Sagen MI Canada Inc · TSX:MIC.PR.A
Sagen MI Canada — Genworth MI Canada — Investor Day (December 2017)
58 slides from Sagen MI Canada's investor day presentation, Dec 6, 2017
Slide 1: 2017 Investor Day
PEOPLE POWERED SMARTER MI DATA DRIVEN CUSTOMER CENTRIC 2017 Investor Day December 6th, 2017 2017 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: Genworth Canada 2017 Investor Day Agenda
Genworth Canada 2017 Investor Day December 6th, 2017 – Agenda Lunch and registration: 12 noon to 12:40 PM Discussion topic Duration Jonathan Pinto Opening remarks VP, Investor Relations 5 minutes and introduction Stuart Levings President & CEO Strategic outlook 30 minutes Craig Sweeney Disciplined r
Slide 4: Agenda and key themes
Agenda and key themes Strategic outlook Disciplined risk management Smarter M.I. Financial strategy and insights Question and answer session 2017 Investor Day Genworth MI Canada Inc. 4
Slide 5: Strategic outlook
Stuart Levings President and Chief Executive Officer Strategic outlook 2017 Investor Day Genworth MI Canada Inc. 5
Slide 6: Genworth Canada overview
Genworth Canada overview WHO WE ARE MARKET FACTS (Q3’17) LARGEST private residential mortgage insurer in Canada $6.8 billion $3.9 billion Total assets Shareholders’ equity Helped 1.5M+ families achieve homeownership1 $4.0 billion 91 million Supported 250+ Market capitalization* Shares outstanding**
Slide 7: Served market: first time homebuyers
Served market: first time homebuyers What our prudent home buyer profile looks like… 4.7% 3% immigrated 5.8% to Canada1 746 average 12.5% credit score1 13.0% Average Average household 46.4% borrower age 54.2% income = 36 years 28.6% = $102K 34.8% 70% bought with spouse/partner1 <= 35 >35 - <= 45 >45
Slide 8: 2017 key accomplishments
2017 key accomplishments Strong financial 2017 loss ratio trending Loss mitigation efforts ongoing; performance; 7% increase in towards lower half of range 54% workout penetration; quarterly dividend1; success rate of 96%, 12 transactional premium rate months after workout on increase of 18%2 in 201
Slide 9: Our environment today
Our environment today Key takeaways Risk Assessment Strong economic growth environment, 3.1%1 expected in 2017 Positive momentum in oil producing regions Economic Interest rates on the rise Monitoring NAFTA renegotiations Housing & Housing markets trending towards more normalized state F
Slide 10: Impact from 2016 stress test
Impact from 2016 stress test Meaningful difference in impact across markets (C$, 000s) 530 498 461 Genworth 422 390 insured 304 314 281 property prices Victoria Montreal Vancouver Toronto Gatineau National Hamilton Calgary Ottawa- Application -22% -50% -53% -32% -44% -53% -26% -17% volumes* New insu
Slide 11: B-20 qualifying rate impact
B-20 qualifying rate impact Creates more level playing field in terms of qualifying criteria between uninsured mortgages (B-20) and insured mortgages (B-21) 2016 – YTD 2017 Low Ratio GDS & TDS breach drill-down1 Applications (up to 25 year amortization) Eligible NIW (within debt servicing limits) TD
Slide 12: Growth opportunities
Growth opportunities Impact • Modest improvement in first 1 Market size time homebuyer penetration +2-3% rate +1-2 2 Market share • Diversified across lenders points • Full year impact of 2017 rate 3 Premium rate increase (~3.50% v. 3.26%)2 +24 bps Transactional market penetration Key drivers of mar
Slide 13: Our core business franchise is solid
Our core business franchise is solid Status Strategies to improve core MI business • Fundamentals are sound: strong A regulatory structure; prime, de-risked Prudently grow key accounts mandatory product; disciplined underwriting and covenant recourse B • Risk profile of recent, more exposed books ma
Slide 14: Lender MI allocation dynamics
Lender MI allocation dynamics Allocation at branch Allocation at HQ level (50%1 of industry (“toggle lenders”) (50%1 volume) of industry volume) Field Sales National Accounts Regional sales resources Key head office relationships across all provinces supported by field sales • Focused on driving sup
