Genworth Benefits from Change in Canadian Law
A change in Canadian law regarding mortgage insurance in that country will result in an additional $80 million in fourth-quarter net income for Genworth Financial Inc.
While Genworth MI Canada Inc. is separately traded on the Toronto Stock Exchange, Genworth Financial still owns a majority stake in the company.
On Jan. 1, 2013, the Protection of Residential Mortgage or Hypothecary Insurance Act comes into effect and it will establish a legislative framework that replaces the current guarantee agreement Genworth MI Canada has with the Canadian government.
Currently Genworth contributes an amount equal to 10.5% of gross premiums written to a trust fund and pays a risk premium to the government. On Sept. 30, 2012, the trust fund held approximately C$980 million ($990.5 million).
As a result of PRMHIA, the trust fund is being eliminated. The 4Q12 gain for Genworth Financial is from the reversal of the accrued liability for exit fees. The U.S.-based parent’s portion of the exit fee accrual through the end of the third quarter is approximately $8 million. There are no other significant impacts expected on GAAP results or statutory capital in the U.S.
This past summer, Genworth Financial provided capital support to its U.S. MI business by using a portion of its stock holdings in Genworth MI Canada for funds. At the time, those shares had an estimated market value of $375 million.
For the Canadian business, Brian Hurley, chairman and chief executive of Genworth MI Canada, said the move will strengthen its claims-paying ability by approximately C$675 million ($683.2 million) and will result in a one-time increase in its net book value. The Canadian company should end up with a stronger balance sheet and improved claims-paying ability because of PRMHIA.