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Genworth Canada Annual Report 2018 FIVE YEAR FINANCIAL HIGHLIGHTS
($ millions, except per share
data or otherwise noted)
2018
2017
2016
2015
2014
Financial results
Premiums written 639
Premiums earned
680
Net operating income 475
Net income
452
Total assets 6,889
3,990
Total shareholders’ equity
Other financial measures
Loss ratio 15%
Expense ratio
19%
Combined ratio 34%
Minimum Capital Test ratio (1) 172%
Operating return on equity 12%
663
676
467
528
6,924
3,961
10%
20%
30%
172%
13%
760
638
388
417
6,612
3,649
22%
19%
41%
245%
11%
809
586
375
398
6,239
3,420
21%
18%
39%
234%
12%
640
565
366
377
5,770
3,271
20%
19%
39%
225%
12%
Per share data
Book value per share
(diluted, incl AOCI) 45.21
43 13
39 28
36 82
35 02
Operating earnings per share
(diluted) 5.27
Dividends per share 1.92
5 09
1 79
4 23
1 70
4 05
1 59
3 86
1 87
(1) Effective January 1, 2017, the 2016 holding target MCT ratio of 220% was recalibrated to the OSFI Supervisory MCT ratio target of 150% and the minimum MCT ratio under PRMHIA was reduced to 150%
Genworth Canada
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Dividends per share ($)
Loss ratio (%)
50
40
30
20
10
0
500
400
300
200
100
0
KEY FINANCIAL METRICS
Book value per share ($)
(diluted, incl. AOCI)
35.02
36.82 39.28 43.13 45.21
2014
2015
2016
2017
2018
2.0
1.5
1.0
0.5
0.0
0.43*
1.44
1.59
1.70
1.79
1.92
2014
2015
2016
2017
2018
Net operating income ($M)
Premiums written ($M)
1000
800
600
400
200
0
640
809
760
663
639
2014
2015
2016
2017
2018
366
375
388
467
475
2014
2015
2016
2017
2018
*Denotes special dividend
About the cover: The uppermost photograph on the cover shows the Genworth Canada 2018 Polaris Award
winners The Polaris Award recognizes employees from across Canada for their outstanding achievements as they
work within their teams to maximize our company’s performance Genworth Canada 2018 Polaris Award Winners:
(left to right) Kris Wright, Ashley Moffatt, Suzette Wraight, Raj Khattra and Annie Carpentier
25
20
15
10
5
0
800
700
600
500
400
300
200
100
0
20%
21% 22% 10% 15%
2014
2015
2016
2017
2018
Premiums earned ($M)
565
586
638
676
680
2014
2015
2016
2017
2018
Genworth Canada
1
Annual Report 2018
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Message from the
President and
Chief Executive Officer
Dear Fellow Shareholders,
We were very pleased with our performance
in 2018, highlighted by strong underwriting
performance, proactive investment
management and continued strength in
portfolio quality.
In this letter, I will comment on our 2018 results,
and provide a view on our outlook and strategic
priorities for the coming year.
Delivering consistently strong performance
Our 2018 results demonstrate the strength and
soundness of our business model. Compared
to 2017, we delivered positive changes across a
number of key metrics including:
•
•
•
a 4 per cent increase in operating earnings
per share(1),
a 5 per cent increase in book value per
share(2), bringing shareholders’ equity to
$4.0 billion, and;
a 7 per cent increase in annual dividends
paid to shareholders.
Transactional insurance volumes were impacted
by affordability pressure, driven by elevated
house prices, along with the insured mortgage
rate stress test and rising interest rates. We
believe that the transactional insurance
originations market will stabilize in 2019, as
borrowers continue to adapt their buying
strategies in a more balanced housing market
and potentially more stable interest rate
environment.
Our loss ratio performance continues to reflect
the value of a high quality insurance portfolio,
seasoning in a robust labour market, and a
strong, albeit normalizing housing market.
