Level 26
101 Miller Street
North Sydney NSW 2060
Australia
Tel 1300 655 422
genworth.com.au
26 February 2021
Companies Announcements Office
Australian Securities Exchange
20 Bridge Street
SYDNEY NSW 2000
Genworth Mortgage Insurance Australia Limited (ASX:GMA)
2020 Annual Report
We attach a copy of the Annual Report for Genworth Mortgage Insurance Australia Limited
and its controlled entities for the year ended 31 December 2020.
The release of this announcement was authorised by the Board.
Yours faithfully
Prudence Milne
General Counsel and Company Secretary
For more information, analysts, investors and other interested parties should contact:
Investors:
Paul O’Sullivan
Head of Investor Relations
M: +61 499 088 640
Media:
Iwona Falkiner
Head of Corporate Affairs
M: +61 428 059 965
Genworth Mortgage Insurance Australia Limited ABN 72 154 890 730
® Registered Trade Mark of Genworth Financial, Inc.
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Annual Report
2020
One step closer
to your dream of
home ownership.
At Genworth, our vision is to help Australians
achieve the dream of home ownership
by being a leading provider of risk and
capital management solutions in residential
mortgage markets.
We work with our lender customers,
regulators and policy leaders to promote a
more sustainable housing market in Australia.
VALUES
Our values underpin how we interact with each
other, how we interact with our customers and
how we build a brand that truly reflects the
character of our business.
f Act with integrity
have courage. do what’s right.
f Rethink the everyday
experiment. embrace change. adapt.
f One team
work together to deliver on our commitments.
f Own it
be accountable. plan. get it done.
f Focus on your customer
listen. be relevant. be flexible.
SUPPORTING THE DREAM
OF HOME OWNERSHIP
Years of facilitating home
ownership
50+
Lender customers
50+
Borrowers experiencing financial stress
and hardship supported since 20131
70,964
Genworth is a leading provider of Lenders Mortgage
Insurance (LMI) and capital and risk management solutions
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.
1. Via our lender customers
01
Strategic Report
02 FY20 highlights
04 Chairman’s review
06 CEO’s report
08 Our strategy and business
10 Response to COVID-19
12 Our approach to sustainability
14 Risk management
Directors’ Report
16 Directors’ report
17 Board of directors
20 Senior leadership team
22 Operating and financial review
30 Remuneration report
51 Lead auditor’s independence
declaration
Financial Report
52 Financial statements
100 Directors’ declaration
101
Independent auditor’s report
106 Shareholder information
110 Glossary
113 Corporate directory
Genworth Mortgage Insurance Australia
Limited and its controlled entities
ABN 72 154 890 730
Genworth Annual ReportFinancial ReportDirectors’ ReportStrategic Report
02
FY20 highlights
Overview
INSURED LOANS IN-FORCE1
1,195,907
PORTFOLIO OF INSURED HOME LOANS
(DECEMBER 2020)
Number of Insured Policies
Value of Insured Policies
WA
146,374 12.2%
$38.9b
12.7%
SA
90,621
$18.7b
7.6%
6.1%
VIC
290,313 24.3%
$70.7b
23.1%
TAS
44,049
$6.9b
3.7%
2.3%
INSURANCE IN-FORCE BY HOME LOAN TYPE
AND VALUE²
NT
13,962
$3.7b
1.2%
1.2%
QLD
273,201 22.8%
$71.3b
23.3%
NSW
286,627 24.0%
$83.7b
27.4%
ACT
30,176
$8.3b
2.5%
2.7%
NZ
20,584
$3.5b
1.7%
1.1%
$305.7b
Value of Insured Policies 31 December 2020
Owner Occupier + Principal & Interest
$193.0b
Owner Occupier + Interest Only
Investor + Principal & Interest
Investor + Interest Only
OTHER
$27.7b
$32.0b
$31.6b
$21.4b
63%
9%
10%
11%
7%
1. Number of insured loans in-force at 31 December 2020
2. Value of insurance in-force at 31 December 2020
03
Financial strength
PCA ratio of 1.65 times, with surplus
capital of $203 million above the
top end of board target range of
1.32 to 1.44 times
2020 $31.6b
2019 $26.7b
1.65x
CREDIT RATINGS
S&P Insurer Financial Strength
A Rating
Fitch Insurer Financial Strength
A Rating
Operational
NEW INSURANCE WRITTEN
Number of policies
80,000
2020 76,557
2019 66,895
70,000
60,000
50,000
40,000
30,000
20,000
10,000
0
$b
35
30
25
20
15
10
5
0
LENDER CUSTOMERS
FOR 2020
DEFERRAL APPLICATIONS
IN 2020
50+
56,630
CLAIMS PAID IN 2020
AMOUNT OF CLAIMS PAID IN 2020
1,254
$120.8m
Shareholder³
CLOSING SHARE PRICE
SHARES ON ISSUE
MARKET CAPITALISATION
$2.39
413m
$985.9m
Shareholders by Geography
Shareholders by Type
Shareholders by geography
Shareholders by type
North America
61%
Corporate
52%
Australia
Europe
Other
29%
2%
8%
Domestic institutions
Foreign institutions
Private
Other
22%
11%
6%
9%
3. As at 31 December 2020
Genworth Annual ReportFinancial ReportDirectors’ ReportStrategic Report 04
Chairman’s review
In these unprecedented times, the
fundamental role of our Company
has never been more pertinent – to
help Australians realise their dream
of owning a home.
We are committed to working in
partnership with our lender customers
to enable people to buy homes sooner
and, wherever possible, to help them
remain in their homes in difficult times.
2020 has been a challenging year for
Australians. With many people and
communities already dealing with
a record drought and devastating
bushfires at the start of the year, it was
the onset of what would become a
global pandemic that ultimately defined
our nation and the world in 2020.
SUPPORTING AUSTRALIAN
HOMEBUYERS AND HOMEOWNERS
Your Company did not hesitate to
support Australians in their time of need.
With our lender customers, we assisted
over 63,000 borrowers who were
experiencing difficulties, including those
impacted by COVID-19.
In addition, Genworth wrote over 75,000
new Lenders Mortgage Insurance (LMI)
policies over the year, reflecting the
historically low interest rates and strong
mortgage market competition. At the
end of 2020, Genworth had 1.2 million
policies with insurance in-force of
$305.7 billion.
Our commitment to enabling
homeownership underpinned the
way we supported our people and
customers throughout the year. The
unprecedented nature of the pandemic
necessitated our people rapidly
adapting to new ways of working, and
this was enabled by a robust business
continuity plan and the automated
technology that Genworth has invested
in over recent years. Our people
have worked hard under challenging
circumstances and it is a credit to them
that they maintained high standards of
service to Genworth’s lender customers.
BUSINESS PERFORMANCE AND
CAPITAL MANAGEMENT
Genworth’s 2020 financial performance
was materially impacted by the effects
of COVID-19 on the economy, that led
to increased reserving for anticipated
future claims outcomes contributing
to a full year Statutory NPAT loss of
$107.6 million.
Pleasingly, Genworth was in a
strong financial position when the
pandemic arose, and your Company
continues to remain well positioned.
As at 31 December 2020, Genworth’s
regulatory solvency ratio was 1.65 times
the Prescribed Capital Amount (PCA)
on a Group (Level 2) basis, comfortably
above the Board’s target range of
1.32 to 1.44 times and representing
surplus capital of $203.2 million above
the top end of the range.
Due to the uncertain economic outlook,
APRA’s regulatory guidance and the
Company’s FY20 Statutory NPAT loss,
the Board concluded it would preserve
capital and not pay an interim or
final ordinary dividend for 2020. Your
Board acknowledges the importance
of dividends for shareholders and
remains committed to resuming
dividend payments when we believe
it is appropriate to do so, taking into
account the impacts of COVID-19 on the
Company’s financial and capital position
as further information becomes available.
STRATEGY FOR GROWTH
Genworth’s operating environment
is rapidly evolving. Even before the
pandemic, the financial sector had
been facing disruption from new
and emerging technologies, evolving
consumer expectations, and continuing
regulatory change.
In response to these developments,
over the past few years Genworth has
enhanced its data and technology
tools and leveraged our capabilities
to launch new products and improve
customer experience. For example,
this year we successfully piloted the
monthly premium LMI offering and we
are currently in discussions with further
customers regarding their requirements.
During 2020, the Company undertook a
strategic review to confirm organisation
priorities in this new environment and
realign the business structure to support
growth. Genworth’s strategic direction
is now being refreshed to build an even
stronger, more efficient and sustainable
business for the years ahead.
SUSTAINABLE BUSINESS PRACTICE
The Board believes that to have a
sustainable business, Genworth
needs to continue to make a positive
contribution to Australia’s social fabric.
This commitment is embedded in our
sustainability framework that supports
our people, the community and the
Australian dream of home ownership.
In delivering sustainable growth, the
Board places significant importance on
managing our business responsibly,
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 on the Genworth website.
An integral component of Genworth’s
success is a culture that encourages
collaboration and accountability.
These characteristics were certainly
evident in the flexibility and adaptability
of Genworth’s people in moving
seamlessly to remote working and
continuing to collaborate and innovate
to serve our customers. Details of
Genworth’s sustainability approach and
response to COVID-19 are provided on
pages 10 to 13 of this Annual Report.
05
REMUNERATION REFLECTING
PERFORMANCE
Whilst management did an excellent job
leading their teams during a challenging
year, the effects of COVID-19 impacted
FY20 profit and returns to shareholders.
The Board and management believe
that the impact on shareholders
should be shared by our management
team and therefore executive Key
Management Personnel did not receive
any fixed remuneration increases or
Short-Term Incentives (STI) for 2020.
More information is provided in the
Remuneration Report on pages 30 – 49.
BOARD RENEWAL
The program of Board renewal continued
in 2020. Gayle Tollifson retired in
February after eight years of service;
Christine Patton retired in August after
almost two years of service; and Jerome
Upton retired in September after eight
years of service. In March, Andrea Waters
was appointed as an independent
director; in August, Graham Mirabito
was appointed as an independent
director; and in September, Rajinder
Singh was appointed as a non-executive
director, replacing Jerome on the Board
as a Genworth Financial, Inc. designee.
I would like to thank the retiring
and current Directors for their wise
counsel and support over the year,
with additional thanks to Duncan West
who acted as Chief Executive Officer in
early 2020 until Pauline Blight-Johnston
commenced in March. I also express
my thanks to Pauline who, despite
the challenges of her first year as
Chief Executive Officer, has led the
organisation admirably, supported
by the Senior Leadership Team and
Genworth’s hard working and dedicated
people who continued to demonstrate
their passion and commitment.
LOOKING AHEAD
As we look ahead, your Board
understands how important it is for
Genworth to play our part in the
nation’s rebuilding program, by
continuing to support our lender
customers, their borrowers and the
broader community. While the outlook
for the Australian economy is improving,
uncertainty remains. In facing the
challenges ahead, Genworth has the
balance sheet strength to continue to
assist Australian homeowners on their
homeownership journey.
In closing, on behalf of the Board, thank
you for your ongoing support.
Ian MacDonald
Chairman
Genworth Annual ReportFinancial ReportDirectors’ ReportStrategic Report 06
CEO’s report
Financial strength, resilience and a commitment
to facilitating homeownership have underpinned
2020 at Genworth. In an unprecedented year, our
priorities have been to prudently and efficiently
manage our business, support Genworth’s
customers and take care of our people.
All of us at Genworth are dedicated
to helping Australians in need in a
financially and socially responsible
manner. I am proud of the passion and
commitment of our people to go above
and beyond to support our lender
customers and their borrowers, guided
by Genworth’s role in helping Australians
realise the dream of home ownership.
SUPPORTING OUR CUSTOMERS
Our business was operationally and
financially well positioned for the
challenges of 2020. We responded rapidly
when COVID-19 emerged, establishing
an incident management team in January
and implementing our business continuity
and contingency plans in March when the
pandemic was declared.
The Company’s investment in data and
technology over recent years enabled
us to mobilise quickly, setting up our
people to safely and productively
work remotely to service our lender
customers. Our people adapted well to
the new operating environment, working
together with lender customers to help
families and individuals into homes and
support those experiencing hardship.
We took actions to decisively and
prudently support our customers
impacted by COVID-19. We expanded
our Hardship Policy to include pandemics.
We redirected teams to where they
were needed the most, to process over
55,000 home loan repayment deferrals,
as well as high volumes of new business
being written by lender customers as a
result of a low interest rate environment.
We adapted processes and enhanced
controls to electronically ingest data,
creating operational efficiencies and
enabling rapid customer response.
This work was delivered while meeting
all contractual service level agreements.
By the end of the year, most borrowers
who were on repayment deferrals
had opted out or had their loans
restructured, with approximately 8,100
still requiring support. As we manage
through the economic recovery, we
will remain sensitive to borrower
circumstances, working closely with our
lender customers around appropriate
hardship solutions to support Australians
in need and mitigate potential losses.
FINANCIAL PERFORMANCE
Turning to the Company’s financial
performance for the full year ended
31 December 2020 (FY20), Statutory NPAT
was a $107.6 million loss and Underlying
NPAT was a $104.3 million loss.
The FY20 results were materially
impacted by the effects of COVID-19
on the economy and the anticipated
flow on to our claims experience.
While we delivered substantial growth
in gross written premium (GWP) to
$561.7 million, profits were reduced
primarily by the write-down of deferred
acquisition cost (DAC) of $181.8 million
(pre-tax) at 31 March 2020, and the
18 December 2020 reserving review of
$109.1 million (pre-tax).
In response to the pandemic, repayment
deferrals and moratoriums on
foreclosures were introduced to support
borrowers. These initiatives interrupted the
typical behaviour patterns of delinquencies
and claims, leading to lower than
anticipated claims activity. To allow for
these unusual circumstances, Genworth
increased reserving and refined our
reserving methodology to bring forward
the average timing for recognising the
potential liability for losses.
Importantly, despite the unforeseen
economic downturn, the business
remains in a strong capital position,
able to withstand a wide range of future
claims outcomes. As at 31 December
2020, the PCA ratio was 1.65 times on
a Group (Level 2) basis, comfortably
above the Board’s target range of 1.32
to 1.44 times and representing surplus
capital of $203.2 million. The Company’s
cash and investment portfolio had a
market value of $3.4 billion.
PARTNERSHIPS AND
COLLABORATION
Genworth has long-standing partnerships
with major, non-major, mutual and non-
bank mortgage originators. During the
year we renewed a number of contracts
for the exclusive provision of Lenders
Mortgage Insurance (LMI). We also
introduced to market our monthly
premium product, underpinning our
expected premium revenues for the
coming years.
We continued to add value along the
mortgage chain, sharing data insights
and developing education tools to
support our lender customers and
brokers. Taking advantage of the
remote working environment, we
launched the Genworth Insights series
to digitally share data and customer
research insights. Topics included
First Homebuyer Sentiment research,
providing independent analysis of first
homebuyer perceptions and behaviours
in the current economic environment.
07
Our ability to move quickly over this past
year to support our lender customers,
while also prioritising our people’s
wellbeing, is a testament to Genworth’s
culture and capability. The new operating
model will further enhance our ability
to respond to lender customers
and borrowers, whilst continuing
to prudently manage risk. This will
ensure our Company emerges from
COVID-19 in a stronger position, with
a more customer-centric approach that
amplifies the passion and dedication
of our people to our customers,
empowering them to do even more.
WELL POSITIONED THROUGH THE
ECONOMIC RECOVERY
The Company is well capitalised, with
a solid balance sheet to ensure we can
support lenders and their borrowers at
this time of need and over the longer
term. We will continue to actively
manage our capital position while
delivering long-term shareholder returns
and retaining the flexibility to grow the
business for the future.
In closing, I would like to thank the
Chairman and my fellow Directors for
their stewardship of the Company and
support to me since I joined Genworth
last March. To all our Genworth people,
thank you for your hard work and
commitment to our customers. I am
extremely proud of how our people have
adapted to meet the challenges of the
year and maintained service standards.
To our customers and other partners,
thank you for your support, and I look
forward to continuing these strong
relationships. Finally, I would like to thank
you, our shareholders for your support.
Pauline Blight-Johnston
Chief Executive Officer and
Managing Director
SHAPING THE BUSINESS
FOR THE FUTURE
The unusual circumstances presented
by COVID-19 have become a catalyst for
innovation in the way our people interact,
collaborate and solve problems, both
with each other and with our customers
and brokers. Consumer behaviour is
also continuing its rapid evolution as
people become increasingly comfortable
in allowing more digitisation and
automation into their lives.
In response to the changing environment,
we undertook a strategic review of the
business in 2020. We are now finalising
a business strategy that repositions our
customer value proposition to maintain
market leadership in LMI as well as
achieve sustainable growth through
product innovation and complementary
product offerings.
In order to set the business up for growth,
we introduced a more customer-centric
operating model accompanied by a
leaner organisation design that removes
duplication, creates efficiencies and
clear end-to-end accountabilities. We
have recruited additional management
expertise, including a Chief Operating
Officer and Chief Commercial Officer,
New Ventures, to help lead the business
towards a more agile future, supporting
the next phase of Genworth’s growth.
Genworth Annual ReportFinancial ReportDirectors’ ReportStrategic Report 08
Our strategy and business
Genworth’s strategic objective over
recent years has been to redefine and
then enhance our core business model
to help Australians into homes by providing
excellent LMI products and service.
The strategic initiatives we implemented
allow Genworth to better meet customer
needs in a dynamic market environment
and deliver profitable growth. Since 2019,
we have transitioned our focus to leveraging
our new capabilities to launch new products
and enhance customer experience.
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2020 PROGRESS
In 2020, we leveraged expanded
product and technology capabilities to
add value across the mortgage value
chain. Our Initiatives enhanced our
customer value proposition, as exhibited
by several key customer renewals as
well as a meaningful increase in our
Net Promoter Score. We delivered a
successful pilot launch of our monthly
premium offering and expect further
expansion in 2021.
Throughout the COVID-19 environment,
our enhanced digital capabilities
allowed us to prudently manage the
quality of business written as well
as support borrowers on home loan
repayment deferrals.
A REFINED STRATEGIC PLAN TO
DELIVER PROFITABLE GROWTH
OVER THE MEDIUM-TERM
In 2021, Genworth’s strategic
focus will be on enhancing the
competitiveness of our existing LMI
business, evolving LMI to meet the
changing needs of lenders, brokers
and borrowers and leveraging the
capabilities we’ve built to expand
out business into complimentary
service offerings.
Business model
GENWORTH’S BUSINESS ACTIVITIES
Genworth supports Australian home
ownership by providing capital and risk
management solutions to our customers
in residential mortgage lending.
Genworth’s primary business activity is the
provision of LMI to our lender customers.
As an LMI provider, Genworth’s
profitability is driven primarily by the
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 shareholder value.
SHAREHOLDER VALUE CHAIN
Products and income
Costs
Distribution
Premium income
Financial income
Claims
f Interest rates
f Investment
income
f Delinquencies
f Reserving
f Payment of claims
f Customers
f New insurance
written
f Gross written
premium
f Revenue
recognition
Dividends and retained earnings
f Underlying NPAT
f Payout ratio
f Special dividends
f Share buy-backs
Underwriting
and other costs
f Underwriting fees
f Amortisation of
customer acquisition
related costs
f Marketing costs
f Employee and
IT costs
Strategy, risk and capital management
09
Our business
CORPORATE STRUCTURE2
52% Genworth Financial, Inc.3
214,316,838 ordinary shares
PRINCIPAL ACTIVITY
ORGANISATION OVERVIEW
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, predominantly for high
loan to value ratio (HLVR) residential
mortgage loans.
Genworth is the leading provider in
Australia and a provider of capital
and risk management solutions in
the Australian residential mortgage
market. The Group estimates that it had
approximately 52% of the Australian
HLVR LMI market1 by GWP for the
12 months ended 31 December 2020.
Genworth is listed on the Australian
Securities Exchange (ASX: GMA).
As at 31 December 2020, the number
of Genworth shares on issue was
412.5 million.
Genworth
Mortgage Insurance
Australia Limited
ABN 72 154 890 730
412,514,184
ordinary shares
48% Public
198,197,346 ordinary shares
Genworth Financial Mortgage Insurance Pty Limited
ABN 60 106 974 305
Balmoral Insurance Company Limited
(Bermuda) Registration No. 53069
Genworth Financial Mortgage Indemnity Limited
ABN 55 001 825 725
PRODUCTS AND CUSTOMERS
In 2020, Genworth continued to focus
on our first in market, monthly premium
LMI product as a complement to
our traditional upfront LMI offering
(Standard LMI, Homebuyer Plus
and Business Select). Our monthly
premium LMI product continues to gain
momentum with several customers
commencing activities with a goal
to implement in 2021, following our
successful pilot during 2020.
In 2020, GWP was predominantly
generated from insurance written on
a flow and portfolio basis. The Company
maintains commercial relationships
with over 50 lender customers across
Australia, with a majority of its mortgage
insurance business concentrated
in a small number of key customers.
We have a very strong relationship
with our largest customer, as well as
with others who are growing well and
we are strengthening relationships.
Lender customers
2020 GWP4
Lender customers
Largest customer
56.9%
Second largest customer
11.0%
Largest customers 3–10
24.5%
All others
7.6%
1. Estimates based on APRA quarterly general insurance statistics and management estimates
2. Genworth corporate structure as at 31 December 2020
3. Genworth Financial, Inc.’s interest in the Company is held indirectly through the Genworth Financial Group
4. Includes excess of loss insurance
Genworth Annual ReportFinancial ReportDirectors’ ReportStrategic Report 10
Response to COVID-19
In response to COVID-19, our priorities and
actions have been to support our lender
customers and borrowers, protect our
people and support the community.
11
Our priority has been to help Australians
maintain their home ownership during
these uncertain times wherever possible.
We will continue to work with our lender
customers to provide support to meet
the needs of their borrowers.
OUR PEOPLE
The health and wellbeing of our people
is critical to our business and from March
Genworth’s workforce successfully
transitioned to working remotely in
accordance with government guidelines,
with a strong focus on sustaining physical
and mental health.
Physical wellbeing was supported by
providing employees the necessary
equipment to set up safe and
ergonomic home workspaces as well
as the introduction of an additional
two week’s personal leave to assist with
any COVID-19 related illness and carer
responsibilities.
People managers were provided with
training in managing employee mental
health whilst working remotely and
several employees were trained and
appointed as mental health first aiders to
provide additional support to colleagues.
Our regular COVID-19 employee
pulse surveys indicated a very high
level of satisfaction and confidence
in the way our business has managed
the pandemic and supported our
employee’s health and wellbeing.
OUR CUSTOMERS
OUR PARTNERS
Customer engagement
We responded quickly to support our
lender customers and their borrowers.
With the need for a heightened
level of engagement, we met more
regularly with our customers' credit and
collections teams to understand their
rapidly changing needs and ensured
we continued this dialogue throughout
2020. We adapted our processes and
systems to allow for additional due
diligence. Throughout the year we
provided detailed portfolio reporting and
insights to our customers to understand
trends, impacts and support needed,
with a sharp focus on deferred payment
arrangements. Our customers have
expressed appreciation for our support.
Hardship and deferrals support
As regulators and our lender customers
made changes to assist affected
borrowers, Genworth quickly adjusted
our disaster and hardship policies and
delegations to ensure rapid support
could be provided. We extended
COVID-19 related payment deferrals
for up to 10 months. We adjusted our
processes and systems which allowed
activity to occur with limited impact.
All debt recovery activity was placed
on hold in 2020.
We worked closely with our partners
and suppliers to ensure continuity of
service to our customers. Pre-COVID-19,
Genworth had established robust and
tested business continuity and supplier
governance practices, which enabled us
to swiftly work with our key suppliers to
identify and monitor potential COVID-19
impacts to service. Our suppliers’
response to the pandemic underscored
our strong relationships and ensured
flexibility to adjust priorities as the year
progressed.
ONGOING RESPONSE
As COVID-19 evolves, it will likely present
new challenges. We will continue to
monitor and adapt our response as
required to ensure our customers and
people are supported through these
challenging times.
"Genworth
responded
quickly to support
our people and
customers at
the onset of the
pandemic, and
our support
continued
throughout
the year."
Genworth Annual ReportFinancial ReportDirectors’ ReportStrategic Report 12
Our approach to sustainability
Our sustainability framework creates value
for stakeholders by providing better long
term outcomes for investors, our customers,
first home buyers and employees.
Sustainability framework
Genworth is committed to making a
positive contribution to the communities
of which we are part.
Our Sustainability Framework reflects
the important environmental, social
and governance (ESG) matters that
we believe are critical to achieving
business objectives and long-term
value for all stakeholders.
The Framework is structured around
four pillars (our people, community,
environment and marketplace),
highlighting the areas identified
as being those most material to the
business and of greatest relevance
to stakeholders.
In 2020 we continued to deliver
initiatives that supported our people,
industry, environment and the
communities in which we operate. We
continued to invest in the diversity
and inclusiveness of our workforce,
we further developed our approach
to Reconciliation and formed our first
reconciliation action plan (RAP) Working
Group. We educated the market on the
benefit of LMI, and we also improved
our environmental footprint by reducing
our net lettable area.
Four pillars of
sustainability
Our people
Workplace safety
and wellbeing
Training and
development
Culture
Diversity and
inclusion
Community
Environment
Supporting
home buyers
Borrower
education
Charitable
donations
Volunteering
Energy
consumption
GHG emissions
Waste
management
Water
consumption
Marketplace
Direct economic
value generated
Responsible
lending
Facilitating
competition
Supporting
innovation and
collaboration
13
2020 Highlights
DIVERSITY AND INCLUSION
Board
Senior Leadership Team
Other management roles
(ex SLT)
Overall
INDIRECT EMISSIONS DOWN
BY MORE THAN¹
67%
56%
64%
53%
33%
44%
36%
47%
30%
Male
Female
COMMUNITY DONATIONS, GRANTS
AND WORKPLACE GIVING
$170,000+
LMI POLICIES ISSUED
75,000+
1. On a 2018 baseline
Genworth Annual ReportFinancial ReportDirectors’ ReportStrategic Report 14
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
or portfolios of loans we will insure or reinsure.
Genworth’s risk management framework
outlines the process for managing the
risks faced by Genworth, using a ‘three
lines’ approach that drives accountability
and responsibility. The Board and
Senior Leadership Team are accountable
for Genworth’s risk culture and ensure
we continue to develop and improve
practices to measure, assess and manage
risk at Genworth.
Our strategies for managing risks are
developed across all levels of the
organisation, reflecting the principle
that it is everyone’s role to manage risk.
Specific risk management strategies for
our most important organisational risks
are outlined in the table below.
Material Risks
Risk Management Strategies
Housing and Underwriting Risks1
Economic Risk
• Back book loss management actions and new business underwriting responses
(including where applicable underwriting policy, product and pricing
changes/responses).
