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ANNUAL
REPORT
G R O W I N G
T O G E T H E R
C o nte nt s
SECTION 1
Overview
Our vision
2017 at a glance
Genworth in the community
Chairman’s message
Chief Executive Officer’s report
SECTION 2
Directors’ report
Board of Directors
Senior leadership team
Principal activity
Organisation overview
Business model
Products and customers
Our strategy
Risk management
Operating and financial review
Remuneration report
SECTION 3
Financial report
Financial statements
Directors’ declaration
Independent auditor’s report
SECTION 4
Other information
Shareholder information
Glossary
Corporate directory
1
2
4
6
8
10
12
14
14
15
15
16
18
20
26
45
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83
87
91
IBC
Genworth is a leading provider
of Lenders Mortgage Insurance
(LMI) in Australia. LMI has
been an important part of the
Australian residential mortgage
lending market since Housing
Loan Insurance Corporation
(HLIC) was founded by the
Australian Government in 1965.
Genworth Mortgage Insurance Australia Limited
and its controlled entities
ABN 72 154 890 730
Creating a home
At Genworth, our vision is to be a leading
provider of customer focused capital and
risk management solutions in residential
mortgage markets. We work with our lender
customers, regulators and policy leaders to
promote a stronger and more sustainable
housing market in Australia.
1
GENWORTH Annual Report 2017342DIRECTORS’ REPORTFINANCIAL REPORTOTHER INFORMATION1OVERVIEW 2017
at a glance
Operational highlights
Policies in-force
Dividends (cents per share)
over1.4m
Policies written in 2017
69,149
30
25
20
15
10
5
0
e
r
a
h
s
r
e
p
s
t
n
e
C
80
70
60
50
o
i
t
a
r
t
u
o
y
a
p
y
r
a
n
d
r
O
i
FY14
FY15
FY16
FY17
Ordinary Special
Ordinary payout ratio (RHS)
Market capitalisation
Value of insured loans
$1.5b
$23.9b
Investment portfolio
Gross written premium (GWP)
$3.4b
$369m
2
Portfolio of
insured loans
by state
WA
12%
NT
1%
QLD
23%
SA
6%
NSW
28%
VIC
23%
ACT
3%
TAS
2%
NZ
2%
Insurance in-force
by original loan-to-value ratio
Insurance in-force
by loan type
<60%
8%
60–70%
6%
70–80% 16%
80–85%
8%
85–90% 32%
90–95% 28%
95%<
2%
Investment
26%
Owner-occupied 74%
3
GENWORTH Annual Report 2017342DIRECTORS’ REPORTFINANCIAL REPORTOTHER INFORMATION1OVERVIEW Genworth
in the community
All figures as at 31 December 2017
Number of
volunteer events in
corporate calendar
24
Women in senior
leadership role
38%
Genworth
fundraising
initiatives
$196,000
Community support
Total time
spent on
volunteering
780+
hours
Employees
participating
in volunteering
programs
50%
Brush with
kindness
Habitat for Humanity
Backyard blitz
Forsight Foundation
OzHarvest
St Vincent
de Paul
Through a partnership
with Habitat for
Humanity our
volunteers took a
brush for kindness
day, maintaining and
enhancing homes and
facilities that support
the homeless and
victims of violence. Over
the year, 28 employees
in Risk, IT and Strategy
and Innovation were
able to participate in
this great initiative.
In 2017 almost a
quarter of the business,
across Finance,
Operations and
Commercial, were able
to take part in a series
of backyard blitzes,
making upgrades
and improvements
to Forsight group
homes to make
them compatible for
the deaf, blind and
wheelchair bound.
Genworth’s new
community partner,
OzHarvest is Australia’s
leading food rescue
organisation, bridging
the gap between
excess food from
commercial outlets and
hungry and homeless
Australians. A new
partner, 2018 will see
many opportunities for
employee involvement.
Vinnie’s provides
support to people in
need and combats
social injustice across
Australia. Genworth
was able to assist in
this mission through
many initiatives
including K.E.E.P,
CEO Sleepout,
Vinnie’s BBQs and
the Christmas Appeal.
4
Diversity, inclusion and recognition
FEMALE
MALE
Board
SLT
(CEO and direct reports)
Other management roles
(excluding the SLT)
x19
x35
Overall
x107
x131
Skilled
volunteering
Vinnie’s CEO
Sleepout
Parents@Work
Genworth was
recognised as a
family‑friendly
organisation that
supports working
parents by
Parents@Work.
Genworth employees
use their business
skills and acumen
to help our community
partners more
effectively manage and
run their operations.
In 2017 members from
our data management
team dedicated time
to assisting Vinnie’s
marketing department
to manage and
analyse data.
In the thick of winter
the senior leadership
team (SLT) spent the
night sleeping on
cardboard out on the
streets to raise funds
and awareness for
people in Australia
experiencing
homelessness. The
overall program
raised an incredible
$5.6 million.
WGEA Employer
of Choice for
Gender Equality
Genworth was
awarded Workplace
Gender Equality
Agency (WGEA)
Employer of Choice
for Gender Equality
citation for the third
consecutive year.
2018 HRD
Innovative
Team
Genworth’s HR team
was awarded the highly
sought after Human
Resources Director
(HRD) Innovative
Teams Award for
innovations and
improvements made
throughout the year.
30% Club
member
Genworth became a
member of the 30%
Club, with 30 per cent
female representation
on the Board. The
group was formed by
the Australian Institute
of Company Directors
committed to achieving
better gender balance
in organisations.
5
GENWORTH Annual Report 2017342DIRECTORS’ REPORTFINANCIAL REPORTOTHER INFORMATION1OVERVIEW
Chairman’s
message
Dear Shareholders
I am pleased to present to you Genworth’s 2017
Annual Report. This is my second year, writing to you in the
capacity of Chairman and over this period significant work has been
undertaken to position Genworth as the leading provider of customer‑focused
capital and risk management solutions in residential mortgage markets.
We have also continued our work with lender customers, regulators and policy leaders
to promote a stronger and more sustainable housing market in Australia.
Regulatory
capital base
$2.1b
Fully franked
ordinary
dividend
24cps
Genworth strategy
Over the course of 2017, we undertook a strategic
program of work designed to redefine our core
business model. We recognise that lender and
consumer expectations are changing in the face of
technological and regulatory change. This means that
as an organisation we need to be agile and to leverage
our strong core competencies to develop customer‑
focused capital and risk management solutions that
complement our market leading LMI offering.
Our management team led by Chief Executive
Officer (CEO) & Managing Director Georgette
Nicholas made significant progress throughout
the year in leveraging Genworth’s extensive
local experience, global expertise and strong
relationships with international reinsurers to
enhance our product offerings, improve our
underwriting efficiencies and where appropriate
leverage our data and partnerships along the
mortgage value chain.
This strategic work will continue in 2018 and is
designed to deliver sustainable shareholder returns
by offering customers a greater depth and breadth
of customised risk and capital management tools
that complement our traditional LMI offering.
Financial position
Our Company’s financial position is strong. At the
end of 2017, we maintained a regulatory capital
base of $2.1 billion and a coverage ratio of 1.93
times the Prescribed Capital Amount (PCA) on a
Group (Level 2) basis. This is in excess of the Board’s
targeted range of 1.32–1.44 times the PCA.
We also have a high‑quality investment portfolio. As at
31 December 2017, our cash and investment portfolio
had a market value of $3.4 billion, of which more than
86 per cent continues to be held in cash and highly
rated fixed interest securities. In line with our strategy
to improve investment returns on the portfolio
within acceptable risk tolerances, the Company
had $237.4 million invested in Australian equities as
at 31 December 2017. Looking forward, the Board
has approved a strategy to diversify the Company’s
assets by investing in non‑Australian dollar fixed
income securities. This will be implemented in 2018.
Capital management
The Company’s capital position is actively managed,
and we are continually, evaluating excess capital and
its potential uses. Since listing on the Australian Stock
Exchange in 2014, Genworth has distributed all of its
after‑tax profits by way of dividends to shareholders,
as well as implemented a capital reduction program
and two on‑market share buy‑back programs.
During the year we embarked on a number of
capital management initiatives designed to bring
the Company’s solvency ratio more in line with
the Board’s target range. A total fully franked
ordinary dividend of 24 cents per share was
declared representing a payout ratio of 70.3 per
cent up from 67.2 per cent in 2016. In addition, a
fully franked special dividend of 2 cents per share
was declared. The combined ordinary and special
dividends for the 2017 financial year equate to an
8.7 per cent yield based on the share price ($3.00)
as at 31 December 2017.
6
Commenced
$100m
share
buy-back
Fully franked
special
dividend
2cps
We also commenced an on‑market share buy‑back up to a maximum value of $100 million. As at the end of
the year, $51 million worth of shares had been acquired. Genworth intends to continue to buy‑back shares in
2018, up to a maximum total value of $100 million subject to business and market conditions, the prevailing
share price, market values and other considerations.
Looking ahead
Our Company has been and continues to be committed to the Australian housing market in both good
times and in periods of stress. Our goal is to continue to support borrowers obtain a home by providing
risk and capital solutions to our lender customers. We are also committed to helping borrowers stay in their
homes through our loss mitigation services.
Our value proposition to customers remains strong. We provide capital support, reduce risk exposures and
deliver underwriting and loss mitigation services that help lenders maintain quality residential lending standards.
Throughout the year we saw housing price growth moderate following regulatory measures to slow
growth in investment lending and limit the flow of new interest‑only lending. Current market conditions are
challenging with reduced high loan‑to‑value lending and areas of pressure as the economy continues to
transition away from the mining investment boom. In this environment, our focus is on our risk management
discipline and on identifying innovative solutions to address the strategic needs of our customers.
Corporate social responsibility
The Board places significant importance on corporate social responsibility. We are committed to ensuring
that high corporate governance standards are upheld by the Company. Details of Genworth’s corporate
governance policies and practices are set out in our corporate governance statement that can be found on
the Genworth website.
As part of our corporate social responsibility program, we are committed to diversity in the workplace. The
Board has resolved to adopt best practice regarding Board diversity by setting a target of having 30 per
cent female representation on the Board by the end of 2018. I am pleased to report that we have met that
target with 33 per cent women on the Board currently.
In addition, management has set a goal of maintaining female representation of at least 38 per cent on the
SLT and in striving for diversity across all leadership roles. As at 31 December 2017 33 per cent of the SLT
was female and 35 per cent of other management roles were filled by females.
The WGEA has recognised our work in diversity and awarded Genworth the WGEA Employer of Choice for
Gender Equality citation for the third consecutive year.
Conclusion
We believe that the risk and capital management solutions that Genworth offers its customers contribute
significantly to supporting the Australian dream of homeownership and to the stability of the Australian
residential property mortgage market.
Our continued success would not be possible without our SLT led by our CEO & Managing Director
Georgette Nicholas and our team of employees. I would like to formally acknowledge and thank them for
their efforts.
I would also like to thank my fellow directors for their contribution and commitment to Genworth’s success.
Importantly I would like to thank our shareholders for their continued support and for entrusting us with
stewardship of the Company.
Yours sincerely,
Ian MacDonald
7
GENWORTH Annual Report 2017342DIRECTORS’ REPORTFINANCIAL REPORTOTHER INFORMATION1OVERVIEW Chief Executive
Officer’s report
The 2017 financial year was a transitional year for Genworth. We
continued our track record of delivering attractive shareholder returns
in the form of fully franked ordinary dividends (24 cents per share)
and a fully franked special dividend (2 cents per share), completed
the buy‑back of $51 million worth of shares as part of our $100 million
on‑market share buy‑back commenced in the second half of 2017,
as well as commencing a strategic program of work designed to
redefine our core business model (strategic program of work).
Strategic update
Our strategic program of work is continuing and focused on
addressing evolving lender and consumer expectations resulting
from technological and regulatory change. Our objective is to
position Genworth as a leading provider of customer‑focused
capital and risk management solutions.
As part of this program of work we have identified a number of
strategic initiatives that concentrate on improving our underwriting
efficiency, enhancing our product offerings and leveraging our
data and partnerships along the mortgage value chain.
One such initiative has involved the establishment of an offshore
insurance entity based in Bermuda, which provides us with the
capability to structure bespoke risk management solutions for
portfolio cover across both high and low loan‑to‑value ratios. I am
pleased to report that by leveraging our strong relationships in
the global reinsurance market we have created a consortium and
entered into an agreement with a customer to utilise this new
structure to manage mortgage default risk. This bespoke solution
is a complementary risk management tool to traditional LMI cover.
The second half of 2017 also saw the culmination of work we had
undertaken to create and implement risk management solutions
for borrower paid LMI in the less than 80 per cent loan‑to‑value
ratio (LVR) segment on a micro market basis.
Both of these initiatives demonstrate our ability to tailor products
and solutions for customers by leveraging our:
• extensive local experience in managing mortgage credit
default risk;
• global expertise; and
• strong relationships with international risk and capital markets.
These core competencies enable us to offer customers a greater
depth and breadth of tailored risk and capital management tools
that complement our traditional LMI offering.
Over the course of 2018 we will continue to engage with other
existing and potential lender customers regarding the provision
of capital and risk management solutions, in addition to actively
pursuing new agreements that meet our risk appetite and return
on equity (ROE) profile.
We will also continue to roll‑out other strategic initiatives
designed to deliver sustainable shareholder returns, that we have
identified as part of our strategic program of work.
Financial performance
Our 2017 financial results reflect the impact in the fourth quarter of
our annual premium earning pattern review which we announced to
the market on 15 December 2017 (2017 earnings curve review). This
review resulted in a modification of our premium earning pattern,
specifically a lengthening of the average duration of the period
over which we recognise our revenue by approximately 12 months.
The revised earning pattern has been applied to the 4Q17 and
subsequent periods. Whilst it does not affect the total amount of
revenue expected to be earned over time from premiums already
written, it did delay our recognition of net earned premium (NEP) in
4Q17 and will impact the NEP recognition in future years.
Our underlying net profit after tax (excluding mark‑to‑market
movements in the investment portfolio) in 2017 was $171.1 million,
down 19.4 per cent compared to 2016.
Market dynamics continued to be challenging during the year
with reduced high LVR lending as a proportion of total mortgage
originations. In response to these trends, new insurance written (NIW)
declined 10.2% to $23.9 billion and gross written premium (GWP) was
down 3.4 per cent at $369.0 million. This decline reflects changes in
our customer portfolio during the year, changes in business mix and
the impact of the premium rate actions taken in 2016.
Total revenue, as measured by NEP, fell 18.2 per cent to $370.5
million, reflecting the $37.3 million impact of the 2017 earnings
curve review and lower earned premium from current and prior
book years. Without the 2017 earnings curve review adjustment
NEP would have declined 10.0 per cent.
During the year new delinquencies decreased in both mining and
non‑mining areas. We saw the mix of new mining delinquencies
shift, with Western Australia continuing to increase whereas in
Queensland the mining experience has been quite stable. Cures
increased during the year, particularly in non‑mining areas,
however the number of claims paid was higher due to a higher
proportion of claims in mining areas.
Our net claims incurred fell 10.7 per cent from $158.8 million in
2016 to $141.8 million in 2017. Our loss ratio in 2017 was 38.3
per cent, up from 35.1 per cent in 2016 reflecting the impact of
lower NEP due to the 2017 earnings curve review. Without this
adjustment our 2017 loss ratio would have been 34.8 per cent.
Our expense ratio for the year was 29.3 per cent compared
with 25.7 per cent in the prior year reflecting lower NEP and
expenditure on our strategic program of work. This is in line with
our anticipated target range of between 28 and 30 per cent.
Investment income for the 2017 financial year was $103.3 million and
included a pre‑tax realised gain of $36.4 million ($25.5 million after
tax) and a mark‑to‑market loss of $31.3 million ($21.9 million after‑tax).
After adjusting for the mark‑to‑market movements, the 2017
investment return was 2.82 per cent per annum, down from 3.41
per cent per annum in 2016.
Capital management
Since listing, a key focus for us has been ensuring we have an
optimal capital structure. Over that time, we have paid out all
after tax profits to shareholders and returned more than $1
billion, or $2 per share, to shareholders via ordinary and special
dividends and other capital management initiatives such as
buy‑backs and capital reductions.
Our capital management philosophy has not changed and
during 2017 we embarked on a number of capital management
initiatives including:
• declaration of a total fully franked ordinary dividend of
24 cents per share;
• declaration of a fully franked special dividend of 2 cents per
share; and
• commencement of an on‑market share buy‑back up to a
maximum value of $100 million.
8
Looking ahead, we will continue to actively manage our capital position
with a view to ensuring that our capital base meets our objectives of
balancing policyholder obligations, delivering long‑term shareholder
returns and having flexibility to grow the business in the future.
Customers
Genworth has commercial relationships with over 100 lender
customers across Australia and supply and service contracts with
10 of its key customers. Our top three customers accounted for
approximately 60 per cent of our total NIW and 72.7 per cent of
GWP in 2017. We estimate that we had approximately 25 per cent
of the Australian LMI market by NIW in 2017.
On 10 March 2017 we announced that the exclusivity agreement
for the provision of LMI with our second largest customer would
terminate in April 2017. We have been successful in entering into
new business with this customer that assists them in managing
mortgage default risk through alternative insurance arrangements.
On 20 September 2017 we announced that we had extended our
supply and service contract with National Australia Bank (NAB) for
the provision of LMI for NAB’s broker business. The term of the
contract has been extended for one year to 20 November 2018.
Ratings
Genworth’s credit ratings reflect the financial strength of our
Company and demonstrate to stakeholders our claim paying
ability. On 19 March 2017 Standard & Poor’s Ratings Services
(S&P) reaffirmed Genworth Financial Mortgage Insurance Pty
Limited’s financial strength rating at ‘A+’ however revised its
outlook from ‘stable’ to ‘negative’.
On 13 September 2017, Fitch Ratings reaffirmed Genworth
Financial Mortgage Insurance Pty Limited’s financial strength
rating at ‘A+’ and outlook ‘stable’.
Regulatory environment
Genworth is committed to working with policymakers, ratings
agencies and other industry participants to promote legislative
and regulatory policies that support home ownership and
continued responsible credit growth.
During 2017, we continued to work with APRA to identify and
recommend policy solutions that would set suitable capital
requirements for the residential mortgage industry. Genworth
is leading industry efforts to educate policymakers about the
importance of LMI to the Australian mortgage market and
ensuring the wider financial system remains stable. In particular,
we are focused on educating regulators and policymakers about
the value of our risk and capital management solutions as a loss
absorption and capital tool.
Community
Genworth seeks to make a meaningful contribution to the
communities in which we operate. We make it a priority to
contribute to causes that are aligned to our mission and vision of
supporting the dream of homeownership by helping Australians
get into their home sooner and keeping them there.
In 2017 Genworth donated $150,000 to its three community
partners: St Vincent de Paul Society, The Forsight Foundation
and Habitat for Humanity Australia. Genworth also continued its
“milestone anniversary donation”program throughout the year.
Pursuant to this program our Company makes a $1000 donation
to a registered charity selected by an employee celebrating their
10, 15 or 20 year anniversary with Genworth.
In addition to our corporate charitable donations we have also
established a number of staff volunteering and donation programs
for our employees. These include “workplace giving”, “make‑a‑
difference day” and a new addition in 2017, “employee sponsored
donations”. During the year more than 50 per cent of our employees
participated in volunteering programs with our community partners,
contributing 780 hours to programs such as Habitat for Humanity’s
“brush with kindness”, the Forsight Foundation’s “backyard blitz”
and programs run by St. Vincent de Paul for the homeless.
We will continue to focus on our ongoing social responsibility in
the year ahead.
Diversity and inclusion
Our commitment to corporate social responsibility
extends to diversity and inclusion in the workplace. We
recognise that people are at the heart of what we do and
our people reflect the diversity of our customers and the
communities they serve.
We value the contribution that people with different
backgrounds, experience and perspectives bring to
our organisation. This is reflected in our strong support
of flexible and inclusive work practices across the
organisation. As mentioned in our Chairman’s letter our
work in this regard has been recognised by the WGEA
which has awarded Genworth the WGEA Employer
of Choice for Gender Equality citation for the third
consecutive year.
2018 outlook
The economic outlook for 2018 is expected to be
relatively similar to 2017, with growth remaining below
long‑term trend.
Housing market conditions are expected to ease as
macro‑prudential measures continue to take effect and
record levels of new housing supply comes onto the market.
In terms of our financial performance in 2018 we expect
GWP to increase reflecting the premium written pursuant
to our new customised risk management solution and our
micro markets LMI arrangements.
NEP and the full year loss ratio however are expected to
be adversely impacted by the 2017 earnings curve review.
We expect NEP to decline by approximately 25 to 30 per
cent and net incurred claims to be lower in 2018 than in
2017. Despite this, the full year loss ratio is expected to be
between 40 and 50 per cent.
The Board continues to target an ordinary dividend pay‑
out ratio range of 50 to 80 per cent of underlying NPAT.
Our full year outlook is subject to market conditions as
well as unforeseen circumstances or economic events.
Conclusion
2018 will be a transitionary year for our business as we
implement strategic initiatives designed to redefine our
core business model.
Our strategy is designed to enhance our existing LMI
business by leveraging our core competencies and
offering a broader suite of complementary capital and risk
management solutions for customers.
Our objective is to position Genworth as a leading
provider of customer‑focused capital and risk
management solutions.
We have a resilient business and our Company is well
capitalised and has a solid track record of delivering
strong profits and attractive shareholder returns. This
continues to be an integral objective of our strategy
going forward.
Thank you
I would like to thank the Chairman and my fellow
directors for their ongoing support during 2017. To all
our Genworth people, thank you for your hard work and
commitment throughout the year.
To our customers and other partners, thank you for your
patronage and I look forward to continuing these strong
relationships. Finally, I would like to thank you for your
loyalty as shareholders.
Yours sincerely,
Georgette Nicholas
9
GENWORTH Annual Report 2017342DIRECTORS’ REPORTFINANCIAL REPORTOTHER INFORMATION1OVERVIEW 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 2017 and the auditor’s report thereon.
Board of Directors
The directors of the Company as at 31 December 2017 were as follows:
Ian Macdonald
Georgette Nicholas
Anthony (Tony) Gill
Gai McGrath
US Mortgage Insurance
and International Segments.
Before joining Genworth
in 2005, Georgette was
a Director at Deloitte
providing services to
companies in the insurance,
real estate and broadcasting
industries. Earlier in
her career, Georgette
worked with Freed Maxick
Sachs & Murphy, a top
100 accounting firm, in
Buffalo, New York where
she focused on audit,
acquisitions and mergers,
tax and strategic financial
planning and prior to this
as an Internal Auditor at ITT
Corporation.
Georgette has a Bachelor
of Science in Accounting
from the University of
Bridgeport, Connecticut
and is a Certified
Public Accountant
and Chartered Global
Management Accountant.
Chairman, Independent
Ian was appointed to the
Board on 19 March 2012
and was appointed as
Chairman of the Board
on 31 August 2016.
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
(COO) 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.
Ian is also a member
of the 30% Club,
a group formed by the
Australian Institute of
Company Directors
who are committed to
achieving better gender
balance on Boards and
in organisations.
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.
Managing Director and
Chief Executive Officer,
Genworth Financial
designee
Georgette was appointed
Managing Director on
30 May 2016.
Georgette became CEO
in February 2016 after
four months as Acting
CEO following joining the
business as Chief Financial
Officer (CFO) in February
2014. Georgette brings
more than 30 years of
financial and industry
experience to the role
including her extensive
global experience in lenders
mortgage insurance.
In her prior role as CFO,
Georgette has effectively
leveraged her financial
acumen, industry
experience and leadership
skills across finance, audit,
controllership, strategy,
actuarial and investor
relations. She has a deep
understanding of the
mortgage insurance
business both in
international markets as well
as the United States having
worked with Genworth for
over ten years.
