Genworth's 1Q mortgage insurance earnings reveal market share gains

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Genworth's U.S. mortgage insurance business ended the first quarter with a $1.1 billion regulatory capital surplus. But as delinquencies increase and the company looks to conserve funds, further dividends aren't likely to get forwarded to the parent company this year.

First-quarter adjusted operating income for the U.S. MI unit increased nearly 20% on a year-over-year basis, to $148 million, from $124 million. The company benefited from an increase in refinancings in which the borrowers had to obtain a new mortgage insurance policy because the original loan was so recent the homeowner had yet to achieve an 80% loan-to-value ratio.

As a result, new insurance written for the quarter was $17.9 billion, down from $18.1 billion in the fourth quarter, but up 86% over the $9.6 billion written in the first quarter of 2019.

Genworth also benefited from a market share shift. Although just two of the six MIs have reported so far, Arch MI, the fourth-quarter leader in new insurance written, wrote $16.8 billion of NIW during the first quarter, or $1.1 billion less than Genworth, which ranked fourth one quarter ago.

Similar to Arch, Genworth said it wasn't aware of any new delinquencies related to the COVID-19 pandemic. It also did not identify any deterioration in the performance of existing delinquencies that would warrant reserve strengthening, as that remained low with strong cure rates.

Genworth ended the quarter with a private mortgage insurer eligibility requirement surplus of $1.1 billion. But as late payments increase from borrowers affected by the coronavirus, even with a certain level of regulatory relief, the PMIER surplus requirements will also rise.

Therefore, Genworth Financial, the holding company that includes both the U.S. business and the majority-owned Australian MI business, is not expecting those companies to pay it dividends for the rest of the year.

Another factor that will affect the U.S. MI business and the payment of dividends to Genworth Financial is the expected decline in purchase mortgage originations during the rest of the year, which makes up the bulk of NIW.

Genworth Financial had a net loss of $66 million in the first quarter, as it recorded $89 million of investment losses. One year ago, the company, whose other units include life and long-term care insurance, earned $174 million.

The company's adjusted earnings per share of $0.07 fell short of BTIG analyst Mark Palmer's estimate of $0.10 and the consensus estimate of $0.27. But those results were only meaningful insofar as "they did not raise any new red flags that would serve as impediments" to efforts to push China Oceanwide's acquisition of Genworth across the finish line.

In March, the companies agreed to extend the deal until the end of June. So far, it remains on track to close by the end of that month.

"Genworth was able to make significant progress towards closing the transaction with Oceanwide," Tom McInerney, president and CEO of Genworth, said in the press release. "Like Oceanwide, we remain fully committed to closing the transaction as soon as possible, which we believe is the best value for shareholders."

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