Genworth Mortgage Insurance Australia Limited
ABN 72 154 890 730
Some things
were built to last
Annual Report 2014
ii
Genworth Mortgage Insurance Australia | Annual Report 2014
About Genworth
Genworth is the leading provider of Lenders
Mortgage Insurance in Australia. Lenders
Mortgage Insurance has been an important part
of the Australian residential mortgage lending
market since it was introduced by the Australian
Government in 1965.
Genworth Mortgage Insurance Australia | Annual Report 2014
1
Contents
Genworth overview
Major events
Chairman’s message
Chief Executive Officer’s report
Who are we
Our strategy
What is Lenders Mortgage
Insurance
Board of Directors
Senior Leadership Team
Annual Financial Report
02
04
06
08
12
14
16
18
20
22
2
Genworth Mortgage Insurance Australia | Annual Report 2014
Genworth overview
Portfolio of insured loans by state (as at 31 December 2014)*
Northern
Territory
1.1%
Queensland
22.8%
New South Wales
29.2%
New Zealand
1.9%
ACT
2.6%
Tasmania
2.2%
Western
Australia
11.5%
South
Australia
6.1%
Victoria
22.7%
*
Insurance in force is the value of insured loans outstanding.
Value of insured loans – last five years
A$bn
40
35
30
25
20
15
10
5
0
31.8
30.8
33.8
35.4
36.2
2010
2011
2012
2013
2014
Genworth Mortgage Insurance Australia | Annual Report 2014
3
Number of policies written
109,477
113,057
117,472
91,164
86,174
2010
2011
2012
2013
2014
At the end of 2014
Genworth Australia
had almost
1.5 million
policies in force
and wrote close to
117,500
policies in 2014
Snapshots
11,000
Genworth Australia produces two surveys
regarding homebuyer confidence and the
state of the Australian mortgage market.
There were over 11,000 downloads of
these research articles during 2014.
$2bn ASX 200
Genworth Australia’s market
capitalisation was over $2bn
as at 31 December 2014.
On 21 August 2014 Genworth
Mortgage Insurance Australia
Limited (ASX: GMA) was admitted
to the S&P/ASX 200 index.
Genworth
Australia has
commercial
relationships
with over
100
lenders
across Australia
Gross Written Premium (A$)
2014
2013
2012
2011
2010
$634m
$597m
$545m
$398m
$367m
4
Genworth Mortgage Insurance Australia | Annual Report 2014
Major events
Genworth Mortgage Insurance Australia Limited.
Government
establishes
Housing Loans
Insurance
Corporation
(HLIC)
Introduction
of First Home
Owners Grant
(FHOG)
Introduction
of Low Doc
1965
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2014
GE purchases
HLIC from the
Australian
Government
and begins
GE Mortgage
Insurance Co in
Australia
Introduction of
Limited Genuine
Savings product
(>95% LVR)
Genworth Mortgage Insurance Australia | Annual Report 2014
5
GE sells its specialty
insurance business
globally, and Genworth is
born through the largest
IPO of the year on the
New York Stock Exchange
Beginning of
the Global
Financial
Crisis (GFC)
Commenced
replacement of
low doc loans with
business select
product
Withdrawal from
>95% LVR market
Policy
tightening for
investment
loans
20 May 2014,
Genworth
Australia
successfully
lists on the
ASX
1965
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2014
Product and
policy
tightening
Tightening
of servicing
requirements
Introduction
of minimum
valuation
standards
Introduction
of First Home
Owner Boost
(FHOB)
21 August
2014,
Genworth
Australia
admitted to
the S&P ASX
200 Index
Introduction of
HomeBuyer Plus
product
6
Genworth Mortgage Insurance Australia | Annual Report 2014
Chairman’s message
2014 was a strong year for Genworth Mortgage Insurance
Australia Limited (Genworth Australia). We successfully listed
on the Australian Securities Exchange (ASX) on 20 May 2014
and have maintained our position as the leading provider of
Lenders Mortgage Insurance (LMI) in Australia. Furthermore,
we reported pro-forma full year profit above that forecast in
our April 2014 Initial Public Offering (IPO) Prospectus, built
an additional $290 million of hard equity in the business, and
rewarded shareholders with a special dividend on top of an
ordinary dividend. We finished the year with net assets of
$2.5 billion.
Genworth Australia mission
At Genworth Australia, our mission is to help Australians get
into their home sooner and assist them to stay there. We do
this by working with our lender customers, regulators and
policy leaders to promote a stronger and more sustainable
housing market in Australia. We believe that the provision of
LMI to our lender customers contributes significantly to the
Australian dream of home ownership and in 2014 we are
proud to have helped over 117,000 Australians purchase a
residential property.
Genworth Australia strategy
From a strategic perspective, we are a mono-line LMI insurer
with deep expertise in the Australian mortgage market with
50 years of continuous operation. We remain committed to
the key strategic priorities that we believe will enable us to
deliver long-term returns to shareholders, reflected in an
attractive Return on Equity (ROE). These priorities include:
• Strengthening our market leadership position through
understanding the strategic needs of our lender
customers and assisting them to find solutions;
• Enhancing profitability by continued focus on
underwriting discipline, attractive market segments,
management of claims, and appropriate pricing actions;
• Executing opportunities to optimise our capital base to
enhance returns including potential for additional capital
management initiatives;
• Maintaining our strong risk culture and risk management
discipline through our framework and practices with
investment in underwriting, claims and risk systems; and
• Continuing to work with regulators, rating agencies and
other industry participants, to promote legislative and
regulatory policies that support the housing industry.
Genworth Mortgage Insurance Australia | Annual Report 2014
7
At Genworth Australia, our mission is to help
Australians get into their home sooner and assist
them to stay there.
Financial performance
The financial results for the 2014 financial year reflect the
ongoing quality of risk management, underwriting and
pricing discipline, and portfolio monitoring in place in our
business. The increases in both revenues and profits can be
attributable to a strong underlying business, as well as the
relatively stable economic environment over the period.
If we assume the IPO occurred at the beginning of the
2014 financial year, the 2014 pro-forma net profit after tax
was $324.1 million, an increase of 80.7% over the prior
year and above the IPO Prospectus forecast. Statutory Net
profit after tax for the period 19 May to 31 December 2014
was $231.1 million. The Prospectus issued in April 2014
contains details of risks requiring careful management by
the Genworth Australia team. I am pleased to confirm that
we have not had any material issues that arose during the
reporting period.
Capital
At the end of December 2014, Genworth Australia maintained
a strong balance sheet with a regulatory capital base of $2.9
billion, and a coverage ratio of 1.59 times the Prescribed
Capital Amount, (PCA) on a group (level 2) basis. This is
in excess of the Board’s targeted range of 132% - 144%
of the PCA. Genworth Australia continued to maintain
a conservative gearing position with 5% debt and 95%
common equity as at 31 December 2014. Based on this
position, my fellow directors and I believe that Genworth
Australia has the potential to implement further capital
management initiatives in 2015 subject to business,
economic and regulatory considerations.
900
In 2014 over 900 individuals at
our lender customers attended
over 50 training sessions
provided by Genworth to help
them understand issues such as
what is LMI, Fraud awareness
and the Hardship process
Investment portfolio
Genworth Australia has a high quality investment portfolio.
As at 31 December 2014 the cash and investment
portfolio had a market value of $4.2 billion, with 99.7%
of the investment portfolio invested in Australian dollar
denominated cash, cash equivalents and fixed income
securities and 98% of the portfolio (including cash) rated A-
or above by Standard & Poor’s and/or Moody’s.
Dividends
On 11 February 2015, Genworth Australia declared a fully
franked final ordinary dividend of 13.1 cents per share and a
fully franked special dividend of 11.5 cents per share, both of
which were paid on 6 March 2015. Including these dividends
and the interim dividend paid in August 2014, the total
dividend for the full year 2014 was 27.4 cents per share. The
ordinary dividends paid represent 57.7% of the Underlying
Net Profit after Tax (on a pro-forma basis) within our target
dividend payout ratio range of between 50% and 70%.
Summary
In 2014 Genworth Australia continued to embed its place
in the Australian residential mortgage market and furthered
our strategic priorities on all fronts. We gained inclusion
in the S&P/ASX 200 Index, and market capitalisation as at
31 December 2014 was $2.3 billion. As a publicly listed
company, Genworth Australia now has additional financial
flexibility and improved access to capital markets.
I would like to specifically thank CEO and Managing Director
Ellie Comerford for her leadership during this period, and
all those who have helped make the year a successful one,
including my fellow Directors, the Senior Leadership Team
and their people, our lender customers, and other key
partners, who are the foundation of our company.
Yours sincerely,
Richard Grellman AM
Chairman
Genworth Mortgage Insurance Australia Limited
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Genworth Mortgage Insurance Australia | Annual Report 2014
Chief Executive Officer’s report
I am proud to present Genworth Australia’s inaugural result as
an ASX listed company, and I am pleased with the operating
and financial performance of the business in our first annual
reporting period. The underlying performance is ahead of
our expectations and we have progressed our key strategic
initiatives on all fronts since completing the IPO in May 2014.
Financial performance
On an equivalent basis to the financial information contained
in the IPO Prospectus, the pro forma1 Underlying Net Profit
After Tax2 was $279.4 million for the full year, an increase of
26.5% compared to 2013 pro-forma result.
New business volumes of $36.2 billion of New Insurance
Written (NIW) increased 2.2%, whilst Gross Written Premium
(GWP) of $634.2 million for the full year was 6.3% higher than
2013. This growth is a combination of both price increases
and higher volume which was offset by an ongoing trend
toward an overall lower average Loan to Value Ratio (LVR) mix
of mortgages being originated.
Total Pro Forma Revenue, as measured by Net Earned
Premium (NEP) was $445.8 million, representing an increase
of 12.0% compared to the full year 2013.
The overall performance of the business has been supported
by favourable loss experience throughout the year. For the
full year, the loss ratio of 19.0% is down from 32.1% in 2013
and reflected a strong housing market (including a 7.9%
increase in capital city house prices), and increased premium
pricing. Overall we have seen a lower level of delinquent
loans in our portfolio, a reduction in the number of
delinquent loans that have converted to claim, and an overall
lower average claim amount.
New business volumes of $36.2 billion
of New Insurance Written (NIW) increased 2.2%,
whilst Gross Written Premium (GWP) of $634.2 million
for the full year was 6.3 per cent higher than 2013.
1. The financial result of the Company and its subsidiary companies prepared under statutory basis (prepared in accordance with Australian accounting standards
which comply with International Financial Reporting Standards (IFRS)) represent the financial result for the period of 19 May 2014 to 31 December 2014. The pro
forma results represent the financial performance from 1 January 2014 to 31 December 2014 have been prepared on the same basis as the financial information
(including financial forecasts) disclosed in the prospectus lodged by the Company with the Australian Securities and Investments Commission on 23 April 2014
(Prospectus), which reflected the post re-organisation structure of May 2014.
2. Underlying NPAT excludes the after tax impact of unrealised gains/(losses) on the investment portfolio.
Genworth Mortgage Insurance Australia | Annual Report 2014
9
Capital and reinsurance
Our capital position at year end was sound with solvency
at 159% of the PCA (Level 2) as a result of contribution to
retained earnings and having successfully renewed and
expanded our external reinsurance program. Genworth
Australia’s balance sheet is underpinned by $1.36 billion
of unearned premium reserves that provide a high level of
revenue visibility for future periods.
During the second half of the year, Genworth Australia
successfully renegotiated a number of existing reinsurance
contracts with 2014 expiry. In addition, Genworth Australia
has also bound coverage under a new Excess of Loss
reinsurance treaty for $100 million of coverage. The net
impact of reinsurance changes means that the level of
qualifying reinsurance has increased from $844 million (as at
31 December 2013) to $915 million, effective 1 January 2015.
The ordinary and special dividends that have been declared,
together with the additional reinsurance coverage are both
elements of our ongoing initiatives to optimise our capital
position to support ROE progression over the medium term.
Customers
Genworth Australia had commercial relationships with over
100 lender customers across Australia, including three of
the four major Australian banks, and estimates that it had
approximately 44 per cent of the Australian LMI market
by NIW for the year ended 31 December 2014. Genworth
Australia has a contractual relationship with 11 of its key
lender customers, which in 2014 accounted for 86% of GWP.
During 2014 we extended a number of existing contracts
but ceased writing new inwards reinsurance business
with effect from 30 September 2014. Subsequent to the
end of the year, one of our top three lender customers,
representing 14% of Gross Written Premium, provided
90 days written notice that they were terminating the
agreement for the provision of LMI by Genworth Australia.
The termination of this contract does not significantly
change the financial outlook for 2015, with the full effect
more likely to be felt in the 2016 financial year and beyond.
In the meantime, we will look for opportunities to replace
this business and/or to adjust the business operations to
reflect the customer base.
3. Financial System Inquiry Final Report, November 2014, page 66.
Ratings
In November 2014, as a direct consequence of its group
rating methodology and actions it took in relation to our US
majority shareholder, Genworth Financial, Standard & Poor’s
Ratings Services (S&P) downgraded the Genworth Financial
Mortgage Insurance Pty Ltd (GFMI) financial strength and
issuer credit rating from ‘AA-’ with a stable outlook to ‘A+’
with a negative outlook. Whilst this was disappointing news,
we have been able to work closely with our lender customers
to ensure minimal impact at this stage on the business
through the recognition of GFMI’s stand-alone earnings
profile and capital strength.
To ensure we are positioned to accommodate our customer
needs, we formalised Fitch Ratings (Fitch) initiating an Insurer
Financial Strength (IFS) Rating of the Genworth Australia
operating subsidiary in December 2014, assigning an ‘A+’
rating with a stable outlook. We believe that the additional
Fitch rating provides balance to our existing ratings, and will
be beneficial to our customers and other key stakeholders.
In November 2014, Moody’s reaffirmed the insurance
financial strength rating of both GFMI and Genworth
Financial Mortgage Indemnity Limited (GFMIL) GMA’s wholly-
owned insurance subsidiaries at ‘A3’ Stable.
Regulatory environment
2014 was also a significant year from a regulatory and policy
standpoint. Most notably we saw the release of the final
report of the Financial System Inquiry (FSI). The framework
around capital standards for lenders who write residential
mortgage loans is a pivotal issue for our business and we
made two submissions to the FSI during the year.
We are heartened by the FSI’s recommendation that regulators
evaluate the capital standards relating to mortgage lending,
and its acknowledgment of the importance of the mortgage
market in its discussions on competition, resilience and
financial stability. We thoroughly endorse the observation in
the report that “APRA should seek to maintain as much risk
sensitivity in the capital framework as possible and recognise
lenders mortgage insurance where appropriate.”3
I also note that the Basel Committee on Banking Supervision
(Basel Committee) proposed revision of the standardised
approach to credit risk and a proposal for capital floors for
advanced accredited banks (released in late December 2014)
could take residential lending required capital levels in a more
conservative direction. We continue to monitor the potential
impact on Australian regulated lending institutions and our
customer base which will be dependent upon APRA’s approach
to the adoption of the Basel Committee’s preferred model.
10
Genworth Mortgage Insurance Australia | Annual Report 2014
Chief Executive Officer’s report (continued)
In 2014 we have continued to work with our
customers and other key stakeholders to
reinforce the benefits that a strong stable
mortgage insurance business such as ours
can provide to the mortgage market.
Genworth Mortgage Insurance Australia | Annual Report 2014
11
We will continue to work with policy makers and regulators
to ensure appropriate recognition for the additional system
capital provided by the LMI industry to reinforce the view that
without LMI there is the potential for less capital in the system
to absorb the de-stabilising effects of an unexpected crisis.
In December 2014, both APRA and ASIC announced separate
but related initiatives aimed at preserving the ongoing
stability of the mortgage market. In our view, the regulated
mortgage market continues to operate on a prudent and
sustainable basis, and we have seen little evidence of
lending standards deteriorating. We are confident that these
regulatory actions will further reinforce sound residential
mortgage lending practices in the context of historically low
interest rates, current levels of household debt, and strong
competition in the housing market.
Community
As a conscientious corporate citizen, we as an organisation
are also focused on our ongoing social responsibility.
Genworth Australia has a very proud and growing history of
contributing to causes that are aligned to our mission and
vision of helping Australians get into their home sooner and
keeping them there.
Throughout 2014 we have continued to foster the
participation of our people in a comprehensive volunteering
program that has a number of key foundation areas -
education, homelessness and basic needs. Together with
our partner organisations we are working to help shape a
brighter future for troubled youth in low socio economic
areas through:
• mentoring and raising awareness of the wider range of
personal, educational and vocational choices available to
build life skills;
• continuing a journey to provide support and raise
awareness towards the goal of halving the number of
homeless in Australia by 2020; and
• helping to bring the meaning of home to life for all,
including disabled and/or disadvantaged individuals.
Diversity
Genworth Australia is committed to promoting diversity and
has adopted a diversity policy which provides a framework to
achieve, among other things, a diverse and skilled workforce,
a workplace culture characterised by inclusive practices and
behaviours for the benefit of all staff, improved employment
and career development opportunities for women and a
work environment that values and utilises the contributions
of employees with diverse backgrounds, experiences and
perspectives.
Our 2014 report to the Workplace Gender Equality Agency
highlighted our progress and ongoing commitment to
diversity, gender equality and how we are supporting our
diverse workforce. The report highlights that 43% of the
Genworth Australia workforce and almost 40% of managers
at Genworth Australia are female.
Looking ahead
In 2014 we have continued to work with our customers
and other key stakeholders to reinforce the benefits that a
strong stable mortgage insurance business such as ours can
provide to the mortgage market. We have delivered growth
generally in line with overall system housing credit growth,
strong financial results and have maintained a sound capital
position.
Genworth Australia believes that there is room for caution in
respect of the Australian macroeconomic environment and in
particular the uncertain unemployment outlook. The recent
reduction in interest rates is likely to underpin the housing
market and support steady growth in both originations and
house prices. Whilst the recent fall in the exchange rate has
provided some support to the economy, the recovery in both
business and consumer confidence remains fragile.
For our part, we will continue to focus on our role in assisting
people getting into homes and staying there, ensuring sound
lending practices across the mortgage industry, and continue
to strive to deliver long-term returns to shareholders through
execution on our key strategic initiatives.
Thank you
I would like to firstly thank the Genworth Australia Chairman
and Directors, for their ongoing guidance and support to
management throughout 2014. I would also like to take this
opportunity to thank our shareholders for their continued
confidence in the business.
Finally I would like to thank our Genworth Australia people
for their hard work, dedication and contribution to achieving
a strong operating and financial performance which has
enabled Genworth Australia to continue to deliver on our
mission and vision and to maintain our market leading
position. I am looking forward to everyone’s contribution in
2015 as we work to deliver on our strategic priorities and
continue to build a successful future for Genworth Australia.
Yours sincerely,
CEO and Managing Director
Genworth Australia
12
Genworth Mortgage Insurance Australia | Annual Report 2014
98.1
In six months from March 2014 to
September 2014 the Genworth
Homebuyer Confidence Index
rebounded from from 90.8 to
98.1, indicating a significant
improvement in the confidence
of homeowners.
Who are we
LMI facilitates residential mortgage lending by transferring
risk from lenders to LMI providers, predominantly for high
loan-to-value ratio residential mortgages. Genworth Australia
believes the provision of Lenders Mortgage Insurance to
lenders has contributed to comparatively high levels of
Australian home ownership and residential mortgage loan
accessibility, supporting the housing market in Australia.
Genworth Australia prides itself in offering its lender
customers a team that is focused on delivering the highest
levels of personalised service, with a keen ability to
understand the mortgage market, and a willingness to take
a commercial approach to delivering solutions that suit our
lender customers’ needs. Genworth Australia’s success is
founded on our total commitment to understanding our
customers’ business needs. We have developed a culture
that enhances and looks at ways to turn needs into solutions
that create value.
Genworth Mortgage Insurance Australia | Annual Report 2014
13
“I think mortgage insurers
have played a very
important part in the
Australian housing market
that we enjoy today. If
mortgage insurance
wasn’t here today we
would have a very different
housing market.”
– John Symond
Founder, Aussie Home Loans
Results at a glance
2014 has been a landmark year for Genworth Australia.
We successfully listed on the ASX on 20 May and we’ve
progressed our strategic agenda on all fronts. We’re very
pleased with the operating and financial performance of
the business in our first year as a listed entity. We’ve built
that off the solid foundation of close to 50 years operating
- continuous operation in Australia as Australia’s leading
mortgage insurer.
The underlying performance in the capital position for 2014
is ahead of our expectations and primarily that is off the back
of a relatively stable economy during 2014, with strong house
price growth throughout the year.
The pro-forma underlying net profit after tax was $279.4
million for the full year. That’s an increase of 26.5% compared
to 2013. New business volumes of $36.2 billion of new
insurance written during the year increased 2.2% while the
gross written premium of $634.2 million for the full year was
6.3% higher than 2013.
Our total revenue, as measured by net earned premium, was
close to $446 million, representing a 12% increase compared
to 2013.
The overall performance of the business has been supported
by favourable loss experience throughout the year. For the
full year, the loss ratio of 19% has fallen from 32.1% in 2013.
We finished the year with a very strong balance sheet with
$1.36 billion of unearned premium reserve providing us with
good revenue visibility for future years. Our regulatory capital
solvency ratio of 159% on a Level 2 basis is in excess of the
board-targeted range.
$315bn
Genworth Australia provides
insurance for $315 billion of
home loans in the Australian
and New Zealand mortgage
markets
14
Genworth Mortgage Insurance Australia | Annual Report 2014
Our strategy
Genworth Australia’s primary business activity is the provision of LMI to its lender
customers. As a LMI provider, Genworth Australia’s profitability is driven primarily
by its ability to earn premiums and generate financial income in excess of net
claims and operating expenses (being underwriting and other costs).
The Group’s strategic objective is to deliver long-term returns to shareholders,
reflected in an attractive, sustainable ROE. In 2014 Genworth Australia continued to
pursue the following strategies to deliver on that objective:
1. Strengthen market leadership position
2. Enhance profitability
3. Optimise capital position and enhance ROE
4. Maintain strong risk management discipline
5. Continue to work with regulators, rating agencies and other industry participants
1
2
Strengthen market
leadership position
Enhance profitability
Genworth Australia seeks to
strengthen and grow its customer
relationships and product value
proposition by focusing on
understanding and meeting the
strategic needs of its customers;
influencing the changing regulatory
environment; addressing potential
ratings and/or counterparty
challenges; enhancing its service
offerings with a focus on risk
management and technology; and
maintaining a high level of service
with a continued focus on customer
satisfaction.
4million
Since 1965, Genworth
Australia has written
over 4 million policies
Genworth Australia intends to
maintain appropriate, risk adjusted
returns by:
• Pricing NIW to achieve low-
to-mid teen ROEs over the
long-term and enhancing
its understanding of the
profitability of portfolio cohorts;
• Continue to manage
underwriting and pricing to
grow the share of attractive
market segments and lenders
while reducing exposure to
unattractive segments as they
emerge;
Investing in loss mitigation
tools and process to enhance
management of delinquencies
and claims;
Investing in underwriting
systems to deliver productivity
benefits while maintaining
strong risk management
disciplines and enhancing
customer experience; and
•
•
• Optimising interest income from
its investment portfolio within
acceptable risk standards.
Genworth Mortgage Insurance Australia | Annual Report 2014
15
3
4
5
Continue to work with
regulators, rating
agencies and other
industry participants
Genworth Australia will continue
to work with regulators, rating
agencies and other industry
participants to promote legislative
and regulatory policies that
support increased levels of home
ownership, continued responsible
credit growth for lender customers,
and the purchase of LMI by
lenders so as to continue to enable
lenders to provide borrowers with
affordable residential mortgage
loans.
Optimise capital
position and enhance
ROE
Maintain strong
risk management
discipline
To complement its strategy to
enhance profitability, Genworth
Australia intends to maintain a
strong balance sheet and financial
position while managing its
capital relative to its risk exposure,
targeted ratings and regulatory
requirements.
In addition to equity, qualifying
capital instruments and reinsurance
form part of Genworth Australia’s
capital management strategy.
Genworth Australia will continue to
assess opportunities to optimise its
capital base to enhance returns.
To the extent Genworth Australia
has capital above its internal and
regulatory capital requirements,
the Board will consider a range
of options and currently has
a preference to return excess
capital to shareholders, subject to
regulatory approvals and market
conditions.
Genworth Australia continues to
strengthen the risk culture across
the business. Genworth Australia
intends to enhance data received
from customers and third parties to
support granular and effective risk
decisioning.
Genworth Australia will continue to
invest in modelling and analytical
capabilities to deliver more granular
performance measures, along with
improved loss forecasting, balance
sheet management and stress-
testing.
Genworth Australia will continue
to advance its risk management
framework and practices by
working with regulators, lender
customers and other market
participants to adapt to changing
market conditions.
16
Genworth Mortgage Insurance Australia | Annual Report 2014
What is Lenders Mortgage Insurance
Lenders Mortgage Insurance is one way of getting into homeownership
without having the 20% deposit which is typically required by most banks
and financial institutions.
Unlike traditional insurance products, there is a one-off
premium payable for Lenders Mortgage Insurance. This
premium is charged by the Lenders Mortgage Insurance
provider to the lender, who typically passes this cost on to
the borrower. The premium is payable when the loan funds
are advanced and it provides cover for the full term of the
loan.
The cost of Lenders Mortgage Insurance varies depending
on a number of factors, including but not limited to; the
amount of the loan, the level of equity in the security
property (how much savings is contributed to the purchase)
and the level of risk associated with the particular loan
product chosen.
Some lenders will allow the cost of the Lenders Mortgage
Insurance premium to be added to the loan, meaning this
amount will not have to be paid up-front, however the loan
repayments will increase marginally to cover the cost of the
Lenders Mortgage Insurance premium.
With Lenders Mortgage Insurance, lenders may allow
borrowers to borrow a higher proportion of the purchase
price, allowing them to purchase a property with a smaller
deposit than would otherwise be required. It may also enable
borrowers to borrow at an interest rate that is comparable to a
borrower who has a larger deposit.
Lenders Mortgage Insurance should not be mistaken for
Mortgage Protection Insurance, which covers a mortgage
in the event of death, sickness, unemployment or disability.
Lenders Mortgage Insurance protects the lender against a
loss should the borrower default on their home loan. If the
security property is required to be sold as a result of the
default, the net proceeds of the sale may not always cover the
full balance outstanding on the loan. Should this be the case,
the lender is entitled to make an insurance claim to Genworth
for the reimbursement of any shortfall. Where a claim for loss
is paid to a lender, Genworth may seek recovery from the
borrower, or any guarantor, for any shortfall amount.
How can Lenders Mortgage
Insurance benefit me?
Almost everyone wants to be able to buy a home sooner
rather than later, however saving the typical 20% deposit can
sometimes be a daunting prospect - and one that not a lot of
borrowers can comfortably achieve by the time they wish to
purchase.
With median house prices in Australia now above $500,000
saving a deposit of as much as $100,000 can seem like an
impossible task.
By reducing the lender’s risk at the outset, paying for
Lenders Mortgage Insurance allows prospective home
buyers to purchase their dream home with as little as 5% of
the purchase price. This can open up many possibilities for
new homebuyers, including better location, larger house
and ability to do renovations. Simply put, Lenders Mortgage
Insurance brings home ownership much closer, years earlier
than otherwise might have been possible.
Whether home buyers are purchasing their own home or
an investment property, using Lenders Mortgage Insurance
can help achieve the goal much earlier and assist in building
personal equity in property sooner.
In 2014 Genworth
made two submissions
to the Financial System
Inquiry that contained
a number of policy
recommendations
designed to promote
both competition and
financial stability in the
residential mortgage
market. These
suggestions included
but were not limited to
the recognition of LMI
in Advanced Internal
Ratings Based (AIRB)
bank models, and
an increased capital
requirement for high
LVR loans for AIRB
banks.
Genworth Mortgage Insurance Australia | Annual Report 2014
17
Case study
Joanne started a digital and graphic design
agency two and a half years ago and since
its inception, the company has grown 20%
per annum. She works from home and as her
operations are expanding quickly, she can no
longer work from the living room. A friend
mentioned to her that he knew of a small office
space for lease close to where she was living
and that it might be an option for her.
She spoke to her accountant and he suggested that she look into some
other options including buying an apartment with a second bedroom that
she could convert into an office, rather than paying the rent for leasing an
office along with her other expenses.
Joanne did some research online to see what was available and came across
an apartment that ticked her boxes with a second bedroom that could easily
be converted into an office.
Being self-employed, with a relatively new business, Joanne was unsure
whether she could get a mortgage and how much capital she should keep
aside for the business.
She visited a local broker and under their advice Joanne learned she
could afford to buy the apartment with Lenders Mortgage Insurance (LMI)
provided to the lender by Genworth, which would allow her to save business
capital and purchase her property with a 15% deposit. She would be able to
keep the other 15% she has saved for her business capital.
The broker advised her that she would need to provide two full years of
personal and business tax returns in order to apply for the loan.
“By using LMI, I’ve been able to make purchasing my new home a reality
sooner, improving operational effectiveness without sacrificing the capital
needed for my business” said Joanne.
“By using LMI, I’ve been able
to make purchasing my new
home a reality sooner, improving
operational effectiveness without
sacrificing the capital needed for
my business.”
18
Genworth Mortgage Insurance Australia | Annual Report 2014
Board of Directors
Richard Grellman
Chairman
Ian MacDonald
Director, Independent
Tony Gill
Director, Independent
Gayle Tollifson
Director, Independent
Ian was appointed to the
Board on 19 March 2012.
Tony was appointed to the
Board on 20 February 2012.
Gayle was appointed to the
Board on 20 February 2012.
Ian has over 40 years
of financial services
experience in Australia, the
UK and Japan, specifically
in banking, insurance,
wealth management and
technology. He previously
held numerous positions
with National Australia Bank
including various senior
executive roles from 1999
– 2006; Chief Operating
Officer Yorkshire Bank from
1997 – 1999; and head of
Retail Services Clydesdale
Bank, Glasgow UK from 1994
– 1997.
Ian is a Senior Fellow
and past President of the
Financial Services Institute
of Australasia and a member
of the Australian Institute of
Company Directors. Since
2006, Ian has held a number
of directorships including
publicly-listed companies,
and is currently a director of
Arab Bank Australia Ltd and
Tasmanian Public Finance
Corporation.
Tony has over 30 years of
financial services experience
having served on a number
of boards over that period.
Previously Tony was
Group Head, Banking and
Securitisation Group at
Macquarie Group. He has
held senior executive roles
in Macquarie Group from
1991– 2008.
Prior to Macquarie, Tony was
a Chartered Accountant then
held various management
roles in mortgage banking
and treasury in Australia.
He is currently Chairman of
Australian Finance Group
and a director of First
American Title Insurance
Company of Australia Ltd
and First Mortgage Services
Pty Ltd.
Tony was previously
Chairman of Australian
Securitisation Forum
and National President
of the Mortgage Finance
Association of Australia.
Gayle has over 35 years
of financial services
experience and has been
an Independent Director
since 2006. Prior to this she
worked with QBE Insurance
Group in senior executive
roles including Chief Risk
Officer and Group Financial
Controller from
1994 – 2006. Prior to QBE,
Gayle held various roles
in public accounting firms
in Australia, Bermuda and
Canada. She is a fellow of
the Australian Institute of
Company Directors and
the Institute of Chartered
Accountants in Australia
and is currently Chairman
of Munich Holdings of
Australasia Pty Limited and
subsidiaries and a director
of RAC Insurance Pty Limited
and Campus Living Funds
Management Limited.
Richard was appointed
Chairman of the Board
on 1 March 2012. He was
previously at KPMG where he
spent 32 years, with the last
ten years specifically focused
on the provision of strategic
advice and services to the
financial services sector. His
tenure at KPMG included
being a partner from 1982
– 2000; a member of KPMG
National Board from 1995
– 1997; and a member of
KPMG National Executive
from 1997 – 2000.
Since 2000, Richard has held
a number of directorships
across the financial services
sector with publicly-listed
companies. He has over 40
years of experience in total;
20 years of board experience
and 23 years of financial
services experience.
Richard was the independent
financial expert for the
AMP and Tower Life NZ
demutualisations and was
appointed member of the
Order of Australia for service
to the community in 2007.
In addition to his position at
Genworth Australia, Richard
is currently Chairman of AMP
Foundation, Chairman of IPH
Limited, and a director of
Bisalloy Steel Group Limited.
Genworth Mortgage Insurance Australia | Annual Report 2014
19
Jerome Upton
Director, Genworth Financial
designee
Stuart Take
Director, Genworth Financial
designee
Samuel Marsico
Director, Genworth Financial
designee
Leon Roday
Director, Genworth Financial
designee
Jerome was appointed to the
Board on 20 February 2012.
Stuart was appointed to the
Board on 20 February 2012.
Sam was appointed to the
Board on 19 March 2012.
Leon was appointed to the
Board on 19 March 2012.
Leon was the Senior Vice
President, General Counsel
and Secretary, Genworth
Financial to February 2015.
Prior to this position, he
held the same role for GE
Financial since 1996.
Prior to Genworth/GE, Leon
was previously a partner at
LeBoeuf, Lamb, Greene &
McRae for 14 years, and he
is a member of the New York
Bar Association.
Stuart has 27 years
experience, primarily at
Genworth/General Electric.
He joined GE Capital in 1987
and has since held a number
of senior management
positions in Genworth’s
mortgage insurance
platform both domestically
and overseas, including
President/CEO of Genworth’s
Canadian mortgage
insurance business, and
Senior Vice President of Asia.
Stuart is currently a director
of India Mortgage Guarantee
Corporation (a Genworth
Financial joint venture with
the International Finance
Corporation, the Asian
Development Bank and the
National Housing Bank of
India), and was previously
Head of Financial Institutions
at Deutsche Bank, Asia ex-
Japan.
Sam was the Chief Risk
Officer, Global Mortgage
Insurance division of
Genworth Financial from
2008 to 2014. He worked
for 23 years at Genworth/
General Electric having held
various positions across
the organisation including
a number of leadership
positions at both GE
Transportation Systems and
GE Corporate Finance from
1991 – 1996. Sam became
the CFO of GE mortgage
insurance in 1997, and was
then Senior Vice President
and Chief Risk Officer for
GE Mortgage Insurance
from 2002 – 2005, and Chief
Risk Officer for Genworth
Financial from 2006 – 2008.
Prior to his roles at
Genworth/GE Sam was a
senior executive at Price
Waterhouse in New York.
Jerome was appointed
Senior Vice President
and Chief Financial and
Operations Officer, Global
Mortgage Insurance,
Genworth Financial in 2012.
Previously he was the Senior
Vice President and Chief
Operating Officer, Genworth
Financial International
Mortgage Insurance from
2009. Prior to this Jerome
has had a variety of roles
at Genworth including the
Senior Vice President and
CFO, Genworth Financial
International – Asia Pacific,
Canada and Latin America
from 2007 – 2009; the head
of Global Financial Planning
& Analysis from 2004 –
2007; International Finance
Manager from 2002 – 2004;
and Mortgage Insurance
Global Controller from
1998 – 2002.
Prior to Genworth, Jerome
served in a number of
accounting positions
at KPMG Peat Marwick,
culminating in his role
as Senior Manager –
Insurance in Raleigh, North
Carolina. He obtained the
status of Certified Public
Accountant whilst the
Controller and Director
of Financial Reporting for
Century American Insurance
Company in Durham, North
Carolina.
20
Genworth Mortgage Insurance Australia | Annual Report 2014
Senior Leadership Team
Ellen (Ellie) Comerford
CEO, Managing Director and
Genworth Financial designee
Ellie was appointed to the
Board on 20 February 2012.
Ellie has almost 30 years of
financial services experience
across a range of banking
and insurance businesses.
She previously spent
approximately nine years
with First American Financial
Corporation in various
leadership positions in
Australia and internationally
including Managing Director
for the Australian and New
Zealand operations, and
Chief Operating Officer for
the International Division.
Prior to this, Ellie was at
Citigroup for approximately
14 years, where her roles
included Director of Strategy
and Business Development,
and Head of Capital Markets,
Origination and Syndication.
Ellie has served on boards
for the Australian and New
Zealand businesses of First
American.
Tobin Fonseca
Chief Operations Officer
Tobin joined Genworth as
Chief Operations Officer
in February 2012. Tobin
brings more than 30 years of
financial services experience
to his role.
Tobin is responsible
for underwriting, loss
mitigation, collections and
operational effectiveness.
Tobin joined Genworth
from Advantedge Financial
Services, a subsidiary of
National Australia Bank,
where he held the role
of General Manager,
Advantedge Services
overseeing the whole
lending lifecycle. Prior
to that he was with the
Challenger Group holding
the Managing Director
role with Synergy Capital
Management in Hobart
and the CEO Role with
Challenger Corporate
Superannuation Services.
Earlier in his career, Tobin
spent 20 years with Merrill
Lynch in various leadership
roles both in Australia and
the US including Chief
Administrative Officer and
Project Director for Merrill
Lynch HSBC Australia and
Vice President and Program
Manager International
Private Client Group in
Australia.
Georgette Nicholas
Chief Financial Officer
Conor O’Dowd
Chief Risk Officer
Conor joined Genworth
Australia as Chief Risk
Officer in November 2013.
Conor is a seasoned Risk
Leader with over 25 years
of risk management and
actuarial experience across
the banking and insurance
industries, having had
leadership roles in the
development of risk and
performance analytics and
models.
Before joining Genworth,
Conor was a Partner at
PricewaterhouseCoopers
in Sydney, where he was
lead partner of the largest
actuarial and financial risk
consulting practice in the
Asia-Pacific region. He has a
depth of experience within
the Australian mortgage
insurance industry, and
is experienced in risk
governance, retail credit
risk management and
econometric modeling.
Since retiring from PwC in
2011, Conor has consulted
on Basel III risk and
regulatory transformation
in Australia and the UK.
