BUSINESS MODELGenworth MI Canada Inc. 2015 Annual ReportPROVEN Corporate Profile
Genworth MI Canada Inc. (TSX: MIC) through its subsidiary, Genworth Financial Mortgage Insurance Company Canada
(Genworth Canada), is the largest private residential mortgage insurer in Canada. The Company provides mortgage default
insurance to Canadian residential mortgage lenders, making homeownership affordable and accessible to more Canadians.
As at December 31, 2015, Genworth Canada had $6.2 billion in total assets and $3.4 billion in shareholders’ equity.
2015 Financial & Operating Highlights
$809 million
Premiums written
39%
Combined ratio
$375 million
Net operating income
$4.05
Operating earnings
per share (diluted)
12%
Operating return on equity
$36.82
Book value per share (diluted)
Contents
ifc
Corporate Profile and
Financial & Operating
Highlights
2
4
CEO Letter to Shareholders
Strategic Priorities
5
7
14
Conversation with
Executive Chairman
Reflections from
the Leadership Team
Corporate Social
Responsibility Highlights
15
Board of Directors
16
Shareholder Information
We also increased our ordinary dividend in the fourth quarter, representing the sixth
increase in six years, and repurchased $50 million in shares through our share buy-
back program. These actions support our objective of improving capital efficiency
and maximizing shareholder value.
Stuart Levings, President and CEO
Operating earnings per share
(diluted)
Book value per share
(diluted, including AOCI)
Ordinary dividends
paid per common share
+5%
YoY
$3.86
$4.05
Q4
Q3
Q2
Q1
0.89
0.97
1.04
0.96
2014
1.03
1.00
0.99
1.03
2015
+5%
YoY
+49%
$36.07
$36.18
$36.14
$36.82
$35.02
$0.431
$1.44
$1.59
$1.31
$1.19
$1.07
Q4 2014
Q1 2015
Q2 2015
Q3 2015
Q4 2015
2011
2012
2013
2014
2015
1. Special dividend
To view or download our complete Annual Report,
including MD&A and Financial Statements,
visit the Investors section at www.genworth.ca.
1
““GENWORTH MI CANADA INC. 2015 ANNUAL REPORT CEO Letter to Shareholders
PROVEN
BUSINESS MODEL
Balance is key to success in our business: balancing the interests
of our customers with our appetite for risk; balancing accessible
homeownership with responsible homeownership; and balancing
capital requirements with shareholder returns. Our success in
maintaining this balance year after year is the result of our sound
business practices and proven business model.
Dear Fellow Shareholders,
The year 2015 was significant for our business, with many great
accomplishments. In this letter, I discuss some highlights of
this performance and share insights into our current challenges,
opportunities and strategic priorities.
In this report you will also read commentary from members of our
leadership team, who share their perspectives on Genworth Canada’s
customer experience, risk-management framework, operational
efficiencies, regulatory environment and capital strength.
We hope this information gives you a deeper understanding of our
business and instills in you the same level of confidence and trust
that I have in the strength, profitability and long-term sustainability of
Genworth Canada.
Delivering consistently strong performance
Performance is measured by a number of factors, including top-line
growth, loss ratio, return on equity and book value per share. In 2015
our results on all these metrics met or exceeded our expectations.
We helped more than 83,000 Canadian families achieve responsible
homeownership, wrote a total of $51 billion in new insurance and
ended the year with $6.2 billion in total assets and $3.4 billion in
shareholders’ equity.
Improved market penetration, higher premium rates and a healthy
housing and labour market across most of the country helped drive
$809 million in net premiums written from transactional and portfolio
mortgage insurance.
2
GENWORTH MI CANADA INC. 2015 ANNUAL REPORT Key Accomplishments in 2015
~34%
Credit score
743
21% loss ratio
25%
premium rate
increase
Current
market
share
CREDIT
SCORE
Strong but prudent
top-line growth
High-quality and diversified
insurance portfolio
Strong loss ratio performance
Cumulative 25% premium rate
increase in 2014 and 2015
Our 2015 results provided tangible value to our
shareholders. We delivered increases across a number of
key metrics, including
+26%
in premiums
written
+5%
in earnings
per share
+5%
in book value
per share
We also increased our ordinary dividend in the fourth
quarter, representing the sixth increase in six years, and
repurchased $50 million in shares through our share buy-
back program. These actions support our objective of
improving capital efficiency and maximizing shareholder
value.
Staying focused on portfolio quality and prudent
underwriting resulted in an annual loss ratio of 21 per
cent, at the low end of our expected 20–30 per cent
range. We continued to see improved quality and
diversification in our portfolio, with high credit scores and
healthy debt service ratios among our insured borrowers.
Our 2015 loss ratio result also reflects the important
contribution from our proactive loss-mitigation programs.
Adapting to varying economic conditions
Our business is built to perform well over a long-term
business cycle. We manage our risk extensively, and
we regularly conduct stress tests to evaluate our
performance in even the worst case scenarios. We
invest time and resources in the monitoring and analytics
needed to help mitigate the effects of potential or
emerging risks.
In late 2014 we saw the start of the oil price decline,
which led to some market concerns as reflected in our
stock price. We acknowledge the pressure that falling prices
have had and continue to have on employment and labour
markets in oil-affected regions. Although we cannot control
oil prices or predict a rebound, we can protect the interests
of our shareholders by embracing a prudent and balanced
approach to underwriting – in all markets.
In 2016 we see four key themes with respect to the
economic environment and its potential impact on our
business:
– Lower oil prices for a longer period
– Modest economic growth (GDP)
– Increasing disparity between regional housing markets
– Regional affordability pressures
Against this backdrop, we remain confident that our financial
strength, disciplined risk-management framework, strong
leadership and long-standing customer relationships position
us well to weather varying economic cycles.
Supporting sound regulatory policy
The mortgage finance market has been subjected to a great
deal of regulatory review and oversight in the last few years.
Since 2008, a number of policy actions have been taken to
reduce government and taxpayer risk. The impact of these
changes on us is a higher-quality insurance portfolio in a
smaller mortgage insurance market. The mortgages we
insure today reflect more fiscally prudent borrowers with
stronger credit profiles. We do not believe further regulatory
changes are needed to maintain the health and stability of
this segment of the housing market.
Capital adequacy is an important concept for an insurance
company, and we believe we are well-capitalized for the
risks this business undertakes. That said, our regulator
3
GENWORTH MI CANADA INC. 2015 ANNUAL REPORT CEO Letter to Shareholders
(continued)
constantly monitors and reviews the applicability of
existing capital regimes. In 2016 we will continue to
work with regulators on the development of mortgage–
insurance specific capital models that OFSI is targeting
to implement on January 1, 2017.
Overall, we are pleased to see that the new government
acknowledges the importance of keeping a close watch
on the housing market, and we continue to adopt a
proactive government-relations strategy to maintain and
strengthen our position as leading industry experts and
advisors to government officials and policy makers.
Building stronger communities across Canada
The success of our business results from collaboration
and long-standing relationships with lenders, mortgage
brokers, realtors, builders and industry associations
across Canada. An underlying theme binds us together:
our passion for helping Canadians achieve responsible
homeownership and for helping build stronger
communities in all parts of the country.
I am proud to say that Genworth Canada promotes
a culture of giving and active volunteerism that is
embraced by our people.
In 2015 Genworth Canada donated $750,000 in cash-
based contributions to support affordable housing,
food and shelter, medical research, financial literacy
and other important causes. In addition, our employees
volunteered more than 3,000 hours in support of
charities across the country, and raised more than
$60,000 through fundraising and personal donations.
Watch the video of Genworth
Canada CEO talking about
business priorities in 2016 at:
investor.genworthmicanada.ca
You can find out more about our commitment to building
stronger communities across Canada in our 2015 Public
Accountability Statement.
Looking forward to the future
Our proven business model positions us well for the future.
As we strive to deliver solid returns to our shareholders, we
remain focused on the following key strategic priorities in
2016:
– Prudent underwriting
– Dynamic risk management
– Proactive loss mitigation
– Customer experience innovation
– Research and development into strategic ancillary
opportunities to enhance the core mortgage insurance
business.
The cornerstone of our success is the depth and breadth of
experience of our leadership team; the knowledge, skills and
commitment of our employees; and the trust and loyalty of
our customers and stakeholders.
Thank you for your ongoing confidence and support.
Stuart Levings, President and CEO
Strategic Priorities
Proven business model positions MIC for future performance
Prudent
underwriting
Dynamic risk
management
Proactive loss
mitigation
Customer
experience
innovation
Research and
development into
strategic ancillary
opportunities
4
GENWORTH MI CANADA INC. 2015 ANNUAL REPORT Q&A with Brian Hurley
Q&A
In conversation
with Brian Hurley,
Executive Chairman
Good corporate governance makes good business
sense. It helps companies make the right decisions,
enhances their performance and protects the interests
of all key stakeholders.
At Genworth Canada, corporate governance is a priority.
A key part of our Board’s mandate is to make sure we
continue to invest in the systems, processes and talent
needed to continually add value, minimize risk and
protect our reputation.
Q: In your first year as Executive Chairman, what
actions have you taken to strengthen the role and
position of your Board?
A: Last year was a year of change – internal changes to
leadership and Board composition, as well as external
market changes that influenced the market in which we
operate. New people and changing circumstances create
opportunity for renewed thinking, and the Board embraced
this opportunity. We welcomed Stuart Levings to the role
of President and CEO and to the Board. I enjoyed working
with Stuart to ensure a smooth transition and the continued
success of the business. We also strengthened our Board
skill set by welcoming two new directors to our insurance
company Board, Sharon Giffen and Andrea Bolger. Sharon
adds extensive actuarial experience to the Board, having
spent many years in senior actuarial, finance and risk-
management roles in the life insurance business; Andrea
adds depth to our governance and financial services industry
expertise, having worked in a variety of senior executive
positions.
5
GENWORTH MI CANADA INC. 2015 ANNUAL REPORT Q&A with Brian Hurley, Executive Chairman
(continued)
Q: How does the Board interface with the
Management Team?
A: The entire Board continues to meet regularly
with leaders in all areas of the business to ensure a
deep understanding of each department’s priorities,
challenges and direction. There are also numerous
touchpoints through our committee structure (see
summary chart below). This Company is led by a talented
and experienced management team. We are fortunate
as a Board to have such depth of industry knowledge at
our disposal and we must ensure that we listen to the
needs and concerns of those who know and understand
this business and industry best. At the same time, we
must act as that second set of eyes, identifying gaps or
potential challenges where they exist, and work together
with the business leaders to support the right solutions that
balance the needs of investors, employees, customers and
all stakeholders.
Q: What are your key priorities in 2016?
A: My role is to ensure we remain accountable and
transparent to all our key stakeholders. For this year, I am
going to continue to focus on areas that are key to investors,
in particular, risk management, business strategy and
leadership development. And, as usual, capital allocation will
continue to be an active discussion with the Board.
2015 Board and Committee Structure
Directors
MIC1
(Holding Co.)
GFMICC2
(Operating Co.)
Audit
Committee
Risk, Capital
& Investment
Committee
Compensation
& Nominating
Committee
Conduct
Review
Committee
✔
Chair
✔
Sidney Horn
(Lead Director)
Andrea Bolger
Sharon Giffen
David Gibbins
✔
✔
✔
✔
Brian Hurley
Chair
Chair
Brian Kelly
Stuart Levings
Samuel Marsico
Heather Nicol
Leon Roday
Jerome Upton
John Walker
✔
✔
✔
✔
✔
✔
✔
✔
✔
✔
✔
✔
✔
✔
Chair
✔
✔
✔
Chair
✔
✔
✔
✔
Chair
1. Genworth MI Canada Inc. (TSX: MIC) – Holding Company
2. Genworth Financial Mortgage Insurance Company Canada – Operating Company
6
GENWORTH MI CANADA INC. 2015 ANNUAL REPORT Q&A
with Debbie McPherson
Senior Vice President, Sales and Marketing
Q: How do you retain and grow share in a dynamic
and highly regulated market?
A: Growing our share of the mortgage insurance
premiums market requires creating and maintaining
close relationships with our customers. We strive to
understand their business goals and objectives in order
to deliver a value-added sales and service experience
that helps customers grow their business, reduce costs
and fund higher-quality loans. Our customers view
Genworth Canada as an essential resource and rely on
the business for support beyond the mortgage insurance
transaction. We provide continuing education, market
research and data, business development resources
and a variety of customized solutions to support their
business needs. In 2015 we delivered more than 6,000
training sessions to more than 47,000 mortgage and
real estate industry professionals across Canada; we
consulted with customers to identify market research
needs and conducted a first-time homeownership study
that provided valuable insights into current homebuyer
trends and behaviours; and we continued to nurture each
and every relationship to achieve customer satisfaction
and solidify our position as the mortgage insurer of
choice.
Q: What is your top priority in 2016 and how do you
protect your Company against competitive threats?
A: Our focus is to make sure that our customers are
at the centre of everything we do and that our people
continue to deliver brand-defining customer experiences
at every point of interaction. Competition is healthy. It
drives companies to work harder, smarter and faster to
deliver outstanding customer experiences. Genworth
Canada’s reputation as the leading private residential
mortgage insurer was not achieved by default but by
design. We intend to maintain that reputation through
continued investments in talent, technology and thought
leadership. A priority is making sure that our people
have a deep understanding of the economic and competitive
climate we operate in and that they are equipped with the
right information and tools to deliver the best customer
experience. Genworth Canada’s holistic and common-sense
underwriting approach, personalized and accessible services
and knowledgeable and dedicated team will continue to
differentiate Genworth Canada as the mortgage insurer
of choice.
Transactional insurance premiums written
($ millions)
+$148M
$705
2015
average
premium
rates
$181
Q4
2.90%
$236
Q3
2.83%
$183
Q2
2.71%
Q1
2.65%
$104
2015
+$110M
$447
$447
2013
$557
$165
$192
$129
$71
2014
Average
premium rate
2.29%
2.51%
2.79%
Portfolio insurance premiums written
($ millions)
+$21M
$104
+$18M
$82
$13
$25
$32
$13
2014
750
62%
$32
Q4
Q3
Q2
Q1
$24
$22
$26
2015
756
65%
$65
2013
756
63%
Avg. score
Avg. LTV
7
GENWORTH MI CANADA INC. 2015 ANNUAL REPORT Q&A
with Scott Gorman
Senior Vice President, Operations
Q: How would you describe the underwriting and
loss-mitigation value proposition that Genworth
Canada brings to your customers and the
marketplace?
A: When it comes to customer service, we constantly
strive for a clear and consistent client experience
through the use of innovation and industry-leading
service standards. Whether it’s through our automated
decisioning capability, through the dedicated
underwriters who understand the uniqueness of each
lender or in the processing and paying of claims, we
believe that a predictable experience will help our
clients manage their books of business. By adopting a
collaborative approach with our customers, we are able
to help them minimize any losses, avoid defaults and
keep their borrowers in their homes.
Q: How do the Homeowner Assistance Program
and Asset Management Program save the Company
money?
A: Our Homeowner Assistance Program assists in
helping homeowners through short-term financial
distress that their lenders may not be able to offer on
their existing mortgages. By making a small investment
into bringing their mortgages up to date or helping them
restructure their mortgages, we avoid the very costly
process of foreclosure. This can be accomplished in
many ways, but the most common include capitalization
of arrears or deferring of payments. In more than 80 per cent
of cases, clients remain current on their payments, even 12
months after we have completed the workout process. Using
our Asset Management Program or Real Estate Owned
Program, we take over the process of selling a foreclosed
property, a process normally handled by the lender on our
behalf. Through our highly specialized and dedicated team,
in conjunction with Genworth Canada preferred lawyers,
realtors and property managers, we have been able to save
an average of $15,000 per file.
Q: How successful was your loss-mitigation program in
2015?
A: Through the constant evolution of our Homeowner
Assistance Program (HOAP) and Asset Management
Program (REO), we continue to be successful in loss
mitigation. By focusing on 30-, 60- and 90-day delinquencies,
and through our proactive HOAP, we helped more than
4,800 homeowners stay in their homes in 2015. Our workout
penetration for the year was 57 per cent – meaning that we
were able to intervene and help homeowners avoid default
in 57 per cent of those delinquencies. In addition, taking
responsibility for selling distressed properties in our REO
program allows us to effectively manage those properties
and make well-informed decisions that save us money.
Staying proactive with our account managers and our
customers helped us ensure a steady flow of referrals. That
continues to be a key factor in our success.
HOAP1 Penetration
REO2 Penetration
57%
56%
55%
70%
72%
63%
2013
2014
2015
2013
2014
2015
8
GENWORTH MI CANADA INC. 2015 ANNUAL REPORT Q&A
with Winsor Macdonell
Senior Vice President, General Counsel and Secretary
Q: How does Canada’s housing finance system
compare with others around the world and are
Canadians protected against potential fallouts seen
in other jurisdictions?
Q: Canadians have elected a new government. What
impact do you think this will have for first-time
homebuyers?
A: Canada is recognized worldwide as having one
of the most sound housing finance regimes in the
world. Canada’s legislative and regulatory frameworks
enabled the country to weather the global financial
crisis without enduring the challenges that other
countries experienced. Policies and processes such as
mortgage recourse, mandatory mortgage insurance,
non-deductibility of mortgage interest and the strong
role played by the government distinguished Canada
from other countries. These policies also enabled the
government to make changes to the market to ensure
that Canadians continue to be able to have homes that
they can afford.
A: The new government campaigned on a plan to help
strengthen the middle class, a plan that involves increased
access to affordable homeownership for first-time buyers.
The federal government has made clear that it intends to
(1) conduct research on the impact of foreign and speculative
investors on the housing market; (2) continue to monitor the
housing market; and (3) revisit the RRSP Homebuyers Plan
to help more Canadians unlock their retirement savings to
support their homeownership goals. As the government
continues to develop its housing policy, it is important that
Genworth Canada continue to share its data and perspectives
on the first-time homebuyer to help the government
understand this group and how it is different from others in
the market.
Government policy actions since 2007 reduced risk and improved credit quality
Maximum amortization
(insured mortgages)
LTV1 limit for new mortgages
LTV limit for mortgage
refinancing
LTV limit for investment
properties
Debt-service criteria
for > 80% LTV
‘07
Today
40 years
25 years
100%
95%
90%
95%
80%
80%
No
mandated
max
GDS 2 capped
at 39% &
TDS 2 ratio at 44%
‘07 / ‘08
‘14 / ’15
% > 25-year amortizations
% > 95% LTV
% of > 80% LTV refinance
mortgages
61%
14%
23%
% of > 80% LTV for investment
properties
1%
0% 3
Average GDS
23%
24%
Purchase price for > 80% LTV
No max
$1 mil.
Improved credit quality
Minimum down payment
0%
5% up to $500k
10% on portion
>500k
Average credit score
717
739
Note: Company sources
1. Loan-to-value.
2. GDS represents gross debt service ratio, and TDS represents total debt service ratio.
3. % of new originations > 25-year amortizations and over 80% LT V.
9
GENWORTH MI CANADA INC. 2015 ANNUAL REPORT Q&A
with Craig Sweeney
Senior Vice President, Chief Risk Officer
Q: Can you describe the Company’s risk philosophy
and culture?
Geographical Dispersion 1
% as of December 31, 2015
A: Given the nature of this insurance business, we are
inherently exposed to various types of risks. A culture
of strong risk management is important for preserving
franchise value and enhances the Company’s business
performance over the long term. When such a culture
is combined with a robust risk framework, it effectively
supports appropriate risk awareness and behaviours, as
well as sound risk-based decision making.
A key component of our risk culture is our risk-
governance framework. The governance framework is
designed to ensure that the Board and the leadership
team have effective oversight of the risks faced by the
Company, involving clearly defined and articulated roles,
responsibilities and interrelationships. To support the
risk-governance framework, we have implemented a
“three lines of defence” risk model that drives ownership
and accountability for risk management across the
organization. The first line of defence is provided by
the operational leaders and is responsible for the
identification, assessment, and mitigation and reporting
of risk against approved policies. The second line of
defence is provided by risk management and compliance
functions, and is responsible for establishing risk-
management practices and for providing risk guidance.
Our third line of defence is provided by internal audit and
is responsible for providing independent assurance to the
leadership team and the Board.
Also supporting our risk culture is our strategic planning
process and risk-appetite development. Recommended
by the leadership team and approved by the Board,
the Company’s risk-appetite framework provides a
clear understanding of the ultimate level of risk the
Company is willing to undertake in pursuit of its strategic
objectives. Our risk appetite is communicated broadly
10
SK
4%
QC
14%
AB
24%
PE &
Territories
0%
13%
BC
38%
ON
2%
MB
2%
NB
1%
NL
2%
NS
Outstanding Balance
of Insured Mortgages
by Book Year 1
% as of December 31, 2015
20%
16%
13%
12%
11%
8%
6% 6%
4%
4%
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
Effective Loan-to-Value (LTV) 1, 2
92%
87%
81%
76% 71%
67%
49%
2015
2014
2013
2012
2011
2010
≤ 2009
1. Data based on transactional outstanding balance of insured
mortgages, as reported by lenders surveyed, which represents the
vast majority of insurance in force.
2. Overall estimated effective loan-to-value is calculated by weighting
the book year estimated effective loan-to-value percentages.
GENWORTH MI CANADA INC. 2015 ANNUAL REPORT We employ a risk-management framework that has enabled us to build a portfolio
that can perform well through a variety of economic conditions and can withstand
regional economic pressures that occur from time to time.
throughout the organization, and compliance is monitored
frequently. Action is taken when results do not align with the
established limits.
Q: How do you establish and implement risk guidelines
that sustain a strong and healthy insurance portfolio?
A: One of Genworth’s main strengths is its high-quality and
well-diversified mortgage insurance portfolio. We employ a
risk-management framework that has enabled us to build a
portfolio that can perform well through a variety of economic
conditions and can withstand regional economic pressures
that occur from time to time.
Identifying and assessing key performance risks make up
a core component of our risk-management framework.
Through in-depth monitoring of the macroeconomic
environment and a deep understanding of key housing
market trends and regional risk factors, we’re able to respond
to emerging risks early in their development. For example, in
response to lower oil prices, we reduced our new insurance
written exposure in Alberta in 2015 to 22 per cent, down
from 27 per cent the previous year.
We manage the quality of new business through our
disciplined approach to underwriting and robust quality
assurance program. By focusing on loan quality, we saw our
average credit score increase to 743 in 2015, up 6 points
from the previous year and 27 points since 2007. As part of
our disciplined approach, we also look to avoid unnecessary
exposure or risk concentration, and we target a portfolio that
is well-diversified by region, product, book year and loan-to-
value. Our experience shows that a well-diversified portfolio
is a key attribute through challenging economic cycles and in
diverse market conditions.
Loan-to-Value of New Insurance
Written in 2015 1
64%
25%
≤ 90
> 85
≤ 95
> 90
7%
≤ 80
4%
≤ 85
> 80
Average Credit Score on
New Insurance Written 1
743
737
733
730
727 727
726
720
714 716
≤ 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
Credit Score Dispersion on
New Insurance Written in 2015 1
83%
13%
4%
<660
<700
700+
0%
0
0%
<600
2015 Avg Credit Score 743
1. Data based on transactional new insurance written.
11
““GENWORTH MI CANADA INC. 2015 ANNUAL REPORT Q&A
with Philip Mayers
Senior Vice President and Chief Financial Officer
Q: What are the key catalysts that will drive financial
performance in 2016?
Premiums earned
($ millions)
A: There continues to be regional economic pressure in
Canada, but we believe that our loss ratio for 2016 will
fall between 25 and 40 per cent. This reflects the strong
portfolio risk profile resulting from our proactive risk-
management practices. Although we will likely see an
increase in our loss ratio year over year, total premiums
earned are expected to increase modestly in 2016 by
5 per cent or more. This growth in underwriting revenues
reflects the 2014 and 2015 transactional premium rate
increases and is expected to be a meaningful contributor
to earnings in 2016 and future years. We expect that
underwriting profitability will be flat to modestly lower,
depending on where the loss ratio falls within our
projected range. And even though investment income
is expected to be relatively flat, 2016 should be another
year of solid financial performance overall.
Q: Your investment portfolio has contributed
approximately one-third of your net operating
income. What is your investment strategy for 2016?
A: We believe interest rates are currently range bound,
but we expect our invested assets to grow modestly.
Against this backdrop, we are focusing on optimizing our
investment portfolio to maximize yield while maintaining
a high-quality investment portfolio. We actively review
the investable universe and will continue to take
advantage of market opportunities within our set risk
appetite. Currently, we favour Canadian preferred shares
and government-guaranteed mortgage-backed securities
that trade at a premium to government bonds.
Q. How will the new regulatory capital framework
expected to take effect on Jan. 1, 2017 affect the
business?
A: In December 2015, OSFI announced plans to update
-1%
+4%
FY $573
FY $565
FY $586
$142
$143
$143
$144
2013
$143
$140
$141
$141
2014
Total invested assets
($ millions)
Q4
Q3
Q2
Q1
$151
$148
$144
$143
2015
Fed. Agency /
NHA MBS
29%
Provincials
17%
$5.9B portfolio1
Duration: 3.7 years1
Book yield: 3.1%1
Growth in invested assets
(C$ millions)
Federal
bonds
5%
$5,443
$474
or 9%
$5,917
Preferred
shares
4%
7%
Cash
4Q14
4Q15
33%
5%
Investment-grade
corporates
Emerging
markets debt
Note: Company sources.
1. Represents market value. Book yield represents pre-tax equivalent book yield after
dividend gross-up of portfolio (as at Dec. 31, 2015).
12
GENWORTH MI CANADA INC. 2015 ANNUAL REPORT Total premiums earned are expected to increase modestly in 2016 by
5 per cent or more. This growth in underwriting revenues reflects the 2014 and
2015 transactional premium rate increases and is expected to be a meaningful
contributor to earnings in 2016 and future years.
the regulatory capital framework for mortgage insurance.
We are actively engaged in discussions with OSFI and
do not believe that the new standardized approach will
result in materially higher capital levels. In the interim, we
intend to operate with our minimum capital test modestly
above 220 per cent in 2016, in the 225–230 per cent
range. MIC has a strong capital base, and we look forward
to the finalization of the new framework so that we can
continue our efforts to balance capital strength, flexibility
and efficiency.
Q. What investments is the Company making to fuel
its future success?
Technology continues to be a major catalyst for change in
the mortgage industry. We have been investing in further
developing our capabilities in the areas of predictive
modeling and enhancing the customer experience
throughout our sales, underwriting and default-
management processes. We are uniquely positioned in
these areas given our rich historical performance data set
and our proven risk-management practices. We believe
that continued investments in these areas strengthen
our core mortgage insurance business and may open the
doors to complementary business opportunities in the
future.
In addition to our technology investments, we have
invested heavily in building up our risk-management,
analytical and actuarial capabilities to support our
enterprise risk-management plan. This investment has
enabled us to become an industry thought leader in
the area of mortgage performance. Furthermore, our
investment in these enhanced capabilities creates a
stronger and more dynamic organization, and directly
supports our organizational objective of engaging and
retaining top talent while remaining prudent and strategic.
Capital required at 220% MCT
($ millions)
+$187M
+$187M
+$248M
+$248M
$3,197
$3,197
$3,159
$3,159
2013
2013
$85M
$85M
223%
223%
$3,445
$3,445
$116
$116
$3,329
$3,329
Jan. 1/15
(pro-forma)
Jan. 1/15
$143M
(pro-forma)
$143M
228%
228%
$38
$38
Holdco cash1
Holdco cash1
MCT ratio
MCT ratio
Excess
capital
Excess
over 220%
capital
MCT
over 220%
MCT
Capital
at 220%
Capital
MCT
at 220%
MCT
$3,633
$3,633
$219
$219
$3,414
$3,414
4Q15
4Q15
$121M
$121M
234%2
234%2
Note: Company sources.
1. Represents capital in addition to capital in operating insurance company.
2. Final MCT as compared with the reported estimate of 233% in Management’s
Discussion and Analysis and Financial Statements for the year ended
December 31, 2015.
Risk
Analytics
Customer
Experience
Trends
affecting
mortgage
industry
Engaging
Top Talent
Regulatory
Environment
13
““GENWORTH MI CANADA INC. 2015 ANNUAL REPORT Corporate Social Responsibility Highlights
RESEARCH & EDUCATION
2015 First-time Homebuying Study
ACTIVE VOLUNTEERISM
280 full-time employees giving…
Leading research into today’s millennial
homebuyers
3,000+
volunteer
hours
$60,000+
in employee
fundraising
30+ charities
supported
across Canada
HOMEOWNER ASSISTANCE
Helping qualified homeowners weather
short-term financial hardship through
innovative and proactive Homeowner
Assistance Program
4,800+ homeownership dreams saved
COMMUNITY BUILDING
Genworth Canada Meaning of Home Contest
$900,000+
55+
Habitat for Humanity affiliates nationwide
in Genworth Canada grants to
Visit www.powerofhome.ca and download our 2015 Public Accountability Statement for more
information on Genworth Canada’s Corporate Social Responsibility (CSR) initiatives across Canada
14
GENWORTH MI CANADA INC. 2015 ANNUAL REPORT The Board of Directors
Directors of Genworth MI Canada Inc. (TSX: MIC) and its operating subsidiary, Genworth Financial
Mortgage Insurance Company Canada (GFMICC):
Brian Hurley,
Executive Chairman
Mr. Hurley is the Executive
Chairman of the Board of
the Company. Prior to his
current role, Mr. Hurley
was Chairman and Chief
Sidney Horn,
Lead Director (1, 2, 5, 6)
Mr. Horn is the Lead Director
of the Company. Mr. Horn
is a partner at the law firm
of Stikeman Elliott LLP and
specializes in commercial,
Executive Officer of the Company from July 2009
to December 31, 2014. Prior to that Mr. Hurley
held several senior management positions with
Genworth Financial and General Electric.
corporate and securities law. Mr. Horn is a member
of the Alberta and Québec Bar Associations.
Brian Kelly (1, 2, 4, 6)
Mr. Kelly serves on several
committees, including the
MIC and GFMICC Audit
Committees and Risk,
Capital and Investment
Committees. Prior to his
retirement in 1998, Mr. Kelly
held senior financial management positions with
several General Electric businesses.
Samuel Marsico (3)
Mr. Marsico has been
a member and Chair of
GFMICC’s Risk, Capital and
Investment Committee since
2009. Mr. Marsico served
as Senior Vice President and
Chief Risk Officer, Genworth
Financial, Global Mortgage Insurance from July 2008
to October 2014. Between 1997 and 2008, he held
various senior financial management positions with
General Electric businesses.
Heather Nicol (1, 6)
Ms. Nicol is currently the
CFO of the Reformulary
Group Inc. She has held
several senior financial
management positions,
including CFO for the MaRS
Discovery District and
Leon Roday (2)
Mr. Roday was the Senior
Vice President, General
Counsel and Secretary of
Genworth Financial from
2004 to January 2015. He
retired from Genworth
Financial in February 2015.
Chapters Online, as well as investment banking roles
including Vice President for BMO Nesbitt Burns
(previously Burns Fry Inc.). She was also a founding
board member of Desjardins Credit Union in Ontario.
Mr. Roday was General Counsel for General Electric
Financial Assurance from 1996. Before joining
General Electric, he was a partner at LeBoeuf,
Lamb, Greene, and McRae LLP for 14 years.
Jerome Upton (3, 4)
Mr. Upton is Chief
Financial Officer and Chief
Operations Officer for
Global Mortgage Insurance
of Genworth Financial.
Prior to that he served as
Senior Vice President and
John Walker (3, 4, 6)
Mr. Walker is a partner
in the law firm Walker
Sorensen LLP, specializing
in advising insurance and
reinsurance companies.
Prior to founding Walker
Sorenson LLP in 2007, he
Chief Operating Officer for International Mortgage
Insurance of Genworth Financial, and before then
Senior Vice President and Chief Financial Officer,
Genworth Financial International – Asia Pacific,
Canada and Latin America. Since joining General
Electric in 1998 from KPMG Peat Marwick, he has
held several senior financial management positions
with GE and Genworth Financial.
was a sole practitioner. From 1987 to 2004, Mr.
Walker practised in the Financial Services Group
of McCarthy Tétrault LLP, a national law firm.
Mr. Walker has previously served as a member
of the board of directors of a number of financial
institutions, including TD Trust Company and
Concordia Life Insurance Company.
Stuart Levings,
President and
Chief Executive
Officer
Mr. Levings assumed his
current role as President and
Chief Executive Officer in
January 2015. Prior to that Mr. Levings served in the
roles of Senior Vice President, Chief Operating Officer,
as well as Senior Vice President, Chief Operations
Officer and Senior Vice President, Chief Risk Officer.
Mr. Levings joined the Company in July 2000 as the
Financial Controller and has also held positions in
finance and product development, including five years
as Chief Financial Officer. Before that, Mr. Levings
spent seven years with Deloitte & Touche.
Additional Directors of Genworth Financial Mortgage Insurance Company Canada:
David Gibbins (6)
Mr. Gibbins is currently
a member of the board
of directors of Greenfield
Financial Group. He has
also served as a director,
since 2006, of Patient Care
Automated Services, and,
since 2008, of Certifi Media. From 1996 until his
retirement in 2003, Mr. Gibbins was Managing
Director, Global Head Foreign Exchange and
Commodity Derivatives, for RBC Capital Markets.
He also served as a member of the Executive
Committee of RBC Capital Markets from 1998 until
his retirement.
Sharon Giffen (6)
Ms. Giffen joined the Board
of Genworth Financial
Mortgage Insurance
Company Canada in July
2015. Ms Giffen has
spent her professional
career in the life insurance
business, holding several executive positions at The
Independent Order of Foresters, including Chief
Actuary, Chief Financial Officer, President of the
Canadian Division and Chief Risk Officer. She also
serves as Chair of Finance and Audit on the Board of
Directors of Opera Atelier.
Andrea Bolger (6)
Ms. Bolger joined the board
of directors of Genworth
Financial Mortgage
Insurance Company Canada
in October 2015. Ms.
Bolger is also a member
of the board of directors of
Knowledge First Financial/Foundation, where she
chairs the Governance Committee and also sits on
the advisory counsel to the Dean of the Ted Rogers
School of Business at Ryerson University. Ms.
Bolger is a former senior executive at Royal Bank of
Canada, most recently the Executive Vice President
of Business Financial Services and member of
the operating committee for RBC’s Personal and
Commercial Banking division.
(1) MIC and GFMICC Audit Committee
(4) GFMICC Conduct Review Committee
(5) Lead Director
(6) Independent
(2) MIC Compensation and Nominating Committee
(3) MIC and GFMICC Risk, Capital and Investment Committee
For detailed biographies visit the Investors section at www.genworth.ca.
15
GENWORTH MI CANADA INC. 2015 ANNUAL REPORT Management statement on responsibility for financial reporting
Management’s Discussion and Analysis
For the year ended December 31, 2015
Interpretation
The fourth quarter and full year results for 2015 and prior-period comparative results for
Genworth MI Canada Inc. (“Genworth Canada” or the “Company”) reflect the consolidation of
the Company and its subsidiaries, including Genworth Financial Mortgage Insurance Company
Canada (the “Insurance Subsidiary”). The Insurance Subsidiary is engaged in the provision of
mortgage insurance in Canada and is regulated by the Office of the Superintendent of Financial
Institutions (“OSFI”) as well as financial services regulators in each province.
The following Management’s Discussion and Analysis (“MD&A”) of the financial condition and
results of operations as approved by the Company’s board of directors (the “Board”) on
February 3, 2016 is prepared for the three and twelve months ended December 31, 2015. The
audited consolidated financial statements of the Company were prepared in accordance with
International Financial Reporting Standards (“IFRS”). This MD&A should be read in conjunction
with the Company’s financial statements.
Unless the context otherwise requires, all references in this MD&A to “Genworth Canada” or
the “Company” refer to Genworth MI Canada Inc. and its subsidiaries.
Unless the context otherwise requires, all financial information is presented on an IFRS basis.
GENWORTH MI CANADA INC. 2015 ANNUAL REPORT
GENWORTH MI CANADA INC. 2015 FINANCIAL REPORT
1
1
Management’s discussion and analysis (continued)
For the year ended December 31, 2015
Special note regarding forward looking statements
This document contains forward-looking statements that involve certain risks. The Company’s actual results could differ materially from
these forward-looking statements.
Certain statements made in this MD&A contain forward-looking information within the meaning of applicable securities laws (“forward-
looking statements”). When used in this MD&A, the words “may”, “would”, “could”, “will”, “intend”, “plan”, “anticipate”, “believe”,
“seek”, “propose”, “estimate”, “expect”, and similar expressions, as they relate to the Company are intended to identify forward-looking
statements. Specific forward-looking statements in this document include, but are not limited to, statements with respect to the
Company’s expectations regarding the effect of the Canadian government guarantee legislative framework, the impact of proposed
guideline changes by OSFI, the effect of changes to the government guarantee mortgage eligibility rules, and the Company’s beliefs as to
housing demand and home price appreciation, bond yields, unemployment rates, the impact of oil prices, the Company’s future operating
and financial results, sales expectations regarding premiums written, capital expenditure plans, dividend policy and the ability to execute on
its future operating, investing and financial strategies.
The forward-looking statements contained herein are based on certain factors and assumptions, certain of which appear proximate to the
applicable forward-looking statements contained herein. Inherent in the forward-looking statements are known and unknown risks,
uncertainties and other factors beyond the Company’s ability to control or predict, that may cause the actual results, performance or
achievements of the Company, or developments in the Company’s business or in its industry, to differ materially from the anticipated
results, performance, achievements or developments expressed or implied by such forward-looking statements. Actual results or
developments may differ materially from those contemplated by the forward-looking statements.
The Company’s actual results and performance could differ materially from those anticipated in these forward-looking statements as a result
of both known and unknown risks, including: the continued availability of the Canadian government’s guarantee of private mortgage
insurance on terms satisfactory to the Company; the Company’s expectations regarding its revenues, expenses and operations; the
Company’s plans to implement its strategy and operate its business; the Company’s expectations regarding the compensation of directors
and officers; the Company’s anticipated cash needs and its estimates regarding its capital expenditures, capital requirements, reserves and
its needs for additional financing; the Company’s plans for and timing of expansion of service and products; the Company’s ability to
accurately assess and manage risks associated with the policies that are written; the Company’s ability to accurately manage market,
interest and credit risks; the Company’s ability to maintain ratings, which may be affected by the ratings of its majority shareholder,
Genworth Financial, Inc.; interest rate fluctuations; a decrease in the volume of high loan-to-value mortgage originations; the cyclical nature
of the mortgage insurance industry; changes in government regulations and laws mandating mortgage insurance; the acceptance by the
Company’s lenders of new technologies and products; the Company’s ability to attract lenders and develop and maintain lender
relationships; the Company’s competitive position and its expectations regarding competition from other providers of mortgage insurance in
Canada; anticipated trends and challenges in the Company’s business and the markets in which it operates; changes in the global or
Canadian economies; a decline in the Company’s regulatory capital or an increase in its regulatory capital requirements; loss of members of
the Company’s senior management team; potential legal, tax and regulatory investigations and actions; the failure of the Company’s
computer systems; and potential conflicts of interest between the Company and its majority shareholder, Genworth Financial, Inc.
This is not an exhaustive list of the factors that may affect any of the Company’s forward-looking statements. Some of these and other
factors are discussed in more detail in the Company’s Annual Information Form (the “AIF”) dated March 23, 2015. Investors and others
should carefully consider these and other factors and not place undue reliance on the forward-looking statements. Further information
regarding these and other risk factors is included in the Company’s public filings with provincial and territorial securities regulatory
authorities (including the Company’s AIF) and can be found on the SEDAR website at www.sedar.com. The forward-looking statements
contained in this MD&A represent the Company’s views only as of the date hereof. Forward-looking statements and future-oriented
GENWORTH MI CANADA INC. 2015 ANNUAL REPORT
GENWORTH MI CANADA INC. 2015 FINANCIAL REPORT
2
2
Management’s discussion and analysis (continued)
For the year ended December 31, 2015
financial information contained in this MD&A are based on management’s current plans, estimates, projections, beliefs and opinions and the
assumptions related to these plans, estimates, projections, beliefs and opinions may change, and therefore are presented for the purpose of
assisting the Company’s security holders in understanding management’s current views regarding those future outcomes and may not be
appropriate for other purposes. While the Company anticipates that subsequent events and developments may cause the Company’s
views to change, the Company does not undertake to update any forward-looking statements, except to the extent required by applicable
securities laws.