Underwriting Risk (In-force Portfolio)
• Strong mortgage default risk management policies and disciplines through the
economic cycle;
• Active management of in-force portfolio risks (loss management of arrears, claims,
hardships practices).
Underwriting Risk (New Business)
• Genworth manages its underwriting policy settings in a dynamic and responsive
manner relative to the current and emerging environment;
• Underwriting policy includes geographic risks of oversupply and high-risk
postcodes, policy constraints such as LVR, loan size, loan purpose, property types,
borrower attributes and credit score;
• Genworth considers other aspects of LMI product design and pricing as further
levers to manage risk actively.
Strategic Risks
LMI Market Risk
• Key existing accounts management and early renewal where possible;
• Actively participate in open tenders for new business opportunities from
non-Genworth LMI customers;
• Seeking to enhance core market as well as diversify concentration risks
through the 2021.
15
Material Risks
Product Risk
Risk Management Strategies
• Seeking to enhance core LMI product proposition with a stronger alignment of
value to the borrower, lender and distribution stakeholders;
• Continue to rollout alternative LMI propositions (including monthly premium)
which can vary product attributes and pricing;
• Strategic programs established with strong review and challenge to support
strategic execution.
Regulatory Change/Political Risk
• Maintain strong engagement in Government and Regulatory Relations to enable
proactive input on regulatory developments.
Strategic Execution Risk
• Establish focused teams with the appropriate capabilities to separately
support both core LMI growth and in leveraging our core capabilities into
complementary offerings.
Market, Credit and Liquidity Risk
Market, Credit and Liquidity Risk
• Strategic asset allocation (risk/return in low yield environment);
• Structuring the investment portfolio for long term profitability.
Operational Risks
Operational Risk
• Continue to drive a risk culture where people are accountable end to end for risk
management and driving business outcomes;
• Continue to drive a focus on getting to root cause and resolution of issues,
challenges and incidents in the business;
• Focus on execution and optimising balance between risk and reward;
• Ongoing assessments of the risk of processes including the design and operating
effectiveness of controls.
IT Risk (including Cyber Risk)
• Ensure implementation of the Technology Roadmap and currency of technology
platform to be fit for purpose or proportionate to the business strategy,
in particular with the increased uptake of digital and automation;
• Continue to drive the appropriate IT surveillance and controls around cyber
risk including the Information Security Policy framework, Council governance,
Vulnerability Management Program, independent audit of cyber security controls
and Cyber Risk insurance coverage.
Reinsurance Risk
Reinsurance Renewal Risk
• Annual cancel and rewrite reinsurance program continuing to seek new markets
and maintaining continuity of coverage provisions to mitigate renewal risk.
Compliance and Conduct Risk
Compliance and Conduct Risk
• Continue to drive a risk culture where people are accountable end to end for
compliance and conduct risk management and driving appropriate business and
stakeholder outcomes;
• Continue to drive a focus on getting to root cause and resolution of issues,
challenges and incidents in the business.
Reputational Risk
Reputational Risk
Cross risk class
• Continue to actively manage reputational risk through appropriate internal controls
and a coherent set of externally facing processes including disclosure and external
stakeholder management.
Pandemic and Contagions Risks
• Consider the long term implications of COVID-19 as well as other potential black
swan events and how to manage and/or risk protect.
Climate Change Risk
• Provide quantified insight into the effects of present and future physical climate
change on our Risk in-force and any climate transition risks and their impacts.
Genworth Annual ReportFinancial ReportDirectors’ ReportStrategic Report 16
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 2020
and the auditor’s report thereon.
17
20
Board of directors
Senior leadership team
22 Operating and financial review
30
51
Remuneration report
Lead auditor’s independence declaration
CORPORATE GOVERNANCE STATEMENT
The corporate governance statement is
available on the Genworth website.
Please visit:
investor.genworth.com.au/investor-centre/
Board of directors
17
IAN MACDONALD
Chairman, Independent
Ian was appointed to the Board on
19 March 2012 and was appointed
as Chairman of the Board on
31 August 2016.
Qualifications and experience: Ian
has over 40 years of financial services
experience in Australia, the UK and
Japan, specifically in banking, insurance,
wealth management and technology. He
previously held numerous positions with
National Australia Bank including various
senior executive roles from 1999–2006,
Chief Operating Officer Yorkshire Bank
from 1997–1999, and head of Retail
Services Clydesdale Bank, Glasgow UK
from 1994–1997.
Ian is a Senior Fellow and past
President of the Financial Services
Institute of Australasia and a member
of the Australian Institute of Company
Directors. 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.
Special responsibilities (including
Committee memberships):
Board – Chairman.
Directorships of other ASX listed
companies and period of appointment
(1 January 2018 – 31 December 2020):
None.
PAULINE BLIGHT-JOHNSTON
DAVID FOSTER
Chief Executive Officer and Managing
Director, Genworth Financial Designee
Director, Independent, Genworth
Financial Designee
Pauline joined Genworth as Chief
Executive Officer and Managing Director
on 2 March 2020.
Qualifications and experience: Pauline
has over 25 years of senior management,
financial and strategic experience in
wealth management and insurance in
Australia, New Zealand and globally.
Prior to joining Genworth, Pauline
held senior leadership and strategic
roles in Challenger, AMP and RGA
Reinsurance Company. She has also
served as Chief Financial Officer and
Appointed Actuary of Asteron Life, and
consulted to the insurance and wealth
management industry at KPMG and
Tillinghast-Towers Perrin.
An active industry participant, Pauline
has served on the boards of the Institute
of Actuaries, the Financial Services
Council and the Australian Institute of
Insurance and Finance, as well as been
a member of and chaired numerous
committees of these bodies.
Pauline is a Fellow of each of the Institute
of Actuaries of Australia, the New Zealand
Society of Actuaries, the Actuarial Society
of South Africa, Finsia, the Australian
and New Zealand Institute of Insurance
and Finance and the Australian Institute
of Company Directors. She also holds
a Master of Economics degree from
Macquarie University.
Special responsibilities (including
Committee memberships):
Managing Director.
Directorships of other ASX listed
companies and period of appointment
(1 January 2018 – 31 December 2020):
None.
David was appointed to the Board on
30 May 2016.
Qualifications and experience: 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 Chief Executive
Officer 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 the Chairman of Motorcycle
Holdings Limited, and a director of
Bendigo and Adelaide Bank Limited,
and G8 Education Limited.
Special responsibilities (including
Committee memberships):
Remuneration and Nominations
Committee – Chair; Technology
Committee – Chair; Capital and
Investment Committee – Member.
Directorships of other ASX listed
companies and period of appointment
(1 January 2018 – 31 December 2020):
Current: Bendigo and Adelaide Bank
Limited (since 4 September 2019);
Motorcycle Holdings Limited (Director
since 8 March 2015, Interim Chairman
since 25 July 2016 and Chairman since
23 August 2016); G8 Education Limited
(since 1 February 2013).
Former: Thorn Group Limited (from
1 November 2014 to 23 October
2019); Kina Securities Limited
(from 30 July 2013 to 23 May 2018).
Genworth Annual ReportFinancial ReportDirectors’ ReportStrategic Report 18
Board of directors
(continued)
GAI MCGRATH
Director, Independent
Gai was appointed to the Board on
31 August 2016.
Qualifications and experience: 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 and 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,
Toyota Finance Australia Limited,
Steadfast Group Limited and HBF Health
Limited. She is also Chair of Humanitix.
Special responsibilities (including
Committee memberships):
Risk Committee – Chair; Audit
Committee – Member; Remuneration
and Nominations Committee – Member;
Technology Committee – Member.
Directorships of other ASX listed
companies and period of appointment
(1 January 2018 – 31 December 2020):
Steadfast Group (since 1 June 2018);
Investa Listed Funds Management
Limited as responsible entity of Investa
Office Fund (from 17 October 2017 to
14 December 2018).
GRAHAM MIRABITO
RAJINDER (RAJ) SINGH
Director, Independent, Genworth
Financial Designee
Graham was appointed to the Board on
10 August 2020.
Qualifications and experience: Graham
has over 35 years’ experience in the
information technology industry
including 10 years in engineering and
25 years in sales, marketing, operations,
mergers, acquisitions and general
management. Graham has held senior
roles at Telstra as MD Telstra Europe and
EVP Telstra Asia.
Graham previously spent 12 years as
CEO of RP Data which he took public
on the ASX in 2006 and was acquired
by strategic shareholder CoreLogic in
2011. His last executive role was as CEO
CoreLogic International responsible for
operations in Australia, Asia and UK.
Graham is currently a non-executive
director of Cipherpoint Ltd, Harcourts
International, Auscred Services Ltd and
Archistar Pty Ltd.
Graham holds an Associate Diploma
in Electrical Engineering from the
Queensland University of Technology.
Special responsibilities (including
Committee memberships):
Audit Committee – Member; Capital
and Investment Committee – Member;
Technology Committee – Member
Directorships of other ASX listed
companies and period of appointment
(1 January 2018 – 31 December 2020):
Cipherpoint Ltd (since 1 November 2019).
Director, Genworth Financial Designee
Raj was appointed to the Board on
9 September 2020.
Qualifications and experience: Raj is
Chief Risk Officer of Genworth Mortgage
Insurance for Genworth Financial, Inc, a
position he has held since 2014.
His previous roles include Managing
Director and Chief Risk Officer for
Citigroup’s U.S. Mortgage Business;
Chief Credit Risk Officer for Ally
Financial (formerly known as GMAC
Financial Services); Chief Risk Officer
for GE Money Americas (division of GE
Capital), and Head of Retail Risk at U.S.
Bancorp, Minneapolis.
Raj also serves on the boards of India
Mortgage Guarantee Corporation Private
Limited, Genworth Seguros de Credito
a la Vivienda, S.A. de C.V. in Mexico, and
the Appalachian Trail Conservancy.
Raj holds an MBA in Finance from
the University of Rochester’s Simon
Business School, an MS in Mechanical
and Aerospace Engineering from
Rutgers University, a B.Tech. in
Mechanical Engineering from the Indian
Institute of Technology Kanpur, and is a
graduate of Wharton’s Advanced Risk
Management Program.
Special responsibilities (including
Committee memberships):
Audit Committee – Member; Risk
Committee – Member; Capital and
Investment Committee – Member;
Technology Committee – Member.
Directorships of other ASX listed
companies and period of appointment
(1 January 2018 – 31 December 2020):
None.
19
STUART TAKE
ANDREA WATERS
Director, Genworth Financial Designee
Director, Independent
DUNCAN WEST
Director, Independent
Stuart was appointed to the Board on
20 February 2012.
Andrea was appointed to the Board on
16 March 2020.
Duncan was appointed to the Board on
1 September 2018.
Qualifications and experience: Stuart
has over 30 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.
Special responsibilities (including
Committee memberships): Risk
Committee – Member; Remuneration
and Nominations Committee – Member.
Directorships of other ASX listed
companies and period of appointment
(1 January 2018 – 31 December 2020):
None.
Qualifications and experience: Andrea
has over 35 years’ experience in financial
services as an auditor, accountant and
non executive director. She was a former
partner of KPMG (until 2012) specialising
in financial services audit and has a deep
experience in risk management and
in implementing and enhancing audit
and governance structures in financial
services. She brings to the Board a
strong strategic perspective and deep
experience understanding complex
business operations.
Andrea is a Fellow of Chartered
Accountants Australia and New Zealand
and a member and accredited
facilitator of the Australian Institute of
Company Directors.
Andrea is currently a director of MyState
Limited, Grant Thornton Australia
Limited, Bennelong Funds Management
Group, Citywide Service Solutions Pty
Limited and the Colonial Foundation.
Special responsibilities (including
Committee memberships):
Audit Committee – Chair; Risk
Committee – Member; Capital and
Investment Committee – Member;
Remuneration and Nominations
Committee – Member.
Directorships of other ASX listed
companies and period of appointment
(1 January 2018 – 31 December 2020):
MyState Limited (since 19 October
2017); Cash Converters International
Limited (from 9 February 2017 to
14 December 2018).
Qualifications and experience: Duncan
has more than 30 years of insurance
industry experience having held senior
executive positions at Royal Sun Alliance
Group PLC, Promina Group Limited,
CGU Limited and MLC Limited.
He is currently a Director of Challenger
Limited, Chairman of Hollard Insurance
Company Pty Limited, Lawcover
Insurance Pty Ltd, Habitat for Humanity
Australia and is a Director of Avant
Group Holdings Limited.
Duncan is a Graduate of the Australian
Institute of Company Directors, a Fellow
of the Chartered Insurance Institute and
a Senior Associate of the Australia and
New Zealand Institute of Insurance and
Finance. He holds a Bachelor of Science
(Economics) from the University of Hull, UK.
Special responsibilities (including
Committee memberships):
Capital and Investment Committee
– Chair; Audit Committee – Member;
Risk Committee – Member; Technology
Committee – Member.
Directorships of other ASX listed
companies and period of appointment
(1 January 2018 – 31 December 2020):
Challenger Limited (since
10 September 2018).
Genworth Annual ReportFinancial ReportDirectors’ ReportStrategic Report 20
Senior leadership team
PAULINE BLIGHT-JOHNSTON
ANDREW CORMACK
Chief Executive Officer and Managing Director
Chief Risk Officer
STEVEN DEGETTO
Chief Commercial Officer
Pauline joined Genworth as Chief Executive
Officer and Managing Director in March 2020.
Pauline has over 25 years of senior management,
financial and strategic experience in wealth
management and insurance in Australia, New
Zealand and globally.
Prior to joining Genworth, Pauline held senior
leadership and strategic roles in Challenger,
AMP and RGA Reinsurance Company.
She has also served as Chief Financial
Officer and Appointed Actuary of Asteron
Life, and consulted to the insurance and
wealth management industry at KPMG and
Tillinghast-Towers Perrin.
An active industry participant, Pauline has served
on the boards of the Institute of Actuaries, the
Financial Services Council and the Australian
Institute of Insurance and Finance, as well as
been a member of and chaired numerous
committees of these bodies.
Pauline is a Fellow of each of the Institute of
Actuaries of Australia, the New Zealand Society
of Actuaries, the Actuarial Society of South Africa,
Finsia, the Australian and New Zealand Institute of
Insurance and Finance and the Australian Institute
of Company Directors. She also holds a Master of
Economics degree from Macquarie University.
Andy joined Genworth Australia as Chief Risk
Officer (CRO) in October 2015. Andy brings more
than 25 years of experience to his role as CRO
having held senior management responsibility
for teams in finance, commercial, product
development and risk for markets across Europe.
He is passionate about delivering market leading
risk and compliance practices and developing
high achieving teams engaged in delivering the
company’s key strategic objectives and outcomes.
Steven joined Genworth as Chief Commercial
Officer in July 2017. He has over 25 years’
experience in banking and insurance. With a
strong track record of developing partnerships
across a broad range of financial institutions,
Steven’s strategic thinking, deep understanding
of customer opportunities and challenges
coupled with his commercial acumen have
enabled him to consistently deliver customer
value and insights.
Before joining Genworth Australia, Andy worked
with Genworth’s Mortgage Insurance business
in Europe, where he held the role of CRO with
responsibility for the risk and actuarial teams.
Prior to this he held various senior management
positions including Senior Vice President Risk,
SVP Commercial, SVP Product Development and
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 a specialist auditor responsible for
Lloyds Insurance Market.
Andy has a BA (Hons) in Accounting and Finance
from Lancaster University (UK) and is a qualified
Chartered Accountant (ACA)-(ICAEW).
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.
Steven 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. Steven
has also recently completed a Global Leadership
program through Tuck Business School at
Dartmouth College.
MICHAEL BENCSIK
Chief Financial Officer
BRAD DEAN
Chief of Staff
Michael joined Genworth as Chief Financial
Officer in February 2019. Michael has over 30
years of financial and strategic experience in
banking and insurance across Australia, New
Zealand, United Kingdom, Europe, the Middle
East, and Asia Pacific.
Prior to joining Genworth, Michael held the
role of Deputy Chief Financial Officer, Bank
of Queensland and Chief Financial Officer,
St Andrew’s Insurance Australia. Prior to this
he held various Chief Financial Officer and
Head of Strategy roles across leading financial
service institutions including Lloyds TSB Bank
(UK), Westpac Banking Corporation, HSBC
Bank Australia Limited, HSBC Holdings (UK),
Commonwealth Bank of Australia and First Abu
Dhabi Bank (UAE).
Michael is a Fellow Certified Practising
Accountant and Fellow Chartered Certified
Accountant (UK) with a Bachelor of Commerce
from the University of NSW and a Master
of Business Administration from Macquarie
University. He is a Graduate of the Australian
Institute of Company Directors.
Brad joined Genworth in August 2002, was
appointed to the senior leadership role of Head
of Strategy and Innovation in October 2018, and
subsequently appointed to the new role of Chief
of Staff in December 2020.
Brad is a seasoned leader, bringing more than
20 years of experience to his role from across
a range of insurance, health care equipment
and distribution businesses with responsibility
for new business development, mergers and
acquisitions, strategic planning, and financial
management and controls.
Prior to his current role, Brad held the positions
of Head of Product Development and Corporate
Development Leader at Genworth where he
was responsible for formulating and executing
product and corporate development strategies,
including leading Genworth’s IPO project which
resulted in Genworth Australia being listed on
the Australian Securities Exchange in 2014.
Between 2002 and 2007, Brad held the position
of Chief Financial Officer of Genworth Australia.
Prior to his roles at Genworth, Brad worked at a
chartered accounting firm for five years followed by
a further five years at GE in multiple finance roles.
Brad is a Chartered Accountant and has a Bachelor
of Commerce from Wollongong University with a
double major of Accounting and Economics.
21
NICOLE LANG
PRUDENCE MILNE
SENIOR LEADERSHIP TEAM
Chief People and Culture Officer
General Counsel and Company Secretary
Nicole joined Genworth in January 2021 as Chief
People and Culture Officer. She is a global HR
executive with extensive experience delivering
significant strategic and operational initiatives to
drive transformation and cultural change.
Nicole recently moved back to Australia from
Hong Kong where she led the Human Resources
function for the Commonwealth Bank's
International Financial Services Business and
was Company Director for a number of their
offshore entities.
Nicole has a Master’s in Business (International
Human Resources), Graduate Diploma in
Education and a Bachelor of Science Degree.
CAMERON MCDONALD
Head of Technology
Cameron joined Genworth in 2012, establishing
the Data Management Office and assuming
responsibility for technology services to the
business in July 2016. Cameron has 30 years’
experience in a variety of operational and
technology leadership roles in investment
management, mortgage lending and insurance
in Europe and Australia.
Prior to joining Genworth, Cameron held
positions with National Australia Bank,
Challenger Financial Services Group, HSBC
Australia and State Street Corporation in
technology leadership, program management
and operations.
Cameron is a Member of the Australian
Institute of Company Directors and holds a
Bachelor of Business (Accounting) degree
from Monash University and additional
certifications in Enterprise Architecture and
cloud computing services.
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.
ERICA PICKFORD
Head of Operations
Erica joined Genworth in November 2014 as
New Business leader and was appointed Head
of Operations in July 2017. With over 20 years
of financial experience in both banking and
insurance, Erica brings international experience
having worked in South Africa, the United
Kingdom and Australia.
Before joining Genworth, Erica worked at
Commonwealth Bank of Australia where she
was Executive Manager, Head of Loss Mitigation
and Customer Assist. During her career with
Commonwealth Bank, she oversaw and lead the
collections transformation across all secured and
unsecured products. Prior to Commonwealth
Bank she held various leadership roles in Credit
Risk management and was Operations leader at
Provident Credit in the United Kingdom.
Prior to immigrating to the United Kingdom
in 1998, Erica held the position of Operations
Manager within ABSA Bank (52% owned by
Barclays Bank) in South Africa.
Erica holds a Diploma in Business through
Swindon College (UK) and a Certificate IV in
Credit Management.
56% Male (56% in 2019)
44% Female (44% in 2019)
Genworth Annual ReportFinancial ReportDirectors’ ReportStrategic Report 22
Operating and financial review
OPERATING RESULT FOR THE FINANCIAL YEAR
The Group’s key financial measures are summarised in the below table.
Financial performance measures (A$ million)
Gross written premium
Gross earned premium
Net earned premium
Statutory NPAT
Underlying NPAT
FY20
561.7
381.4
312.0
(107.6)
(104.3)
FY19
433.2
368.4
298.2
120.1
97.0
Non-IFRS performance metrics
FY20 (%)
FY19 (%)
Loss ratio
Expense ratio
Combined ratio
Insurance margin
Investment return
ROE
Underlying return on equity (ROE)
The underwriting performance in 2020 reflects:
92.9
82.1
175.0
(55.8)
2.7
(7.4)
(7.3)
50.6
35.3
85.9
36.2
4.4
7.4
6.0
a. Gross written premium growth of 29.7% reflected higher LMI flow volumes across lender customers with underlying credit
quality remaining strong;
b. Net earned premium increased 4.6% mainly reflecting higher business volumes and the seasoning of current and prior
book years;
c. The anticipated economic impacts of COVID-19 led to a $181.8 million deferred acquisition costs (DAC) write-down in 1Q20;
d. The reserving review undertaken during 4Q20 had the effect of increasing the net claims incurred by $109.1 million and
increasing the loss ratio to 92.9%;
e. The expense ratio increased from 35.3% in FY19 to 82.1% in FY20 largely due to the $181.8 million DAC write-down in 1Q20.
Excluding the DAC write-down and the associated DAC amortisation benefit from 2Q20 to 4Q20, the expense ratio increased
60 bps to 35.9% reflecting slightly higher underwriting expenses in the current year as a result of increased new business;
f. The insurance margin decreased to (55.8%) compared to 36.2% for FY19 mainly driven by the DAC write-down in 1Q20 and
the increase in net claims incurred as a result of the reserving review undertaken in 4Q20. Excluding the DAC write-down and
the associated DAC amortisation benefit from 2Q20 to 4Q20; and excluding the increase in net claims incurred as a result of
the reserving review undertaken in 4Q20, the insurance margin decreased 10.8 percentage points to 25.4% mainly reflecting
higher net claims incurred in the current year.
Operating and financial review
(continued)
REVIEW OF FINANCIAL CONDITION
Key assets and liabilities (A$ million)
Cash and investments
Deferred acquisition costs
Deferred tax assets
Total assets
Outstanding claims
Unearned premium
Interest bearing liabilities
Total liabilities
Net assets
23
FY20
FY19
3,425.5
3,131.1
41.6
55.6
181.2
9.1
3,680.6
3,477.4
540.4
360.9
1,461.2
1,280.5
187.8
199.4
2,292.7
1,387.9
1,949.9
1,527.5
Total assets as at 31 December 2020 of $3,680.6 million increased by $203.2 million from 31 December 2019 driven by:
• $294.4 million increase in cash and investments, due to strong operating cash flows from gross written premiums during
the year;
• $139.6 million decrease in DAC as a result of the $181.8 million write-down in 1Q20, partially offset by additional expenditure
associated with obtaining and recording mortgage insurance contracts from 2Q20 to 4Q20;
• $46.5 million increase in deferred tax assets largely from the timing difference created by the $181.8 million DAC write-down
in 1Q20.
The total liabilities as at 31 December 2020 of $2,292.7 million increased by $342.8 million from 31 December 2019 driven by:
• $180.7 million increase in unearned premium resulting from strong performance in gross written premium during the year;
• $179.5 million increase in outstanding claims driven by additional COVID-19 related reserving including the reserving
methodology review undertaken in 4Q20 where the Group now holds re-delinquency claims reserves for all in-force policies
that have at any point experienced delinquency, up until the associated policy is cancelled or a case reserve is established.
The equity of the Group as at 31 December 2020 of $1,387.9 million decreased $139.6 million from 31 December 2019.
The movement is mainly attributable to the payment of $30.9 million of the final FY19 dividend in March 2020 and $107.6 million
in current year losses.
CAPITAL MIX
The Group measures its capital mix on a net tangible equity basis, i.e. after deduction of goodwill and intangibles, providing
strong alignment with regulatory and rating agency models.
At 31 December 2020, the Group’s capital mix was:
• Net tangible equity (net of goodwill and intangibles) 88.0%;
• Debt 12.0%.
Genworth Annual ReportFinancial ReportDirectors’ ReportStrategic Report
24
Operating and financial review
(continued)
CAPITAL MANAGEMENT
The Group remains strongly capitalised with regulatory capital of $1,616.3 million at 31 December 2020 (2019: $1,659.6 million).
The Group has solvency of 1.65 times the prescribed capital amount (PCA) and a Common Equity Tier 1 (CET1) ratio of 1.45 times,
which continues to be above the Board’s targeted solvency range of 1.32 to 1.44 times the PCA on a level 2 basis. The table below
illustrates the capital position as at 31 December 2020 compared with 31 December 2019.
PCA COVERAGE RATIO (LEVEL 2)
(A$ million), as at
31 Dec 20
31 Dec 19
Common Equity Tier 1 Capital (incl. net excess technical provisions)
1,426.3
1,459.6
Tier 2 Capital
Regulatory capital base
Insurance concentration risk charge
Asset risk charge
Insurance risk charge
Operational risk charge
Aggregation benefit
Total PCA
PCA coverage
190.0
200.0
1,616.3
1,659.6
511.7
166.1
332.0
43.4
(71.9)
981.3
1.65x
479.1
125.7
284.4
35.7
(55.7)
869.3
1.91x
The decrease in PCA coverage in 2020 mainly reflects the impact of the DAC write-down in 1Q20, the increase in reserves and
strong gross written premium throughout the year.
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 3.6 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 2020 was $985.9 million based on the closing share price of $2.39.
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 7.7 within the financial statements.
On 12 February 2021, the directors determined that no dividend declaration would be made for the year ended
31 December 2020.
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.
25
Operating and financial review
(continued)
DIRECTORS
The directors of the Company at any time during, or since the end of, the financial year up to the date of this report are:
Current directors
Ian MacDonald
Pauline Blight-Johnston (commenced as a Director on 2 March 2020)
David Foster
Gai McGrath
Graham Mirabito (commenced as a Director on 10 August 2020)
Rajinder Singh (commenced as a Director on 9 September 2020)
Stuart Take
Andrea Waters (commenced as a Director on 16 March 2020)
Duncan West
Former directors
Christine Patton (ceased to be a Director on 9 August 2020)
Gayle Tollifson (ceased to be a Director on 15 March 2020)
Jerome Upton (ceased to be a Director on 8 September 2020)
Company secretary
Prudence Milne
Prudence Milne was appointed General Counsel and Company Secretary on 5 September 2016. Between 1998 and 2015, Prue
held Executive Legal Counsel and Company Secretary positions at AMP, with significant exposure across superannuation, life
insurance and investment management. Prior to AMP, Prue worked at Ashurst, Hambros Australia and Herbert Smith Freehills.