Earlier in his career, Conor
worked with William M.
Mercer in both Sydney and
Dublin where he focused
on general insurance and
superannuation.
Conor is a Fellow of the
Institute of Actuaries,
London (1986) and a Fellow
of the Institute of Actuaries
of Australia (1991).
Georgette joined Genworth
Australia as Chief Financial
Officer in February 2014.
Georgette brings to the
role more than 25 years
of financial services
experience across finance,
audit, controllership,
strategy, actuarial and
investor relations, with a
deep understanding of
the mortgage insurance
business both in
international markets, as well
as the United States, having
worked with Genworth for
over eight years.
Most recently, Georgette
worked as Senior Vice
President, Investor
Relations, Public Relations
and Rating Agencies with
Genworth Financial Inc.
Other senior roles she has
held at Genworth include
Chief Financial Officer, US
Mortgage Insurance, where
she was a key member of the
management team leading
the business through the
economic downturn in the
US housing market and the
GFC, and Global Controller
for both US Mortgage
Insurance and International
Segments.
Before joining Genworth
in 2005, Georgette was
a Director at Deloitte &
Touche providing services to
companies in the insurance,
real estate and broadcasting
industries. Georgette
has a Bachelor of Science
in Accounting from the
University of Bridgeport
CT and is a Certified Public
Accountant and Chartered
Global Management
Accountant.
Genworth Mortgage Insurance Australia | Annual Report 2014
21
Bridget Sakr
Chief Commercial Officer
Bridget joined HLIC in
August 1994 and Genworth
in December 1997 as part
of the acquisition of HLIC
by General Electric and
has held the position of
Chief Commercial Officer
since June 2010. She was
previously National Sales
Leader and Corporate Sales
Manager NSW/ACT.
Bridget has over 20 years
financial services and
lending experience and has
held various lending and
relationship management
roles at CBA, including
being part of their graduate
program prior to joining
Genworth Australia.
Jo Ann Rabitz
Chief Human Resources
Officer
Jo Ann has been with
Genworth since Genworth’s
IPO from GE in 2004 and
brings 29 years of HR
experience to her role. She
joined Genworth Australia
as Chief Human Resources
Officer in March 2012.
Jo Ann’s responsibilities
include all aspects of human
resources.
Before joining the Australian
business in her current role,
Jo Ann was the Senior Vice
President, Human Resources
for Genworth’s International
segment based in the United
States. Jo Ann held a variety
of HR leadership roles with
GE Capital from 1990 until
GE’s IPO of Genworth in
2004. Earlier in her career,
Jo Ann held various HR
positions with divisions of
Allied Signal, Occidental
Petroleum and PepsiCo.
Jo Ann earned her Bachelor
of Science degree in
Industrial Relations from
Saint Joseph’s University in
Philadelphia, Pennsylvania.
Richard Galilee
Chief Information Officer
Richard joined Genworth
in August 2011 as Chief
Information Officer. Richard
has extensive international
IT experience in the financial
services industry, having
worked at a range of
Insurance and Reinsurance
companies and mortgage-
related companies in
Australia, the UK and
Europe.
Prior to joining Genworth,
Richard had worked at First
American, a leading global
title and specialty insurance
company from 2002. Richard
was initially with First
American in Australia as
CIO, predominantly focused
on insurance and mortgage
processing for a range of
residential commercial
lenders before taking on the
role as CIO for the Asia-
Pacific region. Most recently,
Richard has been CIO for
First American in the UK and
Europe.
Prior to his time at First
American, Richard held
senior IT roles with Gen
Re Europe, Reinsurance
Australia Corporation
Limited, and was CIO at
Mortgage Choice.
Jon Downes
General Counsel and
Company Secretary
Jon joined Genworth as
General Counsel and
Company Secretary in
September 2013. He is a
seasoned leader with 20
years of experience in a
combination of top tier law
firms and in-house roles.
Jon has a background in
both the insurance industry
and the mortgage industry.
Most recently, Jon has
been General Counsel and
Company Secretary for
Australia and New Zealand
with a leading global insurer,
ACE Insurance, where he also
has had responsibility for
Enterprise Risk Management
and Compliance. Prior to
ACE, Jon was with First
American Title Insurance Co
of Australia where he was
General Counsel for more
than seven years. He has
significant experience liaising
with various regulatory
bodies including APRA, ASIC
and ATO.
Earlier in his career, Jon
was with Allens (now Allens
Linklaters) in Sydney where
he provided advice on a
range of insurance, general
banking, mortgage and
commercial issues. He also
worked with Lovells (now
Hogan Lovells) in London
where, among other things,
he focused on insurance
litigation matters in the UK,
US, Canada and Australia.
22
Genworth Mortgage Insurance Australia | Annual Report 2014
ABN 72 154 890 730
Genworth Mortgage Insurance Australia
and its Controlled Entities
Annual Financial Report for the year ended 31 December 2014
LENDER
LENDER
LENDER
LENDER
Genworth Mortgage Insurance Australia | Annual Report 2014
23
Contents
Corporate Governance statement
Directors’ report
Remuneration report
Lead auditor’s independence declaration
Financial statements
Directors’ declaration
Independent auditor’s report
Shareholder information
Corporate directory
Appendices
Glossary
24
40
57
82
84
124
125
127
130
131
133
LENDER
LENDER
LENDER
LENDER
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Genworth Mortgage Insurance Australia | Annual Report 2014
Corporate Governance statement
1. Genworth Australia’s Corporate Governance Framework
1.1
The Company’s Board of Directors (Board) is fully committed to Genworth Australia adopting high standards of governance
practice and continually seeks to review and improve its governance and risk management frameworks.
Introduction
This statement outlines the key aspects of Genworth Australia’s corporate governance framework and addresses the Group’s
application of the ASX Corporate Governance Council’s Corporate Governance Principles and Recommendations
(ASX Principles and Recommendations).
The 3rd edition of the ASX Principles and Recommendations was introduced by the ASX during 2014, taking effect for an
entity’s first full financial year commencing on or after 1 July 2014. Whilst the ASX directed that entities with a 31 December
balance date were expected to adopt the 3rd edition commencing with the financial year ended 31 December 2015, the
Company has elected to adopt the 3rd edition early. From the date of its listing on the ASX on 20 May 2014, Genworth
Australia has complied with the 3rd edition of the ASX Principles and Recommendations.
1.2 Overview of Corporate Governance Framework
As part of the IPO process leading up to the Company’s listing, the Board examined the corporate governance framework to
ensure it incorporated relevant best practice recommendations and intends to regularly review it going forward.
The Board has four Board committees that assist it to oversee and develop the Group’s corporate governance policies and
risk management framework to ensure effective governance structures remain in place, as detailed in the diagram below. In
addition to these four Board committees, the Fit & Proper Committee, Executive Committee and Disclosure Committee are
Board-designated committees that report directly to the Board.
Board
Audit
Committee
Risk
Committee
Capital and Investment
Committee
Remuneration and
Nominations Committee
2. The Board – oversight and responsibility
2.1 The Board’s key accountabilities
The Board is accountable to shareholders for the long-term performance of the Company and for embedding an effective
corporate governance structure. The Board is ultimately responsible for setting policy regarding the strategic direction of the
business and affairs of the Group, including its approach to risk taking activities.
The key accountabilities and responsibilities of the Board include:
•
reviewing, monitoring and approving fundamental financial and business strategies;
• overseeing the Company’s corporate governance structure and risk management frameworks;
•
reviewing and approving the Company’s annual budget, financial statements and reports;
• approving the Chief Executive Officer and Managing Director’s appointment and remuneration and the remuneration of
senior executives of the Company;
• overseeing management’s implementation of the Company’s strategic objectives and its performance generally; and
• overseeing the Company’s process for making timely and balanced public disclosure of all material information concerning the
Company that a reasonable person would expect to have a material effect on the price or value of the Company’s securities.
A copy of the Board Charter is available at http://investor.genworth.com.au under the Corporate Governance section.
Genworth Mortgage Insurance Australia | Annual Report 2014
25
2.2 Board composition
The Board comprises nine directors. Biographies of the directors are contained in the Directors’ Report.
The Shareholder Agreement entered into with Genworth Financial at the time the Company listed on the ASX gives Genworth
Financial designation rights with respect to the appointment of directors. More details with respect to these designation rights
are outlined in section 2.6.
The Chairman is responsible for ensuring that the Board fulfils its responsibilities. The Chairman provides leadership to the
Board and promotes constructive and respectful relations between directors and between the Board and management. The
Chairman presides at meetings of the Board and of shareholders.
In accordance with the Board Charter, the Chairman is selected from the independent Non-Executive Directors.
2.3 Director independence
The Company has four independent directors, assessed in accordance with the definition of independence set out in the ASX
Principles and Recommendations.
As an APRA regulated entity, the Company is required to comply with Prudential Standard CPS 510 Governance with respect
to the composition of its Board. Given that the Board comprises nine directors, CPS 510 requires the Company, as a partly
owned subsidiary of a prudentially regulated foreign entity to have a majority of Non-Executive Directors and at least three
independent directors in addition to an independent chairman. Genworth Australia meets those requirements.
Recommendation 2.4 of the ASX Principles and Recommendations provides guidance that a Board of directors should have
a majority of independent directors. The Board does not meet the guidance set out in recommendation 2.4 given that five
directors are currently designated by Genworth Financial in accordance with the terms of the Shareholder Agreement. Four of
the Genworth designated directors are non-executive but not independent.
Notwithstanding that, the Board considers that it is in a position to effectively discharge its legal obligations and make
considered decisions that are in the best interests of the Company and shareholders. The Board considers legal and ethical
protections afforded to minority shareholders are borne in mind to ensure their interests are taken into account in relevant
decision making processes.
2.4 Directors’ conflicts of interests
Directors have a continuing obligation to keep the Board advised of any interest of the director that could potentially conflict
with interests of Genworth Australia.
Directors are required to disclose their personal interests in transactions or arrangements to which Genworth Australia is
a party and are required to abstain from decision making with respect to these transactions and arrangements. The Board
assesses independence on a case-by-case basis with reference to the particular circumstances involved.
Directors with potential conflicts do not serve on any committees that are appointed to oversee the implementation of
transactions or arrangements with which a director’s interests may conflict.
26
Genworth Mortgage Insurance Australia | Annual Report 2014
Corporate Governance statement (continued)
2. The Board – oversight and responsibility (continued)
2.5 Board experience and skills
The Board is responsible for ensuring that it has the necessary skills, experience and independence to meet its objectives and
applicable regulatory requirements, taking into account the Company’s size, market position, complexity and strategic focus.
The Company’s Fit & Proper Policy applies to all directors.
The collective skills of the Board and succession plans for directors are reviewed annually so as to maintain an appropriate
balance of skills and experience.
The skills matrix below sets out the mix of skills that the Board currently has in place and that it considers most critical to the
Company’s success.
Strategic Priorities
Key skills required to achieve strategic priorities
Strengthen market leadership position
Enhance profitability
- Financial services
- Mortgage industry
- Retail banking
- Insurance industry
Optimise capital position and enhance ROE
- Commercial / Business development
- Treasury / Capital management / Investment
Maintain strong risk management discipline
- Actuarial
Continue to work with regulators, rating agencies and other
industry participants
- Financial / accounting
- Technology
- Operations / process management
- Human Resources
- Legal / regulatory
- Corporations Act / ASX Listing Rules
- Risk Management
- Board experience
- International experience
- Corporate governance
Genworth Mortgage Insurance Australia | Annual Report 2014
27
2.6 Appointment Process for Directors
Electing independent directors
The Board, through the Remuneration and Nominations Committee, assesses independent director candidates to fill a vacancy
where one arises, or if it considers that the Board would benefit from the services of a new director. The desired skills coverage
of the Board and the outcomes of the Board performance evaluation process (as described in section 4.2 below) are key
considerations in determining Board appointments.
Factors considered by the Remuneration and Nominations Committee when recommending a person for appointment as an
independent director include:
• skills and qualifications;
•
•
•
•
•
fitness and propriety, including the assessment in accordance with the Company’s Fit & Proper Policy;
independence (taking into consideration APRA’s Prudential Standard CPS 510, as well as the ASX Principles and Recommendations);
the number of existing directorships and other commitments that may demand the attention of the appointee;
the nature of existing positions, directorships or other relationships and the impact that each may have on the appointee’s
ability to exercise independent judgment; and
the extent to which the appointee is likely to work constructively with the existing directors and contribute to the overall
effectiveness of the Board.
Genworth Financial Designated Directors
Under the Shareholder Agreement, Genworth Financial is entitled to designate a specified number of directors, rounded to the
nearest whole number, determined by the relevant interest in aggregate of members of the Genworth Financial Group in the
Company’s shares and the designation thresholds as set out in the table below.
If the number of directors the Genworth Financial Group is entitled to designate decreases because of a reduction in the
relevant interest in aggregate of members of the Genworth Financial Group in the Company’s shares, the number of directors
that the Genworth Financial Group is entitled to designate will not subsequently increase even if the relevant interest in
aggregate of members of the Genworth Financial Group in the Company’s shares subsequently exceeds a greater designation
threshold, unless such subsequent increase occurs within 90 days after the date on which the relevant interest in aggregate of
members of the Genworth Financial Group in the Company’s shares decreased below the relevant threshold.
Relevant interest designation threshold
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%
Number of
directors
5/9
4/9
3/9
2/9
1/9
None
The Board must, subject to approval of the designees by the relevant committee of the Board acting reasonably, appoint those
designees as directors of the Company.
The Genworth Financial Group may remove any person which it has designated at any time and where a designee is due
to retire by rotation, propose a new designee. If the number of directors which the Genworth Financial Group is entitled
to designate falls as a result of its relevant interest falling below a designation threshold referred to above, the number of
designated directors will be reduced by the Genworth Financial Group, either by removing a designated director or by
notifying the Company that a designated director (who is either an independent director or a member of the Company’s senior
management team) is no longer its designee.
28
Genworth Mortgage Insurance Australia | Annual Report 2014
Corporate Governance statement (continued)
2. The Board – oversight and responsibility (continued)
A designee who is appointed as a director of the Company (to fill a casual vacancy) must retire from office, and will be eligible
for re-election, at the next annual general meeting following the designee’s appointment. If a designee is removed, retires and
fails to be re-elected by resolution of shareholders or ceases to hold office as a director for any reason (other than where the
director retires and is re-elected at the same meeting), the Genworth Financial Group may designate another designee in that
person’s place to fill a casual vacancy.
The Genworth Financial Group must not designate a person if that person has been removed or, being a director of the
Company retiring by rotation, is not re-elected, by a shareholder resolution.
Subject to law and the Listing Rules, Genworth Financial has the right to vote any Company shares controlled by it on
resolutions to remove or appoint directors or director candidates, whether or not designated by it.
Whilst the Genworth Financial Group has a relevant interest in aggregate in 50% or more of the Company’s shares, it has the
right to appoint or remove the CEO.
Information
The Board ensures that all material information in the Company’s possession, including the information required under the
Corporations Act and ASX Principles and Recommendations, is provided to shareholders relevant to a decision regarding the
election of a director.
Appointment terms
As part of the listing process, formal appointment letters were issued to and signed by each non-executive director, including
the Chairman. The letters formally document the basis of each non-executive director’s appointment including:
•
•
•
•
•
terms of appointment, including remuneration;
the role of the Board and of Non-Executive Directors;
the right to obtain independent professional financial and legal advice, at the Company’s expense, to assist with
discharging their duties efficiently;
the right of access to management and Genworth Australia records; and
the requirement to abide by Genworth Australia’s Code of Conduct and comply with the Company’s Disclosure and Trading
Policies.
The Company enters into a Deed of Access and Indemnity with directors as part of the appointment process.
2.7 Director induction and education
Directors are required to maintain and develop the skills and knowledge required to perform their role effectively. Each
director must clearly understand the key functions of their individual role and the goals of the Board as a whole. This is
achieved through a number of initiatives including:
• an induction and education program for new directors to ensure they are aware of the expectations of their role and are
familiar with Genworth Australia’s strategy. The program generally includes meetings with the Chairman, CEO, relevant
Board Committee members and the Senior Leadership Team. The Chairman is responsible for inducting new directors and
for ensuring they have appropriate access to the business and fellow directors;
• provision of information to new directors, pertaining to the Genworth Australia business strategy and to current issues
before the Board;
• participation in professional development programs; and
• ongoing engagement with the Senior Leadership Team and other key business representatives on a regular basis.
The Board Charter and associated Committee Charters set out objectives and provide details of the expectations placed on
directors. In addition, the annual Board performance assessment process ensures that the objectives continue to be met.
Genworth Mortgage Insurance Australia | Annual Report 2014
29
2.8 Committees
Committee governance
The Board has established four Committees, each comprising representatives of the Board, to assist in the discharge of its
functions. A Charter for each Committee sets out its composition, authorities, tenure and responsibilities and is reviewed
periodically by the Board.
The role of chairman of each Committee is exercised by an independent non-executive director who is not Chairman of the
Board. Each Committee chairman is responsible for reporting the outcome of all Committee meetings to the Board.
Remuneration and Nominations Committee
The Remuneration and Nominations Committee assists the Board to fulfil its responsibility to shareholders and regulators
in relation to Company remuneration, succession planning, board effectiveness and diversity. The Committee meets APRA’s
requirements under Prudential Standard CPS 510 Governance.
The key responsibilities of the Remuneration and Nominations Committee include to:
•
•
review the Remuneration & Nominations Committee charter, the Remuneration Policy and recruitment, retention and
termination policies at least triennially or more frequently as required and recommend changes, if any, to the Board;
review and recommend to the Board all remuneration programs and specific outcomes for the Chief Executive Officer and
Senior Leadership Team and any other person or groups of people required by APRA.
• annually review and recommend to the Board the remuneration of Independent Directors and the remuneration pool to be
recommended to shareholders;
• oversee the development of executive succession plans in relation to the Chief Executive Officer and Senior Leadership
Team;
• annually review and make recommendations to the Board on the Diversity Policy, diversity generally within the Company,
measurable objectives for achieving diversity and progress in achieving such objectives;
• assess appropriate Board composition and length of director tenure;
• assess required Board skill sets required to competently discharge the Board’s duties;
•
review director appointment criteria periodically;
• develop an evaluation process for the effectiveness of the Board, Committees and individual directors;
•
implement effective succession planning for Non-Executive Directors, taking into account the challenges and opportunities
facing the Company; and
•
regularly assess the independence of the directors to ensure a majority of independent directors are on all Committees.
The current members of the Remuneration and Nominations Committee are Mr Ian MacDonald (Committee chairman),
Mr Anthony Gill and Mr Leon Roday.
The Remuneration and Nominations Committee met seven times during the reporting period and member attendance
at each meeting is shown in the Directors’ Report.
The Remuneration and Nominations Committee Charter is available at http://investor.genworth.com.au under the Corporate
Governance section.
Risk Committee
The role of the Risk Committee is to assist the Board in its review and oversight of the implementation and ongoing operation
of Genworth Australia’s risk management framework, including recommending the adoption of policies and procedures on risk
management to effectively identify, assess, monitor and manage risk.
The key responsibilities of the Risk Committee include to:
•
•
review and recommend to the Board the Company’s risk appetite;
review and recommend to the Board the Company’s enterprise risk management framework to ensure the effectiveness of
the Company’s risk management, compliance and internal control systems;
• oversee the Company’s implementation of the risk management strategy;
•
•
regularly review and monitor the Company’s risk position relative to its risk appetite and capital strength; and
review and recommend to the Board risk management strategies as required by APRA.
The current members of the Risk Committee are Ms Gayle Tollifson (Committee chairman), Mr Anthony Gill, Mr Ian MacDonald
and Mr Samuel Marsico.
The Risk Committee met seven times during the reporting period and member attendance at each meeting is shown in the
Directors’ Report.
The Risk Committee Charter is available at http://investor.genworth.com.au under the Corporate Governance section.
30
Genworth Mortgage Insurance Australia | Annual Report 2014
Corporate Governance statement (continued)
2. The Board – oversight and responsibility (continued)
Audit Committee
The role of the Audit Committee is to assist the Board in reviewing the effectiveness of Genworth Australia’s corporate
reporting framework. The Committee meets APRA’s requirements under Prudential Standard CPS 510 Governance.
The key responsibilities of the Audit Committee include to:
• safeguard the integrity of corporate reporting to ensure that financial statements provide a true and fair view of the financial
position of the Company;
• provide oversight with respect to the effectiveness of accounting policies and adherence to relevant regulatory reporting
requirements;
•
review statutory reports and returns for lodgement with APRA;
• ensure material financial risks are managed appropriately and recommend remediation steps where control weaknesses
are identified;
•
•
recommend to the Board the adoption of insurance liabilities recommended by the Appointed Actuary;
review and recommend to the Board the appointment and removal of the external auditor and the head of internal audit;
and
• approve the annual internal and external audit plans.
The current members of the Audit Committee are Ms Gayle Tollifson (Committee chairman), Mr Anthony Gill,
Mr Ian MacDonald and Mr Jerome Upton.
The Audit Committee met six times during the reporting period and member attendance at each meeting is shown in the
Directors’ Report.
The Audit Committee Charter is available at http://investor.genworth.com.au under the Corporate Governance section.
Capital and Investment Committee
The role of the Capital and Investment Committee is to assist the Board to set and review capital and investment strategies
and objectives, supervise the execution of the strategy and monitor compliance with the Company’s Internal Capital Adequacy
Assessment Process and investment mandates.
The key responsibilities of the Capital and Investment Committee include to:
• set and review the capital and investment objectives in accordance with Genworth Australia’s strategies, business plan and
risk management framework;
• oversee and recommend the Internal Capital Adequacy Assessment Process;
•
•
•
•
review and recommend any amendments to the target capital range and total capital position, including any new capital
instruments to be issued;
review and recommend any amendments to the Reinsurance Management Strategy;
review and recommend any amendments to investment policies and guidelines; and
review the composition and performance of investment portfolios and any deviations from mandates.
The current members of the Capital and Investment Committee are Mr Anthony Gill (Committee Chairman), Mr Ian MacDonald,
Ms Gayle Tollifson and Mr Jerome Upton.
The Capital and Investment Committee met eight times during the reporting period and member attendance at each meeting
is shown in the Directors’ Report.
The Capital and Investment Committee Charter is available at http://investor.genworth.com.au under the Corporate
Governance section.
Additionally, the Company has a Fit & Proper Committee and a Disclosure Committee. The Fit & Proper Policy and Disclosure
Policy are available at http://investor.genworth.com.au under the Corporate Governance section.
Genworth Mortgage Insurance Australia | Annual Report 2014
31
3. Senior Leadership Team – Management and Leadership
3.1 Linking Board Strategy and Organisational Functions
The Board delegates the day-to-day management and administration of Genworth Australia to the CEO and MD, Ms Ellen
(Ellie) Comerford. The CEO manages the Company in accordance with the strategies, plans and delegations reviewed and
approved by the Board. Formal approvals are provided by the Board on an annual basis with respect to Genworth Australia’s
documented business plans, risk appetite statement and related frameworks.
The CEO is supported by the Senior Leadership Team, who each report directly to the CEO.
The CEO and Senior Leadership Team provide the Board with accurate, timely and clear information to enable the Board
to monitor the exercise of its delegated authority and to perform its own responsibilities. Recommendations are regularly
made to the Board with respect to various issues including strategic business initiatives, budgetary considerations and risk
management.
The CEO and Senior Leadership Team also comprise the Executive Committee, which formally reports to the Board on key
management issues.
3.2 Designation of Key Management Personnel (KMP) status within the
Senior Leadership Team
Within the Senior Leadership Team, five roles (CEO, Chief Financial Officer (CFO), Chief Risk Officer (CRO), Chief Commercial
Officer (CCO) and the Chief Operations Officer (COO)) are deemed to be responsible for planning, directing and controlling
the activities of the Company. These roles are designated as Executive Key Management Personnel (Executive KMP – the CEO
role is also an Executive Director) and accordingly the Remuneration Report sets out details of their individual remuneration.
3.3 Appointment of Senior Leadership Team
Employment agreements with the CEO and Senior Leadership Team set out the details of each of their appointments.
These appointments may be terminated by written notice from either party. A summary of the Executive KMP employment
agreements is contained in the Remuneration Report.
All members of the Senior Leadership Team are required to comply with the Company’s Fit & Proper Policy with respect to their
skills, experience and integrity. Each member of the Senior Leadership Team are assessed in accordance with the Company’s
Fit & Proper Policy before being appointed and are then re-assessed annually.
3.4 Company Secretary
The Company Secretary is Mr Jonathan (Jon) Downes, General Counsel and Company Secretary. The Company Secretary has
overall responsibility for Genworth Australia’s legal, company secretarial and governance functions. The Company Secretary
plays an important role in ensuring a close link is maintained between the Board and the Senior Leadership Team.
The Company Secretary is responsible for compliance with Board and Committee procedures and for providing advice and
counsel to the Board in relation to the Company’s constitution, corporate governance and various other matters. In addition,
the Company Secretary is responsible for the timely dispatch of Board and Committee papers and the accurate recording of
business discussed at the Board and Committee meetings.
The Board appoints the Company Secretary and all directors have access to the Company Secretary. The Board Charter
provides for the Company Secretary to have a direct reporting line to the Chairman of the Board.
3.5 Senior Leadership Attestations – Reporting and Risk Management
The Company’s financial statements for each relevant period are reviewed and endorsed by the CEO and the CFO who
provide declarations that the financial records are properly maintained, comply with appropriate accounting standards and
give a true and fair view of the Company’s financial position and performance. Management reporting is provided to the CEO
and CFO to help inform them of this opinion.
The Board has received from the CEO and CFO a declaration provided in accordance with section 295A of the Corporations
Act 2001 (Cth) that their opinions as to the accuracy of the Company’s financial records for the reporting period ended
31 December 2014 are founded on a sound risk management system and internal control systems.
32
Genworth Mortgage Insurance Australia | Annual Report 2014
Corporate Governance statement (continued)
4. Remuneration – performance and shareholder value
4.1 Remuneration practices
Genworth Australia’s remuneration practices for its directors and Executive KMP are set out in the Company’s Remuneration
Report. Genworth Australia’s remuneration practices are consistent between Executive KMP and Senior Leadership Team
members who are not Executive KMP. The Remuneration Report for the 2014 financial year will be put to shareholders at the
2015 Annual General Meeting.
The Company is subject to APRA Prudentials Standards as well as the ASX Listing Rules and ASX Corporate Governance
Principles and Recommendations relating to remuneration practices.
Remuneration practices for directors and the Senior Leadership Team are overseen by the Board, through the Remuneration
and Nominations Committee.
The Remuneration Policy incentivises behaviour consistent with the Company’s long term financial soundness and strategic
goals.
4.2 Performance evaluation of directors
Board performance is assessed in accordance with the Company’s Board Performance and Renewal Policy. The policy sets
out the key considerations in assessing the performance of the Board and of each individual non-executive director. The
method and scope of the performance evaluation process is set by the Board and commonly includes a Board self-assessment
checklist to be completed by each director.
The Board Chairman has primary responsibility for providing performance feedback to directors, having particular regard to:
• comparison of Board performance against the Board Charter;
• assessment of Board performance having regard to corporate strategies, operating plans and the annual budget;
•
•
review of the Board’s interaction with management; and
identification of any particular goals and objectives of the Board for the next year.
The Remuneration and Nominations Committee chairman and one other non-executive director have responsibility for
providing relevant performance feedback to the Board Chairman.
Following a performance assessment, the Chairman may, in consultation with the remaining directors, seek for a director to be
counselled to resign, not seek re-election or, in exceptional circumstances, seek for shareholders to remove the director. As
previously noted, the Shareholders Agreement with Genworth Financial also assigns rights with respect to the appointment of
designated directors to Genworth Financial. Currently five directors are designated by Genworth Financial based on its interest
in the Company of more than 50%.
The Board recognises the need to renew itself and individual directors in order to continue to fulfil its responsibilities, to
provide fresh perspectives on business strategies and to maintain an appropriate balance of skills and experience. Renewal
issues are therefore given consideration as part of the Board and directors’ performance evaluations.
Genworth Mortgage Insurance Australia | Annual Report 2014
33
4.3 Performance evaluation of Senior Leadership Team
The performance of the Senior Leadership Team is managed through a formal Performance and Development Review (PDR)
process. This PDR process is a defined process for the performance evaluations of all Company employees and evaluates
performance against business goals and professional competencies.
All employees including the Senior Leadership Team are required to set goals and development objectives in line with the
company’s core competencies for each calender year. Performance measures are developed from these objectives and
are a mixture of financial, non-financial indicators and risk-related indicators. It is ensured that the measures align with the
Company’s Business Plan, reflect the individual’s overall accountabilities and are consistent with Genworth Australia’s corporate
culture.
Performance measures are reviewed on a half yearly basis, with the yearly review conducted to evaluate an individual’s
performance against the full year goals and competencies. The yearly review forms the basis of an individual’s remuneration
review and rewards.
A review of each member of the Senior Leadership Team is conducted by the CEO, to ensure that the interests of the Senior
Leadership Team are clearly aligned with those of the organisation as a whole and of shareholders.
The CEO’s performance is reviewed via a combination of the above PDR approach and the annual Board performance
evaluation process outlined above. CEO performance reviews are managed by the Board Chairman.
The performance evaluation of the Senior Leadership Team, including the CEO, was carried out in accordance with the process
outlined above during the 2014 financial year.
4.4 Equity based remuneration scheme
To provide long-term incentives linked to enhancing shareholder value, certain senior employees may be eligible to attain
rights to equity in the Company under the Genworth Australia Share Rights Plan (Rights Plan). Beginning in 2015 these
incentives for the Senior Leadership Team will be granted on the basis of certain performance hurdles being met. A summary
of the equity based remuneration programs is set out in the Remuneration Report.
The Remuneration and Nominations Committee is responsible for ensuring that any actions taken by participants in the Rights
Plan to limit risks do not adversely impact the interests of the Company or its shareholders in any way. Employees participating
in the Rights Plan are required to comply with the Share Rights Plan rules and the Company’s Trading Policy.
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Genworth Mortgage Insurance Australia | Annual Report 2014
Corporate Governance statement (continued)
5. Risk management – sustainable business practices
5.1 The Risk Management Framework
Genworth Australia’s risk management framework comprises the totality of the systems, processes, structures, policies and
people involved in identifying, assessing, mitigating and monitoring risks. Risk management is approached holistically, with
reference to the Company’s business strategy and overall organisational structure.
In accordance with Prudential Standards issued by APRA, various core components of the Company’s approach to enterprise
risk management include a Risk Management Strategy (RMS), Reinsurance Management Strategy (ReMS) and an Internal
Capital Adequacy Assessment Process (ICAAP).
The risk management and governance framework is enhanced by the Company’s obligations under the Shareholder
Agreement with Genworth Financial, which requires the Company to comply with various regulatory requirements applicable
to Genworth Financial. This includes compliance with the rules of the US Securities and Exchange Commission.
The Risk Committee, on behalf of the Board, is primarily responsible for overseeing the implementation of the Company’s
risk management framework and for ensuring strategic objectives are pursued within the limits set by the Board approved
risk appetite. The Audit Committee provides further assurance through an objective review of the effectiveness of Genworth
Australia’s corporate reporting and overall risk management framework.
The key components of the RMF are set out in the diagram and related text below.
Governance framework
Culture, Governance, Remuneration
Strategy and planning
Business plan, stakeholder expectations
Risk appetite
Measures and Tolerances to support strategy
Risk Management Strategy
Reinsurance Management Strategy, Contingency Plan
Risk Management Architecture
1. Risk Management
Methodology and
Frameworks
5. Training and
Awareness
2. Risk Policy
4. Risk
Monitoring and
Reporting
3. Risk
Management
Process
Internal Capital Adequacy Assessment Process
Audit Framework
Compliance Framework
Genworth Mortgage Insurance Australia | Annual Report 2014
35
• Governance framework
The governance framework is designed to ensure the Board and Senior Management have effective oversight of the risks
faced by the Company with clearly defined and articulated roles and responsibilities and inter-relationships.
• Strategy and planning
An annual review of Genworth Australia’s strategic objectives is undertaken including a review of new, existing or changed
risks that arise from its strategy and changes to the strategy.
• Risk appetite
Risk Appetite is articulated in a Risk Appetite Statement (RAS) approved by the Board reflective of the Company’s appetite
for risk. The RAS defines the outcomes the Company is willing to accept over the medium term and is aligned to the
strategic objectives of the business.
• Risk Management Strategy
The RMS sets out the risk management strategy for the Company and other key matters as they relate to the strategy. The
RMS forms an integral part of the RMF, ensuring the framework remains relevant, appropriate, ‘fit for purpose’ and aligned
to the Board’s approved strategy.
• Reinsurance Management Strategy
The ReMS forms part of Genworth Australia’s RMF, RMS and ICAAP.
• Contingency Plan
The Contingency Plan is a dynamic document that outlines the process and plans to manage and remediate various events
that have the potential to adversely impact the Company.
• Risk Management Architecture
Risk Management Architecture embodies the continuous and dynamic structure through which Genworth Australia
identifies, assesses, mitigates and monitors risks.
• Internal Capital Adequacy Assessment Process
The purpose of the ICAAP is to assist the Group to make a proactive internal assessment of its capital requirements
considering the current strategy, business plan and associated risks inherent in the business plan. In addition to the internal
capital requirements, the ICAAP recognises the capital required for regulatory and ratings agency purposes and identifies
planned and potential sources of capital required to meet those requirements.
• Business Continuity Management
Business Continuity Management is a whole of business approach that involves the identification, assessment and
management of potential business continuity risks to ensure that the impact of any business interruption is minimized.
Genworth Australia’s business continuity framework is designed to meet regulatory requirements.
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Genworth Mortgage Insurance Australia | Annual Report 2014
Corporate Governance statement (continued)
5. Risk Management – sustainable business
practices (continued)
5.2 The three lines of defence
Genworth operates a ‘three lines of defence’ approach that drives accountability and responsibility for risk management. The
key elements of Genworth Australia’s three lines of defence strategy are outlined below.
Executive and Board
Risk appetite and business strategy
Audit Committee
Audit Committee
Independant assurance
Independant Aussrance
First line
Management and Business
Operations
• Risk ownership
• Identify and assess risks
• Operate controls
• Day-to-Day responsibility
• Transactional
• Ongoing testing
• Individual case management
Second line
Risk and Compliance
Third line
Audit
• Risk assurance
• Independent
• Objective audit
• Assurance on effective operations
of 1st and 2nd lines
• Risk management and risk
Appetite
• Risk policy and frameworks
• Independent oversight of 1st Line
• Models and analytics
• Policy and accountability
• Portfolio trends
• Review and reporting
• Process and exceptions
• Quality control
First line: All business areas
The first line of defence comprises the business management who assume ownership of risks. Business ownership is essential
to control of risk and to ensure business practices are consistent with the Company’s risk appetite.
Second line: Risk and compliance functions
The Company’s risk and compliance functions form the Company’s second line of defence. The roles of these functions are
to evaluate the adequacy and effectiveness of first line controls, the implementation of policies and the monitoring of the
Company’s risk profile. The second line of defence supports the first line in mitigating and managing any new risks that arise.
The Chief Risk Officer (CRO) has a direct reporting line to the Risk Committee.
Third line: Independent audit functions
The third line of defence comprises both internal and external audit functions, which provide assurance with regard to the
totality of risk management systems, controls and governance processes administered by the first and second lines.
The Company’s internal audit function is responsible for:
• developing a risk based annual audit plan that incorporates significant risks or control concerns identified by the Company.
This plan is reviewed at least quarterly and may be modified for emerging business risks or issues;
• assisting in the investigation of suspected fraudulent activities within the Company;
•
reporting the results of its work, including remediation recommendations, to management and the Audit Committee; and
• administering a follow-up process regarding audit findings that require remediation to ensure that actions are executed
properly and in a timely manner.
Internal audit also works closely with the appointed auditor to ensure a full and effective coverage of key areas is maintained.
Genworth Australia’s external audit function is provided in accordance with the Corporations Act requirements. Genworth
Australia has an appointed auditor, meeting the requirements of APRA’s Prudential Standard GPS 310 Audit and Related Matters.
The internal audit team and the appointed auditor have a direct reporting line to the Audit Committee.
Genworth Mortgage Insurance Australia | Annual Report 2014
37
5.3 Economic, environmental and social sustainability risk
Social sustainability, risk and environmental risk are considered by the Company as part of its overall risk management
practices. Whilst not considered key risks in the context of Genworth Australia’s business model, the Board and Senior
Leadership Team are committed to undertaking and evaluating the Company’s impact on society and the environment. Regular
consideration of potential risks enables risk mitigation activities to be devised where required.
The Company recognises that climate change poses significant potential risks to the environment, the global economy and
to human health and well-being. The Company believes that a responsible approach to helping preserve the environment is
critical to building trust and creating long term value for all of our stakeholders, including consumers, distribution partners,
employees and investors. Further, the Company is committed to making a difference in the communities in which it operates
and has in place a community plan that addresses a number of key foundation areas, including education, homelessness and
basic needs.
The Company’s RMF and RMS address economic risk as part of the Company’s strategic risks. It is recognised that in order to
provide shareholder value, the ability to effectively sustain its business model over a long-term period is critical.
5.4 Reviewing the Risk Management Framework
The RMF is reviewed at least annually to ensure it is reflective of the Company’s strategy and continues to be effective in
managing the risks associated with the strategy.
Annual reviews consider such matters as the framework’s effectiveness in managing risk, a review of the risk appetite to ensure
it continues to be aligned to the Company’s strategy, the risk culture of the organisation, the appropriateness of policies that
identify risks and controls, risk related reporting and how remediation recommendations are actioned.
