Genworth Canada Earnings

Genworth-FinancialThere were some tidbits of note in Genworth Financial’s latest earnings report.  Among them:

  • As reported Thursday, Genworth (the parent company) expects to issue an IPO to sell 49% of Genworth Financial Canada.
  • The parent said it “plans to hold the majority position for the foreseeable future.”
  • Chairman and CEO, Michael Fraizer, says the move “reinforces (Genworth’s) financial foundation, provides us with additional strategic options.”

In its release on Thursday, Genworth said:

  • First quarter Canadian mortgage insurance earnings “remained strong despite the challenging economic environment.”
  • On the other hand, “Slowing mortgage origination markets, and proactive risk management actions contributed to lower levels of new insurance written (NIW) and slower revenue growth.”
  • Genworth had “solid solvency ratios for mortgage insurance businesses in Canada.”
  • Genworth’s Canadian earnings “grew 8% driven by 15% revenue growth and lower taxes, partially offset by increased losses from seasoning of the large 2007 book during a period of declining home prices in several regions and rising unemployment. Flow NIW declined 39 percent primarily as a result of lower levels of high loan to value (LTV) mortgage originations.”
  • After exchange rates are factored in, Genworth Financial Canada earned $66 million of net operating income in its mortgage insurance business. That compares to first quarter 2008 when it earned $75 million. 

In the company’s conference call there were a few other notes of interest:

  • Average unemployment rates increased dramatically in the first quarter (by 120 basis points to 7.6%) and Genworth saw an increase in delinquencies to about 3,400 from 2,400 in the fourth quarter.
  • Genworth Canada’s book value increased to approximately $1.8 billion as of March 31.

_____________________________________________________

Genworth Financial Canada is the leading private sector supplier of mortgage default insurance in Canada, and 2nd in volume to CMHC.

(Special thanks to Seeking Alpha for providing the conference call transcript.)

  1. Now that’s an interesting development, and possibly a great investment. It does say something about how badly Genworth was affected in the US.
    Were they subjected to a stress-test?

  2. Rob, hopefully this is the end to your debate about GE and AIG receiving 100% guarantees, see what happens—private companies can change the direction on a dime, even more so when your head office is an American company and needs cash.

  3. Hi Carl,
    Thanks for the note but I’m not quite sure there’s an issue. I find it hard to envision how an IPO would make Genworth any less competitive or committed to the Canadian market. Quite the contrary. More capital, more analyst coverage, and more investor participation could very well drive their competitiveness.
    -Rob

  4. Hi Rob, you do not see an issue with Canadian tax payers giving guarantees to American companies that are public companies no less? Also you are making a big assumption on the funds raised, more likely it will be heading across the border to support the U.S. operations losses.

  5. Hi John,
    It’s mostly a matter of perception. The market is hung up on this 10% difference in guarantees and is ignoring the fact that Genworth Canada is financially independent and sound. Genworth’s underwriting criteria is no worse than CMHC’s, so taxpayer risk is not a major concern.
    Regarding assumptions, I try to avoid them if I can. From what we’ve been told, Genworth the parent will receive the IPO proceeds, at least initially.
    Cheers,
    -rob

  6. Genworth’s underwriting criteria is no worse than CMHC’s, so taxpayer risk is not a major concern.
    NOT a true statement, Genworth is primarily receiving deals that CMHC does not approve with most of the majors, only bank that still sends to Genworth as forethought is BNS.
    Taxpayers have enough issues giving guarantees to American based companies is not sound fiscal policy decisioning.

  7. John,
    You and I will disagree. Based on the information I have, I would repeat: Genworth’s underwriting criteria is no worse than CMHC’s, so taxpayer risk is not a major concern.
    Naturally, no one really knows Genworth’s true portfolio risk but Genworth. However, if you have seen Genworth’s current underwriting guidelines you should know that they are clearly more conservative than the other insurers.
    -rob

  8. Genworth has primary agreements with enough lenders that it doesn’t have to degrade itself. Genworth is not taking any deals that don’t meet its guidelines, which are more prudent than CMHC at the moment.

  9. That is utterly untrue Carbon.
    Genworth insures for various lenders in a primary capacity….meaning the broker can choose Genworth, or the lender offers products that are exclusively Genworth insured.
    I will not list these lenders because I have no desire to see biased commentators twist it into something negative about these lenders.
    Any Canadian broker who does any significant volume knows who they are.

  10. As stated–major lender. Good luck if you are counting on merix, macquarie and bridgewater for the bulk of your deals–they are all 90% broker deals. As stated major banks go to CMHC other than BNS.

  11. Truth be told CMHC throws large amounts of money (hundreds of thousands) at the big banks in order to maintain the flow of business. (your tax dollars at work). This practice coupled with CMHC post-underwriting policy vs. Genworth pre-underwriting policy is the key difference between the two insurers. Why is it easier to get a CMHC deal approved? Simple, taxpayers cover the losses and CMHC only underwrites the deal once it goes sideways….not exactly prudent.

  12. Genworth bought there way into Caamp and CIMBL prominence, what’s your point? And for the record if it was not for the government where do you think Xceed, Street Capital, Resmor, etc and on and on would be right now–Mortgage bond fund save them.

  13. Truth Be Told, Could you please tell us a little more about CMHC’s post-underwriting policy. Are you saying CMHC does their underwriting after the home owner defaults?

  14. That is exactly how CMHC will underwrite deals. Once there is a claim for insurance they will pour through the file and look for deficencies and once found deny the claim whereas Genworth underwrites the files at submission. Again ever wonder why CMHC rarely order appraisals or were ever concerned about home values. CMHC has the luxury of the Canadian Government behind them, Genworth does not.

  15. You are really off base buddy, I note you do not comment on my factual statements vs. your anecdotal nonsense. CMHC has an elaborate postal code system which gives the values of the property and by the way CMHC has NEVER denied a claim for insurance, and hey smart guy do you know that each insurer has their own scoring system and model and they are tweaked for each lender, i.e. according to historical default trends per institution.
    I love when people come on here and want to sound big with no context!

  16. I am not sure which part of my statements are not factual when they can’t be disputed. It also cannot possibly be disputed that the Canadian government does not back CMHC at every turn or that this makes for good competition. C’mon “buddy” I am not sounding big at all. Would you lend your OWN money based on an “elaborate” postal code system? Probably not UNLESS it was backed by the government. Let’s agree to disagree but at least the truth has been told.

  17. Oh by the way Genworth uses a similar postal code system.
    Facts, without government involvement xceed, resmor, street capital, to name a few would be out of business.
    Fact–cmhc has never not honoured a claim as you mention.

  18. Genworth is in serious trouble, they are having liquidity issues-hence an IPO, they are tightening their underwriting guidelines-they no longer do investment and rental properties, refinances now require 700 beacons from 650. All signs of a company trying not to do business in order to try and preserve capital. They have also asked consumers that are missing payments to go back to the lender and try and add the missed payments into the mortgage–hence not having to pay a claim.

  19. we are in the process of using genworth, is this wise?
    we have always had CMHC.
    we are a bit nervous as we do not know much about this company.
    any advice would be great!

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