Q1 2020 Earnings Call

May 6, 2020

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Good morning, ladies and gentlemen, thank you for standing by.

Welcome to the Gen. What am I kind of that incorporate Twentytwenty <unk> earnings conference call.

At this time, all participants are in listen only mode.

That was really prepared remarks, we will conduct a question answer session and instructions will be avoided.

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Proceed.

Thank you good morning, everyone and thank you for joining Genworth, Canada first quarter 2020 earnings call.

We didn't today's call or Stewart loving, our president and Chief Executive Officer in pellet mirrors, our Chief Financial Officer.

Let's start with our prepared remarks.

By an open question and answer session.

Our news release, including our management discussion and analysis financial statement and financial supplement.

Released last night and are posted on our website at www Dot Genworth thoughts <unk>.

A link to our live webcast slides for today's discussion are also posted on our website.

A replay of this call will be available because a number noted in the press release will also be available on our website following today's presentation.

I will be available online for approximately 45 days following today.

Our presentation and discussion today contain a disclaimer on forward looking statement and non biased around the statement.

We note that our actual results may differ from statement that we make which are forward looking.

We invite you to read the cautionary note regarding forward looking statement.

As well so I wasn't financial metrics presented on this call today, our non by for us measures and Thats touching on how the standardizing and are unlikely to be comparable to children measures by other companies.

I would now like to turn the call over to Stuart to begin in his prepared remarks Stuart.

Thanks, Aaron good morning, Thanks for joining our call.

This morning, I'm going to touch on some key financial highlights from our performance during the quarter.

Adding it to fill for people look at our results.

I will conclude with our assessment of the current environment and the fact is shaping our revised outlook for the remainder of the year.

Clearly the environment has changed significantly since the start of the year interfaces are covered 19 pandemic, resulting economic shutdown.

But Bosch I'll business had successfully transitioned to remote working environment in order to protect the well being by employees and continues to be fully operational has to serve our customers. During this challenging time.

I want to take a moment to recognize and thank all the frontline workers, we continue to put themselves at risk while helping submitted during this kind of need.

I also want to commend the government and federal a regulator for their efforts and helping to impact. The spent deneke is having on Canadians and the Canadian economy.

Thank you the quarter, we were pleased with our first quarter results, including positive topline momentum the 14, but had loss ratio and 13% operating return on equity.

Well the quota we delivered net operating income of $117 million down 1% over the prior year period and up 4% over the prior quarter.

This resulted in fully diluted operating earnings per share of $1.35 cents flat to the prior year period and up 4% over the prior quarter.

At 14%.

A loss ratio came in one point lower than the same period in the prior year six points lower than the prior quarter, primarily due to decreases in new delinquencies Medicare is in Alberta, Ontario, and Quebec.

Net premiums written totaled $114 million up 8% over the prior year period, driven by strong growth in transactional insurance volume, which was up 10% on a year over year basis.

This growth was largely due to the positive momentum to school and the number of high ratio well these transactions during the prior year, including the last quarter of 2019.

We ended the quarter with an estimated market ratio well the hundred 72%.

End points above the upper end about targeted operating range.

Redeployment of excess capital has been an active part of our strategy over the past five quarters, including the 400 million and special dividends paid during the first quarter of this year.

That said given the level of uncertainty in the current economic environment. We did not anticipate any further capital redeployment for the remainder of this year outside of our quarterly ordinary dividend.

We ended the quarter with a fully diluted book value per share of $39 at 61 cents, reflecting ongoing profitability offset by the special and ordinary dividends paid during the quarter.

With that I'll turn it over to fill for it didn't look at our first quarter financial results investment and capital position before addressing the current economic environment and its potential impact on our business in 2020.

Thanks, Jordan good morning.

They ended the first quarter with strong profitability and more importantly, a strong balance sheet and capital position.

Net operating income was $117 million up by 2 million from the fourth quarter, primarily due to lower losses and clean.

Premiums then were flat sequentially at $151 million.

As a reminder, within left from premium model has resulted in $2 billion unearned premium reserves, which in turn provides good visibility and stability going forward.

Accordingly, we expect premiums are empty modestly lower for the full year as a result, with the lower expected premiums written in 2020.

It's driven noted the French quarter loss ratio was only 14% or losses and claims of 25 million.

Lots is realistic freshly by 10 million, reflecting the stability and helping to labor market. The most parts of the country prior to the onset of Covidien 19.

The number of new delinquencies network cure decreased by 101 sequentially the areas there, particularly as the was relatively flat it's $59000.

The decline in that usually the led by Alberta frontier and come back.

In total the number of outstanding delinquency to 1754, they're doing see rate of 20 basis points were relatively flat year over year.

We expect losses in claims to be pressured starting as a second quarter shrunk portfolio quality, coupled with payment deferrals and or active.

Cost mitigation strategies are positive factors.

With respect to payment deferrals lenders the mortgage insurers have agreed to allow board was impacted by covert 19 to defer their mortgage payments for up to six months.

They ended the first will help or bridge income interruptions, there should be an effective loss mitigation strategy.

However, the company expects a subset of these deferrals will end up in default after the deferral period end.

As a result going forward. The company will include a provision and its incurred but not reported or IDN. Our reserve for its estimate of losses from different that would have otherwise occurred at parent deferrals not being in place.

I didn't know the reserves will be estimated using the company's internal wants forecasting model and said look forward looking economic scenarios for original unemployment rate in home prices.

Just a base case upside and downside scenarios will be assigned a probability weight with the base scenario received the highest rate.

Expenses in the quarter totaled $37 million inclusive of 3 million dollar expense related to share based compensation.

That's a result of the market correction in March the Nic share price fell below the Grand prize for certain option grant leading to an unrealized derivative loss.

While the resultant expense ratio of 22% was about where targeted ranges, 18% to 20% you expect to be around the high end of the range for the full year, including a onetime transition costs related to our IP infrastructure and financial systems.

We earned $54 million will operate under investment income, which was modestly lower sequentially by approximately 1 million due to the lower interest rate environment in a decrease in the average invested assets.

Total we generated an operating return on equity at 13% and they're fully diluted operating EPS of $1.35 cents.

All right diluted book value per share now stands at $39.61. After the paid a special visit the $4 a 64 cents during the quarter.

Turning to investment.

Were 6.1 billion dollar investment portfolio continues to be able to high credit quality.

Hi, its strong liquidity given its relatively short duration of approximately 3.5 years.

The current pre tax equivalent book deal was 3.2%.

Importantly, the portfolio as a measure of visibility and ability to our financial results.

But the financial market volatility in March government bond rate declined sharply and credit spreads widened significantly as a result unrealized losses on the investment portfolio into real good stood at $118 million at the cranes in the market value of preferred shares and corporate bonds were partially offset by gains and government bonds.

In April financial markets improve and the mark to market on the investment portfolio derivatives has significantly improved.

He thinks that the lower interest rate environment will persist for the remainder of 2020, and new money rates and realizing come for where interest rate hedging program will be lower than originally expected for the remainder of the year. Overall, we now expect our freedoms resi they can be moderately lower for the full year compared to 2019.

With respect to capital we ended the quarter with an estimated unlike that ratio, 172% supported by the run off for the capital requirements, resulting from the age of the 2018 and prior books.

Overall, the company's well capitalized with it my cat ratio above the target operating range of 160 to one of the 65% at a modest debt to total capital ratio, 15% consistent with our leverage target.

In addition, or 300 million dollar Undrawn credit facility provides further capital flexibility.

That's all the company had strong liquidity have an extended or debt maturity schedule by paying off the June 2003 maturity earlier this year through the issuance of $300 million, a seven year back at an attractive interest rate of 2.95%.

The next debt maturity of 260 million, it's not until 2024.

To date in 2020, we've redeployed approximately 400 million capital through special dividend that said to be do not anticipate any further capital redeployment or rip out quarterly ordinary dividends for the remainder of this year.

This reflects the economic uncertainty regulatory considerations it'd be words, as the portfolio insurance opportunities as banks and other lenders, but to access the government funding programs for insured mortgages.

In summary, the company is well positioned financially with a high quality investment portfolio and a strong capital and liquidity position.

I'll now turn the call back districts discussed the impact of the merchant economic conditions <unk>.

Thanks, Phil.

Into the current environment. It goes without saying that these are truly unprecedented times both in terms of the scale and impact of the covered 19 pandemic as well as the magnitude of support from central banks governments and regulators.

The federal government has implemented some important programs to help Canadian there's income has been or at risk are being affected by the 'cause it 19 pandemic.