On a quarterly basis, the Company’s senior management reviews the key risks associated with their respective areas of
accountability. These reviews seek to determine changes to existing risks faced, the inherent ‘likelihood’ and ‘impact’ of the
risks, the effectiveness of the control environment, the residual risk rating and any actions required to further mitigate those
risks.
During 2014:
• Board and senior management were regularly involved in reviewing the risk appetite and risk culture of the organisation;
• material risks faced by the Company were documented in the 2014 RMS that was reviewed and updated upon the
execution of the IPO May 2014;
•
•
•
the RMF and RMS were reviewed by the Board and senior management and changes made to align to the 2015 strategy
and risk management focus areas;
the Company continued to invest in risk management capabilities with a focus on enhancing quantitative risk analytics and
actuarial capabilities. This has resulted in enhancements to Genworth Australia’s claims reserving processes, forecasting
processes and associated governance;
the Company enhanced its enterprise risk management system by launching an electronic platform to support the
management of risk and controls and incident management; and
• an internal audit was conducted of compliance with applicable APRA prudential standards, risk management and business
continuity management and the audit findings did not give rise to any systemic risk management concerns.
38
Genworth Mortgage Insurance Australia | Annual Report 2014
Corporate Governance statement (continued)
6. Communication with shareholders – transparency
and accountability
6.1 Genworth Australia’s website
Genworth Australia maintains a comprehensive website at www.genworth.com.au providing shareholders with a variety of
information resources. This includes information about the Company’s operations, the key corporate governance policies,
biographies of directors and the Senior Leadership Team and an investor section with links to annual and interim reports and
public announcements, a key events calendar, and share price, and dividend payments history.
6.2
Open communications
Genworth Australia is committed to accurate and timely communication with its shareholders. Communication methods include
information and disclosures on the Company website, public releases on the ASX and through media outlets, direct shareholder
communications in written form and shareholder meetings and briefings.
Investor relations program
The Company has set standards in respect of its approach to media and public relations, which are set out in the Company’s
Media and Public Relations Policy. The policy includes the management and presentation of public information disclosed via the
ASX and other public outlets and in respect of employee responsibilities in communicating Company information.
A summary of the Media & Public Relations Policy is available at http://investor.genworth.com.au under the Corporate
Governance section.
The Australasian Investor Relations Awards recognise listed entities that have excelled in investor relations each year, with winners
being determined based on voting from equities analysts and fund managers. On 27 November 2014 Genworth received an
Investor Relations Award in recognition of the focus and importance it has placed on effectively communicating information to its
shareholders.
The Australasian Investor Relations Awards recognise listed entities that have excelled in investor relations each year, with winners
being determined based on voting from equities analysts and fund managers. In 2014 Genworth received an Investor Relations
Award in recognition of the focus and importance it has placed on effectively communicating information to its shareholders.
Shareholders and investors can directly raise any queries on the Company’s investor relations program by contacting the
Company by email at investorrelations@genworth.com. Alternatively shareholders and investors can write to the Chairman or
Company Secretary at Genworth, Level 26, 101 Miller Street, North Sydney NSW 2060, Australia.
Electronic interactions with shareholders
Shareholders are provided the option to receive and send communications with the Company and its share registry electronically.
6.3 Continuous disclosure
Genworth Australia is committed to the continuous disclosure of material information as a means of promoting transparency and
investor confidence. The practices of the Company are designed to comply with the ASX Listing Rules and the requirements of
the Corporations Act.
Genworth Australia has adopted a Disclosure Policy to ensure that the Company complies with its continuous disclosure
obligations and manages other communications with the media and financial markets. The Disclosure Policy recognises the
Company’s obligations under the Shareholder Agreement to make available certain information to Genworth Financial to enable
Genworth Financial to comply with its regulatory and market reporting requirements.
The Company’s Disclosure Committee is responsible for overseeing the Company’s disclosure controls, procedures and practices.
ASX announcements and the Discolure Policy are available http://investor.genworth.com.au, under the Announcement / News
Releases and Corporate Governance sections respectively.
6.4 Participation at shareholder meetings
Genworth Australia actively encourages interaction with its shareholders. The Company has implemented policies and
procedures, including the Media and Public Relations Policy and the Disclosure Policy, to assist in facilitating an effective flow of
information to shareholders. As part of this process, participation at shareholder meetings is actively encouraged.
The Notice of 2015 Annual General Meeting provides details in relation to items of business, voting rights and explanatory
notes. The Company’s appointed auditor will attend the 2015 Annual General Meeting to respond to any shareholder
questions relevant to the audit and corporate reporting for the 2014 financial year. These may include questions relevant to the
conduct of the audit, the preparation of the appointed auditor’s report, the accounting policies adopted by the Company and
the independence of the appointed auditor.
Genworth Mortgage Insurance Australia | Annual Report 2014
39
7. Working Environment – Ethics and Diversity
7.1 Code of Conduct – ‘Integrity First’
The Board acknowledges the need for high standards of corporate governance practices and ethical conduct to be maintained
by all directors and employees of Genworth Australia.
The Board has adopted ‘Integrity First’ (Genworth Financial’s Code of Ethics) as the Company’s Code of Conduct. It sets out
the Company’s commitment to preserving high levels of integrity and ethical standards in its business practices. The Code
of Conduct sets out the standards of behaviour expected of directors, employees and contractors (as well as various other
stakeholders). Issues addressed by the Code include conflicts of interest, public and media comments, use of Company
resources, security of information, intellectual property, discrimination and harassment, corrupt conduct, occupational health
and safety and insider trading.
Genworth Australia requires all directors, employees and contractors to ensure their behaviours, decisions and choices are
conducted in accordance with all applicable laws and regulations. All actions are expected to be undertaken with the utmost
good faith and integrity.
A copy of the Code of Conduct is available at http://investor.genworth.com.au under the Corporate Governance section.
7.2 Diversity
Genworth Australia is committed to achieving diversity and has adopted a Diversity Policy that provides a framework to
achieve a diverse and skilled workforce, a workplace culture characterised by inclusive practices and behaviours and a work
environment that values and utilises the contributions of employees with diverse backgrounds, experiences and perspectives.
While the Company’s approach to diversity is multi-dimensional, achieving gender equality in the workplace is viewed as a
particularly important goal.
The Board, in consultation with the Remuneration and Nominations Committee and the Senior Leadership Team, is responsible
for establishing the Diversity Policy. In accordance with that policy, the Board sets measurable objectives for achieving diversity,
in the workplace, annually reviews those objectives, and the progress in, achieving those objectives as well as the effectiveness
of the policy. .
A copy of the Diversity Policy is available at http://investor.genworth.com.au under the Corporate Governance section.
In 2014, the Board approved the following measureable objectives for achieving diversity in the workplace with a particular
focus on gender equality:
Culture
Focus on inclusion, empowerment,
embracing diverse view points and
styles
Engagement
Employee engagement as reflected
in survey results and recruitment and
retention success
Development
Leadership and talent development
with a focus on gender equality
Goal:
Provide a work environment that
recognises, accepts and values
differences as measured by the
employee engagement survey.
Goal:
Provide a work environment where
people from diverse backgrounds
can succeed as measured by the
employee engagement survey.
Goal:
Maintain diversity at the Senior
Executive level of at least 1/3
women and ensure diverse slates of
candidates for all leadership roles.
Demonstrate commitment to
attracting, developing and keeping a
diverse workforce as measured by the
employee engagement survey.
The Company also reports its progress towards achieving gender diversity goals to the Workplace Gender Equality Agency
(WGEA) annually. The overall representation of females for the WGEA 2014 reporting year is illustrated below:
Occupational categories
Senior Leadership Team (SLT)
Other Managers (not on SLT)
Other employees (non-Managers)
Total
Female
4
29
110
Male
4
47
131
143 (44%)
184 (56%)
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Genworth Mortgage Insurance Australia | Annual Report 2014
Directors’ report
The directors present their report together with the financial statements of the Group comprising the Company and its
controlled entities for the year ended 31 December 2014 and the auditor’s report thereon.
Directors
The directors of the Company at any time during or since the end of the financial year are as follows:
Name and title
Biography
Richard Grellman AM
Chairman, Independent
• Previously was at KPMG where he spent 32 years, with the last ten years specifically focused on
the provision of strategic advice and services to the financial services sector:
– Partner from 1982 – 2000;
– Member of KPMG National Board from 1995 – 1997;
– Member of KPMG National Executive from 1997 – 2000.
• Since 2000, has held a number of directorships across the financial services sector with
publicly-listed companies.
• Over 40 years of experience in total; 20 years of board experience and 23 years of financial
services experience.
• Was the independent financial expert for the AMP and Tower Life NZ demutualisations.
• Appointed a member of the Order of Australia for service to the community in 2007.
• Currently Chairman of AMP Foundation and IPH Limited and a director of Bisalloy Steel
Group Limited.
• Appointed 1 March 2012.
Anthony (Tony) Gill
Director, Independent
• Chairman of the Capital and Investment Committee.
• Over 30 years of financial services experience having served on a number of boards over that
period.
• Previously Group Head, Banking and Securitisation Group at Macquarie Group:
– Held senior executive roles in Macquarie Group from 1991 – 2008.
• Prior to Macquarie, was a Chartered Accountant then held various management roles in
mortgage banking and treasury in Australia.
• Currently Chairman of Australian Finance Group and a director of First American Title Insurance
Company of Australia Ltd and First Mortgage Services Pty Ltd.
• Previously Chairman of Australian Securitisation Forum and National President of the Mortgage
Finance Association of Australia.
• Appointed 20 February 2012.
Ian MacDonald
Director, Independent
• Chairman of the Remuneration and Nominations Committee.
• Over 40 years of financial services experience in Australia, the UK and Japan, specifically in
banking, insurance, wealth management and technology.
• Previously held numerous positions with NAB:
– Various senior executive roles from 1999 – 2006;
– Chief Operating Officer Yorkshire Bank from 1997 – 1999;
– Head of Retail Services Clydesdale Bank, Glasgow UK from 1994 – 1997.
• Senior Fellow and past President of the Financial Services Institute of Australasia and a member
of the Australian Institute of Company Directors.
• Currently a director of Arab Bank Australia Ltd and Tasmanian Public Finance Corporation.
• Since 2006 has held a number of directorships including publicly-listed companies.
• Appointed 19 March 2012.
Genworth Mortgage Insurance Australia | Annual Report 2014
41
Name and title
Biography
Gayle Tollifson
Director, Independent
Samuel Marsico
Director, Genworth
Financial designee
Leon Roday
Director, Genworth
Financial designee
• Chairman of the Audit Committee and the Risk Committee.
• Over 35 years of financial services experience and an Independent Director since 2006:
– Worked with QBE Insurance Group in senior executive roles including Chief Risk Officer and
Group Financial Controller from 1994 – 2006;
– Prior to QBE, held various roles in public accounting firms in Australia, Bermuda and
Canada.
• Fellow of the Australian Institute of Company Directors and the Institute of Chartered
Accountants in Australia.
• Currently Chairman of Munich Holdings of Australasia Pty Limited and subsidiaries and a
director of RAC Insurance Pty Limited and Campus Living Funds Management Limited.
• Appointed 20 February 2012.
• Director of Genworth MI Canada Inc.
• Chief Risk Officer, Global Mortgage Insurance, Genworth Financial from 2008 – 2014:
– 23 years at Genworth/General Electric;
– Chief Risk Officer for Genworth Financial from 2006 – 2008;
– Senior Vice President and Chief Risk Officer for GE Mortgage Insurance from 2002 – 2005;
–
– Held a number of leadership positions at both GE Transportation Systems and GE Corporate
Joined GE Mortgage Insurance as CFO in 1997;
Finance from 1991 – 1996.
• Previously a senior executive at Price Waterhouse in New York.
• Appointed 19 March 2012.
• Director of Genworth MI Canada Inc.
• Senior Vice President, General Counsel and Secretary, Genworth Financial to February 2015:
– Prior to this position, held the same role for GE Financial since 1996.
• Previously a partner at LeBoeuf, Lamb, Greene & McRae for 14 years.
• Member of the New York Bar Association.
• Appointed 19 March 2012.
Stuart Take
Director, Genworth
Financial designee
• Senior Vice President, New Market Development, Genworth Global Mortgage Insurance,
Genworth Financial.
• 27 years experience, primarily at Genworth/General Electric:
–
Joined GE Capital in 1987 and has since held a number of senior management positions
in Genworth’s mortgage insurance platform both domestically and overseas, including
President/CEO of Genworth’s Canadian mortgage insurance business, and Senior Vice
President of Asia.
• Director of India Mortgage Guarantee Corporation (a Genworth Financial joint venture with the
International Finance Corporation, the Asian Development Bank and the National Housing Bank
of India).
• Previously Head of Financial Institutions at Deutsche Bank, Asia ex-Japan.
• Appointed 20 February 2012.
42
Genworth Mortgage Insurance Australia | Annual Report 2014
Directors’ report (continued)
Directors (continued)
Name and title
Biography
Jerome Upton
Director, Genworth
Financial designee
• Director of Genworth MI Canada Inc.
• Appointed Senior Vice President and Chief Financial and Operations Officer, Global Mortgage
Insurance, Genworth Financial in 2012:
– Previously Senior Vice President and Chief Operating Officer, Genworth Financial
International Mortgage Insurance from 2009;
– Senior Vice President and CFO, Genworth Financial International – Asia Pacific, Canada and
Latin America from 2007 – 2009;
International Finance Manager from 2002 – 2004;
– Global Financial Planning and Analysis from 2004 – 2007;
–
– Mortgage Insurance Global Controller from 1998 – 2002;
– 15 years at Genworth/General Electric.
• Prior to Genworth, served in a number of accounting positions at KPMG Peat Marwick,
culminating in his role as Senior Manager – Insurance in Raleigh, North Carolina.
• Obtained the status of Certified Public Accountant whilst the Controller and Director of
Financial Reporting for Century American Insurance Company in Durham, North Carolina.
• Appointed 20 February 2012.
• Almost 30 years of financial services experience across a range of banking and insurance
businesses.
• Previously spent approximately nine years with First American Financial Corporation in various
leadership positions in Australia and internationally including Managing Director for the
Australian and New Zealand operations, and Chief Operating Officer for the International
Division.
• Prior to this, Ellie was at Citigroup for approximately 14 years, where her roles included
Director of Strategy and Business Development, and Head of Capital Markets, Origination and
Syndication.
• Served on boards for the Australian and New Zealand businesses of First American.
• Appointed 20 February 2012.
Ellen (Ellie) Comerford
Director, CEO and
Genworth Financial
designee
Principal activity
The principal activity of the Group during the reporting period was the provision of lenders mortgage insurance under
authorisation from APRA. In Australia, LMI facilitates residential mortgage lending by transferring risk from lenders to LMI
providers, predominately for high loan to value ratio residential mortgage loans.
Genworth Mortgage Insurance Australia | Annual Report 2014
43
Operating and financial review
Organisation overview and business model
About Genworth Australia
Genworth Australia is the leading LMI Provider in the Australian LMI Market. The Group estimates that it had approximately
44% of the Australian LMI Market by NIW for the 12 months ended 31 December 2014.
Genworth Australia and its predecessors have been part of the Australian residential mortgage lending market for 50 years
since the Australian Government established the Housing Loans Insurance Corporation in 1965 to provide LMI in Australia.
The Company was incorporated on 21 December 2011 with $1 share capital and had nil operating activity until 19 May 2014
when the Group was formed and the Company gained 100% control of all the Genworth Australia subsidiaries as part of the
IPO restructure. The Group’s Consolidated Statement of Comprehensive Income and Statement of Cash Flows represent
the Company’s twelve month results and the results of the underlying subsidiaries for the period from 19 May 2014 to
31 December 2014.
The Company was listed on the ASX on 20 May 2014 under ticker code ‘GMA’ at an issue price of $2.65 per share.
$583.0 million was raised from the offer, representing 33.85% of the issued share capital of the Company. The remaining
66.15% of the share capital is indirectly held by Genworth Financial.
The Group comprises GMA and its subsidiaries as shown in the following diagram:
Public
Genworth Financial, Inc
220 million shares (33.85%)
430 million shares (66.15%)*
Genworth Mortgage Insurance
Australia Limited
Genworth Financial Australia
Holdings LLC
Genworth Financial
Mortgage Insurance Financial
Holdings Pty Limited
Genworth Financial Mortgage
Insurance Financial Pty Limited
Genworth Financial New
Holdings Pty Limited
Genworth Financial Mortgage
Insurance Holdings Pty Limited
Genworth Financial Services
Pty Limited
Company
Subsidiary of the Company
Genworth Financial Mortgage
Insurance Pty Limited
* Genworth Financial’s interest in the Company is held indirectly through the Genworth Financial Group.
Genworth Financial Mortgage
Indemnity Limited
44
Genworth Mortgage Insurance Australia | Annual Report 2014
Directors’ report (continued)
Operating and financial review (continued)
Organisation overview and business model (continued)
Genworth Australia’s business activities
As a LMI Provider, Genworth Australia’s profitability is driven primarily by its ability to earn premiums and generate financial
income in excess of net claims and operating expenses (being underwriting and other costs).
The diagram below illustrates how Genworth Australia creates value.
Genworth Australia shareholder value chain
Products and income
Costs
Distribution
Financial
income
Claims
• Interest rates
• Delinquencies
• Capital levels
• Reserving
• Payment of
claims
Premium
income from
writing LMI
• LMI usage
• Customers
• NIW
• Premium rates
• GWP
• Revenue
recognition
Underwriting
and other
costs
•
•
Underwriting
fees
Amortisation
of customer
acquisition
related costs
•
•
Marketing costs
Staff and IT costs
Strategy, risk and capital management
Dividends
Retained
earnings
• Underlying net profit after tax
• Payout ratio
Genworth Mortgage Insurance Australia | Annual Report 2014
45
Products and Income
About LMI
LMI is an insurance policy between an LMI Provider and a lender and insures the lender against covered claims and
associated costs that the lender may incur if the borrower defaults on the insured residential mortgage loan and there is a
shortfall between the net proceeds from the sale of the property securing the loan and the residential mortgage loan amount
outstanding. The LMI policy is typically in place for the duration of a residential mortgage loan.
LMI helps facilitate lending in the Australian mortgage market by transferring risk from lenders to LMI Providers predominantly
for HLVR residential mortgage loans. LMI allows those borrowers to access residential mortgage loans on similar terms to
borrowers with lower LVR residential mortgage loans.
In FY14, the Group offered three main LMI products as set out below:
Product
Standard LMI
Target market
Key features
• HomeBuyers
• Employed/self-
employed
• Targeted packages for
• Maximum 95% LVR (excluding capitalisation of
LMI premium) for owner occupied properties
• Maximum 95% LVR (including capitalisation of
LMI premium) for investment properties
graduates/professionals
•
Income verification obligation
% of FY14
NIW
98.9%
HomeBuyer Plus
• First HomeBuyers with
limited deposit (owner
occupier only)
• Non-genuine savings accepted (for example,
0.7%
deposit may be a gift)
• Maximum 95% LVR (excluding capitalisation
of LMI premium) for purchases of existing
properties
• Maximum 90% LVR (excluding capitalisation of
LMI premium) for construction of new properties
•
Income verification obligation
Business Select/Low Doc
• Self-employed
• Maximum 80% LVR (excluding capitalisation of
0.4%
premium)
• Requires 12 months of ATO Business Activity
Statements to assess income
Genworth Australia underwrites LMI through flow and portfolio channels.
Underwriting channel
Flow LMI
FY14 NIW
FY14 GWP
96.8%
99.7%
LMI typically purchased at the time a residential mortgage loan is originated, and either:
– directly assessed by Genworth Australia after the relevant information and
documentation has been supplied to Genworth Australia by the lender customer; or
–
accepted pursuant to a delegated underwriting authority (DUA) from Genworth
Australia for certain lender customers that satisfy Genworth Australia’s DUA criteria.
(69% of Flow LMI in FY14 was written pursuant to DUA)
Portfolio LMI
LMI provided on an aggregate basis on a portfolio of previously originated residential mortgage
loans
3.2%
0.3%
Lender’s LMI subsidiaries may also reinsure a part of their portfolio as part of their risk and capital management practices.
Genworth Australia has previously provided inward reinsurance to a lender customer’s LMI subsidiary. New inwards
reinsurance business for that lender customer’s LMI subsidiary ceased with effect from 30 September 2014 and Genworth
Australia continues to actively manage its existing inwards reinsurance portfolio.
46
Genworth Mortgage Insurance Australia | Annual Report 2014
Directors’ report (continued)
Operating and financial review (continued)
Products and Income (continued)
Customers
During 2014, Genworth Australia had commercial relationships with over 100 lender customers across Australia, including
three of the four Major Banks. Genworth Australia has Supply and Service Contracts with 11 of its key lender customers.
In 2014, Genworth Australia’s top three lender customers accounted for approximately 54% of Genworth Australia’s NIW and
64% of its GWP in FY14 and its largest lender customer accounted for approximately 32% of its NIW and 39% of its GWP in
FY14, as illustrated below.
Lender customer
Lender customer 1
Lender customer 2
Lender customer 3
Lender customers 4 – 6
Lender customers 7 – 10
Lender customers 11 – 20
All other lender customers
FY14 NIW
FY14 GWP
32%
10%
12%
29%
9%
6%
2%
39%
14%
11%
19%
9%
5%
3%
Key drivers of business performance
The Group’s business performance is driven by a number of factors including premium rates, NIW, GWP and financial income,
along with delinquencies, claims and reserving. The key drivers of business performance are:
Income
• New Insurance Written (NIW): NIW represents the original outstanding loan amounts on new residential mortgage loan
policies underwritten. Genworth Australia’s NIW is affected by a range of factors including the level of HLVR residential
mortgage originations, Genworth Australia’s share of HLVR originations, changes to underwriting standards and policies, the
level of RMBS activity, market share of Genworth Australia’s lender customers and risk retention activities of Lender Customers.
• Premium rates: Genworth Australia’s premium rates reflect the long tail nature of LMI products, incorporating views on
both cyclical and long-term economic performance. Premium rates are set in order to achieve an appropriate risk adjusted
return to meet the cost of capital and provide a return to shareholders. Pricing is typically determined by reference to
the residential mortgage loan characteristics including the type of residential mortgage loan, LVR band, the amount of
the residential mortgage loan, the purpose of the loan, the type of borrower and, in the case of Portfolio LMI, seasoning
(being the length of time that has passed since origination of the underlying loans). Genworth Australia has implemented
premium rate increases in four of the last six years.
• Gross Written Premium (GWP): Genworth Australia’s GWP is generally determined by NIW volumes, the mix of NIW
between LVR bands, loan size bands, premium rates and other factors.
• Revenue recognition: LMI premiums are fully paid by lender customers at the inception of the LMI policy. Revenue from
premiums is recognised over time based on actuarially derived earnings curves that seek to match the recognition of
revenue with the actuarially estimated emergence of risk (claims). The majority of the premium revenue is typically earned
in the first five years of the policy.
• Financial income: Financial income is generated on Genworth Australia’s investment portfolio including interest income
on Australian dollar denominated cash, cash equivalents and fixed income securities and any realised and unrealised gains
and losses on investment assets.
Costs
• Delinquencies, reserving and claims: Genworth Australia treats residential mortgage loans which are in arrears by three
or more monthly payments, as reported to it by Genworth Australia’s lender customers, as delinquent. Genworth Australia
employs an economic loss model in order to determine implied frequency and severity factors which form the initial basis
for estimating reserves on reported delinquencies. Genworth Australia’s appointed actuary may also use professional
judgment to augment these implied factors from the economic loss model if economic, operational and/or other
extraneous conditions warrant the adjustments.
• Underwriting and other costs: Underwriting and other costs are the costs associated with Genworth Australia’s business
activities and can include underwriting fees, marketing costs, communication costs, staff costs, IT costs and general
administrative expenses.
Genworth Mortgage Insurance Australia | Annual Report 2014
47
Strategy
The Group’s strategic objective is to deliver long-term returns to shareholders, reflected in an attractive, sustainable ROE.
Genworth Australia intends to achieve this objective by pursuing the following strategies:
Strategic priority
#1
• Genworth Australia seeks to strengthen and grow its customer relationships and product value
proposition by:
Observation
Strengthen market
leadership position
–
–
Focusing on understanding and meeting the strategic needs of its customers;
Influencing the changing regulatory environment;
– Addressing potential ratings and/or counterparty challenges;
– Enhancing its service offerings with a focus on risk management and technology; and
– Maintaining a high level of service with a continued focus on customer satisfaction.
• Genworth Australia intends to maintain appropriate, risk adjusted returns by:
–
Pricing NIW to achieve low-to-mid teen ROEs over the long-term and enhancing its
understanding of the profitability of portfolio cohorts;
– Continue to manage underwriting and pricing to grow share of attractive market segments
and lenders while reducing exposure to unattractive segments as they emerge;
–
–
Investing in loss mitigation tools and process to enhance management of delinquencies
and claims;
Investing in underwriting systems to deliver productivity benefits while maintaining strong
risk management disciplines and enhancing customer experience; and
– Optimising interest income from its investment portfolio within acceptable risk standards.
• To complement its strategy to enhance profitability, Genworth Australia intends to maintain
a strong balance sheet and financial position while managing its capital relative to its risk
exposure, targeted ratings and regulatory requirements.
•
In addition to equity, qualifying capital instruments and reinsurance form part of Genworth
Australia’s capital management strategy. Genworth Australia will continue to assess
opportunities to optimise its capital base to enhance returns.
• To the extent Genworth Australia has capital above its internal and regulatory capital
requirements, the Board will consider a range of options and currently has a preference to
return excess capital to Shareholders, subject to regulatory approvals and market conditions.
• Genworth Australia continues to strengthen the risk culture across the business.
• Genworth Australia intends to enhance data received from customers and third parties to
support granular and effective risk decisioning.
• Genworth Australia will continue to invest in modelling and analytical capabilities to deliver
more granular performance measures, along with improved loss forecasting, balance sheet
management and stress-testing.
• Genworth Australia will continue to advance its risk management framework and practices by
working with regulators, lender customers and other market participants to adapt to changing
market conditions.
• Genworth Australia will continue to work with regulators, rating agencies and other industry
participants to promote legislative and regulatory policies that support increased levels of
home ownership, continued responsible credit growth for lender customers, and the purchase
of LMI by lenders so as to continue to enable lenders to provide borrowers with affordable
residential mortgage loans.
#2
Enhance profitability
#3
Optimise capital position
and enhance ROE
#4
Maintain strong risk
management discipline
#5
Continue to work
with regulators, rating
agencies and other
industry participants
48
Genworth Mortgage Insurance Australia | Annual Report 2014
Directors’ report (continued)
Operating and financial review (continued)
Risks and Capital Management
Genworth Australia maintains a disciplined approach to risk management and underwrites to a defined set of underwriting
policies that determine which residential mortgage loans it will insure.
Genworth Australia’s risk management strategy forms an integral part of its risk management framework, ensuring the risk
management framework remains relevant and aligned to the Board’s approved strategies.
Engaging with regulators, ratings agencies and industry participants
Genworth Australia is authorised and regulated by APRA as a monoline LMI Provider. LMI Providers are required by regulation
to be monoline, which means they cannot issue any other type of insurance. Genworth Australia must comply with Prudential
Standards for general insurers including specific requirements for LMI Providers.
During FY14, Genworth Australia has been actively engaging on residential mortgage policy development with the key
lending institutions, government bodies, local and international regulators and industry bodies.
Investment portfolio and capital management
As at 31 December 2014, Genworth Australia had an investment portfolio limited to cash, cash equivalents and fixed income
securities. The portfolio contains no investments in the Genworth Financial Group, equities, property or derivatives. As at
31 December 2014, Genworth Australia had a $4.2 billion cash and investments portfolio, invested 99.8% in Australian
denominated cash, cash equivalents and fixed income securities, of which 97% was rated A– or higher. The primary investment
objective is to manage the portfolio of securities to help achieve return and income targets, while minimising volatility of total
returns and providing liquidity to pay claims. This asset allocation and investment management philosophy represents
the previous long-standing approach taken by Genworth Australia to investment management.
Genworth Australia actively manages its capital base to endeavour to deliver sustainable, long-term Shareholder returns and
to meet its internal and regulatory capital requirements and its targeted insurer financial strength and credit ratings. In line
with regulatory requirements and its capital management plan, Genworth Australia regularly assesses capital alternatives
(for example, allowable reinsurance and other forms of qualifying capital instruments) to optimise its capital base and cost of
capital. Genworth Australia develops its capital management plan having regard to observed and expected changes in the
volume of its NIW and other variables.
Genworth Australia’s regulatory capital requirements, prescribed in APRA Prudential Standards, are driven by Genworth
Australia’s LMI portfolio characteristics. Regulatory capital is also required for investment and operational risks and includes
a significant credit for allowable reinsurance.
In November 2014, S&P revised its financial strength and issuer credit ratings on GFMI from ‘AA–’ with a stable outlook to ‘A+’
with a negative outlook. At the same time, S&P affirmed the ‘A–’ financial strength and issuer credit ratings on Indemnity with a
stable outlook. This followed S&P revising its insurer financial strength rating on Genworth Life Insurance Co. (GLIC) from ‘A–’
with a stable outlook to ‘BBB+’ with a negative outlook following the release of Genworth Financial’s third quarter earnings.
S&P explained that under their Group Rating Methodology, GFMI was viewed by S&P as an insulated subsidiary of Genworth
Financial Group’s core life insurance company, GLIC, and therefore GFMI’s rating was capped at a maximum possible three
notch differential to GLIC. On 19 February 2015, S&P affirmed the financial strength and issuer credit ratings of the Group’s
operating insurance subsidiaries; GFMI at ‘A+’ with an outlook of developing, revised from negative, and Indemnity at ‘A-‘ with
an outlook of developing, revised from stable, with a relaxation of the notching differential cap.
In December 2014, Fitch Ratings published an insurer financial strength rating of GFMI and assigned an A+ rating with a
stable outlook. In assigning this rating Fitch noted, “The rating reflects a robust standalone credit profile that includes strong
capital ratios, a conservative investment approach, a leading market position with high barriers to entry, and solid operating
performance. Fitch assesses GMA on a stand-alone basis as a result of its partial IPO in 2014 and a downgrade to Genworth
Financial’s ratings would not result in a downgrade to GFMI’s rating.”
On 20 February 2015, Moody’s affirmed the financial strength and issuer credit ratings of GFMI and Indemnity at A3 with an
outlook of negative revised from stable. See below under “Events subsequent to reporting date” for more information.
Key risks
The key business risks are those that impact the successful execution of the strategy. All of the key business risks identified
have been mapped to the five strategic priorities of the Strategy and have been grouped by the key risk themes.
Genworth Mortgage Insurance Australia | Annual Report 2014
49
#1
#2
#3
#4
#5
Strengthen market
leadership position
Key risk
Enhance profitability
Optimise capital
position and enhance
ROE
Maintain strong
risk management
discipline
Continue to work with
regulators, rating
agencies and other
industry participants
Key controls/mitigation
Strategic priorities
Lender customers may retain a greater level of
risk and adverse selection on LMI insured loans
may become more prominent
Lender customers with the flexibility to do
so might retain greater levels of residential
mortgage loan risk and may do so for borrowers
with better credit profiles which could lead to the
average credit profile for LMI insured loans being
reduced
Reduction in NIW due to regulatory change
or an expectation of regulatory change
following the Financial System Inquiry or local
regulatory application of any Basel Committee
recommendations
Actual or expected legislative or regulatory
changes as a result of the Australian
Government’s Financial System Inquiry or Basel
Committee recommendations may lead to
reduced NIW
• Genworth Australia has a project team
dedicated to working on strategies and
products to reduce the incidence and
impact of greater risk retention and adverse
selection by lender customers
• Genworth Australia could seek to adjust
premium rates to reflect change in risk
• Work collaboratively with regulators and the
LMI industry to address actual and expected
legislative and regulatory changes
• Forward looking Government Relations
Plan and lender risk retention strategies
incorporate plans to address potential
legislative and regulatory change
Adverse legislative or regulatory changes
• Monitoring of regulatory environment and
– Macro-prudential reform
–
–
–
Portability
Prudential requirements
Tax
Adverse regulation may impact Genworth
Australia’s business model, new business
volumes and/or profitability
Unexpected macro-economic event results
in deterioration in financial and capital
performance
A deterioration in macro-economic conditions
or outlook could result in a flow on impact to the
financial and capital profile of Genworth Australia
Capital relief for LMI
LMI continues to not be explicitly recognised
in AIRB lenders’ capital models or there is a
reduction or removal of capital relief for ADIs
that utilise LMI and currently able to obtain
capital relief
changes
• Heightened consumer education focus on
the value of LMI
• Active regulatory engagement strategy
• Continue to work with Government and
regulators
• Product, location and segment risk responses
• Genworth Australia has designed and
implemented reserving and loss forecasting
processes
• Risk Appetite Statement, review, monitor
and report
• Contingency impact plans designed and
monitored through dashboard
• Risk portfolio monitoring
• Genworth Australia has also designed and
implemented ICAAP and Stress Testing
processes
• Genworth Australia seeks to work with lenders
in relation to their capital positions
• Genworth Australia continues to work with
regulators and other industry participants
to recognise LMI
• Strategic engagement with Government
and Opposition
#1
#2
#1
#2
#4
#2
#5
#1
#2
#3
#4
#2
#5
50
Genworth Mortgage Insurance Australia | Annual Report 2014
Directors’ report (continued)
Operating and financial review (continued)
Key risks (continued)
#1
#2
#3
#4
#5
Strengthen market
leadership position
Key risk
Enhance profitability
Optimise capital
position and enhance
ROE
Maintain strong
risk management
discipline
Continue to work with
regulators, rating
agencies and other
industry participants
Key controls/mitigation
Strategic priorities
Changes in financial strength ratings
• Genworth Australia has a Contingency Plan
Genworth Australia’s financial strength rating is
downgraded
Reinsurance
to address ratings downgrade
• Seek to execute capital flexibility strategies as
per Genworth Australia’s ICAAP
• The listing of Genworth Mortgage Insurance
Australia Limited on the ASX provides for
additional capital flexibility if required
• Certain Supply and Service Contracts include
a right for the lender customer to terminate
if Genworth Australia ceases to hold an
agreed financial strength rating. If this occurs,
Genworth Australia seeks to satisfy the lender
customer of Genworth Australia’s financial
strength before the lender customer becomes
entitled to terminate the contract
• Reinsurance management strategy
Failure to renew reinsurance contracts as and
when they fall due for renew
• Regular management of ongoing
reinsurance program
Restrictions on Genworth Australia increasing
premium rates
• Annual pricing review provides overview of
effectiveness of key pricing metrics
• Ability to leverage global reinsurance
experience from GFI
There is limited scope to increase premiums for
certain customers
Risks related to Supply and Service Contracts
with lender customers
–
Termination before the expiry of the
contractual term
– Change of control of a lender customer
– A ratings downgrade of Genworth Australia
occurs
– Material breach or force majeure
• Customer contract renewal and extension
process
• Customer contract renewal and extension
process; contractual avenue to address any
improvements required
• Contingency Plan
#1
#3
#4
#3
#4
#2
#3
#2
#3
#4
Change in interest rate cycle and risk of mark to
market loss exposure
•
Investment Mandates designed, reviewed,
monitored and reported
#2
#3
Investment performance may have an adverse
impact on profitability and financial position
• Capital and Investment Committee processes,
including Investment Management Policy
• Risk assessment prior to any change to
risk appetite and related changes to the
investment portfolio
Genworth Mortgage Insurance Australia | Annual Report 2014
51
Performance review and outlook
Financial results
The Group’s key financial measures are summarised in the below table. All measures are presented on both a reported basis
and a pro forma basis.
Financial performance measures (A$ million)
Gross earned premium
Net earned premium
NPAT
Underlying NPAT1
Non-IFRS performance metrics (%)
Loss Ratio2 (%)
Expense Ratio3 (%)
Combined Ratio4 (%)
Insurance Margin5 (%)
Investment Return6 (%)
ROE7 (%)
Underlying ROE8 (%)
FY14
(Audited/
Reported)
FY14
(Unaudited Pro
forma)
FY13
(Unaudited Pro
forma)
328.9
282.8
215.2
180.7
520.7
445.8
324.1
279.4
471.5
397.9
179.4
220.9
FY14
(Reported)
FY14
(Pro forma)
FY13
(Pro forma)
17.8
26.3
44.1
67.0
4.0
14.6
12.4
19.0
26.5
45.5
65.8
4.0
13.8
12.2
32.1
27.4
59.5
51.3
4.4
8.2
10.4
1. Underlying NPAT excludes the after-tax impact of unrealised gains/(losses) on the investment portfolio. Refer to Appendix B for reconciliation between NPAT in
the Consolidated Statements of Comprehensive Income to the Underlying NPAT.
2. The Loss Ratio is calculated by dividing the net claims incurred by the Net Earned Premium.
3. The Expense Ratio is calculated by dividing the sum of the acquisition costs and the other underwriting expenses by the Net Earned Premium.
4. The Combined Ratio is the sum of the Loss Ratio and the Expense Ratio.
5. The Insurance Margin is calculated by dividing the profit from underwriting and interest income on Technical Funds (including realised gains) by the Net Earned
Premium.
6. The Investment Return is calculated as the interest income on Technical Funds plus the interest income on Shareholder Funds (excluding realised and
unrealised gains/ (losses)) divided by the average balance of the opening and closing cash and investments balance for each financial year.
7. The ROE is calculated by dividing NPAT by the average of the opening and closing equity balance for each financial year.
8. The Underlying ROE is calculated by dividing Underlying NPAT by the average of the opening and closing equity balance for each financial year excluding the
impact of after tax changes to the cash and investments balance on the balance sheet.
