Sagen MI Canada Inc · TSX:MIC.PR.A
Sagen MI Canada — Genworth MI Canada — Investor Day (December 2014)
55 slides from Sagen MI Canada's investor day presentation, Dec 10, 2014
Slide 1: Genworth MI Canada Inc. Investor Presentation
1 MIC Fixed Income Presentation – March 24, 2014 1 Genworth MI Canada Inc.
Slide 2: Forward-Looking and Non-IFRS Statements
> FORWARD-LOOKING AND NON-IFRS STATEMENTS This presentation relating to Genworth MI Canada Inc. (the “Company”, “Genworth Canada” or “MIC”) includes certain forward- looking statements. These forward-looking statements include, but are not limited to, statements with respect to the Company’s future
Slide 3: Solid and Sustainable Business
> BRIAN HURLEY, CHAIRMAN AND CEO SOLID AND SUSTAINABLE BUSINESS
Slide 4: Who We Are
> WHO WE ARE LARGEST PRIVATE RESIDENTIAL MARKET FACTS (as at Sept 30, 2014) MORTGAGE INSURER IN CANADA $5.9 billion Total Assets $3.3 billion Shareholders’ Equity Since 1995 helped 1.5 million families COAST $3.8 billion Market Capitalization TO COAST achieve homeownership. 95 million Shares Outstan
Slide 5: The Market Has Evolved Since We Entered
> THE MARKET HAS EVOLVED SINCE WE ENTERED… INSURED 1.5 MILLION HOMEOWNERS ACROSS CANADA TO DATE IPO of Company Implemented Lender Service Implemented Agreements Influencer Strategy Auto- Launched Loss Decisioning Mitigation Implemented In-House Strategy Valuation MI Product Model Development Master
Slide 6: 5 Years as a Public Company
> 5 YEARS AS A PUBLIC COMPANY Operating earning per share Book value per share Operating return on equity (diluted) (diluted, including AOCI) (%) Q3/Year to Date Q3/Year to Date $34.57 Q3/Year to Date 14 $2.96 14 14 12% $32.53 13 $3.60 13 13 12% 12 $3.43 12 $30.62 12 13% 11 $3.08 11 $26.94 11 13% 10
Slide 7: Today's Agenda
> AGENDA TODAY’S AGENDA Vision for prudent growth Managing mortgage default risk Capitalizing on strong capital position Q&A Conclusion 7 MIC Fixed Income Presentation – March 24, 2014 7 Genworth MI Canada Inc.
Slide 8: Vision for Prudent Growth
> STUART LEVINGS, CHIEF OPERATING OFFICER VISION FOR PRUDENT GROWTH
Slide 9: Mission and Vision
> MISSION AND VISION OUR MISSION Working with our lender partners, regulators and influencers we › help people responsibly achieve and maintain the dream of homeownership › promote strong and sustainable communities across Canada While enhancing stakeholder value OUR VISION CANADA’S MORTGAGE INSURER
Slide 10: Growth Catalysts: Competitive Strengths
> GROWTH CATALYSTS COMPETITIVE STRENGTHS Strong Long-Standing Best-in Class Prudent Risk Impressive Experienced Market Customer Technology Management Long-Term and Engaged Presence Relationships and Processes Track Record Workforce GROWTH CATALYSTS Premium Adjacent Market Share Market Size Rates Opp
Slide 11: Key Strategic Priorities
> KEY STRATEGIC PRIORITIES STRATEGIC PRIORITIES HOW WE MEASURE SUCCESS Expand Market Share Market Share Gains Proactive Risk Management Strong Government Relations High Quality, Diversified Portfolio Efficient Capital Structure Adjacent Opportunities Operating Income Growth Employ and Engage Top Tal
Slide 12: Four Key Growth Levers for Our Business
> GROWTH CATALYSTS FOUR KEY GROWTH LEVERS FOR OUR BUSINESS MARKET MARKET PREMIUM ADJACENT 1 2 3 4 SHARE SIZE RATES OPPORTUNITIES 12 MIC Fixed Income Presentation – March 24, 2014 12 Genworth MI Canada Inc.