Previously, Georgette
worked as Senior Vice
President (SVP), Investor
Relations, Public Relations
and Rating Agencies with
Genworth Financial Inc.
Other senior roles she
has held at Genworth
include CFO, 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
global financial crisis, and
Global Controller for both
Director, Independent
Director, Independent
Tony was appointed to
the Board on 20 February
2012. He is the Chairman
of the Capital &
Investment Committee
and a member of the
Audit Committee,
Risk Committee and
Technology Committee.
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 and then held
various management roles
in mortgage banking and
treasury in Australia.
Tony is currently the
Chairman of Australian
Finance Group (since
28 August 2008) and
a director of First
American Title Insurance
Company of Australia
Ltd and First Mortgage
Services Pty Ltd. Tony
is also a member of ASIC’s
External Advisory Panel.
Tony was previously
Chairman of the Australian
Securitisation Forum and
National President of
the Mortgage Finance
Association of Australia
(MFAA).
Gai was appointed to the
Board on 31 August 2016.
She is Chairman of the Audit
Committee and a member
of the Risk Committee,
Remuneration & Nominations
Committee and Technology
Committee.
Gai has over 20 years of
financial services experience,
specifically in retail banking
and wealth management.
Gai previously held
numerous senior executive
positions with the Westpac
Group including:
• General Manager, Retail
Banking, Westpac Australia
from 2012–2015
• General Manager, Retail
Banking, Westpac New
Zealand from 2010–2012
• General Manager,
Customer Service
and General Manager,
Risk Solutions at
BT Financial Group.
Prior to the Westpac
Group, Gai was General
Counsel & Company
Secretary at Perpetual
Limited and a partner at
a Sydney‑based law firm.
Gai is a Graduate of the
Australian Institute of
Company Directors.
Gai is currently a director
of IMB Bank, Landcom,
Investa Listed Funds
Management Limited
as responsible entity of
Investa Office Fund (since
17 October 2017) and Toyota
Finance Australia Limited.
She is also a member of
the Council of the State
Library of New South Wales,
a trustee and director of
the State Library of New
South Wales Foundation,
a member of the Fundraising
and Appeals Committee
of The Salvation Army and
a member of the Advisory
Committee of Humanitix.
10
Gayle Tollifson
David Foster
Leon Roday
Stuart Take
Director, Independent
Gayle was appointed to
the Board on 20 February
2012. She is Chairman of
the Risk Committee and
a member of the Audit
Committee, Capital &
Investment Committee
and Remuneration &
Nominations Committee.
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 (CRO) and Group
Financial Controller from
1994–2006.
Prior to QBE, Gayle
held various roles in
public accounting firms
in Australia, Bermuda
and Canada.
Gayle is a fellow of the
Australian Institute of
Company Directors and
the Institute of Chartered
Accountants in Australia.
Gayle is currently
Chairman of Munich
Holdings of Australasia
Pty Limited and
subsidiaries, and
a director of RAC
Insurance Pty Limited,
RAA Insurance Holdings
Limited and RAA
Insurance Limited.
Director, Independent,
Genworth Financial
designee
David was appointed
to the Board on 30 May
2016. He is Chairman
of the Remuneration &
Nominations Committee
and Technology
Committee and a
member of the Capital
& Investment Committee.
David has over 25 years
of financial services
experience, specifically
in banking, insurance and
wealth management.
David previously held
numerous positions with
Suncorp Group including
various senior executive
roles from 2003–2007 and
was the CEO of Suncorp
Bank from 2008–2013.
Prior to Suncorp Bank,
David held various
management roles
at Westpac.
David is a Senior Fellow
of the Financial Services
Institute of Australasia
and a Graduate of the
Australian Institute of
Company Directors.
David is currently the
Chairman of Thorn Group
Limited (Chairman since
1 February 2018, director
since 1 November
2014), and a director of
G8 Education Limited
(since 1 February 2013),
Kina Securities Limited
(since 30 July 2013)
and Motorcycle
Holdings Limited
(since 8 March 2015).
Director, Genworth
Financial designee
Director, Genworth
Financial designee
Leon was appointed to
the Board on 19 March
2012 and is a member
of the Remuneration &
Nominations Committee.
Leon was Executive
Vice President, General
Counsel and Secretary
for Genworth Financial to
February 2015. Prior to
this position, he held the
same role at GE Financial
since 1996.
Prior to Genworth and
GE Financial, Leon was a
partner at LeBoeuf, Lamb,
Greene & McRae for 14
years, and he is a member
of the New York Bar
Association.
Stuart was appointed to
the Board on 20 February
2012. He is a member of
the Risk Committee.
Stuart has over 25 years’
experience, primarily
at Genworth and
General Electric.
Stuart 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
President of the Board
of Directors of Genworth
Seguros de Credito a
la Vivienda S.A. de C.V.
(Mexico) and also serves
as a Director of India
Mortgage Guarantee
Corporation (a Genworth
joint venture with the
International Finance
Corporation, the Asian
Development Bank and
the National Housing
Bank of India). He was
previously Head of
Financial Institutions
at Deutsche Bank, Asia
ex-Japan.
Corporate governance statement
The corporate governance statement is available on the Genworth website.
Please visit investor.genworth.com.au/investor-centre/
Jerome Upton
Director, Genworth
Financial designee
Jerome was appointed to
the Board on 20 February
2012 and is a member
of the Audit Committee,
Risk Committee, Capital
& Investment Committee
and the Technology
Committee.
Jerome was appointed as
SVP and Chief Financial
and Operations Officer,
Global Mortgage
Insurance for Genworth
Financial in 2012.
Previously, Jerome was the
SVP and COO Genworth
Financial International
Mortgage Insurance from
2009. Prior to this Jerome
has had a variety of roles
at Genworth including
SVP and CFO, Genworth
Financial International
– Asia Pacific, Canada
and Latin America from
2007–2009, 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 was
formerly a Certified Public
Accountant and the
Controller and Director
of Financial Reporting
for Century American
Insurance Company in
Durham, North Carolina.
GENWORTH Annual Report 2017
11
11
GENWORTH Annual Report 201734FINANCIAL REPORTOTHER INFORMATION1OVERVIEWDIRECTORS’ REPORT2
Senior leadership team
Andrew Cormack
Chief Risk Officer
Tobin Fonseca
Chief Operations Officer
Tobin joined Genworth
Australia as COO in February
2012. Tobin brings more than
35 years of experience to his
role as COO across a range of
areas in the financial services
industry.
In his current role Tobin is
responsible for underwriting,
loss mitigation, collections, the
data management office and
the Technology team.
Before joining Genworth, Tobin
had worked at 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
National Australia Bank, 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/Project
Director for Merrill Lynch HSBC
Australia and Vice President/
Program Manager International
Private Client Group in
Australia.
Andy joined Genworth
Australia as Chief Risk Officer
(CRO) in October 2015. Andy
brings more than 20 years
of experience to his role
as CRO having held senior
financial as well as risk roles
in the mortgage insurance
industry. Andy is a seasoned
leader, having had senior
management responsibility
for teams in commercial,
product development and risk
for multiple markets across
Europe. He is passionate about
delivering best in class risk and
actuarial business models and
building and developing high
achieving teams engaged in
delivering business objectives.
Before joining Genworth
Australia, Andy worked with
Genworth Financial Mortgage
Insurance in Europe, where
most recently he held the role
of CRO with responsibility for
the risk and actuarial teams.
Prior to this he held various
positions including Senior
Vice President (SVP) Technical
Director, SVP Commercial
Leader, SVP Product
Development & Marketing and
Chief Financial Officer.
Earlier in his career, Andy
spent three years with JP
Morgan where he focused on
emerging market fixed income
derivatives and prior to this
worked at Neville Russell
Accountants (now Mazars)
as an auditor responsible for
Lloyds syndicates.
Andy has a BA(Hons) in
Accounting and Finance
from Lancaster University
and is a qualified Chartered
Accountant (ACA)‑(ICAEW).
Georgette Nicholas
William Milner
Acting Chief Financial
Officer
William joined Genworth
as Director, Capital &
Reinsurance in April 2015 and
was appointed Acting Chief
Financial Officer (CFO) on
16 February 2018.
He has over 20 years of
experience in the insurance
and financial services sector
having worked across
finance, capital management,
reinsurance, actuarial,
investments, treasury, risk‑
based capital and product
pricing.
Prior to joining Genworth,
William was the CFO of
General Insurance (Australia
and New Zealand) at Zurich
Financial Services Australia
for over three years. He
joined Zurich head office in
Switzerland in 2004 covering
the worldwide balance sheets
of the Zurich Insurance
Group before transferring
to the Australian and New
Zealand operations in 2008
working across a number
of roles including capital
management, treasury and
investments. Before joining
Zurich, William spent 10 years
at AMP with positions in
Brisbane, Sydney and London
working across pricing, risk,
capital management and
superannuation.
William has extensive
experience dealing with APRA,
ratings agencies, regulators
(in Australia, UK, Ireland,
Switzerland, HK and Bermuda),
Insurance Council of Australia
and the Australian Tax Office.
William has a Bachelor of
Science, Physics and Maths
and a Bachelor of Arts in
Statistics and Economics from
University of Queensland. He
is a fellow of the Institute of
Actuaries of Australia.
Chief Executive Officer
Georgette became CEO in
February 2016 after four months
as Acting CEO following joining
the business as CFO in February
2014. Georgette brings more than
30 years of financial and industry
experience to the role including
her extensive global experience
in lenders mortgage insurance.
In her prior role as CFO,
Georgette has effectively
leveraged her financial acumen,
industry experience and
leadership skills across finance,
audit, controllership, strategy,
actuarial and investor relations.
She has a deep understanding of
the mortgage insurance business
both in international markets as
well as the United States having
worked with Genworth for over
ten years.
Previously, Georgette worked
as SVP, Investor Relations, Public
Relations and Rating Agencies
with Genworth Financial Inc.
Other senior roles she has held
at Genworth include CFO, 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 providing services
to companies in the insurance,
real estate and broadcasting
industries. Earlier in her career,
Georgette worked with Freed
Maxick Sachs & Murphy, a
top 100 accounting firm, in
Buffalo, New York where she
focused on audit, acquisitions
and mergers, tax and strategic
financial planning and prior to
this as an Internal Auditor at ITT
Corporation.
Georgette has a Bachelor of
Science in Accounting from
the University of Bridgeport,
Connecticut and is a Certified
Public Accountant and Chartered
Global Management Accountant.
12
Steven Degetto
Kate Svoboda
Chief Human Resources
Officer
Kate was appointed as Chief
Human Resources Officer
(CHRO) in September 2016
after six months as Acting
CHRO. Kate joined Genworth
as Human Resources (HR)
Director in 2015. Kate brings
to the role more than 17
years professional experience
working in human resources,
the majority of which has been
in financial services.
Kate is responsible for leading
organisational design and
effectiveness, culture and
engagement, employee
relations, workforce planning,
recruitment, learning and
talent development, diversity
and remuneration and
benefits.
Prior to joining Genworth,
Kate was HR Business Partner
at Challenger and before that
worked in various HR roles
at Commonwealth Bank of
Australia. Kate has also worked
in various management and
clinical roles in public health.
Kate has an MBA from
University of New England
and a Bachelor of Speech
Pathology from University of
Queensland.
Chief Commercial Officer
Steven joined Genworth as
Chief Commercial Officer
(CCO) in July 2017. He has
over 20 years’ experience
in financial services and
over 15 years in the
intermediary channel. Steven
brings extensive business
development leadership and
experience to Genworth as
well as strong commercial
acumen and an unwavering
customer focus.
Prior to joining Genworth,
Steven was Head of Bank
Intermediaries with the
Suncorp Group where he
managed all intermediary
relationships across Australia
supporting over 14,000
mortgage brokers in the
provision of Suncorp Group
products and services. Most
recently he was Head of
Wealth and Life Intermediaries
at Suncorp and led the sales
and retention strategy across
the life insurance and wealth
management businesses.
Steven has also held various
leadership roles within financial
services at both Macquarie
Group and Commonwealth
Bank of Australia.
Steve holds a Bachelor of
Business from the University of
Tasmania, a Graduate Diploma
of Applied Finance and
Investment and an Advanced
Diploma in Financial Planning.
He is a Fellow of both the
MFAA and FINSIA.
Prudence Milne
General Counsel and
Company Secretary
Scot Garner
Head of Strategy &
Innovation
Prue joined Genworth as
General Counsel in September
2016. Prue brings over 30
years’ experience in private
practice, in‑house corporate
counsel and company
secretary roles. She is a highly
experienced senior lawyer
with deep financial services
experience.
Before joining Genworth, Prue
worked in private practice
at Ashurst and then held a
variety of senior legal and
company secretary roles
at AMP and AMP Capital
Investors. In her nearly 18 year
career with AMP, she oversaw
and facilitated considerable
change and transition in the
AMP businesses and had
considerable exposure to
senior executives and boards.
Prue has a Bachelor of
Economics and Laws from
Monash University, a Master
of Laws from the University of
Sydney, a Graduate Diploma
in Secretarial Practice from
Chartered Secretaries
Australia and is a Graduate
of the Australian Institute of
Company Directors.
Scot commenced in the role of
Head of Strategy & Innovation at
Genworth in January 2017.
Scot has more than 20 years’
executive experience in strategic
planning, new product and
business development, financial
management and transaction
execution across multiple
countries and industries. Before
joining Genworth in Australia,
Scot was the CFO and Director
of Genworth’s mortgage
insurance businesses in Europe
and Mexico where he was
responsible for the development
and implementation of strategic
growth and capital initiatives
for those businesses. Prior to
that he worked on a number of
Genworth’s country development
and platform launches including
India, Mexico and South Korea
through the establishment of
subsidiaries and joint venture
partnerships. Prior to his time
at Genworth, Scot worked in
the energy industry as an M&A
consultant and asset manager.
Scot holds an MBA and a
Bachelor of Science degree in
Mathematical Economics from
Wake Forest University.
GENWORTH Annual Report 2017
13
13
GENWORTH Annual Report 201734FINANCIAL REPORTOTHER INFORMATION1OVERVIEWDIRECTORS’ REPORT2 Principal activity
The principal activity of the Group during the reporting period was the provision of LMI under authorisation from APRA.
In Australia, LMI facilitates residential mortgage lending by transferring risk from lenders to LMI providers, predominately
for high LVR residential mortgage loans.
Organisation overview
About Genworth
Genworth is the leading LMI provider in the Australian LMI market. The Group estimates that it had approximately
25 per cent of the Australian LMI market by NIW for the 12 months ended 31 December 2017. Genworth is listed on
the ASX under ticker code GMA.
During 2H17, the Group undertook an on‑market share buy‑back program. 17.0 million shares were purchased and
subsequently cancelled for a total consideration of $50.9 million. Genworth Financial, Inc. participated in on‑market
sale transactions during the buy‑back program to maintain its approximately 52 per cent stake in the Group. As at
31 December 2017, the number of Genworth shares on issue was 492.4 million.
The Group has the following corporate structure as at 31 December 2017:
Public
492,351,382 ordinary shares (100%)
Genworth
Financial, Inc 1
236,556,078 ordinary shares (48.05%)
255,795,304 ordinary shares (51.95%)
Genworth Mortgage Insurance Australia Limited
ABN 72 154 890 730
Genworth Financial Mortgage Insurance Pty Limited
Balmoral Insurance Company Limited
ABN 60 106 974 305
(Bermuda) Registration No. 53069
Genworth Financial Mortgage Indemnity Limited
ABN 55 001 825 725
1 Genworth Financial, Inc’s interest in the Company is held indirectly through the Genworth Financial Group.
In 2017 the Group de‑registered six wholly‑owned non‑operating companies to simplify the Group’s corporate structure.
The actions taken do not impact any operational capabilities of the Group’s insurance subsidiaries but will provide for
more efficient administration.
In 2017 the Company established an offshore entity in Bermuda, called Balmoral Insurance Company Limited. This entity
has been utilised to write new excess of loss cover for bulk portfolios across both high and low LVRs.
14
Business model
Genworth’s business activities
As an LMI provider, Genworth’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 creates value.
Genworth shareholder value chain
Products
and
income
Premium income
from writing LMI
• LMI usage
• Customers
• NIW
• Premium rates
• GWP
• Risk transfer
Financial income
• Interest rates
• Capital levels
Distribution
Dividends
• Underlying NPAT
• Payout ratio
• Special dividends –
share buy-backs
Retained earnings
Costs
Claims
• Delinquencies
• Reserving
• Payment of claims
Underwriting and
other costs
• Underwriting fees
• Amortisation of customer
acquisition related costs
• Marketing costs
• Staff and IT costs
Strategy, risk and capital management
Products and customers
The Group continued to offer three LMI products in 2017, being Standard LMI, Homebuyer Plus and Business Select/
Low Doc. In FY17, Standard LMI produced 99 per cent of total GWP.
The Group underwrites LMI through flow and portfolio channels. In FY17, 98 per cent of GWP was generated from the
flow channel.
During 2017, Genworth maintained commercial relationships with over 100 lender customers across Australia.
Genworth has supply and service contracts with 10 of its key lender customers.
In 2017, Genworth’s top three customers accounted for 60 per cent of its NIW and 73 per cent of its GWP. The largest
customer accounted for 43 per cent of its NIW and 53 per cent of its GWP in FY17, as illustrated below.
Lender customer
Lender customer 1
Lender customer 2
Lender customer 3
Lender customers 4–10
All other lender customers
FY17 NIW
FY17 GWP
43%
14%
3%
33%
7%
53%
15%
5%
18%
9%
15
GENWORTH Annual Report 201734FINANCIAL REPORTOTHER INFORMATION1OVERVIEWDIRECTORS’ REPORT2 Our strategy
Genworth’s primary business activity is the provision of LMI to our lender customers.
Our mission is to support Australian homeownership by providing capital and risk
management solutions to our customers in residential mortgage lending. In 2017
we made significant progress toward our goal to reinvigorate profitable growth.
2018 priorities
In 2018 we will deliver core capabilities in underwriting efficiencies,
product flexibility and expense management – capabilities which are
foundational to meeting the changing needs of our Australia‑based
customers and to future growth.
A refined strategic plan to re-ignite profitable growth over the medium-term
Value proposition:
Innovation and technology will underpin Genworth’s value proposition.
Focus:
To be a leading provider of customer-focused capital and risk management solutions in
residential mortgage markets and deliver sustainable shareholder returns.
16
Immediate and ongoing initiatives
(2017–2018)
Longer-term initiatives
(2019+)
1. Redefine core business model
2. Leverage data and technology to add value
across the mortgage value chain
Cost efficiency
Product innovation
Underwriting efficiency
Loss management solutions
Product enhancement
Leverage high LVR experience
and expertise
Leverage data and partnerships
Regulator and policy maker advocacy
Strategic enablers
People,
organisation
and cultural
change
Data and
analytics
Technology
Stakeholder
management
17
GENWORTH Annual Report 201734FINANCIAL REPORTOTHER INFORMATION1OVERVIEWDIRECTORS’ REPORT2 Risk
management
Genworth 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’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. The key business
risks are those that could impact the successful execution of the strategy.
Key risk
Key control/mitigation
Evolving LMI and
mortgage default risk landscape
Evolving market for mortgage default risk
solutions may result in a reduction in new
insurance written.
Changing customer dynamics
Lenders increasingly searching for diverse risk
and capital management solutions.
Adverse or neutral regulatory
changes have the potential to
impact Genworth’s business
model and medium-term
profitability
Adverse regulation may impact Genworth’s
business model and/or profitability.
• Strategic investment in core foundational capabilities.
• Products and services designed to enhance the Genworth
value proposition in the market.
• Active responses to customer needs through working
collaboratively with customers on products such as excess
of loss cover and micro market opportunities.
• Work with regulators and the industry to recognise LMI in
risk and capital models.
• Customer plans are in place to monitor the execution of
priority areas and key activities of key customers.
• Genworth’s product suite includes both standard and
non-standard product LMI offerings and excess of loss
coverage options.
• Regularly reviews its pricing and value proposition in the
market to ensure it remains competitive and responsive to
market needs.
• Forward-looking government relations plan.
• Active regulatory engagement strategy, working closely
with government, regulators and the industry to address
actual and expected legislative and regulatory changes.
• Ongoing monitoring of the regulatory environment and
changes that may impact Genworth’s business.
18
Key risk
Key control/mitigation
Macroeconomic deterioration
and potential deterioration in
financial and capital performance
of Genworth
A deterioration in macroeconomic conditions
or outlook may result in a flow on impact to
the financial and capital profile of Genworth.
• Product, location and segment risk responses.
• Mature reserving and loss forecasting processes.
• The Genworth Board and executive regularly review
the risk appetite statement and responses to the
macroeconomic environment.
• Genworth maintains a recovery plan to guide and facilitate
its responses to a macroeconomic stress event.
Changes in financial
strength ratings
Genworth’s financial strength rating may
be downgraded.
• Genworth maintains a strong working relationship
with rating agencies.
• Genworth’s recovery plan guides and facilitates its
responses to a ratings downgrade.
• The listing of the Company on the ASX provides for
additional capital flexibility if required.
Reinsurance renewals
• Active reinsurance management strategy.
Failure to renew reinsurance contracts
as and when they fall due for renewal.
• Active management of the reinsurance program.
• Ability to leverage external reinsurance experience.
Risks related to supply and
service contracts with customers
• Customer contract renewal and extension process,
a contractual avenue to address any improvements
required.
Termination before the expiry of the
contractual term or a change of control of
a customer or a ratings downgrade may result
in loss or partial loss of a customer.
• Genworth’s recovery plan guides and facilitates responses
to a loss or potential loss of a customer.
• Contractual safeguards are included in customer
contracts.
Change in interest rate cycle
and risk of mark-to-market
loss exposure
Lower yield environment continues to pressure
both financial and pricing returns. Mark-to-
market adjustments may have an adverse
impact on profitability and financial position.
• Execution of the derivatives strategy.
• Diversification of investment portfolio within the
boundaries set by the risk appetite statement.
• Investment Committee governance and oversight.
• Risk assessment prior to any change to risk appetite
and related changes to the Investment Policy.
19
GENWORTH Annual Report 201734FINANCIAL REPORTOTHER INFORMATION1OVERVIEWDIRECTORS’ REPORT2 Operating
and financial review
Operating result for the financial year
The Group’s key financial measures are summarised in the below table. All measures are presented on reported 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 (%)
FY17
438.2
370.5
149.2
171.1
FY17
38.3%
29.3%
67.5%
40.0%
2.8%
7.7%
9.0%
FY16
524.7
452.9
203.1
212.2
FY16
35.1%
25.7%
60.8%
48.1%
3.4%
9.7%
10.4%
The underwriting performance in FY17 reflects:
(a) GWP declined 3.4 per cent due to a number of factors including changes in the customer portfolio, changes in
business mix and the impact of the premium rate actions taken in 2016;
(b) NEP decreased 18.2 per cent reflecting the adverse impact of $37.3 million from change in earnings curve and lower
earned premium from current and prior book years;
(c) The loss ratio increased by 3.2 per cent reflecting lower net earned premium in the current year;
(d) The expense ratio increased from 25.7 per cent in FY16 to 29.3 per cent in FY17 reflecting lower net earned premium
in the current year, slightly offset by lower other underwriting expenses;
(e) The insurance margin decreased to 40.0 per cent compared to 48.1 per cent for FY16 mainly driven by unfavourable
mark to market movements of the investment portfolio.
1 Underlying NPAT excludes the after-tax impact of unrealised gains/(losses) and impairment losses on the investment portfolio.
2 The loss ratio is calculated by dividing the net claims incurred by the net earned premium (NEP).
3 The expense ratio is calculated by dividing the sum of the acquisition costs and the other underwriting expenses by the NEP.