52
Genworth Mortgage Insurance Australia | Annual Report 2014
Directors’ report (continued)
Operating and financial review (continued)
Performance review and outlook (continued)
Basis of presentation
The pro forma financial results and measures have been prepared in accordance with recognition and measurement
principles of Australian Accounting Standards and have not been subject to an audit or review. Under the pre IPO group
structure, there is no single Australian company with 100% control of Genworth Financial’s Australian (Subsidiaries). As
part of the IPO, a reorganisation was undertaken to consolidate the Australian Subsidiaries under a single Australian
holding company, Genworth Mortgage Insurance Australia Limited. The pro forma financial information and key measures
are prepared on the historical financial information and adjusted for the transactions as part of the implementation of a
reorganisation plan for the IPO. This is to reflect the post IPO group structure, ie. as if these IPO transactions had occurred
as of 1 January 2013 and 2014 respectively.
The Group was formed on 19 May 2014 when the Company gained 100% control of all Australian Subsidiaries. The
consolidated reported financial results represent the results for the period from 19 May 2014 to 31 December 2014.
Certain financial information has been presented on both a pro forma basis and a reported basis to provide additional
insights into the underlying trends in the Group’s business. It may provide users with a better understanding of the
financial condition and performance of the Group’s business.
A reconciliation of the pro forma results to the reported results for the year ended 31 December 2014 is included in
Appendix A on page 104.
Preparation of non-IFRS financial measures
The financial metrics presented in performance review and outlook, include non-IFRS financial measures, such as
Underlying NPAT, Loss Ratio, Expense Ratio, Combined Ratio, ROE and Underlying ROE, which the Group believes
provides information that is useful for investors in understanding its performance, facilitates the comparison of results from
period to period, and presents widely used industry performance measures.
However, these non-IFRS financial measures do not have a standardised meaning prescribed by Australian Accounting
Standards and therefore may not be comparable to similarly titled measures presented by other entities and should not be
construed as an alternative to other financial measures determined in accordance with Australian Accounting Standards.
Although the Group believes these non-IFRS measures provide useful information to users in measuring the financial
performance and condition of its business, investors are cautioned not to place undue reliance on any of the non-IFRS
financial measures presented, which have not been audited or reviewed.
A strong underwriting performance was recorded in FY14 as a result of the following key factors:
(a) Higher sales (Gross Written Premium) and resulting revenue (Earned Premium):
– GWP for FY14 is 6.3% higher than FY13, underpinned by higher flow premium rates attributable to a pricing increased
in 2013 and increase mortgage lending by customers, owing to strong housing activity as interest rates remained low in
2014. This is offset by an overall lower average LVR mix than anticipated, primarily as a consequence of a lower volume
of 90-95% LVR business and greater than expected volume of sub 80% LVR business; and
– Net Earned Premium growth of 12.0% reflects the seasoning of the recent larger Books Years, particularly in relation
to the 2013 Book Year which had strong levels of NIW and GWP and was recognised as earned premium at its highest
proportionate earnings period in 2014.
(b) Lower net claims incurred:
– A strong housing market led to a lower frequency of delinquencies rolling through to ultimate claim, as evidenced by
a continuation of a higher than anticipated level of ‘borrower sales’ and ‘sold no claim’ instances, and contributed to a
lower average claim amount; and
– An overall lower level of new delinquencies in FY14 compared to FY13 as a consequence of a relatively stable
economic environment, especially from sustained low interest rates.
(c) Strong financial income reflecting favorable unrealised mark to market gains that, on a reported basis, offset the lower
interest income resulting from lower investment yields.
(d) The expense ratio for FY14 of 26.5% was slightly more favorable than the 27.4% in FY13.
(e) Insurance margin increased to 65.8% compared with 51.3% for FY13. The significant increase is driven by strong insurance
profit benefits from stable earned premium and lower net claims incurred.
Genworth Mortgage Insurance Australia | Annual Report 2014
53
Review of financial condition
Financial Position
Financial position (A$ million)
Cash and investment
Deferred reinsurance expense
Total Assets
Outstanding claims reserve
Reinsurance payable
Unearned premium
Total liabilities
Net assets
FY14
(audited)
FY13
(unaudited Pro
forma)
4,159.6
80.6
4,449.3
230.9
93.9
1,362.6
1,948.8
2,500.5
3,694.7
93.4
4,009.7
240.9
109.1
1,249.1
1,798.9
2,210.8
The total assets of the Group as at 31 December 2014 were $4,449.3 million compared to $4,009.7 million at 31 December
2013. Notable movements contributing to the $439.6 million increase over the period include:
–
–
$490.2 million increase in investments from positive cash flow from the business and investment income, assisted by a
$63.8 million favorable mark to market unrealised gain; and
$12.8 million decrease in deferred reinsurance expense as a result of amortising reinsurance expenses over the
reinsurance contract term, offset by deferring future reinsurance costs from treaty renewals and the commencement of
new treaties.
The total liabilities of the Group as at 31 December 2014 were $1,948.8 million compared to $1,798.9 million at 31 December
2013. Notable movements contributing to the $149.9 million increase over the period include:
–
–
–
–
$59.9 million increase in other trade and other payables, mainly related to an increase in income tax payable;
$15.2 million decrease in reinsurance payable as a result of amortising reinsurance expenses over the reinsurance
contract term, offset with deferring future reinsurance costs from treaty renewals and the commencement of new
treaties;
$9.2 million decrease in outstanding claims reserve reflecting the favourable delinquency position compared with the
prior year; and
$113.5 million increase in unearned premium reflecting relatively higher level of new premium written in 2014, offset by
seasoning of the prior year in force premium.
The Group’s equity increased by $289.7 million over the period, mainly reflecting the FY14 NPAT less dividends paid in FY14.
Investments
As at 31 December 2014, the Group had a $4,159.6 million cash and investments portfolio, invested 97% in Australian
denominated cash, cash equivalents and fixed income securities rated A– or higher.
Significant movements in investments since 31 December 2014 include:
–
–
The addition of $426.4 million of investment assets purchased during FY14;
Increased funds reflecting the strong operating performance of the Group along with positive investment returns during
the year; and
–
$63.8 million favourable mark to market unrealised gains recorded as at 31 December 2014.
Capital Mix
The Group measures its capital mix on a net tangible equity basis, i.e. after deduction of goodwill and intangibles, giving it
strong alignment with regulatory and rating agency models. At 31 December 2014, the Group’s capital mix was:
– Ordinary equity (net of goodwill and intangibles) is 95%
– Debt represents 5%
54
Genworth Mortgage Insurance Australia | Annual Report 2014
Directors’ report (continued)
Operating and financial review (continued)
Capital management
The Group’s capital position was solid at 31 December 2014, reflected in the Group’s regulatory capital solvency level of 1.59
times the PCA and a CET1 ratio of 1.48 times. The regulatory solvency position is above the Board’s targeted solvency range of
1.32 to 1.44 times the PCA.
The table below illustrates the actual capital position as at 31 December 2014 compared with the pro forma capital position as
at 31 December 2013.
PCA coverage ratio (Level 2)
(A$ in millions), as at
Common Equity Tier 1 Capital (incl. excess technical provisions)
Tier 2 Capital
Regulatory Capital Base
LMI Concentration Risk Charge (LMICRC)
Asset risk charge
Insurance risk charge
Operational risk charge
Aggregation benefit
Prescribed Capital Amount (PCA)
PCA Coverage ratio (times)
31 Dec 14
31 Dec 13
2,742.1
112.0
2,854.1
1,498.5
128.0
202.1
24.1
(60.6)
1,792.1
1.59 x
2,440.0
126.0
2,566.0
1,446.0
124.0
180.0
22.0
(59.0)
1,713.0
1.50 x
The increase in the regulatory capital base of $288.1 million from the Pro Forma capital base as at 31 December 2013 to 31
December 2014 mainly reflects an increase in retained earnings from the full half year profit. This was offset by a further 10%
capital credit reduction for the $140 million subordinated notes in FY14 as a result of the transitional agreement approved
by APRA to phase out the capital instrument until the first call date of the loan agreement, i.e. 30 June 2016 (APRA GPS 112
Attachment H Transitional arrangements for capital instruments).
Full year 2015 outlook
The Group believes that there is room for caution in respect of the Australian macroeconomic environment and in particular
the uncertain unemployment outlook. However, the recent reduction in interest rates is likely to underpin the housing market
and support steady growth in both originations and house prices.
The Group’s current forecast for the Australian economy is for growth to stay below trend, with GDP growing at 2.9 per cent
and unemployment remaining above 6.0 per cent for 2015. House price appreciation is expected to continue, albeit at a
slower pace, decreasing to around 3.5 per cent annually reflecting wage growth.
Subject to business conditions and unforeseen economic events, the Group expects 2015 NEP growth of up to 5 per cent and
a full year loss ratio between 25.0 and 30.0 per cent.
The ordinary dividend for 2015 is expected to be within the Board’s approved dividend policy of between 50 and 70 per cent
of Underlying NPAT.
The Group’s regulatory solvency ratio remains above the Board’s target capital range of 132 to 144 per cent of the PCA and,
throughout the course of 2015, the Group will continue to evaluate the potential for further capital management initiatives.
This will include consideration of additional reinsurance, additional regulatory compliant capital instruments and other capital
return mechanisms that would continue to support overall Return on Equity progression over the medium term.
Dividends
During FY2014 the Group paid a 100% franked dividend of 2.8 cents per share amounting to $18,200,000 on 29 August 2014.
Environmental regulations
The Group’s operations are not subject to any significant environmental regulations under either Commonwealth or State
legislation.
Genworth Mortgage Insurance Australia | Annual Report 2014
55
Market capitalisation
The market capitalisation of the Company as at 31 December 2014 was $2.42 billion based on the closing share price of $3.64.
Events subsequent to reporting date
Detail of matters subsequent to the end of the financial year is set out below and in the events subsequent to reporting date
note within the financial statements.
• On 11 February 2015, the directors declared a 100% franked final dividend of 13.1 cents per share totalling $85,000,000
and a special 100% fully franked dividend of 11.5 cents per share totalling $75,000,000.
• On 17 February 2015, one of GMA’s three lender customers provided 90 days written notice that they were terminating
the agreement for the provision of LMI with GFMI, an operating insurance subsidiary of the Group. The LMI business
underwritten under this contract represented 10% of GMA NIW in 2014 and accounted for 14% of GWP in 2014. The
termination of this contract does not currently change the NEP or full year loss ratio guidance previously provided by GMA
on 11 February 2015. The full effect on NEP is more likely to be felt in the 2016 financial year and beyond.
• On 19 February 2015, S&P affirmed the financial strength and issuer credit ratings of the Group’s operating insurance
subsidiaries; GFMI at ‘A+’ with an outlook of developing, revised from negative, and Indemnity at ‘A-‘with an outlook
of developing, revised from stable with a relaxation of the notching differential cap.
• On 20 February 2015, Moody’s affirmed the financial strength and issuer credit ratings of both the Group’s operating
insurance subsidiaries, GFMI and Indemnity at A3 with an outlook of negative revised from stable. The rating action resulted
from the termination of one of the top three lender customers’ agreements for the provision of LMI with GFMI. It also
reflected its view on the growing long-term challenges faced by the Australian mortgage insurance industry.
Likely developments
Further information about likely developments in the operations of the Group and the expected results of those operations in
future financial years has been included in the full year 2015 outlook in the Operating and Financial Review of the report.
Company secretary
The Company Secretary, Mr Jonathan (Jon) Downes, was appointed in September 2013 as Company Secretary and General
Counsel. Mr Downes previously held a similar position with another global insurer with responsibility for enterprise risk
management and compliance and prior to that worked as General Counsel for another insurer. Prior to that he worked as a
solicitor with major legal practices in both Sydney and London.
Directors’ meetings
The number of directors’ meetings (including meetings of committees of directors) and number of meetings attended by each
of the directors of the Company during the financial year are:
Director
Board Meetings
Audit Committee
Meetings
Risk Committee
Meetings
Capital and
Investment
Committee
Meetings
Remuneration
and Nomination
Committee
Meetings
Ellen Comerford
Anthony Gill
Richard Grellman
Ian MacDonald
Samuel Marsico
Leon Roday
Stuart Take
Gayle Tollifson
Jerome Upton
A
11
10
11
11
11
11
11
11
11
B
11
11
11
11
11
11
11
11
11
A
–
6
–
6
–
–
–
6
6
B
–
6
–
6
–
–
–
6
6
A
–
7
–
7
7
–
–
7
–
B
–
7
–
7
7
–
–
7
–
A
–
7
–
7
–
–
–
7
6
B
–
7
–
7
–
–
–
7
7
A
–
7
–
7
–
7
–
–
–
B
–
7
–
7
–
7
–
–
–
A – Number of meetings attended
B – Number of meetings held during the time the director held office during the year
Note: All directors are invited to attend all Comittee meetings. This register only records attendance of Committee members.
56
Genworth Mortgage Insurance Australia | Annual Report 2014
Directors’ report (continued)
Operating and financial review (continued)
Indemnification and insurance of officers and directors
During the financial year, a controlled entity paid premiums to insure directors and certain officers of the Company for the year
ended 31 December 2014 and, since the end of the financial year, the controlled entity has paid or agreed to pay premiums
in respect of such insurance contracts for the year ending 31 December 2015. Such insurance contracts insure against liability
(subject to certain exclusions) persons who are or have been directors or officers of the Group.
The directors have not included details of the nature of the liabilities covered or the amount of the premium paid as such
disclosure is prohibited under the terms of the contracts.
The Group has not indemnified or made a relevant agreement for indemnifying against a liability any person who is or has
been an auditor of the Group.
Directors’ interests and benefits
Other than the aggregate remuneration paid or receivable by directors included in the financial report, and remuneration as
an executive paid or payable by the related body corporate, no director has received or become entitled to receive any benefit
because of a contract made by the Group or a related body corporate with a director or with a firm of which a director is a
member or with an entity in which the director has a substantial interest.
Rounding off
The Group is of a kind referred to in ASIC Class Order 98/100 dated 10 July 1998 and in accordance with that Class Order,
amounts in the consolidated financial statements and Directors’ Report have been rounded off to the nearest thousand dollars,
unless otherwise stated.
Non-audit services
The directors are satisfied that the provision of non-audit services during the year by the auditor $1,268,564, is compatible with
the general standard of independence for auditors imposed by the Corporations Act 2001 and, in accordance with Genworth
Australia Auditor Independence Policy, noting that:
• All non-audit services have been reviewed and approved to ensure that they do not impact the integrity and objectivity of
the auditor; and
• None of the services undermine the general principles relating to auditor independence as set out in the Code of Conduct
APES 110 Code of Ethics for Professional Accountants issued by the Accounting Professional & Ethical Standards Board,
including reviewing or auditing the auditor’s own work, acting in a management or decision making capacity for the Group,
acting as an advocate for the Group or jointly sharing risks and rewards.
Details of the amounts paid to the auditor of the Group, KPMG, and its network firms, for audit and non-audit services provided
during the year are set out below:
Audit and review of financial statements
Regulatory audit services
Other assurance services in connection with IPO
Non-assurance services
Total paid/payable to KPMG
2014
$
597,451
77,045
1,218,563
50,000
1,943,060
Genworth Mortgage Insurance Australia | Annual Report 2014
57
Remuneration report
Remuneration Report 2014
Dear Shareholder,
I am pleased to present our remuneration report for the year ended 31 December 2014, which is our initial report following
the successful listing on the Australian Securities Exchange in May 2014. This report provides an overview of the Company’s
approach to remuneration prior to and after listing.
At Genworth, we are committed to an approach to remuneration that attracts, motivates and retains employees, contributes
to outstanding performance against business objectives within the agreed risk appetite and builds and maintains the desired
culture. We take this approach because we see these as the foundation to creating sustainable stakeholder value.
Genworth’s remuneration philosophy is fundamentally about fairness to all stakeholders. We target the market median because
it represents an appropriate balance of stakeholder interests, mitigating the risks that accompany remuneration levels that are
significantly higher or lower than market. As a result, remuneration decisions are focused on providing a balance of value for
money within the context of attracting and retaining employees with the capability to drive the Company’s performance.
Fairness is also foundational to our short-term and long-term incentive programs, which ensure a significant proportion of
remuneration is explicitly tied to company performance. Additionally, the value of incentive awards are provided wholly (long-
term incentive) or partially (1/3 of short-term incentive) in the form of shares in the Company. These programs directly align
remuneration, individual contributions and business performance.
Remuneration outcomes in 2014 reflect our commitment to the above approach and are representative of the strong
performance which was delivered over the reporting period.
Full details are provided within the remuneration report, which I hope you will find informative.
Ian MacDonald
Chairman – Remuneration and Nominations Committee
58
Genworth Mortgage Insurance Australia | Annual Report 2014
Remuneration report (continued)
Contents
(1) Executive summary
(2) Remuneration governance, policy and programs
p58
p59
(3) Relationship between Company performance and remuneration outcomes p68
(4) Remuneration outcomes for Executive KMP
(5) Contractual arrangements for Executive KMP
(6) Non-executive director remuneration
(7) KMP remuneration tables
p70
p70
p71
p72
1. Executive Summary (Audited)
This report provides shareholders with an overview of GMA group’s remuneration governance, strategy, programs and
outcomes for Key Management Personnel for the full year ended 31 December 2014. In addition, the statutory remuneration
disclosures contained in section 7 represent the period from 19 May to 31 December which is consistent with the trading
results of the Group. Accordingly, comparative values detailing the previous period’s remuneration have not been included.
The decision to report full-year remuneration in addition to our statutory obligations has been taken to recognise that
remuneration is widely presented in annual terms and in order to communicate throughout the report in a meaningful way
to investors.
As set out in the Company’s prospectus prior to listing, there are a number of changes to the Company’s remuneration
programs to be introduced for 2015, which will be the first full performance year after listing. This report also summarises those
key changes.
The remuneration summary table is presented to provide a concise summary of the remuneration received by each Executive
KMP in 2014. This table is for general information, and is supplementary to the statutory requirements contained in section 7.
It is not prepared in accordance with accounting standards, as it includes remuneration received over the calendar year (rather
than being limited to the period post-listing as contained in the statutory remuneration tables); and excludes long service
leave accruals, fringe benefit tax attributed to insurances/car parking and other non-monetary benefits. Accordingly, with the
exception of table 1a, table 3.1a and table 7e which have not been audited, all other tables and sections have been audited.
Table 1a – 2014 Remuneration summary table (unaudited) as at 31 December 2014
Name and Position – Executive KMP
Ellen Comerford
CEO and Managing Director (CEO)
Georgette Nicholas
Chief Financial Officer (CFO)
Conor O’Dowd
Chief Risk Officer (CRO)
Bridget Sakr
Chief Commercial Officer (CCO)
Tobin Fonseca
Chief Operating Officer (COO)
At-Risk/Performance Remuneration
Fixed Remuneration
Short-Term Incentive
Long-Term Incentive
Contract
TFR1
Actual TFR
received2
STI Target
Actual STI
awarded3
LTI Target4
LTI granted
in ‘145
$725,000
$686,830
$616,250
$885,000
$797,500
$303,363
$374,195
$374,195
$187,098
$282,517
$187,098
$168,292
$450,000
$447,534
$135,000
$60,000
$225,000
$140,399
$425,000
$418,179
$212,500
$240,000
$212,500
$160,457
$390,000
$369,841
$195,000
$280,000
$195,000
$153,771
1. Contract total fixed remuneration shows the fixed remuneration an individual is entitled to receive for a full year of service under their employment contract as
at the end of the reporting period.
2. Actual TFR received shows the fixed remuneration earned throughout 2014, and is different to contract TFR due to increases provided part-way through the
reporting period. This includes remuneration received for the full calendar year (including the period prior to listing) and therefore is not the same as the
amounts disclosed in the statutory tables in section 7.
3. Actual STI awarded reflects the value of STI awarded for the full calendar year, and is not the same as the amounts disclosed in the statutory tables in section 7.
4. LTI Target reflects employment contract (effective at date of listing – 20 May 2014) for performance period starting 1 January 2015.
5. The value of Genworth Financial equity granted in 2014, which will vest progressively throughout 2015-2018. This does not include special IPO grants made as
a result of the successful listing of the Company as these are not a recurring remuneration program. Full details of special IPO grants are set out in section 2.8
and in the statutory remuneration tables.
Remuneration report (continued)
Genworth Mortgage Insurance Australia | Annual Report 2014
59
Throughout this report, KMP refers to those responsible for planning, directing and controlling the activities of the Company,
made up of Non-Executive Directors, the Executive Director and nominated executives. Please refer to section 6 for details
relating to Non-Executive Directors.
Table 1b Executive KMP in 2014
Name
Executive KMP
Ellen Comerford
Georgette Nicholas
Conor O’Dowd
Bridget Sakr
Tobin Fonseca
Position
Term as KMP since listing
CEO
CFO
CRO
CCO
COO
Full period
Full period
Full period
Full period
Full period
2. Remuneration Governance, Policy and Programs
(Audited)
2.1 Governance Overview
The Remuneration and Nominations Committee (the Committee) was established to assist the Board in fulfilling its
responsibilities to shareholders and regulators in relation to remuneration, succession planning, board effectiveness and
renewal, and diversity. The Board’s final approval is required for any decision relating to the Committee’s responsibilities. The
Committee liaises as required with the Audit and Risk Committees.
2.2 Use of Independent Remuneration Advisors
The Board and the Committee received advice from external advisers Guerdon Associates throughout 2014. Services
included the provision of market data and market practices. All advice provided was accompanied with confirmation from
Guerdon Associates that the advice was free from the undue influence of the KMPs to whom it may pertain. No remuneration
recommendations as defined under the Corporations Act were received in relation to KMP throughout this period.
2.3 Remuneration Policy and Strategy
The Company’s remuneration policy details the governance, structure and overall strategy through which the Company
compensates employees. The Company’s remuneration strategy is to provide market competitive remuneration programs that
help attract, retain and motivate highly competent employees who are dedicated to achieving the Company’s objectives in a
manner that is consistent with the long-term interests of the Company and its shareholders. This strategy is reflected in specific
remuneration programs which, subject to Board (and where applicable, shareholder) approval, deliver remuneration which
aligns performance, outcomes, timeframes, shareholder, company and employee interests over the long-term.
2.4 Executive KMP Remuneration Programs
The Company’s Executive KMP remuneration programs are designed to align executive and shareholder interests by:
• using appropriate delivery vehicles (e.g. cash, equity and non-monetary benefits) and pay mix;
• measuring performance and delivering resulting remuneration over an appropriate time frame;
• using appropriate measures of competitiveness (e.g. median of appropriate comparator group); and
• operating within the Company’s risk management framework and relevant regulatory requirements (in particular, APRA
Prudential Standard CPS 510).
The Company’s Executive KMP remuneration programs consist of a fixed remuneration (TFR) component, a short-term
incentive (STI) component and a long-term incentive (LTI) component. As detailed in the prospectus, Executive KMP
participated in Genworth Financial’s global remuneration programs prior to listing in May 2014. Summary table 2.4a presents
the major components, characteristics and rationale of the Company’s 2014 and 2015 remuneration programs.
60
Genworth Mortgage Insurance Australia | Annual Report 2014
Remuneration report (continued)
2. Remuneration Governance, Policy and Programs (cont.)
2.4 Executive KMP Remuneration Programs (continued)
Table 2.4a Remuneration Framework
Remuneration
Total Fixed
Remuneration (TFR)
Section 2.5
Short-Term Incentive
(STI) Section 2.6
Components and
performance measures
Delivery vehicle
and time frame
Rationale and link
to strategy
Notional base salary,
superannuation
contributions and
notional value of
car parking benefit.
Performance per
individual goals and
job responsibilities.
Individual STI targets
expressed as a % of
TFR. Awards based
on achievement of
company goals and
individual performance.
TFR paid monthly as
cash.
Attract and retain high
performing employees
with market competitive
fixed remuneration.
2014 award delivered
as cash in the
first quarter after
performance period.
Provide for pay at-risk
as an incentive to the
Senior Leadership
Team for achievement
of financial results
and other operational
objectives.
Board review
and approval to
ensure appropriate
governance.
Long-Term Incentive
(LTI) Section 2.7
Prior to listing, LTI
grants were Restricted
Share Units (RSUs)
of GFI and based
on assessment
of performance,
contributions,
and retention
considerations.
2014 LTI delivered prior
to listing and following
GFI program rules.
RSUs vest over four
year period.
Ensure a proportion of
remuneration aligned
to the share price
performance of the
parent company, and
provide a retention
incentive.
Changes for 2015
No change to approach.
Measures updated to
reflect financial and
strategic priorities for
2015 and expressed in
financial terms reflective
of Australian accounting
standards. To enhance
governance and
shareholder alignment,
a portion of the STI
award will be deferred
for one year beyond
performance period and
paid in equity.
Performance-based plan
introduced, vesting (if
any) subject to a one-
year deferral period after
a three-year performance
period. New plan design
enhances governance
and shareholder
alignment.
Remuneration report (continued)
Genworth Mortgage Insurance Australia | Annual Report 2014
61
Table 2.4b 2014 target mix of pay (i.e. relative weight of each component as a % of total remuneration)
Target Mix of Pay by Executive KMP Role − 2014
Ellen Comerford
CEO
Georgette Nicolas
CFO
Conor O’Dowd
CRO
Bridget Sakr
CCO
Tobin Fonseca
COO
44%
50%
53%
53%
38%
25%
62%
19%
27%
26%
18%
25%
19%
20%
21%
0%
10%
20%
30%
40%
50%1
60%
70%
80%
90%
100%
1. The LTI figure does not include special IPO grants made as a result of the successful listing of the Company.
TFR
STI
LTI
Changes for 2015:
As reflected in Table 2.4a, prior to listing the Company participated in Genworth Financial STI and LTI programs. As a publicly
listed entity, the Company has implemented changes to remuneration programs for the first full performance year after listing,
which is 2015.
Changes to the Company’s at-risk remuneration programs (STI and LTI) for 2015 include the introduction of a deferred
component within the STI program, the introduction of performance contingent LTI grants and a greater proportion of
remuneration provided as equity to increase shareholder and senior leadership alignment. The overall shift in mix will result
in a higher proportion of executive compensation being contingent on individual and company performance and subject to
forfeiture conditions.
Table 2.4c 2015 target mix of pay (relative weight of each component as a % of total remuneration)
Ellen Comerford
CEO
Georgette Nicolas1
CFO
Conor O’Dowd
CRO
Bridget Sakr
CCO
Tobin Fonseca
COO
Target Mix of Pay by Executive KMP Role − 2015
34%
20%
10%
36%
50%
50%
50%
25%
25%
55%
11%
6%
28%
17%
8%
17%
8%
25%
25%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
TFR
STI
STI (deferred)
LTI
1. The CFO, who is employed by Genworth Financial, is subject to a STI clawback provision rather than a deferral provision, see section 2.10 for more detail.
The actual mix of pay delivered in any year will be based on an assessment of individual and company performance,
applicable regulations and plan rules and, as such, may differ from the targeted mix of pay.
62
Genworth Mortgage Insurance Australia | Annual Report 2014
Remuneration report (continued)
2. Remuneration Governance, Policy and Programs (cont.)
2.5 Total Fixed Remuneration (TFR)
Total Fixed Remuneration (TFR) is the sum of base salary and the value of guaranteed employee benefits such as
superannuation and car parking.
TFR for an individual is reviewed annually and approved by the Board with reference to a number of factors, including but
not limited to the size and scope of the role, the performance of the individual and appropriate benchmark data. Benchmark
data for each Executive KMP role is individually sourced from a peer group of comparable roles in comparable organisations
primarily from the Australian financial services sector. The median TFR figure from the benchmark data is used for comparative
purposes.
2.6 Short-Term Incentive (STI)
Executive KMP roles have an STI target, expressed as a percentage of TFR, which is based on internal and external
benchmarking utilising the same peer group used for TFR benchmarking. The maximum STI amount that can be awarded is
200% of target, resulting in a maximum STI award of 170% of TFR for the CEO, 100% for the Chief Commercial Officer (CCO)
and Chief Operations Officer (COO); and 60% for the Chief Risk Officer (CRO).
In determining individual STI awards, the CEO provides recommendations to the Committee in respect of her direct reports
(which includes all Executive KMP except herself). The Committee reviews these recommendations and evaluates the CEO’s
performance, and recommends to the Board awards which take into account the STI pool funding percentage and the
performance of the Executive KMP against individual and business performance goals. These individual goals align to the
financial and operational objectives used to determine STI pool funding.
Remuneration report (continued)
Genworth Mortgage Insurance Australia | Annual Report 2014
63
Table 2.6a STI 2014 key characteristics
STI 2014 Features
Detail
Purpose of STI plan
Motivate and retain employees by providing STI outcomes that balance individual and
Company performance, reflect the ability of the role to influence Company performance, and
operate within the Company’s risk management framework.
STI % and STI $ by role
Executive KMP
Target %
(of TFR)
Target $
Maximum %
(of TFR)
Maximum $
CEO:
CFO:
CRO:
CCO:
COO:
85%
50%
30%
50%
50%
$616,250
$187,098
$135,000
$212,500
$195,000
170%
100%
60%
100%
100%
$1,232,500
$374,195
$270,000
$425,000
$390,000
Performance objectives
Financial Objectives
Operational Objectives
Operating Income (25%)
Return on Equity (ROE) (20%)
Dividend payment (20%)
Genworth Financial results (15%)
Please refer to section 3.2 for more detail
Execute key operational initiatives (20%)
Aggregate objective
weighting
Financial Objectives
80%
Operational Objectives
20%
Performance period
1 January 2014 - 31 December 2014
Performance assessment
In Q1 2015 Company performance against each individual objective is evaluated and combined
to determine the STI pool funding percentage, please refer to section 3.2 for more detail.
Award determination
Combination of STI pool funding and individual performance.
Awards determined via Board and Committee review, recommendation and approval process.
The Board and Committee have authority and discretion to adjust STI funding and individual
awards (including to $0 if appropriate).
Payment date
Q1 2015.
Payment method
Cash (inclusive of superannuation).
Changes for 2015:
As identified in the prospectus, the Company has redesigned the STI plan for Executive KMP to provide greater alignment
between executives and shareholders and more closely reflect local market practice. Accordingly, one-third of the dollar
value of any STI award will be delivered via a grant of share rights which are subject to vesting conditions, including a 12
month deferral period.
64
Genworth Mortgage Insurance Australia | Annual Report 2014
Remuneration report (continued)
2. Remuneration Governance, Policy and Programs (cont.)
2.6 Short-Term Incentive (STI) (continued)
Table 2.6b STI 2015 key characteristics
Changes to STI for 2015
Performance objectives
2015
Financial Objectives
Strategic Objectives
Underlying Net Profit After Tax (35%)
Key strategic priorities (30%)
Underlying Return on Equity (35%)
See refer to table 2.6c for more detail
Aggregate objective
weighting
Financial Objectives
70%
Strategic Objectives
30%
Payment method (2015)
STI – cash (inclusive of superannuation) 2/3 of $ value of award.
Deferral period
Deferred STI component deferred for 12 months from end of the relevant performance period.
Deferred STI – grant of share rights (subject to vesting conditions) 1/3 of $ value of award.
Deferred STI vesting
conditions
Share rights grant
calculation
Treatment of dividends
calculation
Treatment upon vesting
Continuous active employment for 12 months from grant date.
Board and Committee satisfaction that adverse outcomes have not arisen that were not apparent
when performance was assessed, and satisfaction that there was not excessive risk taking in
achievement of results.
The number of share rights is determined by dividing the deferred STI dollar value by a 10-day
Volume Weighted Average Price as at 31 December 2015. The Committee believes using
a VWAP (instead of the share price at a single point in time or a discounted fair value
methodology) reduces the impact daily volatility may have on the number granted and provides
greater transparency around the value of share rights granted.
Dividends, or the value of any dividends, are not received on unvested share rights. Notional
dividend equivalents accrue during the deferral period and are delivered through an adjustment
to the number of vested share rights at the end of the deferral period. This is calculated by taking
the value of dividends distributed during the deferral period and dividing by a 10-day VWAP as
at the vesting date, in whole share rights.
Vested share rights entitle the holder to ordinary shares in the Company for nil consideration.
The Company intends to satisfy vested share rights delivered through the STI plan via the
issuance of new shares.
Treatment of terminating
Executive KMP
Eligibility for an STI award is contingent on active, continuous employment throughout the
performance period. In the event of resignation or termination, the Executive KMP are ineligible
for an STI award, and unvested share rights lapse.
In the event of termination with ‘Good Leaver’ status (retirement, redundancy, death or
permanent disability) – a pro rated portion of STI may be awarded at the Board and Committee’s
discretion. Treatment of unvested STI share rights is at the Board and Committee’s discretion
and may be pro rated, remain subject to the original vesting schedule, be subject to accelerated
vesting, or converted to cash.
Change of control
Board has discretion.
Remuneration report (continued)
Genworth Mortgage Insurance Australia | Annual Report 2014
65
Table 2.6c 2015 STI performance objectives
STI Performance
Objective and Weighting
Rationale
Underlying NPAT (35%)
Underlying NPAT will be used for the 2015 STI Plan as it excludes the impact of volatile
unrealised gains and losses on the investment portfolio (which are generally outside of the
control of management).
Underlying ROE (35%)
For similar reasons as described above in relation to underlying NPAT, ROE will also be
measured via Underlying ROE from 2015 onwards.
Strategic Objectives (30%)
Discontinued Objectives
2015 strategic objectives include; optimisation of capital position and investment portfolio
returns, strengthening market leadership position, maintaining strong risk management
discipline and people and community initiatives.
The Board has determined to discontinue both dividend payments and Genworth Financial
results as STI objectives from the first full performance period (2015 onwards) as a publicly
listed Company. The STI objectives as specified above closely reflect local market practice.
2.7 Long-Term Incentive (LTI)
Executive KMP participated in the Genworth Financial LTI program in 2014 as the performance period began prior to
the Company listing. Grants to Australian Executive KMP were delivered as Restricted Share Units in Genworth Financial,
25% of which vest on each of the 1st, 2nd, 3rd and 4th anniversaries of the grant.
The 2014 LTI grant, which was issued prior to listing, reinforced the link between executive remuneration outcomes and
Genworth Financial shareholder outcomes over a longer timeframe.
Changes for 2015:
The Company will implement an LTI plan for Executive KMP which is more performance orientated and more closely reflects
local market practice. These changes strengthen the alignment between Executive KMP remuneration outcomes, company
performance and shareholder experience.
Executive KMP roles have an LTI target, expressed as a percentage of TFR, which is based on internal and external
benchmarking utilising the same peer group used for TFR and STI benchmarking. LTI dollar targets are calculated by
multiplying the individual’s LTI percentage by their TFR at the start of the relevant performance period (which will be 1
January 2015 for the 2015 LTI plan). LTI is provided via an annual grant of share rights which are subject to vesting conditions.
Vesting conditions include performance based vesting scales in respect of company performance against Underlying ROE
and compound annual growth in earnings per share. These measures are well understood by shareholders and represent an
appropriate measure of company performance.
As identified in the prospectus, the Company considered setting one of these vesting conditions as a relative performance
objective, but the lack of comparable peer companies for a valid and fair assessment of relative performance has resulted in
a decision to proceed with two absolute measures for the LTI plan for 2015. The Company will continue to explore possible
options for a relative performance measure in the future.
66
Genworth Mortgage Insurance Australia | Annual Report 2014
Remuneration report (continued)
2. Remuneration Governance, Policy and Programs (cont.)
2.7 Long-Term Incentive (LTI) (continued)
Table 2.7a LTI 2015 key characteristics
LTI 2015 features
Detail
Purpose of LTI plan
LTI % and grant value by
executive KMP role
Motivate and retain employees by providing LTI outcomes that align with longer term Company
performance, reflect the ability of the role to influence Company performance and operate
within the Company’s risk management framework.
Executive KMP
Target % (of TFR)
Grant Value $
CEO:
CFO:
CRO:
CCO:
COO:
110%
50%
50%
50%
50%
$797,500
$187,098
$225,000
$212,500
$195,000
Performance metrics
Underlying Return on Equity:
50% of the LTI grant. Calculated as the average of 3-year underlying net profit after tax
(excluding unrealised gains or losses from investments) divided by the 3-year average equity
(excluding mark to market value of investments).
Earnings Per Share growth (EPS):
50% of the LTI grant. Calculated as the 3-year compound average annual growth of earnings
per share comprising basic earnings per share (after tax and excluding the impact of any share
issuance or buy back). The Board may adjust EPS for items of a capital nature that are not
reflective of management performance.
The Company does not provide guidance to the market in the form of Underlying ROE and
EPS growth targets for the LTI Plan. Accordingly, the Board will advise the specific 2015 LTI
plan performance targets (including GMA’s performance in respect of them) following the
completion of the performance assessment in Q1 2018.
Vesting summary
Threshold performance level – 50% of the share rights will vest.
Proportionate vesting occurs between threshold and maximum performance levels.
Maximum performance level – 100% of the share rights will vest.
Each performance metric is measured and vests (as applicable) independently of the other.
Performance period
1 January 2015 to 31 December 2017.
Performance assessment
Performance is assessed in Q1 2018. There is no re-testing of grants.
Deferral period
12 months from the end of the relevant performance period.
Vesting period/date
Award determination
4 years in total from the start of relevant performance period (3-year performance period with
an additional 1-year deferral period).
Performance period and final vesting percentages determined via Board and Committee
review, recommendation and approval process.
Payment method
The Board and the Committee have authority and discretion to adjust LTI vesting % and
individual awards (including to 0% of grant if appropriate).
Grant of share rights. Vested share rights entitle the holder to ordinary shares in the Company
for nil consideration. The Company intends to satisfy vested share rights delivered through the
LTI plan via the issuance of new shares.
Vesting conditions
Continuous active employment for 4 years from grant date.
Board and Committee satisfaction that adverse outcomes have not arisen that were not
apparent when performance was assessed, and satisfaction that there was not excessive risk
taking in achievement of results.
