GENWORTH FINANCIAL: Genworth MI Canada Inc. Comments on OSFI's Guideline Related to Mortgage Insurer Capital Adequacy Test
Genworth Financial issued the following announcement on Aug. 9.
Genworth MI Canada Inc. (the "Company") (TSX: MIC) comments on the guideline entitled: "Mortgage Insurer Capital Adequacy Test" ("MICAT") released earlier today by the Office of the Superintendent of Financial Institutions ("OSFI"). The new guideline consolidates OSFI's current capital requirements for mortgage insurers into a single document, incorporating elements from OSFI's January 1, 2017 advisory, on "Capital Requirements for Federally Regulated Mortgage Insurers" and relevant chapters of the "2018 Minimum Capital Test for Federally Regulated Property and Casualty Insurance Companies".
As OSFI noted, "... the MICAT mainly consolidates existing guidance and is not expected to have a material impact on the regulatory capital for mortgage insurers..." The primary changes in the 2019 MICAT guideline are as follows:
The base total asset requirement, which is primarily based on loan-to-value, credit score, outstanding insured balance and remaining amortization, is increased by 5% relative to the current calculation.
The 2019 MICAT guideline requires the use of credit scores at the time of origination in the calculation of a base total asset requirement throughout the duration of the mortgage insurance coverage. This eliminates the requirement in the existing regulatory capital framework to use the updated 2016 credit score for 2015 and prior books in the calculation of the base total asset requirement.
There is a transitional arrangement that provides a phase-in period for the increased capital required for insurance risk on outstanding insured mortgages as at December 31, 2018.
The Company expects to be compliant with the 2019 MICAT guideline upon its implementation on January 1, 2019, subject to business and market conditions. The OSFI supervisory MICAT target ratio and the minimum MICAT ratio under government guarantee legislation remains at 150%.
Expected impact on required capital for existing insurance in force
Overall, the Company expects the impact of the elimination of the one time update to credit scores for 2015 and prior books should more than offset the 5% increase in the base total asset requirement on existing insurance in force. Furthermore, the transitional arrangements should run off in the first half of 2019 and should permit the Company to operate on a more capital efficient basis thereafter.
Expected impact on required capital for new insurance written in 2019 and thereafter
For transactional new insurance written in 2019 and thereafter, the Company estimates that the 5% increase in the base total asset requirement for insurance risk could reduce the lifetime operating return on equity by approximately 1% on new business, assuming the current pricing level and a long-run loss ratio range of 20 to 25%. With respect to the regulatory requirement to conduct an annual pricing review that applies to all mortgage insurance companies, the Company will take into account the increased capital requirements for new insurance written in 2019 and thereafter.
Expected MICAT impact in 2019
The Company believes that the total regulatory capital requirements in 2019, at its targeted operating MICAT range of 160 to 165%, should be marginally lower under the new MICAT guideline as compared to the existing regulatory capital framework. If the Company operates within its targeted MICAT operating range in 2019, the Company's operating return on equity for 2019 should be modestly higher under the new MICAT guideline as compared to under the existing regulatory capital framework.
Original source: http://newsroom.genworth.com/2018-08-09-Genworth-MI-Canada-Inc-Comments-on-OSFIs-Guideline-Related-to-Mortgage-Insurer-Capital-Adequacy-Test