4 The combined ratio is the sum of the loss ratio and the expense ratio.
5 The insurance margin is calculated by dividing the profit from underwriting and interest income on technical funds (including realised gains) by the NEP.
6 The investment return is calculated as the interest income on technical funds plus the interest income on shareholder funds (excluding realised and unrealised
gains/ (losses)) divided by the average balance of the opening and closing cash and investments balance for each financial year.
7 The ROE is calculated by dividing NPAT by the average of the opening and closing equity balance for each financial year.
8 The underlying ROE is calculated by dividing underlying NPAT by the average of the opening and closing equity balance for each financial year excluding the
impact of after tax changes to the cash and investments balance on the balance sheet.
20
Review of financial condition
Financial position
Financial position (A$ million)
Cash and investments
Deferred acquisition costs
Total assets
Trade and other payables
Outstanding claims reserve
Unearned premium
Interest bearing liabilities
Total liabilities
Net assets
31 Dec 17
31 Dec 16
3,391.5
3,522.6
151.8
142.0
3,765.9
3,835.6
31.7
339.7
1,108.6
197.0
37.1
355.5
1,177.8
196.0
1,843.7
1,868.2
1,922.2
1,967.4
The total assets of the Group as at 31 December 2017 were $3,765.9 million compared to $3,835.6 million
at 31 December 2016. Movements within the overall decrease of $69.7 million include:
• a decrease in investments and cash of $131.1 million from funds outflow associated with 2016 final dividend
and 2017 interim dividend and the $50.9 million on‑market share buy‑back; and
• an increase in deferred reinsurance expense of $65.3 million as a result of increase in future reinsurance costs from
treaty renewals and the commencement of new treaties.
The total liabilities of the Group as at 31 December 2017 were $1,843.7 million compared to $1,868.2 million
at 31 December 2016. The decrease in liabilities of $24.5 million is mainly attributable to the net effect of:
• an increase in reinsurance payable of $64.7 million as a result of increase in future reinsurance costs from treaty
renewals and the commencement of new treaties;
• a decrease in unearned premium liability of $69.2 million resulted from lower new premium written in 2017 and
seasoning of prior years’ in‑force premium partially offset by the impact of $37.3 million from the adverse change
in earnings curve; and
• a decrease in the outstanding claims liability of $15.9 million primarily due to reserve releases from higher number
of claims paid.
The Group’s equity decreased from $1,967.4 million at 31 December 2016 to $1,922.2 million at 31 December 2017,
mainly attributable to:
• payment of the 2016 final and 2017 interim dividends totaling $142.6 million;
• reduction in share capital following the on‑market share buy‑back totaling $50.9 million; and
• a sound earnings performance in the current year resulting in a net profit after tax (NPAT) of $149.2 million.
Investments
The Group’s cash and investment portfolio totalled $3.4 billion as at 31 December 2017 with 86 per cent in Australian
denominated cash, cash equivalents and fixed income securities rated A‑ or higher. The decrease in total investments
since 31 December 2016 ($3.5 billion) is mainly attributable to:
• reduction in investments due to dividend payments ($142.6 million) and the on‑market share buy‑back
($50.9 million) during the year.
21
GENWORTH Annual Report 201734FINANCIAL REPORTOTHER INFORMATION1OVERVIEWDIRECTORS’ REPORT2 Operating and financial review (cont)
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 2017, the Group’s capital mix was:
• Ordinary equity (net of goodwill and intangibles) 90.7 per cent
• Debt 9.3 per cent
Capital management
The Group remains strongly capitalised at 31 December 2017 with regulatory capital of $2,092 million at 31 December
2017 (2016: $2,213 million). The Group has the solvency position of 1.93 times the Prescribed Capital Amount (PCA)
which continues to be above the Board’s targeted solvency range of 1.32–1.44 times the PCA. The Common Equity Tier 1
(CET1) ratio is 1.74 times the PCA.
The table below illustrates the actual capital position as at 31 December 2017 compared with the capital position as at
31 December 2016.
PCA coverage ratio (Level 2)
(A$ 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
PCA
PCA coverage ratio (times)
31 Dec 17
31 Dec 16
1,892.4
2,012.8
200.0
200.0
2,092.4
2,212.8
761.4
137.6
221.7
28.0
(62.1)
1,095.3
111.0
229.8
30.0
(52.2)
1,086.7
1,413.9
1.93x
1.57x
The decrease in CET1 capital in FY17 mainly reflects the $143 million dividends paid in the year, the $50.9 million
on‑market share buy‑back and a $76.2 million decrease in the excess technical provisions, partially offset by $149.2 million
reported NPAT.
22
Dividends
Details of the dividends paid or
determined to be paid by the Group
and the dividend policy employed by
the Group are set out in the dividends
note within the Financial Statements.
Environmental regulations
The Group’s operations are not subject
to any significant environmental
regulations under either Commonwealth
or State legislation.
Market capitalisation
The market capitalisation of the Company
as at 31 December 2017 was $1.48 billion
based on the closing share price of $3.00
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 7 February 2018, the Directors
declared a 100 per cent franked final
dividend of 12 cents per share totalling
$59.1 million.
Likely developments
Further information about likely
developments in the operations of the
Group and the expected results of those
operations in future financial years have not
been included in this report because the
directors believe it would be likely to result
in unreasonable prejudice to the Group.
Full year 2017 outlook
The Australian economy performed relatively well throughout
2017 with positive economic growth, an improving labour market
and a lift in business investment. Victoria and New South Wales
continued to perform well due to solid labour markets and property
price appreciation, although a slowdown in the New South Wales
property market was noted in the last quarter of 2017. Queensland
and Western Australia continued to experience the flow on impacts
of the slowdown in the resources sector.
The economic outlook for 2018 is expected to be relatively similar
to 2017, with growth remaining below long-term trend. Domestic
demand growth will be driven by business and government
investment, particularly infrastructure spending. Residential dwelling
construction activity is likely to ease due to cooling housing market
conditions.
Labour market growth is expected to continue into 2018, albeit at a
more moderate pace than in 2017.
The official cash rate is likely to remain on hold throughout most of 2018
due to ongoing benign wage growth and inflation remaining below
the Reserve Bank of Australia’s (RBA) 2 to 3 per cent target band.
Housing market conditions are expected to ease further in 2018
as macro-prudential measures continue to take effect and record
levels of new housing supply comes onto the market. Metropolitan
housing markets in Sydney and Melbourne are expected to
moderate in 2018 and regional housing markets, particularly within
resource states, are expected to face continued pressure, albeit to a
lesser extent than experienced in 2017. Genworth expects national
housing prices to be flat in 2018.
Genworth expects GWP to increase in 2018 reflecting the premium
written pursuant to the new customised risk management solution
and micro markets LMI.
NEP and the full year loss ratio are expected to be adversely
impacted by the 2017 earnings curve review. NEP is expected to
decline by approximately 25 to 30 per cent. Despite an expectation
that Net Incurred Claims will be lower in 2018 than in 2017, the full
year loss ratio is expected to be between 40 to 50 per cent. The 2017
Earnings Curve Review will not affect the total amount of revenue
expected to be earned over time from the premiums already written.
Genworth continues to target an ordinary dividend payout ratio
range of 50 to 80 per cent of underlying NPAT.
The full year outlook is subject to market conditions as well as
unforeseen circumstances or economic events.
23
GENWORTH Annual Report 201734FINANCIAL REPORTOTHER INFORMATION1OVERVIEWDIRECTORS’ REPORT2 Operating and financial review (cont)
Company Secretary
Prudence Milne
Prudence Milne was appointed as General Counsel and Company Secretary on 5 September 2016. Between 1998 and
2015, Prudence held Executive Legal Counsel and Company Secretary positions at AMP, with significant exposure
across superannuation, life insurance and investment management. Prior to AMP, Prudence worked at Ashurst, Hambros
Australia and Herbert Smith Freehills. She brings to Genworth more than 30 years of experience across a range of areas
including corporate governance, mergers and acquisitions, litigation, compliance and legal risk management.
Prudence holds a Bachelor of Economics and a Bachelor of Laws from Monash University, a Masters of Laws from the
University of Sydney and is a Graduate of the Australian Institute of Company Directors and holds a Graduate Diploma in
Company Secretarial Practice from the Governance Institute.
Assistant Company Secretary
Brady Weissel
Brady Weissel was appointed as Assistant Company Secretary on 10 March 2016. Brady joined Genworth as a Corporate
Counsel in July 2014. Prior to joining, Brady was a lawyer at Ashurst with experience acting on a range of corporate and
commercial matters including, private and public mergers and acquisitions, schemes of arrangement and takeovers, on
initial public offerings, equity raisings and joint ventures.
Brady holds a Bachelor of Commerce and Bachelor of Laws from the University of Sydney.
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 &
Investment
Committee
meetings
Remuneration
& Nomination
Committee
meetings
Technology
Committee
meetings
Georgette Nicholas
Ian MacDonald
Anthony Gill
Gayle Tollifson
Jerome Upton
Stuart Take
Leon Roday
David Foster
Gai McGrath
A
9
9
9
9
8
9
9
9
9
B
9
9
9
9
9
9
9
9
9
A
–
–
6
6
6
–
–
2
6
B
–
–
6
6
6
–
–
2
6
A
–
–
5
5
4
4
–
1
5
B
–
–
5
5
4
4
–
1
5
A
–
–
6
6
6
–
–
6
1
B
–
–
6
6
6
–
–
6
1
A
–
–
3
–
–
–
5
5
5
B
–
–
3
–
–
–
5
5
5
A
–
–
3
–
3
–
–
3
3
B
–
–
3
–
3
–
–
3
3
A Number of meetings attended.
B Number of meetings held during the time the director held office during the year.
Note: All directors are normally invited to attend all Committee meetings. This register only records attendance of Committee members.
24
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 2017 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 2018. 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 Corporations (Rounding in financial/directors’ reports) Instrument 2016/191
dated 24 March 2016 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 $13,500, is
compatible with the general standard of independence for auditors imposed by the Corporations Act 2001 and in
accordance with Genworth’s 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
Non-assurance services
Total paid/payable to KPMG
2017 $
747,541
81,721
13,500
842,762
25
GENWORTH Annual Report 201734FINANCIAL REPORTOTHER INFORMATION1OVERVIEWDIRECTORS’ REPORT2 Dear Shareholder,
On behalf of your Board, I am pleased to present our annual remuneration report for the year ended 31 December 2017, and my second
as Chairman of the Remuneration & Nominations Committee. The Board and Committee remain committed to delivering remuneration
through a combination of cash and shares via both short-term and long-term incentive programs which:
1. drive alignment between management and shareholders;
2. provide a clear link between performance and remuneration outcomes;
3. ensure remuneration outcomes are aligned with Genworth’s short and long-term objectives; and
4.
recognise the importance of executing on the company’s strategy to transform the business model and deliver a sustainable future
for the company.
Genworth is a business in transition. We are undertaking a Strategic Program of Work aimed at identifying and delivering a broader range
of risk and capital solutions for our clients. At the same time, we continue to identify opportunities for further efficiency and productivity
within our traditional flow business. The execution of this strategic program of work has progressed well in 2017 with continued progress
on improving our underwriting efficiency, enhancing our product offerings, delivering on-going cost reductions and progressing other
enhancements to portfolio performance.
Within this context, Genworth delivered financial performance in-line with our guidance for 2017, despite facing a number of challenging
market dynamics. We maintained strong dividend payouts, executed capital actions and delivered NPAT ($171 million) and underlying
ROE (8.9 per cent) that exceeded external analyst forecasts following the release of our FY16 results. At the same time, the Board has
acknowledged the challenges currently facing the business and have worked to deliver remuneration outcomes for 2017 that provide
an appropriate balance for both participants and shareholders:
• Fixed remuneration increases for executive key management personnel (KMP) averaged 1.3 per cent for 2018;
• 2017 short-term incentive (STI) funding was determined to be 101 per cent of target (Section 3.2);
• The 2015 long-term incentive (LTI) grant will partially vest in early 2019 (Section 3.3).
Throughout 2017, a review of our reward framework was undertaken with support of external advisors. As part of the review, the Board
actively considered the structure of the existing LTI plan to ensure that the outcomes appropriately reward management for the value
created for shareholders, with due regard for prudent risk management and governance. The outcome of this review was that both relative
total shareholder return (TSR) and underlying ROE remain important strategic measures, however other refinements were made to the
operation of the plan. Further detail on these changes is available in the body of this report.
This report aims to clearly and concisely explain how the Committee and Board have determined remuneration outcomes across all the
Company’s remuneration programs which reflect our remuneration objectives.
David Foster
Chairman – Remuneration & Nominations Committee
2626
Remuneration report 1. Executive summary
This report provides shareholders with an overview of the Genworth’s remuneration governance, strategy, programs and outcomes for
KMP for the year ended 31 December 2017. The table below provides a concise summary of the remuneration received by executive KMP
in 2017. This table is for general information and is supplementary to the statutory requirements contained in sections 6 and 7. It is not
prepared in accordance with accounting standards, as it includes both contracted and actual remuneration received over the calendar
year and excludes long service leave accruals, fringe benefit tax attributed to insurances/car parking and other non-monetary benefits.
Table 1a: 2017 Remuneration summary table (unaudited) as at 31 December 2017
Name and position – Executive KMP
Georgette Nicholas
Chief Executive Officer (CEO)
Luke Oxenham
Chief Financial Officer (CFO)
Andrew Cormack
Chief Risk Officer (CRO)
Tobin Fonseca
Chief Operating Officer (COO)
Steven Degetto 6
Chief Commercial Officer (CCO)
Fixed remuneration
At-risk/performance remuneration
STI
LTI
Contract
TFR 1
Actual TFR
received 2
$870,000
$850,000
$475,000
$450,000
$485,000
$485,000
$450,000
$450,000
$435,000
–
$866,712
$817,981
$470,878
$446,351
$485,000
$483,378
$450,000
$433,979
$200,046
–
STI target
$870,000
$744,662
$237,500
$225,000
$145,500
$145,500
$225,000
$220,493
$100,109
–
Actual STI
awarded 3
$880,000
$645,000
$118,750
$260,000
$130,000
$145,000
$200,000
$150,000
$105,000
–
LTI target 4
LTI vested 5
$850,000
$850,000
$225,000
$225,000
$242,500
$237,500
$225,000
$202,500
$217,500
–
$24,407
$14,966
$13,041
–
$12,277
–
$30,440
$27,117
–
–
2017
2016
2017
2016
2017
2016
2017
2016
2017
2016
1 Contract total fixed remuneration (TFR) 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 2017 as a KMP and is different to contract TFR due to increases as part of the annual
review effective 1 March and part years.
3 Actual STI awarded reflects 2017 STI awards (including any amounts delivered as deferred STI, see section 4 for more details).
4 The 2017 LTI Target reflects the dollar value of the LTI grant awarded for the performance period starting January 1 2017.
5 The dollar value of legacy Genworth Financial equity that vested during the reporting period (calculated using the share price and exchange rate at date
of vesting). No Genworth LTI plans have vested as at the end of the reporting period.
6 Steven Degetto commenced with Genworth on 17 July, 2017 and the TFR and actual STI figures included in this table are reflective of a partial year service.
Throughout this report, KMP refers to those responsible for planning, directing and controlling the activities of the Company, made
up of non-executive directors (NEDs), the executive director and nominated executives. Please refer to section 7 for details relating
to NEDs.
Table 1b: Executive KMP in 2017
Name
Position
Executive KMP
Georgette Nicholas
Luke Oxenham
Andrew Cormack
Tobin Fonseca
Steven Degetto
CEO
CFO
CRO
COO
CCO
Term as KMP
Full year
Full year
Full year
Full year
17 July – 31 December
2727
GENWORTH Annual Report 2017342DIRECTORS’ REPORTFINANCIAL REPORTOTHER INFORMATION1OVERVIEWGENWORTH Annual Report 2017Remuneration report (continued) 2. Remuneration governance, policy and programs
2.1 Governance overview
The Remuneration & 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, diversity and inclusion.
The Board’s final approval is required for any decision relating to the Committee’s responsibilities. The Committee liaises as required
with the Audit Committee and Risk Committee.
2.2 Use of independent remuneration advisors
The Board and the Committee received advice from external advisers Aon Hewitt and Ernst & Young in 2017. Services included the
provision of market data and market practices. No remuneration recommendations as defined under the Corporations Act were received
in relation to KMP throughout this period.
2.3 Remuneration policy and strategy
Genworth’s remuneration policy details the governance, structure and overall strategy through which Genworth compensates employees.
Genworth’s remuneration strategy is to provide market competitive remuneration programs that help attract, retain and motivate
talented people who are dedicated to achieving Genworth’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
Genworth’s executive KMP remuneration programs are designed to align executive and shareholder interests by:
• using appropriate pay mix and delivery vehicles (eg cash, equity and non-monetary benefits);
• measuring performance and delivering resulting remuneration over an appropriate time frame;
• using appropriate measures of competitiveness (eg median of relevant comparator group); and
• operating within Genworth’s risk management framework and relevant regulatory requirements (in particular, APRA Prudential
Standard CPS 510 Governance).
Genworth’s executive KMP remuneration programs consist of a TFR component, an STI component and an LTI component. Executive
KMP participated in Genworth Financial’s global remuneration programs prior to listing in May 2014. Summary table 2.4a presents the
link between Genworth’s strategy and remuneration programs and outcomes.
Table 2.4a: Remuneration framework and linkage to company strategy and performance
Business vision
Remuneration strategy
To be a leading provider of customer focused capital and risk
management solutions in residential mortgage markets.
To attract, retain and motivate talented people dedicated to achieving
business objectives in line with Genworth’s long-term interests.
Measures of success
Actual performance
• Enhance profitability within risk adjusted return parameters by
pricing NIW within agreed risk appetite and return parameters.
Improve productivity by actioning a number of cost and
underwriting efficiency initiatives while maintaining strong
risk management discipline and customer experience.
Improved customer engagement and retention through the
development of a number of product enhancements and
flexible product options that can be tailored to individual
customer needs.
• New business volume tracked above the operating plan
target, however NEP decreased considerably (relative to
2016) reflecting the impact of the 2017 earnings curve review.
Underlying NPAT was $171m ($145m excluding realised
investment gains) compared with a target of $140m and
underlying ROE was 9.0% (7.7% excluding realised investment
gains) compared with a target of 7.9%.
• Actioned $1.5m of cost savings, alongside continued progress
on key productivity projects covering underwriting efficiency
and improving the use of data and mortgage partnerships
in making key business decisions. The full year loss ratio of
38.3% compared favourably with the forecast range of 40–50%
disclosed to the market in February 2017.
•
Implemented a number of alternative risk management
solutions with customers including improved bulk insurance
capability. Retained market leading position via the renewal
of key contracts and via alternative reinsurance structures with
key clients.
Improved employee alignment, agility and engagement.
Continued focus on enhancing the culture to be more adaptive
and enable Genworth to execute on its strategic objectives.
• Engagement levels improved 4%, with an increase of 11% for
business alignment. Diversity and inclusion measures remain
particularly favourable.
•
•
•
2828
Remuneration report (continued) Vision and strategy reflected in remuneration programs and actual outcomes
TFR
TFR
Individual performance (execution of individual and Genworth
objectives and behaviours), size and scope of the role and
appropriate benchmark data drive fixed pay outcomes.
Average pay increases to executive KMP were 1.32% in the 2017/18
remuneration review.
STI
STI
Awards reflect combination of individual performance and
Genworth’s performance (including operating within risk
management framework and behaviours as measured against
Genworth’s values). underlying NPAT, underlying ROE, core
business model improvement, renewal of key customer contracts,
expense ratio management, loss ratio management and
product enhancement.
Performance resulted in 101% STI funding. STI awards to Executive
KMP ranged from 25–52% of the maximum.
LTI
LTI
Awards reflect company performance against ROE and relative
TSR targets.
The 2015 LTI plan was the first to be tested following Genworth’s
listing on the ASX in 2014. A 12 month deferral period applies from
the end of the relevant performance period (31 December ’17),
meaning performance rights will vest in 1Q19. For further detail
on performance of the 2015 LTI grant, refer to section 3.3 – Link
between performance and LTI outcomes.
Table 2.4b: 2017 target mix of pay (relative weight of each component as a percentage of total
remuneration as at 31 December 2017)
2017 CEO actual
CEO target
2017 CFO actual
CFO target
2017 CRO actual
CRO target
2017 COO actual
COO target
2017 CCO actual
CCO target
33.4%
33.3%
22.6%
22.2%
11.3%
11.1%
32.7%
33.3%
57.8%
50.0%
56.6%
55.6%
51.4%
50.0%
9.7% 4.9%
8.3%
16.7%
10.1% 5.1%
11.1% 5.6%
15.2%
16.7%
7.6%
8.3%
27.6%
25.0%
28.3%
27.8%
25.7%
25.0%
38.3%
50.0%
13.4%
6.7%
41.6%
16.7%
8.3%
25.0%
0%
10%
20%
30%
40%
50%
60%
TFR
STI
STI deferred
80%
90%
100%
70%
LTI
The actual mix of pay delivered in any year is 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.
2.5 Total fixed remuneration
TFR is the sum of base salary and the value of guaranteed employee benefits such as superannuation and car parking.
Total fixed remuneration for executive KMP roles 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 as the primary reference point for
comparative purposes.
As part of the 2017 remuneration review, the Board approved increases to TFR for executive KMP. For details of these increases, please refer
to table 1a.
2929
GENWORTH Annual Report 2017342DIRECTORS’ REPORTFINANCIAL REPORTOTHER INFORMATION1OVERVIEWGENWORTH Annual Report 2017Remuneration report (continued) 2.6 Short-term incentive
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. Details of the maximum STI amount that can be awarded are provided in table 2.6a.
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 any fixed pay changes and incentive awards for the CEO and KMP. Recommendations take into account the STI pool funding
percentage and the performance of the executive KMP against individual and business performance goals as well as the behaviour
demonstrated by the executive KMP in their role consistent with the Company values. Individual executive KMP goals align to the financial
and operational objectives used to determine STI pool funding.
Table 2.6a: 2017 STI key characteristics
2017 STI features
Purpose of STI plan
STI (% of TFR) by role
Detail
Motivate and retain employees by providing awards that reflect a combination of individual performance
and Genworth’s performance including operating within the risk management framework and behaviours
as measured against Genworth’s values.
Executive KMP
CEO:
CFO, CCO & COO:
CRO:
Target % (of TFR)
100%
50%
30%
Maximum % (of TFR)
200%
100%
60%
Performance objectives
Financial objectives
Strategic objectives
Underlying NPAT (32.5%)
Execute key strategic priorities (35%)
Underlying ROE (32.5%)
Aggregate objective
weighting
Financial objectives
Strategic objectives
65%
35%
Performance period
1 January 2017 – 31 December 2017.
Performance assessment
In 1Q18, Genworth’s performance against each individual objective was evaluated to determine the STI
pool funding percentage.
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
Payment method
1Q18.
STI – 2/3 of the award paid in cash (inclusive of superannuation).
Deferred STI – 1/3 of the dollar value of award converted to a grant of share rights (subject to vesting
conditions).
Deferral period
Deferred STI component deferred for 12 months from 1 March 2018.
Deferred STI vesting
conditions
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.
Share rights grant calculation The number of share rights is determined by dividing the deferred STI dollar value by a 10-day volume
Treatment of dividends
calculation
Treatment upon vesting
weighted average price (VWAP) as at 31 December 2017. 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 following the release of the 2017
annual results in whole share rights.
Vested share rights entitle the holder to ordinary shares in the Company for nil consideration. The Company
retains discretion to satisfy vested share rights delivered through the STI plan via the issuance of new shares
or via an on-market purchase.
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 or as determined by the Board) – 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.
