Helia Group Limited · ASX:HLI
Helia — Investor Day (June 2022)
73 slides from Helia's investor day presentation, Jun 16, 2022
Slide 1: Investor Day
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Slide 2: Agenda
Agenda Time Topic Speakers 08:45 Introduction Pauline Blight-Johnston 09:00 Marketplace Pauline Blight-Johnston 09:15 Strategy Lisa Griffin 09:45 Q&A 09:55 Underwriting & risk management Andrew Cormack 10:25 Q&A 10:35 Morning tea 10:50 Key financial drivers Michael Cant 11:20 Investment portfolio Mi
Slide 3: Introduction
Introduction Pauline Blight-Johnston
Slide 4: Accelerating financial wellbeing through homeownership
Introduction Accelerating financial wellbeing through homeownership Australia’s leading LMI provider Large and growing addressable market Positioned for profitable growth Ongoing capital management Delivering strong TSR 4 Genworth 2022 Investor Day – produced by Genworth. Not for distribution.
Slide 5: Leadership – blending experience and innovation
Introduction Leadership – blending experience and innovation 5 Genworth 2022 Investor Day – produced by Genworth. Not for distribution.
Slide 6: Australia’s leading LMI provider
Introduction Australia’s leading LMI provider 1965 2014 2021 Australian IPO GFI sells all Government GFI retains shares established HLIC majority stake LMI market share¹ Net Promotor Score² 1. APRA quarterly general insurance institution – level statistics for the 12 months to 31 March 2022 2. Genwo
Slide 7: A large and growing market
Introduction A large and growing market Since 2010 Time to Bank of ~ 1.1m save 20% Mum and home deposit Dad buyers p.a 11.4 $34b4 38% 70% 16% yrs³ first home Prices¹ vs income² buyers⁵ 1. CoreLogic Hedonic Home Value Index 2. Australian Bureau of Statistics (June 2021) 3. ANZ / CoreLogic Housing Aff
Slide 8: Positioned for profitable growth
Introduction Positioned for profitable growth Improve the Reimagine LMI Leverage our core efficiency and for a new capabilities into competitiveness generation of complementary of LMI home buyers offerings 8 Genworth 2022 Investor Day – produced by Genworth. Not for distribution.
Slide 9: Ongoing capital management
Introduction Ongoing capital management $2.57 aggregate dividends per share¹ Track record $707m capital returned² Self-sustaining In-force run-off funds new business $341m above target range³ Excess capital Plan to be in target range within two years 1. Ordinary and special dividends since listing 2
Slide 10: Delivering strong Total Shareholder Return
Introduction Delivering strong Total Shareholder Return Total Shareholder Return May 2014 to 10 June 2022¹ 1. iress 10 Genworth 2022 Investor Day – produced by Genworth. Not for distribution.
Slide 11: Sustainably contributing to Australia
Introduction Sustainably contributing to Australia Genworth ESG Pillars Driving financial Enhancing climate Demonstrating good wellbeing and resilience corporate citizenship housing access 11 Genworth 2022 Investor Day – produced by Genworth. Not for distribution.
Slide 12: Marketplace
Marketplace Pauline Blight-Johnston
Slide 13: Enabling Australians to buy property sooner
Marketplace Enabling Australians to buy property sooner No LMI LMI Typical vs cost 20% 5% 1%-2% of Deposit Deposit loan¹ Insures lender Borrower pays the cost of LMI 1. Genworth 13 Genworth 2022 Investor Day – produced by Genworth. Not for distribution.
Slide 14: Homeownership – an issue of national significance
Marketplace Homeownership – an issue of national significance Working with government for greatest impact Political and social drivers: • Housing accessibility critical social issue • Intergenerational equity • Housing wealth critical to economy Government Genworth First home guarantee Supports whol
Slide 15: Market has strong growth, with cyclical peaks
Marketplace Market has strong growth, with cyclical peaks New Housing Loan LMI Industry Commitments¹ Gross Written Premium2 • Housing lending market is large with long term growth • LMI premium volume driven by HLVR lending (20-40% of total) • LMI GWP also impacted by ‒ Use of self insurance ‒ Mix.
