Genworth MI, Home Capital Gain on Canada Housing Rally

Genworth MI Canada Inc. and Home Capital Group Inc. reported profits that beat analysts’ estimates as low interest rates drive demand for Canadian homes.

Genworth, the country’s largest private mortgage insurer, reported July 29 that loan losses slid to the lowest level since its initial public offering in 2009 and premiums jumped 17 percent. Home Capital yesterday boosted its dividend as net income rose 20 percent.

“The mortgage insurers are a bellweather for consumers -- particularly Genworth is a bellweather for first-time homebuyers,” Nick LeBlanc, a financial analyst at DBRS Ltd., said by phone yesterday. “The continued strength of the housing market, stable economic conditions, and low interest rates, have helped out the Canadian consumer.”

Canada’s residential housing market has drawn concern from regulators and economists who say it may be 20 percent overvalued and that consumers are taking on too much debt. The low losses at Genworth show Canadians aren’t having trouble paying off their mortgage debt, while the increased origination highlights strong demand.

Home Capital, the country’s largest alternative mortgage provider, also beat analysts’ earnings estimates and increased its dividend to 18 cents a share. First National Financial Corp., the largest non-bank mortgage lender and underwriter, increased originations 12 percent over last year to C$4.7 billion ($4.3 billion).

Stable Market

Genworth’s profit excluding some items was C$1.04 a share, the Oakville, Ontario-based company said, beating the 93-cent average estimate of nine analysts surveyed by Bloomberg. Loan losses declined to 12 percent, a record low. Genworth forecast that loss ratio will rise to a range of 15 percent to 25 percent for the year.

Bank of Montreal analyst Tom MacKinnon raised his rating on Genworth to an outperform from market perform after the results were announced.

“The housing markets are performing well,” Genworth Chief Executive Officer Brian Hurley said in an analyst conference call. “The interest rate environment is stable and looks to stay that way for a while.”

Genworth Chief Operating Officer Stuart Levings cited Vancouver and Toronto as cities that are facing affordability pressure. Toronto’s home prices soared more than 76 percent in the last 10 years and Vancouver prices rallied 4.4 percent in June over the previous year to C$800,689.

“The Canadian consumer has been able to service their debt,” LeBlanc said. “Even though debt levels in Canada are increasing, we’re seeing really low defaults. You’re not seeing strain there.”

Genworth rose 0.7 percent to C$39.54 at the close in Toronto. First National gained 0.4 percent to C$23.52. Toronto-based Home Capital climbed 0.9 percent to C$51.90, after earlier reaching a record high.

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