3030
Remuneration report (continued) Table 2.6b: 2018 STI performance objectives and weightings
STI performance objective
& weighting
Rationale
Underlying NPAT (40%)
Underlying NPAT will be used as it excludes the impact of volatile unrealised gains and losses on the
investment portfolio (which are generally outside of the control of management). For 2018, the weighting
of Underlying NPAT has been increased to 40% of the overall scorecard, with Underlying ROE reducing
to 25 per cent of the scorecard.
Underlying ROE (25%)
For similar reasons as described above in relation to Underlying NPAT, ROE is measured via underlying ROE.
Strategic Objectives (35%)
2017 strategic objectives are core business model improvement, enhancement of existing product suite,
renewal and winning of key customer contracts, expense ratio and productivity management, loss ratio
management and culture enhancement.
2.7 Long-term incentive
Prior to listing in May 2014, Executive KMP participated in the Genworth Financial LTI program. Grants to Australian participants were
delivered as Restricted Share Units in Genworth Financial, 25 per cent of which vest on each of the 1st, 2nd, 3rd and 4th anniversaries
of the grant. These grants were part of Genworth Financial’s global remuneration programs and reinforced the link between executive
remuneration outcomes and Genworth Financial shareholder outcomes over a longer timeframe. Genworth Financial LTI grants will continue
to vest until 2018 and are detailed in the statutory tables.
Commencing 1 January 2015, executive KMP were invited to participate in an annual LTI grant of share rights which are subject to vesting
conditions. Vesting conditions for the 2017 plan include performance-based vesting scales in respect of company performance against
underlying ROE and relative TSR. Relative TSR was introduced given its ability to drive behaviours over the long-term that align shareholder
return and executive reward.
Table 2.7a: 2017 LTI key characteristics
LTI 2018 features
Detail
Purpose of LTI plan
Motivate and retain employees by providing awards that align with longer-term company performance,
reflect the ability of the role to influence Genworth’s performance and operate within Genworth’s risk
management framework.
LTI % by Executive KMP role
Executive KMP
CEO
Other KMP
Target % (of TFR)
100%
50%
Performance metrics
Comparator group for
TSR metric
Vesting scales summary
Underlying ROE:
50% of the 2017 LTI grant. Calculated as the average of three year underlying NPAT (excluding unrealised
gains or losses from investments) divided by the three year average equity (excluding mark-to-market
value of investments).
Relative TSR:
50% of the 2017 LTI grant. Calculated as the total return to shareholders (share price movement including
value of dividends) over the performance period, expressed as a percentage of the starting share price.
Dividends are reinvested on the ex-dividend date closing price and franking credits are excluded.
ASX top 200 excluding resources companies.
Vesting %
Underlying ROE
Relative TSR
0%
<9.5%
<50th
50%
9.5%
50th
60%
10.2%
55th
70%
10.9%
60th
80%
11.6%
65th
90%
12.3%
70th
100%
13.0%
75th
Vesting summary
Vesting occurs on a straight line basis between the summary points above and each performance metric
is measured and vests (as applicable) independently of the other.
Performance period
1 January 2017 – 31 December 2019.
Performance assessment
Performance to be assessed in 1Q20. There is no retesting of grants.
Deferral period
12 months from the end of the relevant performance period.
Vesting period/date
Award determination
Four years in total from the start of relevant performance period (three year performance period with
an additional year deferral).
At the end of the performance period, final vesting percentages are determined via a Board and
Committee review, recommendation and approval process.
The Board and the Committee have authority and discretion to adjust LTI vesting % and individual awards
(including to 0% of grant if appropriate).
Payment method
Grant of share rights. Vested share rights entitle the holder to ordinary shares in the Company for nil
consideration. The Company retains discretion to satisfy vested share rights delivered through the LTI
plan via the issuance of new shares or via an on-market purchase.
3131
GENWORTH Annual Report 2017342DIRECTORS’ REPORTFINANCIAL REPORTOTHER INFORMATION1OVERVIEWGENWORTH Annual Report 2017Remuneration report (continued) LTI 2018 features
Detail
Vesting conditions
Continuous active employment for four 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.
Share rights grant calculation The number of share rights is determined by dividing the grant value by a 10-day VWAP following the
release of FY17 earnings. 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.
Treatment of dividends
Dividends, or the value of any dividends, are not received on unvested share rights. Notional dividend
equivalents are only provided following the completion of the four year vesting period and only on share
rights that vest based on the satisfaction of performance hurdles. 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 except as provided
at the discretion of the Board for a ‘good leaver’ (see table 2.6a for details: ‘treatment of terminating
executive KMPs’).
Change of control
Board has discretion.
Table 2.7b: 2018 LTI key characteristics
LTI 2018 features
Detail
Performance metrics
Relative TSR comparator
group
Vesting scales summary
Underlying ROE:
25% of the 2018 LTI grant. Calculated as the average of three year underlying NPAT (excluding
unrealised gains or losses from investments) divided by the three year average equity (excluding mark
to market value of investments). Underlying ROE is a strategically important internal measure of financial
performance for Genworth. It captures the Company’s ability to convert equity into returns (profit) and
supports a number of Genworth’s strategic priorities. Underlying ROE is measured across both the STI
and LTI scorecards and for the 2018 LTI grant its weighting has been lowered to 25% of the overall grant.
Relative TSR:
75% of the 2018 LTI grant. Calculated as the total return to shareholders (share price movement including
value of dividends) over the performance period, expressed as a percentage of the starting share price.
Dividends are reinvested on the ex-dividend date closing price and franking credits are excluded.
Increasing the weighting of relative TSR in the LTI scorecard aims to further strengthen shareholder
alignment by ensuring LTI vesting is directly linked to relative shareholder returns.
Top 200 ASX financial services companies excluding REITs. Refining the peer group to include
organisations with a similar share price beta to Genworth intends to strengthen the line-of-sight
for executive KMP. The refinement of the peer group aims to limit the impact of broad industry ASX
fluctuations on executive KMP incentive outcomes.
Vesting %
Underlying ROE
Relative TSR
0%
<7.5%
<50th
50%
7.5%
50th
60%
8.4%
55th
70%
9.3%
60th
80%
10.2%
65th
90%
11.1%
70th
100%
12.0%
75th
The relative TSR vesting schedule remains unchanged for 2018.
As part of Genworth’s 2017 full year earnings release, it was announced that 2018 NEP and full year loss
ratio are expected to be impacted by the 2017 earnings curve review. At the same time, the business
remains focused on enhancing existing LMI business and leveraging core competencies to offer a broader
suite of complementary capital and risk management solutions for customers. The revised underlying ROE
vesting schedule aims to balance shareholder expectations relating to return on equity, whilst ensuring the
plan remains motivational for plan participants as Genworth manages through a transitionary period for
the business.
2.8 Share ownership requirement 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 (the measurement
date for TFR is as 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.
Executive KMP must meet the share ownership requirements within five years of appointment to their current role. Executive KMP who
were in their current role at the time of the IPO must meet the share ownership requirements within five years of listing. Share ownership
requirements are tested each time share rights vest. Until the ownership requirements are met, 25 per cent of shares vested via equity plans
(deferred STI component and LTI) must be retained.
3232
Remuneration report (continued) 3. Relationship between company performance and remuneration
3.1 Performance overview
Whilst operating in challenging and dynamic market conditions, Genworth delivered financial results in line with market guidance in 2017,
at the same time maintaining dividend payouts and executing on capital actions. Genworth’s performance in 2017 was slightly above target
across the financial measures of underlying NPAT and full year loss ratio, but slightly below target for underlying ROE. This performance
is reflected in an on-target bonus pool and resulting awards to executive KMP (more detail section 3.2).
Table 3.1a: Summary of Genworth’s performance (2017)
Financial results
Gross written premium (A$m)
Net investment income (A$m)
Underlying NPAT (A$m)
Expense ratio
Underlying ROE
Dividends paid
Share price at start of reporting period
Share price at end of reporting period
2014
(unaudited 1)
$634.2
$226.9
$279.4
26.5%
12.2%
$0.274
$2.65
$3.64
2015
$507.6
$107.9
$264.7
26.2%
11.6%
$0.503
$3.64
$2.76
2016
$381.9
$126.0
$212.2
25.7%
10.4%
$0.405
$2.76
$3.27
2017
$369.0
$103.3
$171.1
29.3%
9.0%
$0.260
$3.27
$3.00
1 2014 results are presented in full calendar year pro-forma basis to enable meaningful comparison. As a result, the 2014 figures are unaudited.
3.2 Link between performance and STI outcomes
The link between remuneration outcomes and business performance is fundamental to the design, administration and outcomes of Genworth’s
remuneration programs. In developing threshold, on-target and stretch performance levels for financial measures, Genworth considers
a combination of internal financial forecasts as well as external analyst expectations following the release of our prior year financial results.
In light of Genworth’s performance against 2017’s STI objectives, the Board determined the STI pool funding level to be 101 per cent of the
sum of STI targets.
Table 3.2a: 2017 STI performance objectives and Board assessment of performance
STI performance
objective & weighting Rationale
Underlying NPAT
(32.5%)
As the headline figure of the various components that
make up overall company performance, an annual
profit measure is a key performance objective.
Underlying ROE
(32.5%)
ROE is a key measure of the Company’s ability
to convert equity into returns (profit).
Execute key strategic
objectives (35%)
Key strategic priorities for each performance period
may vary year-to-year based on Genworth’s priorities.
For the 2017 performance period, this list included
cost and underwriting efficiency measures, product
enhancement, renewal of key customer contracts,
new business pricing, culture enhancement and
employee engagement and alignment.
Assessment of 2017 performance
Underlying NPAT for 2017 was $171m compared with
a target of $140m. A key driver of this performance
was a higher realised investment gain than forecast,
which the Board decided to exclude from the STI
funding calculation for 2017 (resulting in an underlying
NPAT outcome of $145m). This decision was made on
the basis that the realised investment gain was not
anticipated at the time performance targets were set.
Other drivers of performance included higher GWP
than forecast, lower new delinquencies than forecast
and loss ratio below the forecast range, being offset
by the impact of the 2017 Earnings Curve Review.
2017 underlying ROE results were above plan, delivering
9.0% compared with a target of 7.9%. Consistent with
underlying NPAT, the Board decided to exclude realised
investment gains from the underlying ROE calculation,
resulting in an outcome of 7.7%.
The Board determined overall performance against
key strategic objectives to be on target. Further detail
on actual performance is provided in table 2.4a.
3333
GENWORTH Annual Report 2017342DIRECTORS’ REPORTFINANCIAL REPORTOTHER INFORMATION1OVERVIEWGENWORTH Annual Report 2017Remuneration report (continued) 3.3 Link between performance and LTI outcomes
2015 LTI award
In January 2015, executive KMP roles were provided with a grant of share rights which vest subject to company performance against
underlying ROE and compound annual growth in earnings per share (EPS). A 12 month deferral period applies from the end of the relevant
performance period (31 December, 2017), meaning the first tranche of Performance Rights will vest in 1Q19.
LTI performance
objective and
weighting
EPS growth
(50%)
Underlying ROE
(50%)
Detailed calculation
Performance range
Drivers of performance
Calculated as the three
year compound average
annual growth of EPS
comprising basic EPS
(after tax and excluding
the impact of any share
issuance or buy back).
Calculated as the average
of three year underlying
NPAT (excluding
unrealised gains or
losses from investments)
divided by the three year
average equity (excluding
mark-to-market value
of investments)
Threshold performance
(50% vesting): 0.5%
Maximum performance
(100% vesting): 3.0%
The EPS Growth hurdle was not met and 100% of this tranche
lapsed. A key contributor to this outcome was share buy-backs
being excluded from the calculation. If capital actions
were included, EPS growth would have resulted in higher
compounded growth over the performance period.
Threshold performance
(50% vesting): 10.7%
Maximum performance
(100% vesting): 12.6%
The threshold underlying ROE hurdle for the 2015 award
was 10.7% and the actual underlying ROE result was 10.5%
(including the impact of the 2017 earnings curve review).
As part of the share rights plan rules, the Board and the
Remuneration & Nominations Committee have discretion
to adjust LTI measurement and vesting percentages to
account for circumstances that were not foreseen at the time
performance targets were set. When the Board deliberated
on underlying ROE performance to determine LTI vesting,
consideration was given to exercising discretion and adjusting
for the impact of the 2017 earnings curve review. The Board
ultimately decided to exclude the impact of this change,
which resulted in an underlying ROE outcome of 11.0% (58%
vesting of the underlying ROE tranche, 29% of the overall LTI
grant). The Board was cognisant that this discretion was the
difference between vesting and nil vesting and considered
the following items in making this decision:
• The impact of the 2017 earnings curve review lengthens
the average duration over which Genworth recognises
its revenue, however it does not affect the total amount of
revenue expected to be earned over time from premiums
already written. The Board viewed the outcome of the
review to be a change to accounting revenue recognition.
• The impact and the extent of this change was not
anticipated at the time in which performance targets
were set.
Two current executives (Georgette Nicholas; Tobin Fonseca)
will qualify for partial vesting in 1Q19, at which point more
detail on actual vesting outcomes will be provided. The above
discretion will be applied only in respect of the 2015 grant.
All outstanding and future LTI vesting will be measured using
the modified premium earnings pattern.
3434
Remuneration report (continued) 4. Remuneration outcomes for executive KMP
Table 4a: STI outcomes
Executive
KMP
Georgette
Nicholas
CEO
Luke
Oxenham
CFO
Andrew
Cormack
CRO
Tobin
Fonseca
COO
Steven
Degetto
CCO
Target STI
(% of TFR)
Target
STI
$
Max
STI
$
Cash STI
awarded 1
Deferred
STI
awarded 2
Deferred
STI share
rights
Total STI
awarded
$
Actual STI
awarded
(% of TFR)
Actual STI
awarded
(% of max)
STI not
awarded
(% of max)
100%
$870,000 $1,740,000
$586,667
$293,333
96,070
$880,000
101%
51%
49%
50%
$237,500
$475,000
$79,167
$39,583
12,964
$118,750
25%
25%
75%
30%
$145,500
$291,000
$86,667
$43,333
14,192
$130,000
27%
45%
55%
50%
$225,000
$450,000
$133,333
$66,667
21,834
$200,000
44%
44%
56%
50%
$100,109
$200,218
$70,000
$35,000
11,463
$105,000
24%
52%
48%
1 Cash STI awarded figure is inclusive of superannuation.
2 Deferred STI awarded is the one-third portion of total STI award deferred for 12 months. The deferred STI award is converted to share rights using a 10-day
VWAP as at 31 December 2017 ($3.0533) and will vest on 1 March 2019 subject to continuous active service and 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.
5. Contractual arrangements for executive KMP
Table 5a: Summary of contract details
Executive KMP
Term of agreement
Notice period
Termination payments
CEO
Ongoing
Other executive KMP Ongoing
Four months either party
Immediate for misconduct,
breach of contract or bankruptcy.
Three 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 or as limited without shareholder
approval under the Corporations Act.
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.
All executive KMP are subject to a non-solicitation undertaking and a non-compete restraint for a maximum period of 12 months after
ceasing employment.
3535
GENWORTH Annual Report 2017342DIRECTORS’ REPORTFINANCIAL REPORTOTHER INFORMATION1OVERVIEWGENWORTH Annual Report 2017Remuneration report (continued) 6. KMP remuneration tables
Table 6a: Statutory remuneration table – 1 January to 31 December 2017
KMP
Cash salary 1
Short-term remuneration
Non-monetary
benefits 3
Other
benefits 2
Cash STI
awarded 4
Deferred STI 5
Long-term/post-emp benefits
Long serv
leave 6
Share-based
payments
RSUs 7
Termination
benefits
% of total that
is performance
related
Total
% of total that
are options
Sub-total
Super benefits
Executive KMP
Georgette Nicholas
CEO
Luke Oxenham
CFO
Andrew Cormack
CRO
Tobin Fonseca
COO
Steven Degetto
CCO
2017
2016
2017
2016
2017
2016
2017
2016
2017
2016
$838,896
$755,503
$443,063
$405,083
$465,168
$440,266
$430,168
$396,829
$187,590
–
$282,059
$190,839
$600
$5,280
$600
$42,171 8
$0
$0
$24,619
–
$20,020
$115,159
$20,020
$18,959
$1,701
$5,351
$1,072
$3,998
$7,049
–
$586,667
$430,000
$79,167
$173,333
$86,667
$96,667
$133,333
$100,000
$70,000
–
$234,653
$101,633
$58,918
$40,968
$44,711
$22,847
$60,160
$23,635
$9,687
–
1 Cash salary consists of base salary and any salary sacrifice arrangements.
2 Other benefits include annual health reimbursement offered to all employees, cash and acting allowances, a tax equalisation payment in respect of the 2016
financial year for Georgette Nicholas and the accrual of a sign-on bonus for Steven Degetto.
3 Non-monetary benefits include insurance premiums, executive health benefits, other non-cash benefits (such as car parking) and related Fringe Benefits
Tax (FBT).
4 Cash STI awarded is the actual STI cash payment relating to 2017 performance, inclusive of super, accrued for in 2017. Actual payment made in March 2018.
5 Deferred STI awarded is the one-third portion of total STI award deferred for 12 months. The value disclosed is the portion of the value of the equity
instruments recognised as an expense in this reporting period. The value of each share right granted under the 2017 deferred STI plan has been calculated
using the share price at 29 December 2017 ($3.00).
6 Long Service Leave accruals are presented as the expense movement for the reporting period.
7 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 2017 LTI grants provided to Georgette Nicholas, Luke Oxenham, Andrew Cormack, Steven Degetto, Tobin Fonseca
in the period are $2.61 for share rights relating to the ROE performance condition and $1.71 relating to the Relative TSR performance condition.
8 Figure includes an incentive retention payment agreement between Andrew Cormack and Genworth Financial (his previous employer). Genworth Financial
paid for the complete award.
Table 6b: Share option holdings for the reporting period ended 31 December 2017
$1,962,295
$1,593,134
$601,767
$643,623
$598,845
$607,302
$624,732
$524,462
$298,944
–
$19,832
$193,802
$19,832
$38,279
$19,832
$45,776
$19,832
$35,865
$10,024
–
$23,282
$18,712
$15,548
$26,713
$12,853
$5,095
$11,926
$26,610
$5,735
–
$536,537
$453,670
$147,279
$141,105
$144,109
$122,492
$248,270
$321,563
$40,514
–
$0
$0
$0
$0
$0
$0
$0
$0
$0
–
$2,541,947
$2,259,318
$784,426
$849,720
$775,640
$780,665
$904,761
$908,500
$355,217
–
47%
33%
30%
32%
31%
23%
32%
19%
34%
–
0%
0%
0%
0%
0%
0%
0%
0%
0%
–
Executive KMP
Grant detail
Grant date
Issue price
Vesting date
Granted
Forfeited
Vested
Exercised
Expired
Name and position
Georgette Nicholas
CEO
Andrew Cormack
CRO
GFI Equity ‘09
GFI Equity ‘10
GFI Equity ‘11
GFI Equity ‘12
GFI Equity ‘13
GFI Equity ‘09
GFI Equity ‘09
GFI Equity ‘10
GFI Equity ‘11
GFI Equity ‘12
GFI Equity ‘13
GFI Equity ‘14
19 Aug ‘09
10 Feb ‘10
9 Feb ‘11
14 Feb ‘12
15 Feb ‘13
19 Aug ‘09
19 Aug ‘09
10 Feb ‘10
9 Feb ‘11
14 Feb ‘12
15 Feb ‘13
20 Feb ‘14
$9.41
$16.20
$12.61
$8.31
$8.79
$9.41
$9.41
$16.20
$12.61
$8.31
$8.79
$16.90
19 Aug ‘11, ‘12, ‘13
10 Feb ‘11, ‘12, ‘13, ‘14
9 Feb ‘12, ‘13, ‘14, ‘15
14 Feb ‘13, ‘14, ‘15, ‘16
15 Feb ‘14, ‘15, ‘16, ‘17
19 Aug ‘10, ‘11, ‘12
19 Aug ‘10, ‘11, ‘12, ‘13
10 Feb ‘11, ‘12, ‘13, ‘14
9 Feb ‘12, ‘13, ‘14, ‘15
14 Feb ‘13, ‘14, ‘15, ‘16
15 Feb ‘14, ‘15, ‘16, ‘17
20 Feb ‘15, ‘16, ‘17, ‘18
# Held
31/12/16
2,550
15,000
18,000
20,400
18,000
2,450
3,738
12,000
8,500
11,700
13,500
14,000
Movement during the year
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
4,500
3,375
3,500
0
0
0
0
0
0
0
0
0
0
0
0
# Held
31/12/17
Fair value
2,550
15,000
18,000
20,400
18,000
0
3,738
12,000
8,500
11,700
13,500
14,000
$20.88
$11.99
$3.09
$2.36
$2.40
$33.99
$20.88
$11.99
$3.09
$2.36
$2.40
$3.40
2,450
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
3636
Remuneration report (continued)
6. KMP remuneration tables
Table 6a: Statutory remuneration table – 1 January to 31 December 2017
KMP
Cash salary 1
Other
Non-monetary
benefits 2
benefits 3
Cash STI
awarded 4
Deferred STI 5
Short-term remuneration
Long-term/post-emp benefits
Sub-total
Super benefits
Long serv
leave 6
Share-based
payments
RSUs 7
Termination
benefits
% of total that
is performance
related
Total
% of total that
are options
2017
2016
2017
2016
2017
2016
2017
2016
2017
2016
$838,896
$755,503
$443,063
$405,083
$465,168
$440,266
$430,168
$396,829
$187,590
–
$282,059
$190,839
$600
$5,280
$600
$42,171 8
$0
$0
–
$24,619
$20,020
$115,159
$20,020
$18,959
$1,701
$5,351
$1,072
$3,998
$7,049
–
$586,667
$430,000
$79,167
$173,333
$86,667
$96,667
$133,333
$100,000
$70,000
–
$234,653
$101,633
$58,918
$40,968
$44,711
$22,847
$60,160
$23,635
$9,687
–
$1,962,295
$1,593,134
$601,767
$643,623
$598,845
$607,302
$624,732
$524,462
$298,944
–
$19,832
$193,802
$19,832
$38,279
$19,832
$45,776
$19,832
$35,865
$10,024
–
$23,282
$18,712
$15,548
$26,713
$12,853
$5,095
$11,926
$26,610
$5,735
–
$536,537
$453,670
$147,279
$141,105
$144,109
$122,492
$248,270
$321,563
$40,514
–
$0
$0
$0
$0
$0
$0
$0
$0
$0
–
$2,541,947
$2,259,318
$784,426
$849,720
$775,640
$780,665
$904,761
$908,500
$355,217
–
47%
33%
30%
32%
31%
23%
32%
19%
34%
–
0%
0%
0%
0%
0%
0%
0%
0%
0%
–
Executive KMP
Georgette Nicholas
CEO
CFO
CRO
COO
CCO
Luke Oxenham
Andrew Cormack
Tobin Fonseca
Steven Degetto
Tax (FBT).
# Held
31/12/16
2,550
15,000
18,000
20,400
18,000
2,450
3,738
12,000
8,500
11,700
13,500
14,000
Movement during the year
Granted
Forfeited
Vested
Exercised
Expired
# Held
31/12/17
Fair value
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
4,500
0
0
0
0
0
3,375
3,500
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
2,450
0
0
0
0
0
0
2,550
15,000
18,000
20,400
18,000
0
3,738
12,000
8,500
11,700
13,500
14,000
$20.88
$11.99
$3.09
$2.36
$2.40
$33.99
$20.88
$11.99
$3.09
$2.36
$2.40
$3.40
3737
1 Cash salary consists of base salary and any salary sacrifice arrangements.
2 Other benefits include annual health reimbursement offered to all employees, cash and acting allowances, a tax equalisation payment in respect of the 2016
financial year for Georgette Nicholas and the accrual of a sign-on bonus for Steven Degetto.
