Sagen MI Canada Inc · TSX:MIC.PR.A
Sagen MI Canada — Genworth MI Canada — Investor Day (November 2018)
47 slides from Sagen MI Canada's investor day presentation, Nov 28, 2018
Slide 1: 2018 Investor Day
2018 Investor Day November 28th, 2018 We focus on the customer 2018 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: 2018 Investor Day Agenda
Genworth Canada 2018 Investor Day November 28th, 2018 – 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 Craig Sweeney SVP & Chief Risk Office
Slide 4: Agenda and key themes
Agenda and key themes Strategic outlook Disciplined risk management Financial strategy and insights Question and answer session 2018 Investor Day Genworth MI Canada Inc. 4
Slide 5: Strategic outlook
Stuart Levings President and Chief Executive Officer Strategic outlook 2018 Investor Day Genworth MI Canada Inc. 5
Slide 6: Genworth Canada overview
Genworth Canada overview WHO WE ARE MARKET FACTS (Q3’18) LARGEST private residential mortgage insurer in Canada $7.0 billion $4.0 billion Total assets Shareholders’ equity Helped 1.5M+ families achieve homeownership1 $4.0 billion 89 million Support over 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… Average household Average 74% taking a 5- income year fixed 748 average borrower age mortgage* credit score1 = $106K = 37 years 54% 39% 36% 21% 29% 12% 5% 3% 72% bought with spouse/partner1 <= 35 >35 - <= 45 >45 - <
Slide 8: 2018 key accomplishments
2018 key accomplishments Strong financial 2018 loss ratio trending Approval rate improved year- performance; 9% increase in towards middle of range over-year; average credit score quarterly dividend1; year-to- remains solid at 748 date Op. EPS up 5% Y/Y; book value per share up 7% Y/Y 10% to 20% ran
Slide 9: Current market environment
Current market environment Economic environment Market dynamics Regulatory changes • Largely positive economic • Reduced housing activity as • Government policy makers outlook1 (2.1% GDP growth mortgage rate stress test in pause mode, consider in 2018, 2.1% in 2019); (B20) and rising interest rates
Slide 10: Transactional insurance market
Transactional insurance market Market size and portfolio quality Industry price and premiums written (denotes transactional new insurance written, C$B) (C$B) Average Average price credit (transactional, 780 score 140 in bps) 760 120 ~350 740 100 $1.9B ~$2.0B Mortgage 720 rate stress test for MI 80 2
Slide 11: Portfolio insurance market
Portfolio insurance market Market size and MIC’s share of NIW Industry price and premiums written (C$, billions) (C$, millions) $ 90 $ 350 Premium rates more 80 New capital than doubled in 2017 framework 300 for >65% LTVs2 70 250 49 60 45 50 200 MIC average price 40 (portfolio, in bps) 150 30 34 100
Slide 12: Our strategic priorities
Our strategic priorities • Leverage advanced analytics Smarter M.I. and process enhancements to improve customer experience • Develop innovative product Product development solutions to address market gaps • Right-size our capital levels to Capital efficiency drive improved returns • Influence key s
Slide 13: Enabling better decisions through advanced analytics
Enabling better decisions through advanced analytics Investing in resources focused on advanced analytics to drive improved customer experience and enable better business decisions MODELS DATA Dedicated modeling team with 20+ years of data, augmented machine learning and AI experience with new third
Slide 14: First-time homebuyer affordability
First-time homebuyer affordability Item Description Supply Shifting provincial government focus from demand to supply dynamics Stress test More dynamic model, aligned with projected long-term ‘neutral’ rates Allow insured borrowers to access 30 year amortizations to provide more Amortization payment
Slide 15: 2019 outlook
2019 outlook Ongoing economic strength…provided no U.S. downturn Normalizing housing markets across Canada MARKET Affordability pressure likely a key federal election issue; DYNAMICS potential opportunities for changes to support first time DRIVING CAPITAL homebuyers RIGHT-SIZING AS KEY PRIORITY Tra
Slide 16: Disciplined risk management
Craig Sweeney Senior Vice President and Chief Risk Officer Disciplined risk management 2018 Investor Day Genworth MI Canada Inc. 16
