Genworth MI Canada FEBRUARY 2015 MIC Fixed Income Presentation - - PowerPoint PPT Presentation

MIC Fixed Income Presentation – March 24, 2014 1

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Genworth MI Canada Inc.

Genworth MI Canada

Genworth MI Canada

BUILDING ON GROWTH MOMENTUM

FEBRUARY 2015

MIC Fixed Income Presentation – March 24, 2014 2

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Genworth MI Canada Inc.

Genworth MI Canada

> FORWARD-LOOKING AND NON-IFRS STATEMENTS

This presentation relating to Genworth MI Canada Inc. (the “Company”, “Genworth Canada” or “MIC”) includes certain forward- looking statements. These forward-looking statements include, but are not limited to, statements with respect to the Company’s future operating and financial results, expectations regarding premiums written, losses on claims and investment income, the Canadian housing market, and other statements that are not historical facts. These forward-looking statements may be identified by their use of words such as “may”, “would”, “could”, “will,” “intend”, “plan”, “anticipate”, “believe”, “seek”, “propose”, “estimate”, “expect”, and similar expressions. These statements are based on the Company’s current assumptions, including assumptions regarding economic, global, political, business, competitive, market and regulatory matters. These forward-looking statements are inherently subject to significant risks, uncertainties and changes in circumstances, many of which are beyond the control of the Company. 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 the facts underlying the Company’s assumptions, and the other risks described in the Company’s Annual Information Form dated March 17, 2014, its Short Form Base Shelf Prospectus dated June 18, 2014, the Prospectus Supplements thereto, its most recently issued Management’s Discussion and Analysis and all documents incorporated by reference in such documents. 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

• therwise.

To supplement its financial statements, the Company uses select non-IFRS financial measures. Non-IFRS financial measures include net operating income, interest and dividend income (net of investment expenses), operating earnings per common share (basic),

• perating earnings per common share (diluted), shareholders’ equity excluding accumulated other comprehensive income

(“AOCI”), operating return on equity and underwriting ratios such as loss ratio, expense ratio and combined ratio. The Company believes that these non-IFRS 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-IFRS 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 Company’s website at http://investor.genworthmicanada.ca. A reconciliation from non-IFRS financial measures to the most readily comparable measures calculated in accordance with IFRS, where applicable can be found in the Company’s most recent management’s discussion and analysis, which is posted on the Company’s website and is also available at www.sedar.com.

> STUART LEVINGS, PRESIDENT AND CEO

SOLID AND SUSTAINABLE BUSINESS

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Genworth MI Canada Inc.

Genworth MI Canada

LARGEST PRIVATE RESIDENTIAL

MORTGAGE INSURER IN CANADA Since 1995 helped 1.5 million families COAST TO COAST achieve homeownership. We support more than 250 Canadian lenders.

MARKET FACTS (as at December 31, 2014)

$5.8 billion Total Assets $3.3 billion Shareholders’ Equity $2.9 billion Market Capitalization 94 million Shares Outstanding COMPETITIVE STRENGTHS

Strong Market Presence Long-Standing Customer Relationships Best-in Class Technology and Processes Prudent Risk Management Impressive Long-Term Track Record Experienced and Engaged Workforce

> WHO WE ARE

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Genworth MI Canada Inc.

Genworth MI Canada

> STRONG PERFORMANCE

0.22 0.26 0.29 0.32 0.35 0.15 0.25 0.35 0.45

Dividends Paid/Share 2010 2011 2012 2013 2014

$2.67 $3.02 $3.08 $3.43 $3.60 $3.86

$0.00 $1.00 $2.00 $3.00 $4.00 $5.00 09 10 11 12 13 14

Operating earning per share

(diluted)

$22.40 $24.44 $26.94 $30.62 $32.53

5 10 15 20 25 30 35 09 10 11 12 13 14

Book value per share

(diluted, including AOCI)

13% 14% 13% 13% 12% 12%

0% 5% 10% 15% 09 10 11 12 13 14

Operating return on equity

(%)

2009 Q3

$35.02

0.39

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Genworth MI Canada Inc.