3 Non-monetary benefits include insurance premiums, executive health benefits, other non-cash benefits (such as car parking) and related Fringe Benefits
4 Cash STI awarded is the actual STI cash payment relating to 2017 performance, inclusive of super, accrued for in 2017. Actual payment made in March 2018.
5 Deferred STI awarded is the one-third portion of total STI award deferred for 12 months. The value disclosed is the portion of the value of the equity
instruments recognised as an expense in this reporting period. The value of each share right granted under the 2017 deferred STI plan has been calculated
using the share price at 29 December 2017 ($3.00).
6 Long Service Leave accruals are presented as the expense movement for the reporting period.
7 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 2017 LTI grants provided to Georgette Nicholas, Luke Oxenham, Andrew Cormack, Steven Degetto, Tobin Fonseca
in the period are $2.61 for share rights relating to the ROE performance condition and $1.71 relating to the Relative TSR performance condition.
8 Figure includes an incentive retention payment agreement between Andrew Cormack and Genworth Financial (his previous employer). Genworth Financial
paid for the complete award.
Table 6b: Share option holdings for the reporting period ended 31 December 2017
Executive KMP
Grant detail
Grant date
Issue price
Vesting date
Name and position
Georgette Nicholas
CEO
Andrew Cormack
CRO
GFI Equity ‘09
GFI Equity ‘10
GFI Equity ‘11
GFI Equity ‘12
GFI Equity ‘13
GFI Equity ‘09
GFI Equity ‘09
GFI Equity ‘10
GFI Equity ‘11
GFI Equity ‘12
GFI Equity ‘13
GFI Equity ‘14
19 Aug ‘09
10 Feb ‘10
9 Feb ‘11
14 Feb ‘12
15 Feb ‘13
19 Aug ‘09
19 Aug ‘09
10 Feb ‘10
9 Feb ‘11
14 Feb ‘12
15 Feb ‘13
20 Feb ‘14
$9.41
$16.20
$12.61
$8.31
$8.79
$9.41
$9.41
$16.20
$12.61
$8.31
$8.79
19 Aug ‘11, ‘12, ‘13
10 Feb ‘11, ‘12, ‘13, ‘14
9 Feb ‘12, ‘13, ‘14, ‘15
14 Feb ‘13, ‘14, ‘15, ‘16
15 Feb ‘14, ‘15, ‘16, ‘17
19 Aug ‘10, ‘11, ‘12
19 Aug ‘10, ‘11, ‘12, ‘13
10 Feb ‘11, ‘12, ‘13, ‘14
9 Feb ‘12, ‘13, ‘14, ‘15
14 Feb ‘13, ‘14, ‘15, ‘16
15 Feb ‘14, ‘15, ‘16, ‘17
$16.90
20 Feb ‘15, ‘16, ‘17, ‘18
GENWORTH Annual Report 2017342DIRECTORS’ REPORTFINANCIAL REPORTOTHER INFORMATION1OVERVIEWGENWORTH Annual Report 2017Remuneration report (continued)
Table 6c: Share right holdings for the reporting period ended 31 December 2017
Executive KMP
Grant detail
Grant date
Issue price
Vesting date
20# Held 31/12/16
Number granted
Forfeited
Vested
Exercised
# Held 31/12/17
Movement during the year
Name and position
Georgette Nicholas
CEO
Luke Oxenham
CFO
Andrew Cormack
CRO
Tobin Fonseca
COO
GFI Equity ‘13
GFI Equity ‘14
IPO Special Grant
LTI ‘15
LTI ‘16
LTI ‘17
Deferred STI ‘16
GFI Equity ‘13
GFI Equity ‘14
IPO Special Grant
Equity ‘15 Grant
LTI ‘16
LTI ‘17
Deferred STI ‘16
GFI Equity ‘13
GFI Equity ‘14
LTI ‘16
Deferred STI ‘15 1
LTI ‘17
Deferred STI ‘16
GFI Equity ‘13
GFI Equity ‘14
IPO Special Grant
LTI ‘15
LTI ‘16
Deferred STI ‘15 2
LTI ‘17
Deferred STI ‘16
Steven Degetto
CCO
LTI ‘17
15 Feb ‘13
20 Feb ‘14
21 May ‘14
1 Jan ‘15
1 Jan ‘16
1 Jan ‘17
1 March ‘17
15 Feb ‘13
20 Feb ‘14
21 May ‘14
1 March ‘15
1 Jan ‘16
1 Jan ‘17
1 March ‘17
15 Feb ‘13
20 Feb ‘14
1 Jan ‘16
1 March ‘16
1 Jan ‘17
1 March ‘17
15 Feb ‘13
20 Feb ‘14
21 May ‘14
1 Jan ‘15
1 Jan ‘16
1 March ‘16
1 Jan ‘17
1 March ‘17
1 Jan ‘17
$8.79
$16.90
$2.65
$3.47
$2.33
$2.90
$3.19
$16.91
$16.90
$2.65
$3.47
$2.33
$2.90
$3.19
$8.79
$16.90
$2.33
$2.59
$2.90
$3.19
$8.79
$16.90
$2.65
$3.47
$2.33
$2.59
$2.90
$3.19
$2.90
15 Feb ‘16, ‘17
20 Feb ‘16, ‘17, ‘18
20 May ‘16, ‘17, ‘18
31 Dec ‘18
31 Dec ‘19
31 Dec ‘20
1 March ‘18
15 Feb ‘16, ‘17
20 Feb ‘16, ‘17, ‘18
20 May ‘16, ‘17, ‘18
1 March ‘16, ‘17, ‘18, ‘19
31 Dec ‘19
31 Dec ‘20
1 March ‘18
15 Feb ‘16, ‘17
20 Feb ‘16, ‘17, ‘18
31 Dec ‘19
1 March ‘17
31 Dec ‘20
1 March ‘18
15 Feb ‘16, ‘17
20 Feb ‘16, ‘17, ‘18
20 May ‘16, ‘17, ‘18
31 Dec ‘18
31 Dec ‘19
1 March ‘17
31 Dec ‘20
1 March ‘18
31 Dec ‘20
1 The number granted during 2017 is reflective of dividends accrued during the vesting period.
2 The number granted during 2017 is reflective of dividends accrued during the vesting period.
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.
2,000
5,524
125,786
59,943
364,119
1,562
1,974
50,314
9,736
96,384
1,500
1,800
101,739
6,817
3,650
4,600
125,786
56,253
86,746
29,644
0
0
0
0
0
0
0
0
0
293,204
67,341
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
77,612
27,145
975
83,649
15,138
4,240
77,612
15,660
75,025
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
2,000
2,762
62,893
1,562
987
25,157
3,245
1,500
900
7792
3,650
2,300
62,893
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
2,000
2,762
62,893
1,562
987
25,157
3,245
1,500
900
7792
3,650
2,300
62,893
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
2,762
62,893
59,943
364,119
293,204
67,341
101,739
0
987
25,157
6,491
96,384
77,612
27,145
0
900
83,649
15,138
2,300
62,893
56,253
86,746
0
0
0
77,612
15,660
75,025
33,884
33,884
3838
Remuneration report (continued)
Table 6c: Share right holdings for the reporting period ended 31 December 2017
Executive KMP
Grant detail
Grant date
Issue price
Vesting date
20# Held 31/12/16
Number granted
Forfeited
Vested
Exercised
# Held 31/12/17
Movement during the year
Name and position
Georgette Nicholas
CEO
Luke Oxenham
CFO
Andrew Cormack
CRO
Tobin Fonseca
COO
Steven Degetto
CCO
GFI Equity ‘13
GFI Equity ‘14
IPO Special Grant
LTI ‘15
LTI ‘16
LTI ‘17
Deferred STI ‘16
GFI Equity ‘13
GFI Equity ‘14
IPO Special Grant
Equity ‘15 Grant
LTI ‘16
LTI ‘17
Deferred STI ‘16
GFI Equity ‘13
GFI Equity ‘14
Deferred STI ‘15 1
LTI ‘16
LTI ‘17
Deferred STI ‘16
GFI Equity ‘13
GFI Equity ‘14
IPO Special Grant
LTI ‘15
LTI ‘16
LTI ‘17
LTI ‘17
Deferred STI ‘15 2
Deferred STI ‘16
15 Feb ‘13
20 Feb ‘14
21 May ‘14
1 Jan ‘15
1 Jan ‘16
1 Jan ‘17
1 March ‘17
15 Feb ‘13
20 Feb ‘14
21 May ‘14
1 March ‘15
1 Jan ‘16
1 Jan ‘17
1 March ‘17
15 Feb ‘13
20 Feb ‘14
1 Jan ‘16
1 March ‘16
1 Jan ‘17
1 March ‘17
15 Feb ‘13
20 Feb ‘14
21 May ‘14
1 Jan ‘15
1 Jan ‘16
1 March ‘16
1 Jan ‘17
1 March ‘17
1 Jan ‘17
$8.79
$16.90
$2.65
$3.47
$2.33
$2.90
$3.19
$16.91
$16.90
$2.65
$3.47
$2.33
$2.90
$3.19
$8.79
$2.33
$2.59
$2.90
$3.19
$8.79
$2.65
$3.47
$2.33
$2.59
$2.90
$3.19
$2.90
$16.90
15 Feb ‘16, ‘17
20 Feb ‘16, ‘17, ‘18
20 May ‘16, ‘17, ‘18
31 Dec ‘18
31 Dec ‘19
31 Dec ‘20
1 March ‘18
15 Feb ‘16, ‘17
20 Feb ‘16, ‘17, ‘18
20 May ‘16, ‘17, ‘18
1 March ‘16, ‘17, ‘18, ‘19
31 Dec ‘19
31 Dec ‘20
1 March ‘18
15 Feb ‘16, ‘17
31 Dec ‘19
1 March ‘17
31 Dec ‘20
1 March ‘18
15 Feb ‘16, ‘17
20 Feb ‘16, ‘17, ‘18
20 May ‘16, ‘17, ‘18
31 Dec ‘18
31 Dec ‘19
1 March ‘17
31 Dec ‘20
1 March ‘18
31 Dec ‘20
$16.90
20 Feb ‘16, ‘17, ‘18
1 The number granted during 2017 is reflective of dividends accrued during the vesting period.
2 The number granted during 2017 is reflective of dividends accrued during the vesting period.
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.
2,000
5,524
125,786
59,943
364,119
0
0
1,562
1,974
50,314
9,736
96,384
0
0
1,500
1,800
101,739
6,817
0
0
3,650
4,600
125,786
56,253
86,746
29,644
0
0
0
0
0
0
0
0
293,204
67,341
0
0
0
0
0
77,612
27,145
0
0
0
975
83,649
15,138
0
0
0
0
0
4,240
77,612
15,660
75,025
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
2,000
2,762
62,893
0
0
0
0
1,562
987
25,157
3,245
0
0
0
1,500
900
0
7792
0
0
3,650
2,300
62,893
0
0
33,884
0
0
0
2,000
2,762
62,893
0
0
0
0
1,562
987
25,157
3,245
0
0
0
1,500
900
0
7792
0
0
3,650
2,300
62,893
0
0
33,884
0
0
0
0
2,762
62,893
59,943
364,119
293,204
67,341
0
987
25,157
6,491
96,384
77,612
27,145
0
900
101,739
0
83,649
15,138
0
2,300
62,893
56,253
86,746
0
77,612
15,660
75,025
3939
GENWORTH Annual Report 2017342DIRECTORS’ REPORTFINANCIAL REPORTOTHER INFORMATION1OVERVIEWGENWORTH Annual Report 2017Remuneration report (continued)
7. NED remuneration
Table 7a: KMP in 2017 – NEDs
Name
Ian MacDonald
David Foster
Anthony Gill
Gai McGrath
Position
Chairman
Independent Director – Genworth Financial designated
Independent Director
Independent Director
Gayle Tollifson
Independent Director
Leon Roday
Stuart Take
Director – Genworth Financial designated
Director – Genworth Financial designated
Jerome Upton
Director – Genworth Financial designated
Term as KMP
Full Period
Full Period
Full Period
Full Period
Full Period
Full Period
Full Period
Full Period
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. At the Annual General Meeting (AGM) the aggregate fee cap was
increased to $1.75 million per annum, inclusive of superannuation obligations. NEDs who are executives of Genworth Financial (Stuart Take
and Jerome Upton) were paid by Genworth Financial in the ordinary course of their duties and were not paid fees by Genworth Australia.
Leon Roday retired from his role as an executive of Genworth Financial in 2015 and is paid fees as set out in table 7c.
Table 7b: NED fee table
Position
NEDs (excluding Stuart Take and Jerome Upton)
Board Chairman
Director 1
Committee Chairman (per Committee)
Committee member (per Committee)
Annual fee
$265,000
$115,000
$24,000
$12,000
1 Leon Roday is paid by Genworth Financial for serving on the Genworth Australia Board. The amount reflected in the statutory tables is the portion of his
remuneration attributable to the Genworth Australia Board and Remuneration & Nominations Committee.
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 Genworth. Accordingly, 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.
4040
Remuneration report (continued) Table 7c: Statutory remuneration table – 1 January to 31 December 2017
KMP
NEDs
Ian MacDonald
Chairman
David Foster 1
Director
Anthony Gill 2
Director
Gai McGrath 3
Director
Gayle Tollifson 4
Director
Leon Roday 5
Director
Stuart Take 6
Director
Jerome Upton 7
Director
Year
2017
2016
2017
2016
2017
2016
2017
2016
2017
2016
2017
2016
2017
2016
2017
2016
Fees
Non-monetary
benefits
Superannuation
benefits
$242,009
$187,435
$159,817
$85,798
$175,000
$175,000
$157,991
$50,020
$159,817
$159,817
$127,000
$127,000
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$22,991
$17,806
$15,183
$8,151
$0
$0
$15,009
$4,752
$15,183
$15,183
$0
$0
$0
$0
$0
$0
Total
$265,000
$205,241
$175,000
$93,949
$175,000
$175,000
$173,000
$54,772
$175,000
$175,000
$127,000
$127,000
$0
$0
$0
$0
1 David Foster is Chairman of the Remuneration & Nominations Committee and Technology Committee and a member of the Capital & Investment Committee.
2 Anthony Gill is Chairman of the Capital & Investment Committee and a member of the Audit Committee, Risk Committee and Technology Committee.
3 Gai McGrath is Chairman of the Audit Committee and a member of the Risk Committee, Remuneration & Nominations Committee and Technology Committee.
4 Gayle Tollifson is Chairman of the Risk Committee and a member of the Audit Committee, Capital & Investment Committee and Remuneration
& Nominations Committee.
5 Leon Roday is a member of the Remuneration & Nominations Committee.
6 Stuart Take is a member of the Risk Committee.
7 Jerome Upton is a member of the Audit Committee, Risk Committee, Capital & Investment Committee and the Technology Committee.
8. Other tables
Table 8a KMP and their related parties direct, indirect and beneficial shareholdings (including movements during the period ending
31 December 2017).
Executive KMP
Georgette Nicholas – CEO
Luke Oxenham – CFO
Andrew Cormack – CRO
Tobin Fonseca – COO
Steven Degetto – CCO
NEDs
Ian MacDonald – Chairman
David Foster – Director
Anthony Gill – Director
Gai McGrath – Director
Gayle Tollifson – Director
Leon Roday – Director
Stuart Take – Director
Jerome Upton – Director
Balance at
31-Dec-16
Received
via vesting/
exercising
Other
changes
Balance at
31-Dec-17
53,805
0
0
0
0
64,565
0
118,640
0
48,424
16,775
8,297
16,711
62,893
28,402
7,792
96,777
0
0
0
0
0
0
0
0
0
0
(28,402)
0
(94,656)
0
0
8,196
0
6,650
0
0
0
0
116,698
0
7,792
2,121
0
64,565
8,196
118,640
6,650
48,424
16,775
8,297
16,711
4141
GENWORTH Annual Report 2017342DIRECTORS’ REPORTFINANCIAL REPORTOTHER INFORMATION1OVERVIEWGENWORTH Annual Report 2017Remuneration report (continued)
Table 8b: Relevant interest of each director in Genworth Australia and its related bodies corporate (unaudited)
Directors
Genworth Group balance
held directly or indirectly
at 31 Dec 2017
Genworth Financial balance
held directly or indirectly
at 31 Dec 2017
Genworth MI Canada Inc.
balance held directly or indirectly
at 31 Dec 2017
Ian MacDonald
Shares: 64,565
Georgette Nicholas
Shares: 116,698
None
Shares: 15,809
Share rights: 847,500
Restricted stock units: 2,762
David Foster
Anthony Gill
Gai McGrath
Shares: 8,196
Shares: 118,640
Shares: 6,650
Gayle Tollifson
Shares: 48,424
Leon Roday
Stuart Take
Shares: 16,775
Shares: 8,297
None
None
None
None
None
None
Options: 17,550
Stock appreciation rights: 56,400
None
None
None
None
Stock appreciation rights: 546,833 1
Shares: 3,020
Shares: 24,531
None
Restricted stock units: 53,375
Options: 30,000
Stock appreciation rights: 53,200
Jerome Upton
Shares: 16,711
Shares: 16,186
Shares: 906
Restricted stock units: 62,162
Options: 22,000
Stock appreciation rights: 88,000
1 The 2016 Remuneration Report incorrectly identified Leon Roday’s share appreciation rights as restricted stock units.
4242
Remuneration report (continued) The lead auditor’s independence declaration is set out on the following page and forms part of the Directors’ report.
Signed in accordance with a resolution of the directors:
Ian MacDonald
Chairman
Dated 28 February 2018
4343
GENWORTH Annual Report 2017342DIRECTORS’ REPORTFINANCIAL REPORTOTHER INFORMATION1OVERVIEWGENWORTH Annual Report 2017Directors’ report (continued) 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 2017 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
David Kells
Partner
Dated 28 February 2018
4444
Lead auditor’s independence declaration Contents
Consolidated statement of comprehensive income
Consolidated statement of financial position
Consolidated statement of changes in equity
Consolidated statement of cash flows
Section 1 Basis of preparation
1.1 Reporting entity
1.2 Basis of preparation
Section 2 Risk management
2.1 Risk management framework
2.2 Financial risk management
Section 3 Results for the year
3.1 Gross written premium
3.2
Investment income
3.3 Other underwriting expenses
3.4 Net cash provided by operating activities
3.5
3.6 Dividends
3.7 EPS
Income taxes
Section 4 Insurance contracts
4.1 Net claims incurred
4.2 Deferred reinsurance expense
4.3 Deferred acquisition costs
4.4 Outstanding claims
4.5 Reinsurance and non-reinsurance recoveries
4.6 Unearned premium
4.7 Liability adequacy test
4.8 Accounting estimates and judgements
4.9 Actuarial assumptions and methods
4.10 Capital adequacy
Section 5 Capital management and financing
Interest bearing liabilities
5.1 Capital management
5.2
5.3 Equity
5.4 Capital commitments and contingencies
5.5 Other reserves
Section 6 Operating assets and liabilities
Intangibles
6.1
6.2 Goodwill
6.3 Employee benefits provision
6.4 Trade and other receivables
6.5 Trade and other payables
6.6 Cash and cash equivalents
Section 7 Other disclosures
7.1 Parent entity disclosures
7.2 Auditor’s remuneration
7.3 KMP disclosures
7.4 Related party disclosures
7.5 Controlled entities
7.6 Share-based payments
7.7 Events subsequent to reporting date
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53
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78
81
4545
GENWORTH Annual Report 2017342DIRECTORS’ REPORTFINANCIAL REPORTOTHER INFORMATION1OVERVIEWGENWORTH Annual Report 2017Financial statements GWP
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 year
Note
3.1
4.1
3.3
3.2
3.2
3.5(a)
2017
$’000
368,963
69,246
(67,740)
370,469
(141,774)
(49,919)
(58,462)
120,314
28,001
148,315
75,337
(11,490)
212,162
(62,988)
149,174
2016
$’000
381,910
142,790
(71,824)
452,876
(158,783)
(52,505)
(64,045)
177,543
40,353
217,896
85,641
(14,205)
289,332
(86,238)
203,094
Total comprehensive income for the year
149,174
203,094
EPS
Basic EPS (cents per share)
Diluted EPS (cents per share)
3.7
3.7
29.7
29.7
37.2
37.1
The consolidated statement of comprehensive income is to be read in conjunction with the notes to the financial statements.
4646
Consolidated statement of comprehensive incomefor the year ended 31 December 2017 Assets
Cash
Accrued investment income
Investments including derivatives
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 premium
Employee benefits provision
Interest bearing liabilities
Total liabilities
Net assets
Equity
Share capital
Share based payment reserve
Other reserves
Retained earnings
Total equity
Note
2017
$’000
2016
$’000
2.2(d)
6.4
4.2
4.5
4.3
3.5(b)
6.1
6.2
6.5
4.4
4.6
6.3
5.2
5.3(a)
5.3(b)
5.5
43,025
17,777
3,348,547
12,521
2,450
145,425
23,552
151,791
938
9,435
1,301
9,123
3,765,885
31,653
159,979
339,679
1,108,554
6,796
197,035
1,843,696
1,922,189
1,303,151
2,528
(476,559)
1,093,069
1,922,189
57,634
28,754
3,464,951
3,749
2,326
80,163
34,414
141,997
472
9,963
2,006
9,123
3,835,552
37,111
95,328
355,546
1,177,801
6,413
195,972
1,868,171
1,967,381
1,354,034
3,389
(476,559)
1,086,517
1,967,381
The consolidated statement of financial position is to be read in conjunction with the notes to the financial statements.
4747
GENWORTH Annual Report 2017342DIRECTORS’ REPORTFINANCIAL REPORTOTHER INFORMATION1OVERVIEWGENWORTH Annual Report 2017Consolidated statement of financial positionas at 31 December 2017 Balance at 1 January 2016
Profit after taxation
Dividends declared and paid
Share based payment expense recognised
Share based payment settled
Capital reduction
Share based payment expense to be recharged back to
the major shareholder
Balance at 31 December 2016
Balance at 1 January 2017
Profit after taxation
Dividends declared and paid
Share based payment expense recognised
Share based payment settled
Buy-back of shares, net of transaction costs
Balance at 31 December 2017
Share
capital
$’000
1,556,470
–
–
–
–
(202,436)
–
1,354,034
1,354,034
–
–
–
–
(50,883)
1,303,151
Other
reserves
$’000
(476,559)
–
–
–
–
–
Retained
earnings
$’000
1,133,317
203,094
(249,894)
–
–
–
–
(476,559)
–
1,086,517
(476,559)
–
–
–
–
–
(476,559)
1,086,517
149,174
(142,622)
–
–
–
1,093,069
Share based
payment
reserve
$’000
5,521
–
–
1,441
(3,514)
–
(59)
3,389
3,389
–
–
3,284
(4,145)
–
2,528
Total
$’000
2,218,749
203,094
(249,894)
1,441
(3,514)
(202,436)
(59)
1,967,381
1,967,381
149,174
(142,622)
3,284
(4,145)
(50,883)
1,922,189
The consolidated statement of changes in equity is to be read in conjunction with the notes to the financial statements.
4848
Consolidated statement of changes in equityfor the year ended 31 December 2017 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
Net cash provided by investing activities
Cash flows from financing activities
Repayment of long-term borrowings
Dividends paid
Capital reduction
Payments for the on-market buy-back of shares
Net cash used in financing activities
Net decrease in cash held
Cash and cash equivalents at the beginning of the financial year
Cash and cash equivalents at the end of the financial year
Note
2017
$’000
2016
$’000
368,963
109,200
(146,779)
(10,696)
(192,267)
(69,731)
58,690
(1,306)
(1,276,963)
1,398,475
120,206
–
(142,622)
–
(50,883)
(193,505)
(14,609)
57,634
43,025
381,910
133,908
(85,864)
(11,527)
(205,881)
(110,319)
102,227
(1,520)
(896,886)
1,277,648
379,242
(49,619)
(249,894)
(202,436)
–
(501,949)
(20,480)
78,114
57,634
3.4
6.6
The consolidated statement of cash flows is to be read in conjunction with the notes to the financial statements.