Non-IFRS financial measures
To supplement the Company’s consolidated financial statements, which are prepared in accordance with IFRS, the Company uses non-IFRS
financial measures to analyze performance. Non-IFRS financial measures include net operating income, interest and dividend income, net of
investment expenses, operating earnings per common share (basic), operating earnings per common share (diluted), shareholders’ equity
excluding accumulated other comprehensive income (“AOCI”), operating return on equity and underwriting ratios such as loss ratio,
expense ratio and combined ratio. Additional non-IFRS measures used by the Company to analyze performance include insurance in-force,
new insurance written, Minimum Capital Test (“MCT”) ratio, delinquency ratio, average reserve per delinquency, credit score, debt service
ratio, debt-to-capital ratio, ordinary dividend payout ratio, workout penetration rate, investment yield, book value per common share (basic)
including AOCI, book value per common share (basic) excluding AOCI, book value per common share (diluted) including AOCI, book value
per common share (diluted) excluding AOCI, and dividends paid per common share. The Company believes that these non-IFRS financial
measures provide meaningful supplemental information regarding its performance and may be useful to investors because they allow for
greater transparency with respect to key metrics used by management in its financial and operational decision making. Non-IFRS financial
measures do not have standardized meanings and are unlikely to be comparable to any similar measures presented by other companies.
See the “Non-IFRS financial measures” section at the end of this MD&A for a reconciliation of net operating income to net income, total net
investment income to interest and dividend income, net of investment expenses, operating earnings per common share (basic) to earnings
per common share (basic), operating earnings per common share (diluted) to earnings per common share (diluted), and shareholders’ equity
excluding AOCI to shareholders’ equity.
Definitions of key non-IFRS financial measures and explanations of why these measures are useful to investors and management can be
found in the Company’s “Glossary”, in the “Non-IFRS financial measures” section at the end of this MD&A.
GENWORTH MI CANADA INC. 2015 ANNUAL REPORT
GENWORTH MI CANADA INC. 2015 FINANCIAL REPORT
3
3
Management’s discussion and analysis (continued)
For the year ended December 31, 2015
Table of contents
Business profile .................................................................................................................................................................................................... 5
Overview ............................................................................................................................................................................................................... 6
Financial highlights for 2015 ............................................................................................................................................................................ 6
2015 accomplishments ................................................................................................................................................................................... 8
2016 objectives ............................................................................................................................................................................................. 10
Recent business and regulatory developments ............................................................................................................................................ 11
Financial performance ................................................................................................................................................................................... 16
Fourth quarter review .................................................................................................................................................................................... 17
Full year review ............................................................................................................................................................................................. 19
Summary of annual information .................................................................................................................................................................... 21
Summary of quarterly results ........................................................................................................................................................................ 23
Financial condition ............................................................................................................................................................................................... 24
Reserve development analysis ...................................................................................................................................................................... 25
Financial instruments .................................................................................................................................................................................... 25
Liquidity ......................................................................................................................................................................................................... 29
Derivative financial instruments .................................................................................................................................................................... 31
Capital expenditures ...................................................................................................................................................................................... 31
Capital management ........................................................................................................................................................................................... 32
Minimum capital test ..................................................................................................................................................................................... 32
Debt ............................................................................................................................................................................................................... 33
Financial strength ratings .............................................................................................................................................................................. 34
Capital transactions ....................................................................................................................................................................................... 35
Restrictions on dividends and capital transactions ........................................................................................................................................ 35
Outstanding share data ................................................................................................................................................................................. 35
Risk management ............................................................................................................................................................................................... 36
Enterprise risk management framework ....................................................................................................................................................... 36
Governance framework ................................................................................................................................................................................. 37
Risk appetite framework ............................................................................................................................................................................... 37
Risk controls .................................................................................................................................................................................................. 39
Risk categories .............................................................................................................................................................................................. 39
Financial reporting controls and accounting disclosures ..................................................................................................................................... 42
Disclosure controls and procedures and internal controls over financial reporting ....................................................................................... 42
Changes in accounting policies and future accounting standards ................................................................................................................. 42
Significant estimates and judgments ............................................................................................................................................................ 43
Transactions with related parties .................................................................................................................................................................. 45
Non-IFRS financial measures .............................................................................................................................................................................. 46
Glossary ......................................................................................................................................................................................................... 49
GENWORTH MI CANADA INC. 2015 ANNUAL REPORT
GENWORTH MI CANADA INC. 2015 FINANCIAL REPORT
4
4
Management’s discussion and analysis (continued)
For the year ended December 31, 2015
Business profile
Business background
Genworth Canada is the leading private-sector residential mortgage insurer in Canada and has been providing mortgage insurance in Canada
since 1995. The Company has built a broad underwriting and distribution platform across the country that provides customer-focused
products and support services to the vast majority of Canada’s residential mortgage lenders and originators. Genworth Canada underwrites
mortgage insurance for residential properties in all provinces and territories of Canada and has the leading market share among private
mortgage insurers. The Canada Mortgage and Housing Corporation (“CMHC”), a crown corporation, is the Company’s main competitor.
The Company offers both transactional (previously referred to as high loan-to-value) and portfolio (previously referred to as low loan-to-value)
mortgage insurance.
Federally regulated lenders are required to purchase transactional mortgage insurance in respect of a residential mortgage loan whenever
the loan-to-value ratio exceeds 80%. The Company’s transactional mortgage insurance covers default risk on mortgage loans secured by
residential properties to protect lenders from any resulting losses on claims. By offering insurance for transactional mortgages, the
Company plays a significant role in increasing access to homeownership for Canadian residents. Homebuyers who can only afford to make
a smaller down payment can, through the benefits provided by mortgage insurers such as Genworth Canada, obtain mortgages at rates
comparable to buyers with more substantial down payments.
The Company also provides portfolio mortgage insurance to lenders for loans with loan-to-value ratios of 80% or less. Portfolio insurance is
beneficial to lenders as they provide the ability to manage capital and funding requirements and mitigate risk. The Company views portfolio
mortgage insurance as an extension of its relationship with its existing lenders. Therefore, the Company carefully manages the level of its
portfolio mortgage insurance relative to its overall mortgage insurance business. Premium rates on portfolio mortgage insurance are
significantly lower than those on transactional mortgage insurance due to the lower risk profile associated with portfolio loans.
Seasonality
The transactional mortgage insurance business is seasonal. Premiums written vary each quarter, while premiums earned, investment
income, underwriting and administrative expenses tend to be relatively stable from quarter to quarter. The variations in premiums written
are driven by mortgage origination activity and associated mortgage insurance policies written, which typically peak in the spring and
summer months. Losses on claims vary from quarter to quarter, primarily as the result of prevailing economic conditions and characteristics
of the insurance in-force portfolio, such as size, age, seasonality and geographic mix of delinquencies. Typically, losses on claims increase
during the winter months, due primarily to an increase in new delinquencies, and decrease during the spring and summer months.
The Company’s new insurance written from portfolio mortgage insurance varies from period to period based on a number of factors
including: the amount of portfolio mortgages lenders seek to insure; the competitiveness of the Company’s pricing, underwriting guidelines
and credit enhancement for portfolio insurance; and the Company’s risk appetite for such mortgage insurance.
Distribution and marketing
The Company works with lenders, mortgage brokers and real estate agents across Canada to make homeownership more affordable for
first-time homebuyers. Mortgage insurance customers consist of originators of residential mortgage loans, such as banks, mortgage loan
and trust companies, credit unions and other lenders. These lenders typically determine which mortgage insurer they will use for the
placement of mortgage insurance written on mortgages originated by them. The five largest Canadian chartered banks are the largest
mortgage originators in Canada and provide the majority of financing for residential mortgages.
GENWORTH MI CANADA INC. 2015 ANNUAL REPORT
GENWORTH MI CANADA INC. 2015 FINANCIAL REPORT
5
5
Management’s discussion and analysis (continued)
For the year ended December 31, 2015
Overview
Financial highlights for 2015
The following table sets forth certain financial information for the fourth quarter and full years ended December 31, 2014 and 2015:
(in millions of dollars, unless otherwise specified)
2015
2014
2015
Fourth Quarter
Full Year
2014
Income statement data
Premiums written
Premiums earned
Losses on claims and expenses
Losses on claims
Expenses
Total losses on claims and expenses
Net underwriting income
Net investment income
Interest expense
Fee on early redemption of long term debt
Income before income taxes
Net income
Net operating income 1
Weighted average number of common shares
outstanding
Basic
Diluted 2
Earnings per common share
Earnings per common share (basic)
Earnings per common share (diluted) 2
Selected non-IFRS financial measures 1
Insurance in force 3
Total new insurance written
Transactional new insurance written
Portfolio new insurance written
Loss ratio
Expense ratio
Combined ratio
Operating return on equity
MCT ratio 4
Delinquency ratio
Operating earnings per common share (basic)
Operating earnings per common share (diluted) 2
$
$
$
$
$
$
$
$
$
$
$
$
213 $
151 $
35
27
62
90
47
6
—
131
98 $
95 $
178
$
809 $
640
143
$
586 $
37
30
66
76
47
6
—
117
122
108
230
356
201
23
—
534
86
$
398 $
565
111
107
219
346
195
24
7
511
377
84
$
375 $
366
91,795,125
94,239,672
92,218,209
94,284,878
92,296,521
92,771,849
94,787,064
94,966,380
1.06 $
1.03 $
0.92
$
4.32 $
3.97
0.91
$
4.22 $
3.97
404,963 $
356,318
$
404,963 $
356,318
15,826 $
8,785
$
50,938 $
42,153
6,231 $
6,193
$
25,243 $
22,112
9,595 $
2,593
$
25,696 $
20,041
23%
18%
41%
12%
233%
0.10%
26%
21%
47%
11%
225%
0.10%
21%
18%
39%
12%
233%
0.10%
20%
19%
39%
12%
225%
0.10%
1.04 $
1.03 $
0.89
$
4.07 $
3.86
0.89
$
4.05 $
3.86
Note: Amounts may not total due to rounding.
1These financial measures are not calculated based on IFRS. See the “Non-IFRS financial measures” section at the end of this MD&A for additional information.
2The difference between basic and diluted number of common shares outstanding, basic and diluted earnings per common share, and basic and diluted operating earnings per common
share is caused by the potentially dilutive impact of share-based compensation awards.
3The Company estimates the outstanding balance of insured mortgages was approximately $184 billion as at September 30, 2015. Outstanding balances are reported on a one quarter lag.
4 The MCT ratio as at December 31, 2015 is a Company estimate and as at December 31, 2014 is the actual reported figure.
GENWORTH MI CANADA INC. 2015 ANNUAL REPORT
GENWORTH MI CANADA INC. 2015 FINANCIAL REPORT
6
6
Management’s discussion and analysis (continued)
For the year ended December 31, 2015
Key fourth quarter financial metrics:
The Company reported fourth quarter of 2015 net income of $98 million and net operating income of $95 million, as compared to $86 million
and $84 million, respectively in the prior year.
Premiums written of $213 million represented an increase of $35 million, or 20%, as compared to the same quarter in the prior year.
The year-over-year increase was primarily the result of $19 million from higher demand of portfolio insurance and $16 million related to
a 24 basis point increase in the average transactional insurance premium rate to 2.90% resulting from the 2014 and 2015 premium rate
increases.
Premiums earned of $151 million increased by $9 million, or 6%, as compared to the same quarter in the prior year due to the higher
level of premiums written in recent years. The unearned premiums reserve was $2.0 billion at the end of the fourth quarter, up $222
million, or 12%, from December 31, 2014, reflecting the higher level of premiums written in 2015.
Losses on claims of $35 million decreased by $2 million, or 5%, as compared to the same quarter in the prior year. This decrease was
primarily due to a moderate quarterly increase in average reserve per delinquency in the prior year, driven by the Quebec and Atlantic
regions, compared to a modest quarterly increase in the current year. The resulting loss ratio was 23%, or 3 percentage points lower
than the same quarter in the prior year.
Expenses of $27 million decreased by $3 million, or 9%, as compared to the same quarter in the prior year primarily due to lower share
based compensation expense. The expense ratio was 18%, or 3 percentage points lower than the same quarter in the prior year, and
remained consistent with the Company’s expected operating range of 18 to 20%.
Net investment income, excluding net investment gains, of $44 million increased by $1 million, or 2%, as compared to the same
quarter in the prior year primarily due to a 9% increase in invested assets that was partially offset by the impact of lower reinvestment
rates. The Company’s investment portfolio had a market value of $5.7 billion at the end of the quarter and earned a pre-tax equivalent
book yield of 3.3%.
The number of reported delinquencies outstanding was 1,829. Compared to the same quarter in the prior year, this represented an
increase of 73 delinquencies. New delinquencies, net of cures, were 487 in the quarter representing a decrease of 2 delinquencies
compared to the same quarter in the prior year.
Key 2015 financial metrics:
On a full year basis, the Company reported net income of $398 million and net operating income of $375 million, as compared to $377
million and $366 million respectively, in the prior year.
Premiums written of $809 million increased by $169 million, or 26%, in 2015, as compared to 2014. The year-over-year increase was
primarily due to a $67 million related to a 28 basis point increase in the average transactional insurance premium rate to 2.79%
resulting from the 2014 and 2015 premium rate increases, $81 million from an estimated 4 percentage points increase in market
penetration and higher overall volumes of mortgage originations and $21 million from higher demand of portfolio insurance.
Premiums earned of $586 million, increased by $21 million, or 4%, as compared to the prior year’s period due to the higher level of
premiums written in recent years.
The full year loss ratio of 21% was at the lower end of the Company’s anticipated 2015 range of 20-30% and was higher by one
percentage point as compared to 2014.
The expense ratio of 18% was lower by one percentage point as compared to 2014 and consistent with the Company’s expected
operating range of 18 to 20%.
Net investment income, excluding net investment gains, decreased by $4 million, or 3%, to $169 million as compared to 2014. The
decrease was primarily due to the impact of the lower reinvestment rates which was partially offset by a 9% increase of invested
assets. The investment portfolio earned a pre-tax equivalent book yield of 3.3%.
The regulatory capital ratio or Minimum Capital Test (“MCT”) ratio was approximately 233%, or 48 percentage points, higher than the
Company’s internal target MCT ratio of 185% and 13 percentage points higher than the Company’s operating MCT holding target of
220%. The Company intends to operate with an MCT ratio modestly above its holding target.
GENWORTH MI CANADA INC. 2015 ANNUAL REPORT
GENWORTH MI CANADA INC. 2015 FINANCIAL REPORT
7
7
Management’s discussion and analysis (continued)
For the year ended December 31, 2015
2015 accomplishments
The Company met or exceeded its key strategic priorities in the year including:
Achieved significant net premiums written growth primarily through improved market penetration, a higher average premium rate for
transactional insurance, and strong demand for portfolio insurance;
Maintained strong insurance portfolio quality;
Grew net operating income by 2.5%; and
Achieved a stable operating return on equity of 12%.
The following table summarizes the Company’s performance in comparison to the objectives:
Objectives
Accomplishments
Key Performance Metrics
Top Line Growth
Achieve moderate growth in premiums
written through customer-centric product
and service strategies and successful sales
execution.
The Company achieved premiums written growth of 26% year-over-
year primarily through the execution of customer-centric sales and
service strategies. The Company estimates that average market
share increased by approximately 4 percentage points in 2015 and
that the Company ended 2015 with a market share of approximately
34%.
Premiums Written Growth
Y/Y 26%
Loss Performance
Proactive risk management and focused
loss mitigation strategies:
Loss ratio range of 20 to 30%
Workout penetration greater than 50%
Portfolio Quality and Risk Management
Maintain a high quality insurance portfolio
through prudent underwriting guidelines,
proactive risk management and disciplined
underwriting:
Average Credit Score greater than 725
Average Gross Debt Service ratio less
than 26%
The Company achieved a loss ratio of 21% which is at the lower end
of the Company’s anticipated range of 20-30% for 2015. The
workout penetration rate of 57% was 7 percentage points higher
than the target of 50%.
Loss Ratio
21%
Workout Penetration Rate
57%
The average Credit Score for transactional insurance of 743 was 18
points higher than target of 725 and the Average Gross Debt Service
ratio of 24% was two percentage points lower than target of 26%.
Average Credit Score
743
Capital Management
Proactively manage capital to balance
capital strength, flexibility and efficiency:
Ordinary Dividend Payout Ratio 35 - 45%
Debt to capital ratio of less than or equal
The Company maintained ongoing capital strength, flexibility and
efficiency including the following key items.
The Dividend Payout Ratio of 39% was near the mid-point of the
target range of 35-45%;
Debt to capital ratio of 11% was 4 percentage points below the
to 15%
target of 15%;
MCT ratio modestly above 220%
The Company paid ordinary dividends of $1.59 per common share
including an increase of 8% in the fourth quarter;
The Company repurchased 1,454,196 common shares for
cancellation, representing 2% of the outstanding common shares,
for an aggregate amount of $50 million; and
The MCT ratio at December 31, 2015 was approximately 233%, 13
percentage points above the holding target of 220%.
Average Gross Debt Service Ratio
24%
Ordinary Dividend Payout Ratio
39%
Debt to Total Capital Ratio
11%
As At December 31, 2015
MCT Ratio
233%
As At December 31, 2015
Investment Management
Optimize investment portfolio to maximize
investment yield while maintaining a high
quality investment portfolio to minimize the
correlation of risk with insurance in force.
The Company earned an investment yield of 3.3% on its investment
portfolio while maintaining a high quality investment portfolio
consisting of 89% in investment grade bonds and debentures. The
Company added $281 million of investment grade preferred shares
which have a comparable dividend yield to common shares and offer
a more attractive risk and capital adjusted return profile to that of
common shares under the current MCT guidelines. During the year,
the Company had net realized gains of $32 million which primarily
resulted from the sale of all of its common share holdings.
Investment Yield
3.3%
Percentage of Investment Grade Bonds
and Debentures
89%
As At December 31, 2015
GENWORTH MI CANADA INC. 2015 ANNUAL REPORT
GENWORTH MI CANADA INC. 2015 FINANCIAL REPORT
8
8
Management’s discussion and analysis (continued)
For the year ended December 31, 2015
Economic environment
The mortgage insurance business is affected by changes in economic growth, employment and housing market trends as well as changes in
government policy.
Macroeconomic environment
The Bank of Canada expects economic growth, as measured by real Canadian Gross Domestic Product (“GDP”), to slow to 1.2% in 2015
and 1.4% in 2016, compared to a growth rate of 2.5% in 2014, primarily due to low oil prices and ongoing weakness in business
investment. With the weakened Canadian dollar, non-energy exports should benefit in 2016. However, global uncertainty may contribute to
volatility in financial markets and the global economy which could result in further volatility to Canadian GDP.
General economic forecasts anticipate the average oil price in 2016 to range from US $30 to US $40 compared to the current price of US
$32 at February 3, 2016. Low oil prices may continue to negatively impact economic growth, employment and housing in the oil producing
provinces of Alberta, Newfoundland and Labrador and Saskatchewan. The impact to the economy from lower oil prices is being monitored
by the Company as part of its proactive risk management strategy to ensure that the quality of its insurance portfolio remains strong.
Canada created 158,000 jobs in 2015, with the unemployment rate holding at 7.1% at the end of the year. The average unemployment rate
was 6.9% for 2015, in line with the 2014 rate despite weakness in Alberta’s labour market in the second half of 2015. Given the continued
pressure on oil prices and its impact on oil producing provinces, the Company estimates the national unemployment rate to range for 2016
between 7.3% and 7.5%.
The Bank of Canada maintained its overnight interest rates at 0.50% in January 2016 primarily due to the potential for fiscal stimulus in the
upcoming Federal Budget and the potential effect of a further weakening in the currency. However, with ongoing concerns around the
slowing Canadian economy and the possibility of a deeper and more prolonged decline in oil prices, rate cuts in 2016 are possible. The low
interest rate environment is expected to continue through 2016 and into the first half of 2017.
Housing market
Canada’s housing market recorded another year of price growth with 2015 prices growing an average of 5.2% year-over-year driven by
continued strong demand and a low interest rate environment that has supported affordability. The 2015 Canadian housing market was a
three-speed market with strong home price appreciation in Toronto and Vancouver, home price depreciation in a softening Alberta market
including Calgary and Edmonton, and stable or modestly lower prices in the rest of Canada. The Company expects national average home
price appreciation for 2016 to be in the range of 0% to 2.0%. National home resales should decrease marginally in 2016 by 1% to 3% based
on the Company’s expectations and generally consistent with the Canadian Real Estate Association’s latest forecast. Consequently, the
Company expects a modestly smaller mortgage origination market in 2016. Overall, the Company expects that relatively stable housing
markets in Ontario, Quebec and British Columbia will be partially offset by weakness in the oil producing provinces.
GENWORTH MI CANADA INC. 2015 ANNUAL REPORT
GENWORTH MI CANADA INC. 2015 FINANCIAL REPORT
9
9
Management’s discussion and analysis (continued)
For the year ended December 31, 2015
2016 objectives
In pursuit of being Canada’s mortgage insurer of choice, the Company seeks to enhance stakeholder value through working with its lender
partners, regulators and influencers to:
Maintain strong claim paying ability and financial strength;
The Company’s long term objective is to enhance shareholder value by achieving a return on equity that exceeds its cost of capital and by
Help Canadians responsibly achieve and maintain homeownership;
Promote strong and sustainable communities across Canada; and
Advance prudent risk management practices to enhance the safety and soundness of the mortgage finance system.
increasing net income over time. The Company’s priorities to achieve its long-term objective are identified in the following chart where “A”
represents an actual result, “E” represents an estimate and “Y/Y” represents year over year.
Objectives
Key Economic Indicators
Top Line
Flat or modestly lower premiums written from transactional
insurance compared to 2015 as the full year impact of the June
2015 price increase partially offsets the impact of an expected
decline in mortgage originations.
Total premiums written moderately lower compared to 2015,
primarily due to lower portfolio insurance volumes.
Moderate growth in premiums earned of 5% or greater for the full
year
Housing Resales E 1
Y/Y (1)% to (3)%
Loss Performance
Proactive risk management and focused loss mitigation
strategies:
GDP 2
2016E - 1.4%
Loss ratio range of 25 to 40%
Workout penetration greater than 55%
Portfolio Quality and Risk
Management
Maintain a high quality insurance portfolio through prudent
underwriting guidelines, proactive risk management and
disciplined underwriting:
National Unemployment 3
2016E - 7.3% to 7.5%
National Home Price Appreciation 3
Average Credit score greater than 735
2016E - 0% to 2.0%
Average Gross Debt Service ratio of less than 26%
Average Credit score below 660 of less than 5%
Average Oil Prices3:
2016E - US $30 to US $40
Capital Management
Prudently manage capital to balance capital strength, flexibility
and efficiency:
n/a
Ordinary Dividend Payout Ratio 35 - 45%
Debt to capital ratio of less than or equal to 15%
MCT ratio modestly above 220%
Investment Management
Optimize investment portfolio to maximize investment yield
while maintaining a high quality investment portfolio to
minimize the correlation of risk with our insurance in force.
5 year Government of
Canada Bond Yields: 4
5 year Government of
Canada Bond Yields: 4
Q1’15A 0.77%
Q1’16E 0.90%
Q2’15A 0.81%
Q2’16E 0.95%
Q3’15A 0.81%
Q3’16E 1.00%
Q4’15A 0.73%
Q4’16E 1.05%
1 Company estimate generally consistent with Canadian Real Estate Association (“CREA”) – Quarterly Forecast published December 15, 2015.
2 Monetary Policy Report, January 2016.
3 Company estimate.
4 Bloomberg – Quarterly data for 2015 actual results and Company estimate for 2016 based on Forward Curve as at January 20, 2016.
GENWORTH MI CANADA INC. 2015 ANNUAL REPORT
GENWORTH MI CANADA INC. 2015 FINANCIAL REPORT
10
10
Management’s discussion and analysis (continued)
For the year ended December 31, 2015
Recent business and regulatory developments
Mortgage insurance eligibility rules
On December 11, 2015 the Minister of Finance announced a change to the eligibility rules for new government-backed insured mortgages
on properties priced above $500,000. Effective February 15, 2016, the minimum down payment for new insured mortgages will be
increased from 5 per cent to 10 per cent for the portion of the house price above $500,000.
The table below illustrates the minimum down payment by home purchase price for the current and new eligibility rules.
Current Eligibility Rules
Eligibility Rules Effective February 15, 2016
Home Purchase
Price
Minimum Down
Payment
Percentage
Minimum
Down Payment
Amount
Minimum Down
Payment
Percentage
Minimum
Down Payment
Amount
Effective
Loan-to-
Value
Incremental
Down
Payment
$500,000
$600,000
$700,000
$800,000
$900,000
$999,999
5%
5%
5%
5%
5%
5%
$25,000
$30,000
$35,000
$40,000
$45,000
$50,000
5.0%
5.8%
6.4%
6.9%
7.2%
7.5%
$25,000
$35,000
$45,000
$55,000
$65,000
$75,000
95.0%
94.2%
93.6%
93.1%
92.8%
92.5%
$0
$5,000
$10,000
$15,000
$20,000
$25,000
The Company estimates that approximately 9% of the total transactional new insurance written by the Company in 2015 could have been
impacted based on the new maximum effective loan to value by home price range. The table below illustrates the percentage distribution
of these affected insured mortgages based on the 2015 transactional new insurance written by home purchase price range:
Home Purchase Price
Range
New Insurance Written
Incremental Down
Payment
<= $500,000
$500,001 - $600,000
$600,001 - $700,000
$700,001 - $800,000
$800,001 - $900,000
$900,001 - $999,999
Total
0.0%
4.7%
2.3%
1.1%
0.5%
0.4%
9.0%
$0
$1 to $5,000
$5,001 to $10,000
$10,001 to $15,000
$15,001 to $20,000
$20,001 to $25,000
Considering this, the Company believes that the impact on its business will be modest as most borrowers impacted by the new rules may be
able to afford the increase in down payment or might choose to purchase a lower priced home.
GENWORTH MI CANADA INC. 2015 ANNUAL REPORT
GENWORTH MI CANADA INC. 2015 FINANCIAL REPORT
11
11
Management’s discussion and analysis (continued)
For the year ended December 31, 2015
Changes to the regulatory capital framework
On December 11, 2015, OSFI announced plans to update the regulatory capital framework for loans secured by residential real properties
for both federally regulated mortgage insurers and deposit-taking institutions, including the following changes:
For mortgage insurers, OSFI is contemplating a new standardized approach that updates the capital requirements for mortgage guarantee
insurance risk and will also require more capital when house prices are high relative to borrower incomes; and
For deposit-taking institutions using internal models for mortgage default risk, a risk-sensitive floor (for losses in the event of default) may be
introduced that will be tied to increases in local property prices and/or to house prices that are high relative to borrower incomes.
OSFI will consult with federally regulated financial institutions and other stakeholders before making any changes, initially through a directed
consultation with industry in 2016, followed by broader public consultation later in the year. OSFI expects to have final rules in place no later
than 2017. The anticipated changes may impact the regulatory capital requirements for the Company.
Portfolio Mortgage Insurance
On December 11, 2015 CMHC announced a price increase to the guarantee fees they charge issuers as well as annual limits for the new
guarantees for both the National Housing Act Mortgage Backed Securities (“NHA MBS”) and Canada Mortgage Bonds (“CMBs”) effective
July 1, 2016. CMHC guarantees the timely payment of interest and principal for NHA MBS and CMB, enabling approved financial institutions
to pool eligible mortgages and transform them into marketable securities that can be sold to investors.
The below table illustrates the changes to the guarantee fees and annual limits:
Guarantee Fee
Prior to July 1, 2016
As of July 1, 2016
5-Year NHA Market MBS
30bps (annual guarantees <= $6.0 billion)
30bps (annual guarantees <= $7.5 billion)
5-Year NHA Market MBS
60bps (annual guarantees > $6.0 billion)
80bps (annual guarantees > $7.5 billion)
5-Year CMB
40bps
30bps + market NHA MBS fee
The guarantee fees are in addition to the mortgage insurance premium for insured mortgages. CMHC noted “the revised fee structure is
intended to encourage the development of private market funding alternatives by narrowing the funding cost difference between
government sponsored and private market funding sources and the higher guarantee fees for issuances beyond the threshold is designed to
discourage excessive use of NHA MBS for liquidity or funding purposes.” This price increase followed a separate price increase effective
April 1, 2015. The Company believes lender demand for portfolio mortgage insurance may be impacted as most of the mortgages that are
portfolio-insured by the Company are pooled and securitized through the NHA MBS program.
On June 6, 2015, the Government of Canada published draft regulations to implement the prohibition that was announced in the
Government’s 2013 budget to limit portfolio mortgage insurance to only those mortgages that will be used in CMHC securitization programs
and to prohibit the use of government guaranteed insured mortgages in private securitizations. The Company anticipates the regulations will
come into force in the first half of 2016.
On June 3, 2015, the Government of Canada published regulations that prohibit the substitution of mortgages in insured pools after May 15,
2015 and limit the time period that a mortgage insurer can commit to insure mortgages to no more than one year.
Although it is difficult to determine the full impact of these changes until all the regulations are in effect, the Company believes that the
regulations may result in a decrease in demand for portfolio mortgage insurance.
GENWORTH MI CANADA INC. 2015 ANNUAL REPORT
GENWORTH MI CANADA INC. 2015 FINANCIAL REPORT
12
12
Management’s discussion and analysis (continued)
For the year ended December 31, 2015
Price increase
The Company reviews its underwriting, pricing and risk selection strategies on an annual basis to ensure that its products remain
competitive and consistent with its marketing and profitability objectives. The Company's pricing approach takes into consideration long-
term historical loss experience on loans with similar loan-to-value ratios, terms and types of mortgages, borrower credit histories and capital
required to support the product.
On June 1, 2015, the Company increased its mortgage insurance premium rates on mortgages with less than a 10 percent down payment
by approximately 15%. The new pricing is a reflection of higher current capital requirements and supports the long term health of Canada’s
housing finance system.
The premium rates on transactional new insurance written for standard owner-occupied purchase applications are as follows:
Transactional New Insurance Written
Loan-to-Value Ratio
Standard Premium
(Prior to June 1, 2015)
Standard Premium
(Effective June 1, 2015)
Up to and including 65%
Up to and including 75%
Up to and including 80%
Up to and including 85%
Up to and including 90%
Up to and including 95%
90.01% to 95% (Borrowed Down Payment
Program)
0.60%
0.75%
1.25%
1.80%
2.40%
3.15%
3.35%
0.60%
0.75%
1.25%
1.80%
2.40%
3.60%
3.85%
In 2015, the increase in premiums written and premiums earned attributable to the June 1, 2015 price increase were approximately $27
million and $2 million, respectively. In the fourth quarter of 2015, approximately 94% of the transactional new insurance written reflected the
post-June 1, 2015 premium rates. The full impact of the price increase will be reflected in premiums written in the first half of 2016.
The weighted average premium rate on transactional new insurance written by quarter for 2015 and for 2014 are as follows:
Weighted Average Premium Rate
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
Full Year
2014
2.27%
2.35%
2.60%
2.66%
2.51%
2015
2.65%
2.71%
2.83%
2.90%
2.79%
GENWORTH MI CANADA INC. 2015 ANNUAL REPORT
GENWORTH MI CANADA INC. 2015 FINANCIAL REPORT
13
13
Management’s discussion and analysis (continued)
For the year ended December 31, 2015
Financial strength ratings
On September 3, 2015, Standard & Poor’s (“S&P”) affirmed the Insurance Subsidiary’s A+ rating with a stable outlook and the Company’s
BBB+ rating with a stable outlook. S&P noted that the Company had a strong competitive position, low industry risk due to the Company's
disciplined underwriting initiatives, tight regulation and very strong earnings and capitalization.
The Insurance Subsidiary is rated AA and the Company’s issuer rating and senior unsecured debentures are AA (Low), with a stable outlook
according to DBRS. The ratings from DBRS were confirmed in March 2015. DBRS applies a one-notch differential between the Insurance
Subsidiary and the Company to reflect the structural subordination of the Company’s financial obligations relative to those of the regulated
Insurance Subsidiary.
Dividends
On November 27, 2015, the Company paid a quarterly dividend of $0.42 per common share, an 8% increase over the prior quarter. The
Company has increased its dividend in each of the last 6 years.
Share repurchase
During the second quarter and pursuant to the Company’s Normal Course Issuer Bid which will expire on May 4, 2016, the Company
repurchased 1,454,196 common shares for cancellation, representing approximately 2% of the outstanding common shares, for an
aggregate amount of $50 million. The Company did not make any purchases pursuant to Normal Course Issuer Bid during the third or fourth
quarters of 2015.
Regulatory capital
The Company manages its capital base to maintain a balance between capital strength, efficiency and flexibility. As at December 31, 2015,
the Insurance Subsidiary’s MCT ratio was approximately 233%, or 48 percentage points higher than its internal target of 185% and 13
percentage points higher than its holding target of 220%. The holding target is in place pending the development by OSFI of a new
regulatory test for mortgage insurers, which is targeted for implementation in 2017. While the Insurance Subsidiary’s internal capital target
is calibrated to cover the various risks that the business would face in a severe recession, the holding target is designed to provide a capital
buffer to allow management time to take the necessary actions should capital levels be pressured by deteriorating macroeconomic
conditions.
Effective January 1, 2015, the Insurance Subsidiary has adopted, on an interim basis, the Interim Capital Requirements for Mortgage
Insurance Companies, which was released during the third quarter of 2014 by OSFI. This guideline was developed by adjusting the 2015
guideline, Minimum Capital Test for Federally Regulated Property and Casualty Insurance Companies to reflect the specific characteristics of
the mortgage insurance business pending the development by OSFI of a new regulatory test for mortgage insurance companies which is
expected to be released later this year and to be effective in 2017. Based on the pro-forma analysis completed at December 31, 2014,
implementation of the 2015 MCT guideline resulted in an increase of approximately 3 percentage points to the Insurance Subsidiary’s MCT
ratio as at January 1, 2015.
Own Risk and Solvency Assessment Guideline
During 2014, the Company, through its Insurance Subsidiary, developed and implemented its Own Risk and Solvency Assessment
(“ORSA”). The implementation of ORSA did not result in a significant change to the Company’s practices of maintaining, evaluating and
managing risks.
ORSA is a process that links the Company’s risk management framework to its business strategy and decision-making framework.
Embedding risk and solvency into the decision making process is a key priority for the business and is supported by the Insurance
GENWORTH MI CANADA INC. 2015 ANNUAL REPORT
GENWORTH MI CANADA INC. 2015 FINANCIAL REPORT
14
14
Management’s discussion and analysis (continued)
For the year ended December 31, 2015
Subsidiary’s Enterprise Risk Management (“ERM”) framework and Risk Appetite Framework (“RAF”). ORSA provides a baseline
assessment of identified risks and the supporting risk management activities. Additionally, ORSA documents the Company’s risk exposure
relative to its RAF Framework and calculates the capital required to support those risks under certain predefined stress events.
E-21 – Operational Risk Management Guideline
In August 2015, OSFI released its draft E-21 Operational Risk Management Guideline (the “E-21 Guideline”). In the E-21 Guideline, OSFI
defines operational risk “as the risk of loss resulting from people, inadequate or failed internal processes and systems, or from external
events. This includes legal risk but excludes strategic and reputational risk”. The E-21 guideline sets out four principles: i) integrated and
documented operational risk management framework; ii) supports corporate governance structure including a risk appetite statement; iii)
use of a “three lines of defense” approach to ensure accountability; and iv) comprehensive identification and assessment process. The E-21
Guideline closed for public comment on October 9, 2015. The E-21 Guideline is consistent with the Company’s current risk management
framework and the Company does not anticipate any significant changes to its current policies and procedures upon the implementation of
the E-21 Guideline.
B-21 - Mortgage Insurance Underwriting Guideline
On November 6, 2014, OSFI published the final B-21 Residential Mortgage Insurance Underwriting Practices and Procedures Guideline (the
“B-21 Guideline”). In the B-21 Guideline, OSFI set out principles that promote and support sound residential mortgage insurance
underwriting. These six principles focus on three main themes: (i) governance, development of business objectives and strategy, and
oversight; (ii) interaction with lenders as part of the underwriting process; and (iii) internal underwriting operations and risk
management. The B-21 Guideline also enhances disclosure requirements, which will support greater transparency, clarity and public
confidence in mortgage insurers’ residential mortgage insurance underwriting practices. The Company is currently compliant with the B-21
Guideline, which came into effect on June 30, 2015.
GENWORTH MI CANADA INC. 2015 ANNUAL REPORT
GENWORTH MI CANADA INC. 2015 FINANCIAL REPORT
15
15
Management’s discussion and analysis (continued)
For the year ended December 31, 2015
Financial performance
The following table sets forth the quarterly results of operations for the Company’s business:
(in millions of dollars, unless otherwise specified)
2015
2014
Q4’15 vs. Q4’14
Fourth Quarter
Increase (decrease) and
percentage change
Premiums written
Premiums earned
Losses on claims and expenses:
Losses on claims
Expenses
$
$
213 $
178
151 $
143
$
$
35
9
35
37
(2)
27
30
(3)
Total losses on claims and expenses
62
66
(5)
20%
6%
(5)%
(9)%
(7)%
Net underwriting income
90
76
14
18%
Net investment income:
Interest and dividend income, net of investment expenses
44
43
1
Net investment gains
Total net investment income
Interest expense
Income before income taxes
Provision for income taxes
Net income
Adjustment to net income, net of taxes:
Net investment gains
Net operating income 1
Effective tax rate
Selected non-IFRS financial measures 1
New insurance written
Transactional new insurance written
Portfolio new insurance written
Loss ratio
Expense ratio
Combined ratio
Operating return on equity
Investment yield
3
4
—
47
47
1
6
6
—
131
117
34
31
14
3
$
98
$
86
$
11
(3)
(3)
—
$
95
$
84
$
11
2%
(5)%
2%
—
12%
9%
13%
(2)%
14%
25.6%
26.3%
—
(0.7) pts
$
15,826 $
8,785
$
7,040
6,231
6,193
38
9,595
2,593
7,002
23%
18%
41%
12%
3.3%
26%
21%
47%
11%
3.4%
—
—
—
—
—
80%
1%
NM
(3) pts
(3) pts
(6) pts
1 pts
(0.1) pts
Note: Amounts may not total due to rounding. NM means Not Meaningful.
1 These financial measures are not calculated based on IFRS. See the “Non-IFRS financial measures” section at the end of this MD&A for additional information.
GENWORTH MI CANADA INC. 2015 ANNUAL REPORT
GENWORTH MI CANADA INC. 2015 FINANCIAL REPORT
16
16
Management’s discussion and analysis (continued)
For the year ended December 31, 2015
Fourth quarter review
Transactional new insurance written was $6.2 billion, consistent with the same quarter in the prior year. New insurance written from
portfolio insurance was $9.6 billion in the fourth quarter of 2015, as compared to $2.6 billion in the prior year’s period. The volume and mix
of portfolio insurance varies from quarter to quarter based on lender demand.
Premiums written of $213 million represented an increase of $35 million, or 20%, as compared to the same quarter in the prior year.
Premiums written from transactional insurance increased by $16 million, or 10%, to $181 million in the fourth quarter of 2015 as compared
to the prior year’s period. The $16 million increase was primarily due to a 24 basis point increase in the average premium rate to 2.90%
resulting from the May 2014 and June 2015 premium rate increases. Premiums written from portfolio insurance increased by $19 million, to
$32 million, as a result of higher volumes of portfolio insurance business while the average premium rate declined by 16 basis points, to
0.34% primarily due to a more favorable product mix.
Premiums earned increased by $9 million, or 6%, to $151 million in the fourth quarter of 2015, as compared to the prior year’s period due to
higher premiums earned from the relatively larger 2013, 2014 and 2015 books of business.
Losses on claims decreased by $2 million, or 5%, to $35 million in the fourth quarter of 2015 as compared to the prior year’s period. The $2
million decrease was primarily due to a moderate increase in average reserve per delinquency in the prior year, driven by the Quebec and
Atlantic regions, compared to a modest increase in the current year. The resulting loss ratio was 23% in the fourth quarter of 2015, 3
percentage points lower than the prior year’s period. The Company continues to realize savings from its loss mitigation programs, including
workout and asset management initiatives that contribute to lowering losses on claims.