Denotes operating EPS on a diluted basis
1
2 Denotes book value per share, diluted, including AOCI
2
We have previously noted that we expect our
loss ratio to gradually return to our expected
long run pricing levels over the next few years
as housing markets and consumers adjust to
government actions and rising interest rates in
a stable macroeconomic environment. Based on
our current market assumptions, we expect a
full year loss ratio range of 15 to 25 per cent for
2019, after two successive years of loss ratios at
or below 15 per cent.
As always, a critical driver of our overall business
performance is our dynamic risk management
strategy, and disciplined underwriting processes.
This approach continues to drive a well-
diversified, high quality insurance portfolio,
which helps to reduce volatility through different
phases of the economic cycle. Our loss ratio of
15 per cent for 2018, while modestly higher than
the prior year, reflects our keen attention to risk
management and our underwriting expertise.
It also demonstrates the effectiveness of our
loss mitigation program which has yielded
significant financial savings, is deeply valued by
our customers, and is generally recognized as an
industry best practice.
From an enterprise view, we continue to deliver
value to shareholders, underscored by three
key themes: remaining customer centric, data
driven, and people powered. We focus on
exceeding our customers’ expectations, in an
effort to drive growth and generate shareholder
value. Secondly, we continue to leverage our
two decades plus of performance data. This
allows us to be proactive, and agile, with respect
to data analytics, stress testing, modeling
fundamental loss drivers, enhancing our key
underwriting and loss mitigation processes,
and to inform our key regulatory and industry
stakeholders. Finally, our business is driven by
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Genworth Canada Annual Report 2018 our talented employees, some of the finest in
the financial services sector, who consistently
help to differentiate us from our competitors.
We believe these critical elements will allow us
to succeed in our industry, generate growth
and returns in excess of our cost of capital, and
remain a thought leader for years to come.
Supporting sound regulatory policy
The mortgage industry has seen a great deal
of change in the last several years, much of
it regulatory-driven. These changes have
impacted the size of both the transactional
and portfolio insurance markets, however at
the same time, there were clear benefits to the
overall quality of our insured loan portfolio.
We are generally supportive of the regulatory
changes from the provincial and federal
governments, and welcome any efforts aimed
at restoring affordability, especially for first-time
homebuyers in Canada. Genworth Canada is often
involved in discussions with regulatory bodies
and various government entities to provide our
views on the mortgage and housing markets
and we believe we are well-positioned to provide
valuable thought leadership, given our 20+ years
of performance data and industry insights. We
view it as our duty, and in the best interest of
shareholders, to provide our perspectives to aid
policy makers as they seek to manage risks in
the housing sector while providing responsible,
affordable access for first time homebuyers. One
such example of our professionals providing
perspective was during the more recent change
to the capital framework by our key regulator,
OSFI. We provided comprehensive input
throughout the process through consultation
as our regulator worked to develop the new
Mortgage Insurer Capital Adequacy Test (MICAT).
Building stronger communities
across Canada
Our business is at the cross-roads of numerous
industry players, and we value our strong
relationships with lenders, realtors, mortgage
brokers, builders, and other stakeholder
associations. We are all inherently focused on
working together to assist Canadians achieve
the dream of responsible homeownership, and
to help bolster the communities in which we
live and work. We are inordinately proud of our
culture of volunteerism and charitable giving
to support financial literacy, affordable housing
and homeless shelters, as well as food banks
and other worthy causes. To this end, Genworth
Canada’s employees volunteered approximately
3,400 hours at charities across the nation, and
raised in excess of $60,000 through personal
donations and fundraising activities. You
can find out more about our commitment to
building stronger communities across Canada in
our 2018 Public Accountability Statement.
