Sagen MI Canada Inc · TSX:MIC.PR.A
Sagen MI Canada — Genworth MI Canada — Investor Day (December 2016)
53 slides from Sagen MI Canada's investor day presentation, Dec 7, 2016
Slide 1: 2016 Investor Day: Smarter M.I.
2016 INVESTOR DAY Smarter M.I. December 7th, 2016 2016 Investor Day Genworth MI Canada Inc. 1
Slide 2: Forward-looking and non-IFRS statements
Forward-looking and non-IFRS statements Public communications, including oral or written communications such as this document, relating to Genworth MI Canada Inc. (the “Company”, “Genworth Canada” or “MIC”) often contain certain forward-looking statements. These forward-looking statements include, b
Slide 3: Agenda and key themes
Agenda and key themes Strategic outlook Dynamic risk management Smarter M.I. Financial strategy and insights Question and answer session 2016 Investor Day Genworth MI Canada Inc. 3
Slide 4: Strategic outlook
Stuart Levings President and Chief Executive Officer Strategic outlook 2016 Investor Day Genworth MI Canada Inc. 4
Slide 5: Genworth Canada overview
Genworth Canada overview WHO WE ARE MARKET FACTS (Q3 2016) LARGEST private residential mortgage insurer in Canada $6.6 billion $3.6 billion Total assets Shareholders’ equity Helped ~1M+ families achieve homeownership $3.0 billion* 92 million Supported 250+ Market capitalization Shares outstanding Ca
Slide 6: Conservative first-time homebuyer profile
Conservative first-time homebuyer profile Single-detached residential median prices well below market…. Genworth Canada Market $1.4M $778k $466k $579k $585k $442k Greater Toronto Greater Vancouver Greater Calgary ….with similar household median incomes Genworth Canada Market $98k $93k $133k $97k $90
Slide 7: 2016 key accomplishments
2016 key accomplishments Risk well-distributed; High quality and diversified Portfolio insurance market portfolio re-balancing in insurance portfolio1 leader with approximately response to tougher 50% market share in 2016 economic environment CREDIT SCORE 752 2016 loss ratio trending Proactive engag
Slide 8: Our environment today
Our environment today Key takeaways Risk Assessment GDP growth projection supportive in 2017 (Canada 2.0%; Economic US 2.1%)1 Oil prices stabilizing Housing risk in Toronto and Vancouver remains elevated Housing Government changes contributing to soft landing NIW quality & mix remains stro
Slide 9: Regulatory changes
Regulatory changes Regulatory change Business implications Performance implications Portfolio insurance Smaller portfolio ‘Purpose Test’ rules insurance market size; opportunity for private Moderately lower net mortgage insurance premiums written in the near term Portfolio insurance product restri
Slide 10: Impact of rate 'stress test'
Impact of rate ‘stress test’ Q3 YTD transactional NIW1 GDS & TDS breach drill-down2 Eligible NIW (within debt servicing limits) Both GDS and TDS breach Within 200 bps of limit TDS > 44% limit Ineligible products >200 above limit GDS > 39% limit 4% 7% 5% 50% 17% 50% 66% Borrowers within 200 bps of GD
Slide 11: Market evolution
Market evolution Existing Canadian home sales (Monthly, number of transactions) Recent mortgage rule changes 50,000 • 2015: minimum down payment requirements increased for homes >$500,000 • 2016: new qualifying rate requirements and product restrictions in portfolio insurance Average 40,000 • Six ro
Slide 12: Strategic priorities
Strategic priorities Key risks Strategic priorities Key outcomes Modest market Economic share accretion Risk management discipline Appropriately Prudent priced risk growth focus Housing High quality, diversified Maintain portfolio strong capital Insurance Portfolio and Influence profitability govern
Slide 13: Strategic execution
Strategic execution 1 2 3 4 5 Invest in Drive pricing Maintain Leverage Explore private process strategy for risk management government mortgage innovation to appropriate and expense relations insurance drive prudent premium rates discipline strategy to strategy to market share and timing of influen
Slide 14: MIC investment thesis
