$32.53
0 5 10 15 20 25 30 35
09
10
11
12
13
14
Book value per share (diluted, including AOCI)
13%
14%
13%
13%
12%
12%
0% 5% 10% 15%
09
10
11
12
13
14
Operating return on equity (%)
2009 Q3
$35.02
0.39
MIC Fixed Income Presentation – March 24, 2014 6 6 Genworth MI Canada Inc.
Genworth MI Canada > MISSION AND VISION
OUR MISSION
Working with our lender partners, regulators and influencers we
› help people responsibly achieve and maintain the dream of homeownership
› promote strong and sustainable communities across Canada
While enhancing stakeholder value
OUR VISION
CANADA’S MORTGAGE INSURER OF CHOICE
MIC Fixed Income Presentation – March 24, 2014 7 7 Genworth MI Canada Inc.
Genworth MI Canada > COMPETITIVE STRENGTHS AND GROWTH CATALYSTS
Strong Market Presence
Long-Standing Customer Relationships
Best-in Class Technology and Processes
Prudent Risk Management
Impressive Long-Term Track Record
Experienced and Engaged Workforce
COMPETITIVE STRENGTHS
Market Share Market Size Premium
Rates Adjacent
Opportunities
COMPETITIVE STRENGTHS
GROWTH CATALYSTS
FOCUS ON PEOPLE, RISK AND TECHNOLOGY
MIC Fixed Income Presentation – March 24, 2014 8 8 Genworth MI Canada Inc.
Genworth MI Canada > KEY STRATEGIC PRIORITIES
Expand Market Share
Proactive Risk Management
Strong Government Relations
Efficient Capital Structure
Adjacent Opportunities
Employ and Engage Employees
High Quality, Diversified Portfolio
Operating Income Growth
HOW WE MEASURE SUCCESS
Market Share Gains
Strong Employee Engagement
STRATEGIC PRIORITIES
MIC Fixed Income Presentation – March 24, 2014 9 9 Genworth MI Canada Inc.
Genworth MI Canada > TOP LINE
KEY POINTS › Strong sales momentum in 2014
expected to continue into 2015
› Portfolio insurance may be lower in 2015 due to government MBS changes
› Higher premiums written Y/Y is positive for earned premiums going forward
PREMIUMS WRITTEN
($millions)
84 84
137 160
161 217
129
178
2013 2014
Q4
Q3
Q2
Q1
25%
Premiums Earned
$573 $565
$512
$640
447 557
65 82
2013 2014
Premiums Written ($millions)
High LTV
Low LTV
Low LTV +28%
High LTV +25%
TOP LINE GROWTH IN 2014 DRIVEN BY HIGHER VOLUME & PREMIUM RATE INCREASE
MIC Fixed Income Presentation – March 24, 2014 10 10 Genworth MI Canada Inc.
Genworth MI Canada > CHANGING MARKET DYNAMICS
Market Dynamics
Oil is anticipated to be in the $50-$65 USD range for 2015
2015 GDP outlook of 2.1% Canadian dollar expected to be in the
range of $0.75 to $0.85 per USD Interest rate cut partially offsets impact of
lower oil prices
Impact to Business
Unemployment rate likely modestly higher and home prices modestly lower in oil producing regions (Alberta, Newfoundland, Saskatchewan)
GDP, home prices and employment in
Ontario and Quebec may benefit from lower oil prices and Canadian dollar
Continued lower interest rates supportive
of housing affordability
REBALANCING OF ECONOMIC GROWTH ACROSS THE COUNTRY
MIC Fixed Income Presentation – March 24, 2014 11 11 Genworth MI Canada Inc.
Genworth MI Canada > HIGHER QUALITY PORTFOLIO
Average Credit Score
Average Home Price
Average Gross Debt Service Ratio
716 720 726 727 727 730 733
737
'07 '08 '09 '10 '11 '12 '13 '14
247 256 266 284 296 301 304 315
'07 '08 '09 '10 '11 '12 '13 '14
($000’s)
24 23 22 24 25 24 23 24
'07 '08 '09 '10 '11 '12 '13 '14
(%)
› Credit score up 21 points since 2007
› Average home price 29% lower than CREA national average price of $407K
› Gross debt ratios stable, strong preference for 5 year fixed rate mortgages
› Financially disciplined first-time homebuyers
MIC Fixed Income Presentation – March 24, 2014 12 12 Genworth MI Canada Inc.