Prue 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. Prue holds a Bachelor of Economics and a Bachelor of Laws
from Monash University, a Master 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 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, initial public offerings, equity
raisings and joint ventures. Brady holds a Bachelor of Commerce and Bachelor of Laws from the University of Sydney.
Genworth Annual ReportFinancial ReportDirectors’ ReportStrategic Report 26
Operating and financial review
(continued)
Economic overview and outlook
ECONOMIC OVERVIEW
Prior to 2020, the Australian economy had experienced just two years of negative growth during the previous six decades.
However, 2020 saw the Australian economy enter its first recession in nearly three decades.
KEY ECONOMIC HIGHLIGHTS OVER 2020
Bushfires continue
COVID-19
initial cases
reported
Stimulus measures
including JobSeeker and
JobKeeper announced
Unemployment
reaches 7.5%
Victoria goes
under second
lockdown
Cash rate
reduced to 0.10%
Jan
Feb
Mar
Apr
May
Jun
Jul
Aug
Sep
Oct
Nov
Dec
Global pandemic
declared. Border closes
for all non-citizens and
non-residents
GDP falls by 7%
COVID vaccination approved
by UK, EU and US early
December 2020, followed
by approval in Australia early
January 2021
Movements in key economic indicators over 2020 are discussed below.
GROSS DOMESTIC PRODUCT
Economic growth slowed in the first quarter of 2020 as the impacts of bushfires were felt across the economy. Economic activity
was further impacted in the second quarter as COVID-19 related restrictions took effect, with yearly GDP bottoming at -6.4%
in June 2020 despite the unprecedented level of Government fiscal policy stimulus, accommodative monetary policy and lender
support programs.
GDP growth recovered in the third quarter of 2020 as COVID-19 restrictions eased, improving yearly GDP to -3.8%.
December 2020 data is expected to be released by the Australian Bureau of Statistics in early March 2021.
Quarterly national GDP growth
Data sourced from ABS at Dec ‘20
-4-5-6-7-2-3-101324%1Q202Q203Q204Q19 27
Operating and financial review
(continued)
UNEMPLOYMENT
COVID-19 proved particularly disruptive for Australia’s labour market. The unemployment rate reached a 2020 low of 5.1% in
February 2020 but began to rise sharply over the course of the second quarter and early into the third quarter of 2020 assisted by
the Government’s JobKeeper support measures as economic activity slowed, peaking at 7.5% in July 2020.
Over the course of the third quarter, the unemployment rate began to fall, reflecting the pickup in economic activity boosted
by the end of state border closures. However, the December 2020 unemployment rate of 6.6% remains well above the 5.1%
reported at December 2019.
Quarter end national unemployment rate
Data sourced from ABS at Dec ‘20
HOUSE PRICES
The effects of COVID-19 were also visible on the Australian housing market with dwelling values initially declining from
April to September 2020, falling 2.1% from their April 2020 peak.
Dwelling values began to recover over the fourth quarter of 2020 rising by 2.3%, as the housing market responded
to a combination of the Reserve Bank of Australia (RBA) cutting its official cash rate to 0.1%, government stimulus packages
and an improved employment and economic outlook.
Quarterly national house price movements
Data sourced from Corelogic’s Hedonic Home Value Index at Dec ’20
ECONOMIC OUTLOOK
Genworth expects its financial performance in 2021 to be influenced by several factors:
• The recovery of the Australian economy is expected to continue but is likely to be uneven. The Reserve Bank does not expect
GDP to reach 2019 levels until mid-year 2021;
• The unemployment rate is likely to remain above pre COVID-19 levels as the participation rate rises and government stimulus
measures cease;
• The RBA expects the cash rate to remain at 0.1% for the next three years, which is expected to continue to provide some
support to the Australian housing market.
2Q203Q204Q201Q2002468%2Q203Q204Q201Q2002468%Quarterly national house price movements-1-21023%2Q203Q204Q201Q20Genworth Annual ReportFinancial ReportDirectors’ ReportStrategic Report 28
Operating and financial review
(continued)
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 set out below.
Board
Director
Scheduled
Meetings
Unscheduled
Meetings
Subcommittee
Meetings
Audit
Committee
Risk
Committee
Ian MacDonald
Pauline Blight-Johnston
David Foster
Gai McGrath
Graham Mirabito
Christine Patton
Raj Singh
Stuart Take
Gayle Tollifson
Jerome Upton
Andrea Waters
Duncan West
A
H
A
H
9
7
9
9
3
6
2
9
2
6
7
9
9
7
9
9
3
6
2
9
2
7
7
9
2
2
2
2
–
2
–
2
1
2
1
2
2
2
2
2
–
2
–
2
1
2
1
2
A
–
4
–
2
–
–
–
–
–
2
2
4
H
–
4
–
2
–
–
–
–
–
2
2
4
A
H
–
–
–
7
2
5
2
–
2
5
5
5
–
–
–
7
2
5
2
–
2
5
5
5
A
2
–
–
6
–
–
2
6
2
4
4
4
H
2
–
–
6
–
–
2
6
2
4
4
4
Capital and
Investment
Committee
Remuneration
and
Nomination
Committee
Technology
Committee
A
H
A
H
A
H
–
–
7
–
2
5
2
–
1
5
6
6
–
–
7
–
2
5
2
–
1
5
6
6
–
–
5
5
–
–
–
5
2
–
3
–
–
–
5
5
–
–
–
5
2
–
3
–
–
–
4
4
1
–
1
–
–
3
–
3
–
–
4
4
1
–
1
–
–
3
–
3
Note: A represents the number of meetings attended, and H represents the number of meetings held during the period that the director held office
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 2020 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 2021.
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 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.
29
Operating and financial review
(continued)
NON-AUDIT SERVICES
The directors are satisfied that the provision of non-audit services during the year by the auditor of $nil (2019: $nil), 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;
• None of the services undermine the general principles relating to auditor independence set out in the Code of Conduct APES
110 Code of Ethics for Professional Accountants issued by the Accounting Professional and 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 are
provided in note 7.2 within the financial statements.
OFFICERS OF THE COMPANY WHO ARE FORMER PARTNERS OF KPMG
Each of the following persons was an Officer of the Company during 2020, and was a partner of KPMG at a time when KPMG
undertook an audit of the Company:
• Ms Andrea Waters, Director since 16 March 2020, was a partner of KPMG from 1996 – 2012;
• Ms Pauline Blight-Johnston, Chief Executive Officer and Managing Director since 2 March 2020, was a partner of KPMG
from 2019 – 2020.
Genworth Annual ReportFinancial ReportDirectors’ ReportStrategic Report SHORT TERM INCENTIVE OBJECTIVES
The conditions noted above resulted in 2020 financial
performance against Genworth’s Short-Term Incentive (STI)
objectives as follows:
• Performance NPAT loss of $137.5 million, a below
threshold outcome driven by the write-down of the DAC
accounting expense and additional reserving;
• Capital management – no dividend returns to shareholders
in 2020 due to the uncertain economic outlook, APRA’s
regulatory guidance and the Company’s FY20 Statutory net
loss and the Board’s decision to preserve capital;
• Gross written premium of $561.7 million, an outcome that
outperformed the maximum stretch target.
Genworth delivered several strategic priorities in 2020.
Building on our core business model and investment in data
and technology over recent years, we implemented the first
ever monthly premium LMI offering in Australia in 2020; we
delivered sophisticated new loss forecast modelling; and
continued our ongoing data and technology to drive business
efficiencies. There were some positive customer outcomes as
reflected in Net Promoter Score (NPS) improvements and new
customer acquisition, however the National Australia Bank
contract was not renewed during the year.
The linkage between our remuneration framework and
Company strategy and performance is set out in more detail
in section 2.5 – Executive Key Management Personnel (KMP)
remuneration programs.
More details on the 2020 STI outcomes are provided in
section 3.2 – Link between performance and STI outcomes.
30
Remuneration report
Dear Shareholder,
On behalf of your Board, I am pleased to present our annual
remuneration report for the year ended 31 December 2020.
THE 2020 YEAR IN REVIEW
COVID-19 has created unprecedented challenges across
Australia and Genworth has worked hard to respond quickly
and effectively for our customers, employees and to focus on
the long-term financial stability of the business.
To respond to the challenging and unpredictable business
conditions in the Australian mortgage market, Genworth has
implemented a range of targeted financial and operational
measures to ensure that we will continue to be able to pursue
our mission to promote the dream of home ownership in
Australia, and play a role in contributing to the ongoing
stability of the housing market.
For our employees, Genworth responded quickly with a safe
and effective transition to remote working with no disruption
to business activities. Genworth’s employees were then
able to continue to deliver high customer service standards
despite the challenges of high home loan deferral volumes.
Genworth also worked closely with our lender customers to
implement loss management strategies to support borrowers
who entered into repayment deferrals, while still prudently
managing portfolio risk. Genworth did not rely upon the
government JobKeeper initiative during 2020 to remunerate
our employees.
Genworth quickly adapted our capital management strategy
to respond to the COVID-19 pandemic by maintaining
a strong balance sheet to provide flexibility to meet any
future challenges. Our strong capital base of 1.65 times the
Prescribed Capital Amount (PCA) provides a capital buffer
that means we are well positioned to navigate and prepare
for a potential increase in delinquency rates once repayment
deferrals cease. Genworth moved quickly to respond to the
projected impacts of the pandemic by increasing reserving
during the year by $179.5 million and recognising a one-off
$181.8 million write-down of Deferred Acquisition Costs
(DAC) at 1Q20. These impacts contributed to a $227.7 million
decrease in statutory Net Profit After Tax (NPAT) for 2020
compared to 2019. Due to the uncertain economic outlook,
APRA’s regulatory guidance and the Company’s FY20 statutory
net loss, the Board concluded it would preserve capital and
not pay an interim or final dividend for 2020.
The low interest rate environment has contributed to increased
new business reflected in an 18.1% increase in New Insurance
Written (NIW) in 2020.
The Board is cognisant that 2020 has been a difficult year
for our shareholders with high volatility in the Genworth
share price coupled with no dividend returns. Whilst the
prudent capital preservation actions taken in 2020 will help to
ensure the longer-term sustainability of the business for our
shareholders in the future, the Board and Senior Leadership
Team felt it appropriate that 2020 executive remuneration
outcomes were reflective of the shareholder outcomes.
31
Remuneration report
(continued)
EXECUTIVE REMUNERATION OUTCOMES FOR 2020
The COVID-19 pandemic contributed to a Total Shareholder
Return (TSR) for 2020 of (34.5%) and dividend returns of zero
cents per share. While the Board recognises the agility and
responsiveness of management in prudently managing the
Company through the effects of COVID-19 and increased
new business volumes, remuneration outcomes for executive
KMP have reduced ensuring greater alignment with
shareholder returns:
GENWORTH’S APPROACH TO REMUNERATION
Our strategic vision is to position Genworth as the leading
provider of customer-focused risk and capital management
solutions in the Australian residential mortgage market. The
design of Genworth’s remuneration framework promotes
our strategic objectives through the delivery of competitive
remuneration via cash and share-based short-term and
long-term incentive programs that:
1. Drive alignment between the Company’s management and
• No Fixed Remuneration adjustments for executive KMP
its shareholders;
for 2021;
2. Provide a clear link between Company and individual
• To reflect shareholder outcomes in 2020, the Chief
performance and remuneration outcomes;
Executive Officer (CEO) and other executive KMP voluntarily
elected not to receive a 2020 STI award acknowledging
the need for executive and shareholder aligned outcomes,
notwithstanding the valuable individual contributions of
executive KMP and the CEO during a challenging year;
• Short-term incentive funding for the broader organisation
was determined to be 53% of target (section 3.2)
representing a 45 percentage point reduction from the
2019 outcome of 98%;
• The 2018 Long-Term Incentive (LTI) relative TSR tranche (75%
of the overall grant) exceeded the upper quartile of the
comparator group across the performance period, while the
underlying ROE tranche (25% of the overall grant) did not
meet the minimum hurdle. This will result in an overall vesting
outcome of 75% at the conclusion of the vesting period in
December 2021. More details on these outcomes in FY20 are
outlined in section 3.3 – Link between performance and LTI
outcomes.
In addition, there were no Director base or committee fee
increases for 20201.
3. Ensure remuneration outcomes are aligned with Genworth’s
short and long-term objectives;
4. Support strong governance, culture and accountability
across Genworth;
5. Enable proactive management of our capital structure to
optimise returns for shareholders;
6. Recognise the importance of executing on the Company’s
strategy to evolve the business model and deliver a
sustainable future for the Company;
7. Attract the talent we need to underpin strategy execution.
GENWORTH’S REMUNERATION APPROACH FOR 2021
The Board remains satisfied that the revised incentive plan
structure implemented in 2020 supports Genworth’s business
strategy and drives alignment with shareholders and, as such,
has made no structural adjustments to the remuneration
framework for 2021. A review will be undertaken in 2021 to
ensure that the incentive plan structure continues to meet
evolving regulatory expectations and aligns to changes in
strategy. The 2021 STI scorecard metrics have been updated
to align to our 2021 strategic priorities and the underlying
ROE vesting scale for the 2021 LTI plan updated for the current
lower interest rate environment (refer to tables 2.7b – 2021 STI
performance objectives and weightings and 2.8b – 2021 LTI
key characteristics for more information).
The Board continues to oversee an ongoing program of work
to embed governance, culture and accountability that supports
the long-term sustainability of the organisation and promotes
behaviour that is aligned to Genworth’s values. Ongoing
preparations are underway for anticipated regulatory changes
for APRA-regulated institutions. More detail on these initiatives
and outcomes of the Board’s approach to consequence
management is provided in section 2.4 – Alignment of risk and
remuneration.
While 2020 has been a challenging year for Genworth, the
Board is confident that we are well positioned to ensure the
long-term sustainability and success of the Company.
David Foster
Chairman – Remuneration and Nominations Committee
1. D Foster’s overall fees increased from FY19 to FY20 due to changes in Committee membership, while D West’s fees from FY19 to FY20 increased due
to remuneration received as Acting CEO from 1 January to 1 March 2020
Genworth Annual ReportFinancial ReportDirectors’ ReportStrategic Report 32
Remuneration report
(continued)
1. EXECUTIVE KMP REMUNERATION SUMMARY
1.1 Executive KMP Remuneration
This report provides shareholders with an overview of Genworth’s remuneration governance, strategy, programs and outcomes
for KMP for the year ended 31 December 2020. The table below provides a concise summary of the remuneration received by
executive KMP for the year ended 2020. 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 and car parking and other non-monetary benefits.
Table 1a – 2020 Remuneration summary table (unaudited) as at 31 December 2020
Fixed remuneration
At-risk/performance remuneration
Short-term incentive (STI)
Long-term incentive (LTI)
Name and position – Executive KMP
Contract
TFR 1
Actual TFR
received 2
STI target
Actual STI
awarded 3
LTI maximum
opportunity 4
LTI vested 5
Pauline Blight-Johnston 6
Chief Executive Officer (CEO)
Michael Bencsik 7
Chief Financial Officer (CFO)
Andrew Cormack
Chief Risk Officer (CRO)
Steven Degetto
Chief Commercial Officer (CCO)
2020
2019
2020
2019
2020
2019
2020
2019
$900,000
$742,892
$600,000
–
–
–
$510,000
$509,059
$255,000
–
–
–
$600,000
–
$250,000
–
–
–
$500,000
$456,357
$226,712
$222,178
$120,000
$187,062
$517,523
$517,657
$207,009
–
$253,688
$145,280
$507,375
$505,428
$202,950
$179,002
$247,500
$111,029
$468,234
$464,876
$234,117
–
$225,113
$86,938
$450,225
$447,776
$225,113
$253,702
$217,500
–
1.2 Overview of Genworth’s KMP in 2020
Throughout this report, KMP refers to those responsible for planning, directing and controlling the activities of the Company,
made up of non-executive directors, the executive director and nominated executives. Please refer to section 7 for details relating
to non-executive directors.
Table 1b – Executive KMP in 2020
Name
Executive KMP
P Blight-Johnston
M Bencsik
A Cormack
S Degetto
Position
Term as KMP
CEO
CFO
CRO
CCO
2 March – 31 December
Full year
Full year
Full year
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 each disclosed year as a KMP and may be different to contract TFR due to
increases as part of the annual remuneration review effective 1 March and partial years served
3. Actual STI awarded includes any amounts delivered as deferred STI – see section 4 for more details
4. The LTI grant reflects the face value of the LTI grant awarded during the respective year
5. Represents the dollar value of vested awards as at the date of vesting under the Genworth LTI plan, excluding any deferred STI plans
6. Ms Blight-Johnston’s 2020 STI target and LTI grant were pro-rated from commencement in the CEO role on 2 March 2020
7. Mr Bencsik’s 2019 target and actual STI is pro-rated from commencement in the CFO role on 4 February 2019
33
Remuneration report
(continued)
In 2019, the Board asked Mr Duncan West, a current Non-Executive Director (NED) with extensive insurance industry experience,
to serve as Acting CEO effective 1 January 2020 until a permanent CEO appointment was made. Fees received by Mr West during
this period are disclosed in table 7c.
The Board appointed Ms Pauline Blight-Johnston as CEO and Managing Director effective from 2 March 2020. Mr West then
stepped down as Acting CEO on 1 March immediately prior to Ms Blight-Johnston’s commencement and returned to his NED
duties on the Board.
1.3 Termination Payments to former CEO
Ms Georgette Nicholas announced her retirement from Genworth in May 2019 and stepped down as CEO and as a member of
the Board effective 31 December 2019.
Termination payments associated with the former CEO’s retirement were within the termination benefit limits prescribed in the
Corporations Act.
Table 1c – Termination payments to former CEO
Award
Value
Description
Accrued annual leave
$20,797
Accrued long service leave
$284,475
Relocation benefits
$19,195
LTI 2019
128,008 share rights
Statutory entitlement
Contractual entitlement
Costs associated with the conclusion of the international
assignment
A pro-rated portion of the 2019 LTI award remains unvested and
subject to ongoing participation in the plan subject to ongoing
hurdles and vesting timeframes 1
LTI 2017 and LTI 2018
No entitlement
Grants forfeited
1. Any part of the 2019 LTI grant that passes performance hurdles will vest on 31 December 2022; 281,620 share rights under Ms Nicholas’ 2019 LTI grant
were forfeited on termination
2. REMUNERATION GOVERNANCE, POLICY AND PROGRAMS
2.1 Governance overview
The Remuneration and Nominations Committee (“the Committee”) was established to assist the Board in fulfilling its
responsibilities to shareholders and regulators in relation to remuneration, succession planning, Board effectiveness and renewal,
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 did not receive advice from external advisers in 2020. 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 sets out 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 highly talented people who are dedicated to achieving business objectives in a manner that is consistent with the
long-term sustainability of the Company, our customers and our shareholders. This strategy is reflected in specific remuneration
programs which, subject to Board (and, where applicable, shareholder) approval, deliver remuneration which align shareholder,
Company and employee interests over the long-term.
Genworth Annual ReportFinancial ReportDirectors’ ReportStrategic Report 34
Remuneration report
(continued)
2.4 Alignment of risk and remuneration
The Genworth Remuneration Policy provides a link between risk and remuneration through a number of measures including:
• Board discretion to adjust remuneration in the event of misconduct and risk and compliance breaches;
• Articulation of the different remuneration package elements and associated governance considerations;
• Linking remuneration governance and prudent financial and non-financial risk taking and consideration of customer outcomes.
The Genworth deferred STI and LTI plans include malus and clawback provisions that may be applied at the discretion of the Board.
‘Risk Health Dashboard’ assessments for the business are provided to the Remuneration and Nominations Committee, to assist
the Board to monitor risk culture and provide the Board with an important lens through which to assess risk behaviours in
the business.
The Board undertook assessments of risk culture outcomes and conduct when considering the appropriateness of releasing
deferred awards and in determining remuneration awards for executives for the 2020 performance year.
A key input to the Board’s assessment is an independent review undertaken by the Chief Risk Officer which incorporates:
• assessment of the overall business environment, key business controls and mitigating actions and associated governance,
accountability and culture practices against the key components of APRA CPS 220 Risk Management;
• review of the outcomes of ‘Risk Health Assessments’ conducted over 2020 and any material risk matters arising in 2020;
• consideration of any material adverse events or inappropriate risks that have or could have arisen through the inappropriate
actions or lack of appropriate culture, governance and accountability practices by senior management.
Other inputs to the Board’s decision-making on executive remuneration include annual performance (including behaviour)
assessments of executives.
Genworth has undertaken a program of work to prepare for pending regulatory changes, including the Financial Accountability
Regime and APRA’s CPS511 Remuneration. This work included mapping accountabilities, developing accountability statements,
and implementation of malus and clawback for variable remuneration. Genworth continues to monitor ongoing regulatory and
governance trends to continue to adopt best practice.
2.5 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 (e.g. cash, equity and non-monetary benefits);
• measuring performance and delivering resulting remuneration over an appropriate time frame, including deferral of
a portion of Senior Leadership Team (SLT) variable remuneration;
•
linking fixed remuneration increases to individual performance and market benchmarks (e.g. median of relevant
comparator group);
• ensuring variable remuneration programs and outcomes balance prudent financial and non-financial risk taking with
achievement of company objectives and minimise potentially adverse customer outcomes;
• 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 total fixed remuneration (TFR) component, a short-term incentive
(STI) component and a long-term incentive (LTI) component. Table 2.5a presents the link between Genworth’s strategy and
remuneration programs and outcomes.
35
Remuneration report
(continued)
Table 2.5a Remuneration framework and linkage to Company strategy and performance
Business vision
Remuneration strategy
To be the leading provider of customer-focused capital
and risk management solutions in the Australian residential
mortgage market.
To attract, retain and motivate talented people dedicated
to achieving business objectives in line with Genworth’s,
shareholders’ and customers’ long-term interests.
Measures of success
Actual performance
Enhance profitability and grow new business within
risk-adjusted return parameters by delivering against
Performance NPAT and Gross Written Premium targets
Proactively manage our capital structure to optimise
returns for shareholders
Leverage our enhanced core capabilities by:
•
Improving the efficiency and competitiveness of the
core LMI offering;
• Evolve LMI to respond to the changing needs of our
customers and partners including lenders, brokers and
borrowers;
•
Investigate revenue diversification opportunities that
leverage Genworth’s core capabilities where we have or
can build competitive advantage.
Continue to develop an organisational culture that is
inclusive, supports our strategic objectives and enables
Genworth to adapt and grow in a changing environment.
• New insurance written increased 18.1% year on year.
GWP growth in our core business increased by 29.7%
in 2020 reflecting strong lender customer performance
and the impact of ongoing low interest rates. NEP
increased by 4.6% in 2020 and the loss ratio increased
to 92.9% in 2020. Statutory NPAT in 2020 decreased to a
$107.6 million loss including an after-tax unrealised loss of
$3.3 million on the investment portfolio. Underlying NPAT
decreased to a $104.3 million loss in 2020. Performance
NPAT for 2020 was a $137.5 million loss;
• Genworth introduced the first monthly premium LMI
product into the Australian market in 2020;
• Genworth was able to leverage recently developed
flexible risk-based pricing capabilities in FY20;
• An ongoing focus on our customer value proposition
has resulted in several key customer contract renewals
(noting that a significant account was lost) and significant
positive improvements in our customer Net Promoter
Score to +49;
• The measures of the key elements of culture which are
seen as a key contributor to effectively implementing
Genworth’s strategy did not materially change.
Vision and strategy reflected in remuneration programs and actual outcomes
TFR
Fixed pay outcomes are driven by individual
performance (execution of individual and Genworth
objectives and demonstration of behaviours aligned
to Genworth values), size and scope of the role and
relevant market benchmarks.
STI
Awards reflect combination of individual performance
(execution against individual objectives and demonstration
of behaviours aligned to Genworth values and supporting
a strong risk culture); and Company performance
(including key financial metrics Performance NPAT,
capital management and GWP) and progress against the
Company’s strategic objectives
LTI
Awards reflect Company performance against underlying
ROE and relative TSR targets.
TFR
• There were no increases to executive KMP remuneration
in the 2021 remuneration review.
STI
• Scorecard performance resulted in 53% STI funding, with
no STI paid to executive KMP to align to shareholder
outcomes in 2020. STI awards for actively employed
executive KMP represented 0% of the maximum.
LTI
• The 2018 LTI plan exceeded the upper quartile of the
comparator market for the relative TSR component across
the three-year performance period. The underlying ROE
hurdle did not meet the performance threshold across
the three-year performance period. This means that the
2018 LTI plan will vest at 75% overall. For further detail
on performance of the LTI plan, refer to section 3.3 – Link
between performance and LTI outcomes.
Genworth Annual ReportFinancial ReportDirectors’ ReportStrategic Report 36
Remuneration report
(continued)
Table 2.5b 2020 target mix of pay (relative weight of each component as a percentage of total remuneration as at
31 December 2020)
CEO Target
CEO Actual
CFO Target
CFO Actual
CRO Target
CRO Actual
CCO Target
CCO Actual
38.5%
20.5%
10.3%
60.0%
50.2%
16.7%
8.4%
67.1%
52.9%
14.1%
7.1%
67.1%
50.5%
16.8%
8.4%
55.6%
30.8%
40.0%
24.6%
32.9%
25.9%
32.9%
24.3%
44.4%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
■ TFR ■ STI Cash ■ STI Deferred ■ 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.
2.6 Total fixed remuneration
Total fixed remuneration 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, and Total Reward (TFR plus target STI and LTI maximum opportunity) is
used as a secondary reference point.
2.7 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 2.7a.
In determining individual STI awards, the CEO provides recommendations to the Committee in respect of the CEO’s direct
reports (which includes all executive KMP except the CEO). 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.
37
Remuneration report
(continued)
Table 2.7a 2020 STI key characteristics
2020 STI features
Detail
Purpose of STI plan
Motivate and retain employees by providing awards that reflect a combination of individual
performance and Genworth’s performance including behaviours as measured against Genworth’s
values and operating within the risk management framework.
STI (% of TFR) by role
Executive KMP
Target % (of TFR)
Maximum % (of TFR)
Performance objectives
CEO:
CFO and CCO:
CRO:
80%
50%
40%
Financial objectives
Performance NPAT (25%)
Capital Management (15%)
Gross Written Premium (20%)
Strategic objectives
Execute key strategic
priorities (40%)
160%
100%
80%
Aggregate objective
weighting
Financial objectives
60%
Strategic objectives
40%
Performance period
1 January 2020 – 31 December 2020.
Performance assessment
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 zero if appropriate).
Payment date
Payment method
On or around 15 March 2021.
