New Government Guarantee Legislative Framework, Effective January 1, 2013,
Enhances Genworth MI Canada's Financial Position
Company's claims-paying ability is strengthened
TORONTO, Dec. 20, 2012 /CNW/ - Genworth MI Canada Inc. (the "Company" or
"Genworth Canada") (TSX: MIC) reported today on the expected impact of the
Protection of Residential Mortgage or Hypothecary Insurance Act (Canada)
("PRMHIA"). On January 1, 2013, PRMHIA will come into force and establish a
legislative framework that replaces the current guarantee agreement the
Company has with the Federal Government (the "Guarantee Agreement").
Under the current Guarantee Agreement between Genworth Financial Mortgage
Insurance Company Canada ("GFMICC") and the Government, GFMICC contributes an
amount equal to 10.5% of gross premiums written to a trust fund ("the
Guarantee Fund") and pays a risk premium to the federal government. On
September 30, 2012, the investments and accrued income held in the Guarantee
Fund totaled approximately $980 million. The Guarantee Fund is accounted for
as an asset on the Company's balance sheet. Contributions to the Guarantee
Fund are deductible in the calculation of taxable income, and income earned by
the Guarantee Fund is not taxed until monies are withdrawn. Any withdrawals
from the Guarantee Fund are included as taxable income. Upon the withdrawal
of monies from the Guarantee Fund, the Guarantee Agreement requires the
payment of exit fees equal to 1% of the amount of the fund for each year from
the effective date of the Guarantee Agreement (February 1992) to the date of
withdrawal up to a maximum of 25%.
"The implementation of PRMHIA will be positive for Genworth Canada and the
Canadian Mortgage market" said Brian Hurley, Chairman and Chief Executive
Officer. "The elimination of the Guarantee Fund will strengthen Genworth
Canada's claims-paying ability by approximately $675 million and will result
in a one-time increase in its net book value."
Effective January 1, 2013, the specific impact of PRMHIA is as follows:
-- The level of federal government guarantee of insured mortgages
will remain at 90 percent.
-- All mortgages that were previously insured by GFMICC and
covered by the Guarantee Agreement will continue to be covered
-- The maximum outstanding insured exposure for private insured
mortgages will be increased from $250 billion to $300 billion.
The current risk premium is being replaced by a risk fee
payable by the Company to the federal government equal to 2.25
percent of gross premiums written.
-- GFMICC's insurance activities will continue to be restricted to
insuring mortgages that meet the government guarantee mortgage
insurance eligibility guideline.
-- The Guarantee Agreement and all obligations under it, including
the requirement for a Guarantee Fund and payment of exit fees
related to it, will be terminated. As a result the Company will
reverse, in the 4(th) quarter 2012, the liability it had been
accruing for the exit fee. The Company expects the pre-tax
impact of this reversal to be approximately $166 million
related to exit fees accrued in 2011 and prior years and a
further $20 million accrued for the first nine months of 2012.
This will result( )in a net increase in Shareholders' Equity
excluding Accumulated Other Comprehensive Income of
approximately $135 million.
-- The amount held in the Guarantee Fund will revert to the
Company on January 1, 2013 and the Company's taxable income
will increase by the same amount (the Company's operating
income on a GAAP basis will not be affected). The resulting
increase in income taxes payable is expected to be
approximately $255 million, which the Company has already
provided for in its financial statements.
-- The Company expects that GFMICC's regulatory capital available
will increase by approximately $675 million from the
elimination of the Guarantee Fund and the reversal of the exit
fees previously accrued, net of the related income tax effect.
This will increase its Minimum Capital Test (MCT) ratio by
approximately 45 percentage points to over 200%.
-- The Guarantee Fund is being eliminated in favour of a higher
MCT ratio. The Minister of Finance advised the Company today
that under PRMHIA and the Insurance Companies Act (Canada) the
minimum MCT ratio for GFMICC will be 175%. In conjunction with
this new target, GFMICC will increase its internal MCT target
capital ratio on January 1, 2013 to 185% and expects to operate
above 190% MCT in the normal course.