Slide 15: Prudent growth and enhanced customer experience
Prudent growth and enhanced customer experience Growth strategy Leveraging key capabilities (1) Drive enhanced customer experience and profitability through our “Smarter MI” strategy Risk analytics (2) Maintain transparency on credit ratings and counterparty strength 25 years of mortgage (3) Build o
Slide 16: 2018 outlook
2018 outlook Ongoing economic strength, greater parity between provinces “Normalized” housing markets, particularly in the GTA & GVA B-20 stress test - pressure on conventional mortgages and higher end price segment GRADUAL MARKET NORMALIZATION AS Modest improvement in FTHB fundamentals STAKEHOLDERS
Slide 17: Strategic priorities for 2018
Strategic priorities for 2018 1 2 3 4 Invest in Continue to Leverage our Maintain an process exercise prudent strong efficient capital innovation and risk government structure to technology to management relations ensure capital drive improved and proactive strategy to strength while customer loss m
Slide 18: Disciplined risk management
Craig Sweeney Senior Vice President and Chief Risk Officer Disciplined risk management 2017 Investor Day Genworth MI Canada Inc. 18
Slide 19: Risk governance framework
Risk governance framework GOVERNANCE Robust risk • Board: Risk, capital and investment committee oversight • Management: Insurance risk committee; Model risk committee INSURANCE RISK PILLARS Identify & assess Manage the quality Portfolio risk key risks of new business management • Macro-economic env
Slide 20: Underwriting fundamentals - Smarter MI
Underwriting fundamentals - Smarter MI APPLICATION SCREENING PROCESS Credit Collateral Loan Quality UW’ing Automated Quality Models Score Rules Underwriting Decision • “Prime” • Property • Comprehensive • Regulatory • All models borrower(s) characteristics loan quality requirements must pass for ass
Slide 21: Environment: key strengths and key risks
Environment KEY STRENGTHS KEY RISKS Commentary Commentary Portfolio › Significant embedded equity and NAFTA / › NAFTA negotiations expected to quality strong average credit scores Recession continue into late 2018 Canadian › Strong economic momentum across Housing risk: › B-20 Guideline: Stress test
Slide 22: National risk in force (RIF)
National risk in force (RIF) Average Effective Loan-to-Value (ELTV) by Book Year3 As at September 30, 2017 Bulk 91% Transactional 82% 75% 71% 65% 62% 57% 53% 39% 37% Bulk <=2009 2010 2011 2012 2013 2014 2015 2016 YTD'17 Total Insurance in Force (C$B) 1 $161 $165 $21 $21 $20 $19 $21 $25 $21 $14 $487
Slide 23: Portfolio insurance
Portfolio insurance Outstanding insured mortgage balance Credit profile C$103B % Score* <660 Avg Score (effective LTV by loan bucket, % of transactional business) 2% 768 10% 6% 8% 5% 84% 739 Q3'17 YTD '08 '09 '10 '11 '12 '13 '14 '15 '16 > 75% 70.01-75% 65.01-70% <= 65% *excludes files with missing C
Slide 24: Transactional insurance
Transactional insurance Outstanding insured mortgage balance Credit profile C$119B % Score <660 Avg Score (effective LTV by loan bucket, % of transactional business) 746 15% 14% 12% 61% 12% 720 3% Q3'17 YTD '08 '09 '10 '11 '12 '13 '14 '15 '16 > 90% 85.01-90% 80.01-85% <= 80% EMBEDDED EQUITY & STRONG
Slide 25: Limiting stacked risk factors
Limiting stacked risk factors 2017 TRANSACTIONAL BUSINESS Loan-to-value (LTV) Mix 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 25% 36% 29% 37% 18% 66% 19% 8% 5% 3% 20% 1% 1% 5% Stacked risks (% of NIW): >90%+ LTV + <=
Slide 26: 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% • B-20/B-21 guidelines support strong 0.10% underwriting discipline 0.08% • Key MIC risk processes and controls: 0.06% • Lender
Slide 27: Regional risk assessment: housing risk
Regional risk assessment Denotes change from Q2’17 High GTA GVA Key Indicators Pacific Housing risk (ex GVA) Overvaluation Ontario Affordability (ex GTA) Price-to- income Prairies Supply / demand Atlantic Quebec Alberta Low Economic risk High Key Metrics: GDP Forecast; UE Rate; Economic dive
Slide 28: GTA & GVA: housing market trends