Slide 16: Leading market position
Marketplace Leading market position Top 10 Home Lenders¹ Market Share 2021 Gross Written Premium² 1 CBA Genworth 2 WBC Peer 2 3 NAB Peer 1 4 ANZ Captive 5 MQG Captive 6 BOQ/ME Genworth 7 BEN Dual 8 ING Genworth 9 SUN Peer 1 10 HSBC Peer 1 1. APRA monthly authorised deposit taking institution statist
Slide 17: A rational industry
Marketplace A rational industry • 2020 and 2021 impacted by COVID-19 Average gross loss ratio1 • A significant portion of premium relates to servicing capital 27% • Long-term profitability driven by loss ratios and investment returns Average return on net assets1 • Fluctuations in claims cause year-
Slide 18: Strategy
Strategy Lisa Griffin Genworth 3) 4,
Slide 19: Purpose and vision
Strategy Purpose and vision Our purpose Accelerate financial wellbeing through home ownership, now and for the future Our vision The leading choice for flexible home ownership solutions 19 Genworth 2022 Investor Day – produced by Genworth. Not for distribution.
Slide 20: 2022 Strategic priorities
Strategy 2022 Strategic priorities • Win new • Innovative new • New products and customers LMI offerings services • Deepen customer • Diversified revenue relationships streams 20 Genworth 2022 Investor Day – produced by Genworth. Not for distribution.
Slide 21: Key enablers of success
Strategy Key enablers of success Partner of choice Customer led Agile digital platform approach Expertise in mortgage Data and insights and property risk 21 Genworth 2022 Investor Day – produced by Genworth. Not for distribution.
Slide 22: 100% renewal rate over the past 18 months
Strategy 100% renewal rate over the past 18 months Recent wins • CBA2 – renewal • ING – renewal • BOQ – renewal (incl. ME Bank) • Gateway – renewal • Resimac – renewal GWP split by lender category1 2021 and 2022 customer renewals1,2 by GWP 1. Genworth (flow volumes only) 2. CBA subject to agreeing c
Slide 23: Reducing pain points and improving NPS
Strategy Reducing pain points and improving NPS Enhance Improve the efficiency and competitiveness of LMI Net Promotor Score (NPS)1 • Improving our speed to ‘yes’ • Increased auto-decisioning • Digital API integration 1. Genworth 23 Genworth 2022 Investor Day – produced by Genworth. Not for distribu
Slide 24: Market education and product innovation
Strategy Market education and product innovation Evolve Reimagine LMI for a new generation of home buyers • Sales support material and borrower education 2021 – Market • Deposit options calculator Education • Focused marketing 2021 – Family • For family / friends to provide support – paid upfront As
Slide 25: Exploring adjacent growth opportunities
Strategy Exploring adjacent growth opportunities Extend Leverage our core capabilities into complementary offerings • Home Access solutions – alternative pathways to home ownership Who is OSQO? • Pre-revenue technology start-up • Built on blockchain technology What is the offering? • A shared equity
Slide 26: End of section
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Slide 27: Underwriting risk management
Underwriting risk management Andrew Cormack
Slide 28: Strong 2021 recovery but changing cycle
UW & Risk Mgmt Strong 2021 recovery but changing cycle Strong post-COVID recovery • GDP growth >3%1 (March 2022) • 2021 National HPA ~22%2 • Unemployment <4%3 Economic cycle changing Strong in-force portfolio position • Global inflation (demand and supply) • Substantial house price buffers • Interes
Slide 29: Strongly aligned credit risk frameworks and policies
UW & Risk Mgmt Strongly aligned credit risk frameworks and policies Delegated underwriting Genworth underwriting (Flow) authority (DUA) ~ 80% of 2021 ~ 20% of 2021 New Business New Business • All loans underwritten by • Upfront lender due diligence Genworth through either auto- • Aligned underwritin
Slide 30: Reducing underwriting risk
UW & Risk Mgmt Reducing underwriting risk Historic product / underwriting changes Date Action 2009 No appetite for Low Doc 2013 Premium loaders for investor, refinance, self-employed and non-genuine saving loans 2015 Enhanced serviceability calculators and verification of income, expenses and liabil
Slide 31: Diverse and seasoned portfolio