Remuneration report (continued)
Genworth Mortgage Insurance Australia | Annual Report 2014
67
LTI 2015 features
Detail
Share rights grant
calculation
Treatment of dividends
The number of share rights is determined by dividing the grant value by a 10-day VWAP
following the release of full-year results for 2014. The Committee believes using a VWAP
(instead of the share price at a single point in time or a discounted fair value methodology)
reduces the impact daily volatility may have on the number granted and provides greater
transparency around the value of share rights granted.
Dividends, or the value of any dividends, are not received on unvested share rights. Notional
dividend equivalents accrue during the vesting period and are delivered through an
adjustment to the number of vested share rights at the end of the vesting period. This is
calculated by taking the value of dividends distributed during the vesting period, applying
the final vesting percentage and dividing by a 10-day VWAP as at the vesting date, in whole
share rights.
Treatment of terminating
Executive KMPs
Eligibility for an LTI grant or award is contingent on active, continuous employment throughout
the vesting period. In the event of resignation/termination, unvested share rights lapse.
In the event of resignation/termination, unvested share rights lapse except as provided
at the discretion of the Board for a ‘Good Leaver’ (see table 2.6b for details: ‘treatment of
terminating Executive KMPs’). The Board and Committee have discretion over treatment in such
circumstances (including the ability to deem vesting conditions satisfied and satisfy unvested
grants in cash).
Change of control
Board has discretion.
2.8 Share Ownership Requirements for Executive KMP
To strengthen the alignment between Executive KMP and shareholders, Executive KMP are required to accumulate and
maintain a minimum value of shares in the Company. The CEO is required to hold two times, and other Executive KMP one
times their TFR at listing or appointment date, as applicable. The value of shares is calculated by using the greater of the
preceding 12 month average price or retail price at listing.
Share ownership requirements must be met within five years of listing, or appointment, and will be tested each time share
rights vest. Until the ownership requirements are met, 25% of shares vested via equity plans (deferred STI component and LTI)
must be retained.
Initial IPO Grants of Share Rights for Executive KMP
2.9
Executive KMP received a special IPO grant of share rights upon the successful listing of the Company. These ensured
Executive KMP had an exposure to company equity for alignment with shareholder interests from the date of listing. The grants
also provided an effective method for longer term executive retention and management team stability to mitigate risk of
turnover and extended over a time frame that allowed for a transition to a performance contingent LTI Plan.
The CEO received a grant valued at $1,750,000, and each other Executive KMP $500,000. The number of share rights granted
was calculated by dividing the dollar value of the grant by the share price at listing ($2.65).
Share rights granted under this program are subject to service-based vesting conditions; one-third of the grant will vest on
each of the 2nd, 3rd and 4th anniversaries of the listing of the Company (2016, 2017 and 2018 respectively). Upon cessation
of employment (except in cases where ‘Good Leaver’ status is determined by the Board and the Committee) unvested share
rights will be forfeited. IPO grant share rights are not eligible for dividends or notional dividend equivalents and no adjustment
will be made to the number of vested share rights at the end of the vesting period. Vested share rights entitle the holder to
ordinary shares in the Company for nil consideration. The Company intends to satisfy vested share rights delivered through the
IPO grant via the issuance of new shares.
68
Genworth Mortgage Insurance Australia | Annual Report 2014
Remuneration report (continued)
2. Remuneration Governance, Policy and Programs (cont.)
2.9
Initial IPO grants of share rights for Executive KMP (continued)
Table 2.9a IPO Grants to Executive KMP
Executive KMP
Ellen Comerford, CEO
Other Executive KMP, CFO, CRO, CCO and COO
IPO grant $
$1,750,000
$500,000
Number of
share rights
Maximum
value of grant1
660,377
188,679
$1,556,288
$444,654
2.10 Chief Financial Officer
The Chief Financial Officer is an expatriate of Genworth Financial and her remuneration arrangements, while aligned with
the Company’s remuneration strategy, fall under Genworth Financial expatriate programs. As a result, components of her
remuneration differ in some respects from those of other Executive KMP. These include:
• a base salary and other remuneration paid in USD, which has been converted to AUD for the purposes of this report using
the 2014 average exchange rate (AUD/USD 1/0.9086168); and
• while STI and LTI performance objectives are the same as other Executive KMPs, participation is calculated using base
salary, not TFR, and any STI awarded is subject to a clawback provision rather than a deferral provision.
3. Relationship between company performance
and remuneration (Audited)
3.1 Performance overview (Unaudited)
The Company achieved excellent results against the financial and operational objectives for the year. Financially, the Company
exceeded its operating income and ROE targets and delivered in excess of the dividend plan for the year. From an operational
perspective, the Company successfully completed its IPO, which was a key objective for the year and displayed very strong
performance in relation to the other operational objectives as assessed by the Board.
Table 3.1a Summary of Company performance (2014)2 (unaudited)
Financial results
Gross Written Premium ($m)
Gross Earned Premium ($m)
Net Earned Premium ($m)
Net Investment Income ($m)
Net Profit After Tax (NPAT) ($m)
Underlying NPAT ($m)
Loss Ratio
Expense Ratio
Reported Return On Equity
Underlying Return On Equity
Dividends paid in 2014
Share price at listing
Share price at end of period
2014
$634.2
$520.7
$445.8
$226.9
$324.1
$279.4
19.0%
26.5%
13.8%
12.2%
$0.274
$2.65
$3.64
1. The maximum value of the grant has been calculated using the fair value per share right. The minimum total value of the grant, if the applicable service-based
vesting conditions are not met, is $0.
2. Results are presented for the full calendar year, on a pro-forma basis to enable meaningful comparison in future reports. As a result, this table is unaudited.
Remuneration report (continued)
Genworth Mortgage Insurance Australia | Annual Report 2014
69
3.2 Link between Performance and STI Outcomes (Audited)
The link between remuneration outcomes and business performance is both explicit and fundamental to the design,
administration and outcomes of the Company’s remuneration programs. In light of GMA Group’s very strong performance
against 2014’s STI objectives (see below for more detail), the Board determined the STI pool funding level to be 130% of the
sum of STI targets.
Table 3.2a 2014 STI performance objectives and Board assessment of performance1
STI performance
objective and
weighting
Operating
Income (25%)
ROE (20%)
Dividend
payment (20%)
Genworth
Financial
results (15%)
Execute key
operational
objectives (20%)
Rationale
Assessment of 2014 performance
As the headline figure of the various components
that make up overall Company performance,
an annual profit measure is a key performance
objective. Operating Income is a common measure
of profitability under USGAAP reporting and was
used in order to maintain continuity and consistency
in light of listing part-way through the 2014
performance period.
2014 Operating Income was $282m representing
significant outperformance against target ($225m).
ROE is a key measure of the Company’s ability to
convert equity into returns (profit).
2014 ROE results were extremely strong, with
performance of 15.3% compared to a target of 12.4%.
Total dividends paid for 2014 were $43m,
exceeding target of $39m.
Genworth Financial did not achieve its Operating
Income or ROE target. However in light of GMA
group’s significant positive contributions, the Board
determined a slightly below target performance
result was appropriate.
The Board determined performance against key
operational initiatives for 2014 to be very strong.
As highlighted in the prospectus, the Company has
adopted a target dividend payout ratio range of
50% to 70% of Underlying NPAT, and the delivery
of dividends remains an important measure of the
Company’s performance as a key driver of value for
shareholders.
GFI results are measured as Operating Income and
ROE. This financial objective reflects the ownership
structure that was in place at the start of the
performance year and the ongoing importance of
collaboration between the Company and Genworth
Financial for the balance of the performance period.
Key operational priorities for each performance
period may vary year-to-year based on priorities of
the Company. For the 2014 performance period,
this list included:
–
–
successful completion of the IPO;
loss mitigation initiatives to enhance savings;
and
– people initiatives including focus on employee
engagement, employee and leadership
development and diversity.
1. Performance assessed on USGAAP full financial year performance.
70
Genworth Mortgage Insurance Australia | Annual Report 2014
Remuneration report (continued)
4. Remuneration outcomes for Executive KMP (Audited)
Table 4.a STI outcomes
Executive KMP
Ellen Comerford, CEO
Georgette Nicholas, CFO
Conor O’Dowd, CRO
Bridget Sakr, CCO
Tobin Fonseca, COO
Target STI
% (of TFR)
Target STI $ Max STI $
Actual STI
awarded
(% of TFR)
Actual STI
awarded $1
Actual STI
awarded
(% of max)
STI not
awarded
(% of max)
85%
50%
30%
50%
50%
$616,250
$1,232,500
122%
$885,000
$187,098
$374,195
$135,000
$270,000
$212,500
$425,000
$195,000
$390,000
76%
13%
56%
72%
$282,517
$60,000
$240,000
$280,000
72%
76%
22%
56%
72%
28%
24%
78%
44%
28%
5. Contractual arrangements for Executive KMP
(Audited)
Table 5.a Summary of contract details
Executive KMP
Ellen Comerford
CEO
Term of
agreement
Notice period
Termination payments
Ongoing
Four months either party
Immediate for misconduct,
breach of contract or bankruptcy.
Statutory entitlements only for termination
with cause.
Payment in lieu of notice at Company
discretion.
For Company termination ‘without cause’,
12 months fixed remuneration, pro rata STI
is payable for time worked.
Statutory entitlements only for termination
with cause. Payment in lieu of notice
at Company discretion. For Company
termination ‘without cause’, no more than
six months fixed remuneration, pro rata STI
is payable for time worked.
Other executive KMP
Ongoing
(up to 36 months
for CFO)
Three months either party
Immediate for misconduct, breach
of contract or bankruptcy.
All Executive KMP are subject to a non-solicitation undertaking and a non-compete restraint for a maximum of period of 12
months after ceasing employment.
1. Actual STI awarded reflects the value of STI awarded for the full calendar year, and is not the same as the amounts disclosed in the statutory tables in section 7.
Remuneration report (continued)
Genworth Mortgage Insurance Australia | Annual Report 2014
71
6. Non-Executive Director Remuneration (Audited)
Table 6.a Key Management Personnel in 2014 – Non-Executive Directors
Name
Independent Non-Executive Directors
Richard Grellman
Tony Gill
Ian MacDonald
Gayle Tollifson
Genworth Financial Designated Non-Executive Directors
Samuel Marsico
Leon Roday
Stuart Take
Jerome Upton
Position
Term as KMP since listing
Chairman
Independent Director
Independent Director
Independent Director
Director
Director
Director
Director
Full Period
Full Period
Full Period
Full Period
Full Period
Full Period
Full Period
Full Period
Non-executive directors (NEDs) are entitled to such remuneration as determined by the Board, provided the aggregate
maximum annual amount (referred to as the aggregate fee cap) approved by shareholders is not exceeded. As noted in
the prospectus, the current aggregate fee cap is $1.5 million per annum, and is inclusive of the Company’s superannuation
obligations. NEDs who are executives of Genworth Financial were paid by Genworth Financial in the ordinary course of their
duties and are not paid fees by Genworth Australia.
Table 6.b NED fee table
Position
Non-Executive Directors (Independent only)
Board Chairman
Director
Committee chair (per Committee)
Committee member (per Committee)
Annual fee1
$265,000
$115,000
$20,000
$10,000
Director fees are reviewed annually and may be adjusted in line with market standards within the aggregate fee cap.
The focus of NEDs is principally the stewardship, strategic direction and medium to long-term performance of the Company. As a
result, remuneration programs for NEDs are neither performance based or at-risk.
While there are no specific share ownership requirements for NEDs, they are encouraged to own one times their annual base fees
in Company shares. The current independent directors support this approach and intend to achieve this shareholding over time.
1. Director fees reflect the full calendar year value, and are not the same as the amounts disclosed in the statutory tables in section 7.
72
Genworth Mortgage Insurance Australia | Annual Report 2014
Remuneration report (continued)
7. KMP remuneration tables (Audited)
Table 7.a Statutory remuneration table – 19 May to 31 December 2014
KMP
Short-Term
remuneration
Cash salary1
Other cash
benefits2
Non-
monetary
benefits3 STI awarded4
Long -Term/post-employment
benefits
Share-based
payments
% of total
remuneration
% of total
that is
remuneration
performance
that is delivered
Superannuation
Long Service
RSUs and other
Sub-total
benefits11
Leave accrual12
equity13
Total
related
as options
Executive KMP (including CEO and Managing Director who is an executive director)
Ellen Comerford, CEO and Managing Director
Georgette Nicholas, Chief Financial Officer
Conor O’Dowd, Chief Risk Officer
Bridget Sakr, Chief Commercial Officer
Tobin Fonseca, Chief Operating Officer
Non-Executive Directors
Richard Grellman,Chairman
Tony Gill5, Director
Ian MacDonald6, Director
Gayle Tollifson7, Director
Samuel Marsico8, Director
Leon Roday9, Director
Stuart Take, Director
Jerome Upton10, Director
$437,218
$231,357
$244,947
$249,142
$217,606
$149,694
$102,016
$93,206
$93,206
$0
$0
$0
$0
$373
$124,637
$0
$373
$0
$0
$0
$0
$0
$0
$0
$0
$0
$13,039
$102,107
$8,851
$10,662
$9,327
$8,406
$0
$0
$1,968
$0
$0
$0
$0
$550,397
$175,703
$37,315
$149,260
$174,137
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
$1,001,027
$633,804
$291,113
$409,437
$401,070
$158,100
$102,016
$93,206
$95,174
$0
$0
$0
$0
$9,392
$167,275
$23,150
$10,019
$10,198
$14,149
$0
$8,810
$8,810
$0
$0
$0
$0
$22,883
$0
$2,304
-$1,631
$6,600
$548,113
$183,497
$147,825
$207,583
$167,234
$1,581,415
$984,576
$464,392
$625,408
$585,102
$172,249
$102,016
$102,016
$103,984
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
35%
18%
8%
24%
30%
0%
0%
0%
0%
0%
0%
0%
0%
0%
3%
0%
0%
0%
0%
0%
0%
0%
0%
0%
0%
0%
$0
$0
$0
$0
$0
$0
$0
$0
1. Cash salary for Executive KMP consists of base salary and any salary sacrifice arrangements; for Non-Executive Directors it consists of Director fees and any
salary sacrifice arrangements.
2. Other cash benefits include an annual health reimbursement offered to all employees and cash allowances provided to Georgette Nicholas as part of her
expatriate remuneration arrangements.
3. Non-monetary benefits include insurance premiums, executive health benefits, and other non-cash benefits (such as car parking) and related Fringe Benefits
Tax (FBT).
4. STI awarded is the actual STI payment relating to 2014 performance, accrued for in 2014, actual payment made in March 2015. It has been pro rated to reflect
the reporting period.
Ian MacDonald is Chairman of the Remuneration and Nominations Committee and a member of the Audit, Risk and Capital and Investment Committees.
5. Tony Gill is Chairman of the Capital and Investment Committee and a member of the Audit, Risk, and Remuneration and Nominations Committees.
6.
7. Gayle Tollifson is Chairman of the Audit and Risk Committees, and a member of the Capital and Investment Committee.
8. Samuel Marsico is a member of the Risk Committee.
9. Leon Roday is a member of the Remuneration and Nominations Committee.
10. Jerome Upton is a member of the Capital and Investment Committee and the Audit Committee.
Genworth Mortgage Insurance Australia | Annual Report 2014
73
Remuneration report (continued)
7. KMP remuneration tables (Audited)
Table 7.a Statutory remuneration table – 19 May to 31 December 2014
KMP
Executive KMP (including CEO and Managing Director who is an executive director)
Ellen Comerford, CEO and Managing Director
Georgette Nicholas, Chief Financial Officer
Conor O’Dowd, Chief Risk Officer
Bridget Sakr, Chief Commercial Officer
Tobin Fonseca, Chief Operating Officer
Non-Executive Directors
Richard Grellman,Chairman
Tony Gill5, Director
Ian MacDonald6, Director
Gayle Tollifson7, Director
Samuel Marsico8, Director
Leon Roday9, Director
Stuart Take, Director
Jerome Upton10, Director
$437,218
$231,357
$244,947
$249,142
$217,606
$149,694
$102,016
$93,206
$93,206
$0
$0
$0
$0
$373
$124,637
$0
$373
$0
$0
$0
$0
$0
$0
$0
$0
$0
$13,039
$102,107
$8,851
$10,662
$9,327
$8,406
$1,968
$0
$0
$0
$0
$0
$0
$550,397
$175,703
$37,315
$149,260
$174,137
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
Short-Term
remuneration
Cash salary1
benefits3 STI awarded4
Other cash
benefits2
Non-
monetary
Long -Term/post-employment
benefits
Share-based
payments
Sub-total
Superannuation
benefits11
Long Service
Leave accrual12
RSUs and other
equity13
Total
% of total
remuneration
that is
performance
related
% of total
remuneration
that is delivered
as options
$1,001,027
$633,804
$291,113
$409,437
$401,070
$158,100
$102,016
$93,206
$95,174
$0
$0
$0
$0
$9,392
$167,275
$23,150
$10,019
$10,198
$14,149
$0
$8,810
$8,810
$0
$0
$0
$0
$22,883
$0
$2,304
-$1,631
$6,600
$548,113
$183,497
$147,825
$207,583
$167,234
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$1,581,415
$984,576
$464,392
$625,408
$585,102
$172,249
$102,016
$102,016
$103,984
$0
$0
$0
$0
35%
18%
8%
24%
30%
0%
0%
0%
0%
0%
0%
0%
0%
0%
3%
0%
0%
0%
0%
0%
0%
0%
0%
0%
0%
0%
11. Georgette Nicholas participates in Genworth Financial post-employment benefits.
12. Long Service Leave accruals are presented as the expense movement for the reporting period.
13. The fair value of equity instruments calculated at the date of grant using the Black Scholes model and allocated to each reporting period evenly over the period
from grant date to vesting date. The value disclosed is the portion of the fair value of the equity instruments recognised as an expense in this reporting period.
The fair value of special IPO grants provided to Executive KMP in the period (See section 2.9) is $2.54 (vesting in 2016), $2.35 (vesting in 2017) and $2.18
(vesting in 2018).
74
Genworth Mortgage Insurance Australia | Annual Report 2014
Remuneration report (continued)
7. KMP remuneration tables (Audited) (continued)
Table 7.b Share right holdings for the reporting period ending 31 December 2014.
Executive KMP
Name and position
Ellen Comerford
CEO and Managing Director
Georgette Nicholas
Chief Financial Officer
Equity plan
Grant detail
Grant date
Issue price
Vesting Date
19 May 2014
Forfeited
Vested
Exercised
31 Dec 2014
Movement during the period
# Held at
Number
Granted
GFI Equity 2011
GFI Joining Grant - T4
3 January 2011
GFI ‘11 Grant - T4
9 February 2011
GFI Equity 2012
GFI ‘12 Grant - T3
14 February 2012
GFI Equity 2013
GFI ‘13 Grant - T2
15 February 2013
GFI ‘12 Grant - T4
14 February 2012
GFI ‘13 Grant - T3
15 February 2013
GFI ‘13 Grant - T4
15 February 2013
GFI Equity 2014
GFI ‘14 Grant - T1
20 February 2014
IPO Special Grant
GFI ‘14 Grant - T2
20 February 2014
GFI ‘14 Grant - T3
20 February 2014
GFI ‘14 Grant - T4
20 February 2014
IPO Grant - T1
IPO Grant - T2
IPO Grant - T3
21 May 2014
21 May 2014
21 May 2014
GFI Equity 2011
GFI ‘11 Grant - T4
9 February 2011
GFI Equity 2012
GFI ‘12 Grant - T3
14 February 2012
GFI Equity 2013
GFI ‘13 Grant - T2
15 February 2013
GFI ‘12 Grant - T4
14 February 2012
GFI ‘13 Grant - T3
15 February 2013
GFI ‘13 Grant - T4
15 February 2013
GFI Equity 2014
GFI ‘14 Grant - T1
20 February 2014
IPO Special Grant
GFI ‘14 Grant - T2
20 February 2014
GFI ‘14 Grant - T3
20 February 2014
GFI ‘14 Grant - T4
20 February 2014
IPO Grant - T1
IPO Grant - T2
IPO Grant - T3
21 May 2014
21 May 2014
21 May 2014
$13.29
$12.61
$8.31
$8.31
$8.79
$8.79
$8.79
$16.90
$16.90
$16.90
$16.90
$2.65
$2.65
$2.65
$12.61
$8.31
$8.31
$8.79
$8.79
$8.79
$16.90
$16.90
$16.90
$16.90
$2.65
$2.65
$2.65
3 January 2015
9 February 2015
14 February 2015
14 February 2016
15 February 2015
15 February 2016
15 February 2017
20 February 2015
20 February 2016
20 February 2017
20 February 2018
20 May 2016
20 May 2017
20 May 2018
9 February 2015
14 February 2015
14 February 2016
15 February 2015
15 February 2016
15 February 2017
20 February 2015
20 February 2016
20 February 2017
20 February 2018
20 May 2016
20 May 2017
20 May 2018
5,000
2,500
6,250
6,250
7,913
7,913
7,913
4,538
4,538
4,538
4,538
1,000
1,133
1,133
2,000
2,000
2,000
2,763
2,763
2,762
2,762
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
220,125
220,125
220,127
62,983
62,983
62,983
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
# Held at
5,000
2,500
6,250
6,250
7,913
7,913
7,913
4,538
4,538
4,538
4,538
220,125
220,125
220,127
1,000
1,133
1,133
2,000
2,000
2,000
2,763
2,763
2,762
2,762
62,983
62,983
62,983
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
Genworth Mortgage Insurance Australia | Annual Report 2014
75
Remuneration report (continued)
7. KMP remuneration tables (Audited) (continued)
Table 7.b Share right holdings for the reporting period ending 31 December 2014.
Executive KMP
Name and position
Ellen Comerford
CEO and Managing Director
Equity plan
Grant detail
Grant date
Issue price
Vesting Date
# Held at
19 May 2014
Number
Granted
Forfeited
Vested
Exercised
# Held at
31 Dec 2014
Movement during the period
GFI Equity 2011
GFI Joining Grant - T4
3 January 2011
GFI ‘11 Grant - T4
9 February 2011
GFI Equity 2012
GFI ‘12 Grant - T3
14 February 2012
GFI Equity 2013
GFI ‘13 Grant - T2
15 February 2013
GFI ‘12 Grant - T4
14 February 2012
GFI Equity 2014
GFI ‘14 Grant - T1
20 February 2014
GFI ‘13 Grant - T3
15 February 2013
GFI ‘13 Grant - T4
15 February 2013
GFI ‘14 Grant - T2
20 February 2014
GFI ‘14 Grant - T3
20 February 2014
GFI ‘14 Grant - T4
20 February 2014
IPO Grant - T1
IPO Grant - T2
IPO Grant - T3
21 May 2014
21 May 2014
21 May 2014
IPO Special Grant
GFI Equity 2014
GFI ‘14 Grant - T1
20 February 2014
GFI ‘13 Grant - T3
15 February 2013
GFI ‘13 Grant - T4
15 February 2013
GFI ‘14 Grant - T2
20 February 2014
GFI ‘14 Grant - T3
20 February 2014
GFI ‘14 Grant - T4
20 February 2014
IPO Grant - T1
IPO Grant - T2
IPO Grant - T3
21 May 2014
21 May 2014
21 May 2014
IPO Special Grant
$13.29
$12.61
$8.31
$8.31
$8.79
$8.79
$8.79
$16.90
$16.90
$16.90
$16.90
$2.65
$2.65
$2.65
$12.61
$8.31
$8.31
$8.79
$8.79
$8.79
$16.90
$16.90
$16.90
$16.90
$2.65
$2.65
$2.65
3 January 2015
9 February 2015
14 February 2015
14 February 2016
15 February 2015
15 February 2016
15 February 2017
20 February 2015
20 February 2016
20 February 2017
20 February 2018
20 May 2016
20 May 2017
20 May 2018
9 February 2015
14 February 2015
14 February 2016
15 February 2015
15 February 2016
15 February 2017
20 February 2015
20 February 2016
20 February 2017
20 February 2018
20 May 2016
20 May 2017
20 May 2018
5,000
2,500
6,250
6,250
7,913
7,913
7,913
4,538
4,538
4,538
4,538
0
0
0
1,000
1,133
1,133
2,000
2,000
2,000
2,763
2,763
2,762
2,762
0
0
0
0
0
0
0
0
0
0
0
0
0
0
220,125
220,125
220,127
0
0
0
0
0
0
0
0
0
0
62,983
62,983
62,983
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
5,000
2,500
6,250
6,250
7,913
7,913
7,913
4,538
4,538
4,538
4,538
220,125
220,125
220,127
1,000
1,133
1,133
2,000
2,000
2,000
2,763
2,763
2,762
2,762
62,983
62,983
62,983
Georgette Nicholas
Chief Financial Officer
GFI Equity 2011
GFI ‘11 Grant - T4
9 February 2011
GFI Equity 2012
GFI ‘12 Grant - T3
14 February 2012
GFI Equity 2013
GFI ‘13 Grant - T2
15 February 2013
GFI ‘12 Grant - T4
14 February 2012
76
Genworth Mortgage Insurance Australia | Annual Report 2014
Remuneration report (continued)
7. KMP remuneration tables (Audited) (continued)
Table 7.b Share right holdings for the reporting period ending 31 December 2014.
Executive KMP
Name and position
Conor O’Dowd
Chief Risk Officer
Bridget Sakr
Chief Commercial Officer
Tobin Fonseca
Chief Operating Officer
Equity plan
Grant detail
Grant date
Issue price
Vesting Date
19 May 2014
Forfeited
Vested
Exercised
31 Dec 2014
# Held at
Number
Granted
# Held at
GFI Equity 2013
GFI ‘13 Grant - T1 2 December 2013
GFI ‘13 Grant - T2 2 December 2013
GFI ‘13 Grant - T3 2 December 2013
GFI ‘13 Grant - T4 2 December 2013
GFI Equity 2014
GFI ‘14 Grant - T1
20 February 2014
GFI ‘14 Grant - T2
20 February 2014
GFI ‘14 Grant - T3
20 February 2014
GFI ‘14 Grant - T4
20 February 2014
IPO Special Grant
IPO Grant - T1
IPO Grant - T2
IPO Grant - T3
GFI Equity 2007
GFI ‘07 Grant - T4
20 May 2014
20 May 2014
20 May 2014
2 July 2007
GFI Equity 2011
GFI ‘11 Grant - T4
9 February 2011
GFI Equity 2012
GFI ‘12 Grant - T3
14 February 2012
GFI ‘12 Grant - T4
14 February 2012
GFI Equity 2013
GFI ‘13 Grant - T2
15 February 2013
GFI ‘13 Grant - T3
15 February 2013
GFI ‘13 Grant - T4
15 February 2013
GFI Equity 2014
GFI ‘14 Grant - T1
20 February 2014
IPO Special Grant
GFI ‘14 Grant - T2
20 February 2014
GFI ‘14 Grant - T3
20 February 2014
GFI ‘14 Grant - T4
20 February 2014
IPO Grant - T1
IPO Grant - T2
IPO Grant - T3
21 May 2014
21 May 2014
21 May 2014
GFI Equity 2012
GFI ‘12 Grant - T3
1 March 2012
GFI Equity 2013
GFI ‘13 Grant - T2
15 February 2013
GFI ‘12 Grant - T4
1 March 2012
GFI ‘13 Grant - T3
15 February 2013
GFI ‘13 Grant - T4
15 February 2013
GFI Equity 2014
GFI ‘14 Grant - T1
20 February 2014
IPO Special Grant
GFI ‘14 Grant - T2
20 February 2014
GFI ‘14 Grant - T3
20 February 2014
GFI ‘14 Grant - T4
20 February 2014
IPO Grant - T1
IPO Grant - T2
IPO Grant - T3
21 May 2014
21 May 2014
21 May 2014
$16.91
$16.91
$16.91
$16.91
$16.90
$16.90
$16.90
$16.90
$2.65
$2.65
$2.65
$42.68
$12.61
$8.31
$8.31
$8.79
$8.79
$8.79
$16.90
$16.90
$16.90
$16.90
$2.65
$2.65
$2.65
$8.73
$8.73
$8.79
$8.79
$8.79
$16.90
$16.90
$16.90
$16.90
$2.65
$2.65
$2.65
Movement during the period
2,500
2,5001
2 December 2014
2 December 2015
2 December 2016
2 December 2017
20 February 2015
20 February 2016
20 February 2017
20 February 2018
20 May 2016
20 May 2017
20 May 2018
2 July 2015
9 February 2015
14 February 2015
14 February 2016
15 February 2015
15 February 2016
15 February 2017
20 February 2015
20 February 2016
20 February 2017
20 February 2018
20 May 2016
20 May 2017
20 May 2018
1 March 2015
1 March 2016
15 February 2015
15 February 2016
15 February 2017
20 February 2015
20 February 2016
20 February 2017
20 February 2018
20 May 2016
20 May 2017
20 May 2018
2,500
2,500
2,500
2,500
2,100
2,100
2,100
2,100
0
0
0
2,500
2,083
3,625
3,625
4,163
4,162
4,162
2,400
2,400
2,400
2,400
3,750
3,750
3,650
3,650
3,650
2,300
2,300
2,300
2,300
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
62,983
62,983
62,983
62,983
62,983
62,983
62,983
62,983
62,983
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
2,500
2,500
2,500
2,100
2,100
2,100
2,100
62,983
62,983
62,983
2,500
2,083
3,625
3,625
4,163
4,162
4,162
2,400
2,400
2,400
2,400
62,983
62,983
62,983
3,750
3,750
3,650
3,650
3,650
2,300
2,300
2,300
2,300
62,983
62,983
62,983
Remuneration report (continued)
Genworth Mortgage Insurance Australia | Annual Report 2014
77
Executive KMP
Name and position
Conor O’Dowd
Chief Risk Officer
Bridget Sakr
Chief Commercial Officer
Equity plan
Grant detail
Grant date
Issue price
Vesting Date
# Held at
19 May 2014
Number
Granted
Forfeited
Vested
Exercised
# Held at
31 Dec 2014
Movement during the period
GFI Equity 2013
GFI ‘13 Grant - T1 2 December 2013
GFI Equity 2014
GFI ‘14 Grant - T1
20 February 2014
IPO Special Grant
GFI Equity 2007
GFI ‘07 Grant - T4
GFI Equity 2011
GFI ‘11 Grant - T4
9 February 2011
GFI Equity 2012
GFI ‘12 Grant - T3
14 February 2012
GFI Equity 2013
GFI ‘13 Grant - T2
15 February 2013
GFI ‘12 Grant - T4
14 February 2012
GFI Equity 2014
GFI ‘14 Grant - T1
20 February 2014
GFI ‘13 Grant - T2 2 December 2013
GFI ‘13 Grant - T3 2 December 2013
GFI ‘13 Grant - T4 2 December 2013
GFI ‘14 Grant - T2
20 February 2014
GFI ‘14 Grant - T3
20 February 2014
GFI ‘14 Grant - T4
20 February 2014
IPO Grant - T1
IPO Grant - T2
IPO Grant - T3
20 May 2014
20 May 2014
20 May 2014
2 July 2007
GFI ‘13 Grant - T3
15 February 2013
GFI ‘13 Grant - T4
15 February 2013
GFI ‘14 Grant - T2
20 February 2014
GFI ‘14 Grant - T3
20 February 2014
GFI ‘14 Grant - T4
20 February 2014
IPO Grant - T1
IPO Grant - T2
IPO Grant - T3
21 May 2014
21 May 2014
21 May 2014
GFI ‘13 Grant - T3
15 February 2013
GFI ‘13 Grant - T4
15 February 2013
GFI ‘14 Grant - T2
20 February 2014
GFI ‘14 Grant - T3
20 February 2014
GFI ‘14 Grant - T4
20 February 2014
IPO Grant - T1
IPO Grant - T2
IPO Grant - T3
21 May 2014
21 May 2014
21 May 2014
GFI Equity 2014
GFI ‘14 Grant - T1
20 February 2014
IPO Special Grant
IPO Special Grant
$16.91
$16.91
$16.91
$16.91
$16.90
$16.90
$16.90
$16.90
$2.65
$2.65
$2.65
$42.68
$12.61
$8.31
$8.31
$8.79
$8.79
$8.79
$16.90
$16.90
$16.90
$16.90
$2.65
$2.65
$2.65
$8.73
$8.73
$8.79
$8.79
$8.79
$16.90
$16.90
$16.90
$16.90
$2.65
$2.65
$2.65
2 December 2014
2 December 2015
2 December 2016
2 December 2017
20 February 2015
20 February 2016
20 February 2017
20 February 2018
20 May 2016
20 May 2017
20 May 2018
2 July 2015
9 February 2015
14 February 2015
14 February 2016
15 February 2015
15 February 2016
15 February 2017
20 February 2015
20 February 2016
20 February 2017
20 February 2018
20 May 2016
20 May 2017
20 May 2018
1 March 2015
1 March 2016
15 February 2015
15 February 2016
15 February 2017
20 February 2015
20 February 2016
20 February 2017
20 February 2018
20 May 2016
20 May 2017
20 May 2018
2,500
2,500
2,500
2,500
2,100
2,100
2,100
2,100
0
0
0
2,500
2,083
3,625
3,625
4,163
4,162
4,162
2,400
2,400
2,400
2,400
0
0
0
3,750
3,750
3,650
3,650
3,650
2,300
2,300
2,300
2,300
0
0
0
0
0
0
0
0
0
0
0
62,983
62,983
62,983
0
0
0
0
0
0
0
0
0
0
0
62,983
62,983
62,983
0
0
0
0
0
0
0
0
0
62,983
62,983
62,983
1. The value of the exercised RSUs in the reporting period was $42,372.
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
2,500
2,5001
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
2,500
2,500
2,500
2,100
2,100
2,100
2,100
62,983
62,983
62,983
2,500
2,083
3,625
3,625
4,163
4,162
4,162
2,400
2,400
2,400
2,400
62,983
62,983
62,983
3,750
3,750
3,650
3,650
3,650
2,300
2,300
2,300
2,300
62,983
62,983
62,983
Tobin Fonseca
Chief Operating Officer
GFI Equity 2012
GFI ‘12 Grant - T3
1 March 2012
GFI Equity 2013
GFI ‘13 Grant - T2
15 February 2013
GFI ‘12 Grant - T4
1 March 2012
78
Genworth Mortgage Insurance Australia | Annual Report 2014
Remuneration report (continued)
7. KMP remuneration tables (Audited) (continued)
Table 7.c Share option holdings for the reporting period ending 31 December 2014.
Executive KMP
Equity plan
Grant detail
Grant date
Issue price
Vesting date
19 May 2014
granted Forfeited
Vested Exercised Expired
31 Dec 2014
instrument
# Held at
Number
# Held at
Fair Value per
Name and position
Georgette Nicholas
Chief Financial Officer
GFI Equity 2009
GFI ‘09 Grant - T2 - Options
19 August 2009
GFI ‘09 Grant - T3 - Options
19 August 2009
GFI ‘09 Grant - T4 - Options
19 August 2009
GFI Equity 2010
GFI ‘10 Grant - T1 - Options 10 February 2010
GFI ‘10 Grant - T2 - Options 10 February 2010
GFI ‘10 Grant - T3 - Options 10 February 2010
GFI ‘10 Grant - T4 - Options 10 February 2010
GFI Equity 2011
GFI ‘11 Grant - T1 - Options
9 February 2011
GFI ‘11 Grant - T2 - Options
9 February 2011
GFI ‘11 Grant - T3 - Options
9 February 2011
GFI ‘11 Grant - T4 - Options
9 February 2011
GFI Equity 2012
GFI ‘12 Grant - T1 - Options 14 February 2012
GFI ‘12 Grant - T2 - Options 14 February 2012
GFI ‘12 Grant - T3 - Options 14 February 2012
GFI ‘12 Grant - T4 - Options 14 February 2012
GFI Equity 2013
GFI ‘13 Grant - T1 - Options 15 February 2013
GFI ‘13 Grant - T2 - Options 15 February 2013
GFI ‘13 Grant - T3 - Options 15 February 2013
GFI ‘13 Grant - T4 - Options 15 February 2013
Bridget Sakr
Chief Commercial Officer
GFI Equity 2004
GFI ‘04 Grant - T3 - Options
25 May 2004
GFI Equity 2009
GFI ‘09 Grant - T1c - Options
19 August 2009
GFI ‘04 Grant - T4 - Options
25 May 2004
GFI ‘09 Grant - T2c - Options
19 August 2009
GFI ‘09 Grant - T3c - Options
19 August 2009
GFI ‘09 Grant - T4c - Options
19 August 2009
GFI ‘09 Grant - T4d - Options
19 August 2009
$9.41
$9.41
$9.41
$16.20
$16.20
$16.20
$16.20
$12.61
$12.61
$12.61
$12.61
$8.31
$8.31
$8.31
$8.31
$8.79
$8.79
$8.79
$8.79
$27.52
$27.52
$9.41
$9.41
$9.41
$9.41
$9.41
Notes for share right and option tables:
Issue Price is the share price of the instrument at the date of grant. All GFI grant issue prices and fair values have been converted from USD to AUD using the
exchange rate as at the date of grant.
Movement during the period
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
199
199
716
750
750
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
6,2501
6,2501
850
850
850
3,750
3,750
3,750
3,750
4,500
4,500
4,500
4,500
5,100
5,100
5,100
5,100
4,500
4,500
4,500
4,500
6,250
6,250
199
199
716
750
750
850
850
850
3,750
3,750
3,750
3,750
4,500
4,500
4,500
4,500
5,100
5,100
5,100
5,100
4,500
4,500
4,500
4,500
0
0
0
0
0
0
0
$20.88
$20.88
$20.88
$11.99
$11.99
$11.99
$11.99
$3.09
$3.09
$3.09
$3.09
$2.36
$2.36
$2.36
$2.36
$2.40
$2.40
$2.40
$2.40
$9.38
$9.38
$38.14
$41.98
$33.99
$20.88
$20.88
19 August 2011
19 August 2012
19 August 2013
10 February 2011
10 February 2012
10 February 2013
10 February 2014
9 February 2012
9 February 2013
9 February 2014
9 February 2015
14 February 2013
14 February 2014
14 February 2015
14 February 2016
15 February 2014
15 February 2015
15 February 2016
15 February 2017
25 May 2008
25 May 2009
19 August 2012
19 August 2012
19 August 2012
19 August 2012
19 August 2013
Remuneration report (continued)
7. KMP remuneration tables (Audited) (continued)
Table 7.c Share option holdings for the reporting period ending 31 December 2014.