Expenses decreased by $3 million, or 9%, to $27 million in the fourth quarter of 2015 as compared to the prior year’s period primarily the
result of lower share based compensation expense, partially offset by a modest increase in operating costs to support business growth. The
expense ratio decreased 3 percentage points to 18% for the fourth quarter of 2015, as compared to the prior year’s period.
Interest and dividend income, net of investment expenses, increased $1 million, or 2%, to $44 million in the fourth quarter of 2015, as
compared to the prior year’s period. The $1 million increase was primarily due to an increased level of invested assets, including preferred
shares, partially offset by the impact of lower reinvestment rates. The average investment yield for the quarter was 3.3%, which was 0.1%
lower as compared to the investment yield in the prior year’s period. The Company recorded $3 million of net investment gains in the fourth
quarter of 2015 which is comparable to the $4 million of net investment gains in the prior year’s period. This quarter’s net investment gains
consisted primarily of unrealized foreign exchange gains on US denominated investments due to the decline in the Canadian dollar.
Interest expense of $6 million in the fourth quarter of 2015 was relatively unchanged, as compared to the prior year’s period.
The effective tax rate was 25.6% in the fourth quarter of 2015, a decrease of approximately 70 basis points from the 26.3% in the prior
year’s period. The decrease was primarily the result of higher non-deductible expenses in the prior year’s period.
Net income increased by $11 million, or 13%, to $98 million primarily as a result of the following pre-tax changes:
$9 million higher premiums earned;
$3 million lower expenses;
$2 million lower losses on claims; and
$1 million higher interest and dividend income, net of investment expenses.
Net operating income was $95 million, or $3 million lower than net income, as a result of the adjustment to net income for the exclusion of
after-tax net investment gains.
GENWORTH MI CANADA INC. 2015 ANNUAL REPORT
GENWORTH MI CANADA INC. 2015 FINANCIAL REPORT
17
17
Management’s discussion and analysis (continued)
For the year ended December 31, 2015
The following table sets forth the full year results of operations for the Company’s business:
Full Year
Increase (decrease) and
percentage change
(in millions of dollars, unless otherwise specified)
2015
2014
2015 vs 2014
Premiums written
Premiums earned
Losses on claims and expenses:
Losses on claims
Expenses
$
$
809
586
$
$
640 $
169
565 $
21
122
111
11
108
107
1
Total losses on claims and expenses
230
219
12
26%
4%
10%
1%
5%
Net underwriting income
356
346
9
3%
Investment income:
Interest and dividend income, net of investment expenses
169
173
(4)
Net investment gains
Total net investment income
Interest expense
32
22
10
201
195
6
23
24
(1)
Fee on early redemption of long-term debt
-
7
(7)
Income before income taxes
Provision for income taxes
Net income
Adjustment to net income, after taxes:
534
511
23
136
134
2
$
398
$
377 $
22
Fee on early redemption of long term-debt
-
5
(5)
Net investment gains
Net operating income 1
(23)
(16)
(7)
$
375
$
366 $
9
(3)%
46%
3%
(4)%
NM
5%
1%
6%
NM
45%
3%
Effective tax rate
25.4%
26.3%
—
(0.8) pts
Selected non-IFRS financial measures 1
Total new insurance written
Transactional new insurance written
Portfolio new insurance written
Loss ratio
Expense ratio
Combined ratio
Operating return on equity
Investment yield
50,938
42,153
8,785
25,243
22,112
3,131
25,696
20,041
5,654
21%
18%
39%
12%
3.3%
20%
19%
39%
12%
3.5%
—
—
—
—
—
21%
14%
28%
1 pts
(1) pts
1 pts
- pts
(0.2) pts
Note: Amounts may not total due to rounding. NM means Not Meaningful.
1 These financial measures are not calculated based on IFRS. See the “Non-IFRS financial measures” section at the end of this MD&A for additional information.
GENWORTH MI CANADA INC. 2015 ANNUAL REPORT
GENWORTH MI CANADA INC. 2015 FINANCIAL REPORT
18
18
Management’s discussion and analysis (continued)
For the year ended December 31, 2015
Full year review
Transactional new insurance written increased by $3.1 billion, or 14%, to $25.2 billion, as compared to the prior year’s period. The Company
believes the increase was primarily due to 4 percentage points of improved market penetration and higher volumes of mortgage originations
as compared to the prior year’s period. New insurance written from portfolio insurance was $25.7 billion in 2015, as compared to $20.0
billion in 2014, representing an increase of $5.7 billion, or 28%, from higher lender demand.
Premiums written of $809 million increased by $169 million, or 26%, in, 2015, as compared to the prior year’s period. Premiums written
from transactional insurance increased by $148 million, or 27%, to $703 million in 2015 as compared to the prior year’s period. The $148
million increase was due to approximately $81 million from higher volumes, and $67 million from a 28 basis point increase in the average
premium rate as a result of the 2014 and 2015 transactional insurance price increases. Premiums written from portfolio insurance increased
by $21 million, or 26%, to $104 million in 2015 as compared to the prior year’s period as a result of higher volumes of portfolio insurance
business.
Premiums earned increased by $21 million, or 4%, to $586 million in 2015, as compared to the prior year’s period due to higher premiums
earned from the relatively larger 2013, 2014 and 2015 books of business.
Losses on claims increased by $11 million, or 10%, to $122 million in 2015, as compared to the prior year’s period. The $11 million increase
was primarily due to a higher average reserve per delinquency related to the Quebec, Alberta and Atlantic regions and a modest increase in
delinquent loans, net of cures. The resulting loss ratio was 21% in 2015, as compared to 20% in the prior year’s period. The Company
continues to realize savings from its loss mitigation programs, including workout and asset management initiatives that contribute to
lowering losses on claims.
Expenses increased by $1 million, or 1%, to $108 million, in 2015, as compared to the prior year’s period. A modest increase in operating
costs to support business growth was partially offset by lower share based compensation expenses. The expense ratio was 18% as
compared to 19% in the prior year’s period.
Interest and dividend income, net of investment expenses, decreased $4 million, or 3%, to $169 million in 2015, as compared to the prior
year’s period. The $4 million decrease was primarily the result of lower reinvestment rates, partially offset by an 9% increase in invested
assets. The average investment yield was 3.3% which was 0.2% lower as compared to the investment yield in the prior year’s period. The
Company recorded $32 million net investment gains in 2015, primarily from the sale of common equities and unrealized foreign exchange
gains, as compared to $22 million in the prior year’s period.
Interest expense decreased $1 million, or 4%, to $23 million in 2015, as compared to the prior year’s period. In addition, the prior year’s
period included a $7 million fee on the early redemption of long term debt.
The effective tax rate of 25.4% in 2015 decreased by approximately 80 basis points from 26.3% in the prior year’s period. The decrease
was primarily the result of an approximate $5 million favourable tax adjustment for prior periods and lower non-deductible expenses,
partially offset by an increase in the Alberta provincial tax rate.
GENWORTH MI CANADA INC. 2015 ANNUAL REPORT
GENWORTH MI CANADA INC. 2015 FINANCIAL REPORT
19
19
Management’s discussion and analysis (continued)
For the year ended December 31, 2015
Net income increased by $22 million, or 6%, to $398 million, primarily as a result of the following pre-tax changes:
$21 million higher premiums earned;
$10 million higher investment gains;
$5 million favorable tax adjustment;
$7 million fee on the early redemption of debt in the prior period;
$1 million lower interest expense;
offset by $11 million higher losses on claims;
offset by $4 million lower interest and dividend income, net of investment expenses; and
offset by $1 million higher expenses.
Net operating income was $375 million, or $23 million lower than net income as a result of an adjustment to net income, net of taxes, from
the exclusion of net investment gains. Excluding the $5 million decrease in income taxes in the first quarter of 2015 related to the
favourable tax adjustment in respect of prior periods, net income would have been $393 million and net operating income would have been
$370 million.
GENWORTH MI CANADA INC. 2015 ANNUAL REPORT
GENWORTH MI CANADA INC. 2015 FINANCIAL REPORT
20
20
Management’s discussion and analysis (continued)
For the year ended December 31, 2015
Summary of annual information
The table below presents select income statement line items and certain key performance indicators for the last three years.
(in millions, unless otherwise specified)
Net premiums written
Net premiums earned
Losses on claims
Net underwriting income
Total investment income (including impact of reversal of government guarantee exit
fees in 2013)
Net income
Adjustment to net income net of taxes:
Fee on early redemption of long term debt
Net investment gains
Net operating income1
Earnings per common share:
Earnings per common share (basic)
Earnings per common share (diluted)2
Selected non-IFRS financial measures:1
Loss ratio
Expense ratio
Combined ratio
Operating earnings per common share (basic)
Operating earnings per common share (diluted)2
Operating return on equity
Note: Amounts may not total due to rounding
2015
$809
586
122
356
201
398
—
(23)
$375
$4.32
$4.22
21%
18%
39%
$4.07
$4.05
12%
2014
$640
565
111
346
195
377
5
(16)
$366
$3.97
$3.97
20%
19%
39%
$3.86
$3.86
12%
2013
$512
573
142
319
216
375
—
(26)
$349
$3.86
$3.86
25%
20%
44%
$3.60
$3.60
12%
1The financial measures are not calculated based on IFRS. See the “Non-IFRS financial measures” section at the end of this MD&A for additional information.
2The difference between basic and diluted earnings per common share and basic and diluted operating earnings per common share is caused by the potentially dilutive impact of share-
based compensation awards.
GENWORTH MI CANADA INC. 2015 ANNUAL REPORT
GENWORTH MI CANADA INC. 2015 FINANCIAL REPORT
21
21
Management’s discussion and analysis (continued)
For the year ended December 31, 2015
The table below presents additional annual information as at the years ended December 31, 2015, 2014 and 2013.
(in millions, unless otherwise specified)
Total invested assets and cash
Total assets
Unearned premiums reserve
Long term debt
Total liabilities
Total shareholders’ equity
As at December 31,
2015
$5,917
$6,239
$2,021
$433
$2,819
$3,420
2014
2013
$5,443
$5,375
5,770
5,691
1,799
$432
2,499
3,271
1,724
$423
2,604
3,087
Dividends paid per common share1
$1.59
$1.87
$1.31
1 The Company paid a $0.43 special dividend per common share in 2014
GENWORTH MI CANADA INC. 2015 ANNUAL REPORT
GENWORTH MI CANADA INC. 2015 FINANCIAL REPORT
22
22
Management’s discussion and analysis (continued)
For the year ended December 31, 2015
Summary of quarterly results
The table below presents select income statement line items and certain key performance indicators for the last eight quarters.
(in millions of dollars, unless otherwise specified)
Q4'15
Q3'15
Q2'15
Q1'15
Q4'14
Q3'14
Q2'14
Q1'14
Premiums written
Premiums earned
Losses on claims
$ 213
$ 260
$ 205
$ 130
$ 178
$ 217
$ 160
$ 84
151
148
144
143
143
140
141
141
35
31
25
31
37
30
17
28
Net underwriting income
90
89
90
87
76
87
97
86
Total investment Income
47
39
58
57
47
51
49
49
Net income
98
90
103
107
86
98
97
95
Adjustment to net income net of taxes:
Fee on early redemption of long term debt
—
—
—
—
—
—
5
—
Net investment (gains) losses
(3)
3
(12)
(11)
(3)
(6)
(4)
(4)
Net operating income 1
$ 95
$ 92
$ 91
$ 97
$ 84
$ 93
$ 99
$ 91
Earnings per common share:
Earnings per common share (basic)
$ 1.06
$ 0.98
$ 1.12
$ 1.15
$ 0.92
$ 1.03
$ 1.02
$ 1.00
Earnings per common share (diluted) 2
$ 1.03
$ 0.96
$ 1.12
$ 1.08
$ 0.91
$ 1.01
$ 1.02
$ 1.00
Selected non-IFRS financial measures: 1
Loss ratio
Expense ratio
Combined ratio
23%
21%
17%
22%
26%
21%
12%
20%
18%
19%
20%
17%
21%
17%
19%
19%
41%
40%
37%
39%
47%
38%
31%
39%
Operating earnings per common share (basic)
$ 1.04
$ 1.01
$ 0.99
$ 1.04
$ 0.89
$ 0.97
$ 1.04
$ 0.96
Operating earnings per common share (diluted) 2
$ 1.03
$ 1.00
$ 0.99
$ 1.03
$ 0.89
$ 0.97
$ 1.04
$ 0.96
Note: Amounts may not total due to rounding.
1These financial measures are not calculated based on IFRS. See the “Non-IFRS financial measures” section at the end of this MD&A for additional information.
2The difference between basic and diluted earnings per common share and basic and diluted operating earnings per common share is caused by the potentially
dilutive impact of share-based compensation awards.
GENWORTH MI CANADA INC. 2015 ANNUAL REPORT
GENWORTH MI CANADA INC. 2015 FINANCIAL REPORT
23
23
Management’s discussion and analysis (continued)
For the year ended December 31, 2015
Financial condition
Statement of financial position highlights and selected financial data
(in millions of dollars, unless otherwise specified)
Total investments
Other assets
As at December
31, 2015
As at
December 31,
2014
Increase (decrease) and
percentage change
2015 vs. 2014
$ 5,917
$ 5,443
$ 474
9%
261
260
—
—
Subrogation recoverable
61
67
(6)
(9)%
Total assets
6,239
5,770
469
8%
Unearned premiums reserves
2,021
1,799
222
12%
Loss reserves
Long-term debt
Other liabilities
Total liabilities
Shareholders’ equity excluding Accumulated other
comprehensive income (“AOCI”)1
AOCI
Shareholders’ equity
132
115
16
14%
433
432
—
—
234
153
81
53%
2,819
2,499
320
13%
3,293
3,086
207
7%
127
185
(59)
(32)%
3,420
3,271
149
5%
Total liabilities and shareholders’ equity
$ 6,239
$ 5,770
$ 469
8%
Selected non-IFRS financial measures 1
MCT ratio 2
Book value per common share
233%
225%
—
8 pts
Number of common shares outstanding (basic )
91,795,125
93,147,778
(1,352,653)
(1)%
Book value per common share including AOCI (basic)
Book value per common share excluding AOCI (basic)
$37.26
$35.88
$35.12
$33.13
$2.14
6%
$2.75
8%
Number of common shares outstanding (diluted) 3
92,872,626
93,403,036
(530,410)
(1)%
Book value per common share including AOCI (diluted) 3
Book value per common share excluding AOCI (diluted) 3
$36.82
$35.46
$35.02
$33.04
$1.80
5%
$2.42
7%
Dividends paid per common share during the year4
$ 1.59
$ 1.87
Note: Amounts may not total due to rounding.
1 These financial measures are not calculated based on IFRS. See the “Non-IFRS financial measures” section at the end of this MD&A for additional information.
2 The MCT ratio as at December 31, 2015 is a Company estimate and as at December 31, 2014 is the actual reported figure.
3 The difference between basic and diluted number of common shares outstanding, book value per common share including AOCI and book value per common share excluding AOCI is
caused by the potentially dilutive impact of share-based compensation awards.
4 The Company paid a $0.43 special dividend per common share in 2014
GENWORTH MI CANADA INC. 2015 ANNUAL REPORT
GENWORTH MI CANADA INC. 2015 FINANCIAL REPORT
24
24
Management’s discussion and analysis (continued)
For the year ended December 31, 2015
Reserve development analysis
The table below shows the one-year development of the Company’s loss reserves for the five most recent completed years.
As at December 31
(in millions, unless otherwise specified)
2015 2014 2013
2012
2011
Total loss reserves, at the beginning of the year
$115 $118 $139
$169
$207
Loss reserves for prior years’ delinquent loans, remaining at the end of the year (A)
23
16
10
26
45
Change in loss reserves for prior years’ delinquent loans
93
101
129
143
162
Paid claims for prior years’ delinquent loans
(82)
(94)
(139)
(193)
(214)
Favourable (unfavourable) development
$11
$7 $(10)
$(51)
$(52)
As a percentage of total loss reserves, at the beginning of the year
10%
7%
(7)%
(30)%
(25)%
Loss reserves for current year’s delinquent loans, at the end of the year (B)
109
99
108
113
124
Total loss reserves at the end of the year (A+B)
$132 $115 $118
$139
$169
Note: Amounts may not total due to rounding.
The Company’s loss-reserving methodology, including reserve development, is reviewed on a monthly basis and incorporates the most
current available information. The Company’s outstanding reserves represent the Company’s current best estimate of the ultimate cost of
settling claims, in each case as of the date such reserves are established and based on the information available at such time.
The Company experienced modest favourable reserve development in 2015 of $11 million, or 10% of the total loss reserves at the
beginning of the year. The provinces of Alberta and Ontario accounted for the majority of the favourable development in 2015, offsetting
modest unfavorable development in Québec and the Atlantic provinces.
The Company regularly reviews the underlying drivers of its loss reserves development and adjusts its reserving practices accordingly.
Financial instruments
As at December 31, 2015, the Company had total cash and cash equivalents and invested assets of $5.9 billion in its portfolio. All of the
Company’s invested assets are classified as available-for-sale (“AFS”) with the exception of cash and cash equivalents, collateral receivable
under reinsurance agreement and accrued investment income and other receivables which are classified as loans and receivables. Fair value
measurements for AFS securities are based on quoted market prices for identical assets when available. In the event an active market does
not exist, estimated fair values are obtained primarily from industry-standard pricing sources using market observable information and
through processes such as benchmark curves, benchmarking of like securities and quotes from market participants.
The following tables present the Company’s invested assets by asset class for the portfolio.
GENWORTH MI CANADA INC. 2015 ANNUAL REPORT
GENWORTH MI CANADA INC. 2015 FINANCIAL REPORT
25
25
Management’s discussion and analysis (continued)
For the year ended December 31, 2015
Asset Class
As at December 31, 2015
As at December 31, 2014
(in millions of dollars, unless otherwise
specified)
Fair
value
%
Unrealized
gains
(losses) 3
Fair
value
%
Unrealized
gains 3
Asset backed bonds and debentures 1
$
178
3% $
32
$
125
2%
$
5
Corporate bonds and debentures:
Financials
Energy
Infrastructure
All other sectors
967
16%
34
1,142
21%
316
222
549
5%
4%
9%
22
14
55
252
241
569
Total Corporate bonds and debentures
2,054
35%
124
2,205
Short term investments
Canadian federal government treasury bills 2
Total Short term investments
Government bonds and debentures:
Canadian federal government 2
Canadian provincial and municipal
government
78
78
1,963
1,006
1%
1%
33%
17%
—
—
79
73
5%
4%
10%
41%
2%
2%
85
85
1,770
898
33%
16%
Total Government bonds and debentures
2,969
50%
152
2,667
49%
141
Preferred shares:
Financials
Energy
All other sectors
Total Preferred shares
Common shares:
Financials
Energy
All other sectors
Total Common shares
Total invested assets
Cash and cash equivalents
Total investments
146
53
49
248
—
—
—
—
2%
1%
1%
4%
—
—
—
—
(19)
(9)
(5)
(33)
—
—
—
—
—
—
—
—
45
29
97
170
—
—
—
—
1%
1%
2%
3%
93% $
276 $
5,253
97% $
$
5,527
391
7%
5,917
100%
28
—
—
—
—
276
—
—
190
3%
5,443
100%
30
28
—
—
Accrued investment income and other receivables
Collateral receivable under reinsurance
agreement
Total Invested assets, accrued investment
income and other receivables
$
5,946
100% $
276 $
5,502
100% $
289
Note: Amounts may not total due to rounding.
1 Asset backed bonds are comprised of collateralized loan obligations. (December 31, 2014, asset backed bonds includes $117 million of collateralized loan obligations).
2 Canadian federal government bonds and treasury bills includes $85 million (December 31, 2014 - $22 million) in collateral posted for the benefit of the Company's counterparties to its
derivative financial instrument contracts.
3 Unrealized gains include unrealized foreign exchange gains of $97 million (December 31, 2014 - $30 million).
GENWORTH MI CANADA INC. 2015 ANNUAL REPORT
GENWORTH MI CANADA INC. 2015 FINANCIAL REPORT
26
26
46
18
14
37
115
—
—
73
68
—
—
—
—
8
2
18
28
289
—
289
—
—
Management’s discussion and analysis (continued)
For the year ended December 31, 2015
Unrealized gains on AFS securities in the portfolio were $276 million, which included $97 million of unrealized foreign exchange gains.
Unrealized gains decreased $14 million from the end of 2014 primarily as a result of the gains realized on the sale of common equities
during the year as well as the decline in preferred shares values partially offset by the increase in unrealized foreign exchange gains due to
the decline in the Canadian dollar. The increase in unrealized foreign exchange gains was offset by the revaluation of the Company’s foreign
exchange derivatives consisting of foreign exchange forwards and cross currency interest rate swaps.
The Company’s average investment yield for the year ended December 31, 2015 was 3.3%, which included the favourable impact of non-
taxable dividend income from its preferred and common shares.
The Company assigns credit ratings based on the asset risk guideline as outlined in OSFI’s Interim Capital Requirements for Mortgage
Insurance Companies, Minimum Capital Test Guideline effective January 1, 2015. Based on this guideline, the Company assigns ratings
from DBRS when available. The majority of the assets in Company’s current investment portfolio have a DBRS rating. In the absence of a
DBRS rating, the Company assigns the lower of S&P or Fitch Rating Services ratings.
The following table presents the Company’s invested assets, comprised primarily of fixed income securities, by credit rating for the
portfolio.
Credit Rating
As at December 31, 2015
As at December 31, 2014
(in millions of dollars, unless otherwise
specified)
Fair
value
%
Unrealized
gains
(losses)
Fair
value
Unrealized
gains
%
Cash and cash equivalents
$
391
7%
$
— $
190
4%
AAA
AA
A
BBB
Below BBB
2,160
38%
1,024
18%
1,703
30%
387
5
7%
—
90
93
87
37
1
1,947
37%
1,099
21%
1,700
32%
337
—
6%
—
—
80
67
94
20
—
Total investments (excluding common shares
and preferred shares)
Preferred shares
$
5,670
100%
$
308 $
5,273
100%
261
P1
P2
P3
Total Preferred shares
Total Common shares
Total invested assets and cash and cash
equivalents
Note: Amounts may not total due to rounding.
—
—
227
92%
20
8%
248
100%
—
—
(32)
(1)
(33)
—
—
—
—
—
—
—
170
—
—
—
—
$
5,917
$
276 $
5,443
261
GENWORTH MI CANADA INC. 2015 ANNUAL REPORT
GENWORTH MI CANADA INC. 2015 FINANCIAL REPORT
27
27
Management’s discussion and analysis (continued)
For the year ended December 31, 2015
Investment portfolio management
The Company manages its portfolio assets to meet liquidity, credit quality, diversification and yield objectives by investing primarily in fixed
income securities, including federal and provincial government bonds, corporate bonds and preferred shares. The Company also holds short-
term investments. In all cases, investments are required to comply with restrictions imposed by law and insurance regulatory authorities as
well as the Company’s own investment policy, which has been approved by the Board.
To diversify management styles and to broaden credit expertise, the Company has split these assets primarily among four external
investment managers. The Company works with these managers to optimize the performance of the portfolios within the parameters of the
stated investment objectives outlined in its investment policy. The policy takes into account the current and expected condition of capital
markets, the historical return profiles of various asset classes and the variability of those returns over time, the availability of assets,
diversification needs and benefits, the regulatory capital required to support the various asset types, security ratings and other material
variables likely to affect the overall performance of the Company’s investment portfolio. Compliance with the investment policy is monitored
by the Company and reviewed at least quarterly with the Company’s management-level investment committee and the Risk, Capital and
Investment Committee of the Board.
Asset-backed bonds and debentures
The Company held $178 million in asset-backed bonds as of December 31, 2015, up from $125 million as of December 31, 2014. These
securities are floating rate collateralized loan obligations (“CLOs”) denominated in U.S. dollars of which 89% are rated AA and above, and
11% are rated A.
Corporate bonds and debentures
As of December 31, 2015, approximately 35% of the investment portfolio was held in corporate bonds and debentures, down from 41% at
December 31, 2014. The proceeds from maturities in 2015 were reinvested in government bonds and debentures. The investment policy
limits the percentage of the portfolio that can be invested in any single issuer or group of related issuers. Financial sector exposure through
corporate bonds and debentures represents 16% of the investment portfolio, or approximately 47% of the corporate bonds and debentures.
The Company continuously monitors and repositions its exposure to the financial sector, which represents greater than 50% of the
corporate issuances of fixed income securities in the Canadian marketplace. Energy sector exposure through corporate bonds and
debentures represents 5% of the investment portfolio, of which approximately 33% is in pipelines and distribution companies that are
primarily regulated entities with stable cash flows. The remaining 67% of the Company’s energy sector exposure is integrated oil and gas
companies with large capitalizations. Securities rated BBB and below were $392 million, or 7% of invested assets, as of December 31,
2015.
Government bonds and debentures
The Company’s investment policy requires that a minimum of 30% of the investment portfolio be invested in sovereign fixed income
securities. As of December 31, 2015, 50% of the investment portfolio was invested in sovereign fixed income securities, consisting of 33%
in federal fixed income securities and 17% in provincial fixed income securities, as compared to 49% in the prior year.
Canadian federal government treasury bills held by the Company consist primarily of short-term investments with original maturities greater
than 90 days and less than 365 days. The Company held $78 million in Canadian short-term treasury bills in the investment portfolio as of
December 31, 2015 as compared to $85 million in the prior year.
Common shares
As of December 31, 2015, the Company held no dividend paying Canadian common shares as compared to 3% of the Company’s
investment portfolio, or $170 million, as of December 31, 2014. The decision to sell the holdings of dividend paying common shares earlier
in the year was primarily related to the substantial increase in the regulatory capital requirements for common shares under the Interim
Capital Requirements for Mortgage Insurance Companies which became effective January 1, 2015.
GENWORTH MI CANADA INC. 2015 ANNUAL REPORT
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Management’s discussion and analysis (continued)
For the year ended December 31, 2015
Preferred shares
As of December 31, 2015, the Company held $248 million of preferred shares, of which the financial sector represented 59%. The
Company believes that preferred shares have a comparable dividend yield to common shares and offer a more attractive risk and capital
adjusted return profile to that of common shares under the current MCT guidelines. As a result of the continued low interest rate
environment, the value of the Company’s preferred share investment holdings have an unrealized loss of $33 million at December 31, 2015.
Cash and cash equivalents
Cash and cash equivalents consist primarily of cash in bank accounts and government treasury bills with original maturities of 90 days or
less. The Company determines its target cash holdings based on near-term liquidity needs, market conditions and perceived favourable
future investment opportunities. The Company’s cash holdings in the investment portfolio were $391 million as of December 31, 2015, an
increase of $200 million from the $190 million in cash holdings as of December 31, 2014. The increase was primarily the result of an
increase in cash from operating activities and fixed income maturities in the investment portfolio.
Liquidity
The purpose of liquidity management is to ensure there is sufficient cash to meet all of the Company’s financial commitments and
obligations. The Company has five primary sources of funds, consisting of premiums written from operations, investment income, cash and
short-term investments, investment maturities or sales and proceeds from the issuance of debt and equity. The Company believes it has
the flexibility to obtain, from current cash holdings and ongoing operations, the funds needed to fulfill its cash requirements during the
current financial year and in the future financial years.
The following table provides a summary of the Company’s cash flows:
(in millions of dollars, unless otherwise specified)
2015
2014
Cash provided by (used in):
Operating activities
Financing activities
Investing activities
Increase in cash and cash equivalents
Cash and cash equivalents, beginning of period
$ 667
$ 199
(195)
(271)
200
190
(242)
19
(23)
214
Cash and cash equivalents, end of period
$ 391
$ 190
Note: Amounts may not total due to rounding.
The Company generated $667 million of cash flows from operating activities in 2015, as compared to $199 million in the prior year’s period.
The strong cash flows in 2015 were from strong premiums written activity. The lower cash flows from operating activities in 2014 was
primarily the result of $226 million in higher taxes paid in the first quarter, related to the reversal of the government guarantee fund.
The Company utilized $194 million of cash flows for financing activities in 2015, primarily related to the payment of ordinary dividends of
$147 million as well as the repurchase of common shares of $50 million, as compared to $242 million primarily related to the payment of
ordinary and special dividends of $178 million and the repurchase of common shares of $75 million in the prior year’s period.
The Company utilized $271 million of cash flows from investing activities, primarily from the purchase of bonds and debentures and
preferred shares in 2015, as compared to the generation of $19 million in the prior year’s period primarily from portfolio maturities.
GENWORTH MI CANADA INC. 2015 ANNUAL REPORT
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Management’s discussion and analysis (continued)
For the year ended December 31, 2015
The Company maintains a portion of its investment portfolio in cash and liquid securities to meet working capital requirements and other
financial commitments. As of December 31, 2015, the Company held liquid assets of $979 million, comprised of $391 million in cash and
cash equivalents, and $588 million in bonds and debentures maturing within one year in order to maintain financial flexibility. Of the $588
million liquid assets, $121 million was held outside of the Insurance Subsidiary. As at December 31, 2015, the duration of the fixed income
portfolio was 3.7 years.
In addition to cash and cash equivalents, 52%, or $3,048 million, of the Company’s investment portfolio comprises federal and provincial
government securities for which there is a highly liquid market. Funds are used primarily for operating expenses, claims payments, and
interest expense, as well as dividends and other distributions to shareholders. Potential liquidity risks are discussed in more detail in the
“Risk Factors” section of the Company’s AIF.
The Company leases office space, office equipment, computer equipment and automobiles. Future minimum rental commitments for non-
cancellable leases with initial or remaining terms of one year or more, long-term debt, accounts payable and accrued liabilities and loss
reserves, consist of the following at December 31, 2015:
Contractual obligations
Payment dates due by period (in millions)
Long-term debt1
Accounts payable and accrued liabilities
Operating leases
Loss reserves
Total contractual obligations
Note: Amounts may not total due to rounding.
1 See “Debt” section below for more details.
1 year or less
1–3 years
3–5 years
Over 5 years
—
$66
$3
$56
$125
—
—
$5
$75
$80
$275
$160
—
$5
—
—
—
—
$280
$160
Total
$435
$66
$13
$132
$645
Operating lease expense for 2015 was $3 million, consistent with the prior year.
GENWORTH MI CANADA INC. 2015 ANNUAL REPORT
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30
Management’s discussion and analysis (continued)
For the year ended December 31, 2015
Derivative financial instruments
Derivative financial instruments are used by the Company for hedging purposes and for the purpose of modifying the risk profile of the
Company’s investment portfolio, as long as the resulting exposures are within the Company’s investment policy guidelines, which have
been approved by the Board.
The Company uses derivative financial instruments in the form of foreign currency forwards and cross currency interest rate swaps to
mitigate foreign currency risk associated with bonds denominated in U.S. dollars. The Company uses derivative financial instruments in the
form of equity total return swaps to mitigate volatility from changes in the fair market value of the Company’s common shares related to
risks associated with share-based compensation expense.
The following table shows the fair value and notional amounts of the derivatives by terms of maturity, in Canadian dollars.
Net Fair value
1 year or less
1–3 years
3–5 years
Over 5 years
Total
Notional Amount (in millions)
December 31, 2015
Foreign currency forwards
$(48)
Cross currency interest rate swaps
$(34)
Equity total return swaps
Total
December 31, 2014
$(2)
$(84)
$14
$144
$20
$177
Foreign currency forwards
$(15)
$29
Cross currency interest rate swaps
$(8)
—
$26
$28
—
$54
$6
$121
$40
—
—
$40
$216
$18
—
$234
$17
$203
—
—
—
—
$297
$189
$20
$505
$255
$121
—
$375
Equity total return swaps
Total
—
$(23)
—
—
$29
$126
$17
$203
Capital expenditures
The Company’s capital expenditures primarily relate to technology investments aimed at improving operational efficiency and effectiveness
for sales, underwriting, risk management and loss mitigation. In 2015, the Company invested approximately $4 million in underwriting, loss
mitigation and risk management technologies enhancements. The Company expects that future capital expenditures will continue to be
allocated to underwriting, loss mitigation, and risk management technology improvements. The Company expects that capital expenditures
in 2016 will be in the $3 million to $5 million range and it is anticipated that such expenditures will be funded primarily from operating cash
flows.
GENWORTH MI CANADA INC. 2015 ANNUAL REPORT
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Management’s discussion and analysis (continued)
For the year ended December 31, 2015
Capital management
Minimum capital test
The Insurance Subsidiary is regulated by OSFI. Under the MCT, an insurer calculates a ratio of capital available to capital required in a
prescribed manner. Mortgage insurers are required to maintain a minimum ratio of regulatory capital available, as defined for MCT purposes,
to capital required.
Under the Protection of Residential Mortgage or Hypothecary Insurance Act (“PRMHIA”) and the Insurance Companies Act (Canada)
(“ICA”), the minimum MCT ratio for the Insurance Subsidiary is 175%. In conjunction with this requirement, the Insurance Subsidiary has
set its internal MCT target capital ratio to 185%. The Company manages its capital base to maintain a balance between capital strength,
efficiency and flexibility. As at December 31, 2015, the Insurance Subsidiary’s MCT ratio was approximately 233%, or 43 percentage points
higher than the Company’s internal target of 185% and 13 percentage points higher than the Company’s holding target of 220%. While the
Company’s internal MCT capital target is calibrated to cover the various risks that the business would face in a severe recession, the holding
target ratio is designed to provide a capital buffer to allow management time to take the necessary actions should capital levels be
pressured by deteriorating macroeconomic conditions. Under this framework, capital in excess of the holding target may be redeployed.
Capital above the amount required to meet the Insurance Subsidiary’s MCT operating targets could be used to support organic growth of
the business or declaration and payment of dividends or other distributions, and if distributed to Genworth Canada, to repurchase common
shares of the Company, for acquisitions, for repayment of debt, or for such other uses as permitted by law and approved by the Board.
During the third quarter of 2014, OSFI released an advisory guideline, Interim Capital Requirements for Mortgage Insurance Companies, for
use on an interim basis starting in 2015 pending the completion of a new regulatory test for mortgage insurance companies which is
expected to take effect in 2017. This guideline was developed by adjusting the 2015 Minimum Capital Test for Federally Regulated Property
and Casualty Insurance Companies (“2015 MCT Guideline”), to reflect the specific characteristics of the mortgage insurance business until
the new capital guideline for mortgage insurance companies is developed.
The table below illustrates the MCT at the end of December 31, 2015, a pro-forma MCT at the end of December 31, 2014 under the 2015
MCT Guideline which came into effect on January 1, 2015, as well as MCT at the end of December 31, 2014 under the guideline in effect
as of such date.
(in millions, unless otherwise specified)
2015 MCT Guideline
Pro-forma
Minimum Capital Test
Dec 31, 2015
Dec 31, 2014
Dec 31, 2014
As at
As at
As at
Capital available
Capital required
MCT ratio
1 Company estimate
$3,6321
$1,5601
233%1
$3,4451
$1,5131
228%1
$3,298
$1,465
225%
GENWORTH MI CANADA INC. 2015 ANNUAL REPORT
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Management’s discussion and analysis (continued)
For the year ended December 31, 2015
The Company’s MCT estimate as at December 31, 2015 of 233% increased by 8 percentage points from the MCT as at December 31,
2014. The Company estimates, based on the pro-forma analysis completed as of December 31, 2014, that an increase of approximately 3
percentage points in the MCT ratio from December 31, 2014 resulted from the implementation of the 2015 MCT Guideline. The impact of
the guideline change primarily arose from an increase in available capital due to the inclusion of certain deferred acquisition costs originating
from expenses. Previously these deferred acquisition costs had been deducted from capital available. As compared to the 2015 MCT
guideline pro-forma, the MCT as at December 31, 2015 of 233% increased 5 percentage points. The increase to capital available was due
primarily to profitability, which was partially offset by the Insurance Subsidiary’s dividends and a decrease in unrealized gains from the
investment portfolio. The increase to capital required was due primarily to higher capital requirements for insurance risk margin, interest rate
risk and operational risk.
Debt
The Company proactively manages capital to balance capital strength, flexibility and efficiency. The Company currently has $432 million in
long-term debt with a debt to capital ratio as at December 31, 2015 of 11%.
The following tables provide details of the Company’s long-term debt:
Payment dates due by period (in millions)
Total
Less than 1
year
1–3 years
3–5 years
After 5 years
Long-term debt
$435
—
—
$275
$160
Series 1
Series 3
Date issued
June 29, 2010
April 1, 2014
Maturity date
June 15, 2020
April 1, 2024
Principal amount outstanding (in millions) $275
$160
Fixed annual rate 5.68%
4.242%
Semi-annual interest payments due each year on
June 15,
December 15
October 1, April 1
Debenture Ratings
S&P1 BBB+, (Stable)
BBB+, (Stable)
DBRS1 AA (Low), Stable AA (Low), Stable
1 See “Financial Strength Rating” section of this MD&A for additional information.
GENWORTH MI CANADA INC. 2015 ANNUAL REPORT
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Management’s discussion and analysis (continued)
For the year ended December 31, 2015
The principal debt covenants associated with the debentures are as follows:
A negative pledge under which the Company will not assume or create any security interest (other than permitted encumbrances)
unless the debentures are secured equally and ratably with (or prior to) such obligation.
The Company will not, nor will it permit any of its subsidiaries to, amalgamate, consolidate or merge with or into any other person or
liquidate, wind-up or dissolve itself unless (a) the Company or one of its wholly-owned subsidiaries is the continuing or successor
company or (b) if the successor company is not a wholly-owned subsidiary, at the time of, and after giving effect to, such transaction
no event of default and no event that, after notice or lapse of time, or both, would become an event of default shall have happened and
be continuing under the trust indenture, in each case subject to certain exceptions and limitations set forth in the trust indenture.
The Company will not request that the rating agencies withdraw their ratings of the debentures.
In the case of certain events of default under the terms of the debentures issued by the Company in 2010 and 2014, the aggregate unpaid
principal amount of such debentures, together with all accrued and unpaid interest thereon and any other amounts owing with respect
thereto, shall become immediately due and payable. The events of default that would trigger such an acceleration of payment include if the
Company takes certain voluntary insolvency actions, such as instituting proceedings for its winding up, liquidation or dissolution, or consents
to the filing of such proceedings against it; or if involuntary insolvency proceedings go uncontested by the Company or are not dismissed
within a specified time period, or the final order sought in such proceedings is granted against the Company.
For more specific details on the terms and conditions of the Company’s debentures, please see the relevant prospectus, copies of which
are available on the SEDAR website at www.sedar.com.
Financial strength ratings
The Insurance Subsidiary has financial strength ratings from both S&P and DBRS. Although the Insurance Subsidiary is not required to have
ratings to conduct its business, ratings may influence the confidence in an insurer and its products.
On September 3, 2015, S&P affirmed the Insurance Subsidiary’s A+ rating and the Company’s BBB+ rating and stable outlook. S&P noted
that the Company had a strong competitive position, low industry risk due the Company's disciplined underwriting initiatives and tight
governmental regulation and very strong earnings and capitalization.
The Insurance Subsidiary is rated AA and the Company’s issuer rating is AA (Low), with a stable outlook, by DBRS. The ratings from DBRS
were confirmed in March 2015. DBRS applies a one-notch differential between the Insurance Subsidiary and the Company to reflect the
structural subordination of the Company’s financial obligations relative to those of the regulated Insurance Subsidiary. The rating from DBRS
is a function of the financial strength, operating performance and ability to meet obligations to policyholders.
Ratings Summary
Issuer Rating
Company
Financial Strength
Insurance Subsidiary
Senior Unsecured Debentures
Company
S&P
DBRS
BBB+, Stable
AA (Low), Stable
A+, Stable
AA, Stable
BBB+, Stable
AA (Low), Stable
GENWORTH MI CANADA INC. 2015 ANNUAL REPORT
GENWORTH MI CANADA INC. 2015 FINANCIAL REPORT
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34
Management’s discussion and analysis (continued)
For the year ended December 31, 2015
Capital transactions
Share repurchase
On April 28, 2015, the Company received approval from the Toronto Stock Exchange allowing for the Company to undertake a Normal
Course Issuer Bid (“NCIB”). Pursuant to the NCIB, the Company may purchase, for cancellation, up to 4,658,577 common shares,
representing approximately 5% of its outstanding common shares as of April 27, 2015. Purchases of common shares under the NCIB
commenced on or after May 5, 2015 and will conclude on the earlier of May 4, 2016 and the date on which the Company has purchased the
maximum number of shares available for purchase under the NCIB.