Looking forward to the future
In terms of our current environment, we
recognize a number of key themes that will
influence our business in 2019. On the economic
front, we are encouraged by the strengthened
labour markets across many regions of the
country and the recovery of Canadian oil
prices. Furthermore, we believe that the
on-going normalization in major housing
markets across the country, together with
employment income growth, bodes well for
future homebuyers, including a healthy pipeline
of first-time homebuyers due to the robust level
of immigration over the past few years. That
said, we also acknowledge the increased level
of economic uncertainty related to global trade
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Genworth Canada Annual Report 2018 LEADERSHIP TEAM, GENWORTH FINANCIAL MORTGAGE INSURANCE COMPANY CANADA:
From left to right: Philip Mayers, SVP, Chief Financial Officer; Debbie McPherson, SVP, Sales & Marketing; Stuart Levings, President and
CEO; Mary-Jo Hewat, SVP, Human Resources and Facilities; Winsor Macdonell, SVP, General Counsel and Secretary; Craig Sweeney, SVP,
Chief Risk Officer; Jim Spitali, SVP, Operations
and the additional pressure on households as a
result of higher interest rates.
On balance, we expect the new originations
market to be similar in size to the past year. That,
together with our strategy focused on growing
market share, should support modest growth in
total premiums written in 2019.
Our strategy for 2019 remains focused on
prudent risk management, industry thought
leadership, and delivering a best-in-class
customer service experience. We believe there
are opportunities to enhance our customer
value proposition through product innovation,
leveraging our extensive mortgage data to drive
prudent market share growth and potential
expansion of the market over the longer term.
2. Continue to exercise prudent risk
management and proactive loss mitigation;
3. Develop innovative product solutions to
enhance our customer value proposition;
4. Right size our capital levels to drive
5.
improved returns, and;
Influence key government stakeholders to
focus on first-time homebuyer affordability.
In summary, we believe execution of these
priorities will produce another year of strong
profitability and operating returns.
I hope that this overview, along with our
quarterly and annual disclosures, provides you
with a deeper understanding of our business
and instills in you the same level of confidence
that I have in the strength, profitability and
resilience of Genworth Canada’s business model.
Our key strategic priorities are therefore as
follows:
Thank you for your ongoing support.
1. Drive market share growth by leveraging
advanced analytics and process enhancements
to improve our customer experience;
Stuart Levings
President and Chief Executive Officer
Genworth Canada
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Annual Report 2018
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Customer centric
People powered
When it comes to delivering value to our
customers, we empower every employee
in the business to be proactive and to
respond to their customer’s needs. Our
customers are at the centre of everything
we do. We strive to understand their
business goals and objectives, help them
grow their business, reduce costs and
originate high-quality loans. Beyond the
mortgage insurance transaction and
our products, Genworth Canada also
provides ongoing industry education and
training programs.
We are known to our customers as an
essential resource and thought leader
in the industry. We spend a great deal of
time conducting on-going and extensive
market research (such as the biennial
First-Time Homebuyers Study) which
analyzes buying behaviour of first-time
homebuyers. As a result, we are able
to keep our customers apprised of
homebuyer insights and real estate trends
as well as regulatory-driven industry
changes. We also gauge the financial
health of Canadians through our annual
Financial Fitness Survey in collaboration
with the Canadian Association of Credit
Counselling Services. This ensures that
our team is able to share their deep
understanding of the economic and
competitive climate we operate in,
providing our customers with the right
information and tools required to support
their business growth.
Finally, we proactively assist borrowers
who require financial assistance during
difficult times, and our Homeownership
Assistance Program (HOAP) assists qualified
homeowners who are experiencing
financial difficulties as the result of an
unexpected life event. Since our inception,
we have assisted over 45,000 homeowners
stay in their homes during times of
temporary financial hardship.
Genworth Canada’s reputation as
the leading private sector residential
mortgage default insurer is achieved by
design through continued investments
in our people, processes, technology and
thought leadership.
We are proud that the work we do results
in enabling responsible homeownership
country-wide. To do that, we employ
the best and brightest individuals in the
mortgage insurance industry, ensuring
that our team is well-equipped to deliver
exceptional value to our customers.