Slide 13: Four Key Growth Levers for Our Business
> GROWTH CATALYSTS FOUR KEY GROWTH LEVERS FOR OUR BUSINESS MARKET MARKET PREMIUM ADJACENT 1 2 3 4 SHARE SIZE RATES OPPORTUNITIES › Enhance › Build on › Deepen Customer Value Collaboration Experience Proposition 13 MIC Fixed Income Presentation – March 24, 2014 13 Genworth MI Canada Inc.
Slide 14: Market Share: Enhance Customer Experience
> MARKET SHARE ENHANCE CUSTOMER EXPERIENCE HIGH DEGREE OF LENDER SATISFACTION > Service Innovation 96% 97% 96% 96% 97% > Deep Relationships > Customer-Centric Culture > Customized Experience 09 10 11 12 13 DRIVING VALUE THROUGH CUSTOMIZED SERVICE EXPERIENCE 14 Genworth MI Canada Inc.
Slide 15: Market Share: Build Value Proposition
> MARKET SHARE BUILD VALUE PROPOSITION Portfolio Insurance Customer Training and Education Mortgage Default Management Sales Technology Industry Influencers DELIVERING VALUE BEYOND THE MI TRANSACTION 15 Genworth MI Canada Inc.
Slide 16: Market Share: Deepen Our Collaboration
> MARKET SHARE DEEPEN OUR COLLABORATION COLLABORATE ON > Portfolio Reviews > Regulatory Change > Product Development ADVISING ON > Market Trends > Performance Statistics > Competitive Intelligence ADDING VALUE THROUGH THOUGHT LEADERSHIP & APPLICATION 16 MIC Fixed Income Presentation – March 24, 2014
Slide 17: Market Share: Demonstrated Share Gains
> MARKET SHARE DEMONSTRATED SHARE GAINS TOP 20 LENDER SHARE THREE STRATEGIC INITIATIVES 8 > Enhancing the customer experience 13 > Building on our value proposition 6 > Deepening our collaboration 5 6 2 Dec'11 Sep'14 MIC Market <20% 20-30% >30% Share (Company estimates) CAPITALIZE ON MARKET MOMENTUM
Slide 18: Four Key Growth Levers for Our Business
> GROWTH CATALYSTS FOUR KEY GROWTH LEVERS FOR OUR BUSINESS MARKET MARKET PREMIUM ADJACENT 1 2 3 4 SHARE SIZE RATES OPPORTUNITIES › High Ratio › First-Time › Private MI Penetration Homebuyer Segment 18 MIC Fixed Income Presentation – March 24, 2014 18 Genworth MI Canada Inc.
Slide 19: Demographics and Immigration Fuel First-Time Buyer Market
> MARKET SIZE DEMOGRAPHICS AND IMMIGRATION FUEL FIRST-TIME BUYER MARKET > Growth in prime home-buying age (30-39) outpacing general population growth (1.8% vs. 1.1%) > Household formation in Canada supported by immigration > drives ~60% of population growth > new immigrant quota increased to ~285,00
Slide 20: Extensive Customer Engagement
> MARKET SIZE EXTENSIVE CUSTOMER ENGAGEMENT Customer Experience Broad Value Proposition Tools and Technology Deep Collaboration STRONG CUSTOMER ENTRENCHMENT 20 MIC Fixed Income Presentation – March 24, 2014 20 Genworth MI Canada Inc.
Slide 21: Four Key Growth Levers for Our Business
> GROWTH CATALYSTS FOUR KEY GROWTH LEVERS FOR OUR BUSINESS MARKET MARKET PREMIUM ADJACENT 1 2 3 4 SHARE SIZE RATES OPPORTUNITIES › Increased › Annual Capital Review Levels 21 MIC Fixed Income Presentation – March 24, 2014 21 Genworth MI Canada Inc.
Slide 22: Four Key Growth Levers for Our Business
> GROWTH CATALYSTS FOUR KEY GROWTH LEVERS FOR OUR BUSINESS MARKET MARKET PREMIUM ADJACENT 1 2 3 4 SHARE SIZE RATES OPPORTUNITIES › Leverage › Broader Mortgage Mortgage Expertise Services 22 MIC Fixed Income Presentation – March 24, 2014 22 Genworth MI Canada Inc.