Pursuant to the NCIB, during the second quarter of 2015 the Company repurchased 1,454,196 common shares for cancellation,
representing approximately 2% of the outstanding common shares, for an aggregate amount of approximately $50 million. The Company
did not make any purchases pursuant to the NCIB during the third and fourth quarter.
Under the Company’s prior NCIB, which commenced on April 29, 2014 and expired on May 4, 2015 (the “Prior NCIB”), the Company
purchased a total of 1,873,023 common shares for cancellation during the year ended December 31, 2014, representing approximately 2%
of its outstanding common shares. No common shares were purchased for cancellation under the Prior NCIB during 2015.
The Company’s major shareholder, Genworth Financial Inc., participated proportionately to maintain its approximately 57.3% ownership
interest in the Company throughout the course of both the NCIB and the prior NCIB. Shareholders may obtain a copy of the NCIB notice,
without charge, by contacting the Company.
Restrictions on dividends and capital transactions
The Insurance Subsidiary is subject to certain restrictions with respect to dividend and capital transactions. The ICA prohibits directors from
declaring or paying any dividend on shares of an insurance company if there are reasonable grounds for believing that the Company is, or
the payment of the dividend would cause the company to be, in contravention of applicable requirements to maintain adequate capital,
liquidity and assets. The ICA also requires an insurance company to notify OSFI of the declaration of a dividend at least 15 days prior to the
date fixed for its payment. Similarly, the ICA prohibits the purchase for cancellation of any shares issued by an insurance company or the
redemption of any redeemable shares or other similar capital transactions if there are reasonable grounds for believing that the company is,
or the payment would cause the Company to be, in contravention of applicable requirements to maintain adequate capital, liquidity and
assets. Share cancellation or redemption would also require the prior approval of OSFI. Finally, OSFI has broad authority to take actions that
could restrict the ability of an insurance company to pay dividends.
Outstanding share data
The following table presents changes in the number of common shares outstanding at December 31, 2015 and December 31, 2014.
Common shares, beginning of period (January 1)
Common shares issued in connection with share-based
compensation plans
Common shares repurchased and cancelled
Common shares, end of period
December 31, 2015
December 31, 2014
93,147,778
101,543
(1,454,196)
91,795,125
94,910,880
109,921
(1,873,023)
93,147,778
At December 31, 2015, Genworth Financial, Inc. beneficially owned 52,562,042 common shares of the Company, or approximately 57.3%
of the Company’s outstanding common shares, through its wholly-owned subsidiaries, Genworth Financial International Holdings LLC
GENWORTH MI CANADA INC. 2015 ANNUAL REPORT
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35
Management’s discussion and analysis (continued)
For the year ended December 31, 2015
(“GFIH”), Genworth Mortgage Insurance Corporation (“GMIC”) and Genworth Mortgage Insurance of North Carolina (“GMINC”) which held
approximately 40.7%, 14.9% and 1.7% of the common shares of the Company, respectively. On October 1, 2015 Brookfield Life Assurance
Limited transferred its 40.7% ownership interest in the Company to GFIH. Subsequent to this transaction, Genworth Financial Inc., which is
listed on the New York Stock Exchange, continues to beneficially own approximately 57.3% of the common shares of the Company through
GMIC, GMINC and GFIH, respectively.
Risk management
Enterprise risk management framework
Risk management is a critical part of Genworth Canada’s business. The Company’s Enterprise Risk Management (“ERM”) Framework,
comprises the totality of the frameworks, systems, processes, policies, and people for identifying, assessing, mitigating and monitoring
risks. The key elements of the Enterprise Risk Management Framework are illustrated in the diagram below.
Governance
Framework
Oversight, culture, tone
Strategic planning process
& risk appetite
Risk management process & tools
Identification, assessment, measuremet, management & controls
Risk monitoring & reporting
Risk categories
Model
Strategic
Operational
Legal Compliance
Credit
Market
Insurance
GENWORTH MI CANADA INC. 2015 ANNUAL REPORT
GENWORTH MI CANADA INC. 2015 FINANCIAL REPORT
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36
Management’s discussion and analysis (continued)
For the year ended December 31, 2015
Governance framework
The Company’s governance framework is designed to ensure the Board and management have effective oversight of the risks faced by the
Company with clearly defined and articulated roles and responsibilities and inter-relationships. The governance framework is comprised of
three core elements:
I. Board oversight of risk and risk management practices;
II. Management oversight of risks; and
III.
The “three lines of defense” operating model.
The Board, in collaboration with management, is responsible for setting the Company’s Risk Appetite and ensuring that it remains
consistent with the Company’s short and long-term strategy, business and capital plans. The Board carries out its risk management
mandate primarily through its committees, with the Risk, Capital and Investment Committee having responsibility for oversight of insurance,
investment and operational risks.
The Company’s management is responsible for risk management under the oversight of the Board and fulfills its responsibility through
several risk committees, as noted in the chart below. The Chief Risk Officer, who oversees the Risk Management Group, reports to the
CEO but has direct access via in-camera sessions with the Risk, Capital and Investment Committee of the Board.
Genworth Canada uses a ‘three lines of defense’ approach to risk management, which serves to allocate accountability and responsibility
for risk management within the various business functions, as outlined in the chart below.
Board of Directors
Risk, Capital &
Investment
Committee
Audit Committee
Compensation and
Nominating
Committee
Conduct Review
Committee
CRO
Senior Leadership Team
Management
Committee
Insurance Risk
Committee
Operational
Risk
Committee
Investment
Risk
Committee
ERM
Committee
Model Steering
Committee
First Line of Defense
Second Line of Defense
Third Line of Defense
Risk Owner
Operational leaders and support
functions
Accountable for:
o
o
o
o
Identification
Assessment
Mitigation and
Reporting of risk against
approved policies
Risk Oversight
Risk Management, Finance &
Compliance functions
Establish risk management practices
and provide risk guidance
Independent oversight of risk
management practices
Risk Owner
Internal and external audit
Independent assurance to management
and the Board of Directors on the
effectiveness of risk framework
GENWORTH MI CANADA INC. 2015 ANNUAL REPORT
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37
Management’s discussion and analysis (continued)
For the year ended December 31, 2015
Risk appetite framework
Risk appetite is the maximum amount of risk that the Company is willing to accept in the pursuit of its business objectives. The objective in
managing risk is to protect the Company from unacceptable loss or an undesirable outcome with respect to earnings volatility, capital
adequacy, liquidity or reputation, while supporting the Company’s overall business strategy.
The purpose of the Risk Appetite Framework is to provide a framework for management and the Board for understanding the ultimate level
of risk the Company is willing to undertake in pursuit of its strategic objectives with due regard to its commitments and regulatory
boundaries. It articulates the desired balance between risk objectives and profitability objectives, and is a key communication tool that
enables the Board to cascade key messages throughout the organization. It establishes a common understanding around the acceptable
level of variability in financial performance and answers the question of how much risk the Company is willing to take under expected and
extreme conditions.
Where possible the Company has set risk limits and tolerances that guide the business and ensure that risk taking activities are within its
risk appetite. The Company’s risk tolerances and limits will be assessed for appropriateness no less than annually and on a more frequent
basis if there is a major change to the economic or business environment. The Company communicates risk tolerances and limits through
its policies, limit structures and operating procedures.
Where possible, the Company’s risk appetite is subject to stress and scenario testing and can be expressed as the tolerance with respect to
acceptable variances for earnings, liquidity and capital to deviate from their target levels under adverse scenarios.
Risk principles
The Company employs the following methods of managing risk that originate from the business objectives of the Company and
responsibility for risk management is shared across the business
Ensure the expected outcomes of risk taking activities are consistent with the Company’s strategies and risk appetite;
Ensure there is an appropriate balance between risk, return, capital, and liquidity in order to meet policyholder obligations and maximize
shareholder value throughout economic cycles;
Ensure business decisions are based on an understanding of risk. Ensure a deep understanding of risk drivers as they relate to our key
objectives;
Employ a “Three Lines of Defense” risk governance model;
Proactively address emerging risks as they arise;
Ensure strict adherence to legal, compliance and regulatory requirements.
The Company’s ERM framework and internal control procedures are designed to reduce the level of volatility in its financial results. The key
elements and considerations of ORSA include: the comprehensive identification and assessment of risks and the adequacy of the
Company’s risk management; the assessment of the Company’s current and likely future capital needs and solvency positions in light of its
risk assessments; the distinguishing of Board oversight and management responsibility for such processes; detailing related monitoring and
reporting requirements; and detailing the Company’s internal controls and objective review process and procedures for such risk
assessments. The Company’s ORSA is forward looking and is congruent with the Company’s business and strategic planning.
GENWORTH MI CANADA INC. 2015 ANNUAL REPORT
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Management’s discussion and analysis (continued)
For the year ended December 31, 2015
Risk controls
The Company’s ERM approach is supported by a comprehensive set of risk controls. The controls are embedded through its ERM
framework and risk-specific frameworks. These frameworks lay the foundation for the development and communication of management -
approved policies and the establishment of formal review and approval processes. The Company’s risk management framework and policies
are organized as follows:
ERM Framework: provides an overview of the enterprise-wide program for identifying, measuring, controlling and reporting of
material risks the Company faces.
Risk-Specific Frameworks: provides an overview of the Company’s program for identifying, measuring, controlling and reporting
for each of its material risks.
Company-wide Policies and Procedures: governs activities such as product risk review and approval, project initiatives, stress
testing, risk limits and risk approval authorities.
Risk categories
Insurance risk
Genworth Canada’s mortgage portfolio risk management involves actively managing its borrower credit quality, product and geographic
exposures. The Company carefully monitors portfolio concentrations by borrower credit quality, product and geography against pre-
determined risk tolerances, taking into account the conditions of the housing market and economy in each region of Canada. For Genworth
Canada-insured transactional mortgages, the average credit score has increased by 17 points since 2008 to 747 for the fourth quarter of
2015, the average home price has increased modestly since 2011 to $322,000 for the fourth quarter of 2015 and the average gross debt
service ratio has remained relatively stable around 24 to 25%, which is well below the industry accepted maximum.
To the extent that home prices appreciate over time and/or the principal amount of the loan is paid down, the effective loan-to-value of the
Company’s insurance written in a given year decreases. The table below illustrates the estimated effective loan-to-value of the Company’s
outstanding mortgage insurance balances by book of business.
Effective Loan to Value by Year of Policy
Origination (%) (1) (2) (3)
2009 and Prior
2010
2011
2012
2013
2014
2015
Total
As at September 30, 2015
As at December 31, 2014
Transactional Portfolio Total
Transactional Portfolio Total
50
67
71
76
81
87
91
71
25
36
42
42
46
53
59
47
45
62
65
59
62
68
73
61
52
71
75
80
85
91
-
71
27
36
45
47
50
58
-
48
48
64
69
63
65
72
-
62
(1)
(2)
(3)
Amounts may not total due to rounding.
This is based on the amounts reported by lenders surveyed, which represents the vast majority of insurance in-force. Outstanding mortgage insured balances
Loan to value ratio is based on loan amount including capitalized premium, where applicable.
GENWORTH MI CANADA INC. 2015 ANNUAL REPORT
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Management’s discussion and analysis (continued)
For the year ended December 31, 2015
Genworth Canada’s extensive historical database and innovative information technology systems are important tools in its approach to risk
management. The Company utilizes components of its proprietary high loan-to-value mortgage performance database to build and improve
its mortgage scoring model. This mortgage scoring model employs a number of evaluation criteria to assign a score to each insured
mortgage loan and predict the likelihood of a future claim. This evaluation criteria includes borrower credit score, loan type and amount,
total debt service ratio, property type and loan-to-value. The Company believes these factors, as well as other considerations, significantly
enhance the ability of the mortgage scoring model to predict the likelihood of a borrower default, as compared to reliance solely on
borrower credit score. The Company also utilizes internally developed stochastic modelling to estimate projected losses on claims and to
measure the severity of loss and delinquency rate sensitivity to both changes in the economic environment as well as individual loan or
borrower attributes.
The Company’s mortgage portfolio risk management function is organized into three primary groups: portfolio analysis, underwriting policies
and guidelines, and risk technology and actuarial modeling. The risk management team analyzes and summarizes mortgage portfolio
performance, risk concentrations, emerging trends and remedial actions which are reviewed with the Company’s management-level Risk
Committee on a monthly basis. The Company closely monitors the delinquency performance as a key indicator of insurance portfolio
performance.
The Company also employs a quality assurance team to ensure that policies and guidelines established by the Company’s mortgage
portfolio risk management function are adhered to both internally within the Company and by lenders submitting applications to the
Company. The quality assurance team conducts daily audits of a random sample of loans adjudicated by the Company’s underwriters.
Similarly, external lender audits are conducted on a routine basis, using a statistically relevant sample of approved loans. In addition, the
quality assurance team also audits the loss reserving and mitigation functions to ensure compliance with relevant Company policies and
reserving standards. Audit results of all three areas are reviewed by management on a monthly basis.
Market and credit risk
The Company monitors and manages the credit risk, liquidity risk and market risk, including interest rate risk, equity price risk, currency risk,
emerging markets risk and counterparty risk of its investment portfolio.
Credit risk
Credit risk is the risk that one party to a financial instrument fails to discharge an obligation and causes financial loss to another party. The
Company is exposed to credit risk principally through its investment assets. The Company's investment management strategy is to invest
primarily in debt instruments of Canadian government agencies and other high credit quality issuers and to limit the amount of credit
exposure with respect to any one issuer, business sector, or credit rating category, as specified in its investment policy. Credit quality of
financial instrument issuers is assessed based on ratings supplied by rating agencies DBRS, S&P and Moody’s and credit analysis
completed by the Company and its investment managers.
Credit risk from derivative transactions reflects the potential for the counterparty to default on its contractual obligations when one or more
transactions have a positive market value to the Company. Therefore, derivative-related credit risk is represented by the positive fair value
of the instrument and is normally a small fraction of the contract’s notional amount. To mitigate credit risk related to derivative
counterparties, the Company has adopted a policy whereby, upon signing the derivative contract, the counterparty is required to have a
minimum credit rating of A-.
GENWORTH MI CANADA INC. 2015 ANNUAL REPORT
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Management’s discussion and analysis (continued)
For the year ended December 31, 2015
Liquidity risk
Liquidity risk is the risk of having insufficient cash resources to meet policy obligations and other financial commitments as they fall due
without raising funds at unfavourable rates or selling assets on a forced basis. To ensure liquidity requirements are met, the Company holds
a portion of investment assets in liquid securities. Adverse capital and credit market conditions and the MCT requirements of the Insurance
Subsidiary may significantly affect the Company’s access to capital and may affect its ability to meet liquidity or debt refinancing
requirements in the future. Potential liquidity risks are discussed in more detail in the “Risk Factors” section of the Company’s AIF and the
“Liquidity” section in this MD&A.
Market risk
Market risk is the risk of loss arising from adverse changes in market rates and prices, such as interest rates, equity market fluctuations,
foreign currency exchange rates and other relevant market rate or price changes. Market risk is directly influenced by the volatility and
liquidity in the markets in which the related underlying assets are traded. The market risks to which the Company is exposed are interest
rate risk, equity price risk, currency risk, emerging markets risk and counterparty risk.
Interest rate risk
Fluctuations in interest rates have a direct impact on the market valuation of the Company's fixed income investment portfolio. Short-term
interest rate fluctuations will generally create unrealized gains or losses. Generally, the Company's interest income will be reduced during
sustained periods of lower interest rates as higher-yielding fixed income investments are called, mature or are sold and the proceeds are
reinvested at lower rates, and this will likely result in unrealized gains in the value of fixed income investments the Company continues to
hold, as well as realized gains to the extent that the relevant investments are sold. During periods of rising interest rates, the market value
of the Company's existing fixed income investments will generally decrease and gains on fixed income investments will likely be reduced or
become losses.
Equity price risk
Equity price risk is the risk that the fair values of equities will decrease as a result of changes in the levels of equity indices and the values of
individual stocks. Equity price risk exposure arises from the Company's investment in common shares. The Company has policies to limit
and monitor exposures to individual equity investment issuers and its aggregate exposure to equities.
Currency risk
Currency risk is the risk that the fair value of future cash flows of a financial instrument will fluctuate because of changes in foreign
exchange rates. The Company is exposed to currency risk arising from investments and receivables denominated in U.S. The Company
uses foreign exchange forward contracts and cross-currency interest rate swaps to mitigate currency risk.
Emerging markets risk
Emerging markets risk relates to international investment grade bond holdings which are exposed to greater market volatility, have less
availability of reliable financial information, carry higher transactional and custody costs, are subject to taxation by foreign governments, have
decreased market liquidity and may be exposed to political instability.
Counterparty risk
Counterparty risk relates to the risk that a counterparty will fail to discharge its obligation related to a bond, derivative contract or other trade
or transaction.
GENWORTH MI CANADA INC. 2015 ANNUAL REPORT
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Management’s discussion and analysis (continued)
For the year ended December 31, 2015
Financial reporting controls and accounting disclosures
Disclosure controls and procedures and internal controls over financial reporting
As required by National Instrument 52-109, the Company has in place disclosure controls and procedures and internal controls over financial
reporting, designed under the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) Framework (2013) to ensure
the disclosure of all material information or changes relating to the Company to all members of the public in a fair and timely manner. Such
controls and procedures ensure that all relevant material is gathered and reported to senior management (including the CEO, CFO and
General Counsel) and the Company’s management-level disclosure committee on a timely basis so that appropriate decisions can be made
regarding public disclosure. An evaluation and certification of the Company’s disclosure controls and procedures and internal controls over
financial reporting is done regularly under supervision by the Company’s CEO and CFO in accordance with the requirements of National
Instrument 52-109 of the Canadian Securities Administrators, and such certifications are available with the Company’s filings on the SEDAR
website at www.sedar.com. The certifications filed in connection with certain interim and annual financial disclosure documents, confirm
that the CEO and CFO have concluded that the design and operation of the disclosure controls and procedures and internal controls over
financial reporting were effective, for such periods. There were no changes in the Company’s internal controls over financial reporting during
the quarter or year ending December 31, 2015 that have materially affected, or are reasonably likely to materially affect, the Company’s
controls over financial reporting.
Changes in accounting policies and future accounting standards
There have been no changes in accounting policies during the year.
IFRS 9 - Financial instruments
In July 2015, the IASB published an amended version of IFRS 9, which replaces IAS 39 -Financial instruments: recognition and
measurement, and includes guidance on the classification and measurement of financial instruments, impairment of financial assets, and a
new general hedge accounting model. Financial asset classification is based on the cash flow characteristics and the business model in
which an asset is held. The classification determines how a financial instrument is accounted for and measured. IFRS 9 also introduces a
single impairment model for financial instruments not measured at fair value through profit or loss that requires recognition of expected
credit losses at initial recognition of a financial instrument and the recognition of full lifetime expected credit losses if certain criteria are
met. The new model for hedge accounting aligns hedge accounting with risk management activities.
While the new standard is generally effective for years beginning on or after January 1, 2018, in December 2015 the IASB published an
Exposure Draft Applying IFRS 9 Financial Instruments with IFRS 4 Insurance Contracts, which proposes to allow some insurers optional
transitional relief until the forthcoming insurance accounting standard is available for implementation. The proposed options would allow (a)
entities whose predominant activity is issuing insurance contracts within the scope of IFRS 4 to defer the implementation of IFRS 9 to as
late as January 1, 2021, which may allow alignment of the implementation of IFRS 9 with the forthcoming insurance accounting standard, or
alternatively (b) give entities issuing insurance contracts the option to remove from profit or loss the incremental volatility caused by
changes in the measurement of specified financial assets upon application of IFRS 9.
The Company is evaluating the impact of IFRS 9 on its financial assets and financial liabilities and the option for the deferral of IFRS 9
adoption.
GENWORTH MI CANADA INC. 2015 ANNUAL REPORT
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42
Management’s discussion and analysis (continued)
For the year ended December 31, 2015
IFRS 4 - Insurance contracts
In June 2014, the IASB issued a revised exposure draft proposing a comprehensive measurement approach for all types of insurance
contracts, which would replace the existing IFRS 4 Insurance Contracts. Deliberations of the exposure draft continue and a final standard is
expected to be issued in late 2016. The effective date of the final standard is not expected to be before 2020.
The Company is monitoring the development of IFRS 4 and assessing the impact of its adoption.
IFRS 16 - Leases
IFRS 16 was issued on January 13, 2016. The new standard will replace existing lease guidance in IFRS and related interpretations, and
requires companies to bring most leases on-balance sheet.
The Company is assessing the impact of IFRS 16.
The new standard is effective for years beginning on or after January 1, 2019.
Significant estimates and judgments
The preparation of consolidated financial statements in accordance with IFRS requires management to make estimates and judgments that
affect the reported amounts of assets and liabilities at the date of the consolidated financial statements and the reported amounts of
revenue and expenses during the reporting periods covered by the financial statements. The principal financial statement components
subject to measurement uncertainty are outlined below as accounting estimates and judgments. Actual results may differ from the
estimates used, and such differences may be material.
Accounting estimates
Information about assumptions and estimation uncertainties that have a risk of resulting in material adjustment within the next 12 months are
as follows:
Premiums earned
Mortgage insurance premiums are deferred and then taken into underwriting revenues over the terms of the related policies. The rates or
formulae under which premiums are earned relate to the loss emergence pattern in each year of coverage. In order to match premiums
earned to losses on claims, premiums written are recognized as premiums earned using a factor-based premium recognition curve.
In constructing the premium recognition curve, the Company applies actuarial forecasting techniques to historical loss data to determine
expected loss development and the related loss emergence pattern.
Loss reserves
Loss reserves represent the amount needed to provide for the expected ultimate net cost of settling claims including adjustment expenses
related to defaults by borrowers (both reported and unreported) that have occurred on or before the reporting date. Loss reserves are
discounted to take into account the time value of money and include a supplemental provision for adverse deviation. Loss reserves are
recognized when the first scheduled mortgage payment is missed by a mortgage borrower. In determining the ultimate claim amount, the
Company estimates the expected recovery from the property securing the insured loan and the legal, property maintenance and other loss
adjustment expenses incurred in the claim settlement process. Loss reserves consist of individual case reserves, Incurred But Not Reported
("IBNR") reserves and supplemental loss reserves for potential adverse deviation.
GENWORTH MI CANADA INC. 2015 ANNUAL REPORT
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43
Management’s discussion and analysis (continued)
For the year ended December 31, 2015
For the purpose of quantifying case reserves, the Company analyzes each reported delinquent loan on a case-by-case basis and establishes
a case reserve based on the expected loss, if any. The ultimate expected claim amount is influenced significantly by housing market
conditions, changes in property values, and the condition of properties in default.
The Company establishes reserves for IBNR based on the reporting lag from the date of first missed payment to the reporting date for
mortgages in default that have not been reported to the Company. IBNR is calculated using estimates of expected claim frequency and
claim severity based on the most current available historical loss data, adjusted for seasonality.
In order to discount loss reserves to present value, the Company's appointed actuary determines a discount rate based on the market yield
of the Company's investment portfolio.
The Company recognizes a provision for adverse deviation based on assessment of the adequacy of the Company's loss reserves and with
reference to the current and future expected condition of the Canadian housing market and its impact on the expected development of
losses.
The process for the establishment of loss reserves relies on the judgment and opinions of a number of individuals, on historical precedent
and trends, on prevailing legal and economic trends and on expectations as to future developments. This process involves risks that actual
results will deviate, perhaps substantially, from the best estimates made. These risks vary in proportion to the length of the estimation
period and the volatility of each component comprising the liability.
Subrogation recoverable
The Company estimates the fair value of subrogation rights related to real estate included in subrogation recoverable based on third party
property appraisals or other types of third party valuations deemed to be more appropriate for a particular property.
The Company estimates borrower recoveries related to claims paid and loss reserves included in subrogation recoverable based on
historical recovery experience. Borrower recoveries are based on the expected discounted cash flows net of an actuarial margin for adverse
deviation.
Deferred policy acquisition costs
Deferred policy acquisition costs are comprised of premium taxes, appraisal costs, risk fee, certain employee compensation, and other
expenses that relate directly to acquisition of new mortgage insurance business. Deferred policy acquisition costs are deferred and
expensed in proportion to and over the periods in which premiums are earned.
The Company estimates expenses eligible for deferral based on the nature of expenses incurred and results of time and activity studies
performed to identify the portion of time the Company's employees incur in the acquisition of new mortgage insurance business.
GENWORTH MI CANADA INC. 2015 ANNUAL REPORT
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Management’s discussion and analysis (continued)
For the year ended December 31, 2015
Accounting judgments
Objective evidence of impairment of AFS financial assets
Financial assets not carried at Fair Value Through Profit and Loss are assessed at each reporting period to determine whether there is
existence of objective evidence of impairment.
Bonds, debentures and preferred shares are assessed for impairment if objective evidence indicates that a loss event has occurred after the
initial recognition of the asset. Loss events include default or delinquency of the debtor, indications that the issuer of a security will enter
bankruptcy, significant deterioration of credit quality and economic conditions that correlate with defaults or the disappearance of an active
market for a security. Impairment is deemed to exist when the Company does not expect full recovery of the amortized cost of the
investment based on the estimate of cash flows expected to be collected or when the Company intends to sell the investment prior to
recovery from its unrealized loss position.
Common shares are deemed to be impaired when it is determined that the common shares have experienced significant or prolonged
losses.
Impairment losses on AFS financial assets are recognized by reclassifying losses from AOCI to income. The cumulative loss that is
reclassified from AOCI to income is the difference between the acquisition cost, net of any principal repayment and amortization, and the
current fair value, less any impairment loss recognized previously in income. Changes in impairment provisions attributable to time value are
reflected as a component of investment income. If, in a subsequent period, the fair value of an impaired AFS bond or preferred share
increases and the increase can be related objectively to an event occurring after the impairment loss was recognized in income, then the
impairment loss is reversed, with the amount of the reversal recognized in income. However, any subsequent recovery in fair value of an
impaired AFS equity investment is recognized in other comprehensive income ("OCI").
Transactions with related parties
Services
The Company enters into related party transactions with Genworth Financial, Inc. and its subsidiaries. Services rendered by Genworth
Financial, Inc. and subsidiaries consist of information technology, finance, human resources, legal and compliance, and other specified
services. The services rendered by the Company and the Insurance Subsidiary relate mainly to financial reporting and tax compliance
support services. These transactions are in the normal course of business and are at terms and conditions no less favourable than market.
Balances owing for service transactions are non-interest bearing and are settled on a quarterly basis. The Company incurred net related
party charges of approximately $6 million in 2015, as compared to $5 million in 2014. The $1 million increase was primarily due to
devaluation of Canadian dollar in the current year’s period.
Reinsurance
Effective November 30, 2015, the Company, through its indirect subsidiary MIC Insurance Company Canada (“MICICC”), terminated a
retrocession agreement (“the Agreement”) that commenced on December 1, 2013 with a third party reinsurance company. Under the
Agreement, the Company assumed reinsurance risk for approximately 33% of the retroceded liabilities on claims paid by Genworth
Financial Mortgage Insurance Pty Limited, an Australian company (“Genworth Australia”) in excess of 700 million Australian dollars within
any one year up to a maximum exposure to the Company of 30 million Australian dollars less claims paid by the Company in prior years.
Under the Agreement, the Company received premium equal to 6.75% of the maximum exposure in the first year of coverage and 8.75%
of the maximum exposure in the second and third years of coverage. These premiums were consistent with current reinsurance market
rates.
GENWORTH MI CANADA INC. 2015 ANNUAL REPORT
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45
Management’s discussion and analysis (continued)
For the year ended December 31, 2015
Under the Agreement, the Company was required to collateralize its reinsurance obligations by posting cash collateral equal to the
maximum exposure of 30 million Australian dollars. As at December 31, 2015, the Company has no collateral posted (December 31, 2014 -
30 million Australian dollars, equivalent to $28 million).
The Company earned approximately $2 million in reinsurance premiums and did not incur any losses on claims under the Agreement in
2015 and 2014.
Non-IFRS financial measures
To supplement the Company’s consolidated financial statements, which are prepared in accordance with IFRS, the Company uses non-IFRS
financial measures to analyze performance. Non-IFRS financial measures include net operating income, interest and dividend income, net of
investment expenses, operating earnings per common share (basic), operating earnings per common share (diluted), shareholders’ equity
excluding accumulated other comprehensive income (“AOCI”), operating return on equity and underwriting ratios such as loss ratio,
expense ratio and combined ratio. Additional non-IFRS measures used by the Company to analyze performance include insurance in-force,
new insurance written, Minimum Capital Test (“MCT”) ratio, delinquency ratio, average reserve per delinquency, credit score, debt service
ratio, debt-to-capital ratio, ordinary dividend payout ratio, workout penetration rate, investment yield, book value per common share (basic)
including AOCI, book value per common share (basic) excluding AOCI, book value per common share (diluted) including AOCI, book value
per common share (diluted) excluding AOCI, and dividends paid per common share. The Company believes that these non-IFRS financial
measures provide meaningful supplemental information regarding its performance and may be useful to investors because they allow for
greater transparency with respect to key metrics used by management in its financial and operational decision making. Non-IFRS financial
measures do not have standardized meanings and are unlikely to be comparable to any similar measures presented by other companies.
The table below reconciles the Company’s interest and dividend income, net of investment expenses, net operating income, operating
earnings per common share (basic), operating earnings per common share (diluted) and shareholders’ equity excluding AOCI for the periods
specified to the Company’s net income, earnings per common share (basic), earnings per common share (diluted) and shareholders’ equity
in accordance with IFRS for such periods.
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Management’s discussion and analysis (continued)
For the year ended December 31, 2015
For the Fourth Quarter ended
December 31,
For the Full Year ended
December 31,
(in millions of dollars, unless otherwise specified)
2015
2014
2015
2014
Total net investment income
$
47
$
47 $
201
$
195
Adjustment to total net investment income:
Net gains on investments
Interest and dividend income, net of investment expenses
Net income
Adjustments to net income, net of taxes:
Fee on early redemption of long-term debt
Net gains on investments
Net operating income
Earnings per common share (basic)
Adjustment to earnings per common share, net of taxes:
Fee on early redemption of long-term debt
Net gains on investments
Operating earnings per common share (basic)
Earnings per common share (diluted)1
Adjustment to earnings per common share, net of taxes:
Fee on early redemption of long-term debt
Share based compensation re-measurement amount
Net gains on investments
Operating earnings per common share (diluted)1
Shareholders’ equity
Adjustment to shareholders' equity:
(3)
44
98
—
(3)
95
1.06
—
(0.03)
1.04
1.03
—
0.03
(0.03)
1.03
3,420
$
$
$
$
$
$
(4)
43
86
—
(3)
(32)
169
398
—
(23)
84 $
375
0.92 $
4.32
$
$
—
—
(0.03)
(0.25)
0.89 $
0.91 $
4.07
4.22
$
$
—
—
—
0.08
(0.03)
(0.25)
0.89 $
4.05
3,271 $
3,420
$
$
(22)
173
377
5
(16)
366
3.97
0.06
(0.17)
3.86
3.97
0.06
—
(0.17)
3.86
3,271
$
$
$
$
$
$
AOCI
(127)
(185)
(127)
(185)
Shareholders’ equity excluding AOCI
$
3,293
$
3,086 $
3,293
$
3,086
Note: Amounts may not total due to rounding.
1The difference between basic and diluted number of common shares outstanding is caused by the potentially dilutive impact of share-based compensation awards.
GENWORTH MI CANADA INC. 2015 ANNUAL REPORT
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47
Management’s discussion and analysis (continued)
For the year ended December 31, 2015
The table below shows Company’s non-IFRS financial measures for which no comparable IFRS measure is available. For a more meaningful
description of the measure, refer to the “Glossary” at the end of this MD&A.
(in millions of dollars, unless otherwise specified)
2015
2014
2015
2014
For the Fourth Quarter ended
For the Full Year ended
December 31,
December 31,
Selected non-IFRS financial measures
Insurance in force
New insurance written
Loss ratio
Expense ratio
Combined ratio
Operating return on equity
MCT ratio 1
Delinquency ratio
Investment yield
Book value per common share
$
$
404,963 $
356,318 $
404,963
$
356,318
15,826 $
8,785 $
50,938
$
42,153
23%
18%
41%
12%
26%
21%
47%
11%
21%
18%
39%
12%
20%
19%
39%
12%
233%
225%
233%
225%
0.10%
0.10%
0.10%
0.10%
3.3%
3.4%
3.3%
3.5%
Number of common shares outstanding (basic)
91,795,125
93,147,778
91,795,125
93,147,778
Book value per common share including AOCI (basic)
Book value per common share excluding AOCI (basic)
Number of common shares outstanding (diluted)2
Book value per common share including AOCI (diluted)2
Book value per common share excluding AOCI (diluted)2
Dividends paid per common share3
$
$
$
$
$
37.26 $
35.12 $
37.26
$
35.12
35.88 $
33.13 $
35.88
$
33.13
92,872,626
93,403,036
92,872,626
93,403,036
36.82 $
35.02 $
36.82
$
35.02
35.46 $
33.04 $
35.46
$
33.04
0.42 $
0.39 $
1.59
$
1.87
1The MCT ratio as at December 31, 2015 is the company estimate and as at December 31, 2014 is the actual reported figure.
2The difference between basic and diluted number of common shares outstanding is caused by the potentially dilutive impact of share-based compensation awards.
3 The Company paid a $0.43 special dividend per common share in 2014.
GENWORTH MI CANADA INC. 2015 ANNUAL REPORT
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Management’s discussion and analysis (continued)
For the year ended December 31, 2015
Glossary
“average reserve per delinquency” means the average reserve per delinquent loan calculated by total loss reserves in dollars divided by
the number of outstanding delinquent loans reported by lenders. Average reserve per delinquency measures the potential size of the
average loss, including delinquent loans with no expected loss, and is used for trending purposes and comparisons against internal targets.
“book value per common share” is a measure of the carrying value of each individual share of the Company and is a key metric used in
assessing the market value of the Company.
“book value per share including AOCI (basic)” means the per share amount of shareholders’ equity to the number of basic common
shares outstanding at a specified date.
“book value per share excluding AOCI (basic)” means the per share amount of shareholders’ equity excluding AOCI to the number of
basic common shares outstanding at a specified date.
“book value per share including AOCI (diluted)” means the per share amount of shareholders’ equity including AOCI to the number of
diluted common shares outstanding at a specified date. Diluted common shares outstanding takes into account all of the outstanding
dilutive securities that could potentially be exercised.
“book value per share excluding AOCI (diluted)” means the per share amount of shareholders’ equity excluding AOCI to the number of
diluted common shares outstanding at a specified date. Diluted common shares outstanding takes into account all of the outstanding
dilutive securities that could potentially be exercised.
“combined ratio” means the sum of the loss ratio and the expense ratio. The combined ratio measures the proportion of the Company’s
total cost to its premium earned and is used to assess the profitability of the Company’s insurance underwriting activities.
“credit score” means the lowest average credit score of all borrowers on a mortgage insurance application. Average credit scores are
calculated by averaging the score obtained from both Equifax and TransUnion for each borrower on the application. This is a key measure of
household financial health.
“debt-to-capital ratio” means the ratio (expressed as a percentage) of debt to total capital (the sum of debt and equity). This is a measure
of financial leverage that the Company considers in capital management planning.
“delinquent loans” means loans reported by lenders where the borrowers have failed to make scheduled mortgage payments under the
terms of the mortgage and where the cumulative amount of mortgage payments missed exceeds the scheduled payments due in a three-
month period.
“delinquency rate” means the ratio (expressed as a percentage) of the total number of delinquent loans to the total number of policies in-
force at a specified date. The delinquency ratio is an indicator of the emergence of losses on claims and the quality of the insurance portfolio
and is a useful comparison to industry benchmarks and internal targets.
“dividends paid per common share” means the portion of the Company’s profits distributed to shareholders during a specified period and
measures the total amount distributed by the Company to shareholders.
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Management’s discussion and analysis (continued)
For the year ended December 31, 2015
“dividend payout ratio” means the ratio (expressed as a percentage) of the dollar amount of ordinary dividends paid during a specified
period on net operating income over the same period. This is measure of how much cash flow is being returned for each dollar invested in
an equity position.
“expense ratio” means the ratio (expressed as a percentage) of sales, underwriting and administrative expenses to premiums earned for a
specified period. The expense ratio measures the operational efficiency of the Company and is a useful comparison to industry benchmarks
and internal targets.
“gross debt service ratio” means the percentage of borrowers’ total monthly debt servicing costs, in respect of the debt in question, as a
percentage of borrowers monthly gross income. This is a key measure of household financial health.
“insurance in-force” means the amount of all mortgage insurance policies in effect at a specified date, based on the original principal
balance of mortgages covered by such insurance policies, including any capitalized premiums. Insurance in-force measures the maximum
potential total risk exposure under insurance contracts at any given time and is used to assess potential losses on claims.
“Interest and dividend income, net of investment expenses” means the total net investment income excluding investment gains
(losses). This measure is an indicator of the core operating performance of the investment portfolio.
“investment yield” means the net investment income before investment fees and excluding net investment gains (losses) tax affected for
dividends for a period divided by the average of the beginning and ending investments book value, for such period. For quarterly results, the
investment yield is the annualized net investment income using the average of beginning and ending investments book value, for such
quarter.
“loss ratio” means the ratio (expressed as a percentage) of the total amount of losses on claims associated with insurance policies
incurred during a specified period to premiums earned during such period. The loss ratio is a key measure of underwriting profitability and
the quality of the insurance portfolio and is used for comparisons to industry benchmarks and internal targets.
“Minimum Capital Test” or “MCT” means the minimum capital test for certain federally regulated insurance companies established by
OSFI (as defined herein). Under MCT, companies calculate MCT ratio of regulatory capital available to regulatory capital required using a
defined methodology prescribed by OSFI in monitoring the adequacy of a company’s capital. The MCT ratio is a key metric of the adequacy
of the Company’s capital in comparison to regulatory requirements and is used for comparisons to other mortgage insurers and internal
targets.
“net operating income” means net income excluding after-tax net investment gains (losses) and after-tax fees on early redemption of
debt. Net operating income estimates the recurring after-tax earnings from core business activities and is a better indicator of core operating
performance.
“new insurance written” means the original principal balance of mortgages, including any capitalized premiums, insured during a specified
period. New insurance written measures the maximum potential risk exposure under insurance contracts added during a specific time
period and is used to determine potential loss exposure.
“operating earnings per common share (basic)” means the net operating income divided by the basic average common shares
outstanding at the end of period.
GENWORTH MI CANADA INC. 2015 ANNUAL REPORT
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50
Management’s discussion and analysis (continued)
For the year ended December 31, 2015
“operating earnings per common share (diluted)” means the net operating income divided by the diluted average common shares
outstanding at the end of period. The Company excludes the impact of the share based compensation re-measurement amount from
operating earnings per share (diluted) as it believes this results in a better indicator of core operating performance.
“operating return on equity” means the net operating income, excluding the impact of the share-based compensation re-measurement
amount, for a period divided by the average of the beginning and ending shareholders’ equity, excluding AOCI, for such period. For quarterly
results, the operating return is the annualized operating return on equity using the average of beginning and ending shareholders’ equity,
excluding AOCI, for such quarter. Operating return on equity is an indicator of return on equity from the core business activities.
“original amortization period” means the number of years that it will take to repay in full the original mortgage balance on the regularly
scheduled payment of principal and interest based at inception.
“portfolio insurance” means mortgage insurance covering an individual mortgage that is underwritten as part of a portfolio of mortgages
that have a loan-to-value ratio equal to or less than 80% at the time the loan is insured.
“remaining amortization period” means the estimated number of years that it will take to repay the outstanding mortgage balance as of
the reporting date based on the regularly scheduled payments of principal and interest.
“share based compensation re-measurement amount” means the impact of revaluation of stock option liability as required under IFRS
due to the cash settlement option. The Company believes that excluding this impact from operating earnings per share (diluted) is a better
indicator of core operating performance.
“transactional insurance” means mortgage insurance covering an individual mortgage that typically has been underwritten individually,
and which is predominantly a mortgage with a loan-to-value ratio of greater than 80% at the time the loan is originated.