We invest in our people, and celebrate
our accomplishments and our many
achievements. In 2018 we undertook
over 14 major internal cross collaborative
projects, involving over 125 employees.
It is because of our remarkable team that
Genworth Canada remains agile in our
strategic execution of business priorities.
Genworth Canada has 273 employees
and we are proud to share that the
average tenure is over nine years. To retain
our talent, we approach the employee
experience holistically, through wellness
programming, continued education,
targeted career development plans,
fitness reimbursement, enhanced benefit
plans, community-giving support and
much more. Our success is measured by
the dedication and engagement reflected
in our employee engagement score,
which has remained above 80% for the
last five years.
Data driven
At Genworth Canada we pride ourselves
on being thought leaders. Our 20+
years of mortgage performance data
allows us to develop new processes
and applications and to offer timely,
valuable industry insights. It also
provides the opportunity for us to better
understand the buying intentions and
homeownership perceptions of various
segments within the housing market.
Recognizing the importance of market
research and the data analytics we derive
from it, Genworth Canada continues to
invest in this area and proactively share
our learnings with customers, regulators
and other key constituents.
Our risk management, actuarial and
modeling teams are at the forefront
of our data analytics and predictive
modeling efforts. We understand that it
is our people power that translate data
and statistics into the insights and trends
that lead to tangible business results. In
2018, we expanded our team of modeling
professionals, data scientists and analysts
to support our growing needs. Our data
driven findings also allow continued
business performance improvement within
areas such as loss modeling, stress testing,
risk selection processes in underwriting,
loss mitigation, pricing portfolio insurance
and more. Most importantly our team
is able to translate data into insights for
management and we are able to act
decisively and dynamically, as well as share
those insights with our customers.
Culture and values
In 2017, we introduced the concept of
‘Smarter M.I.’ The goal of Smarter M.I.
is ultimately to improve our customer
experience and risk management
practices. Smarter M.I. focuses on
enhancing the customer experience by
leveraging our extensive performance
data and the creativity of our people
to develop enhancements to our risk
management, underwriting, and loss
mitigation processes. We are encouraged
by our results to date and are now focused
on the second round of Smarter M.I.
initiatives for implementation in 2019.
In 2018, we also focused on redefining our
corporate culture and enterprise values
to further support our business strategy.
These values embody the behavior and
beliefs we embrace as an organization.
Our values reflect the following key
attributes: customer centricity, integrity,
collaboration, growth, and heart. As
we continue to deepen these desired
behaviours within our business, while
continuing to focus on our customers, we
have been learning how we empower our
people through effective delegation. We
are embracing collaboration with clear
and effective decision making processes.
Most importantly, we are providing high
performance coaching to ensure we are
getting the best from not only ourselves,
but our teams. We continue to focus
on providing a best in class customer
experience, with unyielding integrity. And
we always promote the spirit of caring, for
each other as well as the communities in
which we live.
Genworth Canada
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Annual Report 2018
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Message from the
Chairman of the Board
To all of our stakeholders,
We enjoyed another year of solid business
performance in 2018, with the backdrop of a
normalizing housing and mortgage market. As
we have seen in the past, certain geographies
performed well (Ontario, B.C., Quebec), while
others were slightly more challenged (Alberta).
Regulatory changes were less prevalent in 2018
than the preceding year, however the impact of
prior year changes were still being felt during
the year. While the Company performed well,
we remain focused on building on our successes
going forward.
Role of the Board
In 2019, we will celebrate our tenth year as a
publicly listed enterprise. Ultimately, the Board
works in an oversight capacity and we steer
the direction of the Company for the benefit of
all stakeholders. The Board provides strategic
oversight to the business, while ensuring an
environment of strong corporate governance.
Some of our key areas of focus are: strategic
direction, the retention and rewarding of key
talent, while also maintaining an inclusive
culture both at the business level as well as at
the Board. The role of Chair of the Board is to
provide guidance to the rest of the Board, and
stewardship to the management team of this
unique and critical financial institution.