Genworth MI Canada

> MISSION AND VISION

OUR MISSION

Working with our lender partners, regulators and influencers we › help people responsibly achieve and maintain the dream of homeownership › promote strong and sustainable communities across Canada While enhancing stakeholder value

OUR VISION CANADA’S MORTGAGE INSURER OF CHOICE

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Genworth MI Canada Inc.

Genworth MI Canada

> COMPETITIVE STRENGTHS AND GROWTH CATALYSTS

Strong Market Presence Long-Standing Customer Relationships Best-in Class Technology and Processes Prudent Risk Management Impressive Long-Term Track Record Experienced and Engaged Workforce

COMPETITIVE STRENGTHS

Market Share Market Size Premium Rates Adjacent Opportunities

COMPETITIVE STRENGTHS GROWTH CATALYSTS

FOCUS ON PEOPLE, RISK AND TECHNOLOGY

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Genworth MI Canada Inc.

Genworth MI Canada

> KEY STRATEGIC PRIORITIES

Expand Market Share Proactive Risk Management Strong Government Relations Efficient Capital Structure Adjacent Opportunities Employ and Engage Employees

High Quality, Diversified Portfolio Operating Income Growth

HOW WE MEASURE SUCCESS

Market Share Gains Strong Employee Engagement

STRATEGIC PRIORITIES

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Genworth MI Canada Inc.

Genworth MI Canada

> TOP LINE

KEY POINTS

› Strong sales momentum in 2014 expected to continue into 2015 › Portfolio insurance may be lower in 2015 due to government MBS changes › Higher premiums written Y/Y is positive for earned premiums going forward

PREMIUMS WRITTEN

($millions)

84 84 137 160 161 217 129 178 2013 2014 Q4 Q3 Q2 Q1

25% Premiums Earned $573 $565

$512 $640 447 557 65 82 2013 2014

Premiums Written ($millions)

High LTV Low LTV Low LTV +28% High LTV +25%

TOP LINE GROWTH IN 2014 DRIVEN BY HIGHER VOLUME & PREMIUM RATE INCREASE

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Genworth MI Canada Inc.

Genworth MI Canada

> CHANGING MARKET DYNAMICS

Market Dynamics

• Oil is anticipated to be in the $50-$65

USD range for 2015

• 2015 GDP outlook of 2.1%
• Canadian dollar expected to be in the

range of $0.75 to $0.85 per USD

• Interest rate cut partially offsets impact of

lower oil prices

Impact to Business

• Unemployment rate likely modestly higher

and home prices modestly lower in oil producing regions (Alberta, Newfoundland, Saskatchewan)

• GDP, home prices and employment in

Ontario and Quebec may benefit from lower oil prices and Canadian dollar

• Continued lower interest rates supportive
• f housing affordability

REBALANCING OF ECONOMIC GROWTH ACROSS THE COUNTRY

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Genworth MI Canada Inc.

Genworth MI Canada

> HIGHER QUALITY PORTFOLIO

Average Credit Score Average Home Price Average Gross Debt Service Ratio

716 720 726 727 727 730 733 737 '07 '08 '09 '10 '11 '12 '13 '14

247 256 266 284 296 301 304 315

'07 '08 '09 '10 '11 '12 '13 '14

($000’s) 24 23 22 24 25 24

23 24 '07 '08 '09 '10 '11 '12 '13 '14 (%)

› Credit score up 21 points since 2007 › Average home price 29% lower than CREA national average price of $407K › Gross debt ratios stable, strong preference for 5 year fixed rate mortgages › Financially disciplined first-time homebuyers

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Genworth MI Canada Inc.

