DBRS Confirms Ratings on Genworth Financial Mortgage Insurance Company Canada and Genworth MI Canada Inc.

DBRS Limited (DBRS) has today confirmed the Financial Strength rating of Genworth Financial Mortgage Insurance Company Canada (Genworth or the Company) at AA with a Stable trend. The AA (low) Issuer Rating and AA (low) rating on the Senior Unsubordinated Debt of Genworth MI Canada Inc. (Genworth MI Canada), the holding company of Genworth, were also confirmed with Stable trends.

The rating confirmation reflects the Company’s solid market position, seasoned insurance portfolio and advanced risk analytics as well as its strong capital position relative to the capital required to meet insurance claim obligations. The single-notch differential between the Financial Strength rating of the Company and the Issuer Rating of Genworth MI Canada, the ultimate Canadian holding company, reflects Genworth MI Canada’s strong debt service coverage as well as its liquid asset reserve, on a standalone basis, which provides extra capacity to cover interest payments if dividends from the operating company were to be halted for any reason.

Underwriting results continued to be strong in 2014, with Genworth having a favourable loss ratio of 19.7% as delinquencies across the Company’s portfolio and the industry continued to be quite low by historical standards. Despite recent strength in delinquencies and loss levels, risks are evident in the Canadian housing market with low interest rates fueling strong price appreciation in certain markets over the past number of years and more recently with the weakness in oil prices negatively impacting the Western Canadian economy, including employment. Economic pressure as a result of oil price weakness has yet to flow through to elevated delinquency levels at Genworth or their mortgage insurer counterparts, nor would the impacts be expected to be seen this soon. The initial impact of economic weakness stemming from the decline in oil prices is not expected to be seen until mid-to-late 2015, with the magnitude and persistence of such weakness depending on how low oil prices go and for how long. With roughly 17% of Genworth’s insurance in force in Alberta, and an additional 5% in the Prairie provinces, which also have exposure to oil, the impact of oil price weakness on the Canadian consumer and the extent to which weakness leads to defaults and housing price pressure will continue to be monitored. Genworth’s exposure to economic weakness within Canada benefits from the diversification of the Company’s mortgage insurance portfolio by both geography and across origination years.

DBRS continues to assess Genworth MI Canada and Genworth Financial Mortgage Insurance Company Canada on a stand-alone basis decoupled from the credit profile of its majority shareholder Genworth Financial Inc. (Genworth Financial). DBRS does not anticipate that the weakening of Genworth Financial will have a material impact on the ratings of either of the Canadian entities, given that the financial performance and funding of the Canadian business is highly independent from that of Genworth Financial. DBRS will continue to monitor the situation and its potential impact on the two rated Canadian entities, Genworth MI Canada and Genworth Canada, to assess whether potential impacts are deviating from expectations.

Notes:
All figures are in Canadian dollars unless otherwise noted.

The related regulatory disclosures pursuant to the National Instrument 25-101 Designated Rating Organizations are hereby incorporated by reference and can be found by clicking on the link to the right under Related Research or by contacting us at info@dbrs.com.

This rating is endorsed by DBRS Ratings Limited for use in the European Union.

The applicable methodologies are Rating Mortgage Insurance Companies and Rating Holding Companies and Their Subsidiaries, which can be found on our website under Methodologies.

The sources of information used for this rating include company documents. DBRS considers the information available to it for the purposes of providing this rating was of satisfactory quality.