UW & Risk Mgmt Diverse and seasoned portfolio Insurance in-force by state1 Original and effective LVR by NT 1% book year1 WA 13% QLD 24% $304.7b insured home loans SA 6% 1.1m insured loans in-force NSW 27% ACT 3% VIC 23% TAS 2% NZ 1% • Nationally diverse in-force portfolio, capital cities (70%) and
Slide 32: Consistent nationwide risk diversity
UW & Risk Mgmt Consistent nationwide risk diversity Risk in-force by year1 Claims paid by year1 • Mining claims have had a long tail, but are declining in size and number • Regional house price growth reducing negative equity in past problem areas • Tighter underwriting in higher risk locations 1. G
Slide 33: Higher risk segments have been managed
UW & Risk Mgmt Higher risk segments have been managed New Insurance Written by New insurance written by book year (by LVR) 1 book year (by purpose) 1 • >90% LVR remains a small proportion of new business • Significant reduction in mix of investor loans (underweight market) • Interest-only loans are
Slide 34: Credit attributes stabilising
UW & Risk Mgmt Credit attributes stabilising Credit score distribution1,2 New Insurance Written by book year (by DTI) 1 • Credit scores continue to be the most reliable indicator of credit quality and probability of default (PD) • DTI >6x at approximately half 2009 peak and reducing from 2H21 post s
Slide 35: Current low levels of Delinquency
UW & Risk Mgmt Current low levels of Delinquency Delinquency time series1 Portfolio delinquency rate1 • Portfolio delinquency rate increase reflects run-off of in-force • Improved delinquency and reflect improved borrower finances and house price appreciation 1. Genworth - Data as at 31 December 202
Slide 36: Unemployment and HPD drive losses
UW & Risk Mgmt Unemployment and HPD drive losses Jan’90 to Apr’221 0% HPI line • Unemployment drives delinquency whilst house prices drive proportion going to claim and severity of loss • Past HPA has increased borrower equity and will act as a buffer in any future decline 1. CoreLogic HPI, ABS unem
Slide 37: Risk outlook
UW & Risk Mgmt Risk outlook • Rising interest rates and moderating house prices through 2022/23 are expected to lead to higher delinquencies and claims • Lender credit quality has improved through self regulation and responsible lending framework and Royal Commission findings • Improved underwriting
Slide 38: End of section
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Slide 39: Morning Tea
Morning Tea Back at 10:50 a Genworth =, AWS
Slide 40: Key financial drivers
Key financial drivers Michael Cant
Slide 41: Premium is recognised over a 12-year period
Key financial indicators Premium is recognised over a 12-year period Earnings curve1 Total refinancing of housing loan commitments2 • NEP is driven by GWP 2-5 years earlier and cancellations • Cancellations result in any unearned premium on that policy being recognised immediately • High mortgage re
Slide 42: Recent book year GWP will drive future NEP
Key financial indicators Recent book year GWP will drive future NEP Unearned premium reserve1 Unearned premium by underwriting year1 • Growing UEP will underpin future NEP • Last two years GWP account for 61% of UPR 1. Genworth 42 Genworth 2022 Investor Day – produced by Genworth. Not for distributi
Slide 43: Pricing has increased over time
Key financial indicators Pricing has increased over time Average price1 of flow business • Rates vary by • Average pricing driven by ‒ LVR, loan size, type of loan ‒ price changes ‒ Lender ‒ mix of business 1 . Genworth Notes: Average price excludes excess of loss insurance and bulk transactions. GW
Slide 44: Delinquencies indicate potential future claims
Key financial indicators Delinquencies indicate potential future claims Early Default Statement Writ of Marketing / collection Judgement Eviction Settlement notice of claim possession auction activity 60+ Day Lender Reported Arrears What is a “Delinquency”? Lender Customers are obligated to report a
Slide 45: How our reserves work
Key financial indicators How our reserves work Delinquent status Reported (90 day+) Size of reserve based on number and age of delinquencies, amount of equity Incurred but Not Reported For delinquencies not yet reported (IBNR) Past delinquent These policies much more likely to become future claims (