4949
GENWORTH Annual Report 2017342DIRECTORS’ REPORTFINANCIAL REPORTOTHER INFORMATION1OVERVIEWGENWORTH Annual Report 2017Consolidated statement of cash flowsfor the year ended 31 December 2017 Section 1 Basis of preparation
1.1 Reporting entity
This general purpose consolidated financial report is for the year ended 31 December 2017 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 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 28 February 2018.
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.
(b) Basis of preparation
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.
(c) Changes in accounting policies
New and amended standards adopted by the Group
The Group adopted the following new or revised accounting standards which became effective for the annual reporting period
commencing on 1 January 2017. The adoption of these standards did not have a material financial impact:
AASB 2016-1
AASB 2016-2
AASB 2017-2
New standards, amendments and interpretations
Amendments to Australian Accounting Standards – Recognition of deferred tax assets
for unrealised losses
Operative date
1 January 2017
Amendments to Australian Accounting Standards – Disclosure initiative: Amendments
to AASB 107
1 January 2017
Amendments to Australian Accounting Standards – Further annual improvements
2014-2016 cycle
1 January 2017
5050
Notes to the financial statements 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 2018, and have not been applied in preparing these consolidated financial statements. An initial assessment
of the financial impact of the standards and amendments has been undertaken, except for AASB 17 detailed below they are not
expected to have a material impact on the Group’s financial statements.
AASB 9
AASB 15
AASB 16
AASB 17
AASB 2010-7
AASB 2014-1
AASB 2014-7
AASB 2015-8
AASB 2015-10
AASB 2016-3
AASB 2016-5
AASB 2016-6
AASB 2017-3
AASB 2017-4
New standards, amendments and interpretations
Financial instruments
Revenue from contracts with customers
Leases
Insurance contracts
Amendments to Australian Accounting Standards arising from AASB 9
Amendments to Australian Accounting Standards – Financial instruments Part E
Amendments to Australian Accounting Standards arising from AASB 9
(December 2014)
Amendments to Australian Accounting Standards – Effective date of AASB 15
Amendments to Australian Accounting Standards – Effective date of Amendments
to AASB 10 and AASB 128
Amendments to Australian Accounting Standards – Clarifications to AASB 15
Amendments to Australian Accounting Standards – Classification and measurement
of share-based payment transactions
Amendments to Australian Accounting Standards – Applying AASB 9 Financial
Instruments with AASB 4 Insurance Contracts
Amendments to Australian Accounting Standards – Clarifications to AASB 4
Amendments to Australian Accounting Standards – Uncertainty over income tax
treatments
IFRIC Interpretation 22
Foreign currency transactions and advance consideration
IFRIC Interpretation 23
Uncertainty over income tax treatments
Operative date
1 January 2018
1 January 2018
1 January 2019
1 January 2021
1 January 2018
1 January 2018
1 January 2018
1 January 2018
1 January 2018
1 January 2018
1 January 2018
1 January 2018
1 January 2018
1 January 2019
1 January 2018
1 January 2019
AASB 9 was issued during 2014 and will replace existing accounting requirements for financial instruments. Currently, the Group’s
investments are designated as fair value through profit or loss on initial recognition and are subsequently remeasured to fair value
at each reporting date, reflecting the business model applied by the Group to manage and evaluate its investment portfolio. Under this
business model, the adoption of AASB 9 is not expected to result in significant changes to accounting for investments. Other changes
to the accounting for the Group’s financial instruments arising from the application of AASB 9 are expected to be minimal. The Group
plans to defer the adoption of AASB 9 to align with the implementation of AASB 17 Insurance Contracts (effective 1 January 2021),
which is permissible under the standard.
AASB 15 introduces a single model for the recognition of revenue based on when control of goods and services transfers to a customer.
It does not apply to insurance contracts and financial instruments. Hence the Group’s revenue is not materially impacted by this change.
AASB 16 was issued during 2016 and will replace existing accounting requirements for leases. Under current requirements, leases are
classified based on their nature as either finance leases, which are recognised on the balance sheet, or operating leases, which are not
recognised on the balance sheet. The application of AASB 16 will result in the recognition of all leases on the balance sheet in the form
of a right-of-use asset and a corresponding lease liability, except for leases of low value assets and leases with a term of 12 months or less.
As a result, the new standard is expected to impact leases which are currently classified by the Group as operating leases, primarily, leases
over premises and equipment. Based on a preliminary assessment, it is not expected to have a material impact on the financial statements.
AASB 17 Insurance Contracts was released on 18 May 2017, with an expected effective date of 1 January 2021. The implementation date for
the Group will be for the year ending 31 December 2021, with the comparative period the year ended 31 December 2020. A detailed impact
assessment is currently underway with significant disclosure changes and some impact on profit and loss are anticipated.
(d) Rounding off
The Group is of a kind referred to in ASIC Corporations (Rounding in Financial/Directors’ Reports) Instrument 2016/191 dated 24 March 2016
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.
5151
GENWORTH Annual Report 2017342DIRECTORS’ REPORTFINANCIAL REPORTOTHER INFORMATION1OVERVIEWGENWORTH Annual Report 2017Notes to the financial statements (continued) (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 4.8.
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.
(f) Principles of consolidation
The Group incorporates the assets and liabilities of the Company and all subsidiaries as at the reporting date and the results for the
financial year then ended.
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.
(g) Comparative figures
Comparative figures have been adjusted, where necessary, to conform to the basis of presentation and the classification used in the
current year.
5252
Notes to the financial statements (continued) Section 2 Risk management
This note presents information about the Group’s objectives, policies and processes for measuring and managing risk.
2.1 Risk management framework
The Board has overall responsibility for the establishment and oversight of the risk management framework. The Board has established
a Risk Committee as well as an Audit Committee and Capital & Investment Committee. The Risk Committee is responsible for
developing and monitoring the Group’s risk management policies and reports regularly to the Board on its activities. Furthermore, the
Committee assists the Board in providing an objective non-executive review and oversight of the implementation and on-going operation
of the Company’s risk management framework. The Committee works closely with other Board committees that have oversight of some
material risks to ensure that all risks are identified and adequately managed.
The Audit Committee assists the Board in providing an objective non-executive review of the effectiveness of the risk management
framework, in relation to the management of material financial risks. Similarly, the Capital & Investment Committee assists the Board
in monitoring compliance with the risk management framework, in relation to the execution of the Group’s capital and investment strategy.
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 policies and procedures, aims to develop a disciplined and
constructive control environment in which all employees understand their roles and obligations.
Risk is managed primarily through appropriate pricing, product design, risk selection, appropriate investment strategies, 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 73 per cent of the Group’s GWP, as outlined in the table below:
Lender customer
Lender customer 1
Lender customer 2
Lender customer 3
FY17 GWP
FY16 GWP
53%
15%
5%
47%
14%
10%
2.2 Financial risk management
The Group has exposure to market, credit and liquidity risks relating to its use of financial instruments.
(a) Market risk
Market risk is the risk that the market price of assets change and the potential for such change to result in the actual market value of Genworth’s
assets being adversely impacted.
(i) Currency risk
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 (NZ) 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 per cent depreciation/appreciation of the Australian dollar
(AUD) at the reporting date, assuming all other variables remain constant, is shown below.
2017
+10%
$’000
-10%
$’000
2016
+10%
$’000
-10%
$’000
Impact to profit and loss and equity of 10% depreciation/appreciation
of AUD on NZ assets and liabilities.
807
(986)
954
(1,165)
(ii) Cash flow and fair value interest rate risk
The Group is exposed to interest rate risk primarily arising from 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 the duration. The Group
used derivative financial instruments in the form of interest rate swaptions to mitigate interest rate risk arising from fixed interest securities.
The risk management processes over these derivative financial instruments include close senior management scrutiny, including appropriate
board approval. Derivatives are used only for approved purposes and are subject to delegated authority levels provided to management.
The level of derivative exposure is reviewed on an ongoing basis. Appropriate segregation of duties exists with respect to derivative use and
compliance with policy, limits and other requirements is closely monitored.
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.
5353
GENWORTH Annual Report 2017342DIRECTORS’ REPORTFINANCIAL REPORTOTHER INFORMATION1OVERVIEWGENWORTH Annual Report 2017Notes to the financial statements (continued) 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 as a result of 1 per cent increase/decrease
in interest rates on interest bearing assets, assuming all other variables remain constant, are shown below.
Interest bearing assets
2017
+1%
$’000
(35,626)
-1%
$’000
39,596
2016
+1%
$’000
(40,437)
-1%
$’000
51,067
(iii) Equity price risk
Price risk is the risk that the fair value of a financial asset will fluctuate because of changes in market prices, rather than changes in interest
rates and/or exchange rates. These price movements may be caused by factors specific to the individual financial asset or its issuer,
or factors affecting all similar financial assets traded on the market. The Group has exposure to equity price risk through investment
in equities.
The Group purchased equity securities as a return enhancing investment for the shareholder funds portfolio. The equity investment
also provides a diversification benefit to the overall investment portfolio. The investment is structured to provide a lower volatility return
outcome than a market-weighted allocation to Australian equities. The equity investment targets a volatility of 10 per cent by allocating
dynamically between cash and a portfolio of shares which replicate the S&P ASX 200 Index.
The potential impact of movements in price risk on the Group’s profit and loss and equity as a result of a 10 per cent increase/decrease
in value of equity securities at reporting date are shown below.
Investments – equity securities
2017
+10%
$’000
23,740
-10%
$’000
(23,740)
2016
+10%
$’000
13,136
-10%
$’000
(13,136)
(b) 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 86 per cent (2016: 97 per cent) of total securities 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.
Cash at bank and short-term bank deposits
AAA
AA
A
BBB
BB
Investments
AAA
AA
A
BBB
Accrued interest receivable
AAA
AA
A
BBB
BB
Receivables without external credit rating
5454
2017
$’000
67,609
818,233
107,652
98,329
3,000
1,094,823
864,997
641,091
411,579
141,639
2,059,306
9,016
4,330
3,881
516
34
17,777
2,808
2016
$’000
41,359
315,293
16,450
15,000
3,000
391,103
1,532,210
766,319
548,031
97,266
2,943,826
12,789
9,845
5,289
418
10
28,351
1,592
Notes to the financial statements (continued) (c) 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 interest rate maturity profile with the expected pattern of claims payments.
The money market securities are restricted to investment grade securities with concentrations of investments managed in accordance with
investment mandates.
2017
Financial liabilities
Payables
Reinsurance payable
Outstanding claims provision
2016
Financial liabilities
Payables
Reinsurance payable
Outstanding claims provision
(d) Fair value measurements
Accounting policies
Less than
1 year
$’000
31,653
84,979
254,730
371,362
Less than
1 Year
$’000
37,111
83,689
273,250
394,050
1–5 years
$’000
–
75,000
84,949
159,949
1–5 years
$’000
–
11,639
82,296
93,935
Total
$’000
31,653
159,979
339,679
531,311
Total
$’000
37,111
95,328
355,546
487,985
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; and
• 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 using 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;
•
Listed equity securities are designated as financial assets at fair value through profit and loss upon initial recognition. They are initially
recorded at fair value, determined as the quoted cost at date of acquisition and are subsequently remeasured to fair value at each
reporting date.
Financial assets not backing general insurance liabilities
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.
Derivative financial instruments
Derivatives are used solely to manage risk exposure and are not used for trading or speculation.
Derivatives are initially recognised at trade date at fair value; attributable transaction costs are recognised in profit or loss as incurred.
Subsequent to initial recognition, derivatives are measured at fair value through profit and loss.
5555
GENWORTH Annual Report 2017342DIRECTORS’ REPORTFINANCIAL REPORTOTHER INFORMATION1OVERVIEWGENWORTH Annual Report 2017Notes to the financial statements (continued) Investments
Fixed interest rate
Short-term deposits
Government and semi-government bonds
Corporate bonds
Floating interest rate
Short-term deposits
Corporate bonds
Government and semi-government bonds
Equity securities
Listed
Derivatives
Investment related derivatives
Total investments
Current
Current
Non-current
Equity
2017
$’000
2016
$’000
825,142
709,009
678,659
2,212,810
226,656
629,397
42,241
898,294
149,738
929,739
1,504,132
2,583,609
183,731
480,131
26,936
690,798
237,443
187,655
–
3,348,547
2,889
3,464,951
1,394,597
1,716,507
237,443
3,348,547
821,766
2,455,530
187,655
3,464,951
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 2017
Financial instruments
Government and semi-government bonds
Corporate bonds
Short-term deposits
Equity investments
Total
31 December 2016
Financial instruments
Government and semi-government bonds
Corporate bonds
Short-term deposits
Derivatives
Equity investments
Total
5656
Level 1
$’000
Level 2
$’000
Level 3
$’000
Total
$’000
–
–
1,051,798
237,443
1,289,241
751,250
1,308,056
–
–
2,059,306
–
–
–
–
–
751,250
1,308,056
1,051,798
237,443
3,348,547
Level 1
$’000
Level 2
$’000
Level 3
$’000
Total
$’000
–
–
333,469
–
187,655
521,124
956,675
1,984,263
–
–
–
2,940,938
–
–
–
2,889
–
2,889
956,675
1,984,263
333,469
2,889
187,655
3,464,951
Notes to the financial statements (continued) 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:
Financial instruments
Derivatives
Total
Financial instruments
Corporate bonds
Derivatives
Total
Balance at
1 January
2017
$’000
2,889
2,889
Balance at
1 January
2016
$’000
Purchases
$’000
Disposals
$’000
Movement in
fair value
$’000
Balance at
31 December
2017
$’000
–
–
–
–
(2,889)
(2,889)
–
–
Purchases
$’000
Disposals
$’000
Movement in
fair value
$’000
Balance at
31 December
2016
$’000
48,500
1,554
50,054
–
1,568
1,568
(48,500)
–
(48,500)
–
(233)
(233)
–
2,889
2,889
Interest bearing liabilities are 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.
Derivative financial instruments
The Group purchased interest rate swaptions in 2016 to mitigate interest rate risk arising from fixed interest securities. An interest rate
swaption is an option to enter into an interest rate swap. Each option exists for a period of time and the purchaser pays a one-time, up-front
premium to acquire the options. The purchaser has a right, but not obligation, to exercise the option if interest rates reach a particular level.
The swaptions expired in December 2017.
Interest rate swaptions are valued using an income approach. The primary inputs into the valuation represent the forward interest rate swap
curve, which is generally considered an observable input, forward interest rate volatility and time value component associated with the
optionality in the derivative. As a result of the significant unobservable inputs associated with the forward interest rate volatility input, these
derivatives are classified as Level 3.
5757
GENWORTH Annual Report 2017342DIRECTORS’ REPORTFINANCIAL REPORTOTHER INFORMATION1OVERVIEWGENWORTH Annual Report 2017Notes 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 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 Investment income
Accounting policies
2017
$’000
366,190
2,773
368,963
2016
$’000
381,361
549
381,910
Interest revenue
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.
Dividend revenue
Dividend is recognised on the date the dividends/distributions are declared, which for listed equity securities is deemed to be the
ex-dividend date.
Gains/(losses) in fair value of investments
Refer to Note 2.2(d) Accounting policies and fair value estimations for further details.
Interest
Dividend revenue
Gains/(losses) in fair value of investments
Unrealised
Realised
Impairments
Total investment income
Represented by
Investment income on assets backing insurance liabilities
Investment income on equity holders’ funds
3.3 Other underwriting expenses
Depreciation and amortisation expense
Employee expenses:
– Salaries and wages
– Superannuation contributions
– Employee benefits
Occupancy expenses
Marketing expenses
Administrative expenses
5858
2017
$’000
86,048
12,182
(31,291)
36,399
–
103,338
28,001
75,337
103,338
2017
$’000
756
24,436
1,731
207
2,516
471
28,345
58,462
2016
$’000
120,927
7,113
(12,525)
11,010
(531)
125,994
40,353
85,641
125,994
2016
$’000
895
27,772
1,768
(218)
2,820
566
30,442
64,045
Notes to the financial statements (continued) 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 loss 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:
Increase in receivables
(Decrease)/increase in outstanding claims liability
Increase/(decrease) in payables and borrowings
(Increase)/decrease in deferred acquisition costs
Increase/(decrease) in provision for employee entitlements
Decrease in unearned premiums
Decrease in deferred tax asset balances
Net cash provided by operating activities
3.5 Income taxes
2017
$’000
2016
$’000
149,174
203,094
(36,399)
31,291
(861)
789
756
144,750
(52,318)
(15,868)
60,255
(9,794)
383
(69,246)
528
58,690
(10,478)
12,525
(2,132)
1
895
203,905
(7,809)
78,563
(32,954)
3,078
(396)
(142,790)
630
102,227
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 financial position 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.
(a) Income tax expense
Current tax
Deferred tax
Under provision in prior year
Current tax
Deferred tax
31 December
2017
$’000
31 December
2016
$’000
62,268
528
192
–
62,988
85,247
462
361
168
86,238
5959
GENWORTH Annual Report 2017342DIRECTORS’ REPORTFINANCIAL REPORTOTHER INFORMATION1OVERVIEWGENWORTH Annual Report 2017Notes to the financial statements (continued) (i) 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:
Foreign tax rate differential
(Over)/under provision in prior year
Other non-taxable items
Income tax expense on the profit
(ii) Current tax liabilities
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
Share based payments and accrued expenses
Provision for indirect claims handling costs
Net deferred tax
Balance at 1 January
(Debited)/credited to the statement of comprehensive income
Under/(over) provision of prior year tax
Closing balance at 31 December
3.6 Dividends
31 December
2017
$’000
31 December
2016
$’000
63,649
86,800
(4)
189
(849)
62,988
(59)
529
(1,032)
86,238
2017
$’000
3,549
235
5,651
9,435
9,963
(528)
–
9,435
2016
$’000
3,224
400
6,339
9,963
10,593
(462)
(168)
9,963
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.
(a) Restrictions that may limit the payment of dividends
There are currently no restrictions on the payment of dividends by the Company other than:
•
•
the 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.
2016 final dividend
2017 interim dividend
2017 special dividend
Cents per
share
14.0
12.0
2.0
Total
amount
$m
71.3
61.1
10.2
Payment date
8 March 2017
30 August 2017
30 August 2017
Tax rate for
franking
credit
Percentage
franked
30%
30%
30%
100%
100%
100%
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.
(b) Dividends not recognised at reporting date
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.
2017 final dividend
12
59.1
16 March 2018
30%
100%
Cents per
share
Total
amount
$m
Expected
payment date
Tax rate for
franking
credit
Percentage
franked
6060
Notes to the financial statements (continued) (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.
Franking credits available for subsequent financial periods based on a tax rate of 30%
31 December
2017
$’000
31 December
2016
$’000
6,897
5,560
After taking into account the impact of franking on the final dividend recommended by the Board since year end, but not recognised
as a liability at year end, the franking account balance will have a deficit of ($18,424,000) (2016: ($25,002,000)).
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. The Company actively manages the franking account to ensure the balance remains positive at each reporting
date, in accordance with tax legislation.
3.7 EPS
Accounting policies
Basic EPS is calculated by dividing the profit after tax by the weighted average number of shares on issue during the reporting period.
Diluted EPS 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 EPS have been calculated using the weighted average and dilutive number of shares outstanding during the year of
502,276,000. The difference between basic and diluted EPS is caused by the granting of potentially dilutive securities such as share rights,
options and restricted share units (RSUs).
Basic EPS (cents per share)
Diluted EPS (cents per share)
(a) Reconciliation of earnings used in calculating EPS
Profit after tax
Profit used in calculating basic and diluted EPS
31 December
2017
31 December
2016
29.7
29.7
37.2
37.1
31 December
2017
$’000
31 December
2016
$’000
149,174
149,174
203,094
203,094
(b) Reconciliation of weighted average number of ordinary shares used in calculating EPS
Weighted average number of ordinary shares on issue
Weighted average number of shares used in the calculation of basic EPS
Weighted average number of dilutive potential ordinary shares
Bonus element of shares
Weighted average number of shares used in the calculation of diluted EPS
31 December
2017
$’000
31 December
2016
$’000
502,276
502,276
893
503,169
545,276
545,276
1,673
546,949
6161
GENWORTH Annual Report 2017342DIRECTORS’ REPORTFINANCIAL REPORTOTHER INFORMATION1OVERVIEWGENWORTH Annual Report 2017Notes to the financial statements (continued) 4.
Insurance contracts
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.
4.1 Net claims incurred
(a) Claims analysis
Gross claims incurred
Reinsurance and other recoveries revenue
Net borrower recoveries recognised
Net claims incurred
31 December
2017
$’000
31 December
2016
$’000
155,115
(4,271)
(9,070)
141,774
166,536
(6,853)
(900)
158,783
Net claims incurred decreased $17.0 million from $158.8 million in FY16 to $141.8 million in FY17, primarily driven by a favourable movement
in non-reinsurance recoveries on paid claims.
(b) Claims development
Gross claims expense
Direct
Inwards reinsurance
Gross claims incurred – undiscounted
Reinsurance and other recoveries revenue
Reinsurance and other recoveries
– undiscounted
Net borrower recoveries recognised
Net claims incurred
4.2 Deferred reinsurance expense
Accounting policies
Current
year
$’000
259,418
14,661
274,079
2017
Prior
years
$’000
(110,052)
(8,912)
(118,964)
Total
$’000
149,366
5,749
155,115
Current
year
$’000
254,952
9,863
264,815
2016
Prior
years
$’000
(94,234)
(4,045)
(98,279)
Total
$’000
160,718
5,818
166,536
(507)
(1,076)
272,496
(3,764)
(7,994)
(130,722)
(4,271)
(9,070)
141,774
(812)
(107)
263,938
(6,041)
(793)
(105,155)
(6,853)
(900)
158,783
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.
Balance at 1 January
Deferral of reinsurance premium on current year contracts
Expensing/reversing of reinsurance premium previously deferred
Balance as at 31 December
Current
Non-current
31 December
2017
$’000
31 December
2016
$’000
80,163
206,011
(140,749)
145,425
70,425
75,000
145,425
71,040
147,638
(138,515)
80,163
68,524
11,639
80,163
6262
Notes to the financial statements (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 4.8 Accounting estimates and judgements and Note 4.9 Actuarial assumptions and methods for further detailed information.
Opening balance at 1 January
Acquisition costs incurred in year
Amortisation charge
Balance as at 31 December
Current
Non-current
4.4 Outstanding claims
31 December
2017
$’000
31 December
2016
$’000
141,997
65,446
(55,652)
151,791
39,292
112,499
151,791
145,075
52,864
(55,942)
141,997
51,273
90,724
141,997
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, incurred but not reported (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 4.8 Accounting estimates and judgements and Note 4.9 Actuarial assumptions and methods for further detailed information.