“workout penetration” means the ratio (expressed as a percentage) of the number of total workouts approved, including shortfall sales,
over total workout opportunities. Total workout opportunities include all new delinquencies and re-delinquencies reported plus total
workouts approved over the same period. Workout penetration ratio measures the number of workouts performed relative to the number of
existing workout opportunities and is used to assess the success of the loss mitigation homeowner’s assistance program.
The Company’s full glossary is posted on the Company’s website at http://investor.genworthmicanada.ca and can be accessed by clicking
on the link under the Investor Resources heading on the bottom navigation bar.
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51
Genworth MI Canada Inc.
Consolidated Financial Statements
(In Canadian dollars)
Years ended December 31, 2015 and 2014
53 Management statement on responsibility for financial reporting
54 Independent auditors’ report
55 Consolidated statements of financial position
56 Consolidated statements of income
57 Consolidated statements of comprehensive income
58 Consolidated statements of changes in equity
59 Consolidated statements of cash flows
60 Notes to consolidated financial statements
GENWORTH MI CANADA INC. 2015 ANNUAL REPORT
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52
Management statement on responsibility for financial reporting
Management is responsible for the preparation and presentation of the consolidated financial statements of Genworth MI Canada Inc. (the
"Company"). This responsibility includes ensuring the integrity and fairness of information presented and making appropriate estimates
based on judgment. The consolidated financial statements are prepared in conformity with Canadian generally accepted accounting
principles.
Preparation of financial information is an integral part of management's broader responsibilities for the ongoing operations of the Company.
Management maintains an extensive system of internal accounting controls to ensure that transactions are accurately recorded on a timely
basis, are properly approved and result in reliable financial statements. The adequacy of operation of the control systems is monitored on
an ongoing basis by management.
The Board of Directors of the Company (the "Board") is responsible for approving the financial statements. The Audit Committee of the
Board, comprising directors who are neither officers nor employees of the Company, meets with management, internal auditors, the
actuary and external auditors (all of whom have unrestricted access and the opportunity to have private meetings with the Audit
Committee), and reviews the financial statements. The Audit Committee then submits its report to the Board recommending its approval of
the financial statements.
The Company's appointed actuary is required to conduct a valuation of policy liabilities in accordance with Canadian generally accepted
actuarial standards, reporting his results to management and the Audit Committee.
The Office of the Superintendent of Financial Institutions Canada ("OSFI") makes an annual examination and inquiry into the affairs of the
insurance subsidiary of the Company as deemed necessary to ensure that the Company is in sound financial condition and that the interests
of the policyholders are protected under the provisions of the Insurance Companies Act (Canada).
The Company's external auditors, KPMG LLP, Chartered Professional Accountants, conduct an independent audit of the consolidated
financial statements of the Company and meet both with management and the Audit Committee to discuss the results of their audit. The
auditors' report to the shareholders appears on the following page.
Stuart Levings
President and Chief Executive Officer
Philip Mayers
Senior Vice-President and Chief Financial Officer
Toronto, Canada
GENWORTH MI CANADA INC. 2015 ANNUAL REPORT
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53
Management’s discussion and analysis (continued)
Independent auditors’ report
For the year ended December 31, 2015
To the Shareholders of Genworth MI Canada Inc.
We have audited the accompanying consolidated financial statements of Genworth MI Canada Inc., which comprise the consolidated
statements of financial position as at December 31, 2015 and 2014, the consolidated statements of income, comprehensive income,
changes in equity and cash flows for the years then ended, and notes, comprising a summary of significant accounting policies and other
explanatory information.
Management's Responsibility for the Consolidated Financial Statements
Management is responsible for the preparation and fair presentation of these consolidated financial statements in accordance with
International Financial Reporting Standards, and for such internal control as management determines is necessary to enable the preparation
of consolidated financial statements that are free from material misstatement, whether due to fraud or error.
Auditors' Responsibility
Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in
accordance with Canadian generally accepted auditing standards. Those standards require that we comply with ethical requirements and
plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free from material
misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated
financial statements. The procedures selected depend on our judgment, including the assessment of the risks of material misstatement of
the consolidated financial statements, whether due to fraud or error. In making those risk assessments, we consider internal control
relevant to the entity's preparation and fair presentation of the consolidated financial statements in order to design audit procedures that are
appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity's internal control. An
audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by
management, as well as evaluating the overall presentation of the consolidated financial statements.
We believe that the audit evidence we have obtained in our audits is sufficient and appropriate to provide a basis for our audit opinion.
Opinion
In our opinion, the consolidated financial statements present fairly, in all material respects, the consolidated financial position of Genworth
MI Canada Inc. as at December 31, 2015 and 2014, and its consolidated financial performance and its consolidated cash flows for the years
then ended in accordance with International Financial Reporting Standards.
Chartered Professional Accountants, Licensed Public Accountants
February 4, 2016
Toronto, Canada
GENWORTH MI CANADA INC. 2015 ANNUAL REPORT
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54
Consolidated statements of financial position
(In thousands of Canadian dollars)
December 31, 2015 and 2014
Assets
Cash and cash equivalents
Short-term investments
Accrued investment income and other receivables
Derivative financial instruments
Bonds and debentures
Preferred shares
Common shares
Collateral receivable under reinsurance agreement
Notes
2015 (1) (2)
2014 (1) (2)
9 $
9
9
9
9
9
6(e)
$
390,796
78,178
28,130
—
5,200,715
247,717
—
—
190,375
84,933
30,099
303
4,997,359
—
170,456
28,446
Total invested assets, accrued investment income and other receivables
5,945,536
5,501,971
Income taxes recoverable
Subrogation recoverable
Prepaid assets
Property and equipment
Intangible assets
Deferred policy acquisition costs
Goodwill
Total assets
Liabilities and Shareholders' equity
Liabilities:
Accounts payable and accrued liabilities
Loss reserves
Share-based compensation liabilities
Derivative financial instruments
Long-term debt
Unearned premium reserves
Accrued net benefit liabilities under employee benefit plans
Deferred tax liabilities
Total liabilities
Shareholders' equity:
Share capital
Retained earnings
Accumulated other comprehensive income
Total shareholders' equity
Total liabilities and shareholders' equity
6(c)
15
6(d)
17
15,670
61,244
2,456
1,088
9,084
193,070
11,172
6,465
66,976
2,924
1,335
7,461
172,289
11,172
$
6,239,320
$
5,770,593
$
6(b)
14
9
19
6(a)
13
10
18
$
65,750
131,577
8,496
83,861
432,504
2,020,993
37,241
39,005
2,819,427
1,366,374
1,926,949
126,570
3,419,893
$
6,239,320
$
41,557
115,493
16,764
23,298
432,137
1,798,568
36,307
35,122
2,499,246
1,384,558
1,701,707
185,082
3,271,347
5,770,593
(1) Refer to note 21 for a presentation of assets and liabilities expected to be recovered or settled after 12 months.
(2) Refer to note 9 for the invested assets that have been loaned under the company's securities lending program
See accompanying notes to the consolidated financial statements.
On behalf of the Board:
Brian Hurley
Director
Brian Kelly
Director
GENWORTH MI CANADA INC. 2015 ANNUAL REPORT
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55
55
Consolidated statements of income
(In thousands of Canadian dollars, except per share amounts)
Years ended December 31,2015 and 2014
Premiums written
Premiums earned
Losses on claims
Expenses:
Premium taxes and underwriting fees
Employee compensation
Office
Professional fees
Promotional and travel
Other
Total expenses
Net change in deferred policy acquisition costs
6(d)
Net expenses
Net underwriting income
Investment income:
Interest
Dividends
Net investment gains
Total investment income
General investment expenses
Interest expense
Fee on early redemption of long-term debt
Income before income taxes
Income taxes:
Current
Deferred
19
19
10
Notes
2015
2014
6(a)(e) $
808,621 $
639,761
6(a)(e) $
586,196 $
564,961
6(b)
121,910
111,110
59,968
40,239
17,382
4,818
5,319
1,420
129,146
(20,781)
108,365
355,921
164,864
8,435
31,987
205,286
(4,396)
200,890
22,774
—
49,417
44,063
16,275
4,382
5,667
1,473
121,277
(13,862)
107,415
346,436
171,582
6,010
21,875
199,467
(4,345)
195,122
23,686
7,249
534,037
510,623
132,595
3,140
135,735
137,536
(3,457)
134,079
Net income for the year attributable to owners of the Company
$
398,302
$
376,544
Earnings per share:
Basic
Diluted
20
$
$
4.32 $
4.22 $
3.97
3.97
See accompanying notes to the consolidated financial statements.
GENWORTH MI CANADA INC. 2015 ANNUAL REPORT
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56
56
Consolidated statements of comprehensive income
(In thousands of Canadian dollars)
Years ended December 31, 2015 and 2014
2015
2014
Net income
$
398,302 $
376,544
Other comprehensive income (loss):
Items that will not be reclassified subsequently to income:
Re-measurement of employee benefit obligations, net of income tax of $743 (2014 - $1,834)
Items that may be reclassified subsequently to income:
Net change in fair value of Available-for-Sale ("AFS") financial assets, net of income tax of
$12,101 (2014 - $24,919)
Gains on AFS financial assets realized and reclassified to income, net of income tax of
$9,939 (2014 - $3,718)
Total other comprehensive income (loss) for the period attributable to owners of the
Company, net of income tax of $21,297 (2014 - $19,367)
2,028
(5,079)
(31,523)
71,743
(26,989
(10,704)
(56,484)
55,960
Total comprehensive income attributable to owners of the Company
$
341,818 $
432,502
See accompanying notes to the consolidated financial statements.
GENWORTH MI CANADA INC. 2015 ANNUAL REPORT
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57
Consolidated statements of changes in equity
(In thousands of Canadian dollars, except per share amounts)
Years ended December 31, 2015 and 2014
Balance at January 1, 2015
$ 1,384,558 $
1,701,707 $
185,082 $
3,271,347
Share capital
Retained
earnings
Accumulated other
comprehensive
income
Total
shareholders'
equity
Comprehensive income:
Net income
Other comprehensive income (loss)
Total comprehensive income
Total transactions recognized directly in equity:
—
—
—
398,302
—
398,302
—
(56,484)
(56,484)
Dividends on common shares(1)
Issuance of common shares
—
3,437
(146,702)
—
Repurchase of common shares
(note 18)
(21,621)
(28,386)
—
—
—
398,302
(56,484)
341,818
(146,702)
3,437
(50,007)
Re-measurement of employee benefit
obligations, net of income tax
Total transactions recognized directly in
equity
—
2,028
(2,028)
—
(18,184)
(173,060)
(2,028)
(193,272)
Balance at December 31, 2015
$ 1,366,374 $
1,926,949 $
126,570 $
3,419,893
Balance at January 1, 2014
$
1,408,213 $
1,555,062 $
124,043 $
3,087,318
Share capital
Retained earnings
Accumulated other
comprehensive
income (loss)
Total shareholders’
equity
Comprehensive income:
Net income
Other comprehensive income (loss)
Total comprehensive income
Total transactions recognized directly in
equity:
Dividends on common shares(1)
Issuance of common shares
—
—
—
376,544
—
376,544
—
4,186
(177,652)
—
Repurchase of common shares
(note 18)
(27,841)
(47,168)
Re-measurement of employee benefit
obligations, net of income tax
Total transactions recognized directly in
equity
Balance at December 31, 2014
—
(5,079)
(23,655)
(229,899)
—
55,960
55,960
—
—
—
5,079
5,079
376,544
55,960
432,504
(177,652)
4,186
(75,009)
—
(248,475)
$
1,384,558 $
1,701,707 $
185,082 $
3,271,347
(1) The Company paid dividends of $0.39 per common share in the first, second and third quarters of 2015 and $0.42 per common share in the fourth quarter of 2015 ($0.35 per common
share in the first, second and third quarters of 2014 and $0.39 per common share in the fourth quarter of 2014 and a special dividend of $0.43 per common share in the fourth
quarter of 2014).
See accompanying notes to the consolidated financial statements.
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58
Consolidated statements of cash flows
(In thousands of Canadian dollars)
Years ended December 31, 2015 and 2014
Cash provided by (used in):
Operating activities:
Net income
Adjustments for:
Amortization of intangible assets and depreciation of property and equipment
Expensing of deferred policy acquisition costs
Income taxes
Interest income
Dividend income
Net investment gains
Interest expense
Share-based compensation expense net of equity total return swap re-measurement
Change in non-cash balances related to operations:
Cash collateral received from the termination of reinsurance agreement
Accrued investment income and other receivables
Prepaid assets
Subrogation recoverable
Deferred policy acquisition costs
Accounts payable and accrued liabilities
Loss reserves
Unearned premium reserves
Accrued net benefit liabilities under employee benefit plans
Cash generated from (used in) operating activities:
Interest received from bonds and debentures
Dividends received from preferred shares and common shares
Interest paid on long-term debt
Income taxes paid
Share-based compensation awards settled in cash
Settlement of foreign currency forwards and cross currency interest rate swaps
Settlement of equity total return swaps
Net cash generated from operating activities
Financing activities:
Net proceeds from issuance of long-term debt
Repayment of long-term debt
Dividends paid
Repurchase of common shares
Proceeds from exercise of stock options
Net cash used in financing activities
Investing activities:
Purchase of short-term investments
Proceeds from sale or maturities of short-term investments
Purchase of bonds
Proceeds from sale or maturities of bonds
Purchase of preferred shares
Proceeds from sale of preferred shares
Purchase of common shares
Proceeds from sale of common shares
Purchase of intangible assets and property and equipment
Net cash generated from (used in) investing activities
Increase (decrease) in cash and cash equivalents
Cash and cash equivalents, beginning of year
2015
2014
$
398,302 $
376,544
2,370
58,120
135,735
(164,864)
(8,435)
(31,987)
22,774
(309)
3,638
53,050
134,079
(171,582)
(6,010)
(21,875)
23,686
6,305
411,706
397,835
28,224
(1,088)
468
5,732
(78,901)
23,826
16,084
222,425
3,703
632,179
176,484
9,028
(22,407)
(119,760)
(1,849)
(4,533)
(2,450)
666,692
—
—
(146,702)
(50,007)
1,843
—
(1,155)
211
8,478
(66,912)
7,787
(1,895)
74,800
2,830
421,979
184,615
6,057
(21,598)
(390,013)
(1,752)
—
—
199,288
158,635
(150,000)
(177,652)
(75,009)
1,924
(194,866)
(242,102)
(336,517)
343,272
(1,406,015)
1,241,415
(290,539)
11,292
(8,953)
178,386
(3,746)
(271,405)
(317,096)
271,812
(1,371,268)
1,405,182
—
—
(58,126)
93,378
(4,385)
19,497
200,421
(23,317)
190,375
213,692
Cash and cash equivalents, end of year
$
390,796
$
190,375
See accompanying notes to the consolidated financial statements.
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59
Notes to consolidated financial statements
(In thousands of Canadian dollars, except per share amounts) Years ended December 31, 2015 and 2014
1. Reporting entity:
Genworth MI Canada Inc. (the "Company") was incorporated under the Canada Business Corporations Act on May 25, 2009 and is
domiciled in Canada. Its shares are publicly traded on the Toronto Stock Exchange under the symbol "MIC". The Company's
registered office is located at Suite 300, 2060 Winston Park Drive, Oakville, Ontario, L6H 5R7, Canada.
Genworth Financial Inc., a public company listed on the New York Stock Exchange, indirectly holds approximately 57.3% of the
common shares of the Company.
The Company holds a 100% ownership interest in the holding companies Genworth Canada Holdings I Company ("Holdings I"),
Genworth Canada Holdings II Company ("Holdings II"), and MIC Holdings G Company ("Gco"). During the year ended
December 31, 2015, MIC Holdings F Company ("Fco") was wound up as part of a corporate reorganization undertaken by the
Company. The Company also holds an indirect 100% ownership interest in Genworth Financial Mortgage Insurance Company
Canada (the "Insurance Subsidiary") through Holdings I and Holdings II. These consolidated financial statements as at and for the
year ended December 31, 2015 reflect the consolidation of the Company and these subsidiaries. Additional information on the
reporting and consolidation structure is disclosed in note 11(b).
The Insurance Subsidiary is engaged in mortgage insurance in Canada and owns all of the issued and outstanding shares of MIC
Insurance Company Canada ("MICICC"). MICICC is licensed to service policies originated prior to its acquisition by the Company in
2012, and underwrite reinsurance limited to the class of mortgage insurance.
The Insurance Subsidiary is subject to regulation under the Protection of Residential Mortgage or Hypothecary Insurance Act
("PRMHIA"). Under the terms of PRMHIA, the Canadian federal government guarantees the benefits payable under eligible
mortgage insurance policies issued by the Insurance Subsidiary, less 10% of the original principal amount of each insured loan, in
the event that the Insurance Subsidiary fails to make claim payments with respect to that loan due to its bankruptcy or insolvency.
The Insurance Subsidiary and MICICC are regulated by the Office of the Superintendent of Financial Institutions Canada ("OSFI")
as well as applicable provincial financial services regulators.
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60
Notes to consolidated financial statements (continued)
(In thousands of Canadian dollars, except per share amounts) Years ended December 31, 2015 and 2014
2.
Basis of presentation:
(a) Statement of compliance:
These consolidated financial statements were prepared in accordance with International Financial Reporting Standards ("IFRS"), as
issued by the International Accounting Standards Board ("IASB").
These consolidated financial statements were approved by the Board of Directors on February 3, 2016.
(b) Basis of measurement:
These consolidated financial statements have been prepared on the historical cost basis except for the following material items in
the consolidated statements of financial position:
(i) Available-for-Sale ("AFS") short-term investments, bonds and debentures, preferred shares and common shares are measured
at fair value;
(ii) Subrogation rights related to real estate included in subrogation recoverable are measured at the fair value of the real estate
assets at the reporting date less costs for obtaining the rights to and selling the real estate;
(iii) Derivative financial instruments, which are comprised of foreign currency forwards, cross currency interest rate swaps, and
equity total return swaps are measured at fair value;
(iv) Accrued benefit liabilities under employee benefit plans are recognized at the present value of the defined benefit obligations;
(v) Liabilities for cash-settled share-based compensation are measured at fair value; and
(vi) Loss reserves and borrower recoveries included in subrogation recoverable are discounted and include an actuarial margin for
adverse deviation.
(c) Functional and presentation currency:
These consolidated financial statements are presented in Canadian dollars, which is the Company's functional currency. All
financial information presented in Canadian dollars has been rounded to the nearest thousand, except per share amounts.
(d) Use of estimates and judgments:
The preparation of financial statements requires management to make judgments, estimates and assumptions that affect the
application of accounting policies and the reported amounts of assets and liabilities at the date of the consolidated financial
statements and the reported amounts of income and expenses during the year. Actual results may differ from estimates made.
See note 5 for a description of the significant judgments and estimates made by the Company.
GENWORTH MI CANADA INC. 2015 ANNUAL REPORT
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61
Notes to consolidated financial statements (continued)
(In thousands of Canadian dollars, except per share amounts) Years ended December 31, 2015 and 2014
3.
Significant accounting policies:
(a) Basis of consolidation:
(i) Business combinations:
Business combinations are accounted for using the acquisition method as at the acquisition date, when control is transferred to
the Company.
The Company measures goodwill at the acquisition date as the fair value of consideration transferred less the net recognized
amount of the identifiable assets acquired and liabilities assumed. When the excess is negative, a bargain purchase gain is
recognized immediately in income.
Transaction costs, other than those associated with the issue of debt or equity securities, that the Company incurs in connection
with a business combination are expensed as incurred.
Interest in consolidated subsidiaries is disclosed in note 11(b).
(ii) Subsidiaries:
Subsidiaries are entities controlled by the Company. The financial statements of subsidiaries are included in the consolidated
financial statements from the date that control commences until the date control ceases. Intra-group balances and transactions
are eliminated in preparing consolidated financial statements.
(b) Insurance contracts:
The items in the Company's consolidated financial statements that are derived from insurance contracts are premiums, losses on
claims, subrogation recoveries, deferred policy acquisition costs and reinsurance. Each of these items is described below.
(i) Premiums written, premiums earned and unearned premium reserves:
Mortgage insurance premiums are deferred and then taken into underwriting revenues over the terms of the related policies. The
unearned portion of premiums is included in the liability for unearned premium reserves. The majority of policies to date have
been written for terms of 25 to 35 years. The rates or formulae under which premiums are earned are based on the loss
emergence pattern in each year of coverage. The Company performs actuarial studies and adjusts the formulae under which
premiums are earned in accordance with the results of such studies. This includes adjustments to earnings from premium
written in respect of prior periods.
A premium deficiency provision, if required, is determined as the excess of the present value of expected future losses on claims
and expenses (including policy maintenance expenses) on policies in force (using an appropriate discount rate) over unearned
premium reserves.
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62
Notes to consolidated financial statements (continued)
(In thousands of Canadian dollars, except per share amounts) Years ended December 31, 2015 and 2014
3.
Significant accounting policies (continued):
(b) Insurance contracts (continued):
(ii) Risk fee:
In conjunction with receiving credit support in the form of the Government of Canada guarantee, as prescribed in the PRMHIA,
the Company is subject to a risk fee equal to 2.25% of gross premiums written excluding reinsurance premiums. The Company
records the risk fee in premium taxes and underwriting fees in the consolidated statements of income. The risk fee relates
directly to the acquisition of new mortgage insurance business. Accordingly, it is subsequently deferred and expensed in
proportion to and over the period in which premiums are earned (note 3(b)(v)) and reflected in Deferred Policy Acquisition Costs.
(iii) Losses on claims and loss reserves:
Losses on claims include internal and external claims adjustment expenses and are recorded net of amounts received or expected
to be received from recoveries.
Loss reserves represent the amount needed to provide for the expected ultimate net cost of settling claims including adjustment
expenses related to defaults by borrowers (both reported and unreported) that have occurred on or before each reporting date.
Loss reserves are discounted to take into account the time value of money. The Company records a supplemental provision for
adverse deviation based on an explicit margin for adverse deviation developed by the Company's appointed actuary.
Loss reserves are derecognized after a claim has been paid and the Company's obligation under the policy has been fulfilled, or
after a borrower has remedied a delinquent loan and management estimates that no loss will be incurred under the policy.
(iv) Subrogation recoveries and subrogation recoverable:
Subrogation rights related to real estate are carried in subrogation recoverable at the fair value of the real estate assets less costs
for obtaining the rights to and selling the real estate.
Estimated borrower recoveries related to claims paid and loss reserves are recognized in subrogation recoverable net of
estimated administrative fees associated with collection. Borrower recoveries are discounted to take into account the time value
of money and include an explicit margin for adverse deviation.
GENWORTH MI CANADA INC. 2015 ANNUAL REPORT
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63
Notes to consolidated financial statements (continued)
(In thousands of Canadian dollars, except per share amounts) Years ended December 31, 2015 and 2014
3.
Significant accounting policies (continued):
(b) Insurance contracts (continued):
(v) Deferred policy acquisition costs:
Deferred policy acquisition costs comprise premium taxes, appraisal costs, risk fee, certain employee compensation, and other
expenses that relate directly to acquisition of new mortgage insurance business. Policy acquisition costs related to unearned
premiums are deferred to the extent that they can be expected to be recovered from the unearned premium reserves and are
expensed in proportion to and over the periods in which the premiums are earned.
(vi) Reinsurance:
Reinsurance contracts are those contracts under which the reinsurer agrees to indemnify the cedant against all or part of the
primary insurance risks underwritten by the cedant under one or more insurance contracts.
Reinsurance premiums are taken into underwriting revenues over the terms of the related reinsurance agreements. Reinsurance
premiums are reported in premiums written and premiums earned in the consolidated statements of income.
Unpaid reinsurance premiums, if any, are reported in accrued investment income and other receivables on the consolidated
statements of financial position.
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64
Notes to consolidated financial statements (continued)
(In thousands of Canadian dollars, except per share amounts) Years ended December 31, 2015 and 2014
3.
Significant accounting policies (continued):
(c) Financial instruments:
The Company recognizes financial assets on the trade date, at which the Company becomes a party to the contractual provisions
of the financial asset contract.
The Company derecognizes a financial asset when the contractual rights to the cash flows from the asset expire, or it transfers
the rights to receive contractual cash flows on the financial asset in a transaction in which substantially all the risks and rewards of
ownership of the financial asset are transferred. Any interest in transferred financial assets that is created or retained by the
Company is recognized as a separate asset or liability.
Financial assets and liabilities are offset and the net amount is presented in the statements of financial position when the
Company has a legally enforceable right to offset the amounts and intends either to settle on a net basis or to realize the asset
and settle the liability simultaneously.
(i) Cash and cash equivalents:
Cash and cash equivalents are comprised of deposits in banks, treasury bills, and other highly liquid investments, with original
maturities of three months or less, that are readily convertible to known amounts of cash and which are subject to an insignificant
risk of changes in value.
(ii) Financial assets at fair value through profit and loss:
A financial asset is classified as fair value through profit and loss ("FVTPL") if it is considered to be held for trading or it is
designated as such upon initial recognition. The Company has classified its derivative financial instruments as FVTPL at
December 31, 2015 and 2014 (note 3(e)).
FVTPL financial assets are recorded at fair value with realized gains and losses on sale and changes in the fair value recorded in
income. Transaction costs related to FVTPL financial assets are recognized in income as incurred.
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65
Notes to consolidated financial statements (continued)
(In thousands of Canadian dollars, except per share amounts) Years ended December 31, 2015 and 2014
3.
Significant accounting policies (continued):
(c) Financial instruments (continued):
(iii) AFS financial assets:
AFS financial assets are non-derivative financial assets that are designated as AFS and are not classified in any other specific
financial asset category. As at December 31, 2015 and 2014, the Company classifies bonds and debentures, preferred shares,
short-term investments and common shares in the AFS financial asset category.
AFS financial assets are recorded at fair value with changes in the fair value of these assets recorded in other comprehensive
income ("OCI"). Cumulative realized gains and losses on sale and cumulative realized gains and losses on AFS instrument
derecognition, as well as impairment losses, are reclassified from accumulated other comprehensive income ("AOCI") and
recorded in investment income. Investment gains or losses on sale of investments are measured at the difference between cash
proceeds received and the amortized cost of a bond or preferred share or the cost of a common share. Transaction costs are
capitalized as part of the carrying value of the AFS financial assets.
Re-measurement adjustments arising on translation of AFS bonds denominated in U.S. dollars to Canadian dollars are recognized
in net investment gains or losses in accordance with the accounting policy for foreign currency translation in note 3(n).
(iv) Loans and receivables:
Loans and receivables are financial assets with fixed or determinable payments that are not quoted in an active market. Such
assets are recognized initially at fair value plus any directly attributable transaction costs. Subsequent to initial recognition, loans
and receivables are measured at amortized cost using the effective interest method, less any impairment losses. Loans and
receivables comprise cash and cash equivalents, accrued investment income and other receivables and collateral receivable under
reinsurance agreement.
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66
Notes to consolidated financial statements (continued)
(In thousands of Canadian dollars, except per share amounts) Years ended December 31, 2015 and 2014
3.
Significant accounting policies (continued):
(c) Financial instruments (continued):
(v) Non-derivative financial liabilities:
All non-derivative financial liabilities are recognized initially on the date that the Company becomes a party to the contractual
provisions of the financial instrument.
The Company derecognizes a financial liability when its contractual obligations are discharged or cancelled or expire. The
Company classifies all non-derivative financial liabilities into the Other financial liabilities category. Such financial liabilities are
recognized initially at fair value along with any directly attributable transaction costs. Subsequent to initial recognition, these
financial liabilities are measured at amortized cost using the effective interest method.
Non-derivative financial liabilities are comprised of the Company's long-term debt (note 19) and accounts payable and accrued
liabilities including balances due to the Company's majority shareholder and companies under common control (note 11(c)).
(d) Securities lending:
The Company includes its invested assets in its securities lending program. Securities lending transactions are entered into on a
fully collateralized basis. The transferred securities themselves are not derecognized on the consolidated statements of financial
position given that the risks and rewards of ownership are not transferred from the Company to the counterparties in the course
of such transactions. The securities are reported separately on the consolidated statements of financial position on the basis that
counterparties may resell or re-pledge the securities during the time that the securities are in their possession.
Securities received from counterparties as collateral are not recorded on the consolidated statements of financial position given
that the risk and rewards of ownership are not transferred from the counterparties to the Company in the course of such
transactions and because cash collateral is not permitted as an acceptable form of collateral under the program.
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67
Notes to consolidated financial statements (continued)
(In thousands of Canadian dollars, except per share amounts) Years ended December 31, 2015 and 2014
3.
Significant accounting policies (continued):
(e) Derivative financial instruments:
Derivative financial instruments are financial contracts whose value is derived from an underlying interest rate, foreign exchange
rate, equity or commodity instrument or index. Derivative financial instruments are classified as FVTPL and are recognized in the
consolidated statements of financial position as assets when their fair value is positive and as liabilities when their fair value is
negative. While the Company has the ability to settle multiple financial derivative instruments on a net basis under a master
netting arrangement, the Company does not meet the accounting requirements to offset derivative assets and liabilities.
Accordingly, each derivative financial instrument is presented as an asset or liability based on the fair value of the individual
instrument. Derivative financial instruments include foreign currency forwards, cross currency interest rate swaps and equity total
return swaps.
Changes in fair value of derivative financial instruments are generally recognized in net investment gains or losses during the
period in which they arise. However, when an economic hedge relationship has been established between the derivative
financial instruments and certain expenses, the changes in fair value are recognized in expenses during the period in which they
arise.
(f) Interest income:
Interest income from fixed income investments including short-term investments and bonds and debentures is recognized on an
accrual basis using the effective interest method and reported as interest in investment income.
Lending fees received under the Company's securities lending program are recognized on an accrual basis and reported in
investment income.
Interest income from impaired fixed income investments is recognized using the rate of interest used to discount the future cash
flows for the purpose of measuring the impairment loss. Such interest is recognized only if the Company expects the interest to
be received based on the financial condition of the fixed income investment issuer.
(g) Dividend income:
Dividends on preferred and common shares are recognized when the shareholder's right to receive payment is established, which
is the ex-dividend date, and are reported as dividends in investment income.
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68
Notes to consolidated financial statements (continued)
(In thousands of Canadian dollars, except per share amounts) Years ended December 31, 2015 and 2014
3.
Significant accounting policies (continued):
(h) Property and equipment:
(i) Recognition and measurement:
Property and equipment are recorded at cost less accumulated depreciation and accumulated impairment losses. Cost includes
all expenditures that are directly attributable to acquiring the asset and preparing it for its intended use. When parts of an item of
property and equipment have different useful lives, they are accounted for as separate items (major components) of property and
equipment. Gains and losses on disposal of an item of property and equipment are determined by comparing the proceeds from
disposal with the carrying amount of the property and equipment, and are recognized on a net basis in income.
The Company classifies computer software that is part of an operating system or is an integral part of related hardware as
property and equipment.
(ii) Subsequent costs:
Property and equipment replacements are recognized in the carrying amount of property and equipment if they embody future
economic benefit to the Company and the carrying amount of the replaced part is derecognized. The costs of day-to-day servicing
of property and equipment are expensed as incurred.
(iii) Depreciation:
Depreciation on property and equipment, except for leasehold improvements, is recognized in income on a straight-line basis over
the estimated useful lives of each component of an item of property and equipment from the date it is available for use. Straight-
line depreciation most closely reflects the expected pattern of consumption of the future economic benefits embodied in the
property and equipment. Leasehold improvements are depreciated over the terms of the related leases.
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69
Notes to consolidated financial statements (continued)
(In thousands of Canadian dollars, except per share amounts) Years ended December 31, 2015 and 2014
3.
Significant accounting policies (continued):
(i) Intangible assets:
(i) Goodwill:
Goodwill arises upon the acquisition of subsidiaries. See note 3(a)(i) for the policy on measurement of goodwill on initial
recognition. Subsequent to initial recognition, goodwill is measured at cost less accumulated impairment losses. See note 3(j)(ii)
for the policy on measurement of impairment losses on non-financial assets, including goodwill.
(ii) Other intangible assets:
(i) Recognition and measurement:
Intangible assets are recorded at cost less accumulated amortization and accumulated impairment losses. The
Company's intangible assets consist of computer application software that is not an integral part of related hardware.
(ii) Subsequent expenditures:
Subsequent expenditures are recognized in the carrying amount of intangible assets if they embody future economic
benefit to the Company. All other costs including the costs of day-to-day servicing of intangible assets are expensed as
incurred.
(iii) Amortization:
Amortization is recognized in expense on a straight-line basis over the estimated useful lives of intangible assets from
the date that they are available for use, since this most closely reflects the expected pattern of consumption of the
future economic benefits embodied in the assets.
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70
Notes to consolidated financial statements (continued)
(In thousands of Canadian dollars, except per share amounts) Years ended December 31, 2015 and 2014
3.
Significant accounting policies (continued):
(j) Impairment:
(i) Impairment of financial assets:
Financial assets not carried at FVTPL are assessed at each reporting period to determine whether there is existence of objective
evidence of impairment.
Bonds and debentures and preferred shares are assessed for impairment if objective evidence indicates that a loss event has
occurred after the initial recognition of the asset. Loss events include default or delinquency of the debtor, indications that the
issuer of a security will enter bankruptcy, significant deterioration of credit quality and economic conditions that correlate with
defaults or the disappearance of an active market for a security. Impairment is deemed to exist when the Company does not
expect full recovery of the amortized cost of the investment based on the estimate of cash flows expected to be collected or
when the Company intends to sell the investment prior to recovery from its unrealized loss position.
Common shares are deemed to be impaired when it is determined that the common shares have experienced significant or
prolonged losses.
Impairment losses on AFS financial assets are recognized by reclassifying losses from accumulated other comprehensive income
("AOCI") to income. The cumulative loss that is reclassified from AOCI to income is the difference between the acquisition cost,
net of any principal repayment and amortization, and the current fair value, less any impairment loss recognized previously in
income. Changes in impairment provisions attributable to time value are reflected as a component of investment income. If, in a
subsequent period, the fair value of an impaired AFS bond or preferred share increases and the increase can be related objectively
to an event occurring after the impairment loss was recognized in income, then the impairment loss is reversed, with the amount
of the reversal recognized in income. However, any subsequent recovery in fair value of an impaired AFS equity investment is
recognized in other comprehensive income ("OCI").
(ii) Impairment of non-financial assets:
The carrying amounts of the Company's non-financial assets are reviewed at each reporting period to determine whether there is
any indication of impairment. If any such indication exists, the asset's recoverable amount is estimated. An impairment loss is
recognized if the carrying amount of an asset exceeds its estimated recoverable amount.
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71
Notes to consolidated financial statements (continued)
(In thousands of Canadian dollars, except per share amounts) Years ended December 31, 2015 and 2014
3.
Significant accounting policies (continued):
(j) Impairment (continued):
(ii) Impairment of non-financial assets (continued):
Goodwill is tested for impairment on an annual basis regardless of whether an indication of impairment exists. The recoverable
amount of an asset is the greater of its value in use and its fair value less expected selling costs. In assessing value in use, the
estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market
assessments of the time value of money and the risks specific to the asset. For purposes of goodwill impairment testing, the
comparison of estimated recoverable amount to carrying amount is performed on the Company's single cash-generating unit
("CGU"), which is its mortgage insurance business. Impairment losses are recognized in income in the period in which the
impairment is determined. Impairment losses recognized in respect of a CGU are allocated first to reduce the carrying amount of
goodwill and then to reduce the carrying amounts of the other assets in the CGU on a pro-rata basis. An impairment loss in
respect of goodwill is not reversed.
The assessment of impairment of non-financial assets excludes assessment of deferred policy acquisition costs. The ability of
the Company to recover its deferred policy acquisition costs is assessed as part of the Company's overall insurance liability
adequacy testing. In the event that a provision for premium deficiency is required based on this test, the deferred policy
acquisition cost asset is reduced with a corresponding charge recognized as deferred policy acquisition expense.
(k) Income taxes:
Income taxes are comprised of current and deferred taxes. Current and deferred taxes associated with items recognized in equity
are recognized directly in equity. Taxes on fair value gains and losses and actuarial gains and losses from re-measurement of
defined benefit plans included in OCI are recorded directly in OCI. Otherwise, except to the extent that they relate to a business
combination, current and deferred taxes are recognized in income.
(i) Current tax:
Current taxes are recognized for estimated income taxes payable or recoverable for the current year and any adjustments to taxes
payable in respect of prior years. The tax rates and laws used to compute these amounts are those that are enacted or
substantively enacted at the date of the consolidated financial statements.
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72
Notes to consolidated financial statements (continued)
(In thousands of Canadian dollars, except per share amounts) Years ended December 31, 2015 and 2014
3.
Significant accounting policies (continued):
(k) Income taxes (continued):
(i) Current tax (continued):
Current taxes payable and current taxes recoverable are offset when they relate to income taxes imposed by the same taxation
authority for the same legal entity and the taxation authority permits making or receiving a single net payment.
(ii) Deferred tax:
Deferred tax is recognized in respect of temporary differences between the carrying amounts of assets and liabilities for financial
reporting purposes and the amounts used for taxation purposes.
Deferred tax is not recognized for temporary differences on the initial recognition of assets or liabilities in a transaction that is not
a business combination and that affects neither accounting nor taxable income or loss, temporary differences related to
investments in subsidiaries to the extent that it is probable that they will not reverse in the foreseeable future, and taxable
temporary differences arising on the initial recognition of goodwill.
The measurement of deferred tax reflects the tax consequences that would follow the manner in which the Company expects, at
the end of the reporting period, to recover or settle the carrying amount of its assets and liabilities.
Deferred taxes are measured using currently enacted or substantively enacted income tax rates expected to apply to taxable
income in the periods in which the temporary differences reverse. The most significant temporary difference relates to policy
reserves.
Deferred tax assets are recognized for unused tax losses, tax credits and deductible temporary differences to the extent that it is
probable the Company will have sufficient taxable income against which they can be used. The deferred tax assets are reviewed
each reporting period and are reduced to the extent that it is no longer probable that the benefit arising from the unused tax loss,
tax credit or deductible temporary difference will be realized.
Deferred income tax assets and liabilities are offset when there is a legally enforceable right to offset current tax liabilities and
assets and they relate to income taxes imposed by the same taxation authority for the same legal entity.
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73
Notes to consolidated financial statements (continued)
(In thousands of Canadian dollars, except per share amounts) Years ended December 31, 2015 and 2014
3.
Significant accounting policies (continued):
(l) Employee benefits:
(i) Defined contribution pension plan:
The defined contribution pension plan is a post-employment benefit plan under which the Company pays fixed contributions into
the plan (that is a separate legal entity) which are held in trust for the benefit of its employees and will have no legal or
constructive obligation to pay further amounts. The obligation for contributions to the defined contribution pension plan is
recognized as an expense in the period during which services are provided by employees.
(ii) Defined benefit plans:
A defined benefit plan is a post-employment plan other than a defined contribution plan. The Company currently maintains two
defined benefit plans: a Supplemental Executive Retirement Plan ("SERP") and a plan for non-pension post-retirement benefits.
The Company's obligation in respect of each plan is calculated separately. For each plan, the Company has adopted the following
policies:
Actuarial valuations of benefit liabilities for pension and non-pension post-retirement benefit plans are performed as at December
31 of each year using the projected unit credit method and based on management's assumptions including assumptions on the
discount rate, rate of compensation increase, mortality and the trend in the health care cost rate. For the non-pension post-
retirement benefits plan, membership data is updated every three years.
Obligations for the SERP are attributed to the period beginning on the employee's date of joining the plan and ending on the
earlier of termination, death or retirement. Obligations for non-pension post-retirement benefits are attributed to the period
beginning on the employee's date of hire to the date the employee reaches the age of 55 and is eligible for benefits under the
plan.
Actuarial gains and losses arising from changes in actuarial assumptions used to determine the benefit obligations or experience
adjustments are recognized in OCI in the period in which they arise, and reported in retained earnings.
Prior service costs arising from plan amendments are recognized in expense in the period in which the plan amendments are
introduced.
The Company recognizes gains or losses on settlement of a defined benefit obligation when a settlement occurs. The gain or
loss is comprised of any change in the present value of the defined benefit obligation and any changes in actuarial gains and
losses that had not been previously recognized.
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74
Notes to consolidated financial statements (continued)
(In thousands of Canadian dollars, except per share amounts) Years ended December 31, 2015 and 2014
3.
