Genworth MI (TSX: MIC) reported their third quarter earnings report yesterday evening. The highlights are not too dissimilar from their second quarter report (which I wrote about in an prior post) with the prevailing trends continuing:
– Year to year, gross/net premiums written continue to track lower this year than the previous, by about 12%, solely due to government regulatory changes. For the 9 months, premiums written were $382 million vs. recognized revenues of $430 million, so premium recognition at this rate should drop proportionately going forward.
– Loss ratios, and subsequently losses on claims, are the lowest they have been for a very, very long time. The loss ratio is 22% and this is incredibly low.
– The share buyback, as I reported earlier in the preview, brings down the shares outstanding to about 95.1 million. I very much doubt they will continue buying back shares at existing prices.
Also, while not directly relevant, they increased the dividend from 32 cents to 35 cents – historically they have increased the dividend by 3 cents each year. Cash-wise, the company has paid back $199 million to investors in the first nine months of the year and generated about $250 million through operations.
Portfolio-wise, they continue maintaining a bond portfolio – $5.06 billion, yielding roughly 3.7% at 3.8 years duration, and $219 million in dividend-yielding equity.
Business-wise, they’re clearly in a sweet spot where relatively few are defaulting on their mortgages and they continue to make a lot of money on insurance premiums. They also have a valuable vested interest in keeping the duopoly situation – the Government of Canada is the other player in the market via CMHC and they will obviously not want to pop the balloon which keeps them solvent as well. The question is whether this will continue and at least in the short term, it will. Market momentum might take this company higher than what its valuation on paper seems to be, which currently looks like what it is trading for presently. If we start seeing significant premiums over book value then I might consider paring back some of the position, but I am not in a rush to do so right now – even though due to appreciation this is starting to be quite a concentrated position.