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


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.


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


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)


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


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


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


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)


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


§  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


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


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


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


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


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


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


Disciplined execuNon

Proven business model

Solid financial foundaNon

Strategic priori8es remain the same!

Profitability remains a key focus

Genworth MI Canada Inc. - BMO Fixed Income Conference

Economy & Finance

Transcript of Genworth MI Canada Inc. - BMO Fixed Income Conference