STI – 2/3 of the award paid in cash (inclusive of superannuation).
Deferral period
Deferred STI component deferred for 12 months from 1 March 2021.
Deferred STI – 1/3 of the dollar value of award converted to a grant of share rights (subject to
vesting conditions).
Deferred STI vesting
conditions
Share rights grant calculation
Treatment of dividends
calculation
Treatment upon vesting
Treatment of terminating
Executive KMP
Continuous active employment for 12 months from grant date.
Board and Committee satisfaction that adverse outcomes have not arisen that were not apparent
when performance was assessed, and satisfaction that there was not excessive risk taking in
achievement of results.
The number of share rights is determined by dividing the deferred STI dollar value by a 10-day
Volume Weighted Average Price (VWAP) as at 31 December 2020. The Committee believes
using a VWAP (instead of the share price at a single point in time or a discounted fair value
methodology) reduces the impact daily volatility may have on the number granted and provides
greater transparency around the value of share rights granted.
Dividends, or the value of any dividends, are not received on unvested share rights. Notional
dividend equivalents accrue during the deferral period and are delivered through an adjustment
to the number of vested share rights at the end of the deferral period. This is calculated by taking
the value of dividends distributed during the deferral period and dividing by a 10-day VWAP as
at the vesting date, in whole share rights.
Vested share rights entitle the holder to ordinary shares in the Company for nil consideration. The
Company retains discretion to satisfy vested share rights delivered through the STI plan via the
issuance of new shares or via an on-market purchase.
Eligibility for an STI award is contingent on active, continuous employment throughout the
performance period. In the event of resignation or termination (with the exception of those
leaving with good leaver status), 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, or converted to cash.
Change of control
Board has discretion.
Genworth Annual ReportFinancial ReportDirectors’ ReportStrategic Report 38
Remuneration report
(continued)
Table 2.7b 2021 STI performance objectives and weightings
STI performance objective and weighting Rationale
Performance NPAT (25%)
Performance NPAT is a measure of performance of the in-force portfolio.
Capital Management (10%)
Prudent and efficient management of capital.
Gross Written Premium (GWP – 25%)
Strategic Objectives (40%)
2.8 Long-term incentive
GWP target is intended to incentivise generation of new business within the current
performance period and is subject to achievement of new business pricing return in
excess of the Weighted Average Cost of Capital (WACC).
2021 strategic objectives include optimizing core LMI profitability, reimagining LMI,
developing complementary business opportunities and culture enhancement.
Executive KMP participate in an annual Long-Term Incentive grant of share rights which are subject to performance-based vesting
conditions in respect of company performance against Underlying ROE and Relative TSR across a three-year performance period,
followed by an additional one-year vesting period.
Table 2.8a 2020 LTI key characteristics
LTI 2020 features
Detail
Purpose of LTI plan
LTI % by Executive
KMP role
Performance metrics
Relative TSR comparator
group
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.
Executive KMP
CEO
Other KMP
Grant % (of TFR)
80%
50%
Underlying ROE:
25% of the 2020 LTI grant. Calculated as the average of three-year Underlying ROE divided by
the three-year average equity (excluding mark to market value of investments) measured against
regulatory capital (based on the upper end of the Board’s target range above the Prescribed Capital
Amount) that provides direct line of sight for executives. 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.
Relative TSR:
75% of the 2020 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 notionally reinvested on the ex-dividend date closing price and franking
credits are excluded.
ASX top 200 financial services companies excluding Real Estate Investment Trusts (REITs).
Vesting scales summary
Vesting %
Underlying ROE
Relative TSR
0%
<7.5%
<50th
50%
7.5%
50th
60%
8.4%
55th
70%
9.3%
60th
80%
90%
10.2%
11.1%
65th
70th
100%
12.0%
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 2020 – 31 December 2022.
Performance assessment
Performance to be assessed in 1Q23. There is no retesting of grants.
Deferral period
12 months from the end of the relevant performance period.
Vesting period/date
Four years in total from the start of relevant performance period (three-year performance period with
an additional year deferral).
Award determination
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).
39
Remuneration report
(continued)
LTI 2020 features
Detail
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.
Vesting conditions
Continuous active employment for four years from grant date.
Share rights grant
calculation
Treatment of dividends
Board and Committee satisfaction that adverse outcomes have not arisen that were not apparent
when performance was assessed, and satisfaction that there was not excessive risk taking in
achievement of results.
The number of share rights was determined by dividing the grant value by a 10-day VWAP as at
31 December 2019. 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 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 2.7a for details: ‘treatment of
terminating executive KMPs’).
Change of control
Board has discretion.
As interest rates have declined over recent years, the Board has approved a change to the underlying ROE vesting scale for
2021. In addition, given the uncertainty around forecast underlying ROE in 2021 due to effects of COVID-19, the weighting of
the 2021 individual performance year has been reduced relative to the other performance years for the 2021 LTI grant (refer to
table 2.8b for details).
Table 2.8b 2021 LTI key characteristics
LTI 2021 features
Detail
Performance metrics
Underlying ROE:
25% of the 2021 LTI grant. Calculated as the average of three-year Underlying NPAT divided by
the three-year average equity (excluding mark to market value of investments) measured against
regulatory capital (based on the upper end of the Board’s target range above the Prescribed Capital
Amount). 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. For the 2021 LTI grant, the Underlying ROE outcome for
2021 will be weighted 25.0%, while the Underlying ROE outcomes for 2022 and 2023 will each be
weighted 37.5%. This is intended to reflect uncertainty around the forecast outcome for Underlying
ROE in 2021.
Relative TSR:
75% of the 2021 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 notionally reinvested on the ex-dividend date closing price and franking
credits are excluded.
Relative TSR
comparator group
Top ASX 200 financial services companies excluding REITs.
Vesting scales summary
Vesting %
Underlying ROE
Relative TSR
0%
<7.0%
<50th
50%
7.0%
50th
60%
7.7%
55th
70%
8.4%
60th
80%
9.1%
65th
90%
9.8%
70th
100%
10.5%
75th
Note the ROE scale may vary with any change in the targeted point within the PCA range or within the
range itself within the performance period.
The Relative TSR vesting schedule remains unchanged for 2021.
Genworth Annual ReportFinancial ReportDirectors’ ReportStrategic Report 40
Remuneration report
(continued)
2.9 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 Company1. The CEO is required to hold two times, and other executive KMP one times, 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. Share
ownership requirements are tested each time share rights vest. Until the ownership requirements are met, 25% of shares vested
via equity plans (deferred STI component and LTI) must be retained.
3. RELATIONSHIP BETWEEN COMPANY PERFORMANCE AND REMUNERATION
3.1 Performance overview
Genworth’s FY20 financial results reflected performance impacted by effects of the COVID-19 pandemic. Key metrics included:
• New Insurance Written (NIW) was up 18.1% to $31.6 billion;
• Gross Written Premium (GWP) increased 29.7% in 2020;
• Net earned premium increased by 4.6% to $312.0 million;
• Performance NPAT for 2020 was a loss of $137.5 million impacted by the 1Q20 DAC write-down and increased reserving
during 2020;
• There were no capital returns to shareholders due to dividend restrictions and prudential considerations related to the
COVID-19 pandemic;
• Genworth’s absolute Total Shareholder Return2 (TSR) was a decrease of 34.5% from 1 January to 31 December 2020;
• Ongoing focus on enhancement of our customer experience and value proposition resulted in several key customer renewals
and an improvement of Net Promoter Score of +49, noting the non-renewal of a key customer during the year.
This performance is reflected overall in a below-target bonus pool and resulting awards to executive KMP (more detail section 3.2).
Table 3.1a Summary of Genworth’s performance (2014–2020)
Financial results
2015
2016
2017
2018
2019
2020
Gross Written Premium ($m)
Net Investment Income ($m)
Underlying NPAT ($m)
Expense Ratio
Underlying ROE 3
Dividends paid 4
Share price at start of reporting period
Share price at end of reporting period
$507.6
$107.9
$264.7
26.2%
11.6%
$0.503
$3.64
$2.76
$381.9
$126.0
$212.2
25.7%
10.4%
$0.405
$2.76
$3.27
$369.0
$103.3
$171.1
29.3%
9.0%
$0.260
$3.27
$3.00
$460.2
$77.9
$93.9
33.6%
5.2%
$433.2
$139.1
$97.0
35.3%
6.0%
$0.200
$0.626
$3.00
$2.19
$2.19
$3.65
$561.7
$89.9
($104.3)
82.1%
(7.3%)
$0.0
$3.65
$2.39
1. Share rights granted via equity plans that have met applicable hurdles but not yet vested due to outstanding tenure-based vesting hurdles are
counted towards the executive’s shareholding
2. Including value of notionally re-invested dividends
3. Underlying ROE is calculated by dividing underlying NPAT by the average of the opening and closing underlying equity balance for a financial period
4. Reflects dividends related to the performance year paid or subsequently declared
41
Remuneration report
(continued)
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, target and stretch performance levels for financial measures,
Genworth considers a combination of internal financial forecasts as well as Stakeholder expectations following the release of our
prior year financial results. In light of Genworth’s performance against 2020’s STI objectives, the Board determined the STI pool
funding level to be 53% of STI targets.
Table 3.2a 2020 STI performance objectives and Board assessment of performance
STI performance
objective and
weighting
Performance NPAT
(25%)
Rationale
Assessment of 2020 performance
As the headline figure of the various
components that make up overall Company
performance, an annual profit measure is a key
performance objective.
Capital
Management
(15%)
Reflects proactive management of our capital
structure to optimise returns for shareholders.
Gross Written
Premium (20%)
Incentivises generation of new business within
the current performance period, subject to
achievement of new business pricing return of in
excess of the WACC.
Leverage enhanced
core capabilities
(25%)
Key strategic priorities for each performance
period may vary year-to-year based on
Genworth’s priorities. For the 2020 performance
period, short-term incentive plan strategic
priorities included leveraging technology and
underwriting efficiencies, product enhancement
and renewal of key customer contracts.
Culture and
engagement (15%)
Culture enhancement and employee
engagement and alignment.
Performance NPAT for 2020 was a loss of $137.5 million.
2020 results were lower than expected primarily due
to the 1Q20 DAC write-down and strengthening of
claims reserves during 2020 to provision for potentially
higher rates of defaults due to COVID-19. This outcome
translated into an incentive outcome below threshold.
There were no returns of capital to shareholders related
to FY20. Due to the onset of COVID-19 Genworth
decided not to proceed with the intended capital plan
actions in order to preserve capital to support long-term
sustainability which aligned with regulatory guidance
during COVID-19. This translated into an incentive
outcome below threshold.
Strong growth in our traditional LMI flow business across
lender customers driven by lender campaigns and
low interest rates resulted in GWP performance above
target at $561.2 million, an increase of 29.7% over 2019
translating into an incentive outcome above stretch
performance level.
New loss forecasting capabilities were utilised for
COVID-19 loss modelling and portfolio stress testing.
Customer outcomes were reflected in an improvement
of customer Net Promoter Score and customer renewals,
however this was balanced with non-renewal of a key
customer. The first monthly premium product was
implemented in the Australian market. The consolidated
incentive outcome was between threshold and target.
Employee survey outcomes did not reach
threshold requirements as there were not year-on-year
increases in all culture related survey questions.
Genworth Annual ReportFinancial ReportDirectors’ ReportStrategic Report 42
Remuneration report
(continued)
3.3 Link between performance and LTI outcomes
2018 LTI award
In January 2018, executive KMP roles were provided with a grant of share rights which vest subject to Company performance
against underlying ROE and relative Total Shareholder Return (TSR). A 12-month deferral period applies from the end of the
relevant performance period (31 December 2020), meaning the first tranche of Performance Rights will vest in 1Q22. The vesting
outcomes for this grant are outlined below.
LTI performance
objective and
weighting
Underlying ROE
(25%)
Relative TSR (75%)
Detailed calculation
Performance Range
Drivers of performance
Calculated as the average of
three-year Underlying NPAT
divided by the three-year
average equity (excluding
mark-to-market value of
investments) measured
against regulatory capital
(based on the upper end
of the Board’s target range
above the Prescribed
Capital Amount)
Calculated as the relative
Total Shareholder Return
against a comparator
group (the ASX200
Financial Services firms
excluding REITs)
Threshold performance
(50% vesting): 7.5%
Maximum performance
(100% vesting): 12.0%
The threshold Underlying ROE hurdle for the
2018 award was 7.5% and the actual Underlying
ROE result was 2.5%. None of the underlying
ROE awards vested.
Threshold performance
(50% vesting): median
Maximum performance
(100% vesting): upper
quartile
The TSR outcome for Genworth across the
measurement period was achievement at
the 76th percentile (i.e. above the upper
quartile). Accordingly, 100% of the relative TSR
component will vest, representing 75% of the
overall grant. A key contributor to Genworth’s
TSR performance relative to peers was the
ongoing capital management program and
associated dividend returns to shareholders.
Two executive KMP will qualify for partial vesting
in 1Q22, at which point more detail on actual
vesting outcomes will be provided.
4. REMUNERATION OUTCOMES FOR EXECUTIVE KMP
Table 4a 2020 STI outcomes
Target
STI
(% of
TFR)
Target
STI
$
Max
STI
$
Cash
STI
awarded 1
Deferred
STI
awarded
Deferred
STI share
rights
Total
STI
awarded
$
Actual
STI
awarded
(% of
TFR)
Actual
STI
awarded
(% of
max)
STI not
awarded
(% of
max)
80% $600,000 $1,200,000
50% $255,000 $510,000
40% $207,009 $414,018
50% $234,117 $468,234
$0
$0
$0
$0
$0
$0
$0
$0
0
0
0
0
$0
$0
$0
$0
0%
0%
0%
0%
0%
100%
0%
100%
0%
100%
0%
100%
Executive KMP
P Blight-Johnston 2
CEO
M Bencsik
CFO
A Cormack
CRO
S Degetto
CCO
1. Cash STI awarded figure is inclusive of superannuation
2. Ms Blight-Johnston’s 2020 STI target was pro-rated for her start date of 2 March 2020
43
Remuneration report
(continued)
5. CONTRACTUAL ARRANGEMENTS FOR EXECUTIVE KMP
5.1 Contractual arrangements for executive KMP
Table 5a Summary of contract details
Executive KMP
Term of agreement Notice period
Termination payments
CEO
Ongoing
Six months either party;
immediate for misconduct, breach
of contract or bankruptcy.
Other executive
KMP
Ongoing
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.
Genworth Annual ReportFinancial ReportDirectors’ ReportStrategic Report 44
Remuneration report
(continued)
6. KMP REMUNERATION TABLES
Table 6a Statutory remuneration table – 1 January to 31 December 2020
Short-term remuneration
Long-term/post-emp benefits
KMP
Executive KMP
P Blight-Johnston
CEO
M Bencsik
CFO
A Cormack
CRO
S Degetto
CCO
2020
2019
2020
2019
2020
2019
2020
2019
Cash
salary 1
Other
benefits 2
Non-
monetary
benefits 3
Cash STI
awarded 4
Deferred
STI 5
Sub-total
$721,543
–
$487,710
$428,057
$496,308
$484,662
$443,527
$421,003
$600
–
$600
$600
$600
$600
$600
$600
$15,235
–
$8,703
$13,259
$1,786
$1,838
$4,791
$0
–
$0
$0
–
$0
$148,119
$74,059
$0
$0
$119,335
$59,667
$0
$0
$27,232
$169,135
$84,567
$737,378
–
$497,013
$664,094
$498,694
$666,102
$448,918
$702,537
1. Cash salary consists of base salary and any salary sacrifice arrangements
2. Other benefits include annual health reimbursement offered to all employees
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 the respective performance year, inclusive of super, accrued for during the performance
year. Actual payment made in March of the following year
5. Deferred STI awarded to executives 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
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 Monte Carlo method and allocated to each reporting period over the period
from grant date to vesting date for the 2018, 2019 and 2020 LTI grants, LTI 2016 (associated notional dividend awards) and vested 2017 LTI awards
Share-based
% of total
that is
Super
benefits
Long
payments
Termination
service leave 6
RSUs 7
benefits
performance
% of total that
Total
related
are options
$21,348
$17,060
–
$21,348
$20,767
$21,348
$20,767
$21,348
$20,767
–
$22,068
$11,909
$31,218
$21,505
$37,489
$28,488
$0
–
$0
$186,963
$53,583
$267,733
$50,521
$91,729
$0
–
$0
$0
$0
$0
$0
$0
$775,786
–
$540,429
$883,733
$604,843
$976,107
$558,276
$843,521
0%
–
0%
25%
0%
18%
0%
30%
0%
–
0%
0%
0%
0%
0%
0%
Table 6b Share right holdings for the reporting period ended 31 December 2020
Movement during the year
Executive KMP
Name and position
P Blight-Johnston
CEO
M Bencsik
CFO
A Cormack
CRO
S Degetto
CCO
Grant detail
Grant date 1
Issue price 2
Vesting date
# Held
31/12/19
Number
granted
Forfeited
Vested
Exercised
# Held
31/12/20
LTI ‘20
LTI ‘20
Deferred STI ‘19
LTI ‘16
LTI ‘17
Deferred STI ‘18
Deferred STI ‘19
LTI ‘18
LTI ‘19
LTI ‘20
LTI ‘17
Deferred STI ‘18
Deferred STI ‘19
LTI ‘18
LTI ‘19
LTI ‘20
1 Jan ‘20
1 Jan ‘20
1 Mar ‘20
1 Jan ‘16
1 Jan ‘17
1 Mar ‘19
1 Mar ‘20
1 Jan ‘18
1 Jan ‘19
1 Jan ‘20
1 Jan ‘17
1 Mar ‘19
1 Mar ‘20
1 Jan ‘18
1 Jan ‘19
1 Jan ‘20
$3.73
$3.73
$3.73
$2.33
$2.90
$2.17
$3.73
$2.66
$2.17
$3.73
$2.90
$2.17
$3.73
$2.66
$2.17
$3.73
31 Dec ‘23
31 Dec ‘23
1 Mar ‘21
31 Dec ‘19
31 Dec ‘20
1 Mar ‘20
1 Mar ‘21
31 Dec ‘21
31 Dec ‘22
31 Dec ‘23
31 Dec ‘20
1 Mar ‘20
1 Mar ‘21
31 Dec ‘21
31 Dec ‘22
31 Dec ‘23
0
0
0
0
0
0
0
0
83,649
21,263
91,127
113,913
75,025
26,861
81,733
100,105
160,681
66,950
19,833
13,189
3,590
15,979
0
0
0
0
0
0
67,938
4,535
22,647
60,285
41,825
13,189
41,824
24,853
13,189
41,824
24,853
37,513
37,512
31,396
37,512
31,396
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
160,681
66,950
19,833
0
0
0
0
0
15,979
91,127
113,913
67,938
22,647
81,733
100,105
60,285
0
0
0
0
0
0
0
0
0
0
0
0
0
0
1. Grant date represents the commencement of the performance period
2. Issue price is the share price of the instrument at the date of grant
6. KMP REMUNERATION TABLES
Table 6a Statutory remuneration table – 1 January to 31 December 2020
Short-term remuneration
Long-term/post-emp benefits
Cash
salary 1
Other
benefits 2
Non-
monetary
benefits 3
Cash STI
awarded 4
Deferred
STI 5
Sub-total
Super
benefits
Long
service leave 6
Share-based
payments
RSUs 7
Termination
benefits
Remuneration report
(continued)
$21,348
$17,060
–
$21,348
$20,767
$21,348
$20,767
$21,348
$20,767
–
$22,068
$11,909
$31,218
$21,505
$37,489
$28,488
$0
–
$0
$186,963
$53,583
$267,733
$50,521
$91,729
$0
–
$0
$0
$0
$0
$0
$0
45
% of total
that is
performance
related
% of total that
are options
0%
–
0%
25%
0%
18%
0%
30%
0%
–
0%
0%
0%
0%
0%
0%
Total
$775,786
–
$540,429
$883,733
$604,843
$976,107
$558,276
$843,521
Table 6b Share right holdings for the reporting period ended 31 December 2020
Movement during the year
Grant detail
Grant date 1
Issue price 2
Vesting date
# Held
31/12/19
Number
granted
Forfeited
Vested
Exercised
# Held
31/12/20
0
0
0
0
83,649
21,263
0
91,127
113,913
0
75,025
26,861
0
81,733
100,105
160,681
66,950
19,833
13,189
0
3,590
15,979
0
0
67,938
0
4,535
22,647
0
0
0
60,285
0
0
0
0
41,825
0
0
0
0
0
37,513
0
0
0
0
0
0
0
0
13,189
41,824
24,853
0
0
0
0
0
0
0
13,189
41,824
24,853
0
0
0
0
37,512
31,396
37,512
31,396
0
0
0
0
0
0
0
0
160,681
66,950
19,833
0
0
0
15,979
91,127
113,913
67,938
0
0
22,647
81,733
100,105
60,285
KMP
Executive KMP
P Blight-Johnston
CEO
M Bencsik
CFO
A Cormack
CRO
S Degetto
CCO
2020
2019
2020
2019
2020
2019
2020
2019
$721,543
–
$487,710
$428,057
$496,308
$484,662
$443,527
$421,003
$600
–
$600
$600
$600
$600
$600
$600
$15,235
–
$8,703
$13,259
$1,786
$1,838
$4,791
$0
–
$0
$0
$0
$148,119
$74,059
$119,335
$59,667
$0
–
$0
$0
$0
$737,378
–
$497,013
$664,094
$498,694
$666,102
$448,918
$702,537
$27,232
$169,135
$84,567
1. Cash salary consists of base salary and any salary sacrifice arrangements
2. Other benefits include annual health reimbursement offered to all employees
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 the respective performance year, inclusive of super, accrued for during the performance
year. Actual payment made in March of the following year
5. Deferred STI awarded to executives 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
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 Monte Carlo method and allocated to each reporting period over the period
from grant date to vesting date for the 2018, 2019 and 2020 LTI grants, LTI 2016 (associated notional dividend awards) and vested 2017 LTI awards
Executive KMP
Name and position
P Blight-Johnston
CEO
M Bencsik
CFO
A Cormack
CRO
S Degetto
CCO
1. Grant date represents the commencement of the performance period
2. Issue price is the share price of the instrument at the date of grant
Deferred STI ‘19
Deferred STI ‘18
Deferred STI ‘19
Deferred STI ‘18
Deferred STI ‘19
LTI ‘20
LTI ‘20
LTI ‘16
LTI ‘17
LTI ‘18
LTI ‘19
LTI ‘20
LTI ‘17
LTI ‘18
LTI ‘19
LTI ‘20
1 Jan ‘20
1 Jan ‘20
1 Mar ‘20
1 Jan ‘16
1 Jan ‘17
1 Mar ‘19
1 Mar ‘20
1 Jan ‘18
1 Jan ‘19
1 Jan ‘20
1 Jan ‘17
1 Mar ‘19
1 Mar ‘20
1 Jan ‘18
1 Jan ‘19
1 Jan ‘20
$3.73
$3.73
$3.73
$2.33
$2.90
$2.17
$3.73
$2.66
$2.17
$3.73
$2.90
$2.17
$3.73
$2.66
$2.17
$3.73
31 Dec ‘23
31 Dec ‘23
1 Mar ‘21
31 Dec ‘19
31 Dec ‘20
1 Mar ‘20
1 Mar ‘21
31 Dec ‘21
31 Dec ‘22
31 Dec ‘23
31 Dec ‘20
1 Mar ‘20
1 Mar ‘21
31 Dec ‘21
31 Dec ‘22
31 Dec ‘23
Genworth Annual ReportFinancial ReportDirectors’ ReportStrategic Report
46
Remuneration report
(continued)
7. NON-EXECUTIVE DIRECTOR REMUNERATION
Table 7a KMP in 2020 – Non-executive directors
Name
Ian MacDonald
David Foster
Gai McGrath
Graham Mirabito
Rajinder Singh
Stuart Take
Andrea Waters
Duncan West1
Position
Chairman
Term as KMP
Full Period
Independent Director – Genworth Financial designee
Full Period
Independent Director
Full Period
Independent Director – Genworth Financial designee
10 August – 31 December 2020
Director – Genworth Financial designee
9 September – 31 December 2020
Director – Genworth Financial designee
Full Period
Independent Director
Independent Director
16 March – 31 December 2020
Full Period
Former Non-Executive Directors
Christine Patton
Gayle Tollifson
Jerome Upton
Independent Director – Genworth Financial designee
1 January – 9 August 2020
Independent Director
1 January – 15 March 2020
Director – Genworth Financial designee
1 January – 8 September 2020
Non-executive directors 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 the
aggregate fee cap remained unchanged at $1.75 million per annum, inclusive of superannuation obligations. Non-executive
directors who are executives of Genworth Financial (Mr Take, Mr Upton and Mr Singh) were paid by Genworth Financial in the
ordinary course of their duties and were not paid fees by Genworth Australia.
Table 7b NED fee table
Position
Non-executive directors (excluding S Take, J Upton and R Singh)
Board Chairman
Director
Committee Chairman (per Committee)
Committee member (per Committee)
Annual fee
$265,000
$115,000
$24,000
$12,000
Director fees are reviewed annually and may be adjusted in line with market standards within the aggregate fee cap. The focus
of NEDs is principally the stewardship, strategic direction and medium to long-term performance of Genworth. Accordingly,
remuneration programs for NEDs are neither performance based or at risk. There was no increase in base or committee fee rates
in 20202.
In 2020, the share ownership guidelines for NEDs were adjusted to better align to market practice and shareholder interests through
introduction of a mandatory minimum share ownership requirement for independent NEDs of one times their annual base fees in
Company shares. The current independent directors support this approach and will achieve this requirement within five years of
the approval of the mandatory minimum shareholding guidelines or appointment date to the Board, whichever is later.