These programs accrue the cata emergency wave subsidy, which provides an incentive eligible employers to retain employees with the help other federal waves subsidies as well as the Canada emergency response benefit which will pay $2000 per month for up to four months to Canadians who have lost majority other income.

At the provincial level measures have been implemented that provide direct cash payments to parents deferral of taxes fees and payments on loans or to the government.

Then the mortgage industry lenders and Mohegan assured have agreed to allow borrowers impacted by covered 19 tougher than mortgage payments for up to six months collectively these measures aimed at helping to bridge Canadians impacted by the current economic shutdown. So when the economy begins to recover with the goal of reducing the severity of the impact on people and implement.

These programs have a direct impact on our business in terms of the level and duration of unemployment and therefore, the ability of birth to make that mortgage payments.

In addition to measures aimed at income support the federal government, the banker, Canada, and Australia have taken several steps to providing them. This is more liquidity options from a mortgage insurer perspective. The primary changes have been the reintroduction our insured mortgage purchase program under which the government made by after 150 billion of NHL and mortgage backed securities.

As well as their inclusion as eligible collateral well said and banker kind of the programs as these programs require insured mortgages would have seen an increase in demand for portfolio insurance <unk>.

Maximize the available problem over just for this program. The government has also expanded the product parameters for poor southern insurance to include refinances and mortgages with an amortization. After 30 years provided they were originated prior to March Twentyth 2020.

This exception will be in place till the end of this year.

Furthermore, the department of financing now that it has suspended their limitation of the proposed changes to the mortgage rate stress test off he has announced that it two will be suspending a number of consultation, including the amended stress test for uninsured mortgages in an effort to allow lenders and insurance companies to respond to crooked 19 notwithstanding.

All of these measures they still a tremendous amount of uncertainty as to how the remainder of this year indexed will play out in terms of the health crisis and its impact on the economy.

Our strategy is focused on a dynamic proactive response to the current environment, while planning for a variety of potential future outcomes. This includes the development approachable economic scenarios I stress testing out business under those scenarios to develop appropriate responses in terms of capital flexibility loss mitigation and expense management.

We've taken our company and the strength of our balance sheet and the quality of our insurance in force.

Together with our disciplined risk management and proven loss mitigation strategies serve as important mitigants against economic pressure during times like these.

From an immediate tactical perspective, we enacted our business continuity plan earlier in March with or employees working remotely our customers remain complimentary about service delivery and we continue to make progress on a number of important initiatives. Despite our remote working environment.

Given the wide scale adoption of the mortgage payment deferral program. We are cross training celebrate underwriters to work and loss mitigation as we do expect a volume up delinquencies and therefore workout opportunities to increase later in the year as the most pending referrals coming to an end.

Based on preliminary reporting by our lenders, we estimate that approximately 13%, although outstanding insured mortgages as at March 31st have taken Pan and deferrals that said approximately 62% of these mortgages have an estimated current effective learn to that are less than 80%.

Based on all the income bridging programs in place we expect the vast majority it bothers will return to making regular mortgage payments at the end of the deferral period.

We've also implemented a number of underwriting changes to reflect the increased level of risk due to the code at 19 and low oil price situation. Overall. These changes are aimed at reducing our highest risk loans, which tend to underperform and that economic downturn.

At the same time, we've kept the changes as focus as possible to avoid any unnecessary impact on our customers.

But it come to planning for future scenarios. It is clear there are a wider range of potential outcomes for the company in 2000 and training given the rapidly evolving nature and uncertainty related to their covered 19 pandemic.

Therefore as noted earlier, we have developed a number of plausible economic scenarios and penetration purposes to find a base and a downside case, reflecting a range of assumptions from macro economic factors that may impact our business.

The critical driver in each of these two scenarios is a path of the covered 19 pandemic and to result in duration or social distancing measures and non essential business shutdown.

I'll pay scenario, we assume that new cases peak in the second quarter, followed by a gradual using a business closures into the third quarter, allowing for a degree of economic recovery by the end of the Europe.

This helps to mitigate some of the pressure on unemployment, which would enter your and 8% to 10% range. Under this scenario housing activity is expected to be significantly reduced during the second quarter as weak consumer confidence and social if there's something rules impact consumer behavior, we wouldn't expect to see a pickup in activity in the second half a year.

The economic recovery gets underway.

House prices did not change materially outpaced scenario as liftings respond largely instinct within that.

Oh downside scenario assumes a continuation of the health crisis, well into the second half of the year with ongoing business shutdowns shoes, they enter 2020 I.

Under this scenario unemployment, which is a much higher peak remains in the 10% to 15% range at the ended the year the impact on housing markets is more pronounced with a significant reduction in activity through the second half for the year and more pressure on house prices I supply outpaces the med.

Those scenarios unemployment rates in the oil producing regions are expected to remain more elevated through the ongoing pressure on oil prices.

Based on the results of our loss forecasting models and each of these two scenarios. We are updating our full year estimated loss ratio range from 15% to 25% to 25 to 40, the sand for 2020.

We will provide updated estimate at more data becomes available during the course of the next few quarters.

New business applications have declined as one would expect in this environment. However, we have stabilized at approximately 55% of the prior level for now which is encouraging as clearly there are people who are still feel confident about by I did the challenging circumstances.

We believe market activity will improve what's the shutdown forget <unk> and economies began to recover subject to the timing and pace of recovery as noted in our base and downside scenarios.

Neither case, we expect the overall high ratio motion market to be smaller than the prior year, which will result in lower transactional insurance written premium for 2020.

This will be partially offset by a higher volume of portfolio insurance written premiums due to increased demand from lenders in response to the federal government liquidity and funding programs.

While our overall strategic priorities have not changed some of them will be deferred in order to accommodate the more immediate need to focus on the current environment, including ensuring our employees remain say a business continues to have sufficient capital and liquidity and our business continuity plan remains operational and effective working.

With our customers competitors and government to find the best solutions to help mitigate the impact of this pandemic on borrowers our industry and the housing market, including the launch of the mortgage payment for program.

Pretty good and clear communication to our employees our customers our shareholders our board of directors and related government stakeholders.

Strategic initiatives that have not been deferred include the transition of our IP and accounting infrastructure from the U.S. to Canada as well as initiatives aimed at driving improved risk selection customer experience and productivity such as our smart or am I underwriting strategy.

Because of 19 pandemic and economic environment continues to evolve at a rapid pace.

However, encouraged by the dialogue regarding pad for reopening of non essential businesses across the country inline with our base case scenario.

Continue to monitor the key drivers for our business I will provide updates on our assessment and outlook on a regular basis.

In summary, we believe the company's well position to manage through this cycle given their capabilities and experience of our seasoned employee base, our disciplined risk management and proven loss mitigation strategy together with our balance sheet strength and quality of insurance in force.

Thanks for listening that concludes our prepared remarks, I will now turn the call back to the operate it commences QNX.

Thank you, ladies and gentlemen, we would love to conduct a question and answers to <unk>.

As a reminder to conference is being recorded for replay purposes me with a half due to refrain from using alcohol speaker phone or headsets turned to Q and a portion of todays call. It. If you have a question. Please press the star followed by the 100 Touchtone phone.

We'll hear I told acknowledging you request your questions will be pulled in the audit that they are received formal team.

Yeah first question.

As everybody knows that a style loved to ask a question, we'll now take a first question.

From Geoffrey Dunn of Dowling <unk>.

<unk> partners. Please.

Thanks, Good morning.

Obviously, there's a number of near term challenges ahead, let's see what I'm I'm curious more of your mid to longer term view.

As to.

What this pandemic experience my.

Influencing how generally found like Canada does business, how about the operations want it seems like its could be a catalyst for a number of changes digitization et cetera, all the number of fraud. So I'm curious what you think the deposit side all of this experience to be on the back by the before.

Hi, Jeff Good morning. Thanks for the question you know I think absolutely were like many companies now a learning a lot about what the onto the possible is in terms of digitization and moral frankly, more remote working and having been working a entirely remotely as a company for the last six weeks I would say we're very.

Very comfortable and very I'm confident in our ability to continue to deliver I'm on all our commitments to our customers a in this form and so I think longer term to your question. There is absolutely going to be question's around how we now continue upgrade and frankly, how we we integrate into an actual office environment in.

The future I can tell you I don't believe it looks the same as it is they were was before we came into this cut the pandemic.

There is no doubt I really a high degree of digitalization now business as you know we do underwrite will allow files in a digital realm and our lenders have seen some accelerated adoption or things like E signatures on digital closings. So I think the industry as a whole has seen some benefits from does this crisis that will persist.

Into the future, making it much easier to conduct a business you know you think about appraisers.

Even appraisers have continued to do the appraisals, but in a much more digitize raising and not actually visiting homes are relying on photo submitted by the homeowners.