MIC investment thesis How we measure Potential for top-line Seasoned risk success growth through market management size recovery, share experience and high Market growth, and premium rate quality portfolio share increases High quality, diversified portfolio Sound product design ROE EPS, ROE and stro
Slide 15: Dynamic risk management
Craig Sweeney Senior Vice President and Chief Risk Officer Dynamic risk management 2016 Investor Day Genworth MI Canada Inc. 15
Slide 16: Insurance risk framework
Insurance risk framework RISK PILLARS Identify & assess Manage the quality Portfolio risk key risks of new business management • Macro-economic environment • Underwriting fundamentals • Portfolio analytics • Housing market trends • Risk limits and triggers • Identification of emerging loss • Regiona
Slide 17: Drivers of losses on claims
Drivers of losses on claims 1. Unemployment 2. Portfolio quality 3. House prices Effective LTV Mortgage arrears and ($223B outstanding insured mortgage balance, national, Median house price appreciation unemployment rate as at September 30, 2016) (‘$000s) 0.5% 10% 100% 500 9% Bulk 90% Transactional
Slide 18: Canadian environment
Canadian environment Economic Indicators Housing Affordability1 (Aggregate) 4% 9.0% 46 200 3% GDP Growth (L) Teranet Index (R) 2% 8.0% 180 44 1% 160 0% 7.0% 42 Average -1% UE Rate (R) 140 -2% 6.0% 40 Affordability (L) 120 -3% -4% 5.0% 38 100 2007 2009 2011 2013 2015 2017 F 2007 2009 2011 2013 2015 2
Slide 19: Housing risk
Regional risk assessment High Denotes 2017 GTA expectations GVA Key Indicators Pacific Overvaluation (ex GVA) Housing risk Affordability Price-to- Ontario Prairies income (ex GTA) Supply/ demand Quebec Alberta Atlantic Low Economic risk High Key Metrics: GDP Forecast; UE Rate; Economic diver
Slide 20: Outstanding insured mortgage balances
Outstanding insured mortgage balances Transactional Insurance Portfolio Insurance Outstanding insured mortgage balance Outstanding insured mortgage balance $121B $102B (effective LTV by loan bucket, % of transactional business) (effective LTV by loan bucket, % of portfolio business) 7% 21% 12% 12% 1
Slide 21: Strong portfolio quality – credit score
Strong portfolio quality – credit score Canada Greater Toronto Area Greater Vancouver Area % Score <660 (R) Avg score (L) % Score <660 (R) Avg score (L) % Score <660 (R) Avg score (L) 16% 16% 759 756 752 13% 3% 719 716 2% 714 2% '07 '08 '09 '10 '11 '12 '13 '14 '15 Q3'16 Q3'16 '07 '08 '09 '10 '11 '12
Slide 22: Limiting stacked risk factors
Limiting stacked risk factors LTV mix - transactional 95 LTV – credit score 95 LTV – TDSR <=660 <=680 <=700 <=740 <=780 780+ >40 >35-40 >30-35 <=30% >90-95 >85-90 >80-85 >75-80 <=75 35% 21% 34% 67% 24% 16% 26% 7% 4% 3% 29% 2% 4% Stacked risks (% of NIW) 26% Halifax Montreal Ottawa Toronto Calgary Va
Slide 23: Early term delinquency trend
Early term delinquency trend 12-month Delinquency Rate (DR) Trend1 0.16% • Measure of underwriting quality and 12-Month DR potential borrower misrepresentation 0.14% 0.12% • B20/B21 guidelines support strong 0.10% underwriting discipline 0.08% • Key MIC risk processes and controls; 0.06% • Lender un
Slide 24: Proactive risk management
Proactive risk management Regional NIW1 dispersion (Transactional)2 Ontario Alberta Quebec Pacific Other Regional Highlights 13% 13% 12% 13% Underwriting actions resulting 10% 12% 13% in smaller but better quality 14% Alberta portfolio in 2016 14% 12% 12% 13% Strong economic conditions in 25% 27% 23
Slide 25: Alberta: improving portfolio quality
Alberta: improving portfolio quality Median home price Gross debt service ratio Credit score (In ‘$000s) (%) % Score <660 (R) Avg score (L) $360 17% $355 $370 $354 754 $360 $338 $350 $328 $340 25% 25% 25% 25% 25% 25% 25% $320 24% 24% 24% $319 $315 $330 $320 $303 $300 $310 $300 $290 713 2% $280 $270
Slide 26: Positive seasoning trends
Positive seasoning trends Book year delinquency development 1.00% 0.80% 2007/08 books experienced significant economic and housing stress 0.60% 2011-14 books benefitting 0.40% from strong portfolio quality and more stable economic environment 0.20% 0.00% 48 12 15 18 21 24 27 30 33 36 39 42 45 51
Slide 27: Delinquency performance
