South of the border, things aren’t so pretty. Genworth Financial's US mortgage insurance subsidiaries were downgraded by S&P after an atrocious quarter. Genworth Financial, the US parent of Genworth Canada, had its ratings reaffirmed, but its ratings outlook was downgraded.
It’s a stark commentary on how different the US and Canadian housing markets are.
Genworth Canada’s net new premiums rose 22% y/y, with Genworth reportedly regaining market share from CMHC. That comes despite what some call CMHC’s “unfair advantage” (CMHC insurance has a 100% government guarantee while Genworth is only 90% backed).
“If there was a level playing field in terms of government backing, the private insurers, namely Genworth, would experience a significant increase in market share in a very short period of time,” said CIBC’s Mr. Holden (Globe).
Here are some other notes from Genworth Canada’s conference call and financial reports:
The company says there could be some “refinances pulled forward” due to the March 18 mortgage rule changes. (No surprise there.)
These new rules “may reduce the premiums-written opportunity for the insured mortgage market by 5-10% due to lower premium rates for 30-year amortization mortgages and 85% refinance mortgages.”
Falling home prices are the focus of Genworth’s current “stress-tests” (even more so than unemployment). The company forecasts a 1.3% drop in home prices this year, but it is preparing (modelling) for worse.
Genworth says it had greater market penetration with both Big 5 and non-bank lenders last quarter, with a “big push” from the mortgage broker market.
Genworth believes that “the national unemployment rate should decline modestly in 2011, leading to further improvement in the Company’s overall mortgage delinquency rates.”
Regarding the above: To be clear, it was Genworth's U.S. mortgage insurance subsidiaries that were downgraded. Genworth Financial itself had its ratings reaffirmed, but its outlook was revised to negative by S&P.
Rob McLister, CMT
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