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Genworth Canada Outshines Genworth US

Genworth-MI-CanadaGenworth MI Canada, the country’s largest private default insurer, reported $84 million in Q4 profit last week (vs. $87 million a year earlier).

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).

Canadian-HousingHere 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