Digitally printed two and Jude printers to ensure they are in fact from that location.

Enterprises can do their jobs that way and so I think there will be efficiencies cost savings and a and effectively our business should benefit from better long term.

Ultimately as you pointed out and as is obvious the real issue for US is gonna be the economy, and how that unfolds and what that means jobs and from a loss forecasting in the loss ratio point of view.

Along with the market recovery and how much I wouldn't premium there will be available in the market going forwards.

Okay, and then I understand you can put something in the basin mall you know the steps all walks were very helpful.

And I understand that the timing of the colder than the disclosures are primary job of it will be added publication My model. So could you talk a little bit more about how you're thinking about well, maybe maybe cobalt has only.

Quickly turn around this year in terms of the openings, but you're still dealing with the depressed oil prices also how are you thinking about that economic impact the Indonesian subs number down another although it's something that's out there.

Yeah, you're absolutely right I think you know we already I acknowledge that Alberta was in a tough spot coming into this crisis and as you know from prior discussions. We certainly has been seeing a disproportionate amount about claims coming from from that part of the country and this is not going to help obviously our view is that you know as the cobot crisis Wayne.

And as economic recovery gets underway its along the path for all that and the oil oil.

Oil pressured the dosing.

Just ask 'em, Craig Sweeney Who's our chip us obviously, just comment a bit more on how we're thinking about Alberta and the risk that represents right now.

Yeah, Thanks, Jordan and good morning, Jeff So.

Yes, certainly in our in our base scenario, we we have more negative assumptions for unemployment in house price appreciation.

For the oil regions and in particular for Alberta.

If you look at the you know the consensus around unemployment from the big six banks here.

Alberta could be a averaging anywhere from tween 10 and 15%.

Unemployment in 2020, and a that certainly aligns with our base scenario and definitely house prices could come off anywhere from three to five or 6% a this year.

To your point and this is a key differentiator, we do not expect a fast turnaround a recovery for for Alberta.

So again in our base scenario, our unemployment does stay elevated above what a 2019 levels are a well into 2021.

And we do expect potentially some modest house price appreciation a in the outer years as well so.

Certainly, it's a much slower recovery and.

Yeah, we do take some comfort from the recovery in WT I just didn't last couple of weeks in and certainly OPEC with their forecast for WT I'd be $40 in the third quarter.

But we at we believe that.

And again, you know based scenario that oil won't recover to 40 to $50, a again until well into 2021 and so.

Weve you know in response, we've taken some some underwriting actions in the province, and a and really focused on areas that are more sensitive to add to that oil prices within the region.

As well as sectors or that are more sensitive to to the impact from koby 19 and so.

You know this will certainly help from a portfolio quality.

That we originate in a in Alberta in 2020.

Which should help it sort of weathered the storm a of economic uncertainty coming.

I'd said to stewards point, Yeah, we do expect a alberta to over to contribute to losses. This year into next year and you know I think we look back over the last couple of years, they've been anywhere from 40% to 60% of our losses.

And I think the expectation would be for that trend to continue this year next if not maybe even go a little bit higher.

Very helpful. Thank you very much.

We'll now take or next question.

James loan from National Bank Financial. Please go ahead your line is though.

Yes. Thank you good morning.

My Yeah. My first question I, just wanted to get a better sense as to how the yeah, how the law and the loss ratio will will perform and a and the underlying drivers on those losses by the sounds a bit and.

Correct me if I'm wrong.

You when you shouldn't expect to see a material increase the delinquency rate.

I mean, let's say Q2 in Q3, given the payment deferrals.

And.

You know as a result, a I guess the the increase in losses through IDN, our is going to be driven by higher reserves or average reserves per delinquency.

In those two quarters and that's the right way to think about how.

Actual statements or got flow and.

In Q2 Q3.

James Good morning to its Georgia, Yeah, absolutely I mean, there is really not an expectation of seen much on the new delinquency front given the mortgage referral program, but it was as you know our businesses those on reserving for incurred but not reported as well and meaning that when we think an actual losses in has occurred.

Someone as Mr. payment, we're trying to estimate what is the best estimate of losses from those a population of file so.

We are gonna be implementing some from or reserving for that I'm going to turn or the filled to give you a little more detail on that.

Hi, good morning, and James on the way, we're thinking about a Jane is that your while reported delinquencies are not going to be rising as a result, the teams deferrals. We think it's important to reflect the boards that are taken teams deferrals that may ultimately go delinquent post the deferral period and.

As a result of that we're gonna take a model approach and we're going to essentially estimate what proportion of the borrowers that will ultimately go into delinquency post the deferral period it will build.

The incurred but not reported reserves so that at such time is when those doing so you do happen there already reserved appropriately and will be essentially estimate or the quarterly basis. What doing these have been avoided in that quarter that will ultimately happen in the post deferral period.

Okay and that so if I'm looking at the breakdown of loss reserves will be well see that increase in I'd be in our course case reserves that fairly steady what are you thinking around the the provision for adverse deviation should we see a.

A large uptake there as well.

Well I think it'll be a proportional increase to the same proportion that incurred but not reported increases arm I think or reserving practices. You know have proven to be fairly accurate. So I don't necessarily see a tremendous change in the approach to adverse deviation, but I think just given the fact, they incurred but not reported.

Is rising as a short notice the overall expected loss ratios rising one would expect to proportional increase of the adverse deviation provision.

Okay, great and that is if we take this though to a 2021 I notice that are starting to stretch a little bit on the on the guidance and the outlook, but if we're taking these.

Reserves today in 2020.

Or IB NR.

What would that also suggest that 2021, we're going to be.

Yeah, maybe perhaps experiencing more stable or even a potential improvement in the loss ratio.

Got you not base case scenario or even just the downside scenario.

Well I think Jamie it really depends on the economic conditions and the unemployment situation me clearly there are some borrowers that have taken PIMS deferrals, but they could be other factors at play into 2021, which is the overall economic environment as it relates to both home prices and unemployment. So there could be new delinquencies that occur in place.

21 that are not necessarily part of the payment deferral population onboard as they you know me the current today, but because as you know situations and 2021. So I think it's premature for us to comment on the potential loss ratio, but I think you know it will be driven by the economic fundamentals in 2021.

Okay. Thanks last last one from me then or just around the conversation or the the my cat ratio in capital.

Deployment Mitac currently north of 170% that target ranges wants 60 165 is that is that target range still in play in Mr. current environment or should we expect to see my cat remain a well above that target range and then the.

A follow on to that is.

Obviously the guidance to remove any further special dividends and capital returned to shareholders is there a potential we'll see that come back in the second half.

You know under looked at the base case scenario at night and a quicker recovery.

The Jane I was so do you like the guidance around our desired operating range is still there in a 161 65 is definitely the case. However, what I would tell you use that as as we noted in our scripts. We are certainly seeing higher demand for portfolio insurance right now and so while we are certainly trying.

To remain prudent as well in terms of capital strength. We're also trying to allocate an appropriate amount of our capital to to serve our lenders in doesn't need. So we will be looking at maintaining our my cat in that one six to 165, Austria, but north of that but you wouldn't expect to see it build materially above 170 because.

As we are deploying more capital to portfolio insurance.

Any given that that demand is still potentially and you know unexplored I either is there is some listings breast or there could be more through the rest of the euro it would be premature to conclude that they would be excess capital available later in this year for any redeployment, which is why we said we would not anticipate any further redeployment this year clearly portfolio.

Earlier insurance no isn't opportunity for us to help offset some of the reduction in the transactional insurance volume.

And as you know from past discussions, we get an opportunity to pick.

The push started that we'd like to insurers. So that we can insurance within our risk appetite et cetera. So this is something we want to take advantage of and in order to to deploy capital towards a topline growth and just maintaining as much about premium written base as possible.

Great. Thank you.

Moving on to our next question that we will take them writing from TD Securities. Please go ahead Sir.

Hi.

Morning.

Israel off.

Can I follow not on that comment there Stuart you know are you comfortable that there is enough demand out there or portfolio insurance, who are you know can you write as much as you want to sort of manage your capital ratio and they try to offset.

The lower transactional market you know what if there is not sufficient demand on the portfolio side.

Yeah, Graham I can tell you that so far we've seen a demand in excess of our appetite or we're not able to fill all the demand at this point the latter part of the you may see more demand clearly there was an initial.

Reaction to some of the government funding and liquidity programs, which drove the initial around the demand I think we may seem some of that again in the second half of your but it remains to be seen so clearly at this point, we're taking advantage of the opportunity as I said to write some high quality portfolio insurance.