Slide 46: Recent reserve releases due to lower delqs and HPA
Key financial indicators Recent reserve releases due to lower delqs and HPA Outstanding Claims Reserve1 Average Reported Delinquency Reserve • 2020 increase incorporates re- • 2020 increase due to deferrals and delinquencies from cured policies moratoriums • Reserving basis reflects long term • 2021
Slide 47: Loss experience linked to the economy
Key financial indicators Loss experience linked to the economy Economic and loss forecasting process Key economic metrics affecting Genworth’s Economic outlook incorporating market consensus of various losses and liabilities indicators Dwelling prices Long term economic trends and loss experience ca
Slide 48: Portfolio is in a healthy state
Key financial indicators Portfolio is in a healthy state Impact on liabilities to changes in key variables1 2021 Net outstanding claims Sensitivity change Future claims liability liability $M % $M % Base¹ 389 805 Ultimate loss ratio Upside economics – 5% HPA, 1% reduction in (19) (5) (62) (8) unempl
Slide 49: Post 2015 cohorts have good profitability
Key financial indicators Post 2015 cohorts have good profitability Breakdown of Loss Ratios to date by cohort1 • 2008-09 book years are loss making • 2010-14 book years generally good but impacted by mining claims • 2015 onwards healthy and no major events • Post 2015 cohorts expected to be a key dr
Slide 50: Embedded profits in existing book
Key financial indicators Embedded profits in existing book Embedded profitability by book year1 • Premium Liabilities represent expected future claims incurred • Excess of UEP over premium liabilities represents expected future profits • Pre 2014 cohorts have negligible UEP, but still a tail of cont
Slide 51: Investments
Investments Michael Cant Genworth 3) 4,
Slide 52: Investments are conservatively managed
Investments Investments are conservatively managed Portfolio by type Technical funds 1 Shareholder funds 1 • Technical liabilities matched with fixed interest assets • Matched bond portfolio is typically held to maturity • Shareholder funds have a higher risk / return profile • Have committed $180m
Slide 53: Declining returns reflect low-rate environment
Investments Declining returns reflect low-rate environment ($ millions) FY14 FY15 FY16 FY17 FY18 FY19 FY20 FY21 Net interest income and dividend income 159.7 150.5 128.0 98.2 86.7 77.4 47.2 39.6 Realised gains on investments 3.5 9.8 11.0 36.4 17.4 28.6 47.5 5.7 Unrealised gains / (losses) and net FX
Slide 54: Recent market losses, but higher ongoing yields
Investments Recent market losses, but higher ongoing yields • Big increases in bond yields since 31/12 will negatively impact H1 investment returns • Higher rates good for long term profitability Risk free rates1 1. Bloomberg 54 Genworth 2022 Investor Day – produced by Genworth. Not for distribution
Slide 55: Rising yields reduce value of liabilities
Investments Rising yields reduce value of liabilities • Assets in the technical fund are matched to the expected future claims liabilities • Changes in interest rates have a similar impact on the value of assets and liabilities (in the technical fund) • Matching duration of technical liabilities add
Slide 56: Capital
Capital Michael Cant Genworth 3) 4,
Slide 57: APRA capital requirements
Capital APRA capital requirements Mix Capital mix1 • Tier 1 – tangible net assets + “Unearned premium surplus” • Tier 2 – rating agency requirements • Reinsurance - 60% PML limit (currently ~45%) Drivers of PCA PML capital required • PML (Exposure, LVR, Seasoning, ($500k loan size)2 PD and loss give
Slide 58: Reinsurance provides capital relief
Capital Reinsurance provides capital relief 2022 Reinsurance programme1 • Risk mitigation in severe stress • Genworth retains the first $1.65b of paid claims • Excess of loss reinsurance cover of $800m • Paid claims basis, in-force policies Consortium 6 plus two years of new insurance • Cover is for
Slide 59: Capital resilience during COVID-19
Capital Capital resilience during COVID-19 Premium Policies Outstanding Claims liabilities become claims paid increase delinquent increase PCA ratio movement 31 December 31 March 20191 20201 1.91x 1.78x 1. Genworth 59 Genworth 2022 Investor Day – produced by Genworth. Not for distribution.