1. Mr West served as Acting CEO for 1 January – 1 March 2020
2. D Foster’s overall fees increased from FY19 to FY20 due to changes in Committee membership, while D West’s fees from FY19 to FY20 increased due
to remuneration received as Acting CEO from 1 January to 1 March 2020
Remuneration report
(continued)
Table 7c Statutory remuneration table – 1 January to 31 December 2020
KMP1
Year
Fees
Non-Executive Directors
Other
short-term
benefits
Non-monetary
benefits
Superannuation
benefits
I MacDonald
Chairman
D Foster 2
Director
G McGrath 3
Director
G Mirabito 4
Director
R Singh 5
Director
S Take 6
Director
A Waters 7
Director
D West 8
Director
2020
2019
2020
2019
2020
2019
2020
2019
2020
2019
2020
2019
2020
2019
2020
2019
Former Non-Executive Directors
C Patton
Director
G Tollifson
Director
J Upton
Director
2020
2019
2020
2019
2020
2019
$243,652
$244,233
$162,086
$159,817
$159,817
$159,817
$54,122
N/A
$0
N/A
$0
$0
$134,328
N/A
$145,349
$163,000
$77,120
$126,941
$33,080
$159,817
$0
$0
$0
$0
$0
$0
$0
$0
$0
N/A
$0
N/A
$0
$0
$0
N/A
$150,000
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
N/A
$0
N/A
$0
$0
$0
N/A
$0
$0
$0
$0
$0
$0
$0
$0
47
Total
$265,000
$265,000
$177,484
$175,000
$175,000
$175,000
$59,264
N/A
$0
N/A
$0
$0
$21,348
$20,767
$15,398
$15,183
$15,183
$15,183
$5,142
N/A
$0
N/A
$0
$0
$4,449
$138,777
N/A
$0
$0
$7,326
$12,059
$3,143
$15,183
$0
$0
N/A
$295,349
$163,000
$84,446
$139,000
$36,223
$175,000
$0
$0
1. R Singh, S Take and former Director J Upton were employed by Genworth Financial in the ordinary course of their duties and were not paid fees by
Genworth Australia hence receive no director fees in table 7c, however because they are still directors of GMA, they are disclosed in table 7c
2. Mr Foster is Chairman of the Remuneration and Nominations Committee and Technology Committee and a member of the Capital and Investment
Committee; note Mr Foster’s fees increased from FY19 to FY20 due to changes in Committee membership
3. Ms McGrath is Chairman of the Risk Committee and a member of the Audit Committee, Remuneration and Nominations Committee and Technology
Committee
4. Mr Mirabito is a member of the Audit Committee, Capital and Investment Committee and Technology Committee
5. Mr Singh is a member of the Audit Committee, Risk Committee, Capital and Investment Committee and Technology Committee
6. Mr Take is a member of the Risk Committee and the Remuneration and Nominations Committee
7. Ms Waters is Chairman of the Audit Committee and a member of the Risk Committee, Capital and Investment Committee and Remuneration and
Nominations Committee
8. Mr West is Chairman of the Capital and Investment Committee, and member of the Audit Committee, Risk Committee and Technology Committee.
“Other short-term benefits” represent fees received while Acting CEO for 1 January – 1 March 2020
Genworth Annual ReportFinancial ReportDirectors’ ReportStrategic Report 48
Remuneration report
(continued)
8. OTHER TABLES
Table 8a KMP and their related parties direct, indirect and beneficial shareholdings (including movements during the period
ending 31 December 2020)
Executive KMP
P Blight-Johnston – CEO
M Bencsik – CFO
A Cormack – CRO
S Degetto – CCO
Non-Executive Directors
I MacDonald – Chairman
D Foster – Director
G McGrath – Director
G Mirabito – Director
R Singh – Director
S Take – Director
A Waters – Director
D West – Director
Balance at
31-Dec-191
Received
via vesting/
exercising
Other
changes2
Balance at
31-Dec-20
N/A
38,202
69,738
12,593
85,000
12,133
29,650
N/A
N/A
8,297
N/A
2,318
0
0
79,866
68,908
0
0
0
38,202
-30,000
119,604
0
81,501
–
–
–
–
–
–
–
–
46,823
10,802
–
–
–
–
50,000
58,000
131,823
22,935
29,650
0
0
8,297
50,000
60,318
1. Several KMP were not yet appointed to their roles in Genworth as at 1 January 2020 and their shareholding balance is therefore recorded as N/A
2. Acquisition or sale of shares on market
49
Remuneration report
(continued)
Table 8b Relevant interest of each director in Genworth Australia and its related bodies corporate (unaudited)
Directors
Name
I MacDonald
P Blight-Johnston
D Foster
G McGrath
G Mirabito
R Singh
S Take
A Waters
D West
GMA Group balance held directly
or indirectly at 31 Dec 2020
Genworth Financial balance held directly
or indirectly at 31 Dec 2020
Shares: 131,823
Shares: None
Share rights: 160,681
Shares: 22,935
Shares: 29,650
Shares: None
Shares: None
Shares: 8,297
Shares: 50,000
Shares: 60,318
None
None
None
None
None
Shares: None
Restricted Stock Units: 51,958
Shares: 65,885
Stock appreciation rights: 53,200
None
None
Genworth Annual ReportFinancial ReportDirectors’ ReportStrategic Report 50
Directors’ 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 26 February 2021
51
Lead auditor’s independence declaration
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 of Genworth Mortgage Insurance Australia Limited
for the financial year ended 31 December 2020 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
Sydney
26 February 2021
KPMG, an Australian partnership and a member firm of the KPMG global organisation of independent member firms affiliated with KPMG International
Limited, a private English company limited by guarantee. All rights reserved. The KPMG name and logo are trademarks used under license by the
independent member firms of the KPMG global organisation. Liability limited by a scheme approved under Professional Standards Legislation.
Genworth Annual ReportFinancial ReportDirectors’ ReportStrategic Report 52
Financial statements
CONTENTS
NOTES TO THE FINANCIAL STATEMENTS
Consolidated statement of comprehensive income
Consolidated statement of financial position
Consolidated statement of changes in equity
Consolidated statement of cash flows
53
54
55
56
Section 1 – Basis of preparation
1.1
1.2
Reporting entity
Significant accounting policies
Section 2 – Risk management
2.1
2.2
Risk management framework
Financial risk management
Section 3 – Results for the year
3.1
3.2
3.3
3.4
3.5
3.6
3.7
Gross written premium
Investment income
Other underwriting expenses
Net cash provided by operating activities
Income taxes
Dividends
Earnings per share
Section 4 – Insurance contracts
4.1
4.2
4.3
4.4
4.5
4.6
4.7
4.8
4.9
Net claims incurred
Deferred reinsurance expense
Deferred acquisition costs
Outstanding claims
Non-reinsurance recoveries
Unearned premium
Liability adequacy test
Accounting estimates and judgements
Actuarial assumptions and methods
4.10
Capital adequacy
Section 5 – Capital management and financing
5.1
5.2
5.3
5.4
5.5
Capital management
Interest bearing liabilities
Equity
Capital commitments and contingencies
Other reserves
Section 6 – Operating assets and liabilities
6.1
6.2
6.3
6.4
6.5
6.6
6.7
Cash and cash equivalents
Trade and other receivables
Leases
Intangibles
Goodwill
Trade and other payables
Employee benefits provision
Section 7 – Other disclosures
7.1
7.2
7.3
7.4
7.5
7.6
7.7
Parent entity disclosures
Remuneration of auditors
Key management personnel disclosures
Related party disclosures
Controlled entities
Share-based payments
Events subsequent to reporting date
57
57
57
60
60
61
69
69
69
70
70
71
72
73
74
74
75
75
76
77
78
78
79
80
83
84
84
85
86
86
86
87
87
87
88
89
90
91
91
92
92
92
93
93
94
94
99
Consolidated statement of comprehensive income
for the year ended 31 December 2020
53
Gross written premium
Movement in unearned premium
Outward reinsurance premium expense
Net earned premium
Net claims incurred
Acquisition costs
Other underwriting expenses
Other underwriting revenue
Underwriting result
Investment income on assets backing insurance liabilities
Insurance (loss)/profit
Investment income on equity holders’ funds
Investment expense on equity holders’ funds
Financing costs
(Loss)/profit before income tax
Income tax benefit/(expense)
(Loss)/profit for the year
Total comprehensive (loss)/income for the year
Earnings per share
Basic (loss)/earnings per share (cents per share)
Diluted (loss)/earnings per share (cents per share)
Note
3.1
4.1
4.7
3.3
3.2
3.2
3.5(a)
2020
$’000
561,730
(180,363)
(69,346)
312,021
(289,846)
(196,229)
(61,164)
1,197
(234,021)
59,917
(174,104)
34,391
(4,363)
(10,709)
(154,785)
47,203
(107,582)
(107,582)
2019
$’000
433,248
(64,806)
(70,229)
298,213
(150,886)
(46,859)
(59,489)
1,197
42,176
65,891
108,067
77,449
(4,256)
(11,785)
169,475
(49,391)
120,084
120,084
3.7
3.7
(26.1)
(26.0)
28.6
28.5
The consolidated statement of comprehensive income is to be read in conjunction with the notes to the financial statements.
Genworth Annual ReportFinancial ReportDirectors’ ReportStrategic Report 54
Consolidated statement of financial position
as at 31 December 2020
Assets
Cash and cash equivalents
Accrued investment income
Investments
Trade and other receivables
Prepayments
Deferred reinsurance expense
Non-reinsurance recoveries
Deferred acquisition costs
Plant and equipment
Lease assets
Deferred tax assets
Intangibles
Goodwill
Total assets
Liabilities
Trade and other payables
Lease liabilities
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
6.1
2.2(d)
6.2
4.2
4.5
4.3
6.3
3.5(b)
6.4
6.5
6.6
6.3
4.4
4.6
6.7
5.2
5.3(a)
5.3(b)
5.5
2020
$’000
104,557
20,492
2019
$’000
87,254
19,529
3,320,968
3,043,814
56,225
1,760
20,218
33,286
41,604
4,301
5,955
55,624
6,490
9,123
47,106
2,077
31,771
22,770
181,234
5,120
11,166
9,104
7,340
9,123
3,680,603
3,477,408
50,898
12,324
32,450
41,827
16,430
43,854
540,353
360,905
1,461,232
1,280,451
7,645
187,781
2,292,683
1,387,920
7,096
199,369
1,949,932
1,527,476
1,090,180
1,090,180
1,174
(476,559)
773,125
2,209
(476,559)
911,646
1,387,920
1,527,476
The consolidated statement of financial position is to be read in conjunction with the notes to the financial statements.
55
Consolidated statement of changes in equity
for the year ended 31 December 2020
Share capital
$’000
Other
reserves
$’000
Retained
earnings
$’000
Share-based
payment
reserve
$’000
Total
$’000
Balance at 1 January 2019
1,154,084
(476,559)
1,058,116
1,659
1,737,300
Adjustment on initial application
of AASB 16 Leases
Adjusted balance as at
1 January 2019
Profit after taxation
Dividends declared and paid
Share-based payment expense
recognised
Share-based payment settled
Buy-back of shares, net of
transaction costs
–
–
79
–
79
1,154,084
(476,559)
1,058,195
1,659
1,737,379
–
–
–
–
(63,904)
–
–
–
–
–
120,084
(266,633)
–
–
–
–
–
2,095
(1,545)
120,084
(266,633)
2,095
(1,545)
–
(63,904)
Balance at 31 December 2019
1,090,180
(476,559)
911,646
2,209
1,527,476
Balance at 1 January 2020
1,090,180
(476,559)
Loss after taxation
Dividend declared and paid
Share-based payment expense
recognised
Share-based payment settled
–
–
–
–
–
–
–
–
911,646
(107,582)
(30,939)
–
–
Balance at 31 December 2020
1,090,180
(476,559)
773,125
2,209
1,527,476
–
–
(107,582)
(30,939)
42
(1,077)
1,174
42
(1,077)
1,387,920
The consolidated statement of changes in equity is to be read in conjunction with the notes to the financial statements.
Genworth Annual ReportFinancial ReportDirectors’ ReportStrategic Report 56
Consolidated statement of cash flows
for the year ended 31 December 2020
Note
2020
$’000
2019
$’000
Cash flows from operating activities
Premiums received
Interest and other income
Claims paid
Outwards reinsurance premium expense paid
Interest paid
Cash payments in the course of operations
Income tax paid
Net cash provided by operating activities
3.4
Cash flows from investing activities
Payments for plant, equipment and intangibles
Payments for the purchase of investments
Proceeds from sale of investments
Proceeds from sub-lease of property
Net cash (used in)/provided by investing activities
Cash flows from financing activities
Net repayments of long-term borrowings
Payment of lease liabilities
Dividends paid
Payments for the on-market buy-back of shares
Net cash used in financing activities
Net increase/(decrease) in cash held
Effects of exchange rate changes on balances of cash held in foreign currencies
Cash and cash equivalents at the beginning of the financial year
Cash and cash equivalents at the end of the financial year
6.1
638,660
45,985
497,068
80,375
(123,930)
(133,960)
(69,197)
(12,190)
(159,320)
(23,421)
296,587
(57,037)
(9,931)
(139,312)
(45,385)
191,818
(529)
(2,447)
(3,425,068)
(2,330,133)
3,192,327
2,421,871
1,629
(231,641)
946
90,237
(12,434)
(4,304)
(30,939)
–
–
(3,527)
(266,633)
(63,904)
(47,677)
(334,064)
17,269
34
87,254
104,557
(52,009)
(2,187)
141,450
87,254
The consolidated statement of cash flows is to be read in conjunction with the notes to the financial statements.
57
Notes to the financial statements
SECTION 1 – BASIS OF PREPARATION
1.1 Reporting entity
This general purpose consolidated financial report is for the year ended 31 December 2020 and comprises the consolidated
financial statements for Genworth Mortgage Insurance Australia Limited (the Company) and its controlled entities (together
referred to as the Group). The Company is a for-profit entity domiciled in Australia and its shares are publicly traded on the
Australian Securities Exchange (ASX). The Group operates in one business and operating segment consisting of a loan mortgage
insurance business in Australia; therefore no segment information is presented.
The annual financial report was authorised for issue by the Board of Directors on 26 February 2021.
1.2 Significant accounting policies
(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 (AASB) and the ASX listing rules. International Financial Reporting Standards (IFRS) form
the basis of Australian Accounting Standards adopted by the AASB, being Australian equivalents to IFRS. The financial report also
complies with IFRS and interpretations adopted by the International Accounting Standards Board (IASB).
The current IFRS standard for insurance contracts does not include a comprehensive set of recognition and measurement
criteria. The IASB has issued a new standard (IFRS 17 Insurance Contracts – adopted as AASB 17 Insurance Contracts in an
Australian context), that does include such criteria, with an effective date of 1 January 2023. At the time of implementation of
AASB 17, AASB 9 Financial Instruments will be implemented as well given the Group meets the requirements for deferral under
AASB 2016-6 Amendments to Australian Accounting Standards – Applying AASB 9 Financial Instruments with AASB 4 Insurance
Contracts. Until this standard takes effect, the financial reports of insurers in different countries that comply with IFRS may not be
comparable in terms of the recognition and measurement of insurance contracts.
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 of the financial report
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 notes to the financial statements.
The consolidated financial report is prepared on the historical cost basis except for investments and derivatives being stated at
fair value and outstanding claims and the related reinsurance recoveries on unpaid claims being reported at present value.
(c) Accounting policies adopted
The accounting policies adopted in the preparation of this financial report have been applied consistently by the Group and are
the same as those applied for the previous reporting year, unless otherwise stated. The significant accounting policies adopted in
the preparation of this financial report are set out within the relevant notes to the financial statements.
Genworth Annual ReportFinancial ReportDirectors’ ReportStrategic Report 58
(i) New and amended standards adopted by the Group
There are additional new accounting standards and interpretations, effective on or after 1 January 2020 (refer to the table below)
which were adopted by the Group. The adoption of these standards did not have a material effect on the Group’s financial statements.
New standards, amendments and interpretations
AASB 2018-6
Amendments to Australian Accounting Standards – Definition of a Business
AASB 2018-7
Amendments to Australian Accounting Standards – Definition of Material
Operative date
1 January 2020
1 January 2020
AASB 2019-1
Amendments to Australian Accounting Standards – References to the Conceptual Framework 1 January 2020
AASB 2019-3
Amendments to Australian Accounting Standards – Interest Rate Benchmark Reform
AASB 2019-5
Amendments to Australian Accounting Standards – Disclosure of the Effect of New IFRS
Standards Not yet Issued in Australia
1 January 2020
1 January 2020
AASB 2020-4
Amendments to Australian Accounting Standards – COVID-19 - Related Rent Concessions
1 June 2020
(ii) New accounting standards and amendments issued but not yet effective
There are various new accounting standards, amendments and interpretations noted below which are effective for annual periods
beginning on or after 1 January 2021 and have not been applied in preparing these consolidated financial statements. An initial
assessment of the financial impact of these standards and amendments has been undertaken and they are not expected to have a
material impact on the Group’s financial statements, except where noted below.
New standards, amendments and interpretations
Operative date
AASB 17/
Insurance Contracts/Amendments to Australian Accounting Standards – Insurance Contracts
1 January 2023
AASB 2020-5
AASB 9
Financial Instruments
1 January 2023
(subject to
exemption)
1 January 2022
1 January 2022
1 January 2022
1 January 2022
AASB 2017-5
AASB 2020-1
AASB 2020-3
AASB 2020-6
AASB 2020-7
Amendments to Australian Accounting Standards – Effective Date of Amendments to
AASB 10 and AASB 128 and Editorial Corrections
Amendments to Australian Accounting standards – Classification of Liabilities as Current
or Non-current
Amendments to Australian Accounting Standards – Annual Improvements 2018-2020 and
Other Amendments
Amendments to Australian Accounting Standards – Classification of Liabilities as Current
or Non-current – Deferral of Effective Date
Amendments to Australian Accounting Standards – COVID-19 - Related Rent Concessions:
Tier 2 Disclosures
1 July 2021
AASB 2019-8
Amendments to Australian Accounting Standards – Interest Rate Benchmark Reform – Phase 2
1 January 2021
(iii) AASB 17 Insurance Contracts
AASB 17 (including amendments within AASB 2020-5), the new accounting standard for insurance contracts, was adopted by the
Australian Accounting Standards Board in July 2020. Various implementation and interpretation matters are still being discussed
by various stakeholders at the AASB 17 Transition Resource Group. At this stage, it is not expected that those discussions will lead
to further changes to AASB 17.
The first applicable annual reporting period for the Group will be the year ending 31 December 2023, with the comparative
period for the year ending 31 December 2022 and the Consolidated Statement of Financial Position as at 1 January 2022. The
standard introduces a new general measurement model for accounting for insurance contracts, with the application of a simplified
approach permitted in certain circumstances. The Group has completed a detailed impact assessment of the new standard and
has determined that the vast majority of insurance contracts underwritten by the Group will not meet the requirements of the
simplified approach due to their long-term coverage period.
Notes to the financial statements(continued) 59
It is expected that the timing of recognition of profit will change under the new standard. As AASB 17 is to be applied
retrospectively, a different valuation method for the insurance liability and a different model for the recognition of profit could
lead to significant changes in the net asset position between 31 December 2021 (under the current insurance accounting
standard) and 1 January 2022 (to be determined under AASB 17 in the Group’s financial statements as at 31 December 2023).
AASB 17 will require substantial changes to the presentation and the disclosures of the financial statements.
To achieve those changes, significant modifications to systems and processes are required. The Group will also consider revising
the key performance indicators relevant for its employee incentive schemes.
In November 2020, the Australian Prudential Regulation Authority (APRA) has issued a Quantitative Impact Study to be completed
by a sample of insurance companies in Australia, as part of its ongoing work to update its prudential and reporting standards, in
light of the adoption of AASB 17. APRA has indicated that those updates were not intended to alter the minimum capital levels
required to be held by insurance company.
(iv) AASB 9 Financial Instruments
AASB 9 applies to annual reporting periods beginning on or after 1 January 2018. The Group is allowed to apply the temporary
exemption from AASB 9 as it has not previously adopted any version of AASB 9 and its activities are predominantly connected
with insurance, as prescribed by AASB 4 Insurance Contracts (i.e. at 31 December 2015, the carrying amount of the Group’s
insurance liabilities, including insurance debt instruments, was significant compared to the total carrying amount of all its liabilities
and the percentage of the total carrying amount of its liabilities connected with insurance relative to the total carrying amount of
all its liabilities was greater than 90%).
The AASB (in line with the IASB) extended the temporary exemption from the adoption of AASB 9 to reporting periods beginning
1 January 2023, for companies meeting this criteria. The Group, having met the relevant criteria, has deferred the adoption of
AASB 9 and is expecting to adopt AASB 9 at the same time as AASB 17.
The Group’s investments are currently designated at fair value through profit and 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 the Group’s business model, the adoption of AASB 9 could result in a portion of the investment
portfolio being revalued through other comprehensive income. The Group is evaluating the elections to be made to its portfolios
of investments, in conjunction with the implementation of AASB 17.
(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.
(e) Critical accounting 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.
(i) Coronavirus (COVID-19) pandemic
The ongoing COVID-19 pandemic has increased the estimation uncertainty in the preparation of these financial statements. The
Group has developed various accounting estimates in these financial statements based on forecasts of economic conditions
which reflect expectations and assumptions as at 31 December 2020 about future events that the directors believe are reasonable
in the circumstances. There is a considerable degree of judgement involved in preparing these forecasts. The underlying
assumptions are also subject to uncertainties which are often outside the control of the Group. Accordingly, actual economic
conditions may be different from those forecast since anticipated events may not occur as expected, and the effect of those
differences may significantly impact accounting estimates included in these financial statements.
The significant accounting estimates particularly impacted by these associated uncertainties are predominantly related to the
valuation of the outstanding claims liability including the estimates of future claims and related expenses for the preparation of
the liability adequacy test, recoverable amount assessments of non-financial assets and fair value measurement of investments.
The impact of the COVID-19 pandemic on accounting estimates is discussed further below and in the relevant notes to the
financial statements.
Genworth Annual ReportFinancial ReportDirectors’ ReportStrategic ReportNotes to the financial statements(continued) 60
Outstanding claims liability
Responses to COVID-19 such as government stimulus and repayment deferrals are delaying the development and progression of
delinquencies and claims and increasing uncertainty around potential claims emergence. The Group has allowed for those factors
in its reserving process, which led to the outstanding claims liability increasing from $360.9 million as at 31 December 2019 to
$540.4 million as at 31 December 2020. This movement includes the estimated impact of the delayed claims progression of
claims and a refinement of the reserving methodology for future re-reporting of cured delinquencies, as well as an increase in the
risk margin to reflect the elevated uncertainty. Refer to notes 4.4 and 4.9 for more detail.
In addition to the COVID-19 specific element reflected in the outstanding claims provision, any COVID-19 underwriting exposure
related to unexpired risk has been incorporated within the estimation of premium liabilities and, as a result, in the calculation of
the Group’s regulatory capital position. Refer to note 4.7 and note 4.9 for further details on the liability adequacy test (LAT) and
capital adequacy position respectively.
Goodwill and intangible assets impairment
The assumptions underpinning the value-in-use calculations used to evaluate the recoverability of goodwill and intangible assets
were adjusted to reflect reasonable estimates of the impact of COVID-19 and the increased risks associated with the estimated
cash flows. Whilst there is no impairment in relation to the cash-generating unit at 31 December 2020, there is a heightened level
of uncertainty around key assumptions in the current environment. This has the potential to materially impact the value-in-use
assessment moving forward and potentially the carrying value of the respective intangible assets and goodwill. Refer to note 6.4
and note 6.5 for further details on intangible assets and goodwill respectively.
Fair value measurement of investments
The Group’s investments are designated at fair value through profit and loss, and for the vast majority of the investments, the
fair value is determined based on observable market data. This measurement basis has not changed as a result of COVID-19.
The investments which are subject to valuation using unobservable inputs are disclosed in the Group’s fair value hierarchy.
Refer to note 2.2(d) for further details on investments.
(f) Principles of consolidation
Subsidiaries are entities controlled by the Group. The Group controls an entity when it is exposed to, 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. The
financial statements of subsidiaries are included in the consolidated financial statements from the date on which control
commences until the date on which control ceases.
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.
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, an Audit Committee and a Capital and 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 Risk Committee assists the Board in providing an objective non-executive review and oversight of the
implementation and ongoing operation of the Company’s risk management framework. The Risk 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 and 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.
Notes to the financial statements(continued) 61
The Group’s risk management policies are established to identify and assess 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.
In Australia, the majority of mortgages are originated through the country’s four largest banks. The lenders representing 10% or
more of the Group’s gross written premium (GWP) are included in the table below:
Lender customer
Largest customer
Second largest customer
2020 GWP
2019 GWP
56.9%
11.0%
55.0%
12.0%
The second largest customer’s contract with the Group was not renewed and expired on 20 November 2020.
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 the Group’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 debt securities, in receivables and payables denominated in a currency other than Australian
dollars and the net investment in foreign branch operations. The currencies giving rise to the risk are United States dollars, Euros
and New Zealand dollars.
The Group used forward foreign exchange contracts to mitigate currency risk arising from interest bearing securities denominated
in United States dollars and Euros. The risk management processes required both Board and regulatory approvals. Transactions
are subject to close senior management scrutiny in addition to the regular risk management and monitoring processes.
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 are closely monitored.
The potential impact on the Group’s profit and loss (before tax) resulting from 10% depreciation or appreciation of the Australian
dollar (AUD) compared with selected currencies, net of related derivatives at the reporting date, assuming all other variables
remain constant, is shown below:
New Zealand dollar
United States dollar
Euro
2020
2019
+10%
$’000
(79)
(347)
201
-10%
$’000
79
347
(201)
+10%
$’000
(268)
(75)
67
-10%
$’000
268
75
(67)
Genworth Annual ReportFinancial ReportDirectors’ ReportStrategic ReportNotes to the financial statements(continued) 62
(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 interest rate 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 debt securities and cash and to actively manage the duration.
The investment portfolios are actively managed to achieve a balance between cash flow interest rate risk and fair value interest
rate risk bearing in mind the need to meet the liquidity requirements of the insurance business.
The Group has exposure to interest rate risk on its term subordinated notes. The interest rate on these notes is reset quarterly.
The potential impact of movements in interest rates on the Group’s profit and loss (before tax) resulting from 50 basis points
(2019: 100 basis points) increase or decrease in interest rates on interest bearing assets, assuming all other variables remain
constant, are shown below:
Interest bearing assets
2020
2019
+50bps
$’000
(41,962)
-50bps
$’000
41,962
+100bps
$’000
-100bps
$’000
(63,033)
65,903
(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
investments in equities and equity unit trusts.
The potential impact of movements in price risk on the Group’s profit and loss (before tax) resulting from 10% increase or
decrease in value of equity securities at the reporting date are shown below:
Investments – unit trusts equity securities
Investments – unlisted equities
(b) Credit risk
2020
2019
+10%
$’000
11,631
967
-10%
$’000
(11,631)
(967)
+10%
$’000
7,885
400
-10%
$’000
(7,885)
(400)
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 80% (2019: 81%) 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.
Notes to the financial statements(continued) 63
The ratings in the following table are the lower equivalent ratings of either Standard and Poor’s or Moody’s.