It will not be enough to fully offset the reduction in the transactional insurance volumes, but it certainly helps to Ah partially offset it.

It is not just reflection portfolio.

It carries sort of a higher amount of.

It can seems higher amount of capital relative to the premiums, but then it generate.

Yeah. It does have as you know a fairly heavy capital.

Allocation amended the same time, the premium rates, obviously, much lower ourselves and our transactional wouldn't bring them. So it is going to help it it will not fully covers a loss in the or reduction in transactional insurance.

Got it and then just on your Ah you loss ratio range, 25% to 40% you know the commentary in the Mdna sounds like you're leading.

More heavily towards your base case outlook, which is 25% as opposed to the downside scenario is that a fair assessment or at this point are used for.

You know trying to equally balanced the potential for a range.

No. It is first of all that we basically put those two scenarios out to act as bookends of of use right now and there's certainly a continuum between the base and the downside and you know just because were maybe heading towards a base kisner doesn't mean the loss ratio is absolutely 25%. It depends on the degree of based scenario and of course.

As you train more towards the downside it could creep up to eventually as high as maybe 40%, but you know I would say given what we're seeing in the market right now given the discussions around reopening of a of non essential businesses I would say, we're definitely I'll give you that we're heading towards a base case scenario. It just depends.

Going to what extent, it's a base case, they could be a best case base case scenarios or was it could be some more of a is a blend between the base and the downside so.

At this point early on still of course, but I would say we are cautiously optimistic that it is more towards the base case, then the downside.

Got it and what about the regular dividends the 40% loss ratio if that does prove to be a case is the regular dividends paid for how do you or anything of that.

Yeah, No view in Ohio regular dividend remains safe well beyond our downside scenario and at this point. That's why we were very explicit on our intent to maintain that.

Tiffany they keep.

Minimum take or next question from Hum Mckinnon from B M. O conferences. Please go ahead.

Yeah. Thanks, very much morning, a question about the.

Thanks for the guide with back to the net premium earned for the remainder 2020.

I'm wondering what sort of right premium written that might imply given the fact that you're not speaking.

Green recognized her.

So.

My first.

Hey, Tom as far as net premiums written are concerned I mean, obviously, we're saying it will be lower than what we had originally anticipated for this year and certainly lower than 2019.

The extent to which it is lower at this point remains to be seen and again it will really follow which have a scenario we end up going down the premiums earned as you know really a is somewhat stable in that it reflects the last five years of business. So at this point you know they were able to give a bit more comfort around that because.

Steadily right. This year has has somewhat limited impact on the amount of earned premium and clearly we're not expecting to see a 50% reduction in the amount of print written this year, we indicated that we think market activity could be 15% to 25% lower and our base case scenario and I think you know if we see something like that you know with some part.

Sure I'll sit from further from portfolio insurance, you get a sense of where we think in premium written might be for this year and that could get a little worse, if you had down towards the downside scenario.

Well I Society.

Net premium earned guide for the remainder 20.

Lower.

And given the fact that.

So really the prior period.

Entering.

And if I took down net premium written into 25.

Thanks for the remainder of 2020 I'm sure we wouldn't have a 10% reduction in the net premium earned so that kind of where I'm coming from.

Yeah.

Let me tell others.

Some additional comments on this.

I'm Tom good morning.

We didnt know during the day that with this new base scenario and potential downside scenarios, there's the potential that the loss emergence patterns baby prolonged and as a result designs that couldnt be that we will be updated or loss or premiums earned curve has the commentary around.

Premiums are being potentially modestly lower because there is the potential that the loss emergence pattern on the last five books of business could be prolonged as result of the covert 19 economic scenarios.

Okay. That's helpful. Then so sounds like there so really the best thing to do it then it gets to your.

She curve in order to.

I'm in the line with your guide for the.

For the net premium earned does that take it sounds to me.

I think that's reasonable assumption in light of the fact that obviously with the higher unemployment and potentially softer home prices that couldn't means that the loss emergence pattern on you know the last three to four books of business. This prolonged.

Okay. That's great the second point with respect to payment borough.

Like there's any impact on the like that ratio in the near term, but yeah.

HM went after six months.

Then visit hit for like Africa.

Hi, Tom itself or anything like that.

It won't necessarily have a direct impact I mean, it it's most direct impact this was a loss ratio.

Because we don't necessarily increase capital for delinquencies are we were already Holden capitals that delinquencies will occur in a much worse situation awareness anticipated for the most immediate impact on the my cat ratio will be through operating income in equity. So we don't anticipate.

But it will have no any significant impact on the my cat Rachel.

Okay. Thanks for that.

As a reminder, if he would like to ask a question teas practice, there wasn't any telephone keypad once again that is back one.

Well take our next question Jamie Zone. Please go ahead your line is over.

Yeah, Thank say I wanted to follow up actually.

Given the I go to market turbulence on on the outlook for what was described as growth initiatives or potential growth initiatives are lacking investor day can you talk about where you are.

So not private mortgage insurance is that something that is that the shelves for now and not in any other initiatives that were not workplace and spoken about at the end yesterday.

Yeah, James Thanks for that the the private mortgage insurance opportunity for US is on hold as the reviews that was underway with Australia has been put on hold as as they have a number of other initiatives to allow ourselves another regulated entities to focus on uncovered 19. So.

For now we have showed that we are still of course are very interested in pursuing that and as soon as we can.

Get back to some version of normal and allow or Reengage with the regulator on it we will the we'll hope to see that come to fruition.

And as far as <unk>.

A question you know like I said in my comments were still very active in terms of some of the strategic initiatives that we had underway a in terms of.

Improving we're revising our underwriting a system is allowing for better risk selection was an ultimate goal was also improving the customer experience that work is underway and in fact, its somewhat of an opportune time to actually be focused on that because we are seeing less less volume. So there are more of our resources available to focus on those kinds of.

Correct.

And obviously, we also very actively involved in moving our IP infrastructure from the your restaurant to Canada that continues.

And is a very important focus for us.

The answer a question.

I think it went up and stuff and you said <unk>.

Moving on to the next question.

Yeah Im learning from TD Securities. Please go ahead.

I just wanted to follow on me.

ER payment default or do some 13% of the into Q1 isn't any change to that to that number.

Through April and what is the mix of that like dense ER.

You know in the mortgage market in Canada in a if fairly balanced between insured and uninsured space are you seeing.

I'm more waiting to falls to it to sort of one side of the youngest.

Great. There was no change that number in that we only just recently got that report it was a preliminary report and those and it reflecting the position as that much now we will be expecting.

More comprehensive reporting from lenders the 15th of every month going forwards and that will certainly help us to get a better a level of a analysis on these deferrals I will say that yes. There was no doubt some you know overweighting into deferral population to Alberta as you would probably expect.

But beyond that it's fairly well there's that represented the a allocation across the country.

Great and fairly consistent between or whatever is uninsured or insured mortgages are being deferred because that is that fair.

You know, we only got the reporting run it showed off course, but I think it would be a fairly safe assumption that because of the scale of the take up it would have been a fairly similar proportional allocation across ensured uninsured yes.

Okay, and what is the impact on your overall loan to value that you assume that you know 13%.

Of your book is deferred for six months.

Let me say, it's a pretty minimal impact I mean, you're talking about the you know.

The lack of principal pay down and there's a little bit of additional interest accrual for that period of time.

I don't expect it'll make a big difference in our overall loan to value the bigger drive a lot of course come from warehouse prices go.

Fair enough.

So if anything.

I don't know Pacre next question.

Jeff <unk> from RBC capital markets. Please go ahead your line is open.

Hi, Good morning, I'm just wondering.

And Andrew <unk> change that's perspective.

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Program.

Operating expenses Mitch.

It was time, but also to you keep saying.

To be able to.

I understand our.

Just for teens.

And your meters.

So.

Just yeah, I mean really what this is a large scale implementation of one of our best quarter tried and tested.

And then home ownership assistance program, so deferring payments through a period of temporary financial difficulty is very much something we've done in the past and successfully so I would say you know that is part of the reason why we have a degree of confidence around the number of borrowers that will resume payments clearly you know there's a lot of it.

Conversion going on now from the government and if it's successful.

A lot of those people will be able to resume payments.

We still have access to borrowers and certainly our our loss mitigation team. Our homeownership assistance team are actively engaged in working with borrowers, especially when they reach out to them directly.

And go through lenders that that has not stopped.

And I would say that we expect to be very very active in this space, even as the program continues and and as in fact deferrals come to an end you know there will be a fairly big involvement as you would imagine from from the big banks in terms of helping borrowers get back on to their payment schedules, but there may be other lenders smaller lenders, perhaps more original lenders that are.