Name and position
Georgette Nicholas
Chief Financial Officer
GFI Equity 2009
GFI ‘09 Grant - T2 - Options
19 August 2009
GFI ‘09 Grant - T3 - Options
19 August 2009
GFI ‘09 Grant - T4 - Options
19 August 2009
GFI Equity 2010
GFI ‘10 Grant - T1 - Options 10 February 2010
GFI Equity 2011
GFI ‘11 Grant - T1 - Options
9 February 2011
GFI Equity 2012
GFI ‘12 Grant - T1 - Options 14 February 2012
GFI Equity 2013
GFI ‘13 Grant - T1 - Options 15 February 2013
GFI ‘10 Grant - T2 - Options 10 February 2010
GFI ‘10 Grant - T3 - Options 10 February 2010
GFI ‘10 Grant - T4 - Options 10 February 2010
GFI ‘11 Grant - T2 - Options
9 February 2011
GFI ‘11 Grant - T3 - Options
9 February 2011
GFI ‘11 Grant - T4 - Options
9 February 2011
GFI ‘12 Grant - T2 - Options 14 February 2012
GFI ‘12 Grant - T3 - Options 14 February 2012
GFI ‘12 Grant - T4 - Options 14 February 2012
GFI ‘13 Grant - T2 - Options 15 February 2013
GFI ‘13 Grant - T3 - Options 15 February 2013
GFI ‘13 Grant - T4 - Options 15 February 2013
GFI ‘09 Grant - T2c - Options
19 August 2009
GFI ‘09 Grant - T3c - Options
19 August 2009
GFI ‘09 Grant - T4c - Options
19 August 2009
GFI ‘09 Grant - T4d - Options
19 August 2009
Bridget Sakr
Chief Commercial Officer
GFI Equity 2004
GFI ‘04 Grant - T3 - Options
25 May 2004
GFI Equity 2009
GFI ‘09 Grant - T1c - Options
19 August 2009
GFI ‘04 Grant - T4 - Options
25 May 2004
$9.41
$9.41
$9.41
$16.20
$16.20
$16.20
$16.20
$12.61
$12.61
$12.61
$12.61
$8.31
$8.31
$8.31
$8.31
$8.79
$8.79
$8.79
$8.79
$27.52
$27.52
$9.41
$9.41
$9.41
$9.41
$9.41
Genworth Mortgage Insurance Australia | Annual Report 2014
79
Executive KMP
Equity plan
Grant detail
Grant date
Issue price
Vesting date
# Held at
19 May 2014
Number
granted Forfeited
Vested Exercised Expired
# Held at
31 Dec 2014
Fair Value per
instrument
Movement during the period
19 August 2011
19 August 2012
19 August 2013
10 February 2011
10 February 2012
10 February 2013
10 February 2014
9 February 2012
9 February 2013
9 February 2014
9 February 2015
14 February 2013
14 February 2014
14 February 2015
14 February 2016
15 February 2014
15 February 2015
15 February 2016
15 February 2017
25 May 2008
25 May 2009
19 August 2012
19 August 2012
19 August 2012
19 August 2012
19 August 2013
850
850
850
3,750
3,750
3,750
3,750
4,500
4,500
4,500
4,500
5,100
5,100
5,100
5,100
4,500
4,500
4,500
4,500
6,250
6,250
199
199
716
750
750
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
199
199
716
750
750
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
6,2501
6,2501
0
0
0
0
0
850
850
850
3,750
3,750
3,750
3,750
4,500
4,500
4,500
4,500
5,100
5,100
5,100
5,100
4,500
4,500
4,500
4,500
0
0
0
0
0
0
0
$20.88
$20.88
$20.88
$11.99
$11.99
$11.99
$11.99
$3.09
$3.09
$3.09
$3.09
$2.36
$2.36
$2.36
$2.36
$2.40
$2.40
$2.40
$2.40
$9.38
$9.38
$38.14
$41.98
$33.99
$20.88
$20.88
1. The value of options at lapse date was nil reflecting the fact that the exercise price of the options exceeds the value of the underlying shares.
80
Genworth Mortgage Insurance Australia | Annual Report 2014
Remuneration report (continued)
7. KMP remuneration tables (Audited) (continued)
Table 7.d KMP and their related parties direct, indirect and beneficial shareholdings (including movements during the
period ending 31 December 2014)
Executive KMP
Ellen Comerford – CEO and Managing Director
Georgette Nicholas – Chief Financial Officer
Conor O’Dowd – Chief Risk Officer
Bridget Sakr – Chief Commercial Officer
Tobin Fonseca – Chief Operating Officer
Non-Executive Directors
Richard Grellman – Chairman
Tony Gill – Director
Ian MacDonald – Director
Gayle Tollifson – Director
Samuel Marsico – Director
Leon Roday – Director
Stuart Take – Director
Jerome Upton – Director
Movement during the period
Balance at
19 May 2014
Received via
vesting/
exercising
Other changes
Balance at
31 Dec 2014
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
18,867
18,867
28,301
188,679
75,471
56,603
0
19,609
9,699
19,534
28,301
188,679
75,471
56,603
0
19,609
9,699
19,534
Remuneration report (continued)
Genworth Mortgage Insurance Australia | Annual Report 2014
81
Table 7.e Relevant interest of each director in Genworth Australia and its related bodies corporate (unaudited)
Directors
Name and position
GMA group balance
held directly
or indirectly at
31 Dec 2014
Genworth Financial
balance held directly
or indirectly at
31 Dec 2014
Genworth MI Canada
Inc. balance held
directly or indirectly at
31 Dec 2014
Ellen Comerford – CEO and Managing Director
Shares: 0
Shares: 42,913
Shares: 0
Share rights: 660,377
Share rights: 61,891
Share rights: 0
Richard Grellman – Chairman
Tony Gill – Director
Ian MacDonald – Director
Gayle Tollifson – Director
Samuel Marsico – Director
Leon Roday – Director
Shares: 28,301
Share rights: 0
Shares: 188,679
Share rights: 0
Shares: 75,471
Share rights: 0
Shares: 56,603
Share rights: 0
Options: 0
Shares: 0
Options: 0
Shares: 0
Share rights: 0
Share rights: 0
Options: 0
Shares: 0
Options: 0
Shares: 0
Share rights: 0
Share rights: 0
Options: 0
Shares: 0
Options: 0
Shares: 0
Share rights: 0
Share rights: 0
Options: 0
Shares: 0
Share rights: 0
Options: 0
Options: 0
Shares: 0
Share rights: 0
Options: 0
Shares: 624
Share rights: 0
Options: 0
Shares: 3,020
Share rights: 0
Options: 0
Shares: 0
Shares: 0
Shares: 25,682
Share rights: 0
Share rights: 19,597
Options: 146,365
Shares: 19,609
Shares: 32,526
Share rights: 0
Share rights: 34,651
Options: 692,833
Stuart Take – Director
Shares: 9,699
Shares: 15,348
Jerome Upton – Director
Shares: 19,534
Options: 90,200
Shares: 11,070
Share rights: 0
Share rights: 19,607
Options: 115,550
Options: 0
Shares: 906
Share rights: 0
Options: 0
Share rights: 0
Share rights: 15,699
Share rights: 0
82
Genworth Mortgage Insurance Australia | Annual Report 2014
Lead auditor’s independence declaration
The lead auditor’s independence declaration is set out on page 83 and forms part of the Directors’ Report.
Signed in accordance with a resolution of the Directors:
Richard Grellman
Chairman
Dated at Sydney, 27 Feburary 2015.
Ellen Comerford
Chief Executive Officer and Managing Director
Genworth Mortgage Insurance Australia | Annual Report 2014
83
Lead Auditor’s Independence Declaration under Section 307C of the Corporations Act 2001
To: the Directors of Genworth Mortgage Insurance Australia Limited
I declare that, to the best of my knowledge and belief, in relation to the audit for the financial year ended 31 December 2014
there have been:
(i) no contraventions of the auditor independence requirements as set out in the Corporations Act 2001 in relation to the
audit; and
(ii) no contraventions of any applicable code of professional conduct in relation to the audit.
KPMG
Ian Moyser
Partner
Dated at Sydney, 27 Feburary 2015.
84
Genworth Mortgage Insurance Australia | Annual Report 2014
Financial statements
Contents
Statement of comprehensive income
Statement of financial position
Statement of changes in equity
Statement of cash flows
Notes to the financial statements
Section 1 Basis of preparation
1.1
1.2
Reporting entity
Basis of preparation
Section 2 Risk Management
2.1
Financial risk management
Section 3 Results for the year
3.1
3.2
3.3
3.4
3.5
3.6
3.7
Gross written premium
Financial income
Other underwriting expenses
Net cash provided by operating activities
Income taxes
Dividends
Earnings per share
Section 4 Insurance contracts
4.1
4.2
4.3
4.4
4.5
4.6
4.7
4.8
4.9
Net claims incurred
Deferred reinsurance expense
Deferred acquisition costs
Outstanding claims
Unearned premium
Liability adequacy test
Accounting estimates and judgements
Actuarial assumptions and methods
Capital adequacy position
Section 5 Capital management and financing
5.1
5.2
5.3
5.4
5.5
Capital management
Interest bearing liabilities
Equity
Capital commitments and contingencies
Other reserves
Section 6 Operating assets and liabilities
6.1
6.2
6.3
6.4
6.5
6.6
6.7
Plant and equipment
Intangibles
Goodwill
Employee benefits provision
Trade and other receivables
Trade and other payables
Cash and cash equivalents
Section 7 Other disclosures
7.1
7.2
7.3
7.4
7.5
7.6
7.7
7.8
Parent entity disclosures
Auditor’s remuneration
Key management personnel disclosures
Related party disclosures
Controlled entities
Share based payments
Deed of cross guarantee
Events subsequent to reporting date
Page
85
86
87
88
89
89
91
96
96
96
97
97
99
100
100
101
102
102
104
104
105
105
107
108
109
110
110
111
112
112
114
114
115
115
115
116
116
117
117
118
118
121
123
Financial statements
Consolidated statement of comprehensive income
For the year ended 31 December 2014
Genworth Mortgage Insurance Australia | Annual Report 2014
85
Gross written premium
Movement in unearned premium
Outward reinsurance premium expense
Net earned premium
Net claims incurred
Acquisition costs
Other underwriting expenses
Underwriting result
Investment income on assets backing insurance liabilities
Insurance profit
Investment income on equity holders’ funds
Financing costs
Profit before income tax
Income tax expense
Profit for the period
Total comprehensive income for the period
Note
3.1
4.1
3.3
3.5a
2014
$’000
398,772
(69,831)
(46,125)
282,816
(50,310)
(30,776)
(43,627)
158,103
31,327
189,430
121,776
(7,251)
303,955
(88,798)
215,157
215,157
Earnings per share
Basic earnings per share (cents per share)
Diluted earnings per share (cents per share)
3.7
3.7
0.331
0.330
2013
$’000
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
The consolidated statement of comprehensive income is to be read in conjunction with the notes to the financial statements.
86
Genworth Mortgage Insurance Australia | Annual Report 2014
Consolidated statement of financial position
As at 31 December 2014
Assets
Cash
Accrued investment income
Investments
Trade and other receivables
Prepayments
Deferred reinsurance expense
Non-reinsurance recoveries
Deferred acquisition costs
Plant and equipment
Deferred tax assets
Intangibles
Goodwill
Total assets
Liabilities
Trade and other payables
Reinsurance payable
Outstanding claims
Unearned premiums
Employee benefits provision
Interest bearing liabilities
Total liabilities
Net assets
Equity
Share capital
Share-based payment reserve
Other reserves
Retained earnings
Total equity
Note
2014
$’000
2013
$’000
2.1.6
6.5
4.2
4.3
6.1
3.5(b)
6.2
6.3
6.6
4.4
4.5
6.4
5.2
5.3(a)
5.3(b)
5.5
88,596
40,925
4,071,037
3,701
2,168
80,602
16,412
124,470
1,234
8,211
2,802
9,123
4,449,281
115,360
93,948
230,874
1,362,632
7,417
138,575
1,948,806
2,500,475
1,706,467
3,832
(476,559)
1,266,735
2,500,475
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
The consolidated statement of financial position is to be read in conjunction with the notes to the financial statements.
Genworth Mortgage Insurance Australia | Annual Report 2014
87
Consolidated statement of changes in equity
For the year ended 31 December 2014
Balance at 1 January 2013
Profit for the year
Balance at 31 December 2013
Balance at 1 January 2014
Profit after taxation
Dividends declared and paid
Transactions with owners in their capacity
as owners
Issuance of shares
Share-based payment expense
recognised
Share-based payment settled
Balance at 31 December 2014
Share capital
$’000
Other
reserves
$’000
Retained
earnings
Share based
payment
reserve
$’000
$’000
–
–
–
–
–
–
–
–
–
215,157
(18,200)
–
–
–
–
–
Total
$’000
–
–
–
–
215,157
(18,200)
(476,559)
1,069,778
1,954
595,173
1,706,467
–
–
–
–
–
–
–
–
1,706,467
(476,559)
1,266,735
–
1,706,467
3,315
(1,437)
3,832
3,315
(1,437)
2,500,475
–
–
–
–
–
–
The consolidated statement of changes in equity is to be read in conjunction with the notes to the financial statements.
88
Genworth Mortgage Insurance Australia | Annual Report 2014
Consolidated statement of cash flows
For the year ended 31 December 2014
Note
2014
$’000
2013
$’000
Cash flows from operating activities
Premiums received
Interest and other income
Claims paid
Financial expense on long-term borrowings
Cash payments in the course of operations
Income tax paid
Net cash provided by operating activities
Cash flows from investing activities
Payment for plant and equipment and intangibles
Payments for investments
Proceeds from sale of investments
Proceeds from acquisition of subsidiaries
Net cash used in investing activities
Cash flows from financing activities
Proceeds from issuance of share capital
Equity issuance costs
Repayment of related party note
Dividends paid
Net cash provided by financing activities
Net increase in cash held
3.4
Cash and cash equivalents at the beginning of the financial period
Cash and cash equivalents at the end of the financial period
6.7
398,772
91,034
(48,941)
(7,251)
(115,672)
(40,894)
277,048
(283)
(1,214,884)
977,621
67,295
(170,251)
583,000
(16,033)
(566,968)
(18,200)
(18,201)
88,596
–
88,596
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
The consolidated statement of cash flows is to be read in conjunction with the notes to the financial statements.
Genworth Mortgage Insurance Australia | Annual Report 2014
89
Notes to the financial statements
Section 1 – Basis of preparation
1.1 Reporting entity
This general purpose consolidated financial report is for the year ended 31 December 2014 and comprises the consolidated
financial statements for Genworth Mortgage Insurance Australia Limited and its controlled entities (together referred to as the
‘Group’). The Company is a for-profit entity domiciled in Australia and its shares are publicly traded on the ASX. The Group
operates in one business and geographical segment conducting loan mortgage insurance business in Australia; hence no
segment information is presented.
The annual financial report was authorised for issue by the Board of Directors on 27 February 2015.
1.2 Basis of preparation
(a)
Statement of compliance
This report has been prepared in accordance with the Corporations Act 2001, Australian Accounting Standards adopted by the
Australian Accounting Standards Board and the ASX listing rules. International Financial Reporting Standards form the basis of
Australian Accounting Standards adopted by the AASB, being Australian equivalents to IFRS. The financial report also complies
with IFRSs and interpretations adopted by the International Accounting Standards Board.
Selected explanatory notes are included to explain events and transactions that are significant to an understanding of the
financial position and performance of the Group.
Basis of preparation
(b)
The company has a 31 December year-end. It was incorporated on 21 December 2011 with $1 share capital and had nil
operating activity until it gained control of Genworth Financial Australia Holdings, LLC on 19 May 2014 as part of the IPO
restructure. The year ended 31 December 2014 represents the Company’s 12 months results and the trading results of the
Group from 19 May 2014 to 31 December 2014. For the results of the standalone company only, please refer to Note 7.1.
The consolidated financial report is presented in Australian dollars.
The consolidated statement of financial position has been prepared using the liquidity format of presentation, in which the
assets and liabilities are presented broadly in order of liquidity. The assets and liabilities comprise both current amounts
(expected to be recovered or settled within 12 months after the reporting date) and non-current amounts (expected to be
recovered or settled more than 12 months after the reporting date). For those assets and liabilities that comprise both current
and non-current amounts, information regarding the respective current and non-current amounts is disclosed in the relevant
note to the financial statements.
The consolidated financial report is prepared on the historical cost basis except for investments being stated at fair value and
outstanding claims and the related reinsurance recoveries on unpaid claims being stated at present value.
Changes in accounting policies
(c)
New and amended standards adopted by the Group
The Group has adopted the following accounting policies which became effective for the annual reporting period
commencing on 1 January 2014. These standards have introduced new disclosures but did not materially affect the amounts
recognised in the financial statements.
New standards, amendments and interpretations
Operative date
AASB 2012-3
AASB 2013-3
AASB 2013-9
Amendments to Australian Accounting Standards arising from
AASB 132 - offsetting Financial Assets and Financial Liabilities
Amendments to AASB 136 – Recoverable amount disclosures
for non-financial assets
Amendments to Australian Accounting Standards –
Conceptual Framework, Materiality and Financial Instrument
Part B
1/01/2014
1/01/2014
1/01/2014
90
Genworth Mortgage Insurance Australia | Annual Report 2014
Notes to the financial statements (continued)
Changes in accounting policies (continued)
Section 1 – Basis of preparation (continued)
(c)
New accounting standards and amendments issued but not yet effective
A number of new standards, amendments to standards and interpretations noted below are effective for annual periods
beginning on or after 1 January 2015, and have not been applied in preparing these consolidated financial statements. An
initial assessment of these standards and amendments has taken place and the application of these standards is not expected
to have material impact on the Group’s accounting policies. AASB 9 Financial Instruments, which becomes mandatory for the
Group’s 2018 financial statements could change the classification and measurement of financial assets. The Group does not
plan to adopt this standard early and the extent of the impact has not been determined.
New standards, amendments and interpretations
Operative date
AASB 9
AASB 2009-11
AASB 2010-7
AASB 2012-6
AASB 2013-9
IFRS 15
AASB 2014-1
Financial Instruments
Amendments to Australian Accounting Standards arising from AASB 9
Amendments to Australian Accounting Standards arising from AASB 9
Amendments to Australian Accounting Standards – Mandatory Effective
Date of AASB 9 and transition disclosures
Amendments to Australian Accounting Standards – Conceptual
Framework, Materiality and Financial Instrument: Part C
Revenue from contracts with customers
Amendments to Australian Accounting Standards – Part E
1/01/2018
1/01/2018
1/01/2018
1/01/2015
1/01/2018
1/01/2017
1/01/2018
Rounding off
(d)
The Group is of a kind referred to in ASIC Class Order 98/100 dated 10 July 1998 and, in accordance with that Class Order,
amounts in the consolidated financial report and Directors’ Report have been rounded off to the nearest thousand dollars,
unless otherwise stated.
(e) Use of estimates and judgements
The preparation of a financial report requires management to make judgements, estimates and assumptions that affect
the application of policies and reported amounts of assets, liabilities, income and expenses. The estimates and associated
assumptions are based on historical experience and various other factors that are believed to be reasonable in the
circumstances, the results of which form the basis of making judgements about the carrying values of assets and liabilities that
are not readily apparent from other sources.
These estimates and underlying assumptions are reviewed on an ongoing basis and actual results may vary from estimates.
Revisions to accounting estimates are recognised in the period in which the estimate is revised if the revision affects only that
period or in the period of the revision and future periods if the revision affects both current and future periods.
Judgements made by management in the application of Australian Accounting Standards that have a significant effect on the
financial report and estimates with a significant risk of material adjustment are discussed in Note 4.7.
Mortgage insurance business is seasonal in nature. While net premiums earned, investment income and underwriting and
administrative expenses are relatively stable from quarter to quarter, premiums written and losses may vary each quarter. The
variations in premium written are driven by the level of mortgage origination and related mortgage policies written, which are
typically lowest in the first quarter each year. Delinquencies and losses on claims vary from quarter to quarter primarily as the
result of prevailing economic conditions as well as the characteristics of the insurance in-force portfolio such as size and age.
All revenue and expenses are recognised in accordance with the accounting policies.
The accounting policies have been applied consistently by the Group.
Principles of consolidation
(f)
The Group incorporates the assets and liabilities of the Company and all subsidiaries as at the reporting date and the results of
the Company and all subsidiaries for the period set out in note 1.2(b) as if they had operated as a single entity.
Transactions eliminated on consolidation
Unrealised gains and losses and inter-entity balances resulting from transactions with or between controlled entities are
eliminated in full on consolidation.
Genworth Mortgage Insurance Australia | Annual Report 2014
91
Section 2 – Risk management
The Group has exposure to credit, liquidity and market risks relating to its use of financial instruments. This note presents
information about the Group’s exposure to each of these risks, the Group’s objectives, policies and processes for measuring
and managing risk.
2.1 Financial risk management
2.1.1 Risk management framework
The Board has overall responsibility for the establishment and oversight of the risk management framework. The Board has
established the Risk Committee, which is responsible for developing and monitoring the Group’s risk management policies.
The Committee reports regularly to the Board on its activities.
The Group’s risk management policies are established to identify and analyse the risks faced by the Group, to set appropriate
risk limits and controls, and to monitor risks and adherence to limits. Risk management policies and systems are reviewed
to reflect changes in market conditions and the Group’s activities. The Group, through its management standards and
procedures, aims to develop a disciplined and constructive control environment in which all employees understand their roles
and obligations.
The Audit Committee oversees, amongst other things, how management monitors compliance with the risk management
policies and procedures and reviews the adequacy of the risk management framework in relation to the risks faced by
the Group. The Audit Committee is assisted in its oversight role by internal audit. Internal audit undertakes reviews of risk
management controls and procedures, the results of which are reported to the Audit Committee.
2.1.2 Risk concentration
Risk is managed primarily through appropriate pricing, product design, risk selection, appropriate investment strategy,
financial strength ratings and reinsurance. It is vital that the Group closely monitors and responds to any changes in the general
economic and commercial environment in which it operates.
Due to the nature of the Australian economy, the majority of mortgages are originated through the country’s four largest banks.
The Group’s top three lender customers accounted for approximately 66% of the Group’s gross written premium, as outlined in
the table below:
Lender customer
Lender customer 1
Lender customer 2
Lender customer 3
FY14 GWP
39%
14%
11%
2.1.3 Market risk
The risk that the market price of assets change and the potential for such change or volatility to result in the actual market value
of Genworth Australia’s assets being adversely impacted.
Currency risk
(a)
Currency risk is the risk of loss arising from an unfavourable movement in market exchange rates. The Group is exposed to
currency risk on its investments in receivables and payables denominated in a currency other than Australian dollars and the
net investment in foreign branch operations. The currency giving rise to the risk is New Zealand dollars. The NZ currency risk
exposure to the Group is not material.
The potential impact on the Group’s profit and loss and equity as a result of a 10% depreciation/ appreciation of the Australian
dollar at the reporting date, assuming all other variables remain constant, is shown below.
Impact to profit and loss and equity of 10% depreciation/appreciation of
Australian Dollar on New Zealand assets and liabilities.
625
(764)
–
–
2014
2013
+10%
$’000
–10%
$’000
+10%
$’000
–10%
$’000
92
Genworth Mortgage Insurance Australia | Annual Report 2014
Notes to the financial statements (continued)
Cash flow and fair value interest rate risk
Section 2 – Risk management (continued)
2.1.3 Market risk (continued)
(b)
The Group is exposed to interest rate risk arising on interest bearing assets. Assets with floating rate interest expose the Group
to cash flow interest rate risk. Fixed interest rate assets expose the Group to fair value interest rate risk. The Group’s strategy is
to invest in high quality, liquid fixed interest securities and cash and to actively manage duration. The investment portfolios are
actively managed to achieve a balance between cash flow interest rate risk and fair value interest rate risk bearing in mind the
need to meet the liquidity requirements of the insurance business.
The Group has exposure to interest rate risk on its term subordinated notes. The interest rate on these notes is reset quarterly.
The Group manages the level of assets with similar maturities to offset this exposure.
The potential impact of movements in interest rates on the Group’s profit and loss and equity are shown below.
2014
2013
+1%
–1%
+1%
–1%
$’000
$’000
$’000
$’000
Impact to profit and loss and equity of 1% movement in interest rates
69,253
(66,860)
–
–
2.1.4 Credit risk exposures
Credit risk is the risk of default by borrowers and transactional counterparties as well as the loss of value of assets due to
deterioration in credit quality. The Group’s credit risk arises predominantly from investment activities and the amounts are as
indicated by the carrying amounts of the financial assets.
The Group’s investment portfolio comprises 98% (2013:nil %) of total fixed interest and cash with counterparties having a
rating of A– or better. The Group does not expect any investment counterparties to fail to meet their obligations given their
strong credit ratings.
The credit quality of financial assets that are neither past due nor impaired is assessed by reference to external credit ratings (if
available) or to historical information about counterparty default rates. As at balance date there were no assets past due.
The ratings in the following table are the lower equivalent rating of either Standard & Poor’s or Moody’s.
Genworth Mortgage Insurance Australia | Annual Report 2014
93
Cash at bank and short-term bank deposits
2014
$’000
2013
$’000
AAA
AA
A
BBB
BB
Investments
AAA
AA
A
BBB
Accrued interest receivable
AAA
AA
A
BBB
BB
Receivables without external credit rating
20,858
456,511
81,132
9,987
3,000
571,488
1,482,560
1,111,255
883,220
111,110
3,588,145
14,761
14,986
9,632
1,534
12
40,925
3,701
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
2.1.5 Liquidity risk
Liquidity risk is the risk that there are insufficient cash resources to meet payment obligations to policyholders and creditors
without affecting the daily operations or the financial condition of the Group.
Management of liquidity risk includes asset and liability management strategies. The assets held to back insurance liabilities
consist predominantly of highly rated fixed income securities which can generally be readily sold or exchanged for cash. The
assets are managed so as to effectively match the maturity profile of the assets with the expected pattern of claims payments.
The money market securities are restricted to investment grade securities with concentrations of investments managed as per
the investment mandates.
2014
Financial liabilities
Payables
Reinsurance payable
Outstanding claims provision
2013
Financial liabilities
Payables
Reinsurance payable
Outstanding claims provision
Less than 1 year
1 to 5 years
$’000
115,060
59,848
166,861
341,769
$’000
300
34,100
64,013
98,413
Less than 1 year
1 to 5 years
$’000
$’000
–
–
–
–
–
–
–
–
Total
$’000
115,360
93,948
230,874
440,182
Total
$’000
–
–
–
–
94
Genworth Mortgage Insurance Australia | Annual Report 2014
Notes to the financial statements (continued)
Section 2 – Risk management (continued)
2.1.6 Fair value measurements
Accounting policies
Financial assets backing general insurance liabilities
The assets backing general insurance liabilities are those assets required to cover the technical insurance liabilities
(outstanding claims and unearned premiums) plus an allowance for capital adequacy.
The Group has designated the assets backing general insurance activities based on its function. Initially insurance technical
balances are offset against the required assets, with any additional assets required being allocated based on liquidity.
In accordance with the Company’s investment strategy, the Company actively monitors the average duration of the notional
assets allocated to insurance activities to ensure sufficient funds are available for claim payment obligations.
The Group accounts for financial assets and any assets backing insurance activities at fair value through profit and loss, with any
unrealised profits and losses recognised in the statement of comprehensive income.
The valuation methodologies of assets valued at fair value are summarised below:
• Cash assets and bank overdrafts are carried at face value of the amounts deposited or drawn;
•
Fixed interest securities are initially recognised at fair value, determined as the quoted cost at date of acquisition. They
are subsequently remeasured to fair value at each reporting date. For securities traded in an active market, fair value is
determined by reference to published bid price quotations. For securities not traded and securities traded in a market
that is not active, fair value is determined using valuation techniques with the most common technique being reference
to observable market data by reference to the fair values of recent arm’s length transactions involving the same or similar
instruments. In the absence of observable market information, unobservable inputs which reflect management’s view
of market assumption are used. Valuation techniques maximise the use of observable inputs and minimise the use of
unobservable inputs.
Financial assets not backing general insurance liabilities
The balances of investments not backing insurance liabilities are designated as financial assets at fair value through profit and
loss on the same basis as those backing insurance liabilities.
Investments
Fixed interest rate
Short-term deposits
Government and semi-government bonds
Corporate bonds
Floating interest rate
Short-term deposits
Corporate bonds
Total investments
Current
Non-current
31 December
2014
$’000
31 December
2013
$’000
394,993
588,791
2,500,691
3,484,475
87,899
498,663
586,562
4,071,037
925,695
3,145,342
4,071,037
–
–
–
–
–
–
–
–
–
–
–
–
Genworth Mortgage Insurance Australia | Annual Report 2014
95
The Group’s financial assets and liabilities are carried at fair value.
The Group investments carried at fair value have been classified under the three levels of the IFRS fair value hierarchy as
follows:
Level 1 - Quoted prices in an active market: Fair value investments which are quoted in active and known markets. The quoted
prices are those at which transactions have regularly and recently taken place within such markets.
Level 2 - Valuation techniques with observable parameters: Fair value investments using inputs other than quoted prices within
Level 1 that are observable either directly or indirectly.
Level 3 - Valuation techniques with significant unobservable parameters: Fair value investments using valuation techniques that
include inputs that are not based on observable market data.
31 December 2014
Financial Instruments
Government and semi-government bonds
Corporate bonds
Short-term deposits
Total
Level 1
$’000
Level 2
$’000
587,829
2,950,854
–
3,538,683
482,892
482,892
Level 3
$’000
962
48,500
–
49,462
Total
$’000
588,791
2,999,354
482,892
4,071,037
There are an insignificant proportion of investments, 1%, for which a valuation methodology is used to determine the fair
value. These assets are effectively marked to model rather than fair value. Reasonable changes in the judgement applied in
conducting these valuations would not have a significant impact on the statement of financial position.
31 December 2013
Financial Instruments
Government and semi-government bonds
Corporate bonds
Short-term deposits
Total
Level 1
$’000
Level 2
$’000
Level 3
$’000
Total
$’000
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
The following table shows a reconciliation from the beginning balances to the ending balances for fair value measurements in
Level 3 of the fair value hierarchy:
Balance at
1 January
2014
Formation
of Group
Purchases
Disposals
Movement
in fair value
Balance at
31 December
2014
$’000
$’000
$’000
$’000
$’000
$’000
Financial Instruments
Government and semi-government
bonds
Corporate bonds
Total
–
–
–
941
48,500
49,441
–
–
–
–
–
–
21
–
21
962
48,500
49,462
The interest bearing liabilities were initially measured at fair value (net of transaction costs) but are subsequently measured at
amortised cost. The Company considers the fair value of the interest bearing liabilities to be approximate to that of the carrying
value. The interest bearing liabilities have been classified as Level 2 under the three levels of the IFRS fair value hierarchy.
96
Genworth Mortgage Insurance Australia | Annual Report 2014
Notes to the financial statements (continued)
Section 3 – Results for the year
3.1 Gross written premium
Accounting policies
Gross written premium comprises amounts charged to policyholders (direct premium) or other insurers (inward reinsurance
premium) for insurance contracts. Premium amounts charged to policyholders, excludes stamp duties and goods and services
tax (GST) collected on behalf of third parties.
Direct premium
Inward reinsurance premium
3.2 Financial income
Accounting policies
Interest revenue
2014
$’000
393,420
5,352
398,772
2013
$’000
–
–
–
Interest revenue is recognised as it accrues, taking into account the coupon rate on investments, and interest rates on cash and
cash equivalents, net of withholding tax paid or payable.
Gains/ (losses) in fair value of investments
Refer to Note 2.1.6 Accounting policies and fair value estimations for further details.
Interest
Gains/(losses) in fair value of investments
– Unrealised
– Realised
3.3 Other underwriting expenses
Depreciation and amortisation expense
Employee expenses
– Salaries and wages
– Superannuation contributions
– Employee benefits
Occupancy expenses
Marketing expenses
Administrative expenses
2014
$’000
100,370
49,224
3,508
153,102
2014
$’000
3,208
22,399
1,592
199
2,084
541
13,604
43,627
2013
$’000
–
–
–
–
2013
$’000
–
–
–
–
–
–
–
–
Genworth Mortgage Insurance Australia | Annual Report 2014
97
3.4 Net cash provided by operating activities
This note reconciles the operating profit to the cash provided by operating activities per the cash flow statement.
Profit after income tax
Less items classified as investing/financing activities:
– Gain on sale of investments
– Unrealised gains on investments
Add non-cash items:
– Share-based payments
– Loss on disposal of plant and equipment
– Depreciation, amortisation and impairment
Net cash provided by operating activities before change in assets and liabilities
Change in assets and liabilities during the financial year:
Decrease/(increase) in receivables
Decrease in outstanding claims liability
(Decrease)/ increase in payables and borrowings
Decrease in deferred acquisition costs
Increase in provision for employee entitlements
Increase in unearned premiums
Increase in deferred tax asset balances
Net cash provided by operating activities
2014
$’000
215,157
(3,512)
(49,224)
1,811
865
6,677
171,774
20,856
1,350
13,557
(404)
552
69,831
(467)
277,048
2013
$’000
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
Income taxes
3.5
Accounting policies
Income tax on the profit or loss for the year comprises current and deferred tax. Income tax is recognised in the statement
of comprehensive income except to the extent that it relates to items recognised directly in equity. Current tax is expected
tax payable on the taxable income for the year, using tax rates enacted or substantially enacted at the statement of financial
position date, and any adjustment to tax payable in respect of previous years.
Deferred tax is provided using the statement of financial position method, providing for temporary differences between the
carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. The
following temporary differences are not provided for: goodwill not deductible for tax purposes; the initial recognition of assets
or liabilities that affect neither accounting or taxable profit; and differences relating to investments in subsidiaries to the extent
that they will probably not reverse in the foreseeable future. The amount of deferred tax provided is based on the expected
manner of realisation or settlement of the carrying amount of assets and liabilities using tax rates enacted or substantively
enacted at the statement of reporting date.
A deferred tax asset is recognised only to the extent that it is probable that future taxable profits will be available against which
the asset can be utilised. Deferred tax assets are reduced to the extent that it is no longer probable that the related tax benefit
will be realised.
Additional income taxes that arise from the distribution of dividends are recognised at the same time as the liability to pay the
related dividend.
The Group’s subsidiaries constitute a tax consolidated group of which the Company is the head entity. Under the tax
consolidation system, the head entity is liable for the current income tax liabilities of that group. Entities are jointly and
severally liable for the current income tax liabilities of the Group where the head entity defaults, subject to the terms of a valid
tax sharing agreement between the entities in the Group. Assets and liabilities arising from the Company under the tax funding
arrangement are recognised as amounts receivable from or payable to other entities in the Group.
98
Genworth Mortgage Insurance Australia | Annual Report 2014
Notes to the financial statements (continued)
Section 3 – Results for the year (continued)
3.5
(a)
Income taxes (continued)
Income tax expense
Current tax
Deferred tax
(Over)/under provision in prior year:
– Current tax
– Deferred tax
(i)
Numerical reconciliation of income tax expense to prima facie tax payable
Prima facie income tax expense calculated at 30% on profit
Increase in income tax expense due to:
– (Over)/under provision in prior year
– Other non-taxable items
Income tax expense on the profit
31 December
2014
$’000
31 December
2013
$’000
90,163
974
(1,950)
(389)
88,798
–
–
–
–
–
31 December
2014
$’000
31 December
2013
$’000
91,186
(2,339)
(49)
88,798
–
–
–
–
Current tax liabilities
(ii)
The Company is liable for the current income tax liabilities of the tax consolidated group.
The Group’s liability includes the income tax payable by all members of the tax consolidated group.
(b)
Deferred tax assets and liabilities
Deferred tax asset balance comprises temporary differences attributable to:
Employee benefits
Accrued expenses
Provision for indirect claims handling costs
Deferred tax liability balance comprises temporary differences attributable to:
Research and development claims on fixed assets and intangibles
Net deferred tax
Balance at 1 January 2014
Balance acquired on 19 May 2014
Credited to the statement of comprehensive income
Under/(over) provision of prior year tax
Closing balance at 31 December
31 December
2014
$’000
31 December
2013
$’000
3,962
134
4,457
8,553
(341)
(341)
–
7,626
974
(389)
8,211
–
–
–
–
–
–
–
–
–
–
–
–
Genworth Mortgage Insurance Australia | Annual Report 2014
99
3.6 Dividends
Accounting policy
A provision for dividends is made in respect of ordinary shares when dividends have been declared on or before the reporting
date but have not yet been distributed at that date.
Restrictions that may limit the payment of dividends
(a)
There are currently no restrictions on the payment of dividends by the Company other than:
•
•
the payment of dividends is subject to provisions of the Corporations Act 2001 and the Company’s constitution; and
the payment of dividends is generally limited to profits subject to ongoing solvency obligations noting that, under the
APRA Level 2 Group supervision requirements, the Company is required to obtain approval from APRA before payment of
dividends on ordinary shares that exceeds the Group’s after tax earnings as defined by APRA.
The Group paid a 100% franked dividend of 2.8 cents per share amounting to $18,200,000 on 29 August 2014.
The Board normally resolves to pay dividends for a period after the relevant reporting date. In accordance with the accounting
policy, dividends for a six monthly period are generally recognised in the following six month period.