Cash at bank and short-term deposits
AAA
AA
A
BBB
Investments (excluding short-term deposits)
AAA
AA
A
BBB
BB
Accrued interest receivable
AAA
AA
A
BBB
BB
Not rated
Trade and other receivables
Premium receivables
AA
A
Not rated
Other receivables
AAA
A
Not rated
2020
$’000
2019
$’000
13,176
189,709
23,975
10,000
236,860
2,098
149,117
72,737
56,435
280,387
1,037,638
1,253,623
906,963
583,671
519,831
14,590
579,999
493,868
424,113
16,231
3,062,693
2,767,834
5,407
8,185
2,529
3,356
200
815
7,244
5,737
3,098
2,918
263
269
20,492
19,529
18,896
37,149
–
254
28,240
–
8,835
56,225
600
–
4,140
570
4,647
47,106
Genworth Annual ReportFinancial ReportDirectors’ ReportStrategic ReportNotes to the financial statements(continued) 64
(c) Liquidity risk
Liquidity risk is the risk of having 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 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.
2020
Financial liabilities
Trade and other payables
Reinsurance payable
Lease liabilities
2019
Financial liabilities
Trade and other payables
Reinsurance payable
Lease liabilities
Less than 1 year
$’000
1 – 5 years
$’000
49,058
21,788
4,978
75,824
1,840
10,662
7,346
19,848
Less than 1 year
$’000
1 – 5 years
$’000
38,645
22,027
4,790
65,462
3,182
21,827
11,640
36,649
Total
$’000
50,898
32,450
12,324
95,672
Total
$’000
41,827
43,854
16,430
102,111
Interest bearing liabilities which is classified as financial liabilities are separately disclosed in note 5.2.
(d) Fair value measurements
Accounting policies
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.
•
Interest bearing 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.
• Unlisted unit trusts securities are valued using quoted current unit prices as advised by the responsible entity, trustee or
equivalent of the investment vehicle.
Financial assets backing general insurance liabilities
The assets backing general insurance liabilities are 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 their 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 Group’s investment strategy, the Group 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 gains and losses recognised in the statement of comprehensive income.
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.
Notes to the financial statements(continued) 65
Derivative financial instruments
The Group uses forward foreign exchange contracts to hedge currency exposures arising from interest bearing securities
denominated in currencies other than Australian dollars, with both the foreign exchange and derivatives impact reported through
profit and loss. 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 and loss as
incurred. Subsequent to initial recognition, derivatives are measured at fair value through profit and loss. The investment related
derivatives are presented together with the underlying investments or as payables when the fair value is negative. Forward foreign
exchange contracts are determined using observable inputs (level 2 in the fair value hierarchy).
Investments
Fixed interest rate
Short-term deposits
Australian government and state-government bonds
Corporate bonds and others
Floating interest rate
Short-term deposits
Corporate bonds and others
Derivatives
Investment related derivatives
Equity securities
Unlisted unit trusts
Unlisted equities
Total investments
Comprising:
Current
Non-current
Equities
For further details on the impact from COVID-19 refer to note 1.2(e).
2020
$’000
2019
$’000
107,216
133,274
1,433,219
1,327,689
864,136
672,344
2,404,571
2,133,307
25,087
747,867
772,954
59,860
757,768
817,628
17,471
10,033
116,306
9,666
125,972
78,846
4,000
82,846
3,320,968
3,043,814
399,813
644,193
2,795,183
2,316,775
125,972
82,846
3,320,968
3,043,814
Genworth Annual ReportFinancial ReportDirectors’ ReportStrategic ReportNotes to the financial statements(continued) 66
The following additional disclosure is required for eligible insurers which met the criteria of the temporary exemption of
deferring the adoption of AASB 9. It presents the fair value and the change in the fair value of the Group’s financial assets as at
31 December 2020, showing separately the fair value of financial assets with contractual terms that give rise to cash flows that are
solely payments of principal and interest on the principal amount outstanding (SPPI) and the fair value of financial assets that do
not give rise to cash flows that are solely payments of principal and interest on the principal amount outstanding (Non-SPPI):
2020
Financial assets
Short-term deposits
Bonds
Derivatives
Unlisted equities
Unlisted unit trusts
2019
Financial assets
Short-term deposits
Bonds
Derivatives
Unlisted equities
Unlisted unit trusts
SPPI
Non-SPPI
Fair value
$’000
132,303
3,006,202
–
–
–
Change in
fair value
$’000
(71)
(7,244)
–
–
–
3,138,505
(7,315)
Fair value
$’000
–
39,020
17,471
9,666
116,306
182,463
SPPI
Non-SPPI
Fair value
$’000
193,134
2,742,455
–
–
–
Change in
fair value
$’000
(76)
57,526
–
–
–
Fair value
$’000
–
15,346
10,033
4,000
78,846
2,935,589
57,450
108,225
Change in
fair value
$’000
–
275
–
5,666
(2,540)
3,401
Change in
fair value
$’000
–
156
–
–
(1,164)
(1,008)
Trade and other receivables are financial assets which are in the scope of AASB 9 and are SPPI assets. These assets amounted to
$56,225,000 at 31 December 2020 (2019: $47,106,000). These assets are measured at their present value less any impairment
loss for any doubtful accounts (no doubtful account at 31 December 2020 and 31 December 2019) which approximates fair value.
The credit risk ratings of SPPI financial assets at 31 December 2020 is set out in the table below:
2020
Bonds and short-term investments
AAA
AA
A
BBB
BB
Credit Risk
Fair value
$’000
Fair value
%
Low
Low
Low
Low
Other
1,050,570
974,643
607,647
491,055
14,590
33.5
31.1
19.4
15.6
0.4
3,138,505
100.0
Notes to the financial statements(continued) 67
Credit Risk
Fair value
$’000
Fair value
%
Low
Low
Low
Low
Other
1,255,191
670,491
527,943
466,408
15,556
42.8
22.8
18.0
15.9
0.5
2,935,589
100.0
2019
Bonds and short-term investments
AAA
AA
A
BBB
BB
Trade and other receivables at 31 December 2020 have the following credit rating: AAA with low credit risk $28,240,000
(2019: $4,140,000), AA with low credit risk $18,896,000 (2019: $37,149,000), A with low credit risk $nil (2019: $1,170,000) and not
rated with other credit risk $9,089,000 (2019: $4,647,000).
Fair value hierarchy
The Group investments carried at fair value have been classified under the three levels of the AASB 13 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. This category includes the unlisted equities. The fair value has been
supported based on a discounted cash flow analysis performed utilising the latest available cash flows projection from the entity.
Level 1
$’000
Level 2
$’000
Level 3
$’000
Total
$’000
2020
Financial instruments
Australian government and state-government bonds
Corporate bonds and others
Short-term deposits
Derivative assets
Unlisted unit trusts
Unlisted equities
2019
Financial instruments
–
–
132,303
–
–
–
1,433,219
1,612,003
–
17,471
116,306
–
132,303
3,178,999
Level 1
$’000
Level 2
$’000
Australian government and state-government bonds
Corporate bonds and others
–
–
1,327,689
1,430,112
Short-term deposits
Derivative assets
Unlisted unit trusts
Unlisted equities
193,134
–
–
–
–
10,033
78,846
–
193,134
2,846,680
There have not been any transfers between levels during the current and prior years.
–
–
–
–
–
9,666
9,666
Level 3
$’000
–
–
–
–
–
4,000
4,000
1,433,219
1,612,003
132,303
17,471
116,306
9,666
3,320,968
Total
$’000
1,327,689
1,430,112
193,134
10,033
78,846
4,000
3,043,814
Genworth Annual ReportFinancial ReportDirectors’ ReportStrategic ReportNotes to the financial statements(continued) 68
The reconciliation from the beginning balances to the ending balances for fair value measurements in Level 3 of the fair value
hierarchy is set out in the table below:
Financial instruments
Unlisted equities
Financial instruments
Unlisted equities
Balance at
1 January
2020
$’000
4,000
4,000
Balance at
1 January
2019
$’000
4,000
4,000
Purchases
$’000
Disposals
$’000
Movement in
fair value
$’000
Balance at
31 December
2020
$’000
–
–
–
–
5,666
5,666
9,666
9,666
Purchases
$’000
Disposals
$’000
Movement in
fair value
$’000
Balance at
31 December
2019
$’000
–
–
–
–
–
–
4,000
4,000
Interest bearing liabilities are initially measured at fair value (net of transaction costs) and are subsequently measured at amortised
cost. The Group considers the carrying value of the interest bearing liabilities to be approximate to that of the fair value.
Derivative financial instruments
Reporting date positions
The notional amount and fair value of derivative financial instruments at balance date is set out in the table below:
2020
Fair value
asset
$’000
17,471
17,471
Exposure
$’000
673,100
673,100
Fair value
liability
$’000
14
14
Exposure
$’000
578,679
578,679
2019
Fair value
asset
$’000
10,033
10,033
Fair value
liability
$’000
–
–
Forward foreign
exchange contracts
All derivative contracts are expected to be settled within 12 months.
Notes to the financial statements(continued) 69
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
2020
$’000
560,322
1,408
561,730
2019
$’000
431,974
1,274
433,248
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.
Dividend/distribution revenue
Dividends are recognised on the date the dividends/distributions are declared, which for listed equity securities is deemed to be
the ex-dividend date. Dividend revenue is recognised net of franking credits and gross of withholding tax.
Refer to note 2.2(d) fair value measurements Accounting policies for further details.
Interest revenue
Dividend/distribution revenue
Unrealised (losses)/gains including derivatives
Realised gains including derivatives
Other income (losses)/gains
Total investment income
Represented by:
Investment income on assets backing insurance liabilities
Investment income on equity holders’ funds
2020
$’000
50,102
1,210
(45,937)
90,369
(1,436)
94,308
59,917
34,391
94,308
2019
$’000
78,448
3,583
26,656
33,155
1,498
143,340
65,891
77,449
143,340
Genworth Annual ReportFinancial ReportDirectors’ ReportStrategic ReportNotes to the financial statements(continued) 70
3.3 Other underwriting expenses
Depreciation and amortisation expense
Employee expenses:
– Salaries and wages
– Superannuation contributions
– Employee benefits
Occupancy expenses
Marketing expenses
Administrative expenses
2020
$’000
4,859
2019
$’000
5,172
26,270
26,847
1,656
302
1,789
506
25,782
61,164
1,786
(90)
2,276
520
22,978
59,489
3.4 Net cash provided by operating activities
This note reconciles the operating profit to the cash provided by operating activities per the consolidated statement of cash flows.
(Loss)/profit after income tax
Less items classified as investing/financing activities:
– Gain on sale of investments including derivatives
– Unrealised losses/(gains) on investments including derivatives
Add non-cash items:
– Share-based payments
– Loss on disposal of plant and equipment
– Depreciation and amortisation
–
Interest (income)/expense leases
2020
$’000
2019
$’000
(107,582)
120,084
(90,369)
45,937
(33,155)
(26,656)
(1,035)
–
4,869
(221)
552
33
5,172
674
Net cash (used in)/provided by operating activities before change in assets and liabilities
(148,401)
66,704
Change in assets and liabilities during the financial year:
Decrease in receivables
Increase in outstanding claims liability
(Decrease)/increase in payables and borrowings
Decrease/(increase) in deferred acquisition costs
Increase/(decrease) in provision for employee entitlements
Increase in unearned premiums
Increase in deferred tax asset balances
Net cash provided by operating activities
16,808
179,448
(25,708)
139,630
549
180,781
(46,520)
296,587
43,613
21,842
9,227
(14,389)
(161)
66,245
(1,263)
191,818
Notes to the financial statements(continued) 71
3.5 Income taxes
Accounting policies
Income tax on the profit and 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 the 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 nor 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.
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 (benefit)/expense
Current tax
Deferred tax
Over provision in prior year
Current tax
Deferred tax
(i) Reconciliation of income tax (benefit)/expense to prima facie tax payable
2020
$’000
–
(46,486)
(683)
(34)
2019
$’000
51,076
(1,239)
(423)
(23)
(47,203)
49,391
2020
$’000
2019
$’000
Prima facie income tax (benefit)/expense calculated at 30% of (loss)/profit
(46,435)
50,842
(Increase)/decrease in income tax (benefit)/expense due to:
Over provision in prior year
Other non-taxable items
Non-deductible items
Franking tax credit
Income tax (benefit)/expense
(717)
–
345
(396)
(446)
(233)
96
(868)
(47,203)
49,391
(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.
Genworth Annual ReportFinancial ReportDirectors’ ReportStrategic ReportNotes to the financial statements(continued) 72
(b) Deferred tax assets
Deferred tax asset balance comprises temporary differences attributable to:
Leases
Employee benefits
Share-based payments and accrued expenses
Tax losses carried forward
Deferred acquisition costs
Provision for indirect claims handling costs
Other
Net deferred tax
Balance as at 1 January
Debited to retained earnings
Credited to the statement of comprehensive income
Over provision of prior year tax
Balance as at 31 December
2020
$’000
557
3,519
509
2,151
43,322
5,335
231
55,624
9,104
–
46,486
34
55,624
2019
$’000
624
3,775
488
–
–
4,075
142
9,104
7,875
(34)
1,239
24
9,104
As at 31 December 2020 the Group had carried forward tax losses in New Zealand amounting to $74,145,000 (2019: $75,160,000).
These tax losses will be available to be used against future taxable income generated by the Group’s New Zealand operations.
No deferred tax asset has been recognised in respect of these tax losses due to insufficient certainty of future profits to utilise
those losses.
In 2020, due to a strengthening of outstanding claims liabilities as a response to the COVID-19 pandemic, the Group has incurred
a tax loss in Australia. Management considers it is probable that future taxable profits will be available to utilise those tax losses.
Accordingly, the Group has recognised a deferred tax asset on the totality of those tax losses.
3.6 Dividends
Accounting policy
A provision for dividends is made in respect of ordinary shares when dividends have been declared on or before the reporting
date but have not yet been distributed at that date.
(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 Section 254T of the Corporations Act 2001 and the Company’s constitution;
• 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.
2020 nil (2019: unfranked special dividend)
2020 nil (2019: interim dividend fully franked at 30%)
2020 nil (2019: unfranked special dividend)
2019 final dividend paid on 19 March 2020
(2018: final dividend) fully franked at 30%
–
–
–
7.5
7.5
2020
2019
Cents
per share
$’000
Cents
per share
–
–
–
30,939
24.2
9.0
21.9
9.0
$’000
99,828
37,126
90,341
39,338 1
30,939
64.1
266,633
1. Of the total 2018 final dividend declared of $39.4 million, right and entitlement of $0.1 million to dividends was removed due to the share buy-back
during the period
Notes to the financial statements(continued) 73
(b) Dividends not recognised at reporting date
2020 nil (2019: final dividend fully franked at 30%)
Total
2020
Cents
per share
–
–
$’000
–
–
2019
Cents
per share
7.5
7.5
$’000
30,939
30,939
On 12 February 2021, the directors determined that no final dividend declaration would be made for the year ended
31 December 2020.
(c) Dividend franking account
The balance of the franking account arises from:
• franked dividends received or recognised as a receivable at the reporting date;
•
income tax paid, after adjusting for any franking credits which will arise from the settlement of income tax provided for in the
financial statements;
• franking debits from payment of dividends paid and payable after the reporting date.
Franking account surplus balance – tax paid basis
2020
$’000
25,436
2019
$’000
14,959
After taking into consideration the impact of franking credits and debits relating to the settlement of current tax balances the
franking account balance would have a deficit of $2,804,000 (2019: $10,819,000 surplus).
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 the tax legislation.
3.7 Earnings per share
Accounting policies
Basic (loss)/earnings per share is calculated by dividing the (loss)/profit after tax by the weighted average number of shares on
issue during the reporting period.
Diluted (loss)/earnings per share is calculated by dividing the (loss)/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 (loss)/earnings per share have been calculated using the weighted average and dilutive number of shares
outstanding during the year of 412,514,000 (2019: 420,164,000) and 413,388,000 (2019: 420,780,000) respectively. The
difference between basic and diluted (loss)/earnings per share is caused by the granting of potentially dilutive securities such as
share rights, options and restricted share units (RSUs).
Basic (loss)/earnings per share (cents per share)
Diluted (loss)/earnings per share (cents per share)
(a) Reconciliation of (loss)/earnings used in calculating (loss)/earnings per share
Net (loss)/profit after tax
Net (loss)/profit used in calculating basic and diluted (loss)/earnings per share
2020
(26.1)
(26.0)
2020
$’000
(107,582)
(107,582)
2019
28.6
28.5
2019
$’000
120,084
120,084
Genworth Annual ReportFinancial ReportDirectors’ ReportStrategic ReportNotes to the financial statements(continued) 74
(b) Reconciliation of weighted average number of ordinary shares used in calculating earnings per share
Weighted average number of ordinary shares on issue
Weighted average number of shares used in the calculation of basic (loss)/earnings
per share
Weighted average number of dilutive potential ordinary shares
Bonus element of shares
Weighted average number of shares used in the calculation of diluted (loss)/earnings
per share
SECTION 4 – INSURANCE CONTRACTS
Accounting policies
Classification of insurance contracts
2020
$’000
2019
$’000
412,514
420,164
412,514
420,164
874
616
413,388
420,780
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 claims incurred
(b) Claims development
Gross claims expense
Direct
Inwards reinsurance
Gross claims incurred 1
Reinsurance and other recoveries revenue
2020
$’000
296,835
(6,989)
289,846
2019
$’000
162,043
(11,157)
150,886
Current
year
$’000
2020
Prior
years
$’000
Total
$’000
Current
Year
$’000
2019
Prior
Years
$’000
Total
$’000
133,507
147,755
281,262
169,960
(11,982)
157,978
5,729
9,844
15,573
4,760
(695)
4,065
139,236
157,599
296,835
174,720
(12,677)
162,043
Reinsurance and other recoveries
(398)
(6,591)
(6,989)
(1,723)
(9,434)
(11,157)
Net claims incurred
138,838
151,008
289,846
172,997
(22,111)
150,886
1. Including reinsurance and other recoveries provision movement
Notes to the financial statements(continued) 75
4.2 Deferred reinsurance expense
Accounting policies
Reinsurance expense
Premium ceded to reinsurers is recognised as an expense in accordance with the pattern of reinsurance coverage received.
Accordingly, a portion of outwards reinsurance premium is treated at the balance date as a deferred reinsurance expense.
Balance as at 1 January
Expensing/reversing of reinsurance premium previously deferred
Balance as at 31 December
Comprising:
Current
Non-current
4.3 Deferred acquisition costs
Accounting policies
2020
$’000
31,771
(11,553)
20,218
11,553
8,665
20,218
2019
$’000
43,333
(11,562)
31,771
11,553
20,218
31,771
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 (refer to note 4.7).
Refer to note 4.8 Accounting estimates and judgements for further detailed information.
Balance as at 1 January
Acquisition costs incurred during the year
Amortisation charge
Balance as at 31 December
Comprising:
Current
Non-current
2020
$’000
181,234
56,824
(196,454)
41,604
5,904
35,700
41,604
2019
$’000
166,845
59,468
(45,079)
181,234
37,966
143,268
181,234
After conducting the liability adequacy test as at 31 March 2020, the Group had a liability deficiency of $181.8 million which
resulted in a DAC write-down of $181.8 million (2019: $nil). Refer to note 4.7 for further details.
Genworth Annual ReportFinancial ReportDirectors’ ReportStrategic ReportNotes to the financial statements(continued) 76
4.4 Outstanding claims
Accounting policies
Claims expense and a liability for outstanding claims are recognised in respect of direct and inward reinsurance business. The
liability covers claims reported and outstanding, 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 and 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
Balance as at 1 January
Current period net claims incurred
Movement in non-reinsurance and borrower recoveries
Claims paid
Balance as at 31 December
Comprising:
Current
Non-current
2020
$’000
462,961
77,392
540,353
2020
$’000
360,905
289,846
10,516
(120,914)
540,353
148,578
391,775
540,353
2019
$’000
319,340
41,565
360,905
2019
$’000
339,063
150,886
1,555
(130,599)
360,905
160,101
200,804
360,905
Notes to the financial statements(continued) 77
(b) Claims development
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
Prior
years
$’000
2011
$’000
2012
$’000
2013
$’000
2014
$’000
2015
$’000
2016
$’000
2017
$’000
2018
$’000
2019
$’000
2020
$’000
Total
$’000
992
1,079
1,021
777
1,424
860
1,162
1,019
632
2,231
6,668
7,805
6,825 12,917
6,803
8,620
6,716 11,193 13,399
10,997 11,246 20,870 20,319 16,711
8,680
8,885 18,599
9,989 24,535 29,722 21,130 13,560
8,238 18,443
15,925 43,917 28,494 20,825 14,601 17,099
23,182 34,634 30,254 31,018 31,787
14,669 21,273 18,955 38,764
14,053 13,540 31,205
10,687 26,026
15,274
Net incurred to date
122,436 184,055 167,346 145,750 84,886 43,497 35,206 30,811 14,031
2,231
Net paid to date
Net outstanding
claims provision at
31 December 2020
Non-reinsurance
recoveries on
unpaid claims at
31 December 2020
Gross outstanding
claims provision at
31 December 2020
94,031 142,462 111,257 75,378 31,548
8,882
4,417
1,456
60
–
146,309 28,405 41,593 56,089 70,372 53,338 34,615 30,789 29,355 13,971
2,231 507,067
33,286
540,353
For further details on the impact from COVID-19 refer to note 1.2(e).
4.5 Non-reinsurance recoveries
Accounting policies
Reinsurance and non-reinsurance 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. The following
table presents non-reinsurance recoveries.
Balance as at 1 January
Movement of non-reinsurance recoveries
Balance as at 31 December
There were no reinsurance recoveries at 31 December 2020 (2019: nil).
2020
$’000
22,770
10,516
33,286
2019
$’000
21,215
1,555
22,770
Genworth Annual ReportFinancial ReportDirectors’ ReportStrategic ReportNotes to the financial statements(continued) 78
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 or receivable 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 as at 1 January
Premiums incepted during the year
Premiums earned during the year
Balance as at 31 December
Comprising:
Current
Non-current
4.7 Liability adequacy test
Accounting policies
2020
$’000
2019
$’000
1,280,451
1,214,206
561,730
(380,949)
433,248
(367,003)
1,461,232
1,280,451
315,781
1,145,451
286,114
994,337
1,461,232
1,280,451
The liability adequacy test (LAT) is an assessment of the carrying amount of the unearned premium liability and is conducted at
each reporting date. It comprises 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. If the future claim costs exceed the unearned
premium liability less related deferred reinsurance expense 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 probability of adequacy (POA) adopted for LAT is set at 70% and differs from the 75% probability of adequacy adopted in
determining the outstanding claims liabilities (refer to note 4.9(a)). The reason for this difference is that the former is in effect an
impairment test used only to test the sufficiency of net premium liabilities whereas the latter is a measurement accounting policy
used in determining the carrying value of the outstanding claims liabilities.
The process used to determine the risk margin is discussed in note 4.9(a).
Notes to the financial statements(continued) 79
The table below provides the details of the net premium liabilities (net of reinsurance and adjusted for the appropriate risk
margin) used in the LAT as at 31 December 2020, 31 March 2020 and 31 December 2019:
Unearned premium
Less: Deferred acquisition costs
Less: Deferred reinsurance expense
Net unearned premium
Net central estimate of present value of expected cash flows
associated with future claims
31 December
2020
$’000
31 March
2020
$’000
31 December
2019
$’000
1,461,232
1,302,208
1,280,451
(41,604)
(20,218)
1,399,410
983,564
(183,798)1
(72,030)
1,046,380
1,071,823
(181,234)
(31,771)
1,067,446
899,295
Risk margin of the present value of expected cash flows on future claims
137,124
156,349
121,454
Net premium liabilities
LAT surplus/(deficiency)
Risk margin percentage
Probability of adequacy
1. Prior to DAC write-down
1,120,688
1,228,172
1,020,749
278,722
(181,792)
46,697
17%
70%
17%
70%
17%
70%
Expected future claims are inherently uncertain, particularly in the current environment as the economic effects of COVID-19
continue to emerge. The Group has projected future claims from COVID-19 based on a range of possible economic scenarios and
has adopted a central scenario estimate for the liability valuation incorporating a median view of economic forecasts.
At 31 March 2020, the Group had a LAT deficiency of $181.8 million which resulted in a DAC write down of $181.8 million. This
related to older book years, as newer book years have benefitted from higher pricing and enhanced underwriting standards and
are expected to remain profitable.
At 31 December 2020, under the Group’s central scenario estimate, expected future claims (including an appropriate risk margin)
exceeded the net insurance liabilities, creating a LAT surplus of $278.7 million.
The $181.8 million DAC write-down is included in the “Acquisition costs” line which totals $196.2 million in the consolidated
statement of comprehensive income for the year ended 31 December 2020, and is the key driver of the reduction in “Deferred
acquisition costs” in the consolidated statement of financial position from $181.2 million at 31 December 2019 to $41.6 million at
31 December 2020.
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 gross premium revenue / unearned premium / deferred acquisition costs (note 3.1, note 4.6 and note 4.3)
Premium is earned over periods of up to 12 years. The principle underlying the earning recognition is to derive a premium
earnings curve which recognises the premium in accordance with the incidence of claims risk.
The review of the premium earnings curve 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 earnings curve. Changes to earnings curve assumptions, which in turn impact the
timing of the recognition of unearned premium and DAC, are recognised 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 curve 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 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.
Genworth Annual ReportFinancial ReportDirectors’ ReportStrategic ReportNotes to the financial statements(continued) 80
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.
In establishing the COVID-19 specific element of the net outstanding claims liability, significant management judgement has been
applied to derive a reasonable estimate of the probability-weighted view of potential future cash flows. Key areas of judgement
relate to the exposure period, the estimation of potential economic loss, related key macroeconomic variables (including
unemployment), reinsurance coverage and legal risk. Given the extent of the uncertainty, the range of potential financial
outcomes in relation to these matters is unusually wide. All related uncertainties have been factored into the Group’s probability
weighting when estimating the provision. For further details on the impact from COVID-19 refer to note 1.2(e).
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 delinquency portfolio. The Group establishes
provisions for outstanding claims in two parts:
• Delinquent policies advised to the Group by lenders as being 90 days delinquent at the valuation date;
•
IBNR, being the liability for future claims from policies which have missed at least 1 monthly repayment (or equivalent) and
are not currently reported by lenders as being 3 months or more in delinquency. This includes policies that were reported
delinquent in past periods and may re-report as delinquent in future periods.
For loans where the mortgagee is in possession (MIP) 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 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;
• 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 to determine
the underlying assumptions. The Appointed Actuary examines all past underwriting years, including the mix of business by loan
to value ratio (LVR), 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.
Notes to the financial statements(continued) 81
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 for policies being 90
days delinquent at the valuation date:
• Average frequency factor is 31% (2019: 26%);
• Average severity factor is 27% (2019: 28%).