Genworth MI Canada > REGIONAL DISPERSION
20%
4%
43%
14%
5%
13%
Alberta Atlantic Ontario
B.C. Prairies Quebec Note: % as per Company’s estimate of outstanding balance of insured mortgages
Regional Dispersion Alberta Effective Loan-to-Value by Book Year
40
50
60
70
80
90
100
Low LTV <=2009 2010 2011 2012 2013 2014
High LTV
Estimated outstanding balance of
insured mortgages ($B)
7.6 6.8 2.5 3.1 3.3 4.0 4.8
Avg. Credit Score
749 720 728 730 729 730 734
DIVERSIFICATION OFFSETS REGIONAL PRESSURES; ALBERTA PORTFOLIO MANAGEABLE
MIC Fixed Income Presentation – March 24, 2014 13 13 Genworth MI Canada Inc.
Genworth MI Canada > HIGHER QUALITY PORTFOLIO IN ALBERTA
Market Dynamics 2014 vs. 2007
Underwriting standards Better underwriting quality in recent years Higher risk products eliminated prior to 2011
Portfolio quality Stronger borrower profile – average credit score up 21 points in Alberta since 2007
Government policy actions 2009-14
Increased oversight enhancing safety and soundness housing market (PRHMIA, B20)
Housing market Risk of a major housing correction low due to reasonable current valuations
2015 EXPECTED OVERALL LOSS RATIO RANGE OF 20-30%
› Regional modest pressures expected
› Modest increase in frequency due to job loss expected in Alberta
› Home prices expected to decline modestly in Alberta
MIC Fixed Income Presentation – March 24, 2014 14 14 Genworth MI Canada Inc.
Genworth MI Canada > DELINQUENCY TREND
517 497 430 431 396
295 303 268 279 270
284 249 221 207 222
482 527
511 516 569
184 206
198 199 207
68 78
75 76 92
Q4'13 Q1'14 Q2'14 Q3'14 Q4'14
1,860 1,830
1,703 1,708 1,756
Ontario
BC
Alberta
Quebec
Atlantic
Other
Outstanding Delinquencies
› Y/Y delinquency improvement reflects lower delinquencies in Ontario and BC
› Improvement in delinquencies partially offset by Alberta, Quebec and the Atlantic region
> PHILIP MAYERS, CFO
SOLID AND SUSTAINABLE BUSINESS
MIC Fixed Income Presentation – March 24, 2014 16 16 Genworth MI Canada Inc.
Genworth MI Canada > FINANCIAL PRIORITIES
PRIORITIES IMPACT ON FINANCIAL METRICS
› Prudent top line growth › Increasing premiums written › Improving premiums earned
› Proactive risk management › High quality insurance portfolio
› Loss ratio in 20-30% range for 2015
› High quality investment portfolio › Investment income pressured by low rate environment
› Proactive approach to capital management
› Operating modestly above MCT holding target of 220% › Ongoing capital generation › Focus on sustainable ordinary and growing dividend
TARGETING ROE EXPANSION OVER TIME
MIC Fixed Income Presentation – March 24, 2014 17 17 Genworth MI Canada Inc.
Genworth MI Canada > EARNINGS PROFILE AND KEY DRIVERS
25% 20%
20%
19%
2013 2014
Loss ratio Expense Ratio
$ MM (except EPS) 2014 2013
Underwriting Income $346 $319
Operating Investment Income 195 215
Interest Expense (24) (23)
Net Operating Income $366 $349
Total Invested Assets and cash $5,443 $5,375
Investment Yield 3.5% 3.7%
Operating ROE 12% 12%
Operating EPS (Diluted) $3.86 $3.60
› Strong underwriting performance driving improving profitability
› Investment yield continues to be pressured by low rate environment
› ROE stable at 12% as higher profitability was offset by higher capital levels
6-Points VPY 45%
39%
STRONG PROFITABILITY
COMBINED RATIO KEY FINANCIAL RESULTS
MIC Fixed Income Presentation – March 24, 2014 18 18 Genworth MI Canada Inc.