As April or results to be able to manage that it will certainly be active and helping them. So we are fully geared up to do that as you heard from my comments were cross training a number of our underwriters right now to be able to assist in this area and we feel confident that we can manage or with that process.

Im sorry, so are you.

Just to keep person you know all of those borrowers.

Yes, we do I mean, the lenders reported to us at the file level. So we are able to identify which about borrows or which are the insured mortgages are on the deferral program.

And then and it just I guess it single arm studies.

Or some factors that Tonight, you know which subset.

On a response teams.

It would otherwise bond delinquent.

Sure.

The factors are really going to be a combination of things clearly equity. It plays a big role. So if you have a lower loan to value, you're probably going to have a better chance of curing yourself. If you aren't in fact able to replace your income and you have to sell one day I'm sorry, if you have very little equity that probably isn't an option to you and then it's going to be up.

Function or whatever you know what the secretary of the economy, you and then what type of implement UN before and whether or not that's something that can resume a once we come out of this and so.

We will be doing a more detailed analysis of that once we get the more formal reporting from lenders and identified the areas that we think we'll be at higher risk of not being able to resume their payments.

But to a larger stands the borrowers that have taken up these deferrals. Some of them has done it just because it's an additional form of flexibility not necessarily because they absolutely needed.

And I think you'll see that there's a high proportion of folks that would just.

Be able to resume payment once they are more comfortable with there are there particular personal situation.

And that's basically what we've we've been especially at this point, but we will number once we get more comprehensive report.

Okay and just my last question was then.

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So on its own.

The premium I can get your parents.

My recollection is I think back at the IPO English <unk> changed and opinion.

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Okay.

Jeff itself back at the <unk>.

Yeah I'm back of the IPO time, there was a change is the definition at the time of the IPO.

The regulation require you to use the prescribed.

Billions curve and what what's happened there was the wants emerges pattern was diverging from the prescribed team or are you is curves that asked me at that time had prescribed does that was somewhat of a onetime catch up primarily because.

The Delta was growing between the prescribed curbing the actual loss emergence patterns.

Today.

Any changes are made on a prospective basis. So any impact would it would be generally expected to be lower than you would've seen at the IPO time gay PEO side was a little bit of a cumulative catch up.

Okay. Thank you.

I will never taken last question from Jane blown.

Please go ahead.

Your line is open.

AH yes. Thank you just want to get to go into what color on now two items first that in the downside scenario a house price decline our art back then.

In the second half the 2020 in any material decline there after you.

He's put a little bit of color around what you view adds material has price decline.

Yeah, Dan you know I would say, it's an estimate at this point, but you know anything from 10% to 15% would certainly be was in our remote possibility on a national basis.

As you know there is no national housing market. So you would expect to see more pressure, perhaps in certain parts of the country, Alberta is one area that would be Ohio risk.

But certainly a 10% to 15% is sort of the range we're thinking of.

Okay, Great and then that in terms of the or 13% mortgages that are currently under payment deferral.

I think you mentioned, 60% have an LTV of less than 80% would you nailed also give or give us what percentage has that helped TV.

95% or in that and 90% to 95% bucket.

You know what at this point, it's a little preliminary to do that what we will commit to doing is providing more detailed analysis at all at our next quarterly call because we'll have more comprehensive reporting from our lenders at that point, so I'd, rather not semis on that number right now.

Okay. Thank you.

At this terrible.

I would like teleconference backed humorous 11th funny additional that closing the Max.

Let me. Thank you again and thanks, everyone for joining US today, we do appreciate the time, we would like to thank you for your questions and this concludes our first quarter cool.

I look forward to talking with you again in the near future.

That concludes today's call. Thank you for your participation you may now disconnect.

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Good morning, ladies and gentlemen, thank you for spending by.

Welcome to the Gen. What am I kind of that incorporated Twentytwenty first quarter earnings conference call.

At this time all participants are in listen only mode of management's prepared remarks, we will conduct a question and answer session and instructions will be provided at that time.

Anyone has any difficulties hearing the conference. Please press star followed by the zero for operator assistance at any time I would I'd like to blame that everyone. But this conference call is being recorded I'll now turn the conference over to our when it was vice President Finance and Investor Relations.

So what else you may.

Proceed.

Thank you good morning, everyone and thank you for joining Genworth, Canada as first quarter 2020 earnings call.

We didn't today's call our Stewart loving, our president and Chief Executive Officer, and pellet mirrors, our Chief Financial Officer.

Let's start with our prepared remarks, followed by an open question and answer session.

Our news release, including a management discussion and analysis financial statement and financial supplement.

Were released last night and are posted on our website at www Dot Genworth T.A.

A link to our live webcast slides for today's discussion are also posted on our website.

A replay of this call will be available via the number noted in the press release and will also be available on our website following today's presentation.

All will be available online or approximately 45 days following today.

Our presentation in discussion today contains disclaimer on forward looking statements and non IRS payment.

We note that our actual results may differ from statement that we make which are forward looking.

We divide due to read the cautionary note regarding forward looking statements.

As well some of the financial metrics presented on this call today, our non high for us measures and as such do not have a standardized meaning in are unlikely to be comparable to children measures by other company.

I would now like to turn the call over to Stuart to begins his prepared remarks Stuart.

Thanks, Eric Good morning, Thanks for joining our call.

This morning, I'm going to touch on some key financial highlights from our performance during the quarter.

Adding it to fill for people look at our results.

I will conclude with our assessment of the current environment and the fact is shaping our revised outlook for the remainder of the year.

Clearly the environment has changed significantly since the start of the year the face of the covered 19 pandemic, resulting economic shutdown.

But Bosch I'll business has successfully transitioned to remote working environment in order to protect the well being a by employees and continues to be fully operational as you serve our customers. During this challenging time.

I want to take a moment to recognize and thank all the frontline workers, who continue to put themselves at risk while helping so many during those kind of need.

I also want to commend the government and federal a regulator for their efforts and helping to eat the impact of spend deck is having on Canadians and the Canadian economy.

Thanks for the quarter, we were pleased with our first quarter results, including positive topline momentum, a 14% loss ratio and 13% operating return on equity.

For the quarter, we delivered net operating income of $117 million down 1% over the prior year period and up 4% over the prior quarter.

This resulted in fully diluted operating earnings per share of $1.35 cents flat to the prior year period and up 4% over the prior quarter.

At 14%.

A loss ratio came in one point lower than the same period in the prior year and fix punch lower than the prior quarter, primarily due to decreases in new delinquencies Medicare is in Alberta, Ontario, and Quebec.

Net premiums written totaled $114 billion up 8% over the prior year period, driven by strong growth in transactional insurance volume, which was up 10% on a year over year basis.

This growth was largely due to the positive momentum to school and the number of high ratio always transactions during the prior year, including the last quarter of 2019.

We ended the quarter with an estimated market ratio of 172% seven points above the upper end about targeted operating range.

Redeployment of excess capital has been an active part of our strategy over the past five quarters, including the 400 million in special dividends paid during the first quarter of this year.

We ended the quarter with a fully diluted book value per share of $39 at 61 cents, reflecting ongoing profitability offset by the special and ordinary dividends paid during the quarter.

Thanks, Jordan good morning.

MP ended the first quarter with churn profitability and more importantly, a strong balance sheet and capital position.

Net operating income was $117 million up by 2 million from the fourth quarter, primarily due to lower losses, including.

And then were flat sequentially at $151 million.

As a reminder, within left from premium model has resulted in $2 billion unearned premium reserve, which in turn provides good visibility ability going forward.

Accordingly, we expect premiums are empty modestly lower for the full year as a result, with the lower expected premiums written in 2020.

It's driven or is it the first quarter loss ratio was only 14% losses on claims of 25 million.

Lots is realistic freshly by 10 million, reflecting the stability and helping to labor market below parts of the country prior to the onset of covert 19.

The number of new delinquencies Medicare decreased by 101 sequentially the areas there, particularly as the was relatively flat at $59000.

The decline in that easily the led by Alberta, Ontario, and Quebec.

In total the number about Standardly 50 to 1754, and they're doing see rate of 20 basis points were relatively flat year over year.

While we expect losses in claims to be pressured starting in the second quarter shrunk portfolio quality, coupled with payment deferrals and our active.

Litigation strategies are positive factors.

With respect to payment deferrals lenders mortgage insurers have agreed to allow board impacted by current 19 to go further mortgage payments for up to six months.

David Deferrals will help or bridge income interruptions, there should be an effective loss mitigation strategy.

However, the company expects a subset of these deferrals will end up in default after the deferral period and.