Significant accounting policies (continued):
(l) Employee benefits (continued):
(iii) Short-term employee compensation and benefits:
Short-term employee compensation and benefit obligations, including the Company's short-term bonus, are measured on an
undiscounted basis and are expensed as the related service is provided.
(iv) Share-based compensation:
The Company's share-based awards include stock options with tandem stock appreciation rights ("Options"), Restricted Share
Units ("RSUs"), Performance Share Units ("PSUs"), Directors' Deferred Share Units ("DSUs") and Executive Deferred Share Units
("EDSUs"). Recipients of Options have choice of settlement in cash or shares of the Company. RSUs, DSUs, and PSUs are
settled in cash or shares of the Company at the discretion of the Company's Board of Directors. EDSUs are settled in cash.
The fair value of Options, RSUs, PSUs, DSUs and EDSUs is recognized as compensation expense over the relevant vesting
period, with a corresponding entry to share-based compensation liabilities. The liabilities are re-measured at each reporting date
and the settlement date. Any changes in the fair value of the liabilities are recognized as compensation expense. Share-based
compensation is reclassified from liability to equity if shares are selected when the awards are exercised.
Options are measured at fair value using the Black-Scholes valuation model. RSUs, PSUs, DSUs and EDSUs are measured at fair
value using the quoted market price of the Company's shares at the end of each reporting period.
RSUs, PSUs, DSUs and EDSUs may participate in dividend equivalents at the discretion of the Company's Board of Directors.
Dividend equivalents are calculated based on the fair value of the Company's shares on the date the dividend equivalents are
credited to the RSU, PSU, DSU or EDSU account.
Share-based awards are recorded as expense only to the extent that management expects such awards to vest based on service
and performance conditions attached to the share-based awards.
The Company economically hedges the impact of the change in fair value of its common shares by entering into equity total
return swaps. Changes in fair value of the equity total return swaps are recognized in employee compensation expense in the
statements of income.
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75
Notes to consolidated financial statements (continued)
(In thousands of Canadian dollars, except per share amounts) Years ended December 31, 2015 and 2014
3.
Significant accounting policies (continued):
(m) Share capital:
Common shares are classified as equity on the consolidated statements of financial position. Incremental costs directly
attributable to the issue of common shares are recognized as a deduction from equity, net of any tax effects.
(n) Foreign currency translation:
Transactions in foreign currencies are translated to Canadian dollars at the date of the transactions. Monetary assets and liabilities
denominated in foreign currencies at the reporting date are translated to Canadian dollars at period end rates. Foreign currency
differences arising on translation are recognized in income. The Company does not have any non-monetary assets or liabilities
denominated in foreign currencies.
(o) Fair value measurement:
Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction
between market participants at the measurement date. A fair value hierarchy is applied to all fair value measurements including
non-financial assets and liabilities that are measured at or based on fair value in the consolidated statements of financial position.
The Company's fair value hierarchy is disclosed in note 22.
(p) Earnings per share:
The Company presents basic and diluted earnings per share for its common shares. Basic earnings per share are calculated by
dividing the Company's net income for the period by the weighted average number of shares outstanding during the period.
Diluted earnings per share are determined by adjusting the weighted average number of shares outstanding for the effects of all
dilutive potential shares, which are comprised of share-based compensation awards granted to employees and directors of the
Company, and by adjusting net income for the period by the share based compensation re-measurement amount, if the impact of
such an adjustment is dilutive.
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76
Notes to consolidated financial statements (continued)
(In thousands of Canadian dollars, except per share amounts) Years ended December 31, 2015 and 2014
4. Changes in accounting standards:
Future accounting standards:
(i) IFRS 9 - Financial instruments ("IFRS 9"):
In July 2015, the IASB published an amended version of IFRS 9, which replaces IAS 39 -Financial instruments: recognition and
measurement, and includes guidance on the classification and measurement of financial instruments, impairment of financial
assets, and a new general hedge accounting model. Financial asset classification is based on the cash flow characteristics and the
business model in which an asset is held. The classification determines how a financial instrument is accounted for and
measured. IFRS 9 also introduces a single impairment model for financial instruments not measured at fair value through profit or
loss that requires recognition of expected credit losses at initial recognition of a financial instrument and the recognition of full
lifetime expected credit losses if certain criteria are met. The new model for hedge accounting aligns hedge accounting with risk
management activities.
While the new standard is generally effective for years beginning on after January 1, 2018, in December 2015 the IASB published
an Exposure Draft Applying IFRS 9 Financial Instruments with IFRS 4 Insurance Contracts, which proposes to allow some insurers
optional transitional relief until the forthcoming insurance accounting standard is available for implementation. The proposed
options would allow (a) entities whose predominant activity is issuing insurance contracts within the scope of IFRS 4 to defer the
implementation of IFRS 9 to as late as January 1, 2021, which may allow alignment of the implementation of IFRS 9 with the
forthcoming insurance accounting standard, or alternatively (b) give entities issuing insurance contracts the option to remove from
profit or loss the incremental volatility caused by changes in the measurement of specified financial assets upon application of
IFRS 9.
The Company is evaluating the impact of IFRS 9 on its financial assets and financial liabilities and the option for the deferral of
IFRS 9 adoption.
(ii) IFRS 4 - Insurance contracts ("IFRS 4"):
In June 2014, the IASB issued a revised exposure draft proposing a comprehensive measurement approach for all types of
insurance contracts, which would replace the existing IFRS 4 - Insurance contracts. Deliberations of the exposure draft continue
and a final standard is expected to be issued in late 2016. The effective date of the final standard is not expected to be before
2020.
The Company is monitoring the development of IFRS 4 and assessing the impact of its adoption.
(iii) IFRS 16 - Leases ("IFRS 16"):
IFRS 16 was issued on January 13, 2016. The new standard will replace existing lease guidance in IFRS and related
interpretations, and requires companies to bring most leases on-balance sheet.
The new standard is effective for years beginning on or after January 1, 2019.
The Company is currently assessing the impact of IFRS 16.
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77
Notes to consolidated financial statements (continued)
(In thousands of Canadian dollars, except per share amounts) Years ended December 31, 2015 and 2014
5. Significant judgments and estimates:
(a) Judgments:
Significant judgments made in applying accounting policies are as follows:
Objective evidence of impairment of AFS financial assets:
As of each reporting date, the Company evaluates AFS financial assets for objective evidence of impairment.
For investments in bonds and preferred shares, evaluation of whether impairment has occurred is based on the Company’s
assessment that a loss event has occurred and the Company’s best estimate of the cash flows to be collected at the individual
investment level. The Company considers all available information relevant to the collectability of the investment, including
information about past events, current conditions, and reasonable and supportable forecasts. Impairment assessment is a
qualitative and quantitative process that incorporates information received from third party sources along with certain internal
assumptions and judgments regarding the future performance of any underlying collateral for asset-backed investments.
Impairment for bonds and preferred shares is deemed to exist when the Company does not expect full recovery of the amortized
cost of the investment based on the estimate of cash flows to be collected or when the Company intends to sell the investment
prior to recovery from its unrealized loss position.
For common shares, the Company recognizes an impairment loss in the period in which it is determined that an investment has
experienced significant or prolonged losses.
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78
Notes to consolidated financial statements (continued)
(In thousands of Canadian dollars, except per share amounts) Years ended December 31, 2015 and 2014
5. Significant judgments and estimates (continued):
(b) Estimates (continued):
Information about assumptions and estimation uncertainties that have a risk of resulting in material adjustment within the next 12
months are as follows:
(i) Premiums earned:
Mortgage insurance premiums are deferred and then taken into underwriting revenues over the terms of the related policies. The
rates or formulae under which premiums are earned relate to the loss emergence pattern in each year of coverage. In order to
match premiums earned to losses on claims, premiums written are recognized as premiums earned using a factor-based
premium recognition curve.
In constructing the premium recognition curve, the Company applies actuarial forecasting techniques to historical loss data to
determine expected loss development and the related loss emergence pattern.
(ii) Losses:
Loss reserves represent the amount needed to provide for the expected ultimate net cost of settling claims including adjustment
expenses related to defaults by borrowers (both reported and unreported) that have occurred on or before the reporting date.
Loss reserves are discounted to take into account the time value of money and include a supplemental provision for adverse
deviation. Loss reserves are recognized when the first scheduled mortgage payment is missed by a mortgage borrower. In
determining the ultimate claim amount, the Company estimates the expected recovery from the property securing the insured
loan and the legal, property maintenance and other loss adjustment expenses incurred in the claim settlement process. Loss
reserves consist of individual case reserves, Incurred But Not Reported ("IBNR") reserves and supplemental loss reserves for
potential adverse deviation.
For the purpose of quantifying case reserves, the Company analyzes each reported delinquent loan on a case-by-case basis and
establishes a case reserve based on the expected loss, if any. The ultimate expected claim amount is influenced significantly by
housing market conditions, changes in property values, and the condition of properties in default.
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79
Notes to consolidated financial statements (continued)
(In thousands of Canadian dollars, except per share amounts) Years ended December 31, 2015 and 2014
5. Significant judgments and estimates (continued):
(b) Estimates (continued):
(ii) Losses (continued):
The Company establishes reserves for IBNR based on the reporting lag from the date of first missed payment to the reporting
date for mortgages in default that have not been reported to the Company. IBNR is calculated using estimates of expected claim
frequency and claim severity based on the most current available historical loss data, adjusted for seasonality.
In order to discount loss reserves to present value, the Company's appointed actuary determines a discount rate based on the
market yield of the Company's investment portfolio.
The Company recognizes a provision for adverse deviation based on assessment of the adequacy of the Company's loss reserves
and with reference to the current and future expected condition of the Canadian housing market and its impact on the expected
development of losses.
The process for the establishment of loss reserves relies on the judgment and opinions of a number of individuals, on historical
precedent and trends, on prevailing legal and economic trends and on expectations as to future developments. This process
involves risks that actual results will deviate, perhaps substantially, from the best estimates made. These risks vary in proportion
to the length of the estimation period and the volatility of each component comprising the liability. Refer to note 6(b) for
sensitivity analyses that quantify the exposure to changes in key loss assumptions.
(iii) Subrogation recoverable:
The Company estimates the fair value of subrogation rights related to real estate included in subrogation recoverable based on
third party property appraisals or other types of third party valuations deemed to be more appropriate for a particular property.
The Company estimates borrower recoveries related to claims paid and loss reserves included in subrogation recoverable based
on historical recovery experience. Borrower recoveries are discounted to present value and include an actuarial margin for adverse
deviation.
(iv) Deferred policy acquisition costs:
Deferred policy acquisition costs are comprised of premium taxes, appraisal costs, risk fee, certain employee compensation, and
other expenses that relate directly to acquisition of new mortgage insurance business. Deferred policy acquisition costs are
deferred and expensed in proportion to and over the periods in which premiums are earned.
The Company estimates expenses eligible for deferral based on the nature of expenses incurred and results of time and activity
studies performed to identify the portion of time the Company's employees incur in the acquisition of new mortgage insurance
business.
GENWORTH MI CANADA INC. 2015 ANNUAL REPORT
GENWORTH MI CANADA INC. 2015 FINANCIAL REPORT
80
80
Notes to consolidated financial statements (continued)
(In thousands of Canadian dollars, except per share amounts) Years ended December 31, 2015 and 2014
6. Insurance contracts:
(a) Premiums and unearned premium reserves:
Changes in unearned premium reserves recorded in the consolidated statements of financial position and their impact on
premiums earned are as follows:
Unearned premium reserves, beginning of year
Premiums written during the year
Premiums earned during the year
Unearned premium reserves, end of year
2015
2014
$
$
1,798,568 $
1,723,768
808,621
(586,196)
639,761
(564,961)
2,020,993
$
1,798,568
Key methodologies and assumptions:
Premiums written are recognized as premiums earned using a factor-based premium recognition curve that is based on the
Company's expected loss emergence pattern. The principal assumption underlying the formation of the premium recognition
curve is that the Company's future claims development will follow a similar pattern to past claims emergence patterns.
Approximately 80% of the Company's premiums written are recognized as premium earned within the first five years of policy
inception based on the current premium recognition curve. A shift in the Company's loss emergence pattern could change the
timing of the Company's recognition of earned premium and impact the Company's financial performance for a period.
GENWORTH MI CANADA INC. 2015 ANNUAL REPORT
GENWORTH MI CANADA INC. 2015 FINANCIAL REPORT
81
81
Notes to consolidated financial statements (continued)
(In thousands of Canadian dollars, except per share amounts) Years ended December 31, 2015 and 2014
6.
Insurance contracts (continued):
(a) Premiums and unearned premium reserves (continued):
The Company's appointed actuary performs a liability adequacy test on the Company's unearned premium reserves using a
dynamic regression model that is in accordance with accepted actuarial practice. The purpose of the test is to ensure the
unearned premium liability at year end is sufficient to pay for future claims and expenses that may arise from unexpired insurance
contracts. The liability adequacy test for the years ended December 31, 2015 and 2014 identified a surplus in the Company's
unearned premium reserves and thus no premium deficiency reserves are required at these reporting dates.
(b) Losses on claims and loss reserves:
The carrying value of loss reserves reflects the present value of expected claims costs and expenses and provisions for adverse
deviation and is considered to be an indicator of fair value. There is no ready market for the trading of loss reserves and the value
agreed between parties in an arm's-length transaction may be materially different.
Loss reserves comprise the following:
Case reserves
Incurred but not reported reserves
Discounting
Provision for adverse deviation
Total loss reserves
2015
83,962
$
41,591
(1,502)
7,526
2014
75,178
35,365
(1,936)
6,886
131,577
$
115,493
$
$
GENWORTH MI CANADA INC. 2015 ANNUAL REPORT
GENWORTH MI CANADA INC. 2015 FINANCIAL REPORT
82
82
Notes to consolidated financial statements (continued)
(In thousands of Canadian dollars, except per share amounts) Years ended December 31, 2015 and 2014
6.
Insurance contracts (continued):
(b) Losses on claims and loss reserves (continued):
The following table presents movement in loss reserves and the impact on losses on claims:
Loss reserves, beginning of year
Claims paid during the year
Net losses on claims incurred during the year:
Losses on claims related to the current year
Losses (recoveries) on claims related to prior years
2015
2014
$
115,493
$
117,388
(105,826)
(113,005 )
132,945
(11,035)
118,498
(7,388 )
Loss reserves, end of year
$
131,577
$
115,493
Claims development:
Loss reserves are established to reflect an estimate of the ultimate cost of claim settlement as at the reporting date. Given the
uncertainty in establishing the outstanding loss reserves, it is likely that the final outcome will be different than the original liability
established. Claims development refers to the financial adjustment in the current period relating to claims incurred in previous
periods because of new and more up to date information that has become available and to reflect changes in assumptions. The
information is presented on a default year basis (claims are related to the period in which the insured event occurred and not the
period in which the policy was underwritten).
GENWORTH MI CANADA INC. 2015 ANNUAL REPORT
GENWORTH MI CANADA INC. 2015 FINANCIAL REPORT
83
83
Notes to consolidated financial statements (continued)
(In thousands of Canadian dollars, except per share amounts) Years ended December 31, 2015 and 2014
6.
Insurance contracts (continued):
(b) Losses on claims and loss reserves (continued):
The following table demonstrates the development of the estimated loss reserves for the ten most recent default years.
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
total
Claims incurred at
the end of
the default year
$70,994
$102,549
$148,493
$196,586
$175,189
$172,200
$143,388
$132,299
$118,498
$132,945
Claims incurred
one year later
Claims incurred
two years later
Claims incurred
three years later
Claims incurred
four years later
Claims incurred
five years later
Claims incurred six
years later
Current estimate
of claims incurred
Cumulative
payments to date
Current loss
reserves
Current estimate
of surplus
(deficiency)
Surplus
(deficiency) of
initial gross loss
reserve
46,971
106,468
200,807
218,890
193,820
193,226
141,957
128,042
112,834
54,352
112,224
204,706
247,663
217,034
196,377
140,572
126,540
55,461
115,632
209,850
252,041
218,884
195,903
140,196
56,072
115,816
212,615
255,282
218,088
194,969
55,701
115,427
212,595
254,725
217,036
55,701
115,427
212,595
253,795
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
$55,701
$115,427
$212,595
$253,795
$217,036
$194,969
$140,196
$126,540
$112,834
$132,945
$1,562,038
55,701
115,427
212,595
252,995
216,915
194,757
139,489
123,872
94,447
24,263
1,430,461
$ —
$ —
$ —
$800
$121
$212
$707
$2,668
$18,387
$108,682
$131,577
$15,293
$(12,878)
$(64,102)
$(57,209)
$(41,847)
$(22,769)
$3,192
$5,759
$5,664
$ —
22%
(13)%
(43)%
(29)%
(24)%
(13)%
2%
4%
5%
—
GENWORTH MI CANADA INC. 2015 ANNUAL REPORT
GENWORTH MI CANADA INC. 2015 FINANCIAL REPORT
84
84
Notes to consolidated financial statements (continued)
(In thousands of Canadian dollars, except per share amounts) Years ended December 31, 2015 and 2014
6.
Insurance contracts (continued):
(b) Losses on claims and loss reserves (continued):
Conditions and trends that have affected the development of liabilities in the past may or may not occur in the future and,
accordingly, conclusions about future results may not necessarily be derived from the information presented in the table above.
Key methodologies and assumptions:
The establishment of loss reserves is based on known facts and interpretation of circumstances. The principal methodologies
and assumptions underlying loss reserve estimates are as follows:
(i) Claim frequency:
Claim frequency is the portion of delinquencies (both reported and unreported) that are expected to result in paid claims, after
estimated cures have been deducted. A cure is defined as a reported delinquency that closes with no claim payment or only
nominal loss adjustment expenses. Claim frequency is influenced by labour market performance and changes in house prices.
The Company estimates claim frequency for case reserves by analyzing individual reported delinquencies. The Company
estimates claim frequency for incurred but not reported delinquencies by applying average delinquency-to-paid-claim ratios to
historical reported delinquencies, derived from tracking and analyzing loss development over time.
(ii) Claim severity:
Claim severity is influenced by the performance of the housing market and will increase in a period of property value declines.
The Company estimates claim severity for case reserves by analyzing individual reported delinquencies, including obtaining
valuations for the properties securing claims. The Company estimates claim severity for incurred but not reported delinquencies
based on historical claim amounts.
Variables that affect the determination of loss reserves are the receipt of additional claim information and other internal and
external factors such as the performance of the housing market, changes in claims handling procedures, significant claim
reporting lags, and uncertainties regarding the condition of properties at the time of initial loss reserve quantification.
GENWORTH MI CANADA INC. 2015 ANNUAL REPORT
GENWORTH MI CANADA INC. 2015 FINANCIAL REPORT
85
85
Notes to consolidated financial statements (continued)
(In thousands of Canadian dollars, except per share amounts) Years ended December 31, 2015 and 2014
6.
Insurance contracts (continued):
(b) Losses on claims and loss reserves (continued):
Sensitivity:
Sensitivity analyses are conducted to quantify the exposure to changes in key loss assumptions. The change in any key
assumption will impact the Company's performance and financial position for a period. The following sensitivity analyses are
performed for reasonable possible movements in key loss assumptions with all other assumptions held constant, showing the
impact on income before income taxes and shareholders' equity. The correlation of assumptions will have a significant effect in
determining ultimate claims liabilities, but to demonstrate the impact due to changes in assumptions, assumptions are changed
on an individual basis.
2015
Sensitivity factor
Claim frequency
Claim severity
Change in
Impact on income
Impact on
assumptions
before income taxes
shareholders' equity
+10%
-10%
+10%
-10%
$
$
(23,646 )
23,646
(23,646 )
23,646
(17,368 )
17,368
(17,368 )
17,368
(c) Subrogation recoverable:
The following table presents movement in subrogation recoverable during the year:
2015
2014
Subrogation rights related to real estate, beginning of year
$
46,195
$
55,968
Subrogation rights related to real estate acquired as a result of settling
claims at fair value
Change in market value of real estate on hand
195,703
(4,718)
211,140
(10,168)
Subrogation rights related to real estate disposed of during the year
(193,957)
(210,745)
Subrogation rights related to real estate, end of year
43,223
46,195
Borrower recoveries, beginning of year
Net estimated borrower recoveries recognized
Borrower recoveries received
Borrower recoveries, end of year
20,781
2,865
(5,625)
19,486
8,036
(6,741)
18,021
20,781
Subrogation recoverable, end of year
$
61,244
$
66,976
GENWORTH MI CANADA INC. 2015 ANNUAL REPORT
GENWORTH MI CANADA INC. 2015 FINANCIAL REPORT
86
86
Notes to consolidated financial statements (continued)
(In thousands of Canadian dollars, except per share amounts) Years ended December 31, 2015 and 2014
6.
Insurance contracts (continued):
(c) Subrogation recoverable (continued):
The Company applies an expected recovery rate based on historical experience of successful recoveries from borrowers to past
claims paid and current loss reserves to establish a recovery accrual. The Company reviews the expected recovery rate to ensure
it reflects the most current historical experience of successful recoveries.
(d) Deferred policy acquisition costs:
The following table presents movement in deferred policy acquisition costs and the impact on total expenses:
2015
2014
Deferred policy acquisition costs, beginning of year
$ 172,289
$
158,427
Policy acquisition costs deferred during the year
78,901
66,912
Deferred policy acquisition costs expensed during the year
(58,120)
(53,050)
Net change in deferred policy acquisition costs during the year
20,781
13,862
Deferred policy acquisition costs, end of year
$ 193,070
$
172,289
(e) Reinsurance:
Effective December 1, 2013, the Company, through its indirect subsidiary MICICC, entered into a retrocession agreement (“the
Agreement”) with a third party reinsurance company, under which the Company assumed reinsurance risk for approximately 33%
of the retroceded liabilities on claims paid by Genworth Financial Mortgage Insurance Pty Limited, an Australian company
(“Genworth Australia”) in excess of 700,000 Australian dollars within any one year up to a maximum exposure to the Company of
30,000 Australian dollars less claims paid by the Company in prior years. Under the Agreement, the Company received premiums
equal to 7% of the maximum exposure of 30,000 Australian dollars in the first year of coverage and 9% of the maximum
exposure in the second and third years of coverage.
The term of the Agreement was 3 years. Genworth Australia had the right to terminate the Agreement after the first year of
coverage. The Company was required to collateralize its reinsurance obligations by posting collateral equal to the maximum
exposure of 30,000 Australian dollars.
Effective December 1, 2014, the Agreement was terminated and replaced with a new agreement that had the same terms as the
terminated agreement except that premiums under the new agreement were equal to 6.75% of the maximum exposure of
30,000 Australian dollars in the first year of coverage and 8.75% of the maximum exposure in the second and third years of
coverage.
Effective November 30, 2015, the Company terminated the Agreement with its third party reinsurance company.
During the year ended December 31, 2015, the Company recognized $1,802 of premiums and incurred no losses under the
reinsurance agreement (2014 - $2,086 of premiums recognized and no losses incurred). As at December 31, 2015, the Company
has no collateral posted (2014 - 30,000 Australian dollars, equivalent to $28,446).
GENWORTH MI CANADA INC. 2015 ANNUAL REPORT
GENWORTH MI CANADA INC. 2015 FINANCIAL REPORT
87
87
Notes to consolidated financial statements (continued)
(In thousands of Canadian dollars, except per share amounts) Years ended December 31, 2015 and 2014
7. Financial risk management:
During the year ended December 31, 2014, the Insurance Subsidiary developed and implemented an Own Risk and Solvency
Assessment framework ("ORSA") in accordance with OSFI Guideline E-19: Own Risk and Solvency Assessment. The prime
purpose of ORSA is for an insurer to identify material risks, and to assess the adequacy of its current and likely future capital
needs and solvency position relative to these risks. The implementation of ORSA by the Insurance Subsidiary did not result in a
significant change to the Company's practices of monitoring, evaluating and managing risks.
The Company's risk management framework facilitates the identification and assessment of risks, and the ongoing monitoring
and management of these risks. The objective of the framework and related internal control procedures is to ensure risks are
within the Company's defined risk appetite and tolerance and to achieve profitable underwriting results. There have been no
significant changes to the Company's insurance risk management policies at December 31, 2015 compared to December 31,
2014.
(a) Insurance risk:
The Company is exposed to insurance risk from underwriting of mortgage insurance contracts. Mortgage insurance contracts
transfer risk to the Company by indemnifying lending institutions against credit losses arising from borrower mortgage default.
Under a mortgage insurance policy, a lending institution is insured against risk of loss for the entire unpaid principal balance of a
loan plus interest, customary mortgage enforcement and selling costs, and expenses related to the sale of the underlying
property. Insurance risk impacts the amount, timing and certainty of cash flows arising from insurance contracts.
The Company has identified pricing risk, underwriting risk, claims management risk, loss reserving risk, insurance portfolio
concentration risk and reinsurance risk as its most significant sources of insurance risk. Each of these risks is described
separately below.
(i) Pricing risk:
Pricing risk arises when actual claims experience differs from the assumptions included in pricing calculations. The Company's
premium rates vary with the perceived risk of a claim on an insured loan, which takes into account the Company's long-term
historical loss experience on loans with similar loan-to-value ratios, terms and types of mortgages, borrower credit histories and
capital required to support the product.
GENWORTH MI CANADA INC. 2015 ANNUAL REPORT
GENWORTH MI CANADA INC. 2015 FINANCIAL REPORT
88
88
Notes to consolidated financial statements (continued)
(In thousands of Canadian dollars, except per share amounts) Years ended December 31, 2015 and 2014
7. Financial risk management (continued):
(a) Insurance risk (continued):
(i) Pricing risk (continued):
Before the Company introduces a new product, it establishes specific performance targets, including delinquency rates and loss
ratios, which the Company monitors frequently to identify any deviations from expected performance so that it can take corrective
action when necessary. These performance targets are adjusted periodically to ensure they reflect the current environment.
(ii) Underwriting risk:
Underwriting risk is the risk that the Company's underwriting function will underwrite mortgage insurance under terms that do not
comply with the Company's pre-established risk guidelines, resulting in inappropriate risk acceptance by the business.
The underwriting results of the mortgage insurance business can fluctuate significantly due to the cyclicality of the Canadian
mortgage market. The mortgage market is affected primarily by housing supply and demand, interest rates, and general
economic factors including unemployment rates.
The Company's risk management function establishes risk guidelines based on the Company's underwriting goals. The
underwriting process enables assessment of high loan-to-value applications on a loan-by-loan basis, taking into account a broad
range of factors and ensuring compliance with the risk guidelines. The risk guidelines are reviewed and updated regularly to
manage the Company's exposures and to address emerging trends in the housing market and economic environment. Authority
levels for underwriting decisions are also assigned and monitored by the risk management function. Underwriters are given
authority to approve mortgage insurance applications based on their experience and levels of proficiency. Underwriter
performance is reviewed continuously to facilitate continuous improvement or remedial action where necessary.
(iii) Claims management risk:
The Company enforces a policy of actively managing and promptly settling claims in order to reduce exposure to unpredictable
future developments that can adversely impact losses. The Company has two primary loss mitigation programs. The Homeowner
Assistance Program is designed to help homeowners who are experiencing temporary financial difficulties that may prevent them
from making timely payments on their mortgages.
GENWORTH MI CANADA INC. 2015 ANNUAL REPORT
GENWORTH MI CANADA INC. 2015 FINANCIAL REPORT
89
89
Notes to consolidated financial statements (continued)
(In thousands of Canadian dollars, except per share amounts) Years ended December 31, 2015 and 2014
7. Financial risk management (continued):
(a) Insurance risk (continued):
(iii) Claims management risk (continued):
Initiatives currently employed under the Homeowner Assistance Program include capitalizing arrears, deferring payments for a
specified period, arranging a partial payment plan, and increasing a mortgage amortization period. The Asset Management
Program is designed to accelerate the conveyance of the rights to real estate properties to the Company in select circumstances.
This strategy allows for better control of the property marketing process, reduction of carrying costs and potential of realization of
a higher property sales price.
In addition to its current loss mitigation programs in place, under its agreement with lending institutions, the Company has the
right to recover losses from borrowers once a claim has been paid. The Company actively pursues such recoveries.
(iv) Loss reserving risk:
Loss reserving risk is the risk that loss reserves differ significantly from the ultimate amount paid to settle claims, principally due
to additional information received and external factors that influence claim frequency and severity (including performance of the
Canadian housing market).
The Company reviews its case reserves on an ongoing basis and updates the case reserves as appropriate. Management has
established procedures to evaluate the appropriateness of loss reserves, which include a review of the loss reserves by the
Company's appointed actuary.
(v) Insurance portfolio concentration risk:
A national or regional economic downturn may increase the likelihood that borrowers will not have sufficient income to pay their
mortgages and can also adversely affect home values, which increases the severity of the Company's losses. Portfolio
concentration risk is the risk that losses increase disproportionately where portfolio diversification is inadequate.
The exposure to insurance portfolio concentration risk is mitigated by a portfolio that is diversified across geographic regions. The
Company monitors the conditions of the housing market and economy in each region of Canada against pre-determined risk
tolerances and utilizes this data to customize underwriting guidelines and loss mitigation initiatives by region.
GENWORTH MI CANADA INC. 2015 ANNUAL REPORT
GENWORTH MI CANADA INC. 2015 FINANCIAL REPORT
90
90
Notes to consolidated financial statements (continued)
(In thousands of Canadian dollars, except per share amounts) Years ended December 31, 2015 and 2014
7.
Financial risk management (continued):
(a) Insurance risk (continued):
(v) Insurance port folio concentration risk:
Additional scrutiny is given to geographic regions where property values are particularly sensitive to an economic downturn.
The following table presents the Company's concentration of insurance risk by region based on premiums written.
Premiums written
Ontario
Alberta
British Columbia
Quebec
Other
$
329,904
176,213
108,061
92,995
99,646
2015
41 %
$ 246,560
22 %
13 %
12 %
12 %
165,908
75,428
70,742
81,123
2014
39 %
26 %
12 %
11 %
12 %
$
806,819
100 %
$ 639,761
100 %
The Company is exposed to changes in housing market performance and trends by geographic region and the concentration of
geographic risk may change over time.
(vi) Reinsurance risk:
Effective November 30, 2015, the Company terminated its reinsurance agreement as described in note 6(e). As at December 31,
2015, the Company has no reinsurance risk (2014 - maximum liability exposure from reinsurance agreement of 30,000 Australian
dollars or $28,446).
(b) Credit risk:
Credit risk is the risk that one party to a financial instrument fails to discharge an obligation and causes financial loss to another
party. The Company is exposed to credit risk principally through its invested assets.
GENWORTH MI CANADA INC. 2015 ANNUAL REPORT
GENWORTH MI CANADA INC. 2015 FINANCIAL REPORT
91
91
Notes to consolidated financial statements (continued)
(In thousands of Canadian dollars, except per share amounts) Years ended December 31, 2015 and 2014
7. Financial risk management (continued):
(b) Credit risk (continued):
The total credit risk exposure at December 31, 2015 is $5,615,984 (2014 - $5,208,116) and comprises $78,178 (2014 - $84,933) of
short-term investments, $28,130 (2014 - $30,099) of accrued investment income and other receivables, $5,200,715 (2014 -
$4,997,359) of bonds and debentures, $247,717 (2014-$ nil) of preferred shares and $61,244 (2014 - $66,976) of subrogation
recoverable. At December 31, 2015, the Company did not have any credit risk exposure to derivative financial instrument assets
(2014 - $303) or collateral receivable under the reinsurance agreement (2014 - $28,446).
The Company's investment management strategy is to invest primarily in financial instruments of Canadian government agencies
and other high-credit-quality issuers and to limit the amount of credit exposure with respect to any one issuer, business sector, or
credit rating category, as specified in its investment policy. Credit quality of financial instrument issuers is assessed based on
ratings supplied by rating agencies DBRS, Standard and Poor's, or Moody's.
The breakdown of the Company's bonds and debentures, preferred shares and short-term investments by credit rating is
presented below.
Credit rating
Bonds and debentures:
AAA
AA
A
BBB
BB
Preferred Shares
P2
P3
2015
2014
amount
Carrying value
%
Carrying value
%
amount
$
2,159,848
1,024,168
1,703,236
386,749
4,892
40.9 $
1,946,510
19.4
32.3
7.3
0.1
1,098,982
1,690,528
346,272
—
38.3
21.6
33.3
6.8
—
5,278,893
100.0
5,082,292
100.0
227,369
20,348
91.8
8.2
247,717
100.0
—
—
—
—
—
—
$
5,526,610
$
5,082,292
GENWORTH MI CANADA INC. 2015 ANNUAL REPORT
GENWORTH MI CANADA INC. 2015 FINANCIAL REPORT
92
92
Notes to consolidated financial statements (continued)
(In thousands of Canadian dollars, except per share amounts) Years ended December 31, 2015 and 2014
7. Financial risk management (continued):
(b) Credit risk (continued):
As at December 31, 2015, 92.6% of the Company's bonds and debentures were rated 'A' or better, compared to 93.2% at
December 31, 2014. As at December 31, 2015, 91.8% of the Company's preferred shares were rated 'P2'. As at December 31,
2014 the Company did not hold any preferred shares.
The Company did not hold any impaired financial assets at December 31, 2015 and 2014.
Concentration of credit risk:
Concentration of credit risk exists where a number of borrowers or counterparties are engaged in similar activities, are located in
the same geographic area or have comparable economic characteristics. Their ability to meet contractual obligations may be
similarly affected by changing economic, political or other conditions. The Company's investments could be sensitive to changing
conditions in specific geographic regions or specific industries.
The following table presents the Company's concentration of credit risk within its bond and debenture, short-term investment and
preferred share portfolios by geographic region and by industry.
By country of issuance:
Canada
Other
By industry:
Government
2015
2014
$
5,041,102
91.2% $
4,735,080
93.2%
485,508
8.8%
347,212
6.8%
$
5,526,610
100.0% $
5,082,292
100.0%
$
3,047,539
55.2% $
2,752,370
54.1%
Bank, insurance, and other financial institutions
1,113,009
20.1%
1,142,371
22.5%
Energy
Infrastructure
All other sectors
368,537
6.7%
222,360
4.0%
252,453
240,940
5.0%
4.7%
775,165
14.0%
694,158
13.7%
$
5,526,610
100.0% $
5,082,292
100.0%
GENWORTH MI CANADA INC. 2015 ANNUAL REPORT
GENWORTH MI CANADA INC. 2015 FINANCIAL REPORT
93
93
Notes to consolidated financial statements (continued)
(In thousands of Canadian dollars, except per share amounts) Years ended December 31, 2015 and 2014
7. Financial risk management (continued):
(b) Credit risk (continued):
The Company has invested 20.1% (2014 - 22.5%) of its invested assets in the financial sector. This risk concentration is closely
monitored by the Company and adjusted through periodic portfolio rebalancing as deemed necessary.
Derivative-related credit risk:
Credit risk from derivative transactions reflects the potential for the Company's counterparty to its derivative transactions to
default on its contractual obligations when one or more transactions have a positive market value to the Company. Therefore,
derivative-related credit risk is represented by the positive fair value of the instrument and is normally a small fraction of the
contract's notional amount.
To mitigate credit risk related to derivative counterparties, the Company has adopted a policy whereby, upon signing the
derivative contract, the counterparty is required to have a minimum credit rating of A-.
Netting is a technique that can reduce credit exposure from derivatives and is generally facilitated through the use of netting
clauses in master derivative agreements. The netting clauses in a master derivative agreement provide for a single net
settlement of all financial instruments covered by the agreement in the event of default. However, credit risk is reduced only to
the extent that the Company's financial obligations toward the counterparty to such an agreement can be set off against
obligations such counterparty has toward the Company. The Company uses netting clauses in master derivative agreements to
reduce derivative-related credit exposure.
The Company also uses collateral to manage derivative-related counterparty credit risk. Mark-to-market provisions in the
Company's agreements with counterparties provide the Company with the right to request that the counterparty collateralize the
current market value of its derivative positions when the value passes a specified exposure threshold. As at December 31, 2015
the Company's net derivative obligations were $83,861 (2014 - $22,995) and the Company has pledged a net amount of $85,296
(2014 - $22,418) of Canadian federal government securities as collateral under the master derivative agreements. The Company
had no derivative-related credit risk at December 31, 2015 as all of its derivative financial instruments were in a liability position.
The Company had minimal derivative-related credit risk at December 31, 2014 as the majority of its derivative financial
instruments were in a liability position.
GENWORTH MI CANADA INC. 2015 ANNUAL REPORT
GENWORTH MI CANADA INC. 2015 FINANCIAL REPORT
94
94
Notes to consolidated financial statements (continued)
(In thousands of Canadian dollars, except per share amounts) Years ended December 31, 2015 and 2014
7. Financial risk management (continued):
(c) Liquidity risk/maturity analysis:
Liquidity risk is the risk of having insufficient cash resources to meet financial commitments and policy obligations as they fall due
without raising funds at unfavourable rates or selling assets on a forced basis.
Liquidity risk arises from the Company's general business activities and in the course of managing its assets, liabilities and
externally imposed capital requirements (note 8). The liquidity requirements of the Company's business have been met primarily
by funds generated from operations including investment income, investment asset maturities and financing activities. Cash
provided from these sources is used primarily for loss and loss adjustment expense payments, operating expenses, payment of
dividends and funding of share repurchase transactions. To ensure liquidity requirements are met, the Company holds a portion
of its invested assets in liquid securities. At December 31, 2015, the Company has cash and cash equivalents of $390,796 (2014 -
$190,375) and short-term investments of $78,178 (2014 - $84,933).
The table presented below summarizes the carrying value by the earliest contractual maturity of the Company's bonds and
debentures and short-term investments.
Within 1
year
1 - 3
years
3 - 5
years
5 - 10
years
Over 10
years
Total
2015
$ 587,560
$ 1,181,669
$ 1,517,124
$ 1,503,156
$ 489,384
$ 5,278,893
2014
$ 546,316
$ 1,208,632
$ 1,269,674
$ 1,418,274
$ 639,396
$ 5,082,292
GENWORTH MI CANADA INC. 2015 ANNUAL REPORT
GENWORTH MI CANADA INC. 2015 FINANCIAL REPORT
95
95
Notes to consolidated financial statements (continued)
(In thousands of Canadian dollars, except per share amounts) Years ended December 31, 2015 and 2014
7. Financial risk management (continued):
(c) Liquidity risk/maturity analysis (continued):
The table below shows the expected payout pattern of the Company's financial liabilities:
Within 1
year
1 - 3
years
3 - 5
years
5 - 10
years
Over
10
years
Total
$
65,750
$
—
$
— $
—
$
— $
65,750
2015:
Non-derivative financial
liabilities:
Accounts payable and
accrued liabilities
Loss reserves (at Actuarial
Present Value)
Long-term debt
—
—
275,000
160,000
56,234
75,343
—
—
—
—
131,577
435,000
Derivative financial liabilities:
Derivative financial
instruments
2014:
Non-derivative financial
liabilities:
Accounts payable and
accrued liabilities
Loss reserves (at Actuarial
Present Value)
Long-term debt
Derivative financial liabilities:
Derivative financial
instruments
33,707
6,900
6,659
36,595
—
83,861
$
41,557
$
—
$
— $
—
$
— $
41,557
58,413
57,080
—
—
—
—
— 435,000
—
—
115,493
435,000
—
8,678
1,192
13,349
—
23,298
GENWORTH MI CANADA INC. 2015 ANNUAL REPORT
GENWORTH MI CANADA INC. 2015 FINANCIAL REPORT
96
96
Notes to consolidated financial statements (continued)
(In thousands of Canadian dollars, except per share amounts) Years ended December 31, 2015 and 2014
7. Financial risk management (continued):
(d) Market risk:
Market risk is the risk of loss arising from adverse changes in market rates and prices, such as interest rates, equity market
fluctuations, foreign currency exchange rates and other relevant market rate or price changes. Market risk is directly influenced
by the volatility and liquidity in the markets in which the related underlying assets are traded. The market risks to which the
Company is exposed are interest rate risk, equity price risk and currency risk.