Slide 17: Key delinquency drivers
Key delinquency drivers Mortgage arrears and unemployment rate Mortgage arrears and mortgage rate Mortgage Arrears (L) UE Rate (R) Mortgage Arrears (L) 5 Yr Mtg. Rate (R) 0.5% 10% 0.5% 10% 9% 9% 0.4% 8% 0.4% 8% 7% 7% 0.3% 6% 0.3% 6% 5% 5% 0.2% 4% 0.2% 4% Strong correlation 3% Modest correlation 3% 0
Slide 18: Economic environment
Economic environment GDP & unemployment rate (UE) Key strengths 4% 9% GDP growth (L) 2.1% • Economic growth more balanced 3% • U.S. growth outlook remains solid 2% 8% • USMCA agreed to in principle 1% • Robust population growth 0% 7% -1% UE rate (R) Key watch areas -2% 6% 6.2% -3% • Global trade war
Slide 19: Housing environment: sales-to-new listing ratio
Housing environment Sales-to-new listing ratio (YTD) & Y/Y HPA1 Teranet House Price Index2 80 Balanced market GTA B20 Stress Expanded 125 FB Tax Test GVA FB Tax 70 Ottawa Vancouver Montreal 120 Halifax 60 Hamilton 115 Sales-to-new listing ratio Victoria Toronto Quebec Winnipeg Montreal Canada 110 50
Slide 20: Regional risk assessment
Regional risk assessment High Denotes change from Q2’18 Size of circle reflects regional total risk-in-force Key Indicators GVA GTA riskRisk ▪ Overvaluation Pacific ▪ Affordability (ex GVA) Housing ▪ Price-to- Housing income ▪ Price-to-rent Ontario ▪ Supply/ (ex GTA) Prairies Atlantic demand Alberta
Slide 21: Outstanding insured mortgage balance
Outstanding insured mortgage balance1 Transactional Portfolio Distribution by effective LTV range Distribution by effective LTV range 2% 17% 4% 6% 12% $119B $92B 60% 88% 11% > 90% 85.01-90% 80.01-85% <= 80% > 75% 70.01-75% 65.01-70% <= 65% SIGNIFICANT EMBEDDED EQUITY IN TRANSACTIONAL AND PORTFOLIO I
Slide 22: National risk in force (RIF)
National risk in force (RIF) Effective loan-to-value (ELTV) by book year2 As at September 30, 2018 100% Bulk Avg ELTV FLOW % ELTV >80% Higher Risk Threshold 97% 90% 92% 90% 88% 80% 77% 70% 71% 67% 60% 62% 59% 50% 54% 50% 47% 40% 40% 37% 30% 34% 31% 20% 10% 4% 4% 1% 0% Bulk <=2009 2010 2011 2012 2013
Slide 23: Transactional insurance
Transactional insurance Credit profile1 12-month delinquency rate (DR) trend2 % Score <660 Avg Score 12-Month DR 16.4% 748 0.14% 715 2.5% 0.01% Q3'18 YTD 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 YTD Q3'18 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 STRONG
Slide 24: Impact of regulations
Impact of regulations Share of new mortgages with a loan-to-income (LTI) ratio over 450%; 5-year mortgage rate Commentary 20.8% High-ratio mortgages (RS) • Mortgage stress test has improved Total the quality of new mortgage lending mortgages (RS) Low-ratio mortgages (RS) • Since late 2016, the perce
Slide 25: Rising interest rates: risk at renewal
Rising interest rates: risk at renewal Transactional: Mortgage rate and term 2019 – 2021: Forecasted Gross Debt Service (GDS) Ratio at the time of renewal4 2007 – 2018 YTD 5-year Fixed GDS higher by >3pts GDS higher by >3pts GDS higher by 0-3pts GDS higher by 0-3pts 16% <5-year Fixed 2% GDS =< origi
Slide 26: 2019 annual loss ratio expectations
2019 annual loss ratio expectations MIC loss ratio & CBA delinquency rates Canada loss ratio - MIC (RS) Canada DR-CBA (LS) • Rising interest rates 0.9% 50% 0.8% 45% • Limited house price gains 0.7% 40% forecasted for most of the country 2019 Expected 0.6% Loss Ratio Range 35% • WTI price-per-barrel
Slide 27: Key takeaways: Disciplined risk management
Key takeaways Underwriting discipline through the cycle Housing market risk normalizing … soft landing underway Disciplined risk Well positioned to address management emerging risks 2019 annual loss ratio range: 15% to 25% 2018 Investor Day Genworth MI Canada Inc. 27
Slide 28: Financial strategy and insights
Philip Mayers Senior Vice President and Chief Financial Officer Financial strategy and insights 2018 Investor Day Genworth MI Canada Inc. 28
Slide 29: Consistently creating shareholder value
Consistently creating shareholder value Operating income / Loss ratio Operating earnings per share Book value per share / ROE (C$, millions) (C$, diluted) (C$*) Ordinary dividends paid Book value per share EPS (net of dividends) Operating return on equity 8% 500 CAGR1 3Q 45% 50 7% 25 9% Net operatin