Central estimate
Risk margin
Gross outstanding claims
(a) Reconciliation of changes in outstanding claims
Opening balance at 1 January
Current period net claims incurred
Movement in non-reinsurance and borrower recoveries
Claims paid
Balance at 31 December
Current
Non-current
2017
$’000
300,375
39,304
339,679
2017
$’000
355,546
141,774
(10,862)
(146,779)
339,679
254,730
84,949
339,679
2016
$’000
314,428
41,118
355,546
2016
$’000
276,983
158,783
5,644
(85,864)
355,546
273,251
82,295
355,546
6363
GENWORTH Annual Report 2017342DIRECTORS’ REPORTFINANCIAL REPORTOTHER INFORMATION1OVERVIEWGENWORTH Annual Report 2017Notes to the financial statements (continued) (b) Claims development
2017
Underwriting years
At end of year
of underwrite
One year later:
Two years later
Three years later
Four years later
Five years later
Six years later
Seven years later
Eight years later
Nine years later
All future years
Net incurred to date
Net paid to date
Outstanding
claims provision at
31 December 2017
Recoveries on
paid claims at
31 December 2017
Prior
years 1
$’000
2008
$’000
2009
$’000
2010
$’000
2011
$’000
2012
$’000
2013
$’000
2014
$’000
2015
$’000
2016
$’000
2017
$’000
Total
$’000
4,393
19,629
36,755
47,621
24,386
16,589
40,761
12,537
18,916
8,438
44,511
47,593
52,953
79,244
31,875
22,638
23,698
8,579
13,597
213,762
189,494
191,144
152,040
92,535
96,078
77,930
22,642
(13,083)
(36,013)
(30,052)
956,477 333,126 221,587
922,905 303,734 186,095
1,424
6,803
16,711
860
8,620
777
12,917
20,319
21,130
1,021
6,825
20,870
29,722
28,494
1,079
7,805
11,246
24,535
43,917
34,634
992
6,668
10,997
9,989
15,925
23,182
14,669
701
7,004
15,005
9,744
8,107
23,971
11,717
10,923
87,172
67,878
82,422 123,216
73,311
54,481
86,932
35,799
55,143
17,661
24,938
3,372
9,480
254
1,162
234,609
310,276
370,640
347,734
292,608
226,329
167,715
69,800
14,412
(22,416)
(27,082)
1,162 1,981,655
44 1,665,534
35,350
29,812
35,748
19,389
28,016
50,005
51,184
37,507
21,571
9,227
1,119
318,928
1,777
418
256
93
75
101
49
24
7
–
–
2,800
1 Prior 2008 underwriting years.
Prior
years 1
$’000
204,459
150,229
129,761
106,407
42,476
34,904
48,439
12,446
(1,819)
(40,129)
(2,970)
2016
Underwriting years
At end of year
of underwrite
One year later:
Two years later
Three years later
Four years later
Five years later
Six years later
Seven years later
Eight years later
Nine years later
All future years
Net incurred to date
Net paid to date
Outstanding claims
provision at 31
December 2016
Recoveries on paid
claims at
31 December 2016
2007
$’000
2008
$’000
2009
$’000
2010
$’000
2011
$’000
2012
$’000
2013
$’000
2014
$’000
2015
$’000
2016
$’000
Total
$’000
778
12,917
20,319
1,424
6,803
1,021
6,825
20,871
29,722
1,079
7,805
11,246
24,535
43,917
9,302
39,265
61,383
45,635
50,058
61,174
29,491
10,197
(11,264)
4,116
4,393
19,629
36,755
47,621
24,386
16,589
40,761
12,537
8,438
44,511
47,593
52,954
79,244
31,875
22,638
23,698
8,579
992
6,668
10,997
9,989
15,925
23,182
701
7,004
15,005
9,744
8,108
23,971
11,717
684,203 299,357 319,530 202,671
663,010 273,774 283,637 165,886
76,250
51,900
67,753
31,997
88,582
27,654
58,439
15,497
34,014
4,849
8,227
550
860
233,447
301,656
353,930
326,607
264,114
191,695
153,046
58,878
(4,504)
(36,013)
(2,970)
860 1,839,886
0 1,518,754
23,358
26,741
37,388
38,155
25,182
36,922
62,879
44,313
30,088
7,919
887
333,832
2,165
1,158
1,494
1,371
833
1,166
1,951
1,370
923
242
27
12,700
1 Prior 2007 underwriting years.
6464
Notes to the financial statements (continued) (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
4.5 Reinsurance and non-reinsurance recoveries
2017
$’000
318,928
20,751
339,679
2016
$’000
333,832
21,714
355,546
Accounting policies
Reinsurance and other recoveries receivable on paid claims, reported claims not yet paid and IBNR claims are recognised as revenue.
Recoveries receivable on paid claims are presented as part of non-reinsurance recoveries receivable 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.
Opening balance
Movement of non-reinsurance recoveries
Net borrower recoveries receivable recognised
Closing balance
2017
$’000
34,414
(962)
(9,900)
23,552
2016
$’000
28,770
4,744
900
34,414
When claims are paid, the Group typically obtains a legally enforceable judgement against borrowers for the amount of the loss incurred.
The Group actively engages in collection activities to recover monies from borrowers under these judgements. Based on a history
of successful collection activities over the last few years and current economic conditions, an expected recovery rate was established and
a recovery accrual related to claims paid was recorded.
4.6 Unearned premium
Accounting policies
Earned and unearned premium revenue
Premiums have been brought to account as income from the date of attachment of risk over periods up to 12 years based on an actuarial
assessment of the pattern and period of risk. The earned portion of premium received is recognised as revenue. The balance of premium
received is recorded as unearned premium.
Refer to Note 4.8 Accounting estimates and judgements and Note 4.9 Actuarial assumptions and methods for further detailed information.
Balance at 1 January
Premiums incepted during the year
Premiums earned during the year
Balance as at 31 December
Current
Non-current
31 December
2017
$’000
31 December
2016
$’000
1,177,801
368,963
(438,210)
1,108,554
240,352
868,202
1,108,554
1,320,590
381,910
(524,699)
1,177,801
377,680
800,121
1,177,801
6565
GENWORTH Annual Report 2017342DIRECTORS’ REPORTFINANCIAL REPORTOTHER INFORMATION1OVERVIEWGENWORTH Annual Report 2017Notes to the financial statements (continued) 4.7 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 adequacy adopted in performing the liability adequacy test is set at the 70th percentile (2016: 70th percentile), includes
a risk margin of 14 per cent (2016: 14 per cent). The 70 per cent probability of adequacy (PoA) represented by the liability adequacy test
(LAT) differs from the 75 per cent represented by the outstanding claims liability as the former is reflective of experience, whereas the latter
is a measurement accounting policy used in determining the carrying value of the outstanding claims liability.
4.8 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 4.6)
Premium is earned over periods of up to 12 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 annual 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.
The review of the premium earning scale is based on an annual analysis of a number of factors including the historical pattern of claims
incurred, the pattern of policy cancellations, economic outlook and policyholder risk profile. The estimate for unearned premiums is
established on the basis of this earning scale. Changes to earnings curve assumptions, which in turn impact the timing of the recognition
of unearned premium and DAC, are recognized prospectively. Changes are recommended by the Appointed Actuary when the results
of the annual analysis indicate an ongoing change in the pattern of emergence of risk.
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.
6666
Notes to the financial statements (continued) 4.9 Actuarial assumptions and methods
(a) Outstanding claims
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.
For loans where the mortgagee is in possession and a claim has been submitted, the claimed amount adjusted for amounts not eligible
to be claimed is provided. For loans where there is a mortgagee in possession (MIP) but a claim has not yet been submitted, a case estimate
based approach is used utilising 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.
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.
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.
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 LVR ratio, loan
size band, the region in which the mortgaged property is located, mortgagor groups, property price appreciation since inception, and
arrears duration.
Statistical modelling is 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, house
price appreciation (HPA) 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 geographic region of the properties secured by the mortgages and mortgagor groups. 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 34 per cent (2016: 34 per cent)
• Average severity factor is 25 per cent (2016: 24 per cent)
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.
6767
GENWORTH Annual Report 2017342DIRECTORS’ REPORTFINANCIAL REPORTOTHER INFORMATION1OVERVIEWGENWORTH Annual Report 2017Notes to the financial statements (continued) A risk margin for outstanding claims of 14 per cent (2016: 14 per cent) of net central estimate has been assumed and is intended to achieve
a 75 per cent PoA.
No discounting has been applied to non-current claims on the basis that the effect is immaterial.
The weighted average term to settlement, which is estimated to be 19 months (2016: 19 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 are expected to impact outstanding claims liabilities more than others and
consequently a greater degree of sensitivity to these variables is 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.
Various scenarios regarding key economics including HPA, unemployment and mortgage, as well as the upper and lower bounds of a 95 per cent
confidence interval of frequency 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
Outstanding
claims
liability
Premium
liability
Total
liability
Underwriting year
Base
Ultimate loss ratio
Upside economics
Downside economic
– 5% house price depreciation
(HPD), increase in mortgage rates (MR)
Downside economic
– 10% HPD, increase in MR
Units downside
– 15% HPD for units (NSW, QLD, VIC)
Economic model
Arrears frequency model
+5% HPA estimate
-5% HPA estimate
-10% HPA estimate
5% Parameter estimate
confidence interval
95% Parameter estimate
confidence interval
Discount rate
+1.0%
-1.0%
$m
318
(2)
8
14
13
58
(15)
16
33
(6)
5
%
(1)
3
4
4
18
(5)
5
10
(2)
2
$m
841
(106)
51
111
110
(114)
%
(13)
6
13
13
(14)
(26)
28
(3)
3
$m
1,159
(108)
59
125
123
(56)
(15)
16
33
(6)
5
(26)
28
%
(9)
5
11
11
(5)
(1)
1
3
0
0
(2)
2
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.
6868
Notes to the financial statements (continued)
(b) Unearned premium
The assessment of future recognition of unearned premium is an inherently uncertain process involving assumptions concerning the
discontinuance and pattern of the incidence of risk. When deciding an appropriate earning pattern to apply at the start of an underwriting
year, consideration is given to:
• The emergence of claims and their cost for historical underwriting years;
• The economic outlook for key economic variables (interest rates, house prices and unemployment) at the time the policy was written;
and
• Policyholder risk profile, determined by characteristics such as location, LVR at underwriting, type of dwelling, loan type and type
of interest repayment.
Over the term of a policy, changes in economic conditions invariably lead to a difference between the expected and actual risk emergence
pattern. Over time, these differences may be sizeable and, as business is cyclical, these may build up over successive periods. The earnings
curves is revised when experience indicates such differences are ongoing.
The 2017 annual review process recommended a modification to the earnings pattern. This has been applied to the recognition of revenue
in the income statement from 1 October 2017, and in subsequent reporting periods. Given the size of Unearned Premium, any changes to
the earnings pattern are likely to have a significant impact on results in any given year. The changes applied to the premium earning pattern
as part of the 2017 review process negatively impacted NEP by $37.3 million.
4.10 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.
The following companies comprise the APRA Level 2 Group as at 31 December 2017:
Genworth Financial Mortgage Insurance Pty Limited
Genworth Financial Mortgage Indemnity Limited
Balmoral Insurance Company Limited
The calculation for PCA 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 (deficit)/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
Operational risk charge
Aggregation benefit
Total PCA
PCA coverage
31 December
2017
$’000
31 December
2016
$’000
1,303,151
(474,031)
1,093,068
(19,858)
(9,967)
1,892,363
200,000
2,092,363
221,731
761,423
137,642
27,996
(62,089)
1,086,703
1,354,034
(473,171)
1,086,517
(20,826)
66,223
2,012,777
200,000
2,212,777
229,807
1,095,275
111,002
29,954
(52,158)
1,413,880
1.93x
1.57x
6969
GENWORTH Annual Report 2017342DIRECTORS’ REPORTFINANCIAL REPORTOTHER INFORMATION1OVERVIEWGENWORTH Annual Report 2017Notes to the financial statements (continued) 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:
(a) Regulatory capital
The regulated controlled entities are subject to APRA’s prudential standards, which set out the basis for calculating the Prescribed Capital
Requirement (PCR), 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.
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.
On 2 August 2017, the Company announced its intention to commence, with effect from 21 August 2017, an on-market share buy-back
program for shares up to a maximum equivalent value of $100 million. Refer to Note 5.3 Equity for further information.
(b) Ratings capital
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.
Standard & Poor’s
On 19 March 2017, S&P reaffirmed Genworth Financial Mortgage Insurance Pty Limited’s (GFMI) financial strength rating at ‘A+’, revising
the outlook from ‘stable’ to ‘negative’. On 6 September 2017, S&P reaffirmed the ‘A+’ ratings and maintained the outlook at ‘negative’.
Fitch Ratings
On 13 September 2017, Fitch reaffirmed Genworth Financial Mortgage Insurance Pty Limited’s financial strength rating at ‘A+’ and outlook
‘stable’.
(c) Economic capital
The Group uses an economic capital model (ECM) to assess the level of capital required for the underwriting, claims estimation, credit,
market, liquidity, operational and group risk to which it is exposed. Economic capital is determined as the level of capital the Group
needs to ensure that it can satisfy its ultimate policyholder obligations in relation to all insurance contracts issued on or before the end
of the business plan year. The ECM is used by management to help in the determination of strategic capital allocation, business planning,
underwriting performance, pricing and reinsurance arrangements. The Group reviews its capital structure on an ongoing basis to optimise
the allocation of capital whilst minimising the cost of capital. Active management of the business and its capital has enabled the Group
to maintain its insurer financial strength and credit rating.
7070
Notes to the financial statements (continued) 5.2 Interest bearing liabilities
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 related costs include interest, which is accrued at the contracted rate and included in payables, and amortisation of transaction
costs which are capitalised, presented together with borrowings, and amortised over the life of the borrowings. This cost also includes
the write off of capitalised transaction costs and premium paid on the early redemption of borrowings.
Subordinated notes
$200 million subordinated notes
Less: capitalised transaction costs
31 December
2017
$’000
31 December
2016
$’000
(A)
200,000
(2,965)
197,035
200,000
(4,028)
195,972
(A) On 3 July 2015, GFMI issued $200,000,000 of 10 year, non-call five year subordinated notes. The notes qualified as Tier 2 Capital under the APRA’s capital
adequacy framework.
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 3.5 per cent per annum; and
• The notes mature on 3 July 2025 (non-callable for the first five years) with the issuer having the option to redeem at par from 3 July 2020.
Redemption at maturity, or any earlier date provided for in the terms and conditions of issue, is subject to prior approval by APRA.
5.3 Equity
(a) Share capital
Issued fully paid capital
Opening balance
Buy-back shares, net of transaction costs
Capital reduction
Balance at 31 December
31 December
2017
$’000
31 December
2016
$’000
1,354,034
(50,883)
–
1,303,151
1,556,470
–
(202,436)
1,354,034
The Company’s issued shares do not have a par value. 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.
An ordinary share entitles its holder to one vote, either in person or by proxy, at a meeting of the Company.
On-market buy-back
On 2 August 2017, the Company announced its intention to commence, with effect from 21 August 2017, an on-market share buy-back
program for shares up to a maximum equivalent value of $100 million. As at 31 December 2017 the Company acquired 17,013,668 shares
for a total consideration of $51 million.
Capital reduction and share consolidation
On 1 June 2016, $202 million of capital was returned to shareholders as part of the Group’s capital management initiatives. As a result of the
capital reduction, the Company consolidated its share capital through the conversion of every one the Company’s shares into 0.8555 shares.
Following the completion of the share consolidation the total number of shares on issue was 509,365,050 ordinary shares.
(b) Share-based payment reserve
Opening balance
Share-based payment expense
Share-based payment settled
Share-based payment expense to be recharged back to the major shareholder
Closing balance
Refer to Note 7.6 Share-based payments for further detailed information.
31 December
2017
$’000
31 December
2016
$’000
3,389
3,284
(4,145)
–
2,528
5,521
1,441
(3,514)
(59)
3,389
7171
GENWORTH Annual Report 2017342DIRECTORS’ REPORTFINANCIAL REPORTOTHER INFORMATION1OVERVIEWGENWORTH Annual Report 2017Notes to the financial statements (continued) 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. 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
Contingencies
There were no contingent liabilities as at 31 December 2017.
5.5 Other reserves
Other reserves
31 December
2017
$’000
31 December
2016
$’000
3,901
16,111
2,305
22,317
6,362
3,773
–
10,135
31 December
2017
$’000
31 December
2016
$’000
(476,559)
(476,559)
The balance represents reserves recognised from the reorganisation of the intragroup debt and equity arrangements with the Company
became the holding company of the group. 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 is recognised directly in equity as other reserves.
7272
Notes to the financial statements (continued)
Section 6 Operating assets and liabilities
6.1 Intangibles
The intangibles balance represents software development expenditure.
Accounting policies
Acquired software
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).
Internally developed capitalised software
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 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
Additions
Disposals
Closing balance at 31 December
Accumulated amortisation and impairment losses
Balance at 1 January
Amortisation
Disposals
Closing balance at 31 December
Total net intangibles
31 December
2017
$’000
31 December
2016
$’000
26,248
493
(1,478)
25,263
(24,242)
(409)
689
(23,962)
1,301
24,754
1,513
(19)
26,248
(23,728)
(532)
18
(24,242)
2,006
7373
GENWORTH Annual Report 2017342DIRECTORS’ REPORTFINANCIAL REPORTOTHER INFORMATION1OVERVIEWGENWORTH Annual Report 2017Notes to the financial statements (continued) 6.2 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 carrying value of goodwill is tested for impairment at each reporting date. The impairment test 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 calculation
which 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.
Goodwill – at deemed cost
6.3 Employee benefits provision
Accounting policies
The carrying amount of provisions for employee entitlements approximates fair value.
31 December
2017
$’000
31 December
2016
$’000
9,123
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 Group has a defined contribution superannuation plan. 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 216 employees (2016: 223).
31 December
2017
$’000
31 December
2016
$’000
2,594
4,202
6,796
4,914
1,882
6,796
2,493
3,920
6,413
4,711
1,702
6,413
7474
Notes to the financial statements (continued) 6.4 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.
Trade and other receivables
Related party receivables
Current
31 December
2017
$’000
31 December
2016
$’000
2,808
9,713
12,521
12,521
1,592
2,157
3,749
3,749
Included in the related party receivables are the balances related to taxes receivable to the head entity of $10,153,000 (2016: $2,877,000).
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.
Carrying amounts of receivables reasonably approximate fair value at the reporting date. None of the receivables are impaired or past due.
6.5 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
Interest (receivable)/payable
Trade creditors and other payables
Current
Non-current
6.6 Cash and cash equivalents
31 December
2017
$’000
31 December
2016
$’000
24,286
(57)
7,424
31,653
31,653
–
31,653
22,983
32
14,096
37,111
37,111
–
37,111
Accounting policies
Cash and cash equivalents includes cash on hand, deposits held at call with financial institutions and 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 that 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
2017
$’000
43,025
2016
$’000
57,634
7575
GENWORTH Annual Report 2017342DIRECTORS’ REPORTFINANCIAL REPORTOTHER INFORMATION1OVERVIEWGENWORTH Annual Report 2017Notes to the financial statements (continued) Section 7 Other disclosures
7.1 Parent entity disclosures
Result of the parent entity
Profit for the year
Total comprehensive income for the year
Financial position of parent entity
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
Non-assurance services
2017
$’000
2016
$’000
221,418
221,418
220,644
220,644
124,774
1,939,801
2,353
2,353
128,778
1,942,162
32,034
32,034
1,937,448
1,910,128
1,303,151
198,140
1,482
434,675
1,937,448
1,354,034
119,344
2,075
434,675
1,910,128
31 December
2017
$
747,541
81,721
829,262
13,500
842,762
31 December
2016
$
654,165
76,480
730,645
43,000
773,645
7.3 KMP 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
Andrew Cormack
Steven Degetto (appointed 17 July 2017)
Tobin Fonseca
Luke Oxenham
Directors of the Company
David Foster
Anthony Gill
Ian MacDonald
Gai McGrath
Georgette Nicholas
Leon Roday
Stuart Take
Gayle Tollifson
Jerome Upton
The key management personnel compensation is:
Short-term employee benefits
Post-employment benefits
Equity compensation benefits
7676
31 December
2017
$’000
31 December
2016
$’000
5,108
227
1,117
6,452
5,306
501
1,267
7,074
Notes to the financial statements (continued) 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 (GFI) 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 per cent 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 2017. 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 $3,974,000 (2016: $5,462,000) for the year ended 31 December 2017.
There is a payable balance of $373,000 (2016: $452,000) as at 31 December 2017.
Share buy-back
GFI participated in on-market sale transactions during the buy-back program to maintain the approximately 52 per cent stake in the Group.
GFI has sold 8.9 millions of shares for a total consideration of $25.8 million as at 31 December 2017. Refer to Note 5.3 Equity for further details.
Other related party transactions
Certain non-executive directors of the Group were employed by the major shareholder, GFI, during the financial year. Costs of services
provided by these directors were not charged to the Group.
Major shareholder and its ultimate parent entity
The major shareholder of the Group is Genworth Financial International Holdings, LLC & Genworth Holdings, Inc. (as partners of the
Genworth Australian General Partnership) representing 51.95 per cent ownership. The ultimate parent entity of AGP is GFI which
is incorporated in Delaware, United States of America.
In October 2016, GFI and China Oceanwide announced that they had entered into a definitive agreement under which China Oceanwide
agreed to acquire all of the outstanding shares of GFI, subject to approval by GFI stockholders as well as other closing conditions. Upon
completion of the transaction GFI will be a standalone subsidiary of China Oceanwide. In November 2017, GFI announced that GFI and
China Oceanwide continue to work towards satisfying the closing conditions of their previously announced proposed transaction as soon
as possible.
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 entity. In assessing control, the Company
considers the purpose and design of each entity 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 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
Country of
incorporation
Genworth Financial Mortgage Insurance Holdings Pty Limited 1
Genworth Financial Mortgage Insurance Pty Limited
Genworth Financial Services Pty Limited 1
Genworth Financial Mortgage Indemnity Limited
Genworth Financial Mortgage Insurance Finance Pty Limited 1
Genworth Financial Mortgage Insurance Finance Holdings Pty Limited 1
Genworth Financial New Holdings Pty Limited 1
Genworth Financial Australia Holdings, LLC1 1
Balmoral Insurance Company Limited
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Bermuda
1 The entities were deregistered during the year.
Class of
shares
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Equity holding
(%)
2017
2016
–
100
–
100
–
–
–
–
100
100
100
100
100
100
100
100
100
–
7777
GENWORTH Annual Report 2017342DIRECTORS’ REPORTFINANCIAL REPORTOTHER INFORMATION1OVERVIEWGENWORTH Annual Report 2017Notes to the financial statements (continued) 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.
The fair value at the grant date, being the date both the employee and the employer agree to the arrangement, is determined using
a valuation model based on the share price at grant date and the vesting conditions. The 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 is 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
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 an 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 an employee ceases continuous
service with the Group, any unvested share rights vest immediately. The aggregate amount of $276,000 was expensed during the year
ended 31 December 2014.
Share Rights Plan
grant date
7 May 2015
6 May 2016
1 March 2017
Available to
Vesting period
Nominated employees
Nominated employees
Nominated employees
Four equal tranches vested on first anniversary of grant date
Four equal tranches vested on first anniversary of grant date
Four equal tranches vested on first anniversary of grant date
Total
($)
509,967
499,030
492,910
The fair value of the share rights is calculated as at the grant date using a Black Scholes valuation. The factors and assumptions used for the
valuation are summarised in the below table:
Grant date
1 March 2017
6 May 2016
2017
2016
Share price on grant date ($)
$2.81
Dividend yield
Risk free rate (%)
8.6%
Tranche 1: 1.83%
Tranche 2: 2.00%
Tranche 3: 2.15%
Tranche 4: 2.29%
2015
7 May 2015
$3.09
11.16%
$3.00
11.36%
Tranche 1: 1.57%
Tranche 1: 2.03%
Tranche 2: 1.57%
Tranche 3: 1.57%
Tranche 4: 1.80%
Tranche 2: 2.03%
Tranche 3: 2.20%
Tranche 4: 2.35%
2014
21 May 2014
$2.95
7.8%
Tranche 1: 2.60%
Tranche 2: 2.71%
Tranche 3: 3.08%
Vesting dates
Tranche 1: 1 March 2018
Tranche 1: 1 March 2017
Tranche 1: 1 March 2016
Tranche 1: 20 May 2016
Tranche 2: 1 March 2019
Tranche 2: 1 March 2018
Tranche 2: 1 March 2017
Tranche 2: 20 May 2017
Tranche 3: 1 March 2020
Tranche 3: 1 March 2019
Tranche 3: 1 March 2018
Tranche 3: 20 May 2018
Tranche 4: 1 March 2021
Tranche 4: 1 March 2020
Tranche 4: 1 March 2019
7878
Notes to the financial statements (continued) 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.