Genworth MI Canada

> REGIONAL DISPERSION

20% 4% 43% 14% 5% 13%

Alberta Atlantic Ontario B.C. Prairies Quebec

Note: % as per Company’s estimate of outstanding balance of insured mortgages

Regional Dispersion Alberta Effective Loan-to-Value by Book Year

40 50 60 70 80 90 100

Low LTV <=2009 2010 2011 2012 2013 2014 High LTV

Estimated

• utstanding

balance of insured mortgages ($B)

7.6 6.8 2.5 3.1 3.3 4.0 4.8

• Avg. Credit

Score

749 720 728 730 729 730 734

DIVERSIFICATION OFFSETS REGIONAL PRESSURES; ALBERTA PORTFOLIO MANAGEABLE

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Genworth MI Canada Inc.

Genworth MI Canada

> HIGHER QUALITY PORTFOLIO IN ALBERTA

Market Dynamics 2014 vs. 2007

Underwriting standards

• Better underwriting quality in recent years
• Higher risk products eliminated prior to 2011

Portfolio quality

• Stronger borrower profile – average credit score up 21 points

in Alberta since 2007 Government policy actions 2009-14

• Increased oversight enhancing safety and soundness housing

market (PRHMIA, B20) Housing market

• Risk of a major housing correction low due to reasonable

current valuations

2015 EXPECTED OVERALL LOSS RATIO RANGE OF 20-30%

› Regional modest pressures expected

› Modest increase in frequency due to job loss expected in Alberta › Home prices expected to decline modestly in Alberta

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Genworth MI Canada Inc.

Genworth MI Canada

> DELINQUENCY TREND

517 497 430 431 396 295 303 268 279 270 284 249 221 207 222 482 527 511 516 569 184 206 198 199 207 68 78 75 76 92 Q4'13 Q1'14 Q2'14 Q3'14 Q4'14 1,860 1,830 1,703 1,708 1,756

Ontario BC Alberta Quebec Atlantic Other

Outstanding Delinquencies

› Y/Y delinquency improvement reflects lower delinquencies in Ontario and BC › Improvement in delinquencies partially

• ffset by Alberta, Quebec and the

Atlantic region

> PHILIP MAYERS, CFO

SOLID AND SUSTAINABLE BUSINESS

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Genworth MI Canada Inc.

Genworth MI Canada

> FINANCIAL PRIORITIES

PRIORITIES IMPACT ON FINANCIAL METRICS › Prudent top line growth › Increasing premiums written › Improving premiums earned › Proactive risk management › High quality insurance portfolio › Loss ratio in 20-30% range for 2015 › High quality investment portfolio › Investment income pressured by low rate environment › Proactive approach to capital management › Operating modestly above MCT holding target of 220% › Ongoing capital generation › Focus on sustainable ordinary and growing dividend

TARGETING ROE EXPANSION OVER TIME

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Genworth MI Canada Inc.

Genworth MI Canada

> EARNINGS PROFILE AND KEY DRIVERS

25% 20% 20% 19% 2013 2014 Loss ratio Expense Ratio

$ MM (except EPS) 2014 2013 Underwriting Income $346 $319 Operating Investment Income 195 215 Interest Expense (24) (23) Net Operating Income $366 $349 Total Invested Assets and cash $5,443 $5,375 Investment Yield 3.5% 3.7% Operating ROE 12% 12% Operating EPS (Diluted) $3.86 $3.60

› Strong underwriting performance driving improving profitability › Investment yield continues to be pressured by low rate environment › ROE stable at 12% as higher profitability was offset by higher capital levels

6-Points VPY 45% 39% STRONG PROFITABILITY

COMBINED RATIO KEY FINANCIAL RESULTS

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Genworth MI Canada Inc.