(i) Interest rate risk:
Fluctuations in interest rates have a direct impact on the market valuation of the Company's interest-sensitive assets. Short-term
interest rate fluctuations will generally create unrealized gains or losses. Generally, the Company's investment income will be
reduced during sustained periods of lower interest rates as higher-yielding investments are called, mature or are sold and the
proceeds are reinvested at lower rates, and this will likely result in unrealized gains in the value of investments the Company
continues to hold, as well as realized gains to the extent that the relevant investments are sold. During periods of rising interest
rates, the market value of the Company's existing interest-sensitive assets will generally decrease and gains on investments will
likely be reduced or become losses.
As at December 31, 2015, management estimates that an immediate hypothetical 100 basis point, or 1%, increase in interest
rates would decrease the market value of the AFS bonds and debentures, short- term investments and preferred shares by
approximately $203,720, representing 3.69% of the $5,526,610 fair value of these investments, and decrease the value of loss
reserves by $878. Conversely, a 100 basis point, or 1%, decrease in interest rates would increase the market value of the AFS
bonds and debentures, short-term investments and preferred shares by approximately $212,843 representing 3.85% of the fair
value, and increase the value of loss reserves by approximately $894.
GENWORTH MI CANADA INC. 2015 ANNUAL REPORT
GENWORTH MI CANADA INC. 2015 FINANCIAL REPORT
97
97
Notes to consolidated financial statements (continued)
(In thousands of Canadian dollars, except per share amounts) Years ended December 31, 2015 and 2014
7. Financial risk management (continued):
(d) Market risk (continued):
(i) Interest rate risk (continued):
As at December 31, 2014,management estimates that an immediate hypothetical 100 basis point, or 1%, increase in interest
rates would decrease the market value of the AFS bonds and debentures and short- term investments by approximately
$178,000, representing 3.50% of the $5,082,292 fair value of these investments, and decrease the value of loss reserves by
$896. Conversely, a 100 basis point, or 1%, decrease in interest rates would increase the market value of the AFS bonds and
debentures and short-term investments by approximately $192,000 representing 3.78% of the fair value, and increase the value
of loss reserves by approximately $913.
Computations of the prospective effects of hypothetical interest rate changes are based on numerous assumptions and should
not be relied on as indicative of future results. The analysis in this section is based on the following assumptions: (a) the existing
level and composition of interest-sensitive assets will be maintained; (b) shifts in the yield curve are parallel; and (c) credit and
liquidity risks have not been considered.
(ii) Equity price risk:
Equity price risk is the risk that the fair values of equity investments will decrease as a result of changes in the levels of equity
indices and the values of individual stocks. Equity price risk exposure arises from the Company's investment in common shares.
As at December 31, 2015, the Company did not hold any common shares.
As at December 31, 2014, the Company had a total investment in common shares of $170,456. Management estimates that a
10% increase in the equity price index would increase the market value of the common shares by $12,102 and that a 10%
decrease in the equity price index would decrease the market value of the common shares by the same amount.
The Company has policies to limit and monitor exposures to individual common share issuers and its aggregate exposure to
common shares.
GENWORTH MI CANADA INC. 2015 ANNUAL REPORT
GENWORTH MI CANADA INC. 2015 FINANCIAL REPORT
98
98
Notes to consolidated financial statements (continued)
(In thousands of Canadian dollars, except per share amounts) Years ended December 31, 2015 and 2014
7. Financial risk management (continued):
(d) Market risk (continued):
(iii) Currency risk:
Currency risk is the risk that the fair value of future cash flows of a financial instrument will fluctuate because of changes in
foreign exchange rates. The Company is exposed to currency risk arising from investments denominated in U.S. dollars. During
the year ended December 31, 2014, the Company was also exposed to currency risk arising from collateral pledged under its
reinsurance agreement denominated in Australian dollars.
The Company uses foreign currency forward contracts and cross currency interest rate swaps to mitigate currency risk.
The following table presents the foreign-denominated financial assets and the derivative financial instruments used to reduce
currency risk.
2015
2014
Collateral receivable under reinsurance agreement
denominated in Australian dollars
$
—
$
Bonds and debentures denominated in U.S. dollars (1)
485,508
28,446
347,212
Total financial assets exposed to currency risk
485,508
375,658
Less: foreign currency forward contract notional amount
cross currency interest rate swap notional amount
Total derivative financial instrument notional amount
288,856
224,665
513,521
Net currency exposure from financial instruments
$
(28,013) $
254,607
120,558
375,165
493
(1) Bonds and debentures denominated in U.S. dollars consists of $307,941 of emerging market debt (2014-$229,870) and $177,567 of collateralized loan obligations ("CLOs")
(2014-$117,342).
GENWORTH MI CANADA INC. 2015 ANNUAL REPORT
GENWORTH MI CANADA INC. 2015 FINANCIAL REPORT
99
99
Notes to consolidated financial statements (continued)
(In thousands of Canadian dollars, except per share amounts) Years ended December 31, 2015 and 2014
8. Capital management and regulatory requirements:
Capital comprises the Company’s shareholders’ equity. The Company’s objectives when managing capital are to maintain financial
strength and a strong financial strength credit rating, to support its claim-paying ability and to maximize returns to shareholders
over the long term.
The Insurance Subsidiary is a regulated insurance company governed by PRMHIA and the provisions of the Insurance Companies
Act (“the Act”), which is administered by OSFI. As such, the Insurance Subsidiary is subject to certain requirements and
restrictions contained in PRMHIA and the Act. The Act limits dividends to shareholders under certain circumstances.
Under PRMHIA and the Act, the Insurance Subsidiary is required to meet a minimum capital test (“MCT”) to support its
outstanding mortgage insurance in force. The MCT ratio is calculated based on methodology prescribed by OSFI. The statutory
minimum is 100% and the Department of Finance has established an MCT ratio of 175% for the Insurance Subsidiary under
PRMHIA in order for the Insurance Subsidiary to be able to write new business (2014 - 175%). In addition, the Company has
established an internal capital ratio target for the Insurance Subsidiary of 185% (2014 - 185%).
In June 2013, OSFI communicated that it has commenced an internal process aimed at developing a new capital framework for
mortgage insurers expected to be effective in 2017. The Company regularly reviews its capital levels and, after reviewing stress
testing results and consulting with OSFI, the Company established an operating MCT holding target of 220%, pending the
development of the new capital framework for mortgage insurers. While the Company’s internal capital target of 185% is
calibrated to cover the various risks that the business would face in a severe recession, the holding target of 220% is designed to
provide a capital buffer to allow management time to take necessary actions should capital levels be pressured by deteriorating
macroeconomic conditions.
In September 2014, OSFI published an interim MCT guideline for mortgage insurers effective January 1, 2015. This guideline was
developed by adjusting the 2015 MCT guideline applicable to Property and Casualty insurers to reflect the specific characteristics
of the mortgage insurance business until the new capital framework for mortgage insurers is developed. The implementation of
the interim MCT guideline in 2015 did not have a significant impact to the Company's MCT.
As at December 31, 2015, the Insurance Subsidiary had an MCT ratio of 233% (2014 - 225%) and has complied with regulatory
and internal capital requirements as well as its MCT holding target.
In addition to requirements to maintain specified levels of capital, to measure the degree to which the Insurance Subsidiary is able
to meet regulatory requirements, the Company’s appointed actuary must present an annual Dynamic Capital Adequacy Test to
the Board of Directors and management on the Insurance Subsidiary’s current and future solvency under various projected
scenarios.
The Company’s Board of Directors has adopted a capital management policy for the Company and the Insurance Subsidiary. The
policy identifies sources of capital, establishes a capital adequacy target and capital holding target for the Insurance Subsidiary and
sets a financial leverage target and dividend policy for the Company. As part of its ongoing management of capital, the Company
prepares capital forecasts and regularly compares actual performance with forecasted results.
GENWORTH MI CANADA INC. 2015 ANNUAL REPORT
GENWORTH MI CANADA INC. 2015 FINANCIAL REPORT
100
100
Notes to consolidated financial statements (continued)
(In thousands of Canadian dollars, except per share amounts) Years ended December 31, 2015 and 2014
9. Investments:
The investments presented in the table below are carried at fair value:
Amortized
cost/cost
2015
Unrealized
gain (loss)
Fair value
% total fair
value
Fair value
Amortized
cost/cost
2014
Unrealized
gain (loss)
% total
fair value
Cash and cash equivalents:
Canadian federal government
treasury bills
Cash
AFS investments:
Short-term investments:
Canadian federal government
treasury bills(1)
Government bonds and debentures:
Canadian federal government(1)
Canadian provincial and municipal
government
Corporate bonds and debentures:
Financial
Energy
Infrastructure
All other sectors
$
274,166
116,630
390,796
$
274,166 $
116,630
390,796
78,178
78,178
78,178
78,178
—
—
—
—
—
1,963,176 1,884,347
78,829
1,006,185
932,785
2,969,361 2,817,132
73,400
152,229
967,228
315,592
222,360
548,607
933,357
293,913
208,774
493,571
2,053,787 1,929,615
33,871
21,679
13,586
55,036
124,172
Asset backed bonds (2)
Total AFS bonds and debentures
177,567
145,539
5,200,715 4,892,286
32,028
308,429
Preferred Shares:
Financial
Energy
All other sectors
Common shares:
Energy
Financial
Communications
All other sectors
145,781
52,945
48,991
247,717
164,565
(18,784)
62,036
53,949
(9,091)
(4,958)
280,550
(32,833)
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
4.6
2.0
6.6
$
135,628
$
135,628
54,747
190,375
54,747
190,375
2.5
1.0
3.5
—
1.3
1.3
33.2
17.0
50.2
16.3
5.3
3.8
9.3
34.7
3.0
87.9
2.5
0.9
0.8
4.2
—
—
—
—
—
84,933
84,933
84,933
84,933
—
—
1.6
1.6
1,769,540
1,696,877
72,663
32.5
897,897
829,461
2,667,437
2,526,338
68,436
141,099
1,142,371
1,096,582
252,453
240,940
568,746
234,335
226,616
532,185
2,204,510
2,089,718
125,412
119,930
4,997,359
4,735,986
—
—
—
—
28,756
45,074
16,562
80,064
—
—
—
—
26,924
37,088
14,823
63,821
170,456
142,656
45,789
18,118
14,324
36,561
114,792
5,482
261,373
—
—
—
—
1,832
7,986
1,739
16,243
27,800
16.5
49.0
21.0
4.6
4.5
10.4
40.5
2.3
91.8
—
—
—
—
0.5
0.8
0.3
1.5
3.1
Total investments
$ 5,917,406
$ 5,641,810 275,596 (3)
100.0
$ 5,443,123
$ 5,153,950
289,173 (3)
100.0
(1) As at December 31, 2015, Canadian federal government bonds and treasury bills includes $85,296 in collateral posted for the benefit of the Company's counterparties to
its derivative financial instrument contracts, as described in the derivative financial instruments section of note 9 (December 31, 2014 - $22,418).
(2) As at December 31, 2015, asset backed bonds is comprised entirely of collateralized loan obligations (December 31, 2014 - $117,342).
(3) Unrealized gains include unrealized foreign exchange gains of $97,019 as at December 31, 2015 (December 31, 2014 - $30,044).
GENWORTH MI CANADA INC. 2015 ANNUAL REPORT
GENWORTH MI CANADA INC. 2015 FINANCIAL REPORT
101
101
Notes to consolidated financial statements (continued)
(In thousands of Canadian dollars, except per share amounts) Years ended December 31, 2015 and 2014
9.
Investments (continued):
The fair value of investments, excluding preferred shares, common shares and cash and cash equivalents, are shown by
contractual maturity of the investment.
Terms to maturity:
Federal, provincial and municipal bonds and debentures and short-term
investments:
1 year or less
1-3 years
3-5 years
5-10 years
Over 10 years
Corporate bonds and debentures and asset backed bonds:
1 year or less
1-3 years
3-5 years
5-10 years
Over 10 years
2015
2014
$
$
383,164
562,108
1,089,309
822,535
190,423
3,047,539
204,396
619,561
427,815
680,621
298,961
288,499
675,912
768,565
777,605
241,789
2,752,370
257,817
532,720
501,109
640,669
397,607
2,231,354
2,329,922
$
5,278,893
$
5,082,292
Investments denominated in foreign currencies:
Corporate bonds and debentures and asset backed bonds include $307,941 (2014 - $229,870) of emerging market bonds and
$177,567 of collateralized loan obligations ("CLOs") (2014 -$117,342) denominated in U.S. dollars. The CLOs are structured credit
securities, collateralized by U.S. bank loans with an average AA credit rating, that pay interest based on floating interest rates
indexed to the London Interbank Offered Rate.
GENWORTH MI CANADA INC. 2015 ANNUAL REPORT
GENWORTH MI CANADA INC. 2015 FINANCIAL REPORT
102
102
Notes to consolidated financial statements (continued)
(In thousands of Canadian dollars, except per share amounts) Years ended December 31, 2015 and 2014
9.
Investments (continued):
Investments denominated in foreign currencies (continued):
The emerging market bonds and CLOs are classified as AFS and changes in the fair value of the investments are recorded in OCI.
Re-measurement adjustments arising on translation of the investments from U.S. dollars into Canadian dollars are recognized in
net investment gains.
Derivative financial instruments:
Derivative financial instruments are used by the Company for hedging purposes and for the purpose of modifying the risk profile
of the Company's investment portfolio, subject to exposure limits specified within the Company's investment policy guidelines,
which have been approved by the Board of Directors.
The Company uses derivative financial instruments in the form of foreign currency forwards and cross currency interest rate
swaps to mitigate foreign currency risk associated with bonds denominated in U.S. dollars (2014 - bonds denominated in U.S.
dollars and reinsurance collateral denominated in Australian dollars). Foreign currency forwards and cross currency interest rate
swaps are contractual obligations to exchange one currency for another at a predetermined future date.
The Company uses equity total return swaps to hedge a portion of its economic exposure from the changes in fair market value of
the Company's common shares in relation to risk associated with share-based compensation expenses. Additional disclosure of
the Company's equity total return swaps is included in note 14.
The following table shows the fair value and notional amounts of the derivative financial instruments by terms of maturity, in
Canadian dollars:
2015
Net
Fair value
1 year
or less
1 - 3
years
3 - 5
years
Over 5
years
Total
Notional amount
Foreign currency forwards (1)
$ (44,886)
$ 14,351
$ 26,412
$ 35,558
$ 212,535
$ 288,856
Cross currency interest rate
swaps (1)
(37,461)
143,590
27,680
19,376
34,019
224,665
Equity total return swaps (1)
(1,514)
19,558
—
—
—
19,558
Total
$ (83,861)
$177,499
$ 54,092
$ 54,934
$ 246,554
$ 533,079
GENWORTH MI CANADA INC. 2015 ANNUAL REPORT
GENWORTH MI CANADA INC. 2015 FINANCIAL REPORT
103
103
Notes to consolidated financial statements (continued)
(In thousands of Canadian dollars, except per share amounts) Years ended December 31, 2015 and 2014
9.
Investments (continued):
Notional amount
2014
Net
1 year
Fair value
or less
1 - 3
years
3 - 5
years
Over 5
years
Total
Foreign currency forwards (1)
$ (14,902)
$ 29,322
$ 5,752
$ 16,500
$ 203,033
$ 254,607
Cross currency interest rate
swaps (1)
(8,249)
— 120,558
Equity total return swaps (1)
156
—
—
—
—
—
—
120,558
—
Total
$ (22,995)
$ 29,322 $ 126,310
$ 16,500
$ 203,033
$ 375,165
(1) As at December 31, 2015, All foreign currency forwards, cross currency interest rate swaps and equity total return swaps were in a liability position.
(1) December 31, 2014 - Foreign currency forwards includes $15,049 derivative financial instrument liabilities and $147 derivative financial instrument assets. All cross
currency interest rate swaps were in a liability position. All equity total return swaps were in an asset position.
The Company enters into collateral arrangements with its derivative counterparties that require the posting of collateral upon
certain net exposure thresholds being met. As at December 31, 2015, the Company had posted collateral of $85,296 in the form
of Canadian federal government bonds and treasury bills for the benefit of its counterparties to the foreign currency forwards,
cross currency interest rate swaps and equity total return swaps (2014 - $22,418).
Securities lending:
The Company participates in a securities lending program through an intermediary that is a financial institution for the purpose of
generating fee income. Non-cash collateral, in the form of U.S. or Canadian government securities, which is equal to at least
105% of the fair value of the loaned securities, is retained by the Company until the underlying securities have been returned to
the Company.
The fair value of the loaned securities is monitored on a daily basis with additional collateral obtained or refunded as the fair value
of the underlying securities fluctuates. While in the possession of counterparties, the loaned securities may be resold or re-
pledged by such counterparties. The intermediary indemnifies the Company against any shortfalls in collateral.
In addition to earning fee income under the securities lending program, the Company continues to earn all interest, dividends and
other income generated by the loaned securities while the securities are in the possession of counterparties.
GENWORTH MI CANADA INC. 2015 ANNUAL REPORT
GENWORTH MI CANADA INC. 2015 FINANCIAL REPORT
104
104
Notes to consolidated financial statements (continued)
(In thousands of Canadian dollars, except per share amounts) Years ended December 31, 2015 and 2014
9.
Investments (continued):
Securities lending (continued):
These transactions are conducted under terms that are usual and customary to security lending activities, as well as requirements
determined by exchanges where a financial institution acts as an intermediary.
As at December 31, 2015, the Company had loaned the following investments under its securities lending program:
Cash equivalents
Short-term investments
Bonds and debentures
Preferred shares
Common shares
2015
2014
$
28,648
$
3,823
435,357
22,055
—
—
—
367,190
—
63,753
$
489,883
$
430,943
As at December 31, 2015, the Company has accepted eligible securities as collateral with a fair value of $495,671 (2014 - $455,029).
GENWORTH MI CANADA INC. 2015 ANNUAL REPORT
GENWORTH MI CANADA INC. 2015 FINANCIAL REPORT
105
105
Notes to consolidated financial statements (continued)
(In thousands of Canadian dollars, except per share amounts) Years ended December 31, 2015 and 2014
10.
Income taxes:
The provision for income taxes comprises the following:
Current tax:
Current income taxes
2015
2014
$
137,108 $
137,605
Current income tax adjustments in respect of prior years
(4,513 )
(69)
Deferred tax:
Origination and reversal of temporary differences
Impact of change in income tax rates
132,595
137,536
2,448
692
3,140
(3,816)
359
(3,457)
Total income tax expense
$
135,735 $
134,079
Income taxes recognized in OCI comprise the following:
2015
2014
Income taxes (income tax recovery) related to net gains or losses
on AFS financial assets
$
(22,040 ) $
21,201
Income taxes (income tax recovery) related to re-measurement of
employee benefit plan obligations
743
(1,834 )
Total income taxes (income tax recovery) recognized in OCI
$
(21,297 ) $
19,367
GENWORTH MI CANADA INC. 2015 ANNUAL REPORT
GENWORTH MI CANADA INC. 2015 FINANCIAL REPORT
106
106
Notes to consolidated financial statements (continued)
(In thousands of Canadian dollars, except per share amounts) Years ended December 31, 2015 and 2014
10.
Income taxes (continued):
Income taxes reflect an effective tax rate that differs from the statutory tax rate for the following reasons:
Income before income taxes
$
534,037
$
510,623
2015
2014
Combined basic Canadian federal
and provincial income tax rate
26.55 %
26.30%
Income tax expense based on statutory rate
$
141,787
$
134,294
Increase (decrease) in income tax resulting from:
Non-taxable income
Effect of increase in income tax rates
Income tax adjustments in respect of prior years
(2,927 )
1,362
(4,487 )
(343)
359
(231)
Income tax expense
$
135,735
$
134,079
The difference in the effective income tax rate of 25.42%, implicit in the $135,735 provision for income taxes in 2015 from the
Company's statutory income tax rate of 26.55%, was primarily attributable to income tax adjustments in respect of prior years
and higher non-taxable income partially offset by a higher income tax rate applicable to deferred income.
The difference in the effective income tax rate of 26.26%, implicit in the $134,079 provision for income taxes in 2014 from the
Company's statutory income tax rate of 26.30%, was primarily attributable to non-taxable dividend income and adjustments
relating to prior years, partially offset by non-deductible share-based compensation expenses and a higher income tax rate
applicable to deferred income.
GENWORTH MI CANADA INC. 2015 ANNUAL REPORT
GENWORTH MI CANADA INC. 2015 FINANCIAL REPORT
107
107
Notes to consolidated financial statements (continued)
(In thousands of Canadian dollars, except per share amounts) Years ended December 31, 2015 and 2014
10.
Income taxes (continued):
The following table describes the components of the net deferred tax liability on the Company's consolidated statements of
financial position:
2015
2014
Deferred tax assets:
Employee benefits
Loss reserves
Tax losses available for carry forward
Financing costs
Deferred tax liabilities:
Investments
Policy reserves
Property and equipment and intangible assets
Financing costs
$
11,579
$
1,763
10,679
—
24,021
(1,404 )
(59,304 )
(2,062 )
(256 )
(63,026 )
Net deferred tax liability
$
(39,005 ) $
The net change in the composition of the net deferred tax liabilities is as follows:
11,917
1,666
10,079
916
24,578
(1,619)
(56,002)
(2,079)
—
(59,700)
(35,122)
Balance, beginning of year
Expense for the year
OCI recognized for the year
Balance, end of year
2015
2014
35,122 $
3,140
743
40,413
(3,457 )
(1,834 )
39,005 $
35,122
$
$
All deferred tax assets have been recognized as at December 31, 2015 and 2014 as the Company has assessed it is probable that
future taxable profits will be available against which the deferred tax benefits can be utilized.
GENWORTH MI CANADA INC. 2015 ANNUAL REPORT
GENWORTH MI CANADA INC. 2015 FINANCIAL REPORT
108
108
Notes to consolidated financial statements (continued)
(In thousands of Canadian dollars, except per share amounts) Years ended December 31, 2015 and 2014
11.
Related party transactions and balances:
(a) Transactions with key management personnel and Company directors:
Key management personnel are those persons having authority and responsibility for planning and directly controlling the activities
of the Company.
Key management personnel's compensation includes base salary and performance-based compensation consisting of short-term
incentive compensation and long-term share-based compensation benefits, retirement benefits and executive allowances. Short-
term incentive compensation is dependent on the Company's performance against metrics that have been approved by the
Company’s Board of Directors and each managers' performance against his or her personal goals and objectives. Long-term
share-based compensation grants may consist of any combination of Options, RSUs, PSUs and EDSUs (note 14). In addition to
the defined contribution retirement benefit plan, the SERP is maintained to provide pension benefits to key management
personnel in excess of the amounts payable under the Company's registered defined contribution plan. The Company has a
compensation recoupement policy pertaining to its incentive compensation plans, providing for the full or partial forfeiture and
recoupement of incentive compensation awarded and outstanding or paid to incentive compensation plan participants, including
key management personnel. This policy will be applied at the discretion of the Board of Directors in circumstances that may
include a material financial restatement, other than a restatement caused by a change in applicable accounting rules or
interpretations, the result of which was that any incentive compensation provided to senior executives or officers would have
been a lower amount had it been calculated based on such restated results, or where a participant has been determined by the
Board of Directors to have engaged in misconduct, regardless of the need for a financial restatement.
The Company has standard policies in place to cover various forms of termination. Key management personnel are subject to the
same terms and conditions as all other employees of the Company for resignation and termination for cause.
Directors must take 50% of their annual retainer in the form of DSUs and may elect to take the remaining portion as cash.
Independent directors are required to own at least three times their annual retainer in common shares or DSUs five years from
the individual's appointment date. If a director has not met the Company's ownership guideline within the prescribed period,
100% of the director's annual retainer will be paid in DSUs until such time as the guidelines are met.
GENWORTH MI CANADA INC. 2015 ANNUAL REPORT
GENWORTH MI CANADA INC. 2015 FINANCIAL REPORT
109
109
Notes to consolidated financial statements (continued)
(In thousands of Canadian dollars, except per share amounts) Years ended December 31, 2015 and 2014
11.
Related party transactions and balances (continued):
(a) Transactions with key management personnel and Company directors (continued):
Compensation for the Company's seven key management personnel and eight independent directors (2014 - seven key
management personnel and six independent directors) is comprised of the following:
Short-term employee benefits
Post-employment benefits
Share-based compensation
Director fees
$
2015
3,888
751
1,075
704
$
2014
4,911
700
2,207
617
Total compensation
$
6,418
$
8,435
(b) Interest in consolidated subsidiaries:
The following table identifies all of the investees in the Company's reporting structure and the Company's percentage of direct
and indirect ownership of the investees. All of the investees have been incorporated in Canada:
Investee
Type of ownership
Genworth Canada Holdings I Company ("Holdings I") Direct
Genworth Canada Holdings II Company ("Holdings II") Direct
MIC Holdings G Company ("Gco")
Direct
Genworth Financial Mortgage Insurance Company
Indirect through Holdings I and
Canada ("the Insurance Subsidiary")
Holdings II
MIC Insurance Company Canada ("MICICC")
Indirect through the Insurance
Subsidiary
Ownership
interest
100%
100%
100%
100%
100%
GENWORTH MI CANADA INC. 2015 ANNUAL REPORT
GENWORTH MI CANADA INC. 2015 FINANCIAL REPORT
110
110
Notes to consolidated financial statements (continued)
(In thousands of Canadian dollars, except per share amounts) Years ended December 31, 2015 and 2014
11.
Related party transactions and balances (continued):
(b) Interest in consolidated subsidiaries (continued):
Through its sole ownership interest in these investees, the Company has the ability to make decisions on behalf of the investees
and has control of the investees. As control has been established, the Company is required to consolidate the investees.
The Insurance Subsidiary and MICICC are regulated insurance companies governed by the provisions of the Insurance Company
Act ("the Act"), which is administered by OSFI. The Insurance Subsidiary is also subject to legislation under PRMHIA. As such,
these investees are subject to certain requirements and restrictions contained in PRMHIA and the Act. The Investees are required
under the Act to meet an MCT to support their outstanding mortgage insurance policies in force. In addition, internal capital ratio
targets and capital holding targets have been established for the Insurance Subsidiary by the Board of Directors with which it
must comply (note 8). Accordingly, the payment of dividends and other distributions by the Insurance Subsidiary to the Company
are subject to compliance with MCT internal capital ratio targets, MCT holding targets and other applicable regulatory
requirements.
(c) Other related party transactions:
The Company enters into related party transactions with Genworth Financial Inc. and its subsidiaries. Services rendered by
Genworth Financial Inc. and its subsidiaries consist of information technology, finance, human resources, legal and compliance
and other specified services. The services rendered by the Company and the Insurance Subsidiary relate mainly to financial
reporting and tax compliance support services. These transactions are in the normal course of business and are at terms and
conditions no less favourable than market. Balances owing for service transactions are non-interest bearing and are settled on a
quarterly basis.
The Company incurred net related party charges of $6,458 for the year ended December 31, 2015, recorded in office expenses in
the consolidated statements of income (2014 - $5,247). The balance payable for related party services at December 31, 2015 is
$228 (2014 - $317) and is reported in accounts payable and accrued liabilities in the consolidated statements of financial position.
During the year ended December 31, 2015, the Company repurchased 1,454,196 (2014- 1,873,023) of its own common shares for
cancellation on the open market for an aggregate purchase price of $50,007 (2014 - $75,009). Genworth Financial Inc., through its
subsidiaries, participated proportionately in the share purchase transaction and maintained a 57.3% (2014 - 57.3%) ownership
interest in the Company. See note 18 for additional disclosure on the share repurchase transactions.
Effective November 30, 2015, the Company, through its indirect subsidiary MICICC, terminated a retrocession agreement that
commenced on December 1, 2013 with a third party reinsurance company. Under the Agreement the Company assumed
reinsurance risk for approximately 33% of the retroceded liabilities on claims paid by Genworth Australia in excess of 700,000
Australian dollars within any one year up to a maximum exposure to the Company of 30,000 Australian dollars less claims paid by
the Company in prior years. Additional information about the reinsurance transaction is disclosed in note 6(e).
GENWORTH MI CANADA INC. 2015 ANNUAL REPORT
GENWORTH MI CANADA INC. 2015 FINANCIAL REPORT
111
111
Notes to consolidated financial statements (continued)
(In thousands of Canadian dollars, except per share amounts) Years ended December 31, 2015 and 2014
12. Commitments:
The Company's commitments comprise of operating leases. The Company leases office space, office equipment, computer
equipment and automobiles. Leases of office space have initial lease terms between five to seven years, with the right to extend
the initial term of the lease for an additional three or five years.
Future minimum lease commitments at December 31, 2015 and 2014 are as follows:
Less than 1 year
Later than 1 year but less than 5 years
2015
2014
$ 2,704
9,914
$ 2,542
4,080
$ 12,618
$ 6,622
Lease payments recognized as an expense for the year ended December 31, 2015 were $3,032 (2014 - $3,127)
13.
Employee benefits:
Defined contribution pension benefit plan:
The Company's eligible employees participate in a registered defined contribution pension plan. The plan has no vesting period.
Employees are entitled to accumulated pension benefits immediately upon hire. As plan sponsor, the Company is responsible for
contributing a predetermined amount to an employee's retirement savings, based on a percentage of that employee's salary.
The cost of the defined contribution pension plan is recognized as compensation expense as services are provided by employees.
The defined contribution pension plan is subject to regulation under the Pension Benefits Act (Ontario) and the Canadian Income
Tax Act.
Defined benefit plans:
The Company maintains two types of defined benefit plans: a SERP and a defined benefit plan for non-pension post-retirement
benefits.
GENWORTH MI CANADA INC. 2015 ANNUAL REPORT
GENWORTH MI CANADA INC. 2015 FINANCIAL REPORT
112
112
Notes to consolidated financial statements (continued)
(In thousands of Canadian dollars, except per share amounts) Years ended December 31, 2015 and 2014
13.
Employee benefits (continued):
The SERP is an unregistered, non-contributory supplemental pension plan that supplements the registered defined contribution
plan. Benefit entitlement under the SERP is based on a final average earnings target. The SERP has no vesting period. Employees
eligible for SERP participation are entitled to accumulated pension benefits immediately upon hire. The non-pension post-
retirement benefit plan provides medical and life insurance coverage to employees after retirement. Certain employees are also
entitled to dental benefits under this plan.
The benefit liabilities for these plans represent the amount of pension and non-pension post-retirement benefits that employees
and retirees have earned as at year end. The Company's actuaries perform valuations of the benefit liabilities for these plans as at
December 31 of each year based on the Company's assumptions, including assumptions on discount rate, rate of compensation
increase, mortality and the trend in the health care cost rate. The discount rate is determined by the Company with reference to
AA credit-rated bonds that have maturity dates approximating the Company's obligation terms at period end and are denominated
in the same currency as the benefit obligations. Other assumptions are determined with reference to long-term expectations.
Plan membership data used in the valuations includes the number of plan members and the average age, service period and
pensionable earnings of plan members. For the SERP, actuarial valuations for the years ended December 31, 2015 and 2014 are
based on plan membership data as at the respective period ends. The weighted average duration of the SERP is 21 years. For
the non-pension post retirement benefits, actuarial valuations for the years ended December 31, 2015 and 2014 are based on
plan membership data as at June 1, 2015 and August 1, 2012, respectively. The weighted average duration of the non-pension
post-retirement benefit plan is 24 years.
The plans are unfunded with no specific assets backing the plan. The Company is the sponsor of these plans. Pension and
benefit payments related to these plans are paid directly by the Company at the time the benefits are due.
The SERP and non-pension post-retirement benefit plans are unregistered and are not subject to specific legislation.
GENWORTH MI CANADA INC. 2015 ANNUAL REPORT
GENWORTH MI CANADA INC. 2015 FINANCIAL REPORT
113
113
Notes to consolidated financial statements (continued)
(In thousands of Canadian dollars, except per share amounts) Years ended December 31, 2015 and 2014
13.
Employee benefits (continued):
Benefit plan governance:
The Company's Board of Directors has oversight of the pension and post-retirement benefit plans. The Pension Committee,
which is comprised of executive-level employees of the Company, reports to the Board of Directors on all pension-related
matters. Part of the Pension Committee's broader mandate is to identify risks associated with the pension plans and to
recommend appropriate policies and procedures to mitigate and manage these risks to the Board of Directors for approval. Once
approved by the Board of Directors, the policies and procedures are implemented by the Company.
The benefit liabilities in respect of the plans are recorded in the Company's consolidated statements of financial position as
follows:
2015
SERP
2014
Non-pension
Total
post-retirement benefits
benefit liabilities
2015
2014
2015
2014
Accrued net benefit
liabilities under employee benefit
plans
$21,052
$19,908
$16,189
$16,399
$37,241
$36,307
The maturity profile of the plans is demonstrated in the following table:
SERP
Non-pension
Total
post-retirement benefits
benefit liabilities
2015
2014
2015
2014
2015
2014
$15,635
$14,738
$12,997
$14,278
$28,632
$29,016
Accrued net benefit
liabilities of active plan
members
Accrued net benefit
liabilities of retirees and
deferred vested
benefit recipients
$5,417
$5,170
$3,192
$2,121
$8,609
$ 7,291
Accrued net benefit
liabilities under employee
benefit plans
$21,052
$16,189
$16,399
$37,241
$36,307
GENWORTH MI CANADA INC. 2015 ANNUAL REPORT
GENWORTH MI CANADA INC. 2015 FINANCIAL REPORT
114
114
Notes to consolidated financial statements (continued)
(In thousands of Canadian dollars, except per share amounts) Years ended December 31, 2015 and 2014
13.
Employee benefits (continued):
Pension and non-pension post-retirement benefits are recognized in employee compensation in the consolidated statements of
income and are determined as follows:
2015
SERP
2014
Non-pension post-
retirement benefits
Total
benefit liabilities
2015
2014
2015
2014
$ 1,029 $ 705
$ 1,435 $ 1,179
$ 2,464
$ 1,884
820
92
687
—
678
—
630
—
1,498
92
1,317
—
Defined benefit expense:
Benefits earned by
employees
Interest costs on accrued benefit
liability
Plan settlements
Defined benefit
expense for the year
1,941
1,392
2,113
1,809
4,054
Defined contribution
expense for the year
Total pension and non-pension
post-retirement benefit expense
2,635
2,646
—
—
2,635
3,201
2,646
for the year
$ 4,576 $ 4,038
$ 2,113 $ 1,809
$ 6,689
$ 5,847
The actuarial gains recognized in the consolidated statements of comprehensive income relating to the SERP are $513 for the
year ended December 31, 2015 (2014 - actuarial losses of $4,905). The actuarial gains recognized in the consolidated statements
of comprehensive income relating to the non-pension post-retirement benefits are $2,257 (2014 - actuarial losses of $2,008).
GENWORTH MI CANADA INC. 2015 ANNUAL REPORT
GENWORTH MI CANADA INC. 2015 FINANCIAL REPORT
115
115
Notes to consolidated financial statements (continued)
(In thousands of Canadian dollars, except per share amounts) Years ended December 31, 2015 and 2014
13.
Employee benefits (continued):
Changes in the estimated financial positions of the SERP and non-pension post-retirement benefits are as follows:
2015
SERP
2014
Non-pension post-
retirement benefits
2015
2014
Total benefit liabilities
2014
2015
$ 19,908 $ 13,830
$ 16,399 $ 12,689
$ 36,307
$ 26,519
1,029
705
1,435
1,179
2,464
1,884
820
92
687
—
678
—
630
—
1,498
1,317
92
—
Accrued net benefit liabilities under
employee benefit
plans, beginning of year
Benefits earned by employees
during the year
Interest costs on accrued
liability incurred during
the year
Plan settlements
recognized during the year
Benefits paid to pensioners
during the year
(284 )
(219 )
(66 )
(107 )
(350 )
(326)
Actuarial losses (gains) from
plan re-measurement
Accrued net benefit liabilities
(513 )
4,905
(2,257 )
2,008
(2,770 )
6,913
under employee benefit plans
$ 21,052 $ 19,908
$ 16,189 $ 16,399
$ 37,241
$ 36,307
The actuarial gains or losses categorized according to experience gains or losses and changes in assumptions are presented in the
following table:
Non-pension
post-retirement
benefits
Total
benefit liabilities
SERP
2015
2014
2015
2014
2015
2014
Actuarial losses (gains):
Experience
losses (gains)
$
(41 )
$
1,210
$ (1,884 )
$
(46 )
$ (1,925 )
$ 1,164
Changes in assumptions:
Financial assumptions
(508 )
3,577
(343 )
2,639
(851 )
6,216
Demographic assumptions
36
118
(30 )
(585 )
6
(467)
Total changes in assumptions
(472 )
3,695
(373 )
2,054
(845 )
5,749
$
(513 )
$
4,905
$ (2,257 )
$ 2,008
$ (2,770 )
$ 6,913
GENWORTH MI CANADA INC. 2015 ANNUAL REPORT
GENWORTH MI CANADA INC. 2015 FINANCIAL REPORT
116
116
Notes to consolidated financial statements (continued)
(In thousands of Canadian dollars, except per share amounts) Years ended December 31, 2015 and 2014
13.
Employee benefits (continued):
Defined benefit plan assumptions:
The significant weighted average assumptions used to determine benefit liabilities are as follows:
Discount rate
Change in rate of
compensation
increase
Mortality
2015
4.30%
SERP
2014
Non-pension
post-retirement benefits
2015
2014
4.15%
4.30 %
4.15 %
3.00%
3.00%
3.00 %
3.00 %
75% of male rates
and 92% of female
rates from the CIA
Private Sector Table
with generational
mortality
improvements using
CIA CPM-B Scale
75% of male rates and
92% of female rates
from the CPM RPP 2014
Private table with
generational mortality
improvements using
Scale CPM-B
CPM2014 Private
Sector Table with
generational
mortality
improvements
scale CPM-B
CPM2014 Private
Sector Table with
generational
mortality
improvements
scale CPM-B
Assumed overall
health care cost trend rate
n/a
n/a
6.24 %
8.33 %
(1) Grading down to 4.50% per year in and after 2029.
GENWORTH MI CANADA INC. 2015 ANNUAL REPORT
GENWORTH MI CANADA INC. 2015 FINANCIAL REPORT
117
117
Notes to consolidated financial statements (continued)
(In thousands of Canadian dollars, except per share amounts) Years ended December 31, 2015 and 2014
13.
Employee benefits (continued):
The following sensitivity analyses demonstrate the impact of a reasonable possible change in each significant valuation
assumption as at December 31, 2015 and 2014 on the benefit obligations.
2015
Increase (decrease) in benefit obligations:
Discount rate:
Impact of 1% increase
Impact of 1% decrease
Change in rate of compensation increase:
Impact of 1% increase
Impact of 1% decrease
Mortality rate:
Impact of 1 additional year of life expectancy
Impact of 1 less year of life expectancy
Assumed overall health care cost trend rate:
Impact of 1% increase
Impact of 1% decrease
SERP
Non-pension
post-retirement
benefits
$
(3,804 )
$
(3,118 )
4,973
3,791
1,855
(1,650 )
368
(400 )
n/a
n/a
n/a
n/a
264
(250 )
706
(1,041 )
GENWORTH MI CANADA INC. 2015 ANNUAL REPORT
GENWORTH MI CANADA INC. 2015 FINANCIAL REPORT
118
118
Notes to consolidated financial statements (continued)
(In thousands of Canadian dollars, except per share amounts) Years ended December 31, 2015 and 2014
13.
Employee benefits (continued):
2014
Increase (decrease) in benefit obligations:
Discount rate:
Impact of 1% increase
Impact of 1% decrease
Change in rate of compensation increase:
Impact of 1% increase
Impact of 1% decrease
Mortality rate:
Impact of 1 additional year of life expectancy
Impact of 1 less year of life expectancy
Assumed overall health care cost trend rate:
Impact of 1% increase
Impact of 1% decrease
SERP
Non-pension
post-retirement
benefits
$
(3,757 )
$
(3,084 )
4,956
4,387
1,980
(1,747 )
462
(498 )
n/a
n/a
n/a
n/a
296
282
1,183
(948 )
This sensitivity analysis is hypothetical. Actual experience may differ from expected experience. For the purpose of this analysis,
all other assumptions were held constant.
GENWORTH MI CANADA INC. 2015 ANNUAL REPORT
GENWORTH MI CANADA INC. 2015 FINANCIAL REPORT
119
119
Notes to consolidated financial statements (continued)
(In thousands of Canadian dollars, except per share amounts) Years ended December 31, 2015 and 2014
13.
Employee benefits (continued):
Benefit plan cash flows:
The SERP and non-pension post-retirement benefits plans are unfunded. The Company pays these benefits as they become due.