Slide 30: Strong balance sheet
Strong balance sheet Sept. 30, Dec. 31, (C$, millions) 2018 2017 High quality investment portfolio with ~91%1 Assets investment grade fixed income Cash and investments $ 6,588 $ 6,600 Other assets 367 324 Unearned premiums provide good visibility of Total assets $ 6,955 $ 6,924 future revenues with
Slide 31: Premiums earned visibility
Premiums earned visibility Net premiums written Earnings curve Premiums earned (C$, millions) (by age of book for a calendar year) (Contribution by book year)1 Average 2018 Q3 YTD $511 million transactional premium rate Q4/18 premiums Q4/18 and 2019 2.29% 512 2013 Year 7 earned1 premiums earned1 Las
Slide 32: Loss ratio
Loss ratio Regional NIW1 vs. losses on claims Observations Ontario Alberta Quebec Pacific 2 Other Losses & loss ratio3 $69M, 10% $70M, 14% Alberta, Quebec and Atlantic 13% 15% 13% regions driving 2017 and 2018 losses on claims 14% 12% 35% 36% 14% 13% 15% 15% 2% Strong economic conditions in 19% 14%
Slide 33: High quality investments & interest rate hedging program
High quality investments & interest rate hedging program Conservative investment philosophy & strong execution consistently creating value ▪ Limited credit risk ▪ Maintain relatively short ▪ Diversity geographically appetite duration of 3 to 5 years (US & select EM countries) ▪ Focus on predictable
Slide 34: Interest rate hedging program contributing to operating income
Interest rate hedging program contributing to operating income Expected income from $3.5 billion $3 billion of interest rate floors in place interest rate swaps driven by spread to protect against future significant between floating and fixed rate of ~1.17% drops in short-term rates Floating Rate1 (
Slide 35: Visibility into ROE progression
Visibility into ROE progression Path to future ROE enhancement (%, illustrative purposes only) Current assessment ▪ Premiums earned in 2019 and beyond will be driven by 2017 and subsequent books with the highest average premium rates Book Avg. premium rate 2016 book 293 bps 2017 book 331 bps 2018 bo
Slide 36: 2019 capital priorities
2019 capital priorities Capital priorities Status at 3Q18 2019 expectations ▪ Grow transactional share and expand Funding organic growth Operating at 170% portfolio insurance market size operating with MCT 160 - 165% MCT presently ▪ Expect to operate modestly above 165% Maintaining modest ▪ No addit
Slide 37: Regulatory capital trends
Regulatory capital trends New insurance Written (NIW) vs. Regulatory Total Asset Requirement (TAR) for insurance risk at 150% MCT Observations NIW TAR (C$ billions) • 2019 MICAT changes should be net (C$ billions) positive once transitional provisions for 70 Transactional NIW Portfolio Ins. NIW 7.0
Slide 38: Creating shareholder value
Creating shareholder value $45.00 Book value Buyback vs. special per share* dividend considerations $40.00 $35.00 • Liquidity impact • Index inclusion criteria $30.00 • Discount to intrinsic $25.00 value share price • ROE / book value per $20.00 share accretion $15.00 49 Ordinary dividend Share repu
Slide 39: Key takeaways for 2019
Key takeaways for 2019 Flat transactional premiums written; potential for growth in portfolio insurance subject to lender demand in response to product innovation Flat to modestly lower premiums earned due to smaller recent book of business Proven business model Normalizing loss ratio range of 15% t
Slide 40: Wrap up
Stuart Levings President and Chief Executive Officer Wrap up 2018 Investor Day Genworth MI Canada Inc. 40
Slide 41: Strategic priorities for 2019
Strategic priorities for 2019 1 2 3 4 Invest in Continue to Work towards an Leverage our process exercise prudent efficient capital strong innovation and risk structure to government technology to management ensure capital relations drive improved and proactive strength while strategy to drive custo
Slide 42: Q&A
Q A 2018 Investor Day Genworth MI Canada Inc. 42
Slide 43: 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 44: 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 45: 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 46: 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 47: 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 2018 Investor Day Genworth MI Canada Inc. 47