GTA & GVA: housing market trends Sales-to-listings ratio (%) Resale price (month 24 = 100) 100 GTA 160 GTA GVA GVA 80 140 60 120 40 100 Months before the tax Months after the tax Months before the tax Months after the tax 20 80 24 20 16 12 8 4 FB 4 8 12 24 20 16 12 8 4 FB 4 8 12 Tax* Tax* Both citie
Slide 29: GTA & GVA: housing market trends
GTA & GVA: housing market trends GTA1 median price GVA1 median price Market MIC Market MIC 1,200,000 1,600,000 Detached 1,400,000 1,000,000 Detached 1,200,000 800,000 1,000,000 600,000 800,000 600,000 400,000 400,000 Condo 200,000 200,000 Condo 0 0 Jan17 Jun17 Jan17 Jun17 Aug17 Sep17 Aug17 Sep17 Feb
Slide 30: Buffers against rising interest rates
Buffers against rising interest rates Originations between 2007-YTD 2017 70% of portfolio* is 5-yr fixed rate MIC: Qualifying rate % 7 *MIC originations between 2007-2017 5yr Fixed 6 15% <5yr Fixed 5 Variable 4 15% 3 70% 2 2008 2009 2010 2011 2012 2013 2014 2015 2016 YTD 18F* 19F* * Mortgage renewal
Slide 31: Improving gross debt service ratio
Improving gross debt service ratio MIC: Gross debt service ratio >35% Highly indebted borrowers 15% 11.1% 10.5% 10% 8.0% 7.9% 7.8% 5% 0% 2016Q3 2016Q4 2017Q1 2017Q2 2017Q3 Note: Data include purchases and refinances originated by federally regulated financial institutions REGULATORY CHANGE SUPPORTIN
Slide 32: Regional diversification
Regional diversification Regional NIW1 dispersion (Transactional)2 Regional highlights Ontario Alberta Quebec Pacific Other 13% 13% 12% 13% 14% Underwriting actions resulting in smaller but better quality 10% 12% 13% 14% Alberta portfolio since 2014 14% 14% 12% 12% 13% 16% Strong economic conditions
Slide 33: 2018 annual loss ratio expectations
2018 annual loss ratio expectations MIC loss ratio & CBA delinquency rates Canada loss ratio - MIC (RS) Canada DR-CBA • WTI price-per-barrel in the 0.9% 50% $50-60 US range 0.8% 45% • Canadian dollar remains 40% 0.7% Preliminary stable in the 70-80 cent range 2018 Loss 35% 0.6% Ratio Range 30% • Mod
Slide 34: Key takeaways
Key takeaways Strong portfolio quality Underwriting fundamentals reducing risk Disciplined risk Well positioned to address management economic pressures 2018 annual loss ratio range: 15% to 25% 2017 Investor Day Genworth MI Canada Inc. 34
Slide 35: Financial strategy and insights
Philip Mayers Senior Vice President and Chief Financial Officer Financial strategy and insights 2017 Investor Day Genworth MI Canada Inc. 35
Slide 36: Consistently creating shareholder value
Consistently creating shareholder value Operating Income history Operating earnings per share Book value per share (C$, millions) (C$, diluted) (C$, including AOCI, diluted) Ordinary dividends paid Book value per share EPS (net of dividends) Operating return on equity 3Q Net operating income 3% YTD
Slide 37: Strong balance sheet
Strong balance sheet Sept. 30, Dec. 31, (C$, millions) 2017 2016 High quality investment portfolio with ~92%1 Assets investment grade fixed income Cash and investments $ 6,472 $ 6,265 Other assets 355 347 Unearned premiums provide good visibility of Total assets $ 6,826 $ 6,612 future revenues with
Slide 38: Premiums earned
Premiums earned Net premiums written Earnings curve Premiums earned (C$, millions) (by age of book for a calendar year) (Contribution by book year)1 2017 Q3 YTD $505 million Q4/17 premiums Q4/17 and 2018 550 2012 Year 7 earned1 premiums earned1 512 2013 Year 6 Key drivers of 2018 2017 premiums earne
Slide 39: Loss ratio
Loss ratio Regional NIW1 vs. losses on claims Observations Ontario Alberta Quebec Pacific Other Loss 22% 11% ratio Alberta, Quebec and Atlantic 12% 13% 14% regions driving 2016 and 2017 23% 13% 33% losses on claims 14% 14% 12% 13% 16% 22% Strong economic conditions in 22% 23% 17% Ontario and Pacific
Slide 40: Loss reserving primer
Loss reserving primer Loss reserves represent our best estimate of the net costs of settling claims plus a provision for adverse deviation for delinquent loans Best estimate of losses on claims Distribution of sale prices vs. Unpaid principal & Estimated appraised values accrued interest property va