Slide 23: Conclusion
> CONCLUSION Sound Customer-Centric Supportive Strong Risk Business Culture Regulatory and Management Model Economic Culture Environment CLEAR STRATEGY FOR PRUDENT GROWTH 23 Genworth MI Canada Inc.
Slide 24: Managing Mortgage Default Risk
> CRAIG SWEENEY, CHIEF RISK OFFICER MANAGING MORTGAGE DEFAULT RISK
Slide 25: Managing Mortgage Default Risk
> MANAGING MORTGAGE DEFAULT RISK › Regulatory and Economic Environment › Assessment of Canadian Markets › Genworth MIC Portfolio Quality › Emerging Trends Genworth MI Canada Inc. 25 MIC Fixed Income Presentation – March 24, 2014 25 Genworth MI Canada Inc.
Slide 26: Economic and Regulatory Environment
> ECONOMIC AND REGULATORY ENVIRONMENT POLICY ACTIONS REDUCE RISK QUALITY OF NEW BUSINESS Macroprudential Actions CONTINUES TO IMPROVE Purchase LTV Reduced From 100% to 95% Refinance LTV Reduced From 95% to 80% 50% Investment Properties Reduced From 95% to 80% Average Credit Score 737 Max Amortizatio
Slide 27: OSFI B21 Guideline – Underwriting Practices
> REGULATORY AND ECONOMIC ENVIRONMENT OSFI B21 GUIDELINE – RESIDENTIAL MORTGAGE INSURANCE UNDERWRITING PRACTICES Principle 1 Board Approved Underwriting Strategy Principle 2 Lender Approval and Assessment Standards Principle 3 Standardized Underwriting Requirements Principle 4 Ongoing Lender Quality
Slide 28: Stable Economic Environment
> REGULATORY AND ECONOMIC ENVIRONMENT STABLE ECONOMIC ENVIRONMENT National HPI (Teranet) and UE Rate 60% 9.0% › Solid employment gains supporting 50% 8.5% housing market since 2010 8.0% 40% 7.5% › Job growth expected to be positive Forecast 30% 7.0% over forecast period 20% 6.5% › Rising rates in 20
Slide 29: Assessment of Key Canadian Markets: Stable Housing Market
> ASSESSMENT OF KEY CANADIAN MARKETS Supply vs Demand (Sales-to-New-Listings Ratio) 80% 70% STABLE HOUSING MARKET 60% 50% Balanced Market › Housing market remains balanced 40% 30% › Stable employment supporting housing demand Housing Affordability (Standard 2-Storey) › Low interest rates continue to
Slide 30: Home Prices and Supply
> ASSESSMENT OF KEY CANADIAN MARKETS HOME PRICES AND SUPPLY › Stronger growth trend in Ontario primarily driven by limited supply in Greater Toronto Area › Strong employment driving house price growth in Western provinces › Softer housing markets in Quebec and Atlantic regions Note: 3-month moving a
Slide 31: MIC Housing Risk Monitor
> ASSESSMENT OF KEY CANADIAN MARKETS MIC HOUSING RISK MONITOR KEY HOUSING MEASURES 7.0 Elevated › Supply vs. Demand 6.0 Monitoring › Price-to-income 5.0 Stable › Price-to-rent 4.0 › House price appreciation 3.0 › Affordability 2.0 2000 2002 2004 2006 2008 2010 2012 2014 ROBUST HOUSING FRAMEWORK TO A
Slide 32: Assessment of Current Housing Risk
> ASSESSMENT OF KEY CANADIAN MARKETS ASSESSMENT OF CURRENT HOUSING RISK Stable Monitoring Avg. Risk 2014 Region Credit Issues / Trends Level NIW Score* • Income gains and population growth supporting housing Vancouver 5% 748 • Smaller but better quality high LTV market since 2012 • Modestly overvalu
Slide 33: Portfolio Quality: Genworth Served Market
> PORTFOLIO QUALITY GENWORTH SERVED MARKET Average Region Average Home Price Average Income Gross Debt Servicing Genworth Market % Variance Genworth Genworth Vancouver $449K $814K -45% $107K 28% Toronto $436K $581K -25% $104K 29% Calgary $413K $469K -12% $110K 27% Montreal $280K $342K -18% $87K 25%