Dividend not recognised at reporting date
(b)
In addition to the above dividends, the Board determined to pay the following dividend after the reporting date but before
finalisation of this financial report and it has not been recognised in this financial report.
Cents per
share
Total amount
$m
Expected
payment date
Tax rate for
franking credit
Percentage
franked
2014 final dividend
2014 special dividend
13.1
11.5
85
75
6 March 2015
6 March 2015
30%
30%
100%
100%
(c)
Dividend franking account
The balance of the franking account arises from:
• Franked income received or recognised as a receivable at the reporting date;
•
Income tax paid, after adjusting for any franking credits which will arise from the payment of income tax provided for in the
financial statements; and
• Franking debits from payment of dividends recognised as a liability at the reporting date.
Franking account balance at reporting date at 30%
Franking credits to arise from payment of income tax payable
Franking credits available for future reporting periods
Franking account impact of dividends determined before issuance of financial report but
not recognised at reporting date
Franking credits available for subsequent financial periods based on a tax rate of 30%
31 December
2014
$’000
31 December
2013
$’000
15,196,032
67,408,646
82,604,678
(68,528,571)
14,076,107
–
–
–
–
–
In accordance with the tax consolidation legislation, the Company as the head entity in the tax consolidated group has
assumed the benefit of available franking credits.
At the date the Company became listed on the ASX, 20 May 2014, the classification for dividend imputation purposes changed
to a ‘former exempting entity’ and the franking account balance attributable to pre IPO ownership periods, $549 million,
automatically converted to an exempting account, which is now quarantined. The above balances represent only the new
franking account that commenced with a nil balance on 20 May 2014.
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Genworth Mortgage Insurance Australia | Annual Report 2014
Notes to the financial statements (continued)
Section 3 – Results for the year (continued)
3.7 Earnings per share
Accounting policies
Basic earnings per share are calculated by dividing the profit after tax by the weighted average number of shares on issue
during the reporting period.
Diluted earnings per share is calculated by dividing the profit after tax adjusted for any costs associated with dilutive potential
ordinary shares, by the weighted average number of ordinary shares and dilutive potential ordinary shares.
Basic and diluted earnings per share have been calculated using the weighted average and dilutive number of shares
outstanding during the year of 650,000,000. The difference between basic and diluted earnings per share is caused by the
granting of potentially dilutive securities such as share rights, options and restricted share units (RSUs).
Basic earnings per share (cents per share)
Diluted earnings per share (cents per share)
(a)
Reconciliation of earnings used in calculating earnings per share
Profit after tax
Profit used in calculating basic and diluted earnings per share
31 December
2014
31 December
2013
0.331
0.330
–
–
31 December
2014
$’000
31 December
2013
$’000
215,157
215,157
–
–
(b)
Reconciliation of weighted average number of ordinary shares used in calculating earnings
per share
Weighted average number of ordinary shares on issue
Weighted average number of shares used in the calculation of basic earnings per share
Weighted average number of dilutive potential ordinary shares
Bonus element of shares
Weighted average number of shares used in the calculation of diluted earnings per share
650,104
650,104
1,255
651,359
–
–
–
–
31 December
2014
$’000
31 December
2013
$’000
Section 4 – Insurance Contracts
4.1 Net claims incurred
(a) Claims analysis
Gross claims incurred
Reinsurance and other recoveries revenue
Net claims incurred
31 December
2014
$’000
31 December
2013
$’000
56,968
(6,658)
50,310
–
–
–
Genworth Mortgage Insurance Australia | Annual Report 2014
101
(b) Claims development
Gross claims expense
Direct
Inwards reinsurance
Gross claims incurred – undiscounted
Reinsurance and other recoveries
revenue
Reinsurance and other recoveries –
undiscounted
Net claims incurred
Current
year
$’000
84,475
2,897
87,372
2014
Prior
years
$’000
(30,159)
(245)
(30,404)
Total
$’000
54,316
2,652
56,968
(159)
87,213
(6,499)
(36,902)
(6,658)
50,310
Current
year
$’000
2013
Prior
years
$’000
Total
$’000
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
4.2 Deferred reinsurance expense
Accounting policies
Reinsurance expense
Premium ceded to reinsurers is recognised as an expense in accordance with the pattern of reinsurance coverage received.
Accordingly, a portion of outwards reinsurance premium is treated at the balance date as a deferred reinsurance expense.
Reinsurance and other recoveries receivable
Reinsurance and other recoveries receivable on paid claims, reported claims not yet paid and incurred but not reported
claims are recognised as revenue. Recoveries receivable on paid claims are presented as part of trade and other receivables
net of any provision for impairment based on objective evidence for individual receivables. Recoveries receivable are
assessed in a manner similar to the assessment of outstanding claims. Reinsurance does not relieve the Group of its liabilities
to policyholders and reinsurance recoveries are, if applicable, presented as a separate asset on the statement of financial
position.
Balance at 1 January
Balance acquired on 19 May 2014
Deferral of reinsurance premium on current year contracts
Expensing of reinsurance premium previously deferred
Balance as at 31 December
Current
Non-current
31 December
2014
$’000
31 December
2013
$’000
–
117,203
9,524
(46,125)
80,602
46,502
34,100
80,602
–
–
–
–
–
–
–
–
102
Genworth Mortgage Insurance Australia | Annual Report 2014
Notes to the financial statements (continued)
Section 4 – Insurance contracts (continued)
4.3 Deferred acquisition costs
Accounting policies
Costs associated with obtaining and recording mortgage insurance contracts are referred to as acquisition costs and are
capitalised when they relate to the acquisition of new business or the renewal of existing business. These are presented as
deferred acquisition costs (DAC) and amortised using the same basis as the earning pattern of premium over the period of the
related insurance contracts. The balance at the reporting date represents the capitalised acquisition costs relating to unearned
premium and is stated at cost subject to a liability adequacy test.
The Group reviews all assumptions underlying DAC and tests DAC for recoverability annually. If the balance of unearned
premiums is less than the current estimate of future losses and related expenses a charge to income is recorded for additional
DAC amortisation.
Refer to Note 4.7 Accounting estimates and judgements for further detailed information.
Opening balance at 1 January
Balance acquired on 19 May 2014
Acquisition costs incurred in year
Amortisation charge
Balance as at 31 December
Current
Non-current
31 December
2014
$’000
31 December
2013
$’000
–
124,066
26,087
(25,683)
124,470
27,036
97,434
124,470
–
–
–
–
–
–
–
–
4.4 Outstanding claims
Accounting policies
Claims expense and a liability for outstanding claims are recognised in respect of direct and inward reinsurance business.
The liability covers claims reported and outstanding, IBNR and the expected direct and indirect costs of settling those claims.
Outstanding claims are assessed by estimating the ultimate cost of settling delinquencies, which includes IBNR and settlement
costs, using statistics based on past experience and trends. Changes in outstanding claims are recognised in profit or loss in
the reporting period in which the estimates are changed.
The provision for outstanding claims contains a risk margin to reflect the inherent uncertainty in the central estimate, the central
estimate being the expected value of outstanding claims.
Refer to Note 4.7 Accounting estimates and judgements and Note 4.8 Actuarial assumptions and methods for further detailed
information.
Central estimate
Risk margin
Gross outstanding claims
2014
$’000
202,800
28,074
230,874
2013
$’000
–
–
–
Genworth Mortgage Insurance Australia | Annual Report 2014
103
(a)
Reconciliation of changes in outstanding claims
Opening balance at 1 January
Balance acquired on 19 May 2014
Current period net claims incurred
Claims paid
Balance at 31 December
Current
Non-current
(b)
Claims development
2014
$’000
–
229,505
50,310
(48,941)
230,874
182,214
48,660
230,874
2013
$’000
–
–
–
–
–
–
–
–
2013
$’000
2014
$’000
Total
$’000
1,021
6,826
777
231,533
281,938
312,740
272,348
204,271
144,542
100,569
22,642
–1,819
Underwriting
years
At end of year
of underwrite
One year later
Prior
years1
$’000
204,831
150,229
Two years later
129,761
Three years
later
Four years later
Five years later
Six years later
Seven years
later
All future years
Net incurred to
date
106,406
42,476
34,904
48,439
12,446
–1,819
2012
$’000
1,079
7,805
11,246
2011
$’000
992
6,668
10,997
9,989
2007
$’000
2008
$’000
2009
$’000
2010
$’000
8,438
44,511
47,593
52,953
79,244
31,875
22,639
4,392
19,629
36,755
47,622
24,386
16,589
701
7,004
15,005
9,744
8,107
9,302
39,266
61,383
45,634
50,058
61,174
29,491
10,196
727,673
306,505
287,253
149,373
Net paid to date
690,099
269,425
238,526
115,504
40,561
25,780
28,646
10,958
20,130
3,325
7,847
687
777 1,568,764
– 1,354,303
Outstanding
claims provision
at 31 December
2014
37,574
37,081
48,727
33,869
14,781
17,689
16,805
7,159
777
214,462
1. Prior to 2007 underwriting years.
(c)
Reconciliation of claims development table to outstanding claims provision
Closing outstanding claims provision per claims development table
Non-reinsurance recoveries
Gross closing outstanding claims provision
2014
$’000
214,462
16,412
230,874
104
Genworth Mortgage Insurance Australia | Annual Report 2014
Notes to the financial statements (continued)
Section 4 – Insurance contracts (continued)
4.5 Unearned premiums
Accounting policies
Classification of insurance contracts
Contracts under which an entity accepts significant insurance risk from another party (the policyholder) by agreeing to
compensate the policyholder or other beneficiary if a specified uncertain future event (the insured event) adversely affects the
policyholder or other beneficiary are classified as insurance contracts. Insurance risk is risk other than financial risk.
Earned and unearned premium revenue
Premiums have been brought to account as income from the date of attachment of risk over periods up to eleven years
based on an actuarial assessment of the pattern and period of risk. The earned portion of premiums received is recognised as
revenue. The balance of premium received is recorded as an unearned premium reserve.
Refer to Note 4.7 Accounting estimates and judgements for further detailed information.
Balance at 1 January
Balance acquired on 19 May 2014
Premiums incepted during the year
Premiums earned during the year
Balance as at 31 December
Current
Non-current
31 December
2014
$’000
31 December
2013
$’000
–
1,292,801
398,772
(328,941)
1,362,632
391,427
971,205
1,362,632
–
–
–
–
–
–
–
4.6 Liability adequacy test
Accounting policies
The liability adequacy test is an assessment of the carrying amount of the unearned premium liability and is conducted at each
reporting date. If current estimates of the present value of the expected cash flows relating to future claims plus an additional
risk margin to reflect the inherent uncertainty in the central estimate exceed the unearned premium liability less related
deferred reinsurance and deferred acquisition costs, then the unearned premium liability is deemed to be deficient. The test
is performed at the portfolio level of contracts that are subject to broadly similar risks and that are managed together as a
single portfolio. Any deficiency is recognised in the statement of comprehensive income, with a corresponding impact in the
statement of financial position, recognised first through the write down of related deferred acquisition costs and any remaining
balance being recognised as an unexpired risk liability.
The liability adequacy test has identified a surplus in the portfolio of contracts that are subject to broadly similar risks.
The probability of sufficiency adopted in performing the LAT is set at the 75th percentile.
For the purposes of the liability adequacy test, the present value of expected future cash flows for future claims, including the
risk margin, for the Group are as follows:
Discounted central estimate of premium liability
Risk margin – premium liability (75% PoS)
31 December
2014
$’000
31 December
2013
$’000
666,987
188,831
855,818
–
–
–
Genworth Mortgage Insurance Australia | Annual Report 2014
105
4.7 Accounting estimates and judgements
Critical accounting estimates and judgements
The Group makes judgements, estimates and assumptions that affect the application of accounting policies and the reported
amounts of assets, liabilities, income and expenses. Estimates and judgements are continually evaluated and are based on
historical experience and other factors, including expectations of future events that are believed to be reasonable under the
circumstances.
The areas where critical accounting estimates and judgements are applied are noted below.
Estimation of premium revenue/ unearned premium/ deferred acquisition costs (Note 3.1, Note 4.3
and Note 4.5)
Premium is earned over periods of up to eleven years. The principle underlying the earning recognition is to derive a premium
earning scale which recognises the premium in accordance with the incidence of claims risk.
The review of the premium earning scale is based on an analysis of the historical pattern of claims incurred and the pattern
of policy cancellations. The estimate for unearned premiums is established on the basis of this earning scale. Assumptions
recommended by the Appointed Actuary recognise that the unearned premium relating to cancelled policies is brought to
account immediately.
Deferred acquisition costs are amortised under the same premium earnings scale as the related insurance contract.
Estimation of outstanding claims liabilities (Note 4.4)
Provision is made for the estimated claim cost of reported delinquencies at the reporting date, including the cost of
delinquencies incurred but not yet reported to the Group.
The estimated cost of claims includes direct expenses to be incurred in settling claims gross of expected third party recoveries.
The Group takes all reasonable steps to ensure that it has appropriate information regarding its claims exposure. However,
given the uncertainty in establishing claims provisions, it is likely that the final outcome will prove to be different from the
original liability established.
A risk margin is added to the central estimate as an additional allowance for uncertainty in the ultimate cost of claims over and
above the central estimate. The overall margin adopted by the Group is determined after considering the uncertainty in the
portfolio, industry trends, the Group’s risk appetite and the margin corresponding with that appetite.
The estimation of IBNR is generally subject to a greater degree of uncertainty than the estimation of the cost of settling claims
already notified to the Group, where more information about the claim event is generally available. IBNR claims may often not
be apparent to the insured until sometime after the events giving rise to the claims have happened.
In calculating the estimated cost of unpaid claims, the Group uses a variety of estimation techniques, generally based upon
statistical analysis of historical experience, which assumes that the development pattern of the current claims will be consistent
with past experience. Allowance is made, however, for changes or uncertainties which might create distortion in the underlying
statistics or cause the cost of unsettled claims to increase or decrease when compared with the cost of previously settled
claims.
Provisions are calculated gross of any recoveries. A separate estimate is made of the amounts that will be recoverable from
lenders under specified arrangements. Estimates are also made for amounts recoverable from borrowers and property valuers,
based upon the gross provisions.
4.8 Actuarial assumptions and methods
The Group internally values the outstanding claims liabilities at the reporting date. The valuation approach is consistent with
that recommended by the Appointed Actuary.
The valuation methods used are based on the underlying attributes of the claims portfolio. The Group establishes provisions
for outstanding claims in two parts:
• delinquent loans advised to the Group; and
•
IBNR.
The provision in respect of delinquent loans not in possession by the mortgagee is determined according to the following
formula:
• outstanding loan amount multiplied by frequency factor multiplied by severity factor.
106
Genworth Mortgage Insurance Australia | Annual Report 2014
Notes to the financial statements (continued)
Section 4 – Insurance contracts (continued)
4.8 Actuarial assumptions and methods (continued)
In applying this formula:
•
•
the outstanding loan amount insured is the total outstanding amount on those loans advised to the Group by the lenders
as being delinquent;
the frequency and severity factors are based on a review of historical claims and delinquency experience performed by the
Appointed Actuary and adopted by the Group.
For loans where the mortgagee is in possession where a claim has been submitted, the approach adopted is to provide for
the claimed amount, adjusted for amounts not eligible to be claimed. For loans where there is a MIP but a claim has not yet
been submitted, the approach taken is a case estimate based approach using the current outstanding loan balance including
accumulated arrears adjusted for selling costs, the most recent property valuation, or an estimate thereof, and any amounts not
eligible to be claimed.
Actuarial assumptions and process
Historical information relating to arrears and claims history for the Group is provided to the Appointed Actuary in order to
determine the underlying assumptions.
The Appointed Actuary examines all past underwriting years, including the mix of business by loan to value ratio and
loan size band, the region in which the mortgaged property is located, product types, loan purpose and arrears duration.
Statistical modelling was used to identify significant explanatory factors affecting outcomes for frequency and severity based
on historical claims experience.
The Appointed Actuary identifies significant explanatory factors affecting outcomes and incorporates this information into
models for frequency and severity. The models incorporate past and anticipated movements in key variables to determine
appropriate assumptions for reserving. The actuarial assumptions used in determining the outstanding claims liabilities, other
than MIPs, are:
Frequency
While the propensity for a delinquent loan to become a claim varies for many explanatory factors (as determined by the
Appointed Actuary’s analyses), the frequency basis is summarised on any given balance date and expressed so that it varies
by LVR band and number of payments in arrears taking into account the average mix of effects of the other explanatory factors
on the balance date. Additional loadings may be placed on these factors according to the geographic location, loan balance,
External Dispute Resolution (those borrowers accessing ombudsman services or seeking legal representation), and the lender,
to adjust for shorter term expectations of frequency.
Severity
Claim severity varies according to the number of payments in arrears and the geographic region of the properties secured by
the mortgages. Claim severity is expressed as a percentage of the outstanding loan amount at the arrears date.
The following average frequency and severity factors were used in the measurement of outstanding claims:
• Average frequency factor is 36%
•
Average severity factor is 24%
IBNR
The IBNR provision is estimated by analysing the historical pattern of reported delinquencies.
Risk margin
The risk margin is an additional allowance for uncertainty in the ultimate cost of claims over and above the central estimate
determined on the bases set out above. The overall margin adopted by the Group is determined after considering the
uncertainty in the portfolio, industry trends, the Group’s risk appetite and the margin corresponding with that appetite.
The Appointed Actuary reviews the factors impacting the portfolio to establish a recommended risk margin at the level
required by the Group and APRA. Factors considered include:
• variability of claims experience of the portfolio;
• quality of historical data;
• uncertainty due to future economic conditions;
•
•
diversification within the portfolio; and
increased uncertainty due to future legislative changes.
Genworth Mortgage Insurance Australia | Annual Report 2014
107
A risk margin for outstanding claims of 15% of net central estimate has been assumed and is intended to achieve a 75% PoS.
No discounting has been applied to non-current claims on the basis that the effect is immaterial.
The weighted average term to settlement is approximately 21 months.
Sensitivity Analysis
The valuation of outstanding claims incorporates a range of factors that involve interactions with economic indicators, statistical
modelling and observed historical claims development. Certain variables can be expected to impact outstanding claims
liabilities more than others and consequently a greater degree of sensitivity to these variables can be expected.
Future economic conditions and in particular house prices, interest rates and unemployment (for new delinquencies) impact
frequency and, to a lesser extent, severity.
The actuarial result is based on the central estimate of the net outstanding claim liabilities. The impact on the profit and loss
before income tax to changes in key actuarial assumptions is set out in the table below.
The upper and lower bounds of a 95% confidence interval of frequency and severity outcomes are applied as sensitivity
factors. The impact of applying the sensitivities is asymmetric around the central estimate due to the assumed asymmetry of
the distribution of outcomes of the net outstanding claim liabilities.
Impact on outstanding claims liabilities to changes in key variables
Frequency factor – upper 97.5th
Frequency factor – lower 2.5th
Severity factor – upper 97.5th
Severity factor – lower 2.5th
Impact on
outstanding
claims
liabilities
2014
$’000
82,728
–59,326
51,326
–42,725
Change in
variable
2014
18%
–13%
7%
–5%
Claims handling expenses
Claims handling expenses are estimated after considering historical actual expenses and management’s projected costs of
handling claims over the weighted average term to settlement.
4.9 Capital adequacy
APRA’s Prudential Standard GPS 110 Capital Adequacy requires additional disclosure in the annual financial statements to
improve policyholder and market understanding of the capital adequacy of the companies in the Group.
When an insurer is a controlled entity of an authorised non-operating holding company, the Level 2 Group comprises the
authorised NOHC and its controlled entities. The Company became the Non-Operating Holding Company for the Level 2
Group after acquiring 100% ownership of all Australian subsidiaries as a result of the IPO reorganisation structure.
The following companies comprise the APRA Level 2 Group:
Genworth Financial Mortgage Insurance Finance Pty Limited
Genworth Financial New Holdings Pty Ltd
Genworth Financial Mortgage Insurance Holdings Pty Limited
Genworth Financial Mortgage Insurance Pty Limited
Genworth Financial Services Pty Limited
Genworth Financial Mortgage Indemnity Limited
Genworth Financial Australia Holdings, LLC
108
Genworth Mortgage Insurance Australia | Annual Report 2014
Notes to the financial statements (continued)
Section 4 – Insurance Contracts (continued)
4.9 Capital adequacy (continued)
The PCA calculation for the APRA Level 2 Group provided below is based on the APRA Level 2 Group requirements.
Tier 1 capital
Paid-up ordinary shares
Other reserves
Retained earnings
Less: Deductions
Net surplus relating to insurance liabilities
Net Tier 1 capital
Tier 2 capital
Total capital base
Insurance risk charge
Insurance concentration risk charge
Asset risk charge
Asset concentration risk charge
Operational risk charge
Aggregation benefit
Total prescribed capital amount
Prescribed capital amount coverage
31 December
2014
$’000
31 December
2013
$’000
1,706,467
(472,727)
1,266,734
(19,490)
261,114
2,742,098
112,000
2,854,098
202,082
1,498,461
127,998
–
24,083
(60,521)
1,792,103
1.59
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
Section 5 – Capital management and financing
5.1 Capital management
The capital management strategy plays a central role in managing risk to create shareholder value, whilst meeting the crucial
and equally important objective of providing an appropriate level of capital to protect both policyholders’ and lenders’
interests and satisfy regulators. Capital finances growth, capital expenditure and business plans and also provides support in
the face of adverse outcomes from insurance and other activities and investment performance.
The determination of the capital amount and mix is built around three core considerations. The Group aims to hold capital to
meet the highest requirements derived from these three considerations:
Regulatory capital
(i)
The regulated controlled entities are subject to APRA’s prudential standards, which set out the basis for calculating the
Prescribed Capital Requirement, the minimum level of capital that the regulator deems must be held to meet policyholder
obligations. The capital base is expected to be adequate for the size, business mix, complexity and risk profile of the business
and, as such, the PCR utilises a risk based approach to capital adequacy. The PCR is the sum of the capital charges for
insurance, investments and other assets, investment concentration, operational and catastrophe concentration risk plus any
supervisory adjustment imposed by APRA.
It is the Group’s policy to hold regulatory capital levels in excess of the PCR. The Group maintains sufficient capital to support
the PCR, which is APRA’s derivation of the required capital to meet a 1 in 200 year risk of absolute ruin, and has at all times
during the current and prior financial year complied with the externally imposed capital requirements to which it is subject.
Genworth Mortgage Insurance Australia | Annual Report 2014
109
Capital calculations for regulatory purposes are based on a premium liabilities model which is different from the deferral and
matching model which underpins the measurement of assets and liabilities in the financial statements. The premium liabilities
model estimates future expected claim payments arising from future events insured under existing policies. This differs from
the measurement of the outstanding claims liabilities on the statement of financial position, which considers claims relating to
events that have occurred up to and including the reporting date.
The subordinated notes of $140,000,000 no longer qualify for recognition as regulatory capital. However, transitional
arrangements, to phase out these capital instruments over a nine year period have been approved by APRA. Consequently
only 80% of the value of these instruments is included in the capital base as at 31 December 2014. Refer to Note 5.2 Interest
bearing liabilities for further information.
Ratings capital
(ii)
The controlled entities maintain their capital strength by reference to a target financial strength rating from an independent
ratings agency. The ratings help to reflect the financial strength of these entities and demonstrate to stakeholders their ability
to pay claims. GFMI has ratings of A+ and A3 based on the latest ratings published for the Group by Standard & Poor’s Rating
Services and Moody’s respectively. Indemnity has ratings of A– and A3 from the respective ratings agencies, the lower ratings
reflecting its run-off status. On 17 December 2014, Fitch Ratings (Fitch) published an Insurer Financial Strength (IFS) Rating of
GFMI assigning an A+ rating with stable outlook.
(iii) Economic capital
In conjunction with the considerations set out above, which are important to the functioning of the business, consideration is
given to the capital needs of the business through ongoing operations.
Interest bearing liabilities
5.2
Accounting policies
Interest bearing liabilities are initially recognised at fair value less transaction costs that are directly attributable to the
transaction. After initial recognition the liabilities are carried at amortised cost using the effective interest rate method.
Finance costs include interest, which is accrued at the contracted rate and included in payables; amortisation of transaction
costs which are capitalised, presented together with borrowings, and amortised over the life of the borrowings; and
amortisation of discounts or premiums (the difference between the original proceeds, net of transaction costs, and the
settlement or redemption value of borrowings) over the term of the liabilities.
Subordinated notes
Less: capitalised transaction costs
31 December
2014
$’000
31 December
2013
$’000
140,000
(1,425)
138,575
–
–
–
The subordinated notes were issued by GFMI on 30 June 2011 with a face value of $140 million and are eligible for
recognition as lower Tier 2 capital, in transitional arrangements under prudential standards issued by APRA.
Key terms and conditions are:
•
Interest is payable quarterly in arrears, with the rate each calendar quarter being the average of the 90 day bank bill swap
rate at the end of the prior quarter plus a margin equivalent to 4.75% per annum; and
• The notes mature on 30 June 2021 (non-callable for the first five years) with the issuer having the option to redeem at par
from 30 June 2016. Redemption at maturity, or any earlier date provided for in the terms and conditions of issue, is subject
to prior approval by APRA.
110
Genworth Mortgage Insurance Australia | Annual Report 2014
Notes to the financial statements (continued)
Section 5 – Capital management and financing (continued)
5.3 Equity
(a)
Share capital
Issued fully paid capital
Opening balance 1 ordinary share
Issuance of share capital 650,000,000 ordinary shares
Balance at 31 December 2014
31 December
2014
$’000
31 December
2013
$’000
–
1,706,467
1,706,467
–
–
–
The Company does not have a par value in respect of its issued shares. All ordinary shares are fully paid. Ordinary shares have
the right to receive dividends as declared and, in the event of winding up the Company, to participate in the proceeds from the
sale of all surplus assets in proportion to the number of and amounts paid up on shares held.
Ordinary shares entitle their holder to one vote, either in person or by proxy, at a meeting of the Company.
Share capital represents the issued share capital of $1,722,500,000 less the underwriting costs of $16,033,000.
(b)
Share based payment reserve
Opening balance
Balance acquired on 19 May 2014
Share-based compensation
Share-based payment recharged from parent company
Closing balance
31 December
2014
$’000
31 December
2013
$’000
–
1,954
3,315
(1,437)
3,832
–
–
–
–
–
Refer to Note 7.6 Share based payments for further detailed information.
5.4 Capital commitments and contingencies
Accounting policies
The Group leases property and equipment under operating leases, where the lessor retains substantially all the risks and
benefits of ownership of the leased items, expiring from one to five years. The leases have varying terms, escalation clauses
and renewal rights. On renewal, the terms of the leases are renegotiated. Lease payments comprise a base amount plus an
incremental contingent rental. Contingent rentals are based on movements in the Consumer Price Index. All leases entered
into are operating leases. Lease payments are recognised as an expense in profit and loss on a straight line basis over the term
of these leases. Lease incentives received are recognised as an integral part of the total lease expense over the term of the
lease.
Operating lease commitments
The estimated future amounts of operating lease commitments not provided for in the
financial statements are payable:
Within one year
One year or later and no later than five years
More than five years
31 December
2014
$’000
31 December
2013
$’000
6,368
16,760
–
23,128
–
–
–
–
Genworth Mortgage Insurance Australia | Annual Report 2014
111
Contingencies
There were no contingent liabilities as at 31 December 2014.
5.5 Other reserves
Opening balance
Common control transaction
31 December
2014
$’000
31 December
2013
$’000
–
(476,559)
(476,559)
–
–
–
Under the pre IPO Group structure, there was no single Australian company with 100% control of Genworth’s Australian
subsidiaries. As part of the reorganisation plan, a corporate reorganisation was undertaken to reorganise the intragroup debt
and equity funding arrangements and to facilitate the repayment of funding arrangements with the Genworth Financial Group.
The following steps were applied to reflect the reorganisation plan:
• $450 million of preference shares issued by Genworth Financial New Holdings Pty Ltd and held by GFI were transferred to
the Group. As a result, the Preference Shares were eliminated in the consolidated statements of financial position;
• The receivable associated with a loan provided by GFI to Genworth Financial Australia Holdings, LLC was transferred to the
Group. As a result, the loan receivable was eliminated in the consolidated statements of financial position; and
•
$720 million short-term note provided by GFI to the Group was repaid with the proceeds of the Offer.
Following the implementation of the reorganisation plan, the Company became the holding company of the Group and the
following entities were consolidated to form the Group:
• Genworth Financial Mortgage Insurance Pty Limited;
• Genworth Financial Mortgage Indemnity Limited;
• Genworth Financial Services Pty Limited;
• Genworth Financial Mortgage Insurance Holdings Pty Limited;
• Genworth Financial Mortgage Insurance Finance Holdings Limited;
• Genworth Financial Mortgage Insurance Finance Pty Limited;
•
•
Genworth Financial New Holdings Pty Limited; and
Genworth Financial Australia Holdings, LLC.
The Group has determined that the reorganisation represents a business combination involving entities under common control
and therefore the Group is not required to account for the reorganisation as a business combination under AASB 3 Business
combinations. The reorganisation involved transactions with owners from which no goodwill arises, therefore any difference in
these transactions are recognised directly into equity as other reserves.
112
Genworth Mortgage Insurance Australia | Annual Report 2014
Notes to the financial statements (continued)
Section 6 – Operating assets and liabilities
6.1 Plant and equipment
Accounting policies
Depreciation is recognised in profit or loss on a straight line basis over the estimated useful lives of each item of plant and
equipment. Assets are depreciated or amortised from the date of acquisition.
Depreciation and amortisation methods, useful lives and residual values are reviewed at each reporting date. Where changes
are made, adjustments are reflected in current and future periods only.
The estimated useful lives for the current period are as follows:
Leasehold improvements
Furniture and equipment
Computing hardware
Intangibles
Reconciliations
Reconciliations of the carrying amounts for plant and equipment are set out below:
Cost
Balance at 1 January 2014
Balance acquired on 19 May 2014
Additions
Disposals
Closing balance at 31 December
Accumulated depreciation
Balance at 1 January 2014
Balance acquired on 19 May 2014
Depreciation
Disposals
Closing balance at 31 December
Total net book value
2014
2013
5-10 years
5-8 years
3-5 years
5 years
–
–
–
–
31 December
2014
$’000
31 December
2013
$’000
–
10,232
29
(4)
10,257
–
(8,718)
(308)
3
(9,023)
1,234
–
–
–
–
–
–
–
–
–
–
–
Intangibles
6.2
The intangibles balance represents software development expenditure.
Accounting policies
Acquired intangible assets
Acquired intangible assets are initially recorded at their cost at the date of acquisition, being the fair value of the consideration
provided and, for assets acquired separately, incidental costs directly attributable to the acquisition. All intangible assets
acquired have a finite useful life and are amortised on a straight-line basis over the estimated useful life of the assets being the
period in which the related benefits are expected to be realised (shorter of legal benefit and expected economic life).
Software development expenditure
Software development expenditure that meets the criteria for recognition as an intangible asset is capitalised in the
statement of financial position and amortised over its expected useful life, subject to impairment testing. Costs incurred in
Genworth Mortgage Insurance Australia | Annual Report 2014
113
researching and evaluating a project up to the point of formal commitment to a project is expensed as incurred. Only software
development projects with total budgeted expenditure of more than $250,000 are considered for capitalisation. Smaller
projects and other costs are treated as maintenance costs, being an ongoing part of maintaining effective technology, and are
expensed as incurred.
All capitalised costs are deemed to have an expected useful life of five years unless it can be clearly demonstrated for a
specific project that the majority of the net benefits are to be generated over a longer or shorter period. The capitalised costs
are amortised on a straight line basis over the period following completion of a project or implementation of part of a project.
Impairment assessment
The recoverability of the carrying amount of the asset is reviewed at each reporting date by determining whether there is an
indication that the carrying value may be impaired. If such indication exists, the item is tested for impairment by comparing the
recoverable amount, or value in use, of the asset to the carrying value. An impairment charge is recognised when the carrying
value exceeds the calculated recoverable amount and recognised in the income statement. The impairment charges can be
reversed if there has been a change in the estimate used to determine the recoverable amount.
There was no impairment charge recognised during the year.
Reconciliations
Reconciliations of the carrying amounts for intangibles are set out below:
Cost
Balance at 1 January 2014
Balance acquired on 19 May 2014
Additions
Disposals
Closing balance at 31 December
Accumulated amortisation and impairment losses
Balance at 1 January 2014
Balance acquired on 19 May 2014
Amortisation
Disposals
Closing balance at 31 December
Total net intangibles
31 December
2014
$’000
31 December
2013
$’000
–
25,218
254
–
25,472
–
(19,770)
(2,900)
0
(22,670)
2,802
–
–
–
–
–
–
–
–
–
–
–
114
Genworth Mortgage Insurance Australia | Annual Report 2014
Notes to the financial statements (continued)
Section 6 – Operating assets and liabilities (continued)
6.3 Goodwill
Accounting policies
Business combinations are accounted for by applying the purchase method. Goodwill represents the difference between the
cost of the acquisition and the fair value of the net identifiable assets acquired.
Goodwill is stated at deemed cost less any accumulated impairment losses.
The impairment testing of goodwill involves the use of accounting estimates and assumptions. The recoverable amount of
the cash generating unit is determined on the basis of value in use calculations. The value in use calculation is performed on a
pre-tax basis. The present value of future cash flow projections is based on the most recent management approved budgets,
which generally do not forecast beyond five years. The carrying value of identifiable intangible assets is deducted from the
value generated in the cash flow projections to arrive at a recoverable value for goodwill which is then compared with the
carrying value of goodwill. The carrying value of goodwill is tested for impairment at each reporting date.
Goodwill – at deemed cost
6.4 Employee benefits provision
Accounting policies
The carrying amount of provisions for employee entitlements approximates fair value.
31 December
2014
$’000
31 December
2013
$’000
9,123
–
Wages, salaries and annual leave
The accruals for employee entitlements to wages, salaries and annual leave represent present obligations resulting from
employees’ services provided up to the statement of financial position date, calculated at undiscounted amounts based on
wage and salary rates that the entity expects to pay as at reporting date including related on-costs.
Long service leave
The Company’s net obligation in respect of long-term benefits other than pension plans is the amount of future benefit
that employees have earned in return for their service in the current and prior periods. A liability for long service leave is
recognised as the present value of estimated future cash outflows to be made in respect of services provided by employees
up to the reporting date. The estimated future cash outflows are discounted using interest rates on national government
guaranteed securities which have terms to maturity that match, as closely as possible, the estimated future cash outflows.
Factors which affect the estimated future cash outflows such as expected future salary increases including related on-costs and
expected settlement dates are incorporated in the measurement.
Superannuation commitments
The superannuation plan is a defined contribution plan. All employees are entitled to varying levels of benefits on retirement
based on accumulated employer contributions and investment earnings thereon as well as benefits in the event of disability or
death. Contributions by the Group are, as a minimum, in accordance with the Superannuation Guarantee Levy.
Annual Leave
Long service leave
Current
Non-current
As at the balance date there were 324 employees (2013:nil).
31 December
2014
$’000
31 December
2013
$’000
3,078
4,339
7,417
5,123
2,294
7,417
–
–
–
–
–
–
–
Genworth Mortgage Insurance Australia | Annual Report 2014
115
6.5 Trade and other receivables
Accounting policies
The collectability of receivables is assessed at balance date and an impairment loss is made for any doubtful accounts.
Other debtors
Current
Non-current
31 December
2014
$’000
31 December
2013
$’000
3,701
3,701
–
3,701
–
–
–
–
–
Carrying amounts of receivables reasonably approximate fair value at the statement of financial position date. None of the
receivables are impaired or past due.
6.6 Trade and other payables
Accounting policies
Liabilities are recognised for amounts to be paid in the future for goods or services received. Trade accounts payable are
normally settled within 30-60 days. The carrying amount of accounts payable approximates fair value.
Accrued expenses
Related party payables
Interest payable
Trade creditors
Current
Non-current
31 December
2014
$’000
31 December
2013
$’000
21,656
78,190
57
15,457
115,360
115,060
300
115,360
–
–
–
–
–
–
–
–
Included in the related entity payables are the balances related to taxes payable to the head entity of $77,437,000 (2013: $nil).
Under the tax consolidation system, current tax liabilities recognised for the year by the Group are assumed by the head entity
in the tax consolidated group.
6.7 Cash and cash equivalents
Accounting policies
Cash and cash equivalents includes cash on hand, deposits held at call with financial institutions, other short-term and 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. Cash and cash equivalents are measured at fair value, being the
principal amount.
Cash at the end of the financial year as shown in the statement of cash flows is reconciled to the related items in the statement
of financial position as follows:
Cash assets
2014
$’000
88,596
88,596
2013
$’000
–
–
116
Genworth Mortgage Insurance Australia | Annual Report 2014
Notes to the financial statements (continued)
Section 7 – Other disclosures
7.1 Parent entity disclosures
As a result of the reorganisation the Company became the parent entity of the Group as at 19 May 2014 and has remained as
the parent throughout the financial period ending 31 December 2014.
Result of the parent entity
Profit for the period
Total comprehensive income for the period
Financial position of parent entity at period end
Current assets
Total assets
Current liabilities
Total liabilities
Net assets
Total equity of the parent entity comprising of:
Share capital
Retained earnings
Share based payment
Other reserves
Total equity
7.2 Auditor’s remuneration
Audit and review of financial statements
Regulatory audit services
Other assurance services in connection with IPO
Non-assurance services
31 December
2014
$’000
31 December
2013
$’000
264,217
264,217
3,709
2,388,254
(11,631)
(11,631)
2,376,623
1,706,467
246,017
1,686
422,453
2,376,623
–
–
–
–
–
–
–
–
–
–
–
–
31 December
2014
$
31 December
2013
$
597,451
77,045
674,496
1,218,563
50,000
1,943,060
–
–
–
–
–
–
Genworth Mortgage Insurance Australia | Annual Report 2014
117
7.3 Key management personnel disclosures
The following were key management personnel of the Group at any time during the reporting period, and unless otherwise
indicated, were key management personnel for the entire period.