Delinquency performance Number of reported delinquencies Elimination of higher risk products Portfolio insurance 8% 2010 61% Core transactional 8% delinquency products 3,381 3,401 mix by Refinance >80% Sep. 30, 2016 254 261 product LTV 2,940 Products delinquency 2,752 Eliminated 23% 100% LTV rate1 2
Slide 28: 2017 annual loss ratio expectations
2017 annual loss ratio expectations MIC loss ratio & CBA delinquency rates Canada loss ratio - MIC (RS) Canada DR-CBA Alberta DR-CBA • WTI price-per-barrel in the 0.9% 50% $40-60 US range 0.8% • Canadian dollar remains 40% 0.7% stable in the 70-80 cent range 0.6% Preliminary 2017 Loss 30% • Modest i
Slide 29: Key takeaways: Prudent risk management
Key takeaways Strong portfolio quality Underwriting actions reducing risk Prudent risk Well positioned to address management regional economic pressures 2017 annual loss ratio range: 25% to 35% 2016 Investor Day Genworth MI Canada Inc. 29
Slide 30: Financial strategy and insights
Philip Mayers Senior Vice President and Chief Financial Officer Financial strategy and insights 2016 Investor Day Genworth MI Canada Inc. 30
Slide 31: Creating shareholder value
Creating shareholder value Operating earnings per share Book value per share Unearned premiums reserve (C$, diluted) (C$, including AOCI, diluted) (C$ millions) Ordinary dividends paid EPS (net of dividends)2 9% CAGR 7% CAGR1 3Q Total EPS YTD $4.05 $3.86 $3.60 $3.43 $2,136 $39.01 $2,021 $36.82 $3.02
Slide 32: Strong balance sheet
Strong balance sheet Sept. 30, Dec. 31, ($ millions) 2016 2015 High quality investment portfolio ~95% Assets investment grade fixed income Cash and investments $ 6,248 $ 5,917 Other assets 338 322 $2.1 billion of unearned premiums could include significant embedded profits Total assets $ 6,586 $ 6,2
Slide 33: Premiums earned growth
Premiums earned growth Premiums written Premiums earned (C$, millions, by type of business) Earnings curve (Contribution by book year)1 Run-off of unearned premiums reserve will drive 2017 premiums earned 30% Portfolio Q4/16 premiums 809 written1 Transactional Q4/16 25% and 2017 106 3Q premiums 2016
Slide 34: High quality investments
High quality investments Total invested assets (Market value of $6.2 billion) Industry / Sector concentration Corporate bonds & emerging market debt (41% of portfolio) 4% 16% 5% Financials Federals Duration: 3.8 years 9% Industrials, Provincials Book yield: 3.2%1 41% Utilities & Other Investment gra
Slide 35: Investments generate steady income stream
Investments generate steady income stream Yield and duration Historical performance (by asset class) Current Current 1-year $37 3Q Based on forward curve duration $22 $32 book forward $7 $12 $179 YTD at Dec. 1, 2016 Sept. 30/16 Net gains $171 $169 $173 $169 yield1 (years) rates2 Interest & dividend
Slide 36: Overview of new capital framework
Overview of new capital framework Total Assets Required = Base Requirement Supplementary Requirement Premium Liabilities More Risk Sensitive Based Triggered When Price to • Unearned Premiums on: Income Metric Exceeds OSFI Reserve • Outstanding Balance Prescribed Threshold: • Reserve for Incurred But
Slide 37: New capital framework LTV illustration
New capital framework LTV illustration Total Asset Requirement by LTV (new vs. current framework, by LTV) at origination (730 credit score at issue; $300k mortgage) $25,000 New Base Requirement at 150% MCT* (Current Economic Environment) Gross Written Premium / unearned premiums reserve at originati
Slide 38: New framework – Runoff by LTV
New framework – Runoff by LTV Modified LTV as loan ages Total asset requirement run-off1 (730 credit score at issue; $300k mortgage) (730 credit score, $300k mortgage) Prepayment / full Annual 1% prepayments repayment 100.0% 20,000 assumptions Full repayments 95% LTV 18,000 Year 1 0% 95% LTV Year 2
Slide 39: New framework – credit score impact
New framework – credit score impact Credit score multiplier for total asset Total asset requirement run-off1 by requirement credit score ($300k mortgage) 35,000 Based on highest credit score for 95% basic LTV Total asset requirement 30,000 4.6x multiple borrowers 25,000 690 credit New base requireme