Slide 34: Strong Borrower Profile in Major Markets
> PORTFOLIO QUALITY GENWORTH SERVED MARKET Vancouver Toronto Condo Condo Detached Home Detached Home High-rise High-rise # of borrowers 1.9 1.5 1.8 1.4 Age 39 37 39 37 Credit score 747 751 738 745 Property price $630,000 $347,000 $499,500 $313,000 Income level $129,000 $92,800 $116,000 $90,000 Gross
Slide 35: Credit Score and Regional Dispersion
> PORTFOLIO QUALITY CREDIT SCORE DISPERSION REGIONAL DISPERSION 100% 80% 13% 27% 60% 74% 75% 79% 40% 13% 37% 20% 18% 17% 15% 9% 8% 11% 6% 0% 2012 2013 2014 YTD <660 660 - 669 >=700 Alberta Other BC Ontario Quebec % based on high loan-to-value new insurance written as at 2014 Q3 YTD Note: Company dat
Slide 36: Emerging Trends: Key Risks
> EMERGING TRENDS Acceptable KEY RISKS Monitoring Risk Key Risks Assessment / Actions Level › 73% of borrowers YTD choosing 5-yr fixed rate mortgage Rising Interest Rates Affordability › Portfolio well positioned for modest rate increases Debt-to-income › Debt service ratios at historic lows Debt le
Slide 37: Conclusions
> CONCLUSIONS > Positive economic and regulatory environment > Portfolio quality continues to be strong > Housing risk limited to isolated pockets > Proactive response to emerging risks 37 MIC Fixed Income Presentation – March 24, 2014 37 Genworth MI Canada Inc.
Slide 38: Capitalizing on Strong Capital Position
> PHILIP MAYERS, CHIEF FINANCIAL OFFICER CAPITALIZING ON STRONG CAPITAL POSITION 38 MIC Fixed Income Presentation – March 24, 2014 38 Genworth MI Canada Inc.
Slide 39: Positioned to Deliver on Strategic Priorities
> POSITIONED TO DELIVER ON STRATEGIC PRIORITIES PRIORITIES IMPACT ON FINANCIAL METRICS › Increasing premiums written › Prudent top line growth › Improving premiums earned › Proactive risk management › Loss ratio In 15-25% range for 2014 › High quality insurance portfolio › High quality investment po
Slide 40: Premiums Written
> PREMIUMS WRITTEN PREMIUMS WRITTEN GROWTH CATALYSTS › Price Increase ($MM) 560 512 382 462 Example: Impact of 2014 price increase on 77 21% VPY $20 B of High LTV NIW 65 70 54 Incremental Premiums Written 483 447 ($MM) 392 328 70 70 2012 2013 2013 Q3 YTD 2014 Q3 YTD 45 Portfolio Insurance High LTV 2
Slide 41: Premiums Earned
> PREMIUMS EARNED EXAMPLE: IMPACT OF 2014 PRICE INCREASE PREMIUMS EARNED ON $20 B OF HIGH LTV NIW ($MM) Incremental Premiums Written ($MM) 589 573 70 70 431 423 45 2012 2013 2013 Q3 YTD 2014 Q3 YTD 2014 2015 2016 › Declining trend coming to an end Incremental Premiums Earned › Higher insured volumes
Slide 42: Losses on Claims
> LOSSES ON CLAIMS NEW DELINQUENCIES NET OF CURES LOSS RATIO Total 5,377 4,773 3,552 3,403 8- Points VPY Cures 3,129 2,954 2,259 2,233 33% 25% 26% Net 2,248 1,819 18% 1,293 1,170 2012 2013 2013 Q3 YTD 2014 Q3 YTD 2012 2013 2013 Q3 YTD 2014 Q3 YTD Net New Delinquencies Cures Loss Drivers: Results: ›
Slide 43: Earnings Profile and Key Drivers
> EARNINGS PROFILE & KEY DRIVERS COMBINED RATIO KEY FINANCIAL RESULTS 2014 Q3 2013 Q3 44% 8-Points VPY $ MM (except EPS) YTD YTD 36% Underwriting Income $270 240 18% Operating Investment 18% 130 134 Income 26% Interest Expense (18) (17) 18% Net Operating Income $283 $264 2013 Q3 YTD 2014 Q3 YTD Inve
Slide 44: Impact of Price Increase