As a result going forward. The company will include a provision and its incurred but not reported or IDN. Our reserve for its estimate of losses was default that would have otherwise the correct. It pays deferrals not being in place.

I'd NRT reserve will be estimated using the company's internal wants forecasting model and several forward looking economic scenarios for original unemployment rate in home prices.

Each of the base case upside and downside scenarios will be assigned a probability weight with the base scenario received the highest rate.

Expenses in the quarter totaled $37 million inclusive of 3 million dollar expense related to share based compensation.

That's a result of the market correction in March the Nic share price fell below the Grand prize for certain option grant leading to an unrealized derivative loss.

While the resultant expense ratio of 22% was above where targeted range, 18% to 20%. We expect should be around the high end up the range for the full year, including a onetime transition costs related to our IP infrastructure and financial system.

We earned 54 million of operating investment income, which was modestly lower sequentially by approximately 1 million due to lower interest rate environment decreasing the average invested assets.

Total we generated an operating return on equity at 13% fully diluted operating EPS $1.35 cents.

Diluted book value per share now stands at $39.61. After the pay those special visit the $4 a 54 cents during the quarter.

Turning to that.

$6.1 billion patent portfolio continues to be able to high credit quality provides strong liquidity given its relatively short duration of approximately 3.5 years.

Occurred pre tax equivalent book deal with 3.2%.

Importantly, the portfolio as a measure of visibility and ability to our financial results.

But the financial market volatility in March government bond rate declined sharply and credit spreads widened significantly as a result unrealized losses on the investment portfolio into real good stood at $118 million at the claims in the market value of preferred shares and corporate bonds or partially offset by gains and government barn.

In April financial markets improve and the Mark to market as he was asking portfolio and derivatives has significantly improved.

We expect that the lower interest rate environment will persist for the remainder of 2020 and new money rates unrealized thinking for where interest rate hedging program will be lower than originally expected for the remainder of the year. Overall, we now expect opryland resi they can be moderately lower for the full years compared to 2019.

With respect to capital we ended the quarter with an estimated like that ratio 172%.

By the run off for the capital requirements, resulting from the age of the 2018 and prior books.

Overall, the country as well capitalized with it my cat ratio above that target operating range of 160 to one is 65% at a modest debt to total capital ratio of 50% consistent with our leverage target.

In addition, or 300 million dollar Undrawn credit facility provides further capital flexibility.

That's all the company had strong liquidity have an extended or debt maturity schedule by paying off the June 2000, prematurity earlier this year through the issuance of $300 million is seven years back at an attractive interest rate of 2.95%.

The next debt maturity of 260 million, it's not until 2024.

To date in 2020, we've redeployed approximately 400 million capital truth special dividend that said to be do not anticipate any further capital redeployment over and above the quarterly ordinary dividends for the remainder of this year.

In summary, the company is well positioned financially with a high quality is that the portfolio and a strong capital and liquidity position.

I'll now turn the call back districts discussed the impact of the merchant economic conditions story.

Thanks, Phil.

Turning to the current environment. It goes without saying that these are truly unprecedented times both in terms of that scale at impact of the covered 19 pandemic as well as the magnitude of support from central banks governments and regulators.

The federal government has implemented some important programs to help Canadian there's income has been or at risk of being affected by the covered 19 pandemic.

These programs accrue the cata emergency wakes up study, which provides an incentive eligible employers to retain employees with the help other federal wave subsidy as well as the Canada emergency response benefits, which will pay $2000 per month for up to full months to Canadians who have lost the majority of their income.

At the provincial level measures have been implemented that provide direct cash payments to parents deferral of taxes fees and payments on loans or to the government.

Within the mortgage industry lenders and Mohegan assured have agreed to allow borrowers impacted by covered 19 to defer their mortgage payments for up to six months collectively these measures aimed at helping to bridge Canadians impacted by the current economic shutdown when the economy begins to recover with the goal of reducing the severity of the impact on people and employee.

Moment. These programs have a direct impact on our business in terms of the level and duration of unemployment and therefore, the ability of bothered to make their mortgage payments.

In addition to measures aimed at income support the federal government the banker, Canada, and Australia have taking several steps to provide and then this is more liquidity options from a mortgage insurer perspective. The primary changes are being the reintroduction of an insured mortgage purchase program under which the government made by up to 150 billion of NHL and mortgage backed securities.

As well as their inclusion as eligible collateral or certain banker kind of the programs as these programs require insured mortgages. They have seen an increase in demand for portfolio insurance.

To maximize the available pool of mortgages for this program. The government has also expanded the product parameters for portfolio insurance to include refinances and mortgages with an amortization uptick 30 years provided they were originated prior to March Twentyth 2020.

This exception will be in place till the end of this year.

Furthermore, the department of finance enough that it has suspended their limitation of the proposed changes to the mortgage rate stress test off he has announced that it two will be suspending a number or consultation, including the amended disrespectful uninsured mortgages in an effort to allow lenders and insurance companies to respond to cover 19 notwithstanding.

All of these measures they still a tremendous amount of uncertainty as to how the remainder of this your indexed will play out in terms of the health crisis and its impact on the economy.

Our strategy is focused on a dynamic proactive response to the current environment, while planning for a variety of potential future outcomes. This includes the development approachable economic scenarios and stress testing out business under those scenarios to develop appropriate responses in terms of capital flexibility loss mitigation at expense management.

Were taken all comfort and the strength of our balance sheet and the quality of life insurance in force.

Together with our disciplined risk management and proven loss mitigation strategies serve as important mitigants against economic pressure during times like these.

From an immediate tactical perspective, we enacted our business continuity plan earlier in March with all our employees working remotely our customers remain complementary of service delivery and we continue to make progress on a number of important initiatives. Despite our remote working environment.

Given the wide scale adoption of a mortgage payment deferral program. We are cross training some of our underwriters to work in loss mitigation as we do expect a volume of delinquencies and therefore workout opportunities to increase later in the year as the most pending approvals coming to an end.

Based on preliminary reporting by our lenders, we estimate that approximately 13%, although outstanding insured mortgages as at March 31st have taken pendant deferrals that said approximately 62% of these mortgages have an estimated current effects of loan to value less than 80%.

Based on all the income bridging programs in place we expect the vast majority of borrowers will return to making regular mortgage payments at the end of the deferral period.

We've also implemented a number of underwriting changes to reflect the increased level of risk due to the covert 19 and low oil price situation. Overall. These changes are aimed at reducing our highest risk loans, which tend to underperform and then economic downturn.

At the same time, we've kept the changes that focus as possible to avoid any unnecessary impact on our customers.

But it come to planning for future scenarios. It is clear there are a wider range of potential outcomes for the company in 2020, given the rapidly evolving nature and uncertainty related to their covered 19 pandemic.

Therefore as noted earlier, we have developed the number a plausible economic scenarios and penetration purposes to find a base and a downside case, reflecting a range of assumptions for macroeconomic factors that may impact our business.

The critical driver in each of these two scenarios is a path or the covered 19 pandemic and the result in duration or social dysentery measures and non essential business shutdown.

Now basin area, we assume that new cases peak in the second quarter, followed by a gradual using a business closures into the third quarter, allowing for a degree of economic recovery by the end of the Europe.

This helps to mitigate some of the pressure on unemployment, which would end of June 8% to 10% range. Under this scenario housing activity is expected to be significantly reduced during the second quarter as weak consumer confidence and social if there's something rules impact consumer behavior, we wouldnt expect to see a pickup in activity in the second half a year.

As the economic recovery gets underway.

House prices did not change materially outpaced scenario as liftings respond largely in sync with the net.

Oh downside scenario assumes a continuation of the health crisis, well into the second half of the year with on grain business shutdowns shoe the end or 2020 I.

Both scenarios unemployment rates in the oil producing regions are expected to remain more elevated through the ongoing pressure on oil prices.

Based on the results of our loss forecasting models and each of these two scenarios. We are updating our full year estimated loss ratio range from 15% to 25% to 25% to 40% for 2020.

We will provide updated estimate at more data becomes available during the course of the next few quarters.

We believe market activity will improve what's the shutdown forget that he's an economy has began to recover subject to the timing and pace of recovery as noted in our base and downside scenarios.

Neither case, we expect the overall high ratio motion market to be smaller than the prior year, which will result in lower transactional insurance written premium for 2000 and Trey.

This will be partially offset by a higher volume a portfolio insurance written premiums due to increased demand from lenders in response to the federal government liquidity and funding programs.

While our overall strategic priorities have not changed some of that will be deferred in order to accommodate the more immediate need to focus on the current environment, including ensuring our employees remain to our business continues to have sufficient capital and liquidity and our business continuity plan remains operational and effective working.