Details of the number of employee share rights granted, exercised and forfeited or cancelled during the year were as follows:
2017
Grant date
21 May 2014
21 May 2014
7 May 2015
22 June 2015
6 May 2016
1 March 2017
Total
Balance at
1 January
2017
number
844,020
54,665
99,528
5,803
271,714
–
1,275,730
Granted
in the year
number
Exercised
in the year *
number
Cancelled/
forfeited
in the year
number
Balance at
31 December
2017
number
–
–
–
–
–
382,344 1
382,344
(423,052)
(54,665)
(35,543)
(1,934)
(117,490)
(703)
(633,387)
(126,624)
–
(12,049)
–
–
(18,267)
(156,940)
294,344
–
51,936
3,869
154,224
363,374
867,747
Vested and
exercisable
at end
of the year
number
–
–
–
–
–
–
–
included employees who ceased service with the Group, any unvested share rights vested immediately.
*
1 The number of share rights granted in the year includes 139,169 shares rights, representing the deferred short-term incentive component under the 2016
remuneration program.
2016
Grant date
21 May 2014
21 May 2014
7 May 2015
22 June 2015
6 May 2016
Total
Balance at
1 January
2016
number
2,554,698
70,876
139,904
7,737
–
2,773,215
Granted
in the year
number
Exercised
in the year *
number
Cancelled/
forfeited
in the year
number
Balance at
31 December
2016
number
–
–
–
–
280,281 2
280,281
(840,969)
(16,211)
(34,967)
(1,934)
–
(894,081)
(869,709)
–
(5,409)
–
(8,567)
(883,685)
844,020
54,665
99,528
5,803
271,714
1,275,730
Vested and
exercisable
at end
of the year
number
–
–
–
–
–
–
included employees who ceased service with the Group, any unvested share rights vested immediately.
*
2 The number of share rights granted in the year includes 66,105 shares rights, representing the deferred short-term incentive component under the 2015
remuneration program.
LTI
The Group implemented an LTI plan for executive KMP which is performance-oriented and reflects local market practice.
LTI grant date
7 May 2015
6 May 2016
1 March 2017
Nature of award
share rights
share rights
share rights
Key terms and conditions:
• The rights are granted for nil consideration.
Vesting conditions
•
• Subject to performance conditions
continuous active employment for four years from grant date.
Total
($)
1,822,777
1,729,230
1,873,986
• Holders are entitled to receive notional dividend equivalents during the vesting period but do not have voting rights.
• Each allocation is split equally into two portions which are subject to different performance hurdles with a 12 month deferral period after
the performance period ends. The first vesting condition is not market related and requires continuous active employment for four years
from grant date. The second set of vesting conditions are as follows:
–
–
50 per cent is subject to a ROE performance condition. The Group’s three year average ROE is tested against target ROEs over a
three year period.
50 per cent is subject to a relative TSR performance condition. The Group’s TSR is tested against comparator group, the ASX 200
excluding resource companies over a three year period.
• The number of share rights offered is determined by dividing the grant value of the 2017 long term incentive plan by $2.899, being the
10-day VWAP of the Company’s share price following the release of full-year results for 2016, rounded down to the nearest whole share
right. Each share right is a right granted to acquire a fully paid ordinary share of the Company.
• The fair value of the share rights is the share price as at the grant date.
If an employee ceases employment with the Group before the performance conditions are tested, their unvested rights will generally lapse.
7979
GENWORTH Annual Report 2017342DIRECTORS’ REPORTFINANCIAL REPORTOTHER INFORMATION1OVERVIEWGENWORTH Annual Report 2017Notes to the financial statements (continued) The fair value of the share rights for LTI is calculated as at the grant date using Monte Carlo simulation. The factors and assumptions used
for the valuation are summarised in the below table.
Grant date
Share price on grant date ($)
Dividend yield
Volatility
Correlation
Risk free rate (%)
Vesting date
2017
1 March 2017
$2.81
8.60%
35.00%
2016
6 May 2016
$3.00
11.36%
35.00%
A correlation matrix for the ASX
200 (excluding resource companies)
has been used
A correlation matrix for the ASX
200 (excluding resource companies)
has been used
2.0%
31 December 2020
1.57%
31 December 2019
Details of the number of employee share rights granted, exercised and forfeited or cancelled during the year were as follows:
Grant date
7 May 2015
6 May 2016
1 March 2017
17 July 2017
Total
Grant date
7 May 2015
6 May 2016
Total
Balance at
1 January
2017
number
177,497
742,159
–
919,656
Balance at
1 January
2016
number
525,834
–
525,834
Granted
in the year
number
Exercised
in the year
number
–
–
646,425
75,025
721,450
–
–
–
–
Cancelled/
forfeited
in the year
number
Balance at
31 December
2017
number
(61,301)
(93,171)
–
(154,472)
116,196
648,988
646,425
75,025
1,486,634
Vested and
exercisable
at end
of the year
number
–
–
–
–
Granted in
the year
number
Exercised in
the year
number
Cancelled/
forfeited in
the year
number
Balance at
31 December
2016
number
Vested and
exercisable
at end of the
year
number
–
742,159
742,159
–
–
–
(348,337)
–
(348,337)
177,497
742,159
919,656
–
–
–
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:
2017
Grant date
Expiry date
Exercise
price
Balance at
1 January
2017
Number
Granted
in the year
Number
Exercised
in the year
Number
Cancelled/
forfeited
in the year
Number
Balance at
31 December
2017
Number
Vested and
exercisable
at end of
the year
Number
13/02/2008
19/08/2009
19/08/2009
10/02/2010
09/02/2011
14/02/2012
15/02/2013
20/02/2014
Total
Weighted average exercise price
13/02/2018
31/07/2017
13/02/2018
10/02/2020
09/02/2021
14/02/2022
15/02/2023
20/02/2024
29.19
9.98
9.98
18.15
16.32
11.37
11.60
19.50
7,800
2,450
6,288
30,600
29,000
38,100
37,000
19,500
170,738
$15.15
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(4,800)
(2,450)
–
(3,600)
–
–
–
–
(10,850)
$21.19
3,000
–
6,288
27,000
29,000
38,100
37,000
19,500
159,888
14.74
3,000
–
6,288
18,305
29,000
38,100
37,000
14,625
146,318
14.37
8080
Notes to the financial statements (continued) Balance at 1 January 2017 is adjusted for options granted in prior periods to employees who transferred into/out of the Group during the year.
2016
Grant date
Expiry date
Exercise
price
09/08/2016
13/02/2018
12/02/2019
09/08/2016
31/07/2017
13/02/2018
10/02/2020
09/02/2021
14/02/2022
15/02/2023
20/02/2024
09/08/2006
13/02/2008
12/02/2009
19/08/2009
19/08/2009
19/08/2009
10/02/2010
09/02/2011
14/02/2012
15/02/2013
20/02/2014
Total
Weighted average exercise price
47.30
31.60
3.41
10.81
10.81
10.81
19.65
17.67
12.31
12.56
21.11
Balance at
1 January
2016
Number
Granted
in the year
Number
Exercised
in the year
Number
Cancelled/
forfeited
in the year
Number
Balance at
31 December
2016
Number
6,600
7,800
17,500
3,049
2,450
6,288
48,600
38,500
46,800
46,500
14,000
238,087
$16.11
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(17,500)
–
–
–
–
–
–
–
–
(17,500)
$3.41
(6.600)
–
–
(3,049)
–
–
(18,000)
(12,000)
(14,700)
(15,000)
–
(69,349)
$18.46
–
7,800
–
–
2,450
6,288
30,600
26,500
32,100
31,500
14,000
151,238
$16.51
Details of the number of employee RSUs granted, exercised and forfeited or cancelled during the year were as follows:
Vested and
exercisable
at end of
the year
Number
–
7,800
–
–
2,450
6,288
30,600
38,500
35,100
23,250
3,500
147,488
$16.41
2017
Grant date
15/02/2013
2/12/2013
20/2/2014
20/03/2015
Total
Balance at
1 January
2017
Number
21,507
2,500
34,140
1,350
59,497
Granted
in the year
Number
Exercised
in the year
Number
Cancelled/
forfeited
in the year
Number
Balance at
31 December
2017
Number
Vested and
exercisable
at end of
the year
Number
–
–
–
–
–
(21,170)
(2,500)
(17,070)
–
(40,740)
(337)
–
(4,324)
–
(4,661)
–
–
12,746
1,350
14,096
–
–
–
–
–
Balance at 1 January 2017 is adjusted for options granted in prior periods to employees who transferred into/out of the Group during the year.
2016
Grant date
03/01/2012
06/01/2012
11/01/2012
14/02/2012
15/02/2013
1/10/2013
2/12/2013
20/2/2014
20/03/2015
Total
Balance at
1 January
2016
Number
Granted
in the year
Number
Exercised
in the year
Number
Cancelled/
forfeited
in the year
Number
Balance at
31 December
2016
Number
Vested and
exercisable
at end of
the year
Number
3,750
1,250
6,250
17,681
68,984
3,000
5,000
91,942
1,350
199,207
–
–
–
–
–
–
–
–
–
–
(3,750)
(1,250)
–
(16,306)
(32,693)
–
(2,500)
(29,870)
–
(86,369)
–
–
(6,250)
(1,375)
(15,396)
(3,000)
–
(28,632)
–
(54,653)
–
–
–
–
20,895
–
2,500
33,440
1,350
58,185
–
–
–
–
–
–
–
–
–
–
7.7 Events subsequent to reporting date
On 7 February 2018, the directors declared a 100 per cent franked final dividend of 12 cents per share totalling $59,100,000. As this event
occurred after reporting date and did not relate to conditions existing at reporting date, no account has been taken in the financial
statements for the current reporting year ended 31 December 2017.
8181
GENWORTH Annual Report 2017342DIRECTORS’ REPORTFINANCIAL REPORTOTHER INFORMATION1OVERVIEWGENWORTH Annual Report 2017Notes to the financial statements (continued) 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 46 to 81 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 2017 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 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.
The directors have been given the declarations required by section 295A of the Corporations Act from the CEO and the CFO for the
financial year ended 31 December 2017.
Signed in accordance with a resolution of the directors.
Ian MacDonald
Chairman
Dated 28 February 2018.
8282
Directors’ declaration Independent auditor’s report
to the shareholders of Genworth Mortgage Insurance Australia Limited
Report on the audit of the financial report
Opinion
We have audited the financial report of Genworth Mortgage
Insurance Australia Limited (the Company).
In our opinion, the accompanying financial report of the Company
is in accordance with the Corporations Act 2001, including:
• giving a true and fair view of the Group’s financial position
as at 31 December 2017 and of its financial performance for
the year ended on that date; and
•
complying with Australian Accounting Standards and the
Corporations Regulations 2001.
Basis for opinion
The financial report comprises:
• Consolidated statement of financial position as at
31 December 2017;
• Consolidated statement of comprehensive income,
consolidated statement of changes in equity, and
consolidated statement of cash flows for the year then ended;
• Notes including a summary of significant accounting policies;
• Directors’ declaration.
The Group consists of the Company and the entities it controlled
at the year-end or from time to time during the financial year.
We conducted our audit in accordance with Australian Auditing Standards. We believe that the audit evidence we have obtained is sufficient
and appropriate to provide a basis for our opinion.
Our responsibilities under those standards are further described in the Auditor’s responsibilities for the audit of the financial report section
of our report.
We are independent of the Group in accordance with the Corporations Act 2001 and the ethical requirements of the Accounting
Professional and Ethical Standards Board’s APES 110 Code of Ethics for Professional Accountants (the Code) that are relevant to our audit
of the financial report in Australia. We have fulfilled our other ethical responsibilities in accordance with the Code.
Key audit matters
The key audit matters we identified are:
• Valuation of gross outstanding claims liability
• Net earned premium and unearned premium liability
Key audit matters are those matters that, in our professional
judgement, were of most significance in our audit of the financial
report of the current period.
These matters were addressed in the context of our audit of the
Financial report as a whole, and in forming our opinion thereon,
and we do not provide a separate opinion on these matters.
KPMG, an Australian partnership and a member firm of the KPMG
network of independent member firms affiliated with KPMG
International Cooperative (“KPMG International”), a Swiss entity.
Liability limited by a scheme approved under
Professional Standards Legislation.
8383
GENWORTH Annual Report 2017342DIRECTORS’ REPORTFINANCIAL REPORTOTHER INFORMATION1OVERVIEWGENWORTH Annual Report 2017 Independent auditor’s report (continued)
to the shareholders of Genworth Mortgage Insurance Australia Limited
Valuation of gross outstanding claims liability – $340m
The key audit matter
How the matter was addressed in our audit
Refer to the accounting policy in Note 4.4 Outstanding claims,
Note 4.8 Accounting estimates and judgments, Note 4.9 Actuarial
assumptions and methods, Note 2.1 (e) Liquidity risk and Note 4.1
Net claims incurred.
The outstanding claims liability is a key audit matter due to the
complexity of the valuation methodology. This complexity requires
us to exercise judgment when evaluating the methodologies and
assumptions adopted.
Genworth’s insurance policies are very similar in nature and
as a result our audit focused on the way in which the Group
used common characteristics to segment the stages of claim
emergence when applying frequency and severity (size) factors
to calculate the outstanding claims liability. These common
characteristics include region, loan originator, outstanding loan
size and LVR.
The outstanding claims liability reflects an assessment of future
expected outcomes.
These outcomes are influenced by a number of factors, including
macroeconomic ones, which are subject to a wide range of
views and interpretations. The valuation methodology requires
assumptions to be made in respect of these factors including:
•
•
the uncertainty in the timing of claim payments and
recoveries;
the frequency at which claims emerge, and the subsequent
severity of those claims. Frequency and severity may
be influenced by changes in macroeconomic factors
such as interest rates, unemployment, property prices,
house price movements and performance of industry and
geographic segments;
•
the timing of receipt of information from lenders indicating
that a delinquency or claim has occurred; and
• whether past claims experience is a reasonable predictor
of future experience.
The assumptions adopted have a significant impact on the
financial performance of the Group. As a result, this key audit
matter involved more senior audit team members, including
actuarial specialists, who understand the valuation methodologies,
the Group’s business, its industry and the economic environment
it operates in.
Our audit procedures included testing the key controls designed
and operated by the Group for the outstanding claims liabilities.
Alongside our IT specialists, we assessed the key controls for
significant data inputs used to determine the outstanding claims
liability. Our assessment included testing specific reconciliation
controls and output from key IT systems used in the actuarial
valuation processes.
We focused on the assumptions and valuation methodology
used by management in estimating the Group’s outstanding
claims liability. In so doing we challenged the methodology
and the assumptions used in the valuation, including the
Group’s approach to segmenting the portfolio using common
characteristics. We were assisted by KPMG actuarial specialists
in this and in our consideration of the work and findings of the
Group’s appointed actuary.
Our detailed testing included considering the Group’s valuation
methodology and assumptions for consistency between reporting
periods, as well as indicators of possible management bias.
Our challenge focused on the assumptions applied to delinquencies
and claims. We did this by:
• evaluating the underlying documentation for the assumptions.
For example, we considered actual versus expected claims
data and the timing of claims payments and recoveries (using
historical data);
•
considering external information available (e.g.
macroeconomic assumptions such as forecast interest rates,
unemployment, property prices, house price movements) and
investigating significant variances;
•
identifying and analysing key changes from previous periods;
• assessing sensitivities performed by the Group to assist
in evaluating the relevance and reasonableness of findings
and conclusions;
• assessing the consistency of information (such as claims
experience and trends) across the Group’s operations.
8484
NEP – $370m and unearned premium liability – $1,109m
The key audit matter
How the matter was addressed in our audit
Refer to the accounting policy in Note 4.6 and Note 4.8
Accounting estimates and judgments.
Genworth receives payment for all insurance policies upfront
however recognises this premium revenue over time. The timing
pattern for recognition of premiums and the resulting valuation
of the unearned premium liability (the proportion of the premium
revenue not yet recognised), was determined by applying
actuarial modelling techniques to develop an earnings curve.
In this way the timing of revenue recognition is dependent
on the way in which claims are expected to emerge.
Net earned premiums and the unearned premium liability
are a key audit matter due to the complexity of the actuarial
methodology used to model the earnings curve and the
significant level of judgment applied in assessing the
assumptions adopted.
The earnings curve and the timing of revenue recognition
is dependent on an assessment of future claim emergence.
As a result, the complexities discussed in the key audit matter
‘outstanding claims liabilities’ are also relevant to our work
over net earned premiums and the valuation of the unearned
premium liability.
The assumptions adopted have a significant impact on the
financial performance of the Group. Accordingly, we involved
more senior audit team members, including actuarial specialists,
who understand the Group’s business, its industry and the
economic environment it operates in.
Other information
The assessment of claims emergence as it relates to the earnings
curve is performed by the Group on an annual basis. We tested
the key controls designed and operated by the Group for the
unearned premium liability and net earned premiums. Working
with our IT specialists, this included testing specific reconciliation
controls, the data used in the actuarial modelling processes and
output from key IT systems used in the valuation of the unearned
premium liability.
Working alongside KPMG actuarial specialists we focused on the
assumptions and valuation methodology used by management
in their assessment. Our detailed testing included the procedures
outlined in the key audit matter ‘Valuation of gross outstanding
claims liability’ as timing of revenue recognition is dependent
upon future claim emergence.
Additional procedures were performed for each key segment
of the portfolio, reflecting underwriting year, loan type and policy
type and considered indicators of possible management bias.
These included:
• an assessment of consistency in the adopted pattern
of risk emergence;
• an assessment of sensitivity of the adopted earnings curve
to key model assumptions and analysis of key changes from
previous periods;
•
consideration of the impact of changes in the products and
operations of the Group to the assumptions adopted.
Other information is financial and non-financial information in the Company’s annual reporting which is provided in addition to the
financial report and the auditor’s report. This includes the Investor report and Investor presentation as at 7 February 2018. The directors are
responsible for the other information.
Our opinion on the financial report does not cover the other information and, accordingly, we do not express an audit opinion or any
form of assurance conclusion thereon, with the exception of the remuneration report and our related assurance opinions.
In connection with our audit of the financial report, our responsibility is to read the other information. In doing so, we consider whether the
other information is materially inconsistent with the Financial report or our knowledge obtained in the audit, or otherwise appears to be
materially misstated.
We are required to report if we conclude that there is a material misstatement of this other information and, based on the work we have
performed on the other information that we obtained prior to the date of this auditor’s report we have nothing to report.
Responsibilities of the directors for the financial report
The directors are responsible for:
• preparing the financial report that gives a true and fair view in accordance with Australian Accounting Standards and the Corporations
Act 2001;
•
implementing necessary internal controls to enable the preparation of a financial report that gives a true and fair view and is free from
material misstatement, whether due to fraud or error;
• assessing the Group’s ability to continue as a going concern. This includes disclosing, as applicable, matters related to going concern
and using the going concern basis of accounting unless they either intend to liquidate the Group or to cease operations or have no
realistic alternative but to do so.
8585
GENWORTH Annual Report 2017342DIRECTORS’ REPORTFINANCIAL REPORTOTHER INFORMATION1OVERVIEWGENWORTH Annual Report 2017Independent auditor’s report (continued)to the shareholders of Genworth Mortgage Insurance Australia Limited Auditor’s responsibilities for the audit of the financial report
Our objective is:
•
to obtain reasonable assurance about whether the financial report as a whole is free from material misstatement, whether due
to fraud or error; and
•
to issue an Auditor’s report that includes our opinion.
Reasonable assurance is a high level of assurance but is not a guarantee that an audit conducted in accordance with Australian Auditing
Standards will always detect a material misstatement when it exists.
Misstatements can arise from fraud or error. They are considered material if, individually or in the aggregate, they could reasonably
be expected to influence the economic decisions of users taken on the basis of this financial report.
A further description of our responsibilities for the audit of the financial report is located at the Auditing & Assurance Standards Board
website at: auasb.gov.au/auditors_files/ar1.pdf
This description forms part of our auditor’s report.
Report on the remuneration report
Opinion
Directors’ responsibilities
In our opinion, the Remuneration report of the Company for
the year ended 31 December 2017, complies with Section 300A
of the Corporations Act 2001.
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 responsibilities
We have audited the remuneration report included on pages 26 to
42 of the directors’ report for the year ended 31 December 2017.
Our responsibility is to express an opinion on the remuneration
report, based on our audit conducted in accordance with
Australian Auditing Standards.
KPMG
David Kells
Partner
Sydney
28 February 2018
8686
Independent auditor’s report (continued)to the shareholders of Genworth Mortgage Insurance Australia Limited Unless otherwise stated, the information in this section is current as at 1 February 2018.
Annual General Meeting
The 2018 AGM of Genworth Mortgage Insurance Australia Limited will be held on Thursday, 10 May 2018, at The Mint, 10 Macquarie Street,
Sydney NSW 2000. The AGM will be webcast live on the internet at 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 ASX and its ordinary shares are quoted under the ASX code “GMA”.
Annual Report
The default option for receiving annual reports is in electronic format via Genworth’s website at genworth.com.au. To request a copy of the
Annual Report, please contact the Share Registry.
Online voting
Shareholders can lodge voting instructions electronically either as a direct vote or by appointing a proxy for the 2018 AGM at 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 AGM.
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 shareholders 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 relation 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 investorcentre.linkmarketservices.com.au.
Questions for the Company’s auditor must be received by 5pm on Thursday, 3 May 2018. 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.
Manage your holding
Questions regarding shareholdings can be directed to the Company’s Share Registry. Your Securityholder Reference Number (SRN)
or Holder Identification Number (HIN) will be required to verify your identity. Share Registry contact information can be 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.
8787
GENWORTH Annual Report 2017342DIRECTORS’ REPORTFINANCIAL REPORTOTHER INFORMATION1OVERVIEWGENWORTH Annual Report 2017Shareholder information Information about Genworth
Information about Genworth, including company announcements, presentations and reports can be accessed at 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 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.
Important dates 1
Company financial year end
Full year results and dividend announced
Record date for dividend
Dividend paid
Annual Report and Notice of AGM mail out commences
AGM
1 Note: some dates may be subject to change.
Ordinary shares and share rights
As at 1 February 2018, the Company had on issue the following equity securities:
• 492,351,382 ordinary shares
• 2,319,583 share rights
Ordinary shares information
Substantial holders of ordinary shares
31 December 2017
7 February 2018
2 March 2018
16 March 2018
22 March 2018
10 May 2018
Name
Genworth Financial International Holdings, LLC and Genworth
Holdings, Inc. (as partners of the Genworth Australian General
Partnership), and their related bodies corporate
Asia Pacific Global Capital Co., Ltd. and Asia Pacific Global Capital
USA Corporation
Number of shares
Voting power
(%)
Date of
notice
337,700,000
52.0
2 October 2015
264,634,553
51.95
25 October 2016
Note: substantial holder details are as disclosed in substantial holding notices given to the Company.
8888
Shareholder information (continued) 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
Genworth Financial International Holdings, LLC and Genworth Holdings, Inc.
(as partners of the Genworth Australian General Partnership)
HSBC Custody Nominees (Australia) Limited
J P Morgan Nominees Australia Limited
Citicorp Nominees Pty Limited
National Nominees Limited
BNP Paribas Noms Pty Ltd
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