Slide 41: Embedded value illustration
Embedded value illustration Expected over Stress In-force portfolio economic cycle scenario Unemployment rate change over 5 years 1% to 2% increase 2% to 4% increase Cumulative HPA / (HPD) over 5 years -5% to -7% -15% to -20% Loss ratio (national) over 5 years 25% to 30% 60% to 70% Unearned premiums
Slide 42: High quality investments
High quality investments Total invested assets (Market value of $6.5 billion1) Industry / sector & subsectors Corporate bonds & emerging market debt (~40% of portfolio) 15% 4% Financials 11% Industrials, Federals Duration: 3.9 years Utilities & Other Book yield: 3.1%2 Pipelines Provincials 7% 34% &
Slide 43: Investments generate steady income stream
Investments generate steady income stream Investment portfolio (by asset class) Interest rate hedge program Current Current 2018 forward 1-year Interest rate swaps book duration curve4 forward yield1 Sept. 30/17 (Sept. 30/17) (years) rates2 Notional (C$B) $3.5 Cash & short-term 0.87% 0.2 1.40% Feder
Slide 44: Regulatory capital
Regulatory capital MCT (C$, billions) Total Capital Available $4.0 $4.1 Capital build expected to continue from 0.1 0.2 strong profitability 3.9 3.9 Transitional capital relief for legacy portfolio insurance & extended amortization business expected to run-off in 1H 2019 31-Mar-17 Dec. 31, 2018 F Se
Slide 45: 2018 capital priorities
2018 capital priorities Capital priorities Observations Funding organic growth Capital strength with MCT > 160% • MCT expected to increase moderately in Maintaining modest 2018 leverage of <= 15% Holding company cash and Capital flexibility liquid investments > $100 MM • Strong flexibility with unut
Slide 46: Mortgage insurance pricing
Mortgage insurance pricing Transactional pricing Losses Losses 20-25% 25-30% 2017 Cost of capital1 ~18% premium rate increase new Cost of 2016 pricing 45-55% to achieve >13% ROE Expenses capital1 Expenses 55-65% 18-20% 18-20% Average premium rate Average premium rate 2.93% ~3.50% Portfolio pricing L
Slide 47: Regulatory capital, credit scores and future pricing model
Regulatory capital, credit scores and future pricing model Regulatory capital drivers LTV and credit score are the 2016 & prior 2017 & subsequent most sensitive variables in regulatory capital model Original loan amount Current outstanding balance Hybrid LTV (O/S balance / original More granular pri
Slide 48: 2018 ROE drivers
2018 ROE drivers Premiums earned by book Regulatory capital by book year (C$) year (~C$3.6B) 2018 ROE by book year >13% 2013 & 2013 & prior 2017/2018 prior 10-13% years 2017/2018 <10% 2014-2016 2014-2016 2013 & 2014 to 2017 & prior 2016 2018 .…but new capital framework ….leading to lower ROE on Rece
Slide 49: Key takeaways for 2018
Key takeaways for 2018 Modestly higher premiums written driven by modest growth in MI market size and market share coupled with higher average premium rates Flat premiums earned due to smaller book of business in 2017 Proven business model Normalizing loss ratio range of 15% to has positioned 25% ai
Slide 50: Wrap up
Stuart Levings President and Chief Executive Officer Wrap up 2017 Investor Day Genworth MI Canada Inc. 50
Slide 51: MIC investment thesis
MIC investment thesis Potential for top-line growth through market size recovery, share growth, and full year impact of premium rate increase Seasoned risk management experience and high quality portfolio Proven business Sound product design and strong regulatory model and environment deep mortgage
Slide 52: Culture and values
Culture and values 2017 Investor Day Genworth MI Canada Inc. 52
Slide 53: Q&A
Q A 2017 Investor Day Genworth MI Canada Inc. 53
Slide 54: Senior management team
Senior management team Stuart Levings, President & Chief Executive Officer 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 Pre
Slide 55: 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 56: 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 57: 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 58: 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 2017 Investor Day Genworth MI Canada Inc. 58