With our customers competitors and government to find the best solutions to help mitigate impact to the pembina on borrowers our industry and the housing market, including the launch of the mortgage payment referral program.

Pretty good and clear communication to our employees our customers our shareholders our board of directors and related government stakeholders.

Because of 19 pandemic and economic environment continues to evolve at a rapid pace.

However, encouraged by the dialogue regarding pad for reopening of non essential businesses across the country inline with our base case scenario.

We continue to monitor the key drivers for our business I will provide updates on our assessment and outlook on a regular basis.

In summary, we believe the company's well position to manage through this cycle given the capabilities and experience of our seasoned employee base, our disciplined risk management and proven loss mitigation strategy together with our balance sheet strength and quality of insurance in force.

Thanks for listening that concludes our prepared remarks, I'll now turn the call back to the operator commence with QNX.

Thank you, ladies and gentlemen, we will know conduct a question and answers to <unk>.

As a reminder to conference is being recorded for replay purposes, we will attribute to refrain from using alcohol speaker phone or headsets turned to Q and a portion of todays call. If you have a question. Please press the star followed by the 100 Touchtone phone you will hear I told acknowledging your request it questions will be poles.

In the audit that they are received promoting.

Yeah first question.

As everybody knows that a style I want to ask a question, we'll now take a fresh question.

From Geoffrey Dunn from building.

<unk> partners. Please.

Thanks, Good morning.

Obviously, there's a number of near term challenges ahead, let's see what I'm I'm curious more of your mid to longer term view.

As to.

What this pandemic experience my <unk>.

We went and how Genworth and like Canada does business Hello operations was it seems like this could be a catalyst for a number of changes digitization et cetera, all them up a fraud. So I'm curious what you think the deposit side all of this experience could be on the back by the perfect.

Hi, Jeff Good morning. Thanks for the question you know I think absolutely were like many companies now a learning a lot about what the ought to the possible is in terms of digitization and moral frankly, and their remote working and having been working entirely remotely as a company for the last six weeks I would say where.

Very very comfortable on very I'm confident in our ability to continues to deliver on what our commitments to our customers a in this format. So I think it longer term Geo question, there's absolutely going to be question's around how we now continue to operate and frankly, how we re integrated into an actual.

And in the future.

I can tell you I don't believe it looks the same as it is they are was before we came into this.

Endemic there is no doubt I really a high degree of Digitization and now business as you know, we do underwrite Wardell files in a digital realm, and our lenders have seen some accelerated adoption or things like E signatures on digital closings. So I think the industry as a whole has seen some benefits from the <unk>.

Crisis that will persist into the future, making it much easier to conduct a business you know you think about appraisers.

Even appraises have continued to do that appraisals, but in a much more digitize raise I'm not actually visiting homes are relying on for those submitted by the homeowners.

Digitally printed to endure print to ensure they are in fact from that location.

And then appraisers can do their job that way and so I think that will be efficiencies cost savings and a and and effectively our business should benefit from that in a long term.

Ultimately as you pointed out and as is obvious the real issue for US is gonna be the economy, and how that unfolds and what that means jobs just from a loss forecasting a loss ratio point of view, a along with the market recovery and how much are written premium there will be available in the market going forwards.

And then I understand you definitely basin mall distress all walks were very helpful.

And I understand that the timing of the colder than the business goes usual primary draw that reality publication. My model. So you can you talk a little bit more about how you're thinking about well maybe didn't cobalt has old.

Quicker turn around this year turns to be openings, but you're still dealing with the depressed oil prices also how are you thinking about that economic impact in the leading lumber about another almost all isn't there.

Yeah, you're absolutely right I think you know we already I acknowledge that Alberta was in a tough spot coming into this crisis and as you know from prior discussions. We certainly has been seen a disproportionate amount about claims coming from from that part of the country and this is not going to help obviously our view is that we know as the cobot crisis Wayne.

That is the economic recovery gets underway its along the path for all that and the oil oil.

Oil pressured the dosing I would ask Craig Sweeney Who's our chip US all those are just comment a bit more on how we're thinking about Alberta and the risk that represents right now.

Yeah, Thanks, Jordan and good morning, Jeff So.

Yes, certainly in our in our base scenario, we we have more negative assumptions for unemployment in house price appreciation.

For the oil regions and in particular for Alberta.

If you look at the you know the consensus around unemployment from the big six banks here.

Alberta could be a averaging anywhere from tween 10 and 15%.

Unemployment in 2020, and a that certainly aligns with our base scenario and definitely house prices could come off anywhere from three to five or 6% a this year.

To your point and this is a key differentiator, we do not expect the fast turnaround a recovery for for Alberta.

So again in our base scenario, our unemployment does stay elevated above what.

2019 levels are.

Well into 2021.

And we do expect potentially some modest house price depreciation a in the outer years as well so.

Certainly, it's a much slower recovery and.

Yeah, we do take some comfort from the recovery in WT I just do the last couple of weeks and it's certainly OPEC with their forecast for WT I'd be $40 in the third quarter.

But we at we believe that.

And again in our base scenario that oil won't recover to 40 to $50, a again until well into 2021 and so.

Weve you know in response, we've taken some some underwriting actions in the province, and a and really focused on areas that are more sensitive to add to the oil prices.

Within the region.

As well as sectors that are more sensitive to to the impact from cobot 19 and so.

You know this will certainly help from a portfolio quality.

That we originate in a in Alberta in 2020.

Which should help it sort of weather the storm a of economic uncertainty coming.

That said to stewards point, yeah, we do expect Alberta to over contribute to losses. This year into next year and you know I think we look back over the last couple of years, they've been anywhere from 40% to 60% of our losses.

And I think the expectation would be for that trend to continue this year next if not maybe even go a little bit higher.

Very helpful. Thank you very much.

We'll take our next question.

James loan National Bank Financial. Please go ahead your line is though.

Yes. Thank you good morning.

My Yeah. My first question I, just wanted to get a better sense as to.

How the yeah, how the law and the loss ratio will will perform and and the underlying drivers of those losses by the thousands of it isn't that correct me if I'm wrong.

You when you shouldn't expect to see a material increase in delinquency rate I mean, let's say Q2 in Q3, given the payment deferrals.

And.

You know as a result, a I guess the increase in losses through IDN, our is going to be driven by higher reserves or average reserves per delinquency.

In those two quarters and that's the right way to think about how.

Actual statements are not flow and.

In Q2 Q3.

James Good morning, just strays, yeah, yeah, absolutely I mean, there is really not an expectation of seeing much on the new delinquency front given the mortgage referral program, but as as you know our businesses those on reserving for incurred but not reported as well and meaning that when we think an actual losses in has occurred.

Someone as most of payment we're trying to estimate what is the best estimate of losses from those population of file so.

We are going to be implementing some form of reserving for that I'm going to turn over to fill to give you a little more detail on that.

Hi, good morning, and Jane on the way, we're thinking about a gene is that your while reported delinquencies are not going to be rise in as a result, the payment deferrals. We think it's important to reflect the boards that are taken paved deferrals that may ultimately go delinquent post the deferral period.

And.

As a result of that we're going to take a model approach and we're going to essentially estimate what proportion of the borrowers that will ultimately go into delinquency post the deferral period and we'll build.

The incurred but not reported reserves so that at such time is when those doing things do happen there already reserved appropriately and will be essentially estimate on a quarterly basis. What doing these have been avoided in that quarter that will ultimately happen in the post deferral period.

Okay and that so if I'm looking at the breakdown of loss reserves will be well see that increase and I'd be in our course case reserves that fairly steady what are you thinking around the the provision for adverse deviation should we see a a large uptake there.

As well.

Well I think it'll be a proportional increase to the same proportions that incurred but not reported increases.

Think or reserving practices have proven to be fairly accurate. So I don't necessarily see a tremendous change in the approach the adverse deviation, but I think just given the fact that incurred but not reported is rising as a short notice the overall.

Expected loss ratios rise in one would expect to proportional increase of the adverse deviation provision.

Okay, great and that if we take this though to a 2021 I know is that the starting at the stretch a little bit on the on the guidance and the outlook, but if we're taking these.

Reserves today in 2020.

Or IB and our would would that also suggest that 2021, we're going to be.

Yeah, maybe perhaps experiencing more stable or even a potential improvement in the loss ratio.

In that base case scenario of or even in the downside scenario.

Well I think Jamie it really depends on the economic conditions and the unemployment situation me clearly there are some borrowers that have taken PIMS deferrals, but there could be other factors at play into 2021, which is the overall economic environment as it relates to both home prices and unemployment. So there could be new delinquencies that occur in place.