Incurred But Not Reported
The IBNR provision is estimated by analysing the historical pattern of reported delinquencies, separated into:
• Policies estimated as being between 30 and 90 days delinquent at the valuation date, or otherwise delinquent at that date but
not reported by lenders;
• Policies which were at least 30 days delinquent in prior periods and may re-report as delinquent in subsequent periods;
•
In the context of the increased uncertainty created by the COVID-19 pandemic and the associated government stimulus
and repayment deferrals, the Group has revised its estimate of the re-delinquency reserve in 2020. At 31 December 2019,
the Group was holding claims reserves within its IBNR for a period of six months after a delinquent loan had been cured to
allow for the possibility that the loan could become re-delinquent. At 31 December 2020, the Group holds re-delinquency
claims reserves for all policies that have at any point experienced delinquency up until the associated policy is cancelled or
a case reserve is established. This change in assumption increased the outstanding claims liability by $116.1 million and its
non-reinsurance recoveries by $7.0 million as at 31 December 2020.
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;
•
Increased uncertainty due to future legislative changes.
A risk margin for outstanding claims of 18% (2019: 14%) of net central estimate has been assumed and is intended to achieve a
75% PoA.
No discounting has been applied to non-current claims on the basis that the effect is immaterial (2019: nil).
The weighted average term to settlement, which is estimated to be 28 months (2019: 22 months).
Genworth Annual ReportFinancial ReportDirectors’ ReportStrategic ReportNotes to the financial statements(continued) 82
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 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, as well as the upper and lower bounds of a 95%
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 net outstanding claims liabilities to changes in key variables
Sensitivity change
Base
Ultimate loss ratio
Upside Economics – 5% House
Price Appreciation, 1% reduction in
unemployment rate
Downside Economics – 5% House Price
Depreciation (HPD), 1% increase in
unemployment rate
Downside Economics – 10% HPD,
1% increase in unemployment rate
Downside Economics – 15% HPD
Discount rate
+ 0.5%
+ 1.0%
2020
2019
Net outstanding
claims liability
Net premium
liability
Net outstanding
claims liability
Net premium
liability
$M
429
%
$M
984
%
$M
297
%
$M
899
%
(22)
(5)
(145)
(15)
(9)
(3)
(62)
(7)
22
34
33
–
–
5
8
8
–
–
156
209
146
(27)
(50)
16
21
15
(2)
(5)
9
18
27
–
–
3
6
9
–
–
102
146
154
(19)
(39)
11
16
17
(2)
(4)
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.
(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;
• 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 curve is revised when experience indicates such differences are ongoing.
The Group completed the annual review of its premium earnings pattern in the fourth quarter of 2020. The review resulted in no
changes to the earnings curve pattern adopted in the fourth quarter of 2017.
The impact of shortening (or lengthening) the earnings curve by six months would increase (or decrease) the current unearned
premium by less than $10.0 million, with an equal and opposite impact in non-current unearned premium, as at 31 December 2020
and 31 December 2019.
Notes to the financial statements(continued) 83
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 2020:
• Genworth Mortgage Insurance Australia Limited;
• Genworth Financial Mortgage Insurance Pty Limited (GFMI);
• Genworth Financial Mortgage Indemnity Limited;
• Balmoral Insurance Company Limited.
The calculation of the Prescribed Capital Amount (PCA) provided below is based on the APRA Level 2 Group requirements.
Tier 1 capital
Paid-up ordinary shares
Reserves
Retained earnings
Less: Deductions
Net surplus/(deficit) relating to insurance liabilities
Common equity 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
2020
$’000
2019
$’000
1,090,180
1,090,180
(475,385)
773,125
(73,457)
111,879
(474,350)
911,646
(25,567)
(42,327)
1,426,342
1,459,582
190,000
200,000
1,616,342
1,659,582
332,031
511,717
166,088
43,428
(71,949)
981,315
1.65x
284,442
479,115
125,679
35,726
(55,703)
869,259
1.91x
Genworth Annual ReportFinancial ReportDirectors’ ReportStrategic ReportNotes to the financial statements(continued) 84
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 the following three considerations:
(a) Regulatory capital
The regulated controlled entities incorporated in Australia are subject to APRA’s prudential standards, which set out the basis for
calculating the Prudential Capital Requirements (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 event, 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.
(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.
Following an assessment of the impact of the COVID-19 pandemic, in May 2020, ratings agencies revised the insurer financial
strength (IFS) rating of the Group’s operating subsidiary Genworth Financial Mortgage Insurance Pty Limited. GFMI’s rating
was affirmed by Standard and Poor’s at ‘A’, with the outlook changed from ‘stable’ to ‘negative’. Fitch revised its rating from ‘A+’
(Strong) to ‘A’ (Strong); with the outlook maintained as ‘negative’. Both agencies acknowledged the capital strength and strong
competitive position of GFMI.
(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 insurers financial strength and credit rating.
Notes to the financial statements(continued) 85
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 (A)
$190 million subordinated notes (B)
Less: capitalised transaction costs
2020
$’000
2019
$’000
–
200,000
190,000
(2,219)
187,781
–
(631)
199,369
(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. On 3 July 2020, GFMI exchanged $146,575,000 of the outstanding
$200,000,000 due in July 2025 (existing 2015 notes) for $146,575,000 of a new 10-year, non-call five-year floating rate
subordinated notes due on 3 July 2030 (new 2020 notes). $5,000,000 of the existing 2015 notes were redeemed on
25 August 2020 with the remainder $48,425,000 of existing 2015 notes redeemed by GFMI on 6 October 2020.
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 annum;
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.
(B) On 3 July 2020, GFMI exchanged $146,575,000 of the outstanding $200,000,000 due in July 2025 (existing 2015 notes) for
$146,575,000 of new 10-year, non-call five-year floating rate subordinated notes due on 3 July 2030 (new 2020 notes). GFMI
also issued $43,425,000 additional new 2020 notes. The new 2020 notes qualify as Tier 2 Capital under the APRA’s capital
adequacy framework. As at 31 December 2020 GFMI has $190,000,000 of new 2020 notes on issue.
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 5.0% per annum;
• The notes mature on 3 July 2030 (non-callable for the first five years) with the issuer having the option to redeem at par from
3 July 2025. Redemption at maturity, or any earlier date provided for in the terms and conditions of issue, is subject to prior
approval by APRA.
Genworth Annual ReportFinancial ReportDirectors’ ReportStrategic ReportNotes to the financial statements(continued) 86
5.3 Equity
(a) Share capital
Issued fully paid capital
Balance as at 1 January
Buy-back shares, net of transaction costs
2020
Number
of shares
‘000
2019
Number
of shares
‘000
2020
$’000
2019
$‘000
412,514
1,090,180
–
–
437,465
(24,951)
1,154,084
(63,904)
Balance as at 31 December
412,514
1,090,180
412,514
1,090,180
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.
Ordinary shares entitle their holder to one vote, either in person or by proxy, at a meeting of the Company.
(b) Share-based payment reserve
Balance as at 1 January
Share-based payment expense
Share-based payment settled
Balance as at 31 December
2020
$’000
2,209
42
(1,077)
1,174
2019
$’000
1,659
2,095
(1,545)
2,209
Refer to note 7.6 Share-based payments for further detailed information.
5.4 Capital commitments and contingencies
Capital commitments
There were no capital commitments as at 31 December 2020 (31 December 2019: nil).
Contingencies
Contingent liabilities are not recognised on the balance sheet but are disclosed where the possibility of settlement is less than
probable but more than remote. Provisions are not required with respect to these matters as it is not probable that a future
sacrifice of economic benefits will be required, or the amount is not reliably measurable. If settlement becomes probable, a
provision is recognised. The best estimate of the settlement amount is used in measuring a contingent liability for disclosure.
There were no contingent liabilities as at 31 December 2020 (31 December 2019: nil).
5.5 Other reserves
Other reserves
2020
$’000
2019
$’000
(476,559)
(476,559)
The balance represents reserves recognised from the reorganisation of the intragroup debt and equity arrangements when 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 arose; therefore, any difference in these transactions was recognised directly in equity as other reserves.
Notes to the financial statements(continued) 87
SECTION 6 – OPERATING ASSETS AND LIABILITIES
6.1 Cash and cash equivalents
Accounting policies
Cash and cash equivalents include cash on hand, deposits held at call with financial institutions and other short-term and highly
liquid investments with maturity from date of acquisitions of three months or less that are readily convertible to known amounts of
cash, that are subject to an insignificant risk of changes in value and which are used to meet short-term cash commitments. 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
6.2 Trade and other receivables
Accounting policies
2020
$’000
104,557
2019
$’000
87,254
The collectability of receivables is assessed at balance date and an impairment loss is made for any doubtful accounts. The
amounts are discounted where the time value of money effect is material.
Premium receivable
Sub-lease receivable
Trade and other receivables
Income tax receivable
Comprising:
Current
Non-current
2020
$’000
19,150
4,514
4,321
28,240
56,225
52,873
3,352
56,225
2019
$’000
37,749
3,184
2,033
4,140
47,106
25,498
21,608
47,106
Carrying amounts of receivables reasonably approximate fair value at the reporting date. None of the receivables are impaired
or past due as at 31 December 2020 and 31 December 2019.
Genworth Annual ReportFinancial ReportDirectors’ ReportStrategic ReportNotes to the financial statements(continued) 88
6.3 Leases
The Group leases properties for its office space. These leases have varying terms (from three to five years), escalation clauses and
renewal rights. On renewal, the terms of the leases are usually renegotiated. At the time of adopting AASB 16, the Group determined
that it was not reasonably certain to exercise renewal options. The optional term is usually the same length as the initial term.
The Group also leased equipment for its offices. These leases have varying terms, from one year to three years. The equipment
asset leased are of low value.
Accounting policies
The Group recognises a right-of-use asset and a lease liability at the lease commencement date. The right-of-use asset is initially
measured at cost, which comprises the initial amount of the lease liability adjusted for any lease payments made at or before the
commencement date, plus any initial direct costs incurred and an estimate of costs to dismantle and remove the underlying asset
or to restore the underlying asset, less any lease incentives received.
The right-of-use-asset is subsequently depreciated using the straight-line method from the commencement date to the earlier
of the end of the useful life of the right-of-use asset or the end of the lease term. The estimated useful lives of right-of-use assets
are determined on the same basis as those of property, plant and equipment. In addition, the right-of-use asset is periodically
reduced by impairment losses, if any, and adjusted for certain remeasurement of the lease liability.
The lease liability is initially measured at the present value of the lease payments that are not paid at the commencement date,
discounted using the interest rate implicit in the lease or, if that rate cannot be readily determined, the Group’s incremental
borrowing rate. Generally, the Group uses its incremental borrowing rate as the discount rate.
The lease liability is measured at amortised cost using the effective interest method. It is remeasured when there is a change in
future lease payments arising from a change in an index or rate or if the Group changes its assessment of whether it will exercise
extension or termination option. When the lease liability is remeasured in this way, a corresponding adjustment is made to the
carrying amount of the right-of-use asset or is recorded in profit or loss if the carrying amount of the right-of-use asset has been
reduced to zero.
The Group has elected not to recognise right-of-use assets and lease liabilities for leases of low value assets, including office
equipment. The Group recognises the lease payments associated with these leases as an expense on a straight-line basis over the
lease term.
As an intermediate lessor
The Group classifies a sub-lease as finance or an operating lease by reference to the right-of-use asset arising from the head lease,
rather than by reference to the underlying asset (i.e. the item of property being leased).
The Group accounts for its interests in the head lease and the sub-lease separately. At the commencement date of a sub-lease, the
Group assesses whether the sub-lease transfers substantially all the risks and rewards incidental to ownership of the right-of-use
asset arising from the head lease. If this is the case, then the sub-lease is a finance lease; if not, then it is an operating lease.
At inception of a finance sub-lease, the Group derecognises the right-of-use asset that arises from the head lease and recognises
its net investment in the sub-lease as a receivable, measured as the present value of the future payments to be received from the
tenant, using the same discount rate used for the head lease.
The Group subsequently measures the net investment in a sub-lease using the effective interest rate method.
Lease assets (right-of-use assets)
Balance as at 1 January
Additions
Disposals
Decrease from recognition of sub-lease asset
Depreciation charge for the year
Modification of leases
Balance as at 31 December
2020
$’000
11,166
300
(8)
(2,739)
(2,671)
(93)
5,955
2019
$’000
14,346
–
–
–
(3,245)
65
11,166
Notes to the financial statements(continued) Lease liabilities
Balance as at 1 January
Payments made
Additions
Disposals
Interest expense
Modification of leases
Balance as at 31 December
Comprising:
Current
Non-current
Maturity analysis – contractual undiscounted cash flows
Future payments to be made arising from lease contracts:
Within one year
One year or later and no later than five years
Total undiscounted lease liabilities as at 31 December
Amounts recognised in profit and loss
Depreciation charge for the period
Interest expense on lease liabilities
Income from subleasing right-of-use assets
89
2020
$’000
16,430
(4,935)
300
(17)
639
(93)
2019
$’000
19,108
(3,551)
–
–
808
65
12,324
16,430
4,978
7,346
12,324
5,097
7,942
13,039
(2,671)
(639)
221
4,790
11,640
16,430
4,909
12,879
17,788
(3,245)
(808)
158
The interest expense on lease liabilities and the income from subleasing the right-of-use assets are presented as financing costs in
the statement of comprehensive income.
6.4 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.
Genworth Annual ReportFinancial ReportDirectors’ ReportStrategic ReportNotes to the financial statements(continued) 90
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 its carrying value. An impairment charge is recognised in the statement of
comprehensive income when the carrying value exceeds the calculated recoverable amount. 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 (2019: nil).
For further details on the impact from COVID-19 refer to note 1.2(e).
Reconciliations
Reconciliations of the carrying amounts for intangibles are set out below:
Cost
Balance as at 1 January
Additions
Disposals
Balance as at 31 December
Accumulated amortisation and impairment losses
Balance as at 1 January
Amortisation
Disposals
Balance as at 31 December
Total net intangibles
6.5 Goodwill
Accounting policies
2020
$’000
32,454
407
–
32,861
(25,114)
(1,257)
–
(26,371)
6,490
2019
$’000
30,618
2,226
(390)
32,454
(24,423)
(1,048)
357
(25,114)
7,340
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 has an indefinite useful life and is therefore not subject to amortisation, but is tested for impairment annually, or more
often if there is an indication of impairment. Goodwill is stated at deemed cost less any accumulated impairment losses.
For the purpose of impairment testing, goodwill is allocated to cash-generating units (CGU). At 31 December 2020, the Group
comprises of a single CGU (Mortgage Insurance Australia), which reflects the level at which goodwill is monitored for impairment
by management.
The impairment test involves the use of accounting estimates and assumptions. The recoverable amount of the CGU 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.
For further details on the impact from COVID-19 refer to note 1.2(e).
Goodwill – at deemed cost
2020
$’000
9,123
2019
$’000
9,123
Notes to the financial statements(continued) 91
The following describes the key assumptions on which management based its cash flow projections when conducting the
impairment testing:
• Cash flow forecast is based on the latest five-year business plan approved by management. This business plan is based on
a combination of historical performance and management’s expectations of future performance based on prevailing and
anticipated market factors;
• Terminal value is calculated using a perpetuity growth formula applied to the cash flows projected for the last year of the
forecast period. The terminal growth rate used by management for its impairment assessment as at 31 December 2020 is 1.6%
(2019: 1.7%);
• Discount rate reflects a beta and equity risk premium applicable to the Group. The pre-tax discount rate used at 31 December
2020 is 12.9% (2019: 13.6%).
Management believes that any reasonably possible change in the key assumptions on which the value in use of the Group’s CGU
is based would not cause the Group’s goodwill to be impaired. This is demonstrated in the sensitivity analysis below:
Sensitivity analysis
Under each of the stressed assumption scenarios used below (all other assumptions remaining constant), the Group’s goodwill
is not impaired:
• Reduction of the net cash flow projection by 15%;
• Terminal growth rate of 0%;
•
Increase of the discount rate by 200 basis points.
6.6 Trade and other payables
Accounting policies
Liabilities are recognised for amounts to be paid in the future for goods or services received. Trade accounts payable are normally
settled within 30-60 days. The carrying amount of accounts payable approximates fair value.
Accrued expenses
Trade creditors and other payables
Related party payables
Derivative financial instruments
Comprising:
Current
Non-current
6.7 Employee benefits provision
Accounting policies
2020
$’000
15,362
35,520
2
14
2019
$’000
15,919
25,810
98
–
50,898
41,827
49,058
1,840
50,898
38,645
3,182
41,827
The carrying amount of provisions for employee entitlements approximates fair value.
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 Group’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 corporate bond yields 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.
Genworth Annual ReportFinancial ReportDirectors’ ReportStrategic ReportNotes to the financial statements(continued) 92
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
Comprising:
Current
Non-current
As at the balance date there were 181 employees (2019: 195).
SECTION 7 – OTHER DISCLOSURES
7.1 Parent entity disclosures
Results 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 payments
Other reserves
Total equity
7.2 Remuneration of auditors
Audit and review of financial statements
Regulatory audit services
Audit related services
2020
$’000
2,943
4,702
7,645
5,842
1,803
7,645
2020
$’000
30,060
30,060
2019
$’000
2,583
4,513
7,096
5,313
1,783
7,096
2019
$’000
303,237
303,237
5,528
6,355
1,822,706
1,821,382
3,731
3,731
949
949
1,818,975
1,820,433
1,090,180
1,090,180
293,127
993
434,675
294,006
1,572
434,675
1,818,975
1,820,433
2020
$
905,743
91,275
53,330
2019
$
840,743
91,275
12,780
1,050,348
944,798
Notes to the financial statements(continued) 93
7.3 Key management personnel disclosures
The following were key management personnel of the Group at any time during the reporting period, and unless otherwise
indicated, were key management personnel for the entire period.
Executive KMP
Michael Bencsik
Andrew Cormack
Steven Degetto
Directors of the Company
Pauline Blight-Johnston (appointed on 2 March 2020)
David Foster
Ian MacDonald
Graham Mirabito (appointed on 10 August 2020)
Rajinder Singh (appointed on 9 September 2020)
Stuart Take
Andrea Waters (appointed on 16 March 2020)
Duncan West
Former Directors
Christine Patton (resigned on 9 August 2020)
Gayle Tollifson (resigned on 15 March 2020)
Jerome Upton (resigned on 8 September 2020)
The key management personnel compensation is:
Short-term employee benefits
Post-employment benefits
Equity compensation benefits
7.4 Related party disclosures
2020
$’000
3,342
265
104
3,711
2019
$’000
4,857
725
1,541
7,123
Transactions with related parties are undertaken on normal commercial terms and conditions.
Corporate overhead
On settlement of the Company‘s initial public offering (IPO), the Group entered into certain agreements with Genworth Financial,
Inc (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% of the ordinary shares of the Company or at the request of either
party giving six months’ notice prior to the automatic annual renewal terms after 31 December each year. 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 $4,561,000 (2019: $4,584,000) for the year ended 31 December 2020. There is a payable balance of $2,000 as at
31 December 2020 (2019: $98,000).
Share buy-back
There has been no on-market share buy-back for the year ended 31 December 2020. In 2019 GFI participated in on-market sale
transactions during the buy-back program to maintain approximately a 52% stake in the Group. GFI had sold 13.0 million shares
for a total consideration of $32.9 million. 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.
Genworth Annual ReportFinancial ReportDirectors’ ReportStrategic ReportNotes to the financial statements(continued) 94
Major shareholder and its ultimate parent entity
The major shareholder of the Group is Genworth Financial International Holdings, LLC and Genworth Holdings, Inc. (as partners
of the Genworth Australian General Partnership) representing 51.95% ownership. The ultimate parent entity of Australian General
Partnership 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. On 5 January 2021, GFI
announced that, given the uncertainty around the completion and timing of the remaining steps required to close the transaction,
GFI and China Oceanwide have not extended the current 31 December 2020 end date under the merger agreement. However,
the merger agreement remains in effect, although either party is able to terminate the merger agreement at any time. Further
details are set out in the Company’s announcement of 5 January 2021.
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
Class of shares
Genworth Financial Mortgage Insurance Pty Limited
Genworth Financial Mortgage Indemnity Limited
Balmoral Insurance Company Limited
Australia
Australia
Bermuda
Ordinary
Ordinary
Ordinary
Equity holding (%)
2020
100
100
100
2019
100
100
100
7.6 Share-based payments
Accounting policies
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
Between 7 May 2015 and 1 March 2017, the Group granted restricted share rights to a number of key employees. The aggregate
amount of these share rights was $1,501,907. One quarter of the share rights granted during the year vest on each of the
first, second, third and fourth anniversaries of the grant date. If at any time an employee ceases continuous service with the
Group, any unvested share rights are immediately cancelled, except in cases of retirement, redundancy, total and permanent
disability or death.
From 1 January 2018, it was decided that no grants would be made under the share rights plan. All outstanding grants (prior to
2018) made under the share rights plan will continue to vest per the original terms and conditions of the plan.
Notes to the financial statements(continued) Share rights plan
grant date
Available to
Vesting period
6 May 2016
Nominated employees
Four equal tranches vested on first anniversary of grant date
1 March 2017
Nominated employees
Four equal tranches vested on first anniversary of grant date
95
Total ($)
$499,030
$492,910
The fair value of the share rights is calculated as at the grant date using a Black Scholes valuation. The factors and assumptions
used for the valuation are summarised in the below table:
Grant date
Share price on grant date ($)
Dividend yield
Risk free rate (%)
Vesting dates
2017
1 March 2017
$2.81
8.60%
Tranche 1: 1.83%
Tranche 2: 2.00%
Tranche 3: 2.15%
Tranche 4: 2.29%
2016
6 May 2016
$3.00
11.36%
Tranche 1: 1.57%
Tranche 2: 1.57%
Tranche 3: 1.57%
Tranche 4: 1.80%
Tranche 1: 1 March 2018
Tranche 1: 1 March 2017
Tranche 2: 1 March 2019
Tranche 2: 1 March 2018
Tranche 3: 1 March 2020
Tranche 3: 1 March 2019
Tranche 4: 1 March 2021
Tranche 4: 1 March 2020
The final tranche of the 2016 Equity Plan grant vested on 1 March 2020.
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.
Deferred short term incentive
Plan
Eligibility
Nature of award
Vesting conditions
Short Term
Incentive (STI)
Deferral Plan
Executives and any
employee with an
annual STI award
>$50,000
• One-third of the dollar value of the annual
short term incentive is converted to a grant
of deferred share rights for executives;
• For any annual STI payment greater than
$50,000 one-third of the amount greater
than $50,000 is converted to a grant
of deferred share rights, provided the
amount is $10,000 or more (applies to any
non-executive incentive > $50,000);
• Notional dividend equivalents accrue during
the vesting period and are delivered through
an adjustment to the number of vested share
rights at the end of the deferral period.
• 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.
Genworth Annual ReportFinancial ReportDirectors’ ReportStrategic ReportNotes to the financial statements(continued) 96
Details of the number of employee share rights granted, exercised and forfeited or cancelled during the year were as follows:
2020
Grant date
6 May 2016
1 March 2017
1 March 2019
1 March 2020
Total
Balance at
1 January 2020
Number
Granted in
the year
Number
Exercised in
the year
Number
Cancelled/
forfeited in
the year
Number
Balance at
31 December
2020
Number
Vested and
exercisable at
end of the year
Number
34,302
85,393
215,087
–
334,782
–
–
35,321
117,533 1
152,854
(34,302)
(42,674)
(244,532)
–
(321,508)
–
(2,542)
(5,876)
–
(8,418)
–
40,177
–
117,533
157,710
–
–
–
–
–
1. The number of share rights granted in the period representing the deferred short term incentive component under the 2019 remuneration program
2019
Grant date
7 May 2015
22 June 2015
6 May 2016
1 March 2017
1 March 2018
4 February 2019
1 March 2019
Balance at
1 January 2019
Number
Granted in
the year
Number
Exercised in
the year
Number
Cancelled/
forfeited in
the year
Number
Balance at
31 December
2019
Number
Vested and
exercisable at
end of the year
Number
21,292
1,935
74,970
161,700
166,920
–
–
–
–
–
–
16,464
53,702
215,087 1
285,253
(21,292)
(1,935)
(36,737)
(51,298)
(183,384)
(53,702)
–
–
–
(3,931)
(25,009)
–
–
–
(348,348)
(28,940)
–
–
34,302
85,393
–
–
215,087
334,782
–
–
–
–
–
–
–
–
Total
426,817
1. The number of share rights granted in the year representing the deferred short term incentive component under the 2018 remuneration program
Long term incentive plan
The Group implemented a long term incentive (LTI) plan for executive KMP which is performance oriented and reflects local
market practice.
The vesting conditions for each of the LTI plan granted include:
• Continuous active employment for four years from grant date;
• Subject to performance conditions.
LTI grant date
6 May 2016
1 March 2017
1 March 2018
1 March 2019
1 March 2020
Nature of award
Total
share rights
$1,729,230
share rights
$1,873,986
share rights
$1,886,491
share rights
$1,688,601
share rights
$1,771,188
Notes to the financial statements(continued) 97
Key terms and conditions for the 2020 LTI:
• The rights are granted for nil consideration;
• Holders are entitled to receive notional dividend equivalents during the vesting period but do not have voting rights;
• Each allocation is split into two portions which are subject to different performance hurdles with a twelve-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:
– 25% is subject to Underlying return on equity (ROE) performance condition. The Group’s three-year average Underlying
ROE measured against regulatory capital (based on the upper end of the Board’s target range above the prescribed capital
amount) is tested against target Underlying ROEs over a three-year period;
– 75% is subject to relative total shareholder return (TSR) performance condition. The Group’s TSR is tested against
comparator group, the ASX 200 financial services excluding Real Estate Investment Trust (REITs) over a three-year period.
• The number of share rights offered is determined by dividing the grant value of the 2020 long term incentive plan by $3.7341,
being the 10-day volume weighted average price (VWAP) of the Company share price as at 31 December 2019 results,
rounded down to the nearest whole share right. Each share right is a right granted to acquire a fully paid ordinary share
of the Company;
• The fair value of the share rights is the share price as at the grant date.
If an employee ceases employment with the Group before the performance conditions are tested, their unvested rights will
generally lapse.
The fair value of the share rights for LTI linked to relative TSR performance huddles is calculated as at the grant date using Monte
Carlo simulation. The factors and assumptions used for the valuation are summarised in the below table.