As a Board, it is our job to always act in the best
interests of all stakeholders. We often act as a
check-and-balance to management regarding
their decision making processes, and where the
priorities of the business lie.
We leverage our diverse business knowledge
and collaborate with management to determine
appropriate financial and risk management
decisions, and the strategic focus of the
business. As a mortgage insurance company,
it is important to understand what the critical
risk factors are when writing new business. We
recognize that different points in the cycle often
have varying benefits and challenges, and we
are mindful to provide leadership and counsel
to management.
Key priorities going forward
In 2018, the Company made solid progress
against its strategic objectives. It is well-
positioned to prudently build the business
further. Balancing our risk appetite and market
share growth are the key priorities for the
business. The way the Company gets there is
three-fold: relentless customer focus, using our
rich data as a competitive differentiator, and
leveraging our best-in-class employee base.
The ability to extract value out of data and
then translate this into business insights is
increasingly critical to organizations such
as ours. This trend is now prevalent in all
organizations; as time goes on, we feel that this
core competency will become more and more
critical. We use our past mortgage performance
data today to predict future borrower
behaviour and we will continue to focus on
honing our skills in this area, as it will position
us well for the future.
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Genworth Canada Annual Report 2018 DIRECTORS OF GENWORTH MI CANADA INC. AND ITS OPERATING SUBSIDIARY,
GENWORTH FINANCIAL MORTGAGE INSURANCE COMPANY CANADA:
From left to right: Rohit Gupta, Andrea Bolger, Jerome Upton, Sidney Horn, Rajinder Singh, Brian Kelly, Brian Hurley,
Sharon Giffen, Stuart Levings, Neil Parkinson and John Walker
Board depth & breadth
Building on success
Our Board is a high quality group of business
people who each, in their own right, have
diverse, high-impact experiences. We have a
regular rhythm of reviewing individual skills
and contributions. We regularly ensure that
the composition of the Board is balanced.
Critical skill sets include: financial acumen, risk
management, business leadership, legal and
governance proficiencies.
Recently, we apointed Rajinder Singh. Mr. Singh
brings a wealth of experience to the Board,
and serves as the Chief Risk Officer of Global
Mortgage Insurance for Genworth Financial, Inc.
His expertise and depth of knowledge will be
invaluable to our organization; the Board and
management look forward to working with him.
On behalf of the Board, I would like to extend
my gratitude to our President and CEO Stuart
Levings, our leadership team, as well as all of our
employees across Canada for their passion, and
dedication through the years. Thank you also to
our customers, shareholders, and all other key
stakeholders for your ongoing support.
Brian Hurley
Chairman of the Board
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Genworth Canada Annual Report 2018 Shareholder Information
Exchange Listing
The Toronto Stock Exchange:
Common shares (MIC)
Common Shares
As at December 31, 2018, there were 87,591,163 common shares (basic) outstanding
Independent Auditors
KPMG LLP
Bay Adelaide Centre
333 Bay Street, Suite 4600
Toronto, Ontario M5H 2S5
Registrar and Transfer Agent
AST Trust Company
1 Toronto Street, Suite 1200
Toronto, ON M5C 2V6
Tel: 416 682-3800
https://www astfinancial com/ca-en
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 AST Trust Company
Investor Relations
Shareholders, security analysts and investment professionals should direct inquiries to:
Jonathan A Pinto
Vice-President, Investor Relations
investor@genworth com
2060 Winston Park Drive, Suite 300
Oakville, Ontario L6H 5R7
Tel: 905 287 5300
Fax: 905 287 5472
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: June 5th, 2019
Time: 10:00 AM
Location: TMX Broadcast Centre
The Gallery
The Exchange Tower
130 King Street 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
Common Share Dividend Policy
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 )
www.genworth.ca
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Genworth Canada Annual Report 2018 Genworth AR 2018 final.indd 9
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Genworth Canada Annual Report 2018 TSX: MIC
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