Slide 40: New framework – pricing implications
New framework – pricing implications Transactional insurance new business Portfolio insurance new business (% of loan) (% of loan) Current New Target Pricing Current New framework framework framework framework ROE of ~13% Capital Required for Insurance Capital Risk = Total Asset Requirement less Une
Slide 41: New framework – MCT implications
New framework MCT implications MCT Framework (%) New Current framework framework Holding target 220% Gov’t guarantee minimum / 175% 150%1 supervisory target Internal target 185% 155% - 157% (preliminary) Operating range 225%+ 160%+ Dollar value per point of MCT ~$15 million ~$25 million Highlights
Slide 42: New framework – Pro-forma MCT
New framework Pro-forma MCT MCT New Framework (C$, millions) 155-158% 160%+ 236% Excess above target Operational risk Market risk 2017 books Insurance risk Legacy transactional Immediate <= 25 yr. amortization Insurance risk transition to & other insurance new framework risk Legacy portfolio & tra
Slide 43: Capital management strategy
Capital management strategy Capital priorities Funding organic growth Capital strength with MCT > 157% At Q3 2016: • Pro-forma MCT of 155%-158% Maintaining modest leverage of <= 15% • 11% debt-to-capital Holding company cash and Capital flexibility liquid investments > $100 MM At Q3 2016: • Holdco c
Slide 44: ROE drivers
ROE drivers ROE drivers 2016 ROE ~11% New capital framework Capital management Year for legacy books Impact of price increases Interest rate outlook initiatives 2017 - - - + Neutral 2018 - - + + + + 2019 - + + + + + TARGETING 12%+ ROE IN THE MEDIUM TERM 2016 Investor Day Genworth MI Canada Inc. 44
Slide 45: Key takeaways
Key takeaways Smaller MI market size could lead to moderate decline in premiums written in 2017, despite expected higher premium rates Premiums earned expected to modestly increase in 2017 due to large recent books Proven of business business model Estimated 25% to 35% loss ratio range has positione
Slide 46: Wrap up
Stuart Levings President and Chief Executive Officer Wrap up 2016 Investor Day Genworth MI Canada Inc. 46
Slide 47: Key takeaways: MIC is well-positioned
Key takeaways Solid business model Strong regulatory environment MIC is well-positioned Robust profitability drivers for future Disciplined risk management success M.I. thought leadership 2016 Investor Day Genworth MI Canada Inc. 47
Slide 48: Q&A
Q A 2015 Investor Day Genworth MI Canada Inc. 48
Slide 49: Senior management team
Senior management team Stuart Levings, President & CEO 15+ years of mortgage insurance experience Mr. Levings assumed his current role as President and Chief Executive Officer in January 2015. Prior to that Mr. Levings served in such senior leadership positions as Senior Vice President, Chief Operat
Slide 50: Senior management team
Senior management team Craig Sweeney, SVP & Chief Risk Officer 15+ years of mortgage insurance experience Mr. Sweeney has more than 18 years of professional experience in the mortgage and banking industry. Since joining the Company in 1998, Mr. Sweeney has held senior positions in Operations and Bus
Slide 51: Senior management team
Senior management team Debbie McPherson, SVP, Sales and Marketing 25+ years of mortgage insurance experience Ms. McPherson has over 25 years of experience and success in sales and quality management with the Company. Prior to her current position, Ms. McPherson was the Company’s Ontario Regional Sal
Slide 52: Senior management team
Senior management team Mary-Jo Hewat, SVP, Human Resources and Facilities 20+ years experience Ms. Hewat brings over 20 years of human resources expertise spanning numerous industries and geographies. Ms. Hewat assumed her current role of Senior Vice President, Human Resources and Facilities in May,
Slide 53: Investor Relations
Jonathan A. Pinto, MBA, LL.M Vice President, Investor Relations 905.287.5482 jonathan.pinto@genworth.com Investor Relations investor.genworthmicanada.ca investor@genworth.com 2015 Investor Day Genworth MI Canada Inc. 53