Is the mortgage business still profitable?

MIC - Genworth

Genworth is the largest private residential mortgage insurer in Canada. The company offers both transactional and portfolio mortgage insurance. It provides mortgage default insurance to Canadian residential mortgage lenders. Genworth is known for delivering value at every stage of the mortgage process. The company operates through its subsidiary, Genworth Financial Mortgage Insurance Company Canada (Genworth Canada). With more than two decades of experience, Genworth has developed deep relations with lenders, brokers, realtors, etc. and has built a broad underwriting and distribution platform across Canada. The company has helped more than 1.7 million families buy their own homes and has supported over 250 Canadian lenders. Genworth provides tailored mortgage insurance products that help customers buy homes with as little as 5% down payment. Genworth primarily caters to first-time homebuyers in the 25-45 age bracket and with a $106K average household income. Genworth has developed a high-quality, well-diversified insurance portfolio, which is designed to reduce performance volatility through all phases of the economic cycle.

Investment Data

Revenue Growth & Market Exposure

Premium rates on portfolio mortgage insurance are generally lower than those on transactional mortgage insurance due to the lower risk profile associated with portfolio loans. Genworth benefits from higher transactional premium rates. It has been successfully increasing its transactional insurance market share in the near term. The company is experiencing growth in its transactional new insurance written as well as the increased levels of portfolio insurance resulting in higher premiums written. Net premiums written have also increased due to the faster momentum in high ratio mortgage insurance applications during the year. Genworth deploys a proactive risk management strategy and comprehensive underwriting practices. As a result, the company has successfully reduced its loss ratio to 17% at the end of 2019 from 25%, five years ago reflecting the value of a high-quality, well-diversified insurance portfolio in a resilient economic environment.

The OSFI mortgage rules did not have much of an impact on Genworth since it is a mortgage insurance company. The company continues to witness positive momentum in the housing market in most major markets following the initial impact of the B-20 stress test in 2018. The majority of Canadian housing markets have adjusted to the mortgage rate stress test, and are exhibiting more sustainable dynamics with stable sales volumes. In July last year, the Bank of Canada lowered the qualifying mortgage rate for the insured mortgage stress test by 15 basis points which should increase the affordability for first-time homebuyers. The company is in dialogue with the government on the previously announced First-Time Homebuyer Incentive Program.

Genworth is experiencing a strong pickup in first-time homebuyer activity. Low interest rates, a rational housing market, and a strong economic environment have acted as strong tailwinds for this trend. Buyers are also competing for entry-level homes in more rational marketplaces. The company is in a good position to gain from the persistent strength in employment and income growth across many regions of Canada. Genworth has been witnessing a strong combined ratio as losses on claims remain stable in strong labor and a more balanced housing market. Genworth is expecting market size expansion and market share momentum to drive top-line growth.

As the pipeline of future first-time homebuyers grows, mortgage insurance becomes indispensable. It is mandatory for less than 20% down payment, and a 100% coverage protects lenders against default risk. MIC premiums written are expected to be modestly higher in 2020 driven by ongoing market share momentum and market size growth. Genworth’s mortgage insurance operating platform is known for offering the best in class customer experience, high-quality insurance portfolio and innovative loss mitigation solutions. The company is well positioned to benefit from the regulatory and underwriting changes that are supportive of strong portfolio quality.


2019 marked Genworth Canada’s first decade of annual dividend increase each year since its IPO in 2009. The company has a decent payout ratio of ~44%, which has increased from 36% last year. Its annual average yield stands at 4.1% currently. Genworth’s most recent annual dividend hike was 12.5%. It also has a sound track record of share buybacks and paying periodic special dividends. Genworth declared a $125 million special dividend in September. The company returned a total of $608 million to shareholders during 2019 in the form of share buybacks, ordinary and special dividends. It sports a 5-year dividend growth rate of 7.9% CAGR. Genworth has grown its EPS by more than 5% CAGR over the last decade. Its margins have improved as a result of higher interest rates. Higher premium rates should drive profitability.

Genworth has a 10-year track record of annually increasing its quarterly dividend and has announced a 6% hike in the quarterly dividend to $0.54 per share. Its financial flexibility remains strong with a $300 million undrawn credit facility and low leverage of 10%. The company has been actively redeploying its excess capital as it focuses on capital efficiency. It has an estimated full-year loss ratio range of 15% to 25%.

Genworth MI recently closed the proposed acquisition of Genworth Financial’s 57% stake in its business by Brookfield Business Partners. The company’s transition efforts are underway to migrate its IT environment and finance systems to standalone Canadian platforms. Genworth MI is expecting an expense ratio of nearly 20% in 2020. After 2020, the expense ratio should lie within the target range of 18% to 20%. The company will continue to operate its business with its own independently developed insurance underwriting and claims management applications and models going forward.

Trade uncertainty, geopolitical and other disruptions such as the coronavirus, other macroeconomic and demographic factors, remains supportive overall for the Canadian housing market.


While Genworth competes with all the major Canadian banks, it actually handles a lot of the customers that are deemed risky for a bank which often consists of entrepreneurs or immigrants. Genworth has formed long-standing relationships with lenders, mortgage brokers, realtors, builders and industry associations across Canada. This grants the company an edge. Genworth has a leading market share among private mortgage insurers.

wpDataTable with provided ID not found!

Bottom Line

Genworth Canada enjoys the reputation of a leading private sector residential mortgage default insurer. Fundamentals remain supportive for first-time homebuyers and this trend is expected to continue in 2020. Genworth should benefit from strong employment fundamentals. There is a strong desire for home ownership in Canada and real estate wealth forms a big chunk of the overall Canadian wealth. Given its impressive yield, reasonable payout ratio, and a sound dividend growth history, Genworth could be considered before an insurance or mutual fund stocks but not before a conventional Canadian bank.

Genworth is not a core holding. You need to consider your financial sector industry exposure before taking a position in MIC. Its business is focused on the housing industry and it could always take a hit.

MIC vs Indexes


DISCLOSURE: Please note that I may have a position in one or many of the holdings listed. For a complete list of my holdings, please see my Dividend Portfolio.

DISCLAIMER: Please note that this blog post represents my opinion and not an advice/recommendation. I am not a financial adviser, I am not qualified to give financial advice. Before you buy any stocks/funds consult with a qualified financial planner. Make your investment decisions at your own risk – see my full disclaimer for more details.
Join 8,400+ Investors & Build a Winning Portfolio