Cash payments made by the Company during the year in connection with employee benefit plans are as follows:
Pension plans
Non-pension
2015
2014
2015
2014
Benefits paid for
defined benefit plans
$
284
$
219
$
66
$
107
Contribution to defined
contribution plan
2,635
2,646
$
2,919
$
2,865
—
66
$
—
$
107
The Company expects to contribute the following amounts to its employee benefit plans during the annual period beginning after
December 31, 2015:
Defined contribution plan
SERP
Non-pension post retirement benefit plan
Total
Termination benefits:
$
$
2,287
297
180
2,764
Termination benefits are required to be recognized at the earlier of when the Company can no longer withdraw the offer of the
termination benefit or the Company recognizes restructuring costs within the scope of IAS 37 - Provisions, contingent liabilities
and contingent assets ("IAS 37").
GENWORTH MI CANADA INC. 2015 ANNUAL REPORT
GENWORTH MI CANADA INC. 2015 FINANCIAL REPORT
120
120
Notes to consolidated financial statements (continued)
(In thousands of Canadian dollars, except per share amounts) Years ended December 31, 2015 and 2014
14.
Share-based compensation:
The Company provides long-term incentive plans for the granting of Options, RSUs, PSUs, EDSUs and DSUs.
Options are granted to employees with an exercise price equal to the Company's closing share price at the date of grant. Options
vest over a period of three years (50% on each of the second and third anniversaries of the grant date or equally over three years).
The Options expire 10 years from the date of grant and provide employees with the choice of settlement in either cash or shares
of the Company. The range of exercise prices for the year ended December 31, 2015 is $19.00 to $32.88 (2014 - $19.00 to
$32.88).
RSUs entitle employees to receive an amount equal to the fair value of the Company's shares. RSU grants issued prior to 2014
vest equally over three years. Starting in 2014 RSU grants issued vest at the end of a three-year period.
PSUs entitle employees to receive an amount equal to the fair value of the Company's shares if certain performance conditions
are met. Performance measures associated with PSU grants include return on equity and basic earnings per share. PSU grants
issued vest at the end of a three-year period. The average of the performance measures taken over the three-year performance
period is used to determine the extent to which performance conditions are met.
The Company's Board of Directors, at its sole discretion, may grant EDSUs to the Company's executive-level employees. EDSUs
entitle employees to receive an amount equal to the fair value of the Company's shares. The Board of Directors determines the
vesting and performance conditions, as well as the number of EDSU units to be granted. EDSUs may be redeemed only upon
termination of employment.
DSUs entitle eligible members of the Company's Board of Directors to receive an amount equal to the fair value of the Company's
shares. The number of DSUs granted is based on the fair value of director services provided during the period and is calculated
using the Company's average share price in the five days immediately preceding the period end. DSUs vest immediately on the
date of grant and must be redeemed no later than December 15 of the calendar year, commencing immediately after the
Director's termination date.
GENWORTH MI CANADA INC. 2015 ANNUAL REPORT
GENWORTH MI CANADA INC. 2015 FINANCIAL REPORT
121
121
Notes to consolidated financial statements (continued)
(In thousands of Canadian dollars, except per share amounts) Years ended December 31, 2015 and 2014
14.
Share-based compensation (continued):
Employees and directors receive settlement of RSUs, PSUs and DSUs in either cash or shares of the Company at the discretion
of the Company's Board of Directors. EDSUs are settled in cash. The RSUs, PSUs, EDSUs and DSUs may also receive dividend
equivalents at the discretion of the Company's Board of Directors.
The Company has a compensation recoupement policy pertaining to its incentive plans, including its share-based compensation
plans, providing for the full or partial forfeiture and recoupement of incentive compensation awarded and outstanding or paid to
incentive compensation plan participants. This policy will be applied at the discretion of the Board of Directors in circumstances
that may include a material financial restatement, other than a restatement caused by a change in applicable accounting rules or
interpretations, the result of which was that any incentive compensation provided to senior executives or officers would have
been a lower amount had it been calculated based on such restated results or where a participant has been determined by the
Board of Directors to have engaged in misconduct, regardless of the need for a financial restatement.
The Company enters into equity total return swaps to hedge a portion of its economic exposure from the changes in fair market
value of the Company's common shares in relation to risk associated with share-based compensation expense. Equity total
return swaps are contracts by which one counterparty agrees to pay or receive from the other cash amounts based on changes in
the value of a referenced asset or group of assets, including any returns such as interest earned or dividends accrued on these
assets, in exchange for amounts that are based on prevailing market funding rates. Changes in fair value of the equity total return
swaps are recognized in employee compensation expense in the consolidated statements of income.
GENWORTH MI CANADA INC. 2015 ANNUAL REPORT
GENWORTH MI CANADA INC. 2015 FINANCIAL REPORT
122
122
Notes to consolidated financial statements (continued)
(In thousands of Canadian dollars, except per share amounts) Years ended December 31, 2015 and 2014
14.
Share-based compensation (continued):
The Company has reserved 3,000,000 common shares of its issued and authorized shares for issuance under these long-term
incentive plans.
As at December 31, 2015, the Company has 1,797,884 common shares remaining that are available for distribution (2014 -
1,741,938) .
The following table presents information about these share-based compensation plans:
Number
of
Options
Weighted
average
exercise
price
Weighted
average fair
value of
Options
Weighted
average
fair value
of RSUs
Number
of DSUs
Weighted
average
fair value
of DSUs
Number
of RSUs
Weighted
average
fair value
of PSUs
Number
of
EDSUs
Weighted
average fair
value of
EDSUs
Number
of PSUs
2015
Outstanding as at
January 1
Dividend equivalents
granted
Exercised
Forfeited
1,001,764
$ 23.48
$ 10,289
105,983
$ 3,919
53,717
$ 1,986
96,600
$ 3,572
21,149
$
Granted
53,100
31.90
— 39,200
1,246
10,639
312
28,185
883
8,600
—
—
—
5,307
162
3,038
79
5,258
152
1,568
(87,960)
20.96
(293)
(40,196)
(1,289) (14,078)
(377 )
(19,630)
(11,667)
32.38
(34)
(14,366)
(445)
—
(12,778)
—
—
(619)
(386)
—
—
—
Changes in fair value
—
—
(7,313)
—
(1,041)
(582 )
—
(1,005)
782
274
50
—
—
(273)
Outstanding as at
December 31
Exercisable as at
December 31
Weighted average
remaining
contractual life
(years)
955,237
24.08
2,649
95,928
2,552
53,316
1,418
97,635
2,597
31,317
833
805,833
$ 22.86
$
2,391
— $ —
53,316
$ 1,418
— $ —
— $
—
5.3
—
—
1.8
—
—
—
1.6
—
2.6
—
GENWORTH MI CANADA INC. 2015 ANNUAL REPORT
GENWORTH MI CANADA INC. 2015 FINANCIAL REPORT
123
123
Notes to consolidated financial statements (continued)
(In thousands of Canadian dollars, except per share amounts) Years ended December 31, 2015 and 2014
14.
Share-based compensation (continued):
2014
Number of
Options
Weighted
average
exercise
price
Weighted
average
fair value
of
Options
Weighted
average
fair value
of RSUs
Number
of
DSUs
Weighted
average
fair value
of DSUs
Number
of RSUs
Weighted
average
fair value
of PSUs
Number
of
EDSUs
Weighted
average
fair value
of EDSUs
Number
of PSUs
986,908 $ 22.12 $ 9,198
105,314 $
3,858
44,736
$ 1,639
71,538
$ 2,620 20,153
$738
114,500
32.88
— 45,000
1,480
6,620
244
37,922
1,228
—
—
—
—
4,921
142
2,361
58
4,733
128
996
Exercised
(93,494)
20.57
(1,099)
(49,252)
(1,678)
(6,150)
23.49
(73)
—
—
2,263
—
—
—
117
—
—
—
— (17,593)
(586)
—
45
—
—
—
182
—
—
—
—
31
—
—
13
1,001,764
23.48
10,289
105,983
3,919 53,717
1,986
96,600
3,572 21,149
782
775,798 $ 22.13 $ 8,497
— $
— 53,717
$ 1,986
— $
—
—
$ —
6.0
—
—
1.8
—
—
—
1.7
—
3.3
—
Outstanding as
at January 1
Granted
Dividend
equivalents
granted
Forfeited
Changes in fair
value
Outstanding as
at December 31
Exercisable as
at December 31
Weighted
average
remaining
contractual life
(years)
GENWORTH MI CANADA INC. 2015 ANNUAL REPORT
GENWORTH MI CANADA INC. 2015 FINANCIAL REPORT
124
124
Notes to consolidated financial statements (continued)
(In thousands of Canadian dollars, except per share amounts) Years ended December 31, 2015 and 2014
14.
Share-based compensation (continued):
The fair value of Options is measured using the Black-Scholes valuation model as at the end of each reporting period.
The inputs used in the measurement of fair value of the Options are as follows:
Share price at reporting date
Weighted average exercise price per share
Expected volatility
Option life (years)
Expected dividend yield
Risk-free interest rate
2015
$
$
26.60
24.08
$
$
25.53 %
8.0
6.44 %
0.62 %
2014
36.98
23.48
22.41%
6.0
3.79%
1.02%
Expected volatility is estimated based on the Company's average historical volatility and the mean volatility of the general index of
Canadian financial companies. The volatility of Canadian financial companies is used to supplement the volatility calculation given
the Company has limited share price history. The weighted average expected life of the instrument is estimated based on the
Company's expectations about the timing of option exercises. Dividend yield is estimated based on historical dividends and the
Company's long-term expectations. Risk-free rate is determined with reference to Government of Canada bonds.
The aggregate fair value of the Options outstanding is $2,649 as at December 31, 2015 (2014 - $10,289).
The fair value of the RSUs, PSUs, DSUs and EDSUs is measured at the quoted market price of the Company's shares at the end
of each reporting period.
The Company records share-based compensation expense only to the extent that the share-based awards are expected to vest
based on the Company's best estimate of the outcome of service and performance conditions.
GENWORTH MI CANADA INC. 2015 ANNUAL REPORT
GENWORTH MI CANADA INC. 2015 FINANCIAL REPORT
125
125
Notes to consolidated financial statements (continued)
(In thousands of Canadian dollars, except per share amounts) Years ended December 31, 2015 and 2014
14.
Share-based compensation (continued):
The following tables provide information about the expenses and liabilities arising from share-based compensation:
Expenses arising from:
Options
RSUs
PSUs
EDSUs
DSUs
Effect of equity total return swaps
Net share-based compensation expense (recovery)
2015
2014
$
(6,086 )
$
360
811
281
(191 )
$
(4,825 )
$
$
4,516
(309 )
$
$
$
2,923
1,461
1,462
267
348
6,461
(156)
6,305
Total carrying amount of liabilities for cash-settled
arrangements
Total intrinsic value of liability for vested benefits
2015
2014
$
$
8,496
4,432
$
$
16,764
13,509
GENWORTH MI CANADA INC. 2015 ANNUAL REPORT
GENWORTH MI CANADA INC. 2015 FINANCIAL REPORT
126
126
Notes to consolidated financial statements (continued)
(In thousands of Canadian dollars, except per share amounts) Years ended December 31, 2015 and 2014
15. Intangible assets:
The Company's intangible assets are summarized as follows:
Cost
Computer software
Balance at January 1, 2014
Acquisitions - externally purchased
Balance at December 31, 2014
Acquisitions - externally purchased
$
36,265
3,338
39,603
3,564
Balance at December 31, 2015
$
43,167
Amortization and impairment losses
Computer software
Balance at January 1, 2014
Amortization for the year
Balance at December 31, 2014
Amortization for the year
$
28,951
3,191
32,142
1,941
Balance at December 31, 2015
$
34,083
Amortization of intangible assets is included in office expenses in the consolidated statements of income.
Carrying amounts
At December 31, 2014
At December 31, 2015
Computer software
$ 7,461
9,084
GENWORTH MI CANADA INC. 2015 ANNUAL REPORT
GENWORTH MI CANADA INC. 2015 FINANCIAL REPORT
127
127
Notes to consolidated financial statements (continued)
(In thousands of Canadian dollars, except per share amounts) Years ended December 31, 2015 and 2014
16.
Transactions with lenders:
Gross premiums written from two major lenders (defined as lenders that individually account for more than 10% of the
Company's gross premiums written) was $189,482, representing 23.4% of the Company's total gross premiums written for the
year ended December 31, 2015 (2014 - gross premiums written from two major lenders that accounted for more than 10% of the
Company's gross premiums written was $166,924 or 26.1%).
17.
Goodwill:
On January 17, 1995, the Company acquired certain assets and assumed certain liabilities from the Mortgage Insurance Company
Canada ("MICC") related to MICC's residential mortgage insurance line of business. The excess of the purchase price over the
estimated fair value of the net assets was recorded as goodwill.
Goodwill impairment test:
Goodwill is considered impaired to the extent that its carrying amount exceeds its recoverable amount. The recoverable amount
of the Company's single CGU, which is its mortgage insurance business, was determined based on its value in use. Value in use
was calculated by discounting the future cash flows generated from continuing use of the CGU. The calculation of value in use
incorporated five years of cash flow estimates and was based on the following key assumptions:
The Company's multi-year plan was used as a proxy for five years of future cash flow estimates. The multi-year plan represents
the Company's best estimate of future income and cash flows and is approved by the Company's Board of Directors. The plan
incorporates assumptions regarding premium growth rate, loss development and relevant industry and economic assumptions.
Terminal value incorporated into the value in use calculations was estimated by applying a growth rate of 1.7% (2014 - 1.6%) to
the last year of the multi-year plan cash flow estimate. The growth rates at December 31, 2015 and 2014 reflect the Canadian
five year historical average core inflation rate, which does not exceed the long-term average growth rate for the industry.
A pre-tax discount rate of 13.7% (2014 - 13.8%) was applied in determining the recoverable amount of the unit. The discount
rates as at December 31, 2015 and 2014 were based on the Company's weighted average cost of capital, adjusted for liquidity
and a risk premium.
Based on the value in use calculation, the recoverable amount of the unit was determined to be higher than its carrying amount.
No goodwill impairment charge has been recognized in the year ended December 31, 2015 (2014 - nil).
GENWORTH MI CANADA INC. 2015 ANNUAL REPORT
GENWORTH MI CANADA INC. 2015 FINANCIAL REPORT
128
128
Notes to consolidated financial statements (continued)
(In thousands of Canadian dollars, except per share amounts) Years ended December 31, 2015 and 2014
18.
Share capital:
The share capital of the Company comprises the following:
Authorized:
Unlimited common shares with nominal or no par value(1)
1 special share(2)
Issued:
91,795,125 common shares (2014 - 93,147,778)
1 special share
Share capital
2015
2014
$
$
1,366,374
$
1,384,558
—
—
1,366,374
$
1,384,558
(1) Holders of common shares will, except where otherwise provided by law and subject to the rights of the holder of the special
share, be entitled to elect a portion of the Board of Directors, vote at all meetings of shareholders of the Company and be entitled
to one vote per common share. Holders of common shares are entitled to receive dividends as and when declared by the Board
of Directors and, upon voluntary or involuntary liquidation, dissolution or winding-up of the Company, the holders of common
shares are entitled to receive the remaining property and assets of the Company available for distribution, after payment of
liabilities. All issued shares are fully paid.
(2)Only one special share may be authorized for issuance. The special share is held by the Company's majority shareholder,
Genworth Financial Inc. The attributes of the special share provide that the holder of the special share will be entitled to nominate
and elect a certain number of directors to the Board of Directors, as determined by the number of common shares that the holder
of the special share and its affiliates beneficially own from time to time. Accordingly, for so long as Genworth Financial Inc.
beneficially owns a specified percentage of commons shares, the holder of the special share will be entitled to nominate and
elect a specified number of the Company's directors, as set out in the table below.
Common share ownership
Number of directors
Greater than or equal to 50%
Less than 50% but not less than 40%
Less than 40% but not less than 30%
Less than 30% but not less than 20%
Less than 20% but not less than 10%
Less than 10%
5/9
4/9
3/9
2/9
1/9
none
Under the shareholder agreement, the selling shareholder will agree that the special share may not be transferred except to and
among affiliates of Genworth Financial Inc. Subject to applicable law, the special share will be automatically redeemed for $1.00
immediately upon (a) any transfer to a non-affiliate of Genworth Financial Inc., (b) the time that any affiliate of Genworth Financial
Inc. who, at the relevant time, holds the special share is no longer an affiliate of Genworth Financial Inc., (c) the time that
Genworth Financial Inc. first ceases to beneficially own at least 10% of the outstanding common shares, or (d) demand by the
holder of the special share.
GENWORTH MI CANADA INC. 2015 ANNUAL REPORT
GENWORTH MI CANADA INC. 2015 FINANCIAL REPORT
129
129
Notes to consolidated financial statements (continued)
(In thousands of Canadian dollars, except per share amounts) Years ended December 31, 2015 and 2014
18.
Share capital (continued):
The following table presents changes in the number of common shares outstanding that occurred during each year:
2015
2014
Common shares, January 1
93,147,778
94,910,880
Common shares issued in connection with share-based
compensation plans
Common shares retired under share repurchase
Common shares, December 31
101,543
(1,454,196 )
91,795,125
109,921
(1,873,023 )
93,147,778
At December 31, 2015, subsidiaries of Genworth Financial Inc. owned 52,562,042 common shares of the Company or approximately 57.3% (2014 - 53,395,420 or
approximately 57.3%).
Share repurchases:
2015:
Shares purchased by the Company for cancellation are recognized as a reduction to share capital equal to the average carrying
value of the common shares. Any difference between the aggregate purchase price and the average carrying value of the
common shares is recorded in retained earnings. Expenses incurred in connection with the share purchases are recorded in
retained earnings.
During the year ended December 31, 2015, the Company received approval by the Toronto Stock Exchange for the Company to
undertake a normal course issuer bid ("NCIB"). Pursuant to the NCIB, the Company can purchase, for cancellation, up to
4,658,577 shares representing approximately 5% of its outstanding common shares. Purchases of common shares under the
NCIB commenced on May 5, 2015 and will conclude on the earlier of May 4, 2016 and the date on which the Company has
purchased the maximum number of shares under the NCIB.
During the year ended December 31, 2015, under the terms of the NCIB, the Company purchased 1,454,196 shares for
cancellation on the open market for an aggregate price of $50,007. The Company's majority shareholder Genworth Financial Inc.
through its subsidiaries, participated proportionately in the share purchase transaction and maintained a 57.3% ownership interest
in the Company.
2014:
During the year ended December 31, 2014, the Company received approval by the Toronto Stock Exchange for the Company to
undertake an NCIB. Pursuant to the NCIB, the Company could purchase, for cancellation, up to 4,746,504 shares representing
approximately 5% of its outstanding common shares. Purchases of common shares under the NCIB may have commenced on or
after May 5, 2014 and concluded on the earlier of May 4, 2015 and the date on which the Company had purchased the maximum
number of shares under the NCIB.
During the year ended December 31, 2014, under the terms of the NCIB, the Company purchased 1,873,023 common shares for
cancellation on the open market for an aggregate price of $75,009. The Company's majority shareholder Genworth Financial Inc.
through its subsidiaries, participated proportionately in the share purchase transaction and maintained a 57.3% ownership interest
in the Company.
GENWORTH MI CANADA INC. 2015 ANNUAL REPORT
GENWORTH MI CANADA INC. 2015 FINANCIAL REPORT
130
130
Notes to consolidated financial statements (continued)
(In thousands of Canadian dollars, except per share amounts) Years ended December 31, 2015 and 2014
19.
Long-term debt:
On June 29, 2010, the Company completed an offering of $275,000 principal amount of senior unsecured debentures ("Series 1").
The Series 1 debentures were issued for gross proceeds of $274,862 or a price of $99.95, before approximate issuance costs of
$2,413.
On December 16, 2010, the Company completed an additional offering of $150,000 principal amount of senior unsecured
debentures ("Series 2"). The Series 2 debentures were issued at par, before approximate issuance costs of $986.
On April 1, 2014, the Company completed an offering of $160,000 principal amount of senior unsecured debentures ("Series 3").
The Series 3 debentures were issued at par, before approximate issuance costs of $1,365.
On May 1, 2014, the Company redeemed its existing Series 2 senior unsecured debentures with a principal amount of $150,000.
The Company repaid the principal amount plus accrued and unpaid interest to the redemption date of $2,584. In addition, the
Company paid an early redemption fee to existing debt holders of $7,249.
All debentures issued are redeemable at the option of the Company in whole or in part, at any time subject to an early redemption
fee.
The issuance costs and discount are amortized over the respective terms of the debentures using the effective interest method.
The following table provides details of the Company's long-term debt:
Date issued
Maturity date
Principal amount
Fixed annual rate
Semi-annual interest payment due each period on:
Series 1
Series 3
June 29, 2010
June 15, 2020
$275,000
5.68 %
June 15
December 15
April 1, 2014
April 1, 2024
$160,000
4.242 %
October 1
April 1
GENWORTH MI CANADA INC. 2015 ANNUAL REPORT
GENWORTH MI CANADA INC. 2015 FINANCIAL REPORT
131
131
Notes to consolidated financial statements (continued)
(In thousands of Canadian dollars, except per share amounts) Years ended December 31, 2015 and 2014
19.
Long-term debt (continued):
The Company's long-term debt balances are as follows:
2015
Carrying value
Fair value
2014
Carrying value
Fair value
Series 1
$ 273,670
299,489
Series 1
$ 273,418
310,896
Series 3
$ 158,834
159,662
Series 3
$ 158,719
165,579
Total
$ 432,504
459,151
Total
$ 432,137
476,475
The Company's long-term debt is classified as a Level 2 financial instrument, as described in note 22, as the fair value of the debt
is determined using observable market data.
The Company incurred interest expense of $22,774 and $23,686 for the years ended December 31, 2015 and 2014, respectively,
with accrued interest payable of $2,429 at December 31, 2015 (2014- $2,429).
GENWORTH MI CANADA INC. 2015 ANNUAL REPORT
GENWORTH MI CANADA INC. 2015 FINANCIAL REPORT
132
132
Notes to consolidated financial statements (continued)
(In thousands of Canadian dollars, except per share amounts) Years ended December 31, 2015 and 2014
20.
Earnings per share:
Basic earnings per share have been calculated using the weighted average number of shares outstanding of 92,296,521 (2014 -
94,787,064). Diluted earnings per share have been calculated using the diluted weighted average number of shares outstanding of
92,771,849 (2014 -94,966,380). 155,933 Options (2014 - 1,001,764 Options, 4,346 RSUs, 17,845 PSUs, 40,781 DSUs and 20,153
EDSUs) were excluded from the calculation of diluted weighted average number of shares since their effect would have been
anti-dilutive.
Earnings per share are presented below:
Basic earnings per share:
Net income
Diluted earnings per share:
2015
2014
$
398,302
$
376,544
Re-measurement amount net of income taxes
(7,166 )
106
Earnings for purposes of diluted earnings per share
$
391,136
$
376,650
Basic common shares outstanding, beginning of year:
93,147,778
94,910,880
Effect of share-based compensation exercised during the year
64,941
73,071
Effect of repurchase of common shares during the year
(916,198 )
(196,887)
Weighted average basic common shares outstanding during the
year
Basic earnings per share
Diluted earnings per share:
92,296,521
$
4.32
94,787,064
3.97
$
Basic weighted average common shares outstanding
Effect of share-based compensation during the year
Diluted weighted average common shares outstanding during
the year
Diluted earnings per share
92,296,521
475,328
92,771,849
94,787,064
179,316
94,966,380
$
4.22
$
3.97
GENWORTH MI CANADA INC. 2015 ANNUAL REPORT
GENWORTH MI CANADA INC. 2015 FINANCIAL REPORT
133
133
Notes to consolidated financial statements (continued)
(In thousands of Canadian dollars, except per share amounts) Years ended December 31, 2015 and 2014
21. Non-current assets and liabilities:
The following table presents assets and liabilities the Company expects to recover or settle after 12 months at December 31,
2015 and 2014.
Assets:
2015
2014
Collateral under reinsurance agreement
$
—
$
28,446
Bonds and debentures
Preferred shares
Common shares
Subrogation recoverable
Total assets
Liabilities:
Loss reserves
Derivative financial instruments
Accrued net benefit liabilities under employee benefit plans
Long-term debt
Total liabilities
4,691,333
247,717
—
12,637
4,535,976
—
170,456
14,324
4,951,687
4,749,202
75,343
50,154
36,764
432,504
594,765
57,080
23,298
35,880
432,137
548,395
Net assets due after one year
$ 4,356,922
$
4,200,807
GENWORTH MI CANADA INC. 2015 ANNUAL REPORT
GENWORTH MI CANADA INC. 2015 FINANCIAL REPORT
134
134
Notes to consolidated financial statements (continued)
(In thousands of Canadian dollars, except per share amounts) Years ended December 31, 2015 and 2014
22. Fair value measurement:
Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction
between market participants at the measurement date.
Fair value measurements are based on a three-level fair value hierarchy based on inputs used in estimating the fair value of assets
and liabilities. The hierarchy of inputs is summarized below:
Level 1 - inputs used to value the financial assets and liabilities are unadjusted quoted prices in active markets for identical
assets or liabilities;
Level 2 - inputs used to value the financial assets and liabilities are other than quoted prices included in Level 1 that are
observable for the asset or liability either directly or indirectly; and
Level 3 - inputs used to value the financial assets and liabilities are not based on observable market data.
GENWORTH MI CANADA INC. 2015 ANNUAL REPORT
GENWORTH MI CANADA INC. 2015 FINANCIAL REPORT
135
135
Notes to consolidated financial statements (continued)
(In thousands of Canadian dollars, except per share amounts) Years ended December 31, 2015 and 2014
22. Fair value measurement (continued):
The following table shows the carrying amounts and fair values of financial assets and financial liabilities, including their levels in
the fair value hierarchy. It does not include fair value information for financial assets and financial liabilities not measured at fair
value if the carrying amount is a reasonable approximation of fair value.
Carrying amount
Loans
Other
and
financial
Fair value
AFS
FVTPL
receivables
liabilities
Level 1
Level 2 Level 3
2015
Financial assets measured
at fair value:
Short-term investments
$
78,178
$
— $
— $
— $ 78,178
$
— $ —
Derivative financial instruments
—
Bonds and debentures
Preferred shares
Financial assets not measured
at fair value:
Cash and cash equivalents
Accrued investment income
and other receivables
Financial liabilities measured
at fair value:
5,200,715
247,717
5,526,610
—
—
—
—
—
—
—
—
—
—
—
—
—
—
390,796
28,130
418,926
Derivative financial instruments
—
(83,861)
—
—
—
—
—
—
—
—
—
—
—
247,717
325,895
—
5,200,715
—
5,200,715
—
—
—
—
—
—
—
—
—
—
—
—
—
—
(83,861)
—
Financial liabilities not
measured at fair value:
Accounts payable and accrued
liabilities
Long-term debt
—
—
—
—
—
—
—
—
—
(65,750)
(432,504)
(498,254)
—
—
—
—
(459,151)
(459,151)
Total
$ 5,526,610
$ (83,861)
$ 418,926
$ (498,254)
$ 325,895
$ 4,657,703
—
—
—
$ —
GENWORTH MI CANADA INC. 2015 ANNUAL REPORT
GENWORTH MI CANADA INC. 2015 FINANCIAL REPORT
136
136
Notes to consolidated financial statements (continued)
(In thousands of Canadian dollars, except per share amounts) Years ended December 31, 2015 and 2014
22. Fair value measurement (continued):
Carrying amount
Loans
Other
and
financial
Fair value
AFS
FVTPL
receivables
liabilities
Level 1
Level 2
Level 3
2014
Financial assets measured
at fair value:
Short-term investments
$
84,933
$
— $
— $
— $ 84,933
$
— $
Derivative financial instruments
—
Bonds and debentures
Common shares
Financial assets not measured
at fair value:
Cash and cash equivalents
Accrued investment income
and other receivables
Collateral receivable under
reinsurance agreement
Financial liabilities measured
at fair value:
4,997,359
170,456
5,252,748
—
—
—
—
303
—
—
303
—
—
—
—
—
—
—
—
190,375
30,099
28,446
248,920
Derivative financial instruments
—
(23,298)
—
—
—
—
—
—
—
—
—
—
—
—
170,456
255,389
303
4,997,359
—
4,997,662
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
(23,298)
—
Financial liabilities not
measured at fair value:
Accounts payable and accrued
liabilities
Long-term debt
—
—
—
—
—
—
—
—
—
(41,557)
(432,137)
(473,694)
—
—
—
—
(476,475)
(476,475)
Total
$ 5,252,748
$ (22,995)
$ 248,920
$ (473,694)
$ 255,389
$ 4,497,889
$
—
—
—
—
GENWORTH MI CANADA INC. 2015 ANNUAL REPORT
GENWORTH MI CANADA INC. 2015 FINANCIAL REPORT
137
137
Notes to consolidated financial statements (continued)
(In thousands of Canadian dollars, except per share amounts) Years ended December 31, 2015 and 2014
22. Fair value measurement (continued):
The fair value of cash and cash equivalents, accrued investment income and other receivables, collateral receivable under
reinsurance agreement and accounts payable and accrued liabilities approximates fair value due to the short term nature of these
items.
During the years ended December 31, 2015 and 2014, the Company did not hold any investments measured at fair value using
unobservable inputs (Level 3). Transfers between levels of the fair value hierarchy may occur if the inputs used to value the
investments change. Any transfers between the levels are deemed to have occurred at the end of the reporting period. Given
the types of assets classified in Level 1, which are short-term investments and preferred or common shares, the Company does
not typically have any transfers between Level 1 and Level 2 of the fair value hierarchy, and there were no such transfers during
the years ended December 31, 2015 and 2014.
Valuation of Level 2 financial instruments:
Fair values of bonds and debentures, including CLOs, are obtained primarily from industry standard pricing services and third party
brokers utilizing market observable inputs. Fair value is assessed by analyzing available market information through processes
such as benchmark curves, benchmarking of like securities and quotes from market participants.
Observable information is compiled and integrates relevant credit information, interest rates of the underlying investment,
perceived market movements and sector news. Market indicators, industry and economic events are also monitored as triggers
to obtain additional data. The primary inputs used in determining fair value of bonds and debentures and preferred shares are
interest rate curves and credit spreads.
Derivative financial instruments are non-exchange traded foreign currency forwards, cross currency interest rate swaps and equity
total return swaps. The value of these derivative financial instruments is determined using an income approach in which future
cash flows expected from the contracts are discounted to reflect the current value of the derivative financial instruments. The
primary inputs used in determining fair value of foreign currency forwards and cross currency swaps are interest rate yield curves
and foreign currency exchange rates. The primary inputs used in determining fair value of equity total return swaps are market
prices for referenced assets and interest rate yield curves.
The Company's long-term debt is a financial liability that is not carried at fair value on the Company's consolidated statements of
financial position, for which fair value is disclosed in the notes to the consolidated financial statements (note 19). Fair values are
obtained from independent pricing sources utilizing market observable information. The primary inputs used in the valuation of
the long-term debt are interest rate curves and credit spreads.
GENWORTH MI CANADA INC. 2015 ANNUAL REPORT
GENWORTH MI CANADA INC. 2015 FINANCIAL REPORT
138
138
Five-year financial review
Certain terms and abbreviations used in the Annual Report are defined below.
Years ended December 31
(in millions, unless otherwise specified)
2015
2014
2013
2012
2011
Income statement data
Gross premiums written
Net premiums earned
Underwriting revenues
Losses
Expenses
Investment income
Impact of the reversal of
government guarantee fund exit fees
Interest expense 1
Pre-tax income
Net income
Net operating income
Balance sheet data
Cash and investments
Total assets
Unearned premium reserves
Debt
Total liabilities
Shareholders equity
AOCI
Shareholders equity, Excluding AOCI
Key ratios and other items
Loss ratio
Expense ratio
Combined ratio
Operating return on equity
Adjusted operating return on equity 2
MCT ratio 3
Delinquency ratio
Severity ratio
Leverage
$
809
$
640
$
512
$
560
$
545
586
586
122
108
201
0
(23)
534
398
375
5,917
6,239
2,021
433
2,819
3,420
127
3,293
21%
18%
39%
12%
12%
234%
0.10%
29%
11%
4.05
4.05
565
565
111
107
195
0
(31)
511
377
366
5,443
5,770
1,799
432
2,499
3,271
185
573
573
142
113
215
0
(23)
511
375
349
5,375
5,691
1,724
423
2,604
3,087
124
3,086
2,963
20%
19%
39%
12%
12%
225%
0.10%
29%
12%
3.86
3.86
$
$
25%
20%
44%
12%
12%
223%
0.12%
30%
12%
3.60
3.60
$
$
$
$
589
589
194
105
181
186
(23)
635
470
462
5,379
5,734
1,785
422
2,697
3,037
221
2,816
33%
18%
51%
17%
13%
170%
0.14%
32%
12%
4.67
3.43
612
612
225
101
179
0
(23)
443
323
318
5,063
5,393
1,824
422
2,710
2,683
215
2,468
37%
17%
53%
13%
13%
162%
0.20%
32%
14%
3.08
3.08
$
$
Operating earnings per share (diluted)
Adjusted operating Earnings per share (diluted) 2
$
$
Book value per share (diluted, exc. AOCI)
$ 35.46
$ 33.04
$ 31.22
$ 28.40
$ 24.78
Book value per share (diluted, incl. AOCI)
$ 36.82
$ 35.02
$ 32.53
$ 30.62
$ 26.94
1 2014 Interest Expense Includes $7 million of fee on early redemption of long term debt
2 Adjusted for the impact of the government guarantee fund exit fee reversal in 2012
3 Final MCT as compared to the reported estimate of 233% in Management’s Discussion and Analysis and Financial Statements for the year ended December 31, 2015
GENWORTH MI CANADA INC. 2015 FINANCIAL REPORT
139
2014 and 2015 quarterly information
(For the quarter ended, in millions,
unless otherwise specified)
2015
2014
Net Premiums Written
$ 213
$ 260
$ 205
$ 130
$ 178
$ 217
$ 160
$ 84
Q4'15
Q3'15
Q2'15
Q1'15
Q4'14
Q3'14
Q2'14
Q1'14
Net Premiums Earned
Underwriting revenues
Losses on claims
Expenses
Net underwriting income
Investment Income
Impact of the reversal of
government guarantee fund exit fees
Fee on early redemption
of long term debt
Interest Expense
Net income
Adjustment to net income,
net of taxes:
Fee on early redemption
of long term debt
Net Investment Gains
Net Operating Income
Loss ratio
Expense ratio
Combined ratio
Operating earnings
per share diluted
151
151
35
27
90
47
(6)
98
(3)
95
148
148
31
28
89
39
(6)
90
3
92
144
144
25
29
90
58
143
143
31
24
87
57
(6)
103
(6)
107
(12)
91
(11)
97
143
143
37
30
76
47
(6)
86
(3)
84
140
140
30
24
87
51
(6)
98
(6)
93
141
141
17
27
97
49
(7)
(7)
97
5
(4)
99
141
141
28
27
86
49
(6)
95
(4)
91
23%
21%
17%
22%
26%
21%
12%
20%
18%
19%
20%
17%
21%
17%
19%
19%
41%
40%
37%
39%
47%
38%
31%
39%
$ 1.03
$ 1.00
$ 0.99
$ 1.03
$ 0.89
$ 0.95
$ 1.04
$ 0.96
.
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GENWORTH MI CANADA INC. 2015 FINANCIAL REPORT
140
Shareholder information
Exchange listing
The Toronto Stock Exchange:
Common shares (MIC)
Common shares
As at December 31, 2015, there were
91,795,125 common shares outstanding
(basic).
Independent auditor
KPMG LLP
Bay Adelaide Centre
333 Bay Street, Suite 4600
Toronto, Ontario M5H 2S5
Registrar and transfer agent
Canadian Stock Transfer Company, Inc.
320 Bay Street, P.O. Box 1
Toronto, Ontario M5H 4A6
Tel: 416-643-5000
Fax: 416-643-5570
www.canstockta.com
All inquiries related to address changes,
elimination of multiple mailings, transfer of
MIC shares, dividends or other shareholder
account issues should be forwarded to the
offices of Canadian Stock Transfer Company.
Investor relations
Shareholders, security analysts and
investment professionals should direct
inquiries to:
Jonathan A. Pinto
Vice-President, Investor Relations
investor@genworth.com
Additional financial information has been
filed electronically with various securities
regulators in Canada through the System
for Electronic Document Analysis and
Retrieval (SEDAR) and with the Office of
the Superintendent of Financial Institutions
(OSFI) as the primary regulator for the
Company’s subsidiary, Genworth Financial
Mortgage Insurance Company Canada.
The Company holds a conference call
following the release of its quarterly results.
These calls are archived in the Investor
section of the Company’s website.
Annual general meeting of shareholders
Date: Thursday, June 2, 2016
Time: 10:00 AM
Location: TMX Broadcast Centre
The Exchange Tower
130 King St West, Toronto, Ontario
Board of Directors
Complaints about the Company’s internal
accounting controls or auditing matters
or any other concerns may be addressed
directly to the Board of Directors or the
Audit Committee at:
Board of Directors
Genworth MI Canada Inc.
c/o Winsor Macdonell, Secretary
2060 Winston Park Drive, Suite 300
Oakville, Ontario L6H 5R7
Tel: 905-287-5484
Corporate ombudsperson
Concerns related to compliance with the
law, Genworth policies or government
contracting requirements may be directed to:
Genworth ombudsperson
2060 Winston Park Drive, Suite 300
Oakville, Ontario L6H 5R7
Tel: 905-287-5510
Canada-ombudsperson@genworth.com
Disclosure documents
Corporate governance, disclosure and other
investor information is available online from
the Investor Relations pages
of the Company’s website at
http://investor.genworthmicanada.ca.
Cautionary statements
The cautionary statements included in the
Company’s Management’s Discussion and
Analysis and Annual Information Form,
including the “Special note regarding
forward-looking statements” and the
“Non-IFRS financial measures,” also
apply to this Annual Report and all
information and documents included
herein. These documents can be found at
www.sedar.com.
2015 common share dividend dates
The declaration and payment of dividends
and the amount thereof are at the discretion
of the Board, which takes into account
the Company’s financial results, capital
requirements, available cash flow and other
factors the Board considers relevant from
time to time.
Eligible dividend designation
For purposes of the dividend tax credit rules
contained in the Income Tax Act (Canada)
and any corresponding provincial or territorial
tax legislation, all dividends (and deemed
dividends) paid by Genworth MI Canada
Inc. to Canadian residents are designated as
eligible dividends. Unless stated otherwise,
all dividends (and deemed dividends) paid
by the Company hereafter are designated as
eligible dividends for the purposes of such
rules.
Information for shareholders
outside Canada
Dividends paid to residents in countries
with which Canada has bilateral tax treaties
are generally subject to the 15% Canadian
non-resident withholding tax. There is no
Canadian tax on gains from the sale of
shares (assuming ownership of less than
25%) or debt instruments of the Company
owned by non-residents not carrying on
business in Canada. (No government in
Canada levies estate taxes or succession
duties.)
Contact:
Investor Relations
Email: investor@genworth.com
Genworth MI Canada
2060 Winston Park Drive, Suite 300
Oakville, Ontario L6H 5R7
Tel: 905.287.5300
Fax: 905.287.5472
www.genworth.ca
Credit ratings
Issuer rating
S&P
DBRS
Declared
Record
Payable
Amount per
common share
Dividend declaration dates
Genworth MI Canada Inc.
BBB+, Stable
AA (low), Stable
10/28/15
11/13/15
11/27/15
$0.42
Financial strength
Genworth Financial
Mortgage Insurance
Company Canada
A+, Stable
AA, Stable
Senior unsecured debentures
Genworth MI Canada Inc.
BBB+, Stable
AA (low),
Stable
08/04/15
08/17/15
08/31/15
$0.39
04/27/15
05/15/15
05/29/15
$0.39
02/09/15
02/23/15
03/06/15
$0.39
The issuer ratings of Genworth MI Canada and financial strength ratings of Genworth Financial Mortgage Insurance Company Canada reflect each rating agency’s opinion of
the Company’s financial strength, operating performance and ability to meet obligations to policyholders.
GENWORTH MI CANADA INC. 2015 FINANCIAL REPORT
141
Genworth.ca