Genworth MI Canada

Diversify Globally

› IG Emerging Markets Debt › US CLOs (<3% of AUM / “A’ or Above)

› Hedge FX Risk

Diversify by Sector

› Market Weight Financials › Underweight Energy Preserve Principal › Gov’t Bonds (~50% of AUM) › Investment Grade Bonds Protect From Rising Rates › Short Duration (3.6 Years) › Floating Rate Notes Cash Flow Match Liabilities › Portfolio Duration < 5 Years Enhance Income › Dividend Paying Equities › IG Emerging Markets Debt › US CLOs (<3% of AUM / “A” or Above) ACTIVE PORTFOLIO MANAGEMENT › 4 external managers › In -house investment allocation & oversight › Focus on investment grade fixed income › Limited appetite for “risk” assets

• 1. Pre-tax equivalent book yield after dividend gross-up of general portfolio

$5.4 B INVESTMENT PORTFOLIO PRE-TAX YIELD1 OF 3.5% (DEC.31/14) > DISCIPLINED APPROACH TO

INVESTMENT MANAGEMENT

IG = Investment Grade

CLOs = Collateral Loan Obligations

YIELD CURRENTLY PRESSURED BY LOW RATES ... STILL STRONG INCOME CONTRIBUTOR

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Genworth MI Canada Inc.

Genworth MI Canada > STRONG BALANCE SHEET

$ MM December 31, 2014 Assets Cash and investments $5,443 Other Assets 327 Total Assets $5,770 Liabilities Loss reserves 115 Unearned Premiums 1,799 Long Term Debt 432 Other Liabilities 153 Total Liabilities 2,499 Shareholders’ Equity (w/AOCI) 3,271 Total Liabilities and Shareholders’ Equity $5,770 Book Value Per Share (diluted) $35.02

KEY HIGHLIGHTS › $1.8 B of unearned premiums represent future revenues & profits › Illustration: Unearned Premiums $1.8 B Future Losses on Claims & Expenses

1 (1.0)

Future Pre-tax Underwriting Income 0.8 Future Net Income $0.6 B

• 1. Future losses on claims and expenses calculalted using 55% combined ratio

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Genworth MI Canada Inc.

Genworth MI Canada > CAPITAL STRENGTH

185% 185% 40% 38%

225% 223%

2014 2013

Minimum Capital Test Ratio (MCT)

Internal MCT target Buffer to internal target

KEY HIGHLIGHTS › Strong capital generation has resulted in actions › History of ordinary dividend increases › 35-45% payout ratio › History of share repurchases - $75 million in Q4 2014, $105 million in 2013, $160 million in 2011, $325 million in 2010 › Special dividends paid in 2011 and 2014 › Conservative leverage of 12% › Holding company cash and liquid securities of $143 million › Intend to operate moderately above 220% MCT

• perating holding target

CAPITAL OBJECTIVES: STRENGTH, FLEXIBILITY, EFFICIENCY

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Genworth MI Canada Inc.

Genworth MI Canada

2014 Investor Day

POTENTIAL IMPACT OF PERFORMANCE LEVERS OVER TIME

Levers EPS ROE Comments Price Increase

↑ ↑

2014 price increase Annual review of pricing by government Market Share Gains

↑ ↑

Capitalizing on momentum Investment Yield Improvement

↑ ↑

10 bps improvement in yield adds $4MM in net operating income Capital Optimization

↑

Potential for a lower MCT Holding

> ROE EXPANSION

SEVERAL LEVERS TO DRIVE ROE EXPANSION OVER TIME

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Genworth MI Canada Inc.

Genworth MI Canada

> Proven and sustainable business model > Clear strategy for prudent growth > Supportive market and regulatory environment > Experts at managing mortgage default risk > Solid financial position > Experienced and engaged employees

> KEY TAKE-AWAYS CANADA’S MORTGAGE INSURER OF CHOICE

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Genworth MI Canada Inc.

Genworth MI Canada

> CONTACT INFORMATION

INVESTOR RELATIONS www.genworth.ca investor@genworth.com HEAD OFFICE 2060 Winston Park Drive Suite 300 Oakville, Ontario 905-287-5300 (reception) DIRECT CONTACT Samantha Cheung Vice-President, Investor Relations Samantha.Cheung@genworth.com 905.287.5482