Executive KMP
Georgette Nicholas
Tobin Fonseca
Conor O’Dowd
Bridget Sakr
Directors of the Company
Ellen (Ellie) Comerford
Anthony (Tony) Gill
Richard Grellman
Ian MacDonald
Samuel Marsico
Leon Roday
Stuart Take
Gayle Tollifson
Jerome Upton
The key management personnel compensation is:
Short-term employee benefits
Post-employment benefits
Equity compensation benefits
31 December
2014
$’000
31 December
2013
$’000
3,185
282
1,254
4,721
–
–
–
–
7.4 Related party disclosures
Transactions with related parties are undertaken on normal commercial terms and conditions.
Corporate overhead
On settlement of the Company‘s IPO, the Group entered into certain agreements with Genworth Financial and its affiliates.
Under the agreements GFI will provide certain services to the Group, with most services being terminated if GFI ceases to
beneficially own more than 50% of the common shares of the Company or at the request of either party at annual successive
renewal terms after the initial term ends on 31 December 2016. The services rendered by GFI and affiliated companies consist
of finance, human resources, legal and compliance, investments services, information technology and other specified services.
These transactions are in the normal course of business and accordingly are measured at fair value. Payment for these service
transactions are non-interest bearing and are settled on a quarterly basis. The Group incurred net charges of $3,817,000 for
the year ended 31 December 2014. There is a payable balance of $792,000 as at 31 December 2014.
During the year $12,137,000 of third party costs and expenses associated with the IPO were reimbursed by GFI under a Master
Agreement dated 23 April 2014 entered between the Company and GFI for the purpose of the IPO.
Major shareholder and its ultimate parent entity
The major shareholder of the Group is Brookfield Life Assurance Company Limited and Genworth Financial International
Holdings, Inc. (as partners of the Genworth Australian General Partnership) representing 66.15% ownership. The ultimate
parent entity of AGP is GFI which is incorporated in Delaware, United States of America.
Other related party transactions
A number of the Non-Executive Directors of the Group were employed by our major shareholder, GFI, during the financial
year. Cost of services provided by these directors were not charged to the Group.
118
Genworth Mortgage Insurance Australia | Annual Report 2014
Notes to the financial statements (continued)
Section 7 – Other disclosures (continued)
7.5 Controlled entities
Accounting policies
Subsidiaries are entities controlled by the Company. Control exists when the Company is exposed, or has rights, to variable
returns from its involvement with the entity and has the ability to affect those returns through its power over the entities. In
assessing control, the Company considers the purpose and design of the entities in order to identify the relevant activities, how
decisions about the relevant activities are made, who has the ability to direct those activities and who receives the returns from
those activities. The financial statements of the controlled entities are included from the date control commences until the date
control ceases.
The consolidated financial statements incorporate the assets, liabilities and results of the following controlled entities.
Name of entity
Genworth Financial Mortgage Insurance Holdings Pty Limited
Genworth Financial Mortgage Insurance Pty Limited
Genworth Financial Services Pty Limited
Genworth Financial Mortgage Indemnity Limited
Genworth Financial Mortgage Insurance Finance Pty Limited
Genworth Financial Mortgage Insurance Finance
Holdings Pty Limited
Genworth Financial New Holdings Pty Limited
Genworth Financial Australia Holdings, LLC
Country of
incorporation
Class of
shares
Equity holding
(%) 2014
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
100
100
100
100
100
100
100
100
7.6 Share-based payments
Accounting policies
Share-based payment transactions
Share-based remuneration is provided in various forms to eligible employees and executive Directors of the Group in
compensation for services provided to the Group. All share based payments are equity settled.
The fair value at the grant date, being the date both the employee and the employer agree to the arrangement, is determined
using Black Scholes model based on the share price at grant date and the vesting conditions. This fair value does not change
over the life of the instrument. At each reporting period during the vesting period and upon final vesting or expiry of the
equity instruments, the total accumulated expense is revised based on the fair value at grant date and the latest estimate of the
number of equity instruments that are expected to vest based on the vesting conditions, and taking into account the expired
portion of the vesting period. The movement in the total of accumulated expenses from the previous reporting date are
recognised in the profit and loss with a corresponding movement in the share based payment reserve.
To satisfy obligations under the various share-based remuneration plans, shares are generally expected to be equity settled.
Share Rights Plan
The Group’s remuneration strategy is to provide market competitive remuneration programs that help attract, motivate and
retain highly competent employees who are dedicated to achieving business objectives in a manner that is consistent with the
long-term interests of Shareholders.
On 21 May 2014, the Group granted restricted share rights to a number of key employees including executive KMP. The
aggregate amount of these share rights was $7,265,000. One-third of the share rights granted during the year vest on each
of the second, third and fourth anniversaries of the grant date. If at any time the employee ceases continuous service with the
Group, any unvested share rights are immediately cancelled, except in cases of retirement, redundancy, total and permanent
disability or death.
In addition to the grants to key employees, other employees were granted an amount of share rights in the aggregate amount
of $276,000. All share rights granted to other employees vest on the third anniversary of the grant date. If at any time the
Genworth Mortgage Insurance Australia | Annual Report 2014
119
employee ceases continuous service with the Group, any unvested share rights vest immediately. As such, the aggregate
amount of $276,000 was expensed during the period.
Details of the number of employee share rights granted, exercised and forfeited or cancelled during the year were as follows:
2014
Grant date
21/05/2014
21/05/2014
Total
Balance at
1 January
2014
Granted in
the year
Exercised in
the year (*)
Cancelled/
forfeited in
the year
Balance at
31 December
2014
Vested and
exercisable
at end of
the year
Number
Number
Number
Number
Number
Number
–
–
–
2,741,509
104,151
2,845,660
–
(37,734)
2,703,775
(4,901)
(4,901)
–
99,250
(37,734)
2,803,025
––
––
––
*
Included employees who ceased service with the Group, any unvested share rights vested immediately.
The fair value of the share rights is calculated as at the grant date using a Black Scholes valuation.
Significant factors and assumptions
2014
Grant date
Share price on grant date ($)
Dividend yield
Risk free rate (%)
Vesting dates
2013
Grant date
Share price on grant date ($)
Dividend yield
Risk free rate (%)
Vesting dates
21/5/2014
$2.95
7.8%
Tranche 1: 2.60%
Tranche 2: 2.71%
Tranche 3: 3.08%
Tranche 1: 20 May 2016
Tranche 2: 20 May 2017
Tranche 3: 20 May 2018
–
–
–
–
–
Key terms and conditions:
• The rights are granted for nil consideration.
•
Holders do not receive dividends and do not have voting rights until the rights are exercised.
120
Genworth Mortgage Insurance Australia | Annual Report 2014
Notes to the financial statements (continued)
Section 7 – Other disclosures (continued)
7.6 Share-based payments (continued)
Omnibus Incentive Plan
GFI, GFMI and LLC entered into a Cost Agreement on 15 July 2005 (as varied from time to time) pursuant to which GFI agreed
to offer its 2004 Omnibus Incentive Plan and its 2012 Omnibus Incentive Plan (Omnibus Incentive Plans) to certain employees
of GFMI and LLC.
Under the Omnibus Incentive Plans, GFI issues stock options, stock appreciation rights, restricted stock, restricted stock
units, other stock based awards and dividend equivalent awards with respect to its common stock to employees of its
affiliates throughout the world. Under the Cost Agreement, GFMI and LLC have agreed to bear the costs for their employees’
participation in the Omnibus Incentive Plans from time to time. Employees of GFMI and LLC will not, following the IPO, receive
any further awards under the Omnibus Incentive Plans. Any incentives after that date will be provided through the Group’s
share rights plan. However, GFMI and LLC will continue to bear the costs of past awards under the Omnibus Incentive Plans.
The Group has reserved for such costs and the amount of the reserve is marked to market to reflect the Group’s exposure to
those costs having regard to the price of GFI shares.
Details of the number of employee options granted, exercised and forfeited or cancelled during the year were as follows:
2014
Grant date
Expiry
Date
Exercise
Price
25/05/2004 25/05/2014
20/07/2005 20/07/2015
09/08/2006 09/08/2016
13/02/2008 13/02/2018
12/02/2009 12/02/2019
19/08/2009 25/05/2014
19/08/2009 20/07/2015
19/08/2009 09/08/2016
19/08/2009 03/10/2016
19/08/2009 31/07/2017
19/08/2009 13/02/2018
12/02/2010 12/02/2020
09/02/2011 09/02/2021
14/02/2012 14/02/2022
15/02/2013 15/02/2023
Total
23.9
39.34
41.83
27.94
3.01
9.56
9.56
9.56
9.56
9.56
9.56
17.38
15.63
10.88
11.10
Weighted average exercise price
Balance
at
1 January
2014
Balance
acquired
on
19 May
2014
Granted in
the year
Exercised
in the year
Cancelled
/forfeited
in the year
Balance at
31 December
2014
Vested and
exercisable
at end of
the year
Number Number
Number
Number
Number
Number
Number
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
24,180
2,400
6,600
7,800
20,500
1,552
398
1,248
1,110
2,149
6,300
37,800
30,000
35,100
33,000
210,137
$15.34
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
1,552
299
199
1,110
2,149
3,750
–
–
–
–
24,180
–
–
–
–
–
–
–
–
–
–
1,200
–
–
–
9,059
$9.56
25,380
$23.59
–
2,400
6,600
7,800
–
2,400
6,600
7,800
20,500
20,500
–
99
–
99
1,049
1,049
–
–
2,550
36,600
30,000
35,100
33,000
175,698
$12.08
–
–
2,550
36,600
22,500
17,550
8,250
125,898
$9.31
Balance at 1 January 2014 is adjusted for RSUs granted in prior periods to employees who transferred into/out of the Group
during the year.
Genworth Mortgage Insurance Australia | Annual Report 2014
121
Details of the number of employee RSUs granted, exercised and forfeited or cancelled during the year were as follows:
2014
Grant date
07/02/2007
10/02/2010
01/11/2010
01/03/2011
02/09/2011
03/01/2012
06/01/2012
11/01/2012
14/02/2012
15/02/2013
01/08/2013
01/10/2013
02/12/2013
20/02/2014
Total
Balance at
1 January
2014
Balance
acquired on
19 May 2014
Granted in
the year
Exercised in
the year
Cancelled/
forfeited in
the year
Balance at
31 December
2014
Vested and
exercisable
at end of the
year
Number
Number
Number
Number
Number
Number
Number
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
2,500
6,831
2,500
10,000
24,045
11,250
3,750
18,750
61,971
184,950
7,500
6,000
10,000
–
350,047
–
–
–
–
–
–
–
–
–
–
–
–
–
129,800
129,800
–
6,831
–
5,000
12,027
3,750
1,250
6,250
20,658
46,247
1,875
1,500
2,500
–
107,888
–
–
2,500
–
2,249
–
–
–
4,750
31,537
–
–
–
6,850
47,886
2,500
–
–
5,000
9,769
7,500
2,500
12,500
36,563
107,166
5,625
4,500
7,500
122,950
324,073
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
Balance at 1 January 2014 is adjusted for RSUs granted in prior periods to employees who transferred into/out of the Group
during the year.
7.7 Deed of Cross Guarantee
During the year ended 31 December 2014, the Company and each of the subsidiaries listed below entered into a Deed of
Cross Guarantee under which each party to the Deed guarantees the debts of each other party to the Deed. Under Class
Order 98/1418 (as amended) issued by the Australian Securities and Investment Commission, the Australian incorporated
subsidiaries that are parties to the Deed have been relieved from the requirement to prepare, have audited and lodge with
ASIC financial reports and Directors’ reports under the Corporations Act.
The subsidiaries of the Company that are parties to the Deed are:
• Genworth Financial Australia Holdings, LLC
•
•
•
•
•
Genworth Financial Mortgage Insurance Finance Pty Ltd
Genworth Financial Mortgage Insurance Finance Holdings Pty Ltd
Genworth Financial New Holding Pty Ltd
Genworth Financial Mortgage Insurance Holdings Pty Ltd
Genworth Financial Services Pty Ltd
122
Genworth Mortgage Insurance Australia | Annual Report 2014
Notes to the financial statements (continued)
Section 7 – Other disclosures (continued)
7.7 Deed of Cross Guarantee (continued)
A consolidated statement of comprehensive income and consolidated statement of financial position, comprising the
Company and its controlled entities which are a party to the Deed, after eliminating all transactions between parties to the
Deed of Cross Guarantee, for the year ended 31 December 2014 is set out as follows:
Consolidated statement of comprehensive income
Income
Expenses
Financial income
Financing costs
Profit before income tax
Income tax expense
Profit for the year
Total comprehensive income for the year
Consolidated statement of financial position
Assets
Cash
Investments
Prepayments
Deferred tax asset
Total assets
Liabilities
Trade and other payables
Employee benefits provision
Total liabilities
Net assets
Equity
Share capital
Share-based payment reserve
Other reserves
Retained earnings
Total equity
2014
$’000
1,610
(1,717)
438
(224)
107
(1,390)
1,283
1,283
2013
$’000
–
–
–
–
–
–
–
–
2014
$’000
2013
$’000
17,407
250,235
94
139
267,875
357
271
628
267,247
1,706,467
1,686
(476,558)
(964,348)
267,247
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
Genworth Mortgage Insurance Australia | Annual Report 2014
123
7.8 Events subsequent to reporting date
As the following transactions events occured after reporting date and did not relate to conditions existing at reporting date, no
account has been taken of them in the financial statements for the current reporting year ended 31 December 2014.
• On 11 February 2015, the Directors declared a 100% franked final dividend of 13.1 cents per share totalling $85,000,000
and a 100% franked special dividend of 11.5 cents per share totalling $75,000,000.
• On 17 February 2015, one of our top three lender customers provided 90 days written notice that they were terminating
the agreement for the provision of LMI with GFMI, an operating insurance subsidiary of the Group. The LMI business
underwritten under this contract represented 10% of GMA NIW in 2014 and accounted for 14% of GWP in 2014.
• On 19 February 2015, S&P affirmed the financial strength and issuer credit ratings of the Group’s operating insurance
subsidiaries; GFMI at ‘A+’ with an outlook of developing, revised from negative, and Indemnity at ‘A-‘ with an outlook of
developing, revised from stable, with a relaxation of the notching differential cap.
• On 20 February 2015, Moody’s affirmed the financial strength and issuer credit ratings of both the Group’s operating
insurance subsidiaries, GFMI and Indemnity at A3 with an outlook of negative, revised from stable. The rating action
resulted from the termination of one of the top three lender customers’ agreements for the provision of LMI with GFMI. It
also reflected its view on the growing long-term challenges faced by the Australian mortgage insurance industry.
124
Genworth Mortgage Insurance Australia | Annual Report 2014
Directors’ declaration
(1) In the opinion of the Directors of Genworth Mortgage Insurance Australia Limited (the Company):
(a) the consolidated financial statements and notes set out on pages 85 to 123 are in accordance with the Corporations Act
2001, including:
(i) giving a true and fair view of the Group’s financial position as at 31 December 2014 and of its performance, as
represented by the results of its operations and its cash flows for the period ended on that date; and
(ii) complying with Australian Accounting Standards in Australia and the Corporations Regulations 2001 and other
mandatory professional reporting requirements; and
(b) the financial statements and notes also comply with International Financial Reporting Standards; and
(c) there are reasonable grounds to believe that the Group will be able to pay its debts as and when they become due and
payable.
Signed in accordance with a resolution of the Directors:
Richard Grellman
Chairman
Ellen Comerford
Chief Executive Officer and Managing Director
Dated at Sydney, 27 February 2015
Genworth Mortgage Insurance Australia | Annual Report 2014
125
Independent auditor’s report to the members of
Genworth Mortgage Insurance Australia Limited
Report on the financial report
We have audited the accompanying financial report of Genworth Mortgage Insurance Australia Limited (the Company),
which comprises the consolidated statement of financial position as at 31 December 2014, and consolidated statement
of comprehensive income, consolidated statement of changes in equity and consolidated statement of cash flows for the
year ended on that date, notes 1.1 to 7.8 comprising a summary of significant accounting policies and other explanatory
information and the Directors’ Declaration of the Group comprising the Company and the entities it controlled at the year’s
end or from time to time during the financial year.
Directors’ responsibility for the financial report
The directors of the Company are responsible for the preparation of the financial report that gives a true and fair view in
accordance with Australian Accounting Standards and the Corporations Act 2001 and for such internal control as the directors
determine is necessary to enable the preparation of the financial report that is free from material misstatement whether due to
fraud or error. In note 1.2(a), the directors also state, in accordance with Australian Accounting Standard AASB 101 Presentation
of Financial Statements, that the financial statements of the Group comply with International Financial Reporting Standards.
Auditor’s responsibility
Our responsibility is to express an opinion on the financial report based on our audit. We conducted our audit in accordance
with Australian Auditing Standards. These Auditing Standards require that we comply with relevant ethical requirements
relating to audit engagements and plan and perform the audit to obtain reasonable assurance whether the financial report is
free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial report.
The procedures selected depend on the auditor’s judgement, including the assessment of the risks of material misstatement
of the financial report, whether due to fraud or error. In making those risk assessments, the auditor considers internal control
relevant to the entity’s preparation of the financial report that gives a true and fair view 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 the directors, as well as evaluating the overall presentation of the financial report.
We performed the procedures to assess whether in all material respects the financial report presents fairly, in accordance
with the Corporations Act 2001 and Australian Accounting Standards, a true and fair view which is consistent with our
understanding of the Group’s financial position and of its performance.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.
Independence
In conducting our audit, we have complied with the independence requirements of the Corporations Act 2001.
Auditor’s opinion
In our opinion:
(a) the financial report of the Group is in accordance with the Corporations Act 2001, including:
(i) giving a true and fair view of the Group’s financial position as at 31 December 2014 and of its performance for the year
ended on that date; and
(ii) complying with Australian Accounting Standards and the Corporations Regulations 2001.
(b) the financial report also complies with International Financial Reporting Standards as disclosed in note 1.2(a).
126
Genworth Mortgage Insurance Australia | Annual Report 2014
Report on the Remuneration Report
We have audited the sections of the Remuneration Report that are described as audited included in the Directors’ Report for
the year ended 31 December 2014. The directors of the Company are responsible for the preparation and presentation of
the Remuneration Report in accordance with Section 300A of the Corporations Act 2001. Our responsibility is to express an
opinion on the Remuneration Report, based on our audit conducted in accordance with auditing standards.
Auditor’s opinion
In our opinion, the remuneration disclosures that are contained in the sections of the Director’ Remuneration Report of
Genworth Mortgage Insurance Australia Limited for the year ended 31 December 2014 that are described as audited comply
with Section 300A of the Corporations Act 2001.
KPMG
Ian Moyser
Partner
Dated at Sydney, 27 February 2015
Genworth Mortgage Insurance Australia | Annual Report 2014
127
Shareholder information
Annual General Meeting (AGM)
The 2015 annual general meeting (AGM) of Genworth Mortgage Insurance Australia Limited will be held on 6 May 2015,
at the Westin Hotel, Heritage Ballroom, 1 Martin Place, Sydney NSW 2000. The AGM will be webcast live on the internet at
http://investor.genworth.com.au and an archive version will be placed on the website to enable the AGM to be viewed at
a later time.
Genworth Mortgage Insurance Australia Limited is listed on the ASX and its ordinary shares are quoted under the ASX code ‘GMA’.
Annual Report
Amendments to the Corporations Act 2001 have changed the obligations of companies regarding the provision of annual reports
to shareholders. The default option for receiving annual reports has changed from a printed copy to an electronic copy via GMA’s
website at www.genworth.com.au.
Online voting
Shareholders can lodge voting instructions electronically either as a direct vote or by appointing a proxy for the 2015 AGM at
http://investorcentre.linkmarketservices.com.au. The information required to log on and use online voting is shown on the voting
form distributed to shareholders with the Notice of Annual General meeting.
Voting Rights
At a general meeting, a shareholder present in person or by proxy, attorney or representative has one vote on a show of hands
and on a poll has one vote for each fully paid share held. A person who holds a share which is not fully paid is entitled, on a poll,
to a fraction of a vote equal to the proportion which the amount paid bears to the total issue price of the share.
Voting at any meeting of shareholder is by a show of hands unless a poll is demanded in the manner described in the Company’s
Constitution. If there are two or more joint holders of a share and more than one of them is present at a general meeting, in
person or by proxy, attorney or representative, and tenders a vote in respect of the share, the Company will count only the vote
cast by, or on behalf of, the shareholder by the joint holder whose name appears first in the Company’s register of shareholder.
The quorum required for a meeting of members is two shareholders. If the votes are equal on a proposed resolution, the matter
is decided in the negative.
Shareholder questions
Shareholders can submit a written question to the Company or the Company’s auditor in regard to the AGM or any of the
proposed resolutions to be considered at the AGM, using the form supplied with the Notice of AGM distributed to shareholders.
Forms should be returned to the Company with the personalised voting form in the pre-addressed envelope provided or by fax
to +61 1300 366 228.
Shareholders may also submit questions after completing online voting instructions online at
http://investorcentre.linkmarketservices.com.au.
Questions for the Company’s auditor must be received by 5pm on Wednesday, 29 April 2015. Members will also be given a
reasonable opportunity to ask questions of the Company and the auditor at the AGM.
During the course of the AGM, the Company intends to answer as many of the frequently asked questions as practicable but will
not be responding to individual questions. Responses to the most commonly asked questions will be added to the website at
www.genworth.com.au.
Manage your Holding
Questions regarding shareholdings can be directed to the Company’s Share Registry. Security Reference Number (SRN) or
Holder Identification Number (HIN) will be required to verify identity. Share Registry contact information is found in the Corporate
Directory of this report.
Shareholders that are broker (CHESS) sponsored should direct queries relating to incorrect registrations, name changes and
address changes to their broker.
Information about Genworth
Information about Genworth Mortgage Insurance Australia Limited including company announcements, presentations and
reports can be accessed at http://investor.genworth.com.au.
Shareholders can register to receive an email alert advising of new Genworth media releases, financial announcements or
presentations. Registration for email alerts is available on Genworth’s website at http://investor.genworth.com.au under the
Investor Services section.
If information is not directly available on Genworth’s website, shareholders may contact the Company directly at
investorrelations@genworth.com.
128
Genworth Mortgage Insurance Australia | Annual Report 2014
Shareholder information (continued)
Ordinary shares information
Important dates *
GMA year end
Full year results and dividend announced
Record date for dividend
Dividend paid
Annual report and notice of meeting mail out commences
Annual general meeting
GMA half year end
* Note dates are subject to change.
Ordinary shares and share rights
As at 27 February 2015, the Company has on issue the following equity securities:
• 650,000,000 Shares
• 2,796,116 Share Rights
Substantial holders of ordinary shares
31 December 2014
11 February 2015
20 February 2015
6 March 2015
27 March 2015
6 May 2015
30 June 2015
Name
Brookfield Life Assurance Company Limited & Genworth Financial
International Holdings, Inc. (as partners of the Genworth Australian
General Partnership), and their related bodies corporate
The Capital Group Companies, Inc.
Number of
shares
Voting power
(%)
Date of
notice
430,000,000
32,940,314
66.2
20 May 2014
5.07 23 February 2015
Note: substantial holder details are as disclosed in substantial holding notices given to the Company.
Twenty largest holders of ordinary shares
Rank Name
Number of
shares
% of issued
shares
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
Brookfield Life Assurance Company Limited & Genworth Financial International
Holdings, Inc. (as partners of the Genworth Australian General Partnership)
430,000,000
66.15
J P Morgan Nominees Australia Limited
HSBC Custody Nominees (Australia) Limited
National Nominees Limited
BNP Paribas Nominees Pty Ltd
Citicorp Nominees Pty Limited
RBC Investor Services Australia Nominees Pty Limited
AMP Life Limited
Brispot Nominees Pty Ltd
National Nominees Limited
Warbont Nominees Pty Ltd
UBS Wealth Management Australia Nominees Pty Ltd
HSBC Custody Nominees (Australia) Limited
UCA Growth Fund Limited
Custody Nominees (Australia) Limited
Citicorp Nominees Pty Limited
RBC Investor Services Australia Nominees Pty Limited
Sandhurst Trustees Ltd
UBS Nominees Pty Ltd
RBC Investor Services Australia Nominees Pty Limited
Total for top 20
49,808,706
46,669,990
24,027,458
17,877,395
15,169,980
9,660,899
4,691,582
4,524,885
2,198,624
2,110,797
2,023,802
1,887,946
1,850,000
1,522,102
1,416,045
1,391,211
1,211,312
1,075,529
939,616
7.66
7.18
3.70
2.75
2.33
1.49
0.72
0.70
0.34
0.32
0.31
0.29
0.28
0.23
0.22
0.21
0.19
0.17
0.14
620,057,879
95.39
Genworth Mortgage Insurance Australia | Annual Report 2014
129
Distribution schedule of holders of ordinary shares
Range of ordinanry shareholders as at 31 December 2014
1-1000
1,001 – 5,000
5,001-10,000
10,001 – 100,000
100,001 and over
Total
Shareholders with less than a marketable parcel of 151 ordinary
shares
Number of
holders
398
896
522
540
52
2,408
54
Number of
shares
215,778
2,572,468
4,021,237
14,146,682
629,043,835
650,000,000
% of issued
shares
0.03
0.40
0.62
2.18
96.78
100.00
Dividend details
Share class
Ordinary
Ordinary
Ordinary
Dividend
Interim
Final
Special
Franking
Amount per share
Payment date
Fully franked
Fully franked
Fully franked
2.8 cents
13.1 cents
11.5 cents
29 August 2014
6 March 2015
6 March 2015
Share rights information
Distribution schedule of holders of share rights
Range of ordinanry shareholders as at 31 December 2014
1-1000
1,001 – 5,000
5,001-10,000
10,001 – 100,000
100,001 and over
Total
Number of
holders
245
-
11
19
8
283
Number of
shares
92,365
-
62,260
660,361
1,981,130
2,796,116
% of total
shares rights
3.30
-
2.23
23.62
70.85
100.00
Voting rights
Share Rights do not carry any voting rights. Ordinary shares issued or transferred to participants on the vesting of Share Rights
carry the same rights and entitlements as other issued shares.
130
Genworth Mortgage Insurance Australia | Annual Report 2014
Corporate directory
Registered office
Genworth Mortgage Insurance Australia Limited
Level 26
101 Miller Street
North Sydney NSW 2060
Telephone: +61 1300 655 422
Fax: +61 1300 366 228
Website: www.genworth.com.au
Company Secretary
Mr Jonathan Downes, General Counsel & Company Secretary
Share registry
Link Market Services Limited
Level 12
680 George Street
Sydney NSW 2000
Telephone: +61 1300 554 474
Fax: +61 2 9287 0303
Email: registrars@linkmarketservices.com.au
Website: www.linkmarketservices.com.au
Link Investor Centre
http://investorcentre.linkmarketservices.com.au
Australian Securities Exchange
Genworth Mortgage Insurance Australia Limited is listed under the ASX code “GMA”.
Annual Report
To request a copy of the Annual Report, please contact the Share Registry.
Electronic versions of the Annual Report are available at http://investor.genworth.com.au.
Genworth Mortgage Insurance Australia | Annual Report 2014
131
Appendices
Appendix A
Reconciliation of reported (statutory) FY14 results and pro forma historical FY14 results
The pro forma historical consolidated statement of comprehensive income for the period ended 31 December 2014 is
presented on the basis of twelve months of results for the Group. On a statutory basis, GMA only consolidates and accounts
for the results of the Group from the date of reorganisation on 19 May 2014. The FY14 pro forma consolidated statement of
comprehensive income therefore includes the results that are considered ‘pre reorganisation’ NPAT. The statutory (reported)
NPAT post reorganisation represents the NPAT for the period from the formation of the Group, 19 May 2014 to 31 December
2014 (Statutory NPAT).
Table 1: Reconciliation between pro forma NPAT for FY14 and statutory NPAT for the period from 19 May 2014 to
31 December 2014
(A$ in millions)
Pro Forma NPAT for full year to 31 December 2014
Less period prior to formation of consolidated Group: 1 January to 18 May 2014
Pro Forma result for period 19 May to 31 December 2014
Add tax effected interest expense incurred on restructure of Group
Statutory NPAT for period 19 May to 31 December 2014
FY 14
324.1
(108.7)
215.4
(0.2)
215.2
Appendix B
Underlying NPAT
Set out below is a reconciliation of NPAT in the Consolidated Statement of Comprehensive Income to the Underlying NPAT of
the Group.
The objective of setting out the table below is to present a pro forma measure of Underlying NPAT for FY13 (unaudited pro
forma) to FY14 (unaudited pro forma) and FY14 (reported), given the Board’s current intention to target a dividend payout ratio
range that is based on Underlying NPAT.
Underlying NPAT, which is a non-IFRS financial measure, is a reporting measure used by the management of Genworth
Australia. It is calculated by adjusting the NPAT to exclude any after tax impact of unrealised gains or losses on securities held
in the Group’s investment portfolio.
Table 2 Reconciliation of NPAT and Underlying NPAT
(A$ in thousands)
NPAT
Adjustment for change in unrealised (gains)/losses
Adjustment for tax on change in unrealised (gains)/losses
Underlying NPAT1
FY14
(Audited/
Reported)
FY14
(Unaudited
pro forma)
FY13
(Unaudited
pro forma)
215,157
(49,224)
14,767
180,700
324,077
(63,801)
19,140
279,417
179,397
59,292
(17,788)
220,901
1. Underlying NPAT has not been prepared in accordance with the recognition or measurement principles within Australian Accounting Standards and has not
been audited or reviewed. Underlying NPAT excludes the after tax effect of changes in unrealised gains/(losses) from investments.
132
Genworth Mortgage Insurance Australia | Annual Report 2014
Appendices (continued)
Underlying Equity
Set out below is a reconciliation of total equity in the Consolidated Statement of Financial Position for the years ended FY13
(unaudited pro forma), FY14 (unaudited pro forma) and FY14 (reported) to the Underlying Equity for the Group.
The objective of setting out the table below is to present a pro forma measure of Underlying Equity that has been used for the
purpose of calculating the Underlying ROE disclosed in the Performance review outlook.
Underlying Equity, which is a non-IFRS financial measure, is calculated by adjusting total equity to exclude any after tax impact
of unrealised gains or losses on securities held in the Group’s investment portfolio.
Table 3 Reconciliation of total equity and Underlying Equity
(A$ in thousands)
Total equity
Adjustment for life to date unrealised (gains)/losses1
Adjustment for tax on life to date unrealised (gains)/losses
Underlying Equity2
FY14
(Audited/
Reported)
FY14
(Unaudited pro
forma)
FY13
(Unaudited pro
forma)
2,500,475
2,500,453
2,210,851
(49,224)
14,767
(137,470)
41,241
(73,709)
(22,113)
2,466,018
2,404,224
2,159,255
1. The adjustment for life to date unrealised (gains)/losses represents the cumulative unrealised gains/(losses) relating to assets in the investment portfolio at each
balance date.
2. Underlying Equity has not been prepared in accordance with the recognition or measurement principles within Australian Accounting Standards and has not
been audited or reviewed. Underlying Equity excludes the after tax effect of changes in unrealised gains/(losses) from investments.
Genworth Mortgage Insurance Australia | Annual Report 2014
133
Glossary
Term
AASB
AGP
AIFRS
APRA
ASX
Description
Australian Accounting Standards Board
Genworth Australian General Partnership
Australian equivalents to IFRS
Australian Prudential Regulation Authority
Australian Securities Exchange
Australian Subsidiaries
Genworth Financial’s 100% owned Australian subsidiaries prior to the IPO
Book Year
CET1 or Tier 1 Capital
The calendar year an LMI policy is originated
As defined by GPS 112, Tier 1 Capital comprises the highest quality components
of capital that fully satisfy all of the following essential characteristics:
• Provide a permanent and unrestricted commitment of funds;
• Are freely available to absorb losses;
• Do not impose any unavoidable servicing charge against earnings; and
• Rank behind the claims of policyholders and creditors in the event of winding up
Combined ratio
The combined ratio is the sum of the loss ratio and the expense ratio
DUA
EPS
Expense ratio
FBT
FSI
GFMI
Delegated underwriting authority
Earnings per share
The expense ratio is calculated by dividing the sum of the acquisition costs and
the other underwriting expenses by the net earned premium
Fringe benefit tax
Financial System Inquiry
Genworth Financial Mortgage Insurance Pty Limited
GMA or the Company
Genworth Mortgage Insurance Australia Limited ABN 72 154 890 730
Genworth Australia or the Group
The Company and its subsidiaries
Genworth Financial or GFI
Genworth Financial Group
Genworth Financial, Inc. and, where relevant, its predecessors
Genworth Financial and its subsidiaries, excluding Genworth Australia
Gross earned premium or GEP
The earned premium for a given period prior to any outward reinsurance expense
GLIC
GWP
HLIC
HLVR
IBNR
ICAAP
IFRS
Indemnity
Insurance margin
Investment return
KMP
Genworth Life Insurance Co.
Gross written premium
Housing Loans Insurance Corporation
High loan to value ratio (excluding capitalisation of LMI premium). Generally,
a residential mortgage loan with an LVR in excess of a specified benchmark is
referred to as an HLVR loan. This LVR benchmark is commonly 80%
Delinquent loans that have been incurred but not reported
Internal Capital Adequacy Assessment Process
International Financial Reporting Standards
Genworth Financial Mortgage Indemnity Ltd
The insurance margin is calculated by dividing the profit from underwriting and
interest income on technical funds (including realised and unrealised gains or
losses) by the net earned premium
The investment return is calculated as the interest income on technical funds
plus the interest income on shareholder funds (excluding realised and unrealised
gains/(losses)) divided by the average balance of the opening and closing cash
and investments balance for each financial year
Key Management Personnel, as the term is defined in the Corporations Act 2001
(Cth)
134
Genworth Mortgage Insurance Australia | Annual Report 2014
Glossary (continued)
Term
Description
Level 2 and Level 2 Group
The term ‘Level 2 insurance group’ defined by APRA under Prudential Standard
GPS 001, referring to a consolidated insurance group
LLC
LMI
LMI Market
LMI Provider
LMI Subsidiary
Loss ratio
LTI
LVR
Major Banks
Genworth Financial Australia Holdings, LLC
Lenders Mortgage Insurance
The market for LMI provided by external LMI Providers and LMI Subsidiaries but
excluding the retention of risk by Lenders and other forms of risk mitigation or
risk transfer by Lenders in relation to the credit risk of residential mortgage loans
A provider of LMI, excluding LMI Subsidiaries
A provider of LMI owned or controlled by the insured or a member of its
corporate group
The loss ratio is calculated by dividing the net claims incurred by the net earned
premium
Long-term incentive
Loan to value ratio. This percentage is calculated by dividing the gross value of
a loan (excluding capitalisation of LMI premium) by the value of the property
securing the loan. The value is based on the lower of the valuation of the
underlying property accepted or externally obtained by the lender at origination
or the price paid
Australia and New Zealand Banking Group Limited ABN 11 005 357 522,
Commonwealth Bank of Australia ABN 48 123 123 124, National Australia
Bank Limited ABN 12 004 044 937 and Westpac Banking Corporation ABN 33
007 457 141 and each of their affiliated brokers and other residential lending
distribution channels
MIP
NED
Mortgagee in possession
Non-Executive Director
Net earned premium or NEP
The earned premium for a given period less any outward reinsurance expense
NIW
NOHC
NPAT
Omnibus Incentive Plans
PCA
PCA coverage
PCR
PDR
PoS
New insurance written
Non-operating holding company as defined under the Prudential Standard GPS
001
Net profit after tax
The Genworth Financial 2004 Omnibus Incentive Plan and 2012 Omnibus
Incentive Plan
Prescribed capital amount
The PCA coverage is calculated by dividing the regulatory capital base by the
prescribed capital amount
Prudential Capital Requirement comprising the PCA and any supervisory
adjustment determined by APRA
Performance and Development Review
Probability of sufficiency
Regulatory capital base
The regulatory capital base is the sum of Tier 1 Capital and Tier 2 Capital
ReMS
Return on Equity (ROE)
Reinsurance Management Strategy
The ROE is calculated by dividing NPAT by the average of the opening and
closing equity balance for a financial period
Rights Plan
Genworth Australia Share Rights Plan
RMF
RMS
RSU
Risk Management Framework
Risk Management Strategy
Restricted share units
Genworth Mortgage Insurance Australia | Annual Report 2014
135
Term
S&P
SLT
STI
Supply and Service Contract
Technical Funds
TFR
Tier 2 Capital
Underlying Equity
Underlying NPAT
Underlying ROE
WGEA
VWAP
Description
Standard & Poor’s Ratings Services
Senior Leadership Team
Short term incentive
A contract between a lender customer and Genworth Australia for the supply of
LMI and related services
The investments held to support premium liabilities and outstanding claims
reserves
Total fixed remuneration
As defined by GPS 112, Tier 2 Capital comprises other components of capital
that, to varying degrees, fall short of the quality of Tier 1 Capital but nonetheless
contribute to the overall strength of a regulated institution and its capacity to
absorb losses
Underlying Equity is defined as total equity excluding the after-tax impact of
unrealised gains (losses) on the investment portfolio. This has been calculated on
a pro forma basis
Underlying NPAT excludes the after-tax impact of unrealised gains/(losses) on the
investment portfolio
The Underlying ROE is calculated by dividing Underlying NPAT by the average of
the opening and closing Underlying equity balance for a financial period
Workplace Gender Equality Agency
Volume weighted average price
136
Genworth Mortgage Insurance Australia | Annual Report 2014
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