The new government guarantee legislative framework confirms the important role
of private mortgage insurance in the Canadian marketplace. The Company
believes that these changes strengthen its balance sheet and claims-paying
ability thereby further reducing the likelihood of the government guarantee
ever being invoked.
IFRSs and Non-IFRSs Financial Measures
The Company's consolidated financial statements are prepared in accordance
with IFRSs. To supplement its financial statements, the Company uses select
non-IFRSs financial measures. Non-IFRSs measures used by the Company to
analyze performance include underwriting ratios such as loss ratio, expense
ratio and combined ratio, as well as other performance measures such as net
operating income and return on operating income. Other non-IFRSs measures used
by the Company include shareholders' equity excluding accumulated other
comprehensive income ("AOCI"), insurance in-force, new insurance written,
minimal capital test ratio ("MCT"), delinquency ratio, severity on claims
paid, operating earnings per common share of the Company (basic and diluted),
book value per common share (basic and diluted; including and excluding AOCI),
dividends paid per common share of the Company, and portfolio duration. The
Company believes that these non-IFRSs financial measures provide meaningful
supplemental information regarding its performance and may be useful to
investors because they allow for greater transparency with respect to key
metrics used by management in its financial and operational decision making.
Non-IFRSs measures do not have standardized meanings and are unlikely to be
comparable to any similar measures presented by other companies. These
measures are defined in the Company's glossary, which is posted on the
investor section of the Company's website. To access the glossary, click on
the "Glossary of Terms" link under "Investor Resources" subsection on the left
navigation bar. A reconciliation of non-IFRSs financial measures to the
most recently comparable measures calculated in accordance with IFRSs can be
found in Management's Discussion and Analysis filed with the Company's most
recent financial statements, which are available on the Company's website and
on SEDAR at www.sedar.com.
Cautionary Note Regarding Forward-Looking Statements
This press release includes certain forward-looking statements. These
forward-looking statements include, but are not limited to, the Company's
plans, objectives, expectations and intentions, and other statements contained
in this release that are not historical facts. These statements may be
identified by their use of words such as "may", "would", "could", "will",
"intend", "plan", "anticipate", "believe", "seek", "propose", "estimate",
"expect", or similar expressions, as they relate to the Company are intended
to identify forward-looking statements. Specific forward-looking statements
in this document include, but are not limited to, statements with respect to
the Company's expectations regarding the Canadian government's proposed
changes to the guarantee regime regarding residential mortgages, the
anticipated effects of the implementation of PRMHIA on the Company, the
Company's future operation and MCT ratio under PRMHIA, and the Company's
beliefs as to housing demand and home price appreciation, unemployment rates,
the Company's future operating and financial results, sales expectations
regarding premiums written, capital expenditure plans, dividend policy and the
ability to execute on its future operating, investing and financial
strategies. These statements are inherently subject to significant risks,
uncertainties and changes in circumstances, many of which are beyond the
Company's control. The Company's actual results may differ materially from
those expressed or implied by such forward-looking statements, including as a
result of changes in global, political, economic, business, competitive,
market and regulatory factors, and the other risks described in the Company's
Annual Information Form. Other than as required by applicable laws, the
Company undertakes no obligation to publicly update or revise any
forward-looking statement, whether as a result of new information, future
developments or otherwise.
About Genworth MI Canada Inc.
Genworth MI Canada Inc. (TSX: MIC), through its subsidiary, Genworth Financial
Mortgage Insurance Company Canada, has been the leading Canadian private
residential mortgage insurer since 1995. Known as Genworth Canada, the
Company provides default mortgage insurance to Canadian residential mortgage
lenders that enables low down payment borrowers to own a home more affordably
and stay in their homes during difficult financial times. Genworth Canada
combines technological and service excellence with risk management expertise
to deliver innovation to the mortgage marketplace. As of September 30, 2012,
Genworth Canada had $5.6 billion total assets and $2.9 billion shareholders'
equity. Based in Oakville, Ontario, Genworth Canada employs approximately
260 people across Canada. Find out more at www.genworth.ca.
Investors - Samantha Cheung, email@example.com
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SOURCE: Genworth MI Canada
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-0- Dec/20/2012 14:06 GMT
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