Genworth MI Canada
Diversify Globally
› IG Emerging Markets Debt › US CLOs (<3% of AUM / “A’ or Above)
› Hedge FX Risk
Diversify by Sector
› Market Weight Financials › Underweight Energy
Preserve Principal › Gov’t Bonds (~50% of AUM)
› Investment Grade Bonds
Protect From Rising Rates › Short Duration (3.6 Years) › Floating Rate Notes
Cash Flow Match Liabilities › Portfolio Duration < 5 Years
Enhance Income › Dividend Paying Equities › IG Emerging Markets Debt › US CLOs (<3% of AUM / “A” or Above)
ACTIVE PORTFOLIO MANAGEMENT › 4 external managers › In -house investment allocation & oversight › Focus on investment grade fixed income › Limited appetite for “risk” assets
1. Pre-tax equivalent book yield after dividend gross-up of general portfolio
$5.4 B INVESTMENT PORTFOLIO PRE-TAX YIELD1 OF 3.5% (DEC.31/14)
> DISCIPLINED APPROACH TO INVESTMENT MANAGEMENT
IG = Investment Grade CLOs = Collateral Loan Obligations
YIELD CURRENTLY PRESSURED BY LOW RATES ... STILL STRONG INCOME CONTRIBUTOR
MIC Fixed Income Presentation – March 24, 2014 19 19 Genworth MI Canada Inc.
Genworth MI Canada > STRONG BALANCE SHEET
$ MM December 31, 2014
Assets
Cash and investments $5,443
Other Assets 327
Total Assets $5,770
Liabilities
Loss reserves 115
Unearned Premiums 1,799
Long Term Debt 432
Other Liabilities 153
Total Liabilities 2,499
Shareholders’ Equity (w/AOCI) 3,271
Total Liabilities and Shareholders’ Equity
$5,770
Book Value Per Share (diluted) $35.02
KEY HIGHLIGHTS › $1.8 B of unearned premiums represent future
revenues & profits
› Illustration:
Unearned Premiums $1.8 B
Future Losses on Claims & Expenses1 (1.0)
Future Pre-tax Underwriting Income 0.8
Future Net Income $0.6 B
1. Future losses on claims and expenses calculalted using 55% combined ratio
MIC Fixed Income Presentation – March 24, 2014 20 20 Genworth MI Canada Inc.
Genworth MI Canada > CAPITAL STRENGTH
185% 185%
40% 38%
225% 223%
2014 2013
Minimum Capital Test Ratio (MCT)
Internal MCT target
Buffer to internal target
KEY HIGHLIGHTS › Strong capital generation has resulted in actions
› History of ordinary dividend increases
› 35-45% payout ratio
› History of share repurchases - $75 million in Q4 2014, $105 million in 2013, $160 million in 2011, $325 million in 2010
› Special dividends paid in 2011 and 2014
› Conservative leverage of 12%
› Holding company cash and liquid securities of $143 million
› Intend to operate moderately above 220% MCT operating holding target
CAPITAL OBJECTIVES: STRENGTH, FLEXIBILITY, EFFICIENCY
MIC Fixed Income Presentation – March 24, 2014 21 21 Genworth MI Canada Inc.
Genworth MI Canada
2014 Investor Day
POTENTIAL IMPACT OF PERFORMANCE LEVERS OVER TIME
Levers EPS ROE Comments
Price Increase ↑ ↑ 2014 price increase Annual review of pricing by government
Market Share Gains ↑ ↑ Capitalizing on momentum
Investment Yield Improvement
↑ ↑ 10 bps improvement in yield adds $4MM in net operating income
Capital Optimization ↑ Potential for a lower MCT Holding
> ROE EXPANSION
SEVERAL LEVERS TO DRIVE ROE EXPANSION OVER TIME
MIC Fixed Income Presentation – March 24, 2014 22 22 Genworth MI Canada Inc.
Genworth MI Canada
> Proven and sustainable business model
> Clear strategy for prudent growth
> Supportive market and regulatory environment
> Experts at managing mortgage default risk
> Solid financial position
> Experienced and engaged employees
> KEY TAKE-AWAYS
CANADA’S MORTGAGE INSURER OF CHOICE
MIC Fixed Income Presentation – March 24, 2014 23 23 Genworth MI Canada Inc.
Genworth MI Canada > CONTACT INFORMATION
INVESTOR RELATIONS www.genworth.ca investor@genworth.com HEAD OFFICE 2060 Winston Park Drive Suite 300 Oakville, Ontario 905-287-5300 (reception)
DIRECT CONTACT Samantha Cheung Vice-President, Investor Relations Samantha.Cheung@genworth.com 905.287.5482
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