> IMPACT OF PRICE INCREASE LIFETIME UNDERWRITING INCOME EXAMPLE Pre- Price Post- Price $ MM except NIW Increase Increase HLTV NIW - $ B $20 B $20 B Average Premium Rate 2.30% 2.65% KEY HIGHLIGHTS Premiums Written / Earned $460 $530 Losses on Claims (161) (161) › 2014 price increase should translate
Slide 45: Disciplined Approach to Investment Management
> DISCIPLINED APPROACH TO INVESTMENT MANAGEMENT $5.5 B INVESTMENT PORTFOLIO PRE-TAX YIELD1 OF 3.5% (SEPT. 30/14) Preserve Principal ACTIVE PORTFOLIO Protect From Rising Rates › Gov’t Bonds (~50% of AUM) MANAGEMENT › Short Duration (3.6 Years) › Investment Grade Bonds › Floating Rate Notes › 4 Extern
Slide 46: Strong Balance Sheet
> STRONG BALANCE SHEET September 30, $ MM 2014 Assets Cash and investments $5,609 KEY HIGHLIGHTS Other Assets 258 Total Assets $5,867 › $1.8 B of unearned premiums represent future Liabilities revenues & profits Loss reserves 108 › Illustration: Unearned Premiums 1,763 Unearned Premiums $1.8 B 1 Lon
Slide 47: Strong Capital: Capital Strength
> STRONG CAPITAL CAPITAL MANAGEMENT OBJECTIVES CAPITAL STRENGTH › Operate modestly above MCT Holding Target of 220% › Conservative leverage of 12% › Maintain Holding Company Cash & Marketable Securities of >$100 MM Strength Flexibility Minimum Capital Test Efficiency 223% 224% Dec. 31, 2013 Sept. 30
Slide 48: Strong Capital: Flexibility and Efficiency
> STRONG CAPITAL CAPITAL MANAGEMENT OBJECTIVES CAPITAL FLEXIBILITY & EFFICIENCY › Target dividend payout ratio of 35 to 45% › Pursue efficient capital structure using available levers › Target leverage of 15% over the long run › Share Buybacks & Special Dividends Strength Flexibility › Optimize regu
Slide 49: ROE Expansion Potential
> ROE EXPANSION POTENTIAL IMPACT OF PERFORMANCE LEVERS OVER TIME Levers EPS ROE Comments 2014 price increase Price Increase ↑ ↑ Potential for future increases Market Share Gains ↑ ↑ Capitalizing on momentum Investment Yield 10 Bps improvement in yield adds Improvement ↑ ↑ $4MM in net operating incom
Slide 50: Q&A
Q&A
Slide 51: Closing Remarks
> STUART LEVINGS, CHIEF OPERATING OFFICER CLOSING REMARKS
Slide 52: Key Take-Aways
> KEY TAKE-AWAYS > Proven and sustainable business model > Clear strategy for prudent growth > Supportive market and regulatory environment > Experts at managing mortgage default risk > Solid financial position > Experienced and engaged employees CANADA’S MORTGAGE INSURER OF CHOICE 52 MIC Fixed Inco
Slide 53: Speaker Biographies
> SPEAKER BIOGRAPHIES Brian led the establishment of Stuart has held a variety of senior Genworth into the Canadian management positions within Genworth marketplace in 1994 and later led it Canada since joining the company in through its initial public offering in 2000. These roles include five year
Slide 54: Speaker Biographies
> SPEAKER BIOGRAPHIES Philip became Chief Financial Officer Craig has more than 20 years of of the Company in 2009. He has professional experience in the more than 25 years of finance and mortgage and banking industry. general management experience in Since joining the Company in 1998, financial ser
Slide 55: Contact Information
> CONTACT INFORMATION INVESTOR RELATIONS www.genworth.ca DIRECT CONTACT investor@genworth.com Samantha Cheung, MBA Vice-President, Investor Relations HEAD OFFICE Samantha.Cheung@genworth.com 2060 Winston Park Drive Suite 300 905.287.5482 Oakville, Ontario 905-287-5300 (reception) NATIONAL CALL CENTR