Genworth MI (TSX: MIC) is going to report their 3rd quarter earnings on November 6, 2014. I do not expect anything too different than the previous quarter other than the seasonal factor of higher insurance underwriting as the Canadian housing market is more active in the summer.
Specifically, loss ratios are likely to be at significant lows. Q2-2014 reported 12%, which can only be classified as insanely low – Q3-2014 will be low, but probably not as low as that.
Earnings-wise, given their revenue recognition model, they will likely report revenues around the $141 million range and if their typical rate of realization on investment gains continue, should report around a $1.00 EPS level of operating income. Treasury bond yields were down quarter-to-quarter which should result in unrealized gains.
In terms of solvency, the company’s internal target is 220% of minimum capital required (which they state is sufficient for them to survive a severe recession). They reported 230% in Q2-2014, and this will be higher in Q3-2014. It is quite probable they will increase their dividend rate from 35 cents a quarter to a higher number (their track record has consistently lifted dividends in the Q3 of each year), but there is also a possibility of them declaring a special dividend to eliminate the excess capital.
I do not anticipate a share repurchase – management has been relatively diligent at only buying shares at or below book value.
Other than the usual cries of a pending Canadian real estate market crash, the only pending storm clouds for the company appear to be the fact that they might attract public scrutiny for simply being too profitable. While CMHC takes the lion’s share of the mortgage insurance market (and indeed this is a very lucrative industry for the crown corporation), Genworth MI takes the other slice of the market and earns duopoly-type returns for doing so. The party continues until it doesn’t.