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Genworth & Canada Guaranty Get New Limit

Private-Mortgage-Default-InsurersCanada’s private mortgage default insurers are about to get more breathing room. Starting January 1, 2013, private insurers can have up to $300 billion (combined) of insured mortgages on their books. The current limit is $250 billion.

For the biggest private insurer, Genworth, this gives it “more room to write new business, particularly bulk insurance,” says RBC Dominion Securities analyst Geoffrey Kwan.

That, in turn, enhances one particular advantage that Genworth and Canada Guaranty currently have over CMHC.

As most in the industry know, CMHC is just under its $600 billion government-set insurance cap. (See: CMHC’s $600B Ceiling) That has forced it to throttle back sales of bulk insurance. (Non-deposit-taking lenders, in particular, often rely on bulk insurance for securitization purposes and liquidity.)

With Genworth and Canada Guaranty now getting additional insurance headroom, they will theoretically be more willing to supply cost-effective bulk insurance. That should help their overall market share, especially since they’ve linked bulk insurance availabilty to how much high-ratio business lenders send them.

The legislation behind this change also permits Genworth to move funds from its guarantee fund to its regulatory capital account, Genworth says.

“The elimination of the Guarantee Fund will strengthen Genworth Canada’s claims-paying ability by approximately $675 million,” the company adds. That should boost its all-important capital ratio to over 200%, which is much closer to its competitor CMHC.

Today’s news was telegraphed by Genworth in prior earnings announcements, but it still caused the stock to close up over 3% on the day.

More: Genworth Press Release

Rob McLister, CMT