Slide 60: Capital requirements have steadily fallen
Capital Capital requirements have steadily fallen Probable maximum loss1 Prescribed Capital Amount1 • Capital reduction driven by ‒ Run-off of old cohorts ‒ Improving business mix • Release from old years exceeding capital needed for new business • Build up of excess capital during COVID-19 period •
Slide 61: Strong history of capital returns
Capital Strong history of capital returns Ordinary and special dividends1 Buy-backs and capital reductions1,2 3 $2.57 $707m Total dividends per share since listing Shares purchased since listing 1. Genworth 2. Includes buybacks to 10 June 2022 61 Genworth 2022 Investor Day – produced by Genworth. No
Slide 62: Scope of ongoing capital management
Capital Scope of ongoing capital management • Objective of getting to target range within 2 Pro-forma PCA1 years • Current buy back largely complete ($90m as at 10 June 2022) • Form of capital return balances speed and efficiency ‒ Fully franked ordinary dividends ‒ Special dividends (preferably fra
Slide 63: Outlook
Outlook Pauline Blight-Johnston
Slide 64: 1H remaining strong, 2H expected to normalise
Outlook 1H remaining strong, 2H expected to normalise Changing economic environment Implications for Genworth Unemployment GWP slowing low NEP remaining high Cash rate Claims low in H1 but rising normalising in H2 Dwelling values Unrealised investment losses moderating Increased running yield Well p
Slide 65: Positioned for medium term profitable growth
Outlook Positioned for medium term profitable growth FY20 and FY21 GWP underpins NEP Earnings Underlying dwelling and loan growth Customer acquisition and expansion opportunities Run-off of low ROE book years Returns Increased interest rates Increased capital efficiency Aim to be 1.4 – 1.6x PCA in t
Slide 66: End of section
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Slide 67: Wrap Up
Wrap Up Pauline Blight-Johnston
Slide 68: Delivering strong Total Shareholder Return
Wrap Up Delivering strong Total Shareholder Return Total Shareholder Return May 2014 to 10 June 2022¹ 1. iress 68 Genworth 2022 Investor Day – produced by Genworth. Not for distribution.
Slide 69: Accelerating financial wellbeing through homeownership
Wrap up Accelerating financial wellbeing through homeownership Australia’s leading LMI provider Large and growing addressable market Positioned for profitable growth Ongoing capital management Delivering strong TSR 69 Genworth 2022 Investor Day – produced by Genworth. Not for distribution.
Slide 70: Appendix
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Slide 71: Glossary
Glossary Term Definition Term Definition API Application Programming Interface Flow Policies written by Genworth on a loan by loan basis at the time of origination by the lender customer APRA The Australian Prudential Regulation Authority GEP Gross earned premium - The earned premium for a given per
Slide 72: Glossary
Glossary Term Definition Term Definition NEP Net earned premium - The earned premium for a given period less Regulatory capital The regulatory capital base is the sum of Tier 1 Capital and Tier 2 any outward reinsurance expense base Capital NIW New insurance written reflects the total loan amount th
Slide 73: Disclaimer
Disclaimer This presentation contains general information in summary form which is current as at 31 December 2021. It may present financial information on both a statutory basis (prepared in accordance with Australian accounting standards which comply with International Financial Reporting Standards