2020
2019
2018
2017
Grant date
1 March 2020
1 March 2019
1 March 2018
1 March 2017
Share price on grant date ($)
Dividend yield (%)
Volatility (%)
Correlation
$3.22
0% 1
31.94%
$2.53
0% 1
31.02%
$2.37
0% 1
34.1%
$2.81
8.60%
35.00%
A correlation matrix
for the ASX 200
financial services
(excluding REITs) has
been used
A correlation matrix
for the ASX 200
financial services
(excluding REITs) has
been used
A correlation matrix
for the ASX 200
financial services
(excluding REITs) has
been used
A correlation matrix
for the ASX 200
(excluding resource
companies) has
been used
Risk free rate (%)
Vesting date
0.54%
2.24%
2.1%
2.0%
31 December 2023
31 December 2022
31 December 2021
31 December 2020
1. Consistent with the requirements set out in AASB 2 Share-based payment, given participants in the LTI plan are entitled to dividend equivalents on
the underlying shares, the input for expected dividend yield has been set to zero. For the purposes of relative TSR fair value calculations, the expected
dividend yield of the comparator group has also been set to zero
Genworth Annual ReportFinancial ReportDirectors’ ReportStrategic ReportNotes to the financial statements(continued) 98
Details of the number of employee share rights granted, exercised and forfeited or cancelled during the year were as follows:
2020
Grant date
6 May 2016 1
1 March 2017
17 July 2017
1 March 2018
1 March 2019
1 March 2020
Total
Balance at
1 January
2020
Number
Granted in
the year
Number
Exercised in
the year
Number
Cancelled/
forfeited in
the year
Number
Balance at
31 December
2020
Number
–
60,393
453,430
75,025
583,215
777,190
–
1,888,860
–
–
–
–
474,328
534,721
(60,393)
(80,112)
(37,512)
–
–
–
(373,318)
(37,513)
(336,233)
(305,783)
(23,620)
–
–
–
246,982
471,407
450,708
(178,017)
(1,076,467)
1,169,097
Vested and
exercisable
at end of
the year
Number
–
–
–
–
–
–
–
1. Represents notional dividends awarded as share rights associated with 2016 LTI plan share rights that had previously vested/been exercised
on 31 December 2019
2019
Grant date
7 May 2015 1
6 May 2016
1 March 2017
17 July 2017
1 March 2018
1 March 2019
Total
Balance at
1 January
2019
Number
Granted in
the year
Number
Exercised in
the year
Number
Cancelled/
forfeited in
the year
Number
Balance at
31 December
2019
Number
–
23,789
552,604
531,042
75,025
667,766
–
1,826,437
–
–
–
–
777,190
800,979
(23,789)
(139,291)
–
–
–
–
–
(413,313)
(77,612)
–
(84,551)
–
–
–
453,430
75,025
583,215
777,190
(163,080)
(575,476)
1,888,860
Vested and
exercisable
at end of
the year
Number
–
–
–
–
–
–
–
1. Represents notional dividends awarded as share rights associated with 2015 LTI plan share rights that had previously vested/been exercised
on 31 December 2018
Omnibus Incentive Plan
GFI and GFMI 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.
Under the Omnibus Incentive Plans, GFI issues stock options, stock appreciation rights, restricted stock, restricted stock units
(RSU), other stock-based awards and dividend equivalent awards with respect to its common stock to employees of its affiliates
throughout the world. 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.
Notes to the financial statements(continued) 99
Details of the number of employee options granted, exercised and forfeited or cancelled during the year were as follows:
2020
Grant date
Expiry date
10/02/2010
10/02/2020
09/02/2011
09/02/2021
14/02/2012
14/02/2022
15/02/2013
15/02/2023
20/02/2014
20/02/2024
Total
Weighted
average
exercise price
($)
2019
Grant date
Expiry date
10/02/2010
10/02/2020
09/02/2011
09/02/2021
14/02/2012
14/02/2022
15/02/2013
15/02/2023
20/02/2014
20/02/2024
Total
Weighted
average
exercise price
($)
Exercise
price
($)
Balance at
1 January
2020
Number
Granted in
the year
Number
Exercised
in the year
Number
Cancelled/
forfeited
in the year
Number
Balance at
31 December
2020
Number
Vested and
exercisable
at end of
the year
Number
18.41
16.55
11.53
11.76
19.77
27,000
26,500
32,100
31,500
14,000
131,100
14.90
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(27,000)
(18,000)
(20,400)
(18,000)
–
–
8,500
11,700
13,500
14,000
–
8,500
11,700
13,500
14,000
(83,400)
47,700
47,700
14.89
14.91
14.91
Exercise
price
($)
Balance at
1 January
2019
Number
Granted in
the year
Number
Exercised
in the year
Number
Cancelled/
forfeited
in the year
Number
Balance at
31 December
2019
Number
Vested and
exercisable
at end of
the year
Number
20.20
18.16
12.65
12.91
21.70
27,000
26,500
32,100
31,500
14,000
131,100
16.35
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
27,000
26,500
32,100
31,500
14,000
27,000
26,500
32,100
31,500
14,000
131,100
131,100
16.35
16.35
7.7 Events subsequent to reporting date
On 12 February 2021, the Directors determined that no dividend declaration would be made for the year ended 31 December 2020.
There are no events that have arisen since 31 December 2020 to the date of this report that, in the opinion of the Directors, that
have significantly affected or may significantly affect the operations of the Group or the state of affairs of the Group in future years.
Genworth Annual ReportFinancial ReportDirectors’ ReportStrategic ReportNotes to the financial statements(continued) 100
Directors’ declaration
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 53 to 99 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 2020 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 2001 from the Chief Executive
Officer and Chief Financial Officer for the financial year ended 31 December 2020.
Signed in accordance with a resolution of the Directors
Ian MacDonald
Chairman
Dated 26 February 2021
101
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 2020 and of its financial performance for the
year ended on that date; and
The Financial Report comprises:
• Consolidated statement of financial position as at
31 December 2020;
• 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;
• complying with Australian Accounting Standards and the
and
Corporations Regulations 2001.
• 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.
Basis for opinion
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 (including Independence
Standards) (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
• Valuation of Unearned Premium Liability and Net Earned
Premium
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.
Genworth Annual ReportFinancial ReportDirectors’ ReportStrategic Report 102
Independent auditor’s report
(continued)
Valuation of Gross Outstanding Claims Liability (A$540m)
Refer to accounting policy in Note 4.1 Net claims incurred, Note 4.4 Outstanding claims, Note 4.8 Accounting estimates and
judgements and Note 4.9 Actuarial assumptions and methods.
The key audit matter
How the matter was addressed in our audit
The valuation of gross outstanding claims liability is a key audit
matter as it is highly judgemental and requires assumptions
to be made with inherent estimation uncertainty. These
assumptions can have significant impacts on the valuation. This
complexity requires us to exercise judgement when evaluating
the methodology and assumptions adopted by the Group.
The Group’s insurance policies are similar in nature. As a result
our audit focused on the Group’s consistent identification and
application of common characteristics to segment the stages
of claim emergence when applying frequency and severity
(size) factors to determine the gross outstanding claims liability.
These common characteristics include region, loan originator,
outstanding loan size, and loan-to-value ratio. As a result of these
factors, the estimation of the liability is highly dependent on the
integrity of the underlying data.
The gross outstanding claims liability reflects the Groups’
internal actuarial experts’ 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
the Group to make assumptions in respect of these factors
including:
We tested the key controls designed and operated by the
Group over the valuation of the gross outstanding claims
liability.
Along with our IT specialists, we assessed the key controls
for significant data inputs used by the Group to determine
the outstanding claims liability. Our assessment included
testing specific reconciliation controls and interfaces from key
IT systems that provide data used in the actuarial valuation
processes underlying the outstanding claims liability.
We focused on the assumptions and valuation methodology
used by the Group in estimating the gross 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, against the criteria of the accounting standards.
We were assisted by our actuarial specialists in this and in our
consideration of the work and findings of the Group’s internal
actuarial experts, including their competency, objectivity,
and scope of work. We considered the Group’s valuation
methodology and assumptions for consistency between
reporting periods, as well as for indicators of possible bias.
Our challenge focused on the assumptions applied to
delinquencies and claims data. We did this by:
• the uncertainty in the timing of claim payments and
• evaluating underlying documentation. For example, we
recoveries;
• the frequency at which claims emerge, and the subsequent
severity of those claims. Frequency and severity are likely
to be influenced by changes in macroeconomic factors
such as interest rates, unemployment, property prices, and
performance of industry and geographic segments;
• the timing of receipt of information from lenders indicating a
delinquency or claim has occurred;
• past claims experience being an appropriate predictor of
future experience; and
• the impact of COVID-19 including the related government
stimulus and lender payment deferral programs on future
delinquencies and claim payments.
The assumptions adopted have a significant impact on the
financial performance of the Group, and therefore, are a focus
of our audit attention. As a result, we involved senior audit team
members, including specialists, who collectively understand the
valuation methodology, the Group’s business, its industry and
the economic and regulatory environment it operates in.
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) and investigating
significant variances. Specifically, we have considered
the impact of recent trends in property prices and other
impacts due to the COVID-19 pandemic on the selected
assumptions.
•
identifying and analysing key changes in frequency and
severity assumptions by comparing selected assumptions to
experience exhibited to date.
• assessing the consistency of information, such as claims
experience and trends across the Group’s operations.
103
Independent auditor’s report
(continued)
Valuation of Unearned Premium Liability (A$1,461m), Net Earned Premium (A$312m) and the Liability Adequacy Test (LAT)
Refer to the accounting policy in Note 4.6 Unearned premium, Note 4.7 Liability adequacy test, Note 4.8 Accounting estimates
and judgements, and Note 4.9 Actuarial assumptions and methods to the Financial Report.
The key audit matter
How the matter was addressed in our audit
Genworth receives payment for its insurance policies upfront,
however it is their policy to recognise this premium revenue
over time. The timing pattern for recognition of premium earned
and the resulting valuation of the unearned premium liability
(the proportion of the premium revenue not yet recognised),
is determined by the Group 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.
As a result, the complexities noted in the key audit matter on
‘Valuation of Gross Outstanding Claims Liability’ are also relevant
to our work over net earned premium and the valuation of the
unearned premium liability.
Net earned premium and the Valuation of 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 judgement applied by us in assessing the assumptions
adopted by the Group. In addition to those assumptions we
identified as relevant to the key audit matter on ‘Valuation of
Gross Outstanding Claims Liability’, the Group considers the
following to further impact the length and development of
the earnings curve: underwriting year, loan type, policy type,
premium cancellation and loan increase (top-up) rates.
The unearned premium liability is also subject to a Liability
Adequacy Test (LAT) at each reporting date, whereby it is
compared to the present value of cash flows relating to future
claims plus an additional risk margin. Expected future claims
are estimated in a consistent manner to the earnings pattern
described above and therefore also have a high degree of
estimation uncertainty. Further, the impact of COVID-19 on future
claims significantly increased the estimation uncertainty during
the year. The LAT resulted in a $181.8 million write-down of the
deferred acquisition costs in 2020.
The assumptions adopted have a significant impact on the
financial performance of the Group. As a result, we involved
senior audit team members, including specialists, who
collectively understand the valuation methodology, the Group’s
business and the economic and regulatory environment it
operates in.
Our procedures included:
We tested the key controls designed and operated by the
Group for the unearned premium liability and net earned
premium.
Along with our IT specialists, we assessed the key controls
for significant data inputs. This included testing specific
reconciliation controls, including those over the reliability of
data used in the actuarial modelling processes and interfaces
from key IT systems used in the valuation of the unearned
premium liability.
With the assistance of our Actuarial specialists, we focused
on the assumptions and valuation methodology used by the
Group in their assessment.
We performed additional procedures for each key segment
of the portfolio, reflecting underwriting year, loan type and
policy type and considered indicators of possible bias. These
included:
• an assessment of the methodology adopted to compare the
pattern of risk emergence with current year experience and
consideration of estimated future experience;
• an assessment of sensitivity of the adopted earnings curve
to more recent experience in key model assumptions
including claims frequency, cancellations and top-ups; and,
• consideration of the impact of more recent experience,
including impacts from COVID-19, on the applied
earnings curve.
Our detailed testing also included the procedures outlined in
the key audit matter on Valuation of Gross Outstanding Claims
Liability as timing of revenue recognition is dependent upon
future claim emergence.
Genworth Annual ReportFinancial ReportDirectors’ ReportStrategic Report 104
Independent auditor’s report
(continued)
Other Information
Other Information is financial and non-financial information in Genworth Mortgage Australia Limited’s annual reporting which is
provided in addition to the Financial Report and the Auditor’s Report. 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; and
•
implementing necessary internal control 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 and Company’s ability to continue as a going concern and whether the use of the going concern basis
of accounting is appropriate. 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 and Company or to cease operations, or have no
realistic alternative but to do so.
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 the Financial Report.
A further description of our responsibilities for the audit of the Financial Report is located at the Auditing and Assurance Standards
Board website at: https://auasb.gov.au/admin/file/content102/c3/ar1_2020.pdf. This description forms part of our Auditor’s Report.
105
Independent auditor’s report
(continued)
Report on the Remuneration Report
Opinion
Directors’ responsibilities
In our opinion, the Remuneration Report of Genworth Mortgage
Insurance Australia Limited for the year ended 31 December 2020,
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 in
pages 30 to 49 of the Directors’ report for the year ended
31 December 2020.
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
26 February 2021
Genworth Annual ReportFinancial ReportDirectors’ ReportStrategic Report 106
Shareholder information
Unless otherwise stated, the information in this section is current as at 18 January 2021.
ANNUAL GENERAL MEETING
The 2021 Annual General Meeting (AGM) of Genworth Mortgage Insurance Australia Limited will be held on Thursday, 6 May 2021.
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. Further details will be set out in the Notice of 2021 AGM to be released on ASX in due
course.
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. Share Registry contact information can be found in the Corporate
Directory of this report.
ONLINE VOTING
Shareholders can lodge voting instructions electronically either as a direct vote or by appointing a proxy for the 2021 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, 29 April 2021. Members will also be given a
reasonable opportunity to ask questions of the Company and the auditor at the AGM.
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.
Shareholders that are broker (CHESS) sponsored should direct queries relating to incorrect registrations, name changes and
address changes to their broker.
INFORMATION ABOUT GENWORTH
Information about Genworth Mortgage Insurance Australia Limited, including company announcements, presentations and reports
can be accessed at 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.
107
31 December 2020
12 February 2021
26 March 2021
6 May 2021
Shareholder information
(continued)
Important dates1
Company financial year end
Full year results announced
Annual Report and Notice of AGM mail out commences
AGM
1. Some dates may be subject to change
ORDINARY SHARES AND SHARE RIGHTS
As at 18 January 2021, the Company had on issue the following equity securities:
• 412,514,184 Shares
• 1,326,807 Share Rights
ORDINARY SHARE INFORMATION
Substantial holders of ordinary shares
Name
Number of shares
Voting power (%)
Date of notice
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
AXA S.A.
National Nominees Ltd ACF Australian Ethical Investment
Limited
337,700,000
52.0
2 October 2015
264,634,553
51.95
25 October 2016
82,090,323
20,694,424
19.9
21 July 2020
5.02
18 December 2020
Note: substantial holder details are as disclosed in substantial holding notices given to the Company
Genworth Annual ReportFinancial ReportDirectors’ ReportStrategic Report 108
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)
Genworth Financial International Holdings, LLC and Genworth Holdings, Inc.
(as partners of the Genworth Australian General Partnership)
HSBC Custody Nominees (Australia) Limited
Citicorp Nominees Pty Limited
National Nominees Limited
J P Morgan Nominees Australia Pty Limited
Brazil Farming Pty Ltd
BNP Paribas Nominees Pty Ltd
Argo Investments Limited
Prudential Nominees Pty Ltd
National Exchange Pty Ltd
BNP Paribas Noms Pty Ltd
Mr Guthrie John Williamson
BNP Paribas Nominees Pty Ltd
Solium Nominees (Australia) Pty Ltd
Girt by Sea Investments P/L
National Nominees Limited
Mr Sunny Yang + Mrs Connie Yang
FJP Pty Ltd
Aotearoa Investment Company Pty Limited
132,226,515
82,090,323
56,117,910
27,099,081
24,990,471
19,398,210
6,661,673
3,563,840
3,208,901
2,935,000
2,000,000
1,995,091
1,292,170
1,202,482
1,147,571
823,469
744,245
450,891
438,750
380,765
32.05
19.90
13.60
6.57
6.06
4.70
1.62
0.87
0.78
0.71
0.49
0.48
0.31
0.29
0.28
0.20
0.18
0.11
0.11
0.09
Total for Top 20
368,767,358
89.40
109
Shareholder information
(continued)
Distribution schedule of holders of ordinary shares
Range
1 – 1000
1,001 – 5,000
5,001 – 10,000
10,001 – 100,000
100,001 and over
Total
Number of
holders
Number of
shares
% of issued
shares
1,504
1,689
774
880
76
710,093
4,749,273
6,084,213
22,047,854
378,922,751
4,923
412,514,184
0.17
1.15
1.48
5.34
91.86
100.00
Note: Shareholders with less than a marketable parcel of 223 ordinary shares ($2.250 on 18 January 2021) is 368 and they hold 29,022 ordinary shares.
Dividend details
Share class
Ordinary
Dividend
Franking
Amount per share
Payment date
Final (FY19)
Fully franked
7.5 cents
19 March 2020
SHARE RIGHTS INFORMATION
Distribution schedule of holders of share rights
Range
1 – 1,000
1,001 – 5,000
5,001 – 10,000
10,001 – 100,000
100,001 and over
Total
Voting rights
Number of
holders
Number of
share rights
% of total
share rights
1
12
4
4
5
26
911
18,992
29,531
279,807
997,566
1,326,807
0.1
1.4
2.2
21.1
75.2
100.0
Share Rights do not carry any voting rights. Ordinary shares issued or transferred to participants on the vesting of Share Rights
carry the same rights and entitlements as other issued shares.
Shares purchased on-market for the purposes of the Rights Plan
499,525 shares were purchased on-market for the purposes of the Rights Plan during the period from 1 January 2020 to
31 December 2020 at an average price of $3.27 per share.
On-market share buy-back
As at 18 January 2021, there was no current on-market share buy-back.
Genworth Annual ReportFinancial ReportDirectors’ ReportStrategic Report 110
Glossary
AASB
APRA
ASX
Book Year
Business Select
Central estimate
CET1 or Tier 1 Capital
China Oceanwide
Combined ratio
COVID-19
DAC
Deferral
Delinquency
Delinquency rate
EPS
Excess of loss or XOL
Expense ratio
FBT
Fitch
Flow
GDP
Australian Accounting Standards Board
Australian Prudential Regulation Authority
Australian Securities Exchange
The calendar year an LMI policy is originated
LMI product offered by Genworth to provide self-employed borrowers access to
residential mortgage finance by providing limited evidence of income. The borrower
self certifies an income that is used to establish serviceability
The value of insurance liabilities which represents the average (i.e. statistical mean) of
the estimated distribution of outcomes
As defined by GPS 112, Tier 1 Capital comprises the highest quality components of
capital that fully satisfy all of the following essential characteristics:
• provide a permanent and unrestricted commitment of funds;
• are freely available to absorb losses;
• do not impose any unavoidable servicing charge against earnings;
• rank behind the claims of policyholders and creditors in the event of winding up
China Oceanwide Holdings Group Co., Ltd
The sum of the loss ratio and the expense ratio
A disease caused by a new strain of coronavirus. ‘CO’ stands for corona, ‘VI’ for virus,
and ‘D’ for disease
Deferred acquisition costs
Temporary relief granted to borrowers impacted by COVID-19 by lender customers,
allowing them to defer loan repayments for a period of time.
Active – comprised of new and existing deferrals
Cumulative – All deferral notifications received to date
Closures – lender notified opt outs and closures. Also includes expiry of deferral
periods
Any insured loan which is reported as three or more months of repayments in arrears
The delinquency rate is calculated by dividing the number of reported delinquent
loans insured by the number of in-force policies (excluding excess of loss insurance)
Earnings per share
A type of insurance in which the insurer indemnifies the insured for losses that exceed
a specified limit
Calculated by dividing the sum of the acquisition costs and the other underwriting
expenses by the net earned premium
Fringe benefit tax
Fitch Ratings
Policies written by Genworth on a loan by loan basis at the time of origination by the
lender customer
Gross domestic product
Genworth or the Group
The Company and its subsidiaries
Genworth Financial Group
Genworth Financial and its subsidiaries, excluding Genworth
Genworth Financial or GFI
Genworth Financial, Inc. and, where relevant, its predecessors
GFMI
Genworth Financial Mortgage Insurance Pty Limited
GMA or the Company
Genworth Mortgage Insurance Australia Limited ABN 72 154 890 730
Gross earned premium or GEP
The earned premium for a given period prior to any outward reinsurance expense
Glossary
(continued)
GWP
HLVR
Homebuyer Plus
HPA/HPD
IBNR
IFRS
Indemnity
Insurance in-force
Insurance margin
111
Gross written premium
High loan to value ratio. Generally, a residential mortgage loan with an LVR in excess
of 80% is referred to as an HLVR loan
LMI product offered by Genworth that allows borrowers to purchase a property for
owner occupation with limited or no deposit, or those wishing to use money not
sourced from their own savings as a deposit
House price appreciation/depreciation
Delinquent loans that have been incurred but not reported
International Financial Reporting Standards
Genworth Financial Mortgage Indemnity Ltd
The original principal balance of all mortgage loans currently insured (excludes
excess of loss insurance)
Calculated by dividing the profit from underwriting and interest income on technical
funds (including realised and unrealised gains or losses) by the net earned premium
Insured loans in-force
The count of policies currently insured (excludes excess of loss insurance)
Investment return
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
IPO
Initial Public Offering
JobKeeper/JobSeeker
KMP
LAT
Lender customers
Payment designed to help businesses affected by COVID-19 to cover the costs
of their employees’ wages/financial help for people aged between 22 and the
aged pension
Key Management Personnel, as the term is defined in the Corporations Act 2001 (Cth)
Liability adequacy test – AASB 1023 – General Insurance Contracts requires a LAT test.
If the LAT test is failed, the DAC asset is written-down and an unexpired risk reserve
established if there is a further deficiency after the write-down of DAC
Those with a direct relationship with Genworth such as traditional lenders and funding
programs. Excludes mortgage managers and originators who generate loans though
a funding program
Level 2 and Level 2 Group
“Level 2 insurance group” as defined by APRA under Prudential Standard GPS 001,
referring to a consolidated insurance group
LLC
LMI
LMI market
LMI provider
Loss ratio
LTI
LVR
Genworth Financial Australia Holdings, LLC
Lenders Mortgage Insurance
The market for LMI provided by external LMI Providers and LMI subsidiaries but
excluding the retention of risk by Lenders and other forms of risk mitigation or risk
transfer by Lenders in relation to the credit risk of residential mortgage loans
A provider of LMI, excluding LMI subsidiaries
Calculated by dividing the net claims incurred by the net earned premium
Long-term incentive
Loan-to-value ratio. This percentage is calculated by dividing the gross value of a
loan (excluding capitalisation of LMI premium) by the value of the property securing
the loan. The value is based on the lower of the valuation of the underlying property
accepted or externally obtained by the lender at origination or the price paid
Mark-to-market
Unrealised gains/losses (exclusive of foreign exchange)
MIP
NED
Mortgagee in possession
Non-executive director
Net earned premium or NEP
The earned premium for a given period less any outward reinsurance expense
Genworth Annual ReportFinancial ReportDirectors’ ReportStrategic Report 112
Glossary
(continued)
NIW
NPAT
New insurance written
Net profit after tax
Omnibus incentive plans
The Genworth Financial 2004 Omnibus Incentive Plan and 2012 Omnibus Incentive Plan
PCA
PCA coverage
PCR
Performance NPAT
PoA
Premium liabilities
Prescribed capital amount
Calculated by dividing the regulatory capital base by the prescribed capital amount
The PCA plus any supervisory adjustment determined by APRA
Performance NPAT excludes the after-tax impact of realised mark-to-market gains/(losses)
on the investment portfolio, and the impact of foreign exchange rates on Genworth’s
investment portfolio. The bulk of these foreign exchange exposures are hedged.
Probability of adequacy
Premium liabilities reflects the present value of (a) expected cash flows associated
with anticipated future claims based on the net central estimate; and (b) risk margin
Regulatory capital base
The sum of Tier 1 Capital and Tier 2 Capital
Return on equity (ROE)
Calculated by dividing NPAT by the average of the opening and closing equity
balance for a financial period
Rights Plan
Risk margin
RSU
S&P
SLT
Statutory NPAT
STI
Technical funds
TFR
Tier 2 capital
Top-ups
TSR
Underlying equity
Underlying NPAT
Underlying ROE
VWAP
WACC
Genworth Share Rights Plan
An additional amount that is added to the central estimate loss forecast and reserves
to reflect the inherent uncertainty in forecasting loss outcomes
Restricted share units
Standard & Poor’s Ratings Services
Senior Leadership Team
Net profit/(loss) after tax
Short-term incentive
Investments held to support unearned premium and outstanding claims reserves
Total fixed remuneration
As defined by GPS 112, Tier 2 Capital comprises components of capital that fall short
of the quality of Tier 1 Capital but nonetheless contribute to the overall strength of a
regulated institution and its capacity to absorb losses
When a lender customer purchases additional LMI policies to cover an increase in the
amount of original mortgage loan
Total shareholder return
Underlying equity is defined as total equity excluding the after-tax impact of
mark-to-market gains/(losses) on the investment portfolio, and the impact of
unhedged movements in foreign exchange rates on Genworth’s non-AUD exposures
Underlying NPAT excludes the after-tax impact of mark-to-market gains/(losses)
on the investment portfolio, and the impact of unhedged movements in foreign
exchange rates on Genworth’s non-AUD exposures. The bulk of these foreign
exchange exposures are fully hedged
The Underlying ROE is calculated by dividing Underlying NPAT by the average of the
opening and closing Underlying Equity balance for a financial period
Volume weighted average price
Weighted average cost of capital
113
Corporate directory
REGISTERED OFFICE
Genworth Mortgage Insurance Australia Limited
Level 26
101 Miller Street
North Sydney NSW 2060
Telephone: +61 1300 655 422
Fax: +61 1300 366 228
Website: genworth.com.au
Company Secretary
Ms Prudence Milne, General Counsel and Company Secretary
Assistant Company Secretary
Mr Brady Weissel, Corporate Counsel and Assistant Company Secretary
SHARE REGISTRY
Link Market Services Limited
Level 12
680 George Street
Sydney NSW 2000
Telephone: +61 1300 554 474
Fax: +61 2 9287 0303
Email: registrars@linkmarketservices.com.au
Website: linkmarketservices.com.au
Link Investor Centre: investorcentre.linkmarketservices.com.au
Australian Securities Exchange
Genworth Mortgage Insurance Australia Limited is listed under the ASX code “GMA”.
Annual Report
To request a copy of the Annual Report, please contact the Share Registry.
Electronic versions of the Annual Report are available at investor.genworth.com.au.
Genworth Annual ReportFinancial ReportDirectors’ ReportStrategic Report genworth.com.au