For the ones that are not necessarily part of the payment deferral population onboard as they you know may be current today, but because as you know situations and 2021. So I think it's premature for us to comment on the potential loss ratio, but I think you know it will be driven by the economic fundamentals and 2021.

Okay. Thanks last last one from me then or just around the conversation or the Oh My cat ratio on capital.

Deployment Mitac currently north of 170% the target ranges wants 60 165 is that is that target range still in play in this current environment or should we expect to see my cat a remain a well above that target range and then the.

A follow on to that is.

Obviously, the guidance to remove any further special dividends and capital return to shareholders is there a potential we'll see that come back in the second half.

You know under let's say the base case scenario at night and a quicker recovery.

The Jane I always said the use of the guidance around our desired operating range is still there in a once they still want to 65 is definitely in the case. However, what I would tell you is that as as we noted in our scripts. We are certainly seeing higher demand for portfolio insurance right now and so while we are certainly try and.

To remain prudent as well in terms of capital strength. We're also trying to allocate an appropriate amount about capital to to serve our lenders in this need so we will be looking at maintaining our my cat in that once 61, 65, Austria, but most of that but you wouldn't expect to see it build materially above 170 because.

We are deploying more capital to portfolio insurance.

Any given that that demand is still potentially and you know unexplored I either is there is some listings breast, but there could be more through the rest of the Europe. It would be premature to conclude that they would be excess capital available later in this year for any redeployment, which is why we said we did not anticipate any further redeployment this year clearly portfolio.

Reinsurance no isn't opportunity for us to help offset some of the reduction in the transactional insurance volume.

And as you know from past discussions, we get an opportunity to pick.

The push started that we'd like to ensure so that we can insurance within our risk appetite et cetera. So this is something we want to take advantage of and in order to to deploy capital towards a topline growth and just maintaining as much of our premium written base as possible.

Great. Thank you.

Moving on to our next question, we will take them writing from TD Securities. Please go ahead Sir.

Hi.

Warning and Smith nature Love it.

Can I follow not all that comment there Stuart you know are you comfortable that there is enough demand out there or portfolio insurance, who are you know to you write as much as you want to sort of manage your capital ratio and they try to offset.

The lower transactional market you know what if there is not sufficient demand on the portfolio side.

Yeah, Graham I can tell you that so far we've seen a demand in excess of our appetite or we're not able to fill all the demand at this point.

The latter part of the you may see more demand clearly there wasn't initial.

Reaction to some of the government funding and liquidity programs, which drove the initial around the demand I think we may have seen some of that again in the second half of your but it remains to be seen so clearly at this point, we're taking advantage of the opportunity as I said to write some high quality portfolio insurance.

It will not be enough to fully offset the reduction in the transactional insurance volumes, but it certainly helps to partially offset it.

It is not just for a flagship portfolio.

It carries sort of a higher amount of.

It consumes a higher amount of capital relative to the premiums, but then it generate.

Yeah. It does have as you know a fairly heavy capital.

Allocation amended the same time the premium rates, obviously much lower so that our transactional written premium. So it is going to help it it will not fully cover the loss in the or reduction in transactional insurance.

Got it.

Then just on your Ah you loss ratio range, 25% to 40% you know the commentary in the Mdna sounds like you're leading.

More heavily towards your base case outlook, which is 25% as opposed to the downside scenario is that a fair assessment or at this point are used for.

You know trying to equally balanced the potential for a range.

No. Its first of all that we basically put those two scenarios out to act as bookends of although I'll use right now and there's certainly a continuum between the base and the downside and you know just because were maybe heading towards a base case no. It doesn't mean the loss ratio is absolutely 25% it depends on the degree or based scenario and of course.

It just depends on to what extent, it's a base case, they could be a best case based case scenarios or they could be some more of a blend between the base and the downside so.

At this point early on still of course, but I would say we are cautiously optimistic that it is more towards the base case than the downside.

Got it and what about the regular dividend or 40% loss ratio.

That does prove to be a case is the negative unsafe or how do you.

Anything above that.

Yeah, No view, our regular dividend remains safe well beyond our downside scenario and at this point. That's why we were very explicit on our intent to maintain that.

The Tiffany thank you.

Minimum take or next question from Hum couldn't be M.O. common to the please go ahead.

Yeah. Thanks, very much morning, a question about the.

Thanks for the guide.

The net premium earned for the remainder going 20.

I'm wondering what sort of.

I mean.

That might imply given the fact that you're not in <unk>.

I mean.

Recognize her.

Uh huh.

That's my first.

Yeah, Tom as far as net premiums written are concerned I mean, obviously, we're saying it will be lower than what we had originally anticipated for this year and certainly lower than 2019.

The extent to which it is lower at this point remains to be seen and again it will really follow which have a scenario we end up going down the premiums earned as you know really is somewhat stable in that it reflects the last five years of business. So at this point you know they were able to give a bit more comfort around that because weather.

We'll be right. This year has has somewhat limited impact on the amount of earned premium and clearly we're not expecting to see a 50% reduction in the amount of print written this year. You know we indicated that we think market activity could be 15% to 25% lower and our base case scenario and I think you know if we see something like that you know with some partial.

Offset from some other from portfolio insurance, you get a sense of where we think in printing wouldn't might be for this year.

And that could get a little worse, if you had down towards the downside scenario.

Well I suspect the that net premium earned guide for the remainder 20.

Lower.

And given the fact that.

So really the prior period.

During.

And if I took down net premium written into 25.

Thanks for the remainder of 2020 I'm sure we wouldn't have at 10% reduction in the net premium earned so that kind of where I'm coming from.

Yeah.

Let me tell others.

Some additional comments on this.

I'm Tom good morning.

We didnt know during the day that the new base scenario and potential downside scenarios, there's the potential that the loss emergence patterns, maybe prolonged and it was result of that that couldn't be that we will be updated or losses or a premiums earned curve has the commentary around premiums earned being.

Potentially modestly lower because there is the potential that the loss emergence pattern on the last five books of business could be prolonged as result of the covert 19 economic scenarios.

Okay. That's helpful. Then so sounds like there are really the best thing to do than it does that.

And curve in order to.

I'm in the line with your guide for the.

For the net premium earned that take it sounds to me.

I think that's reasonable assumption in light of the fact that obviously with the higher unemployment and potentially softer home prices that couldn't means that the loss emergence pattern on the last three to four books of business its prolonged.

Okay. That's great the second point with respect to the payment borough.

It seems like there's any impact on the like that ratio at least in the near term, but yeah.

And went after six months.

Then visit hit for like Africa.

Hi, Tom itself or anything like that.

Yes.

It won't necessarily have a direct impact I mean, it it's most direct impact is through the loss ratio.

Because we don't necessarily increase capital for delinquencies are we were already holding capital is that delinquencies will occur in a much worse situation that we're anticipating so the most immediate impact on the my cat ratio will be through operating income in equity. So we don't anticipate.

But it will have no any significant impact on the my cat ratio.

Okay. Thank for that.

As a reminder, if he would like to ask your question. Please press star one and it has on keep at once again that is back on.

Well take our next question Jamie don't Please go ahead your line is though.

Yeah, Thanks say I wanted to follow up actually.

Given the I guess in a market turbulence on on the outlook for what was described as growth initiatives or potential growth initiatives and lacking investor day can you talk about where you are.

So not private mortgage insurance is that something that is that the shelves for now and not in any other initiatives that were not workplace and spoken about at the end yesterday.

Yeah, James Thanks for that the the private mortgage insurance opportunity for US is on hold as the a view that was underway with Australia has been put on hold as as they have a number of other initiatives to allow ourselves another regulated entities to focus on cobot 19. So.

For now we have showed that we are still of course very interested in pursuing that and as soon as we can.

Get back to some version of normal and allow or Reengage with the regulator on it we will the we'll hope to see that come to fruition.

And as far as <unk>.

Your question you know like I said in my comments were still very active in terms of some of the strategic initiatives that we had underway.

In terms of.

Improving or revising our underwriting a system is allowing for better risk selection was an ultimate goal was also improving the customer experience that work is underway in effect.

It's somewhat of an opportune time to actually be focused on that because we are seeing less less volume. So there are more of our resources available to focus on those kinds of projects.

And obviously, we also very actively involved in moving our IP infrastructure from the U.S. up to Canada that continues.

And is a very important focus for us.

That's your question.

I think it really doesn't stuff and he said Lou.

Moving on to the next question.

Im writing.

These securities. Please go ahead.

I just wanted to follow on the.

ER payment default or due to 13% of the into Q1 isn't any change to that to that number.

Through April and what is the mix of that like dense ER.

You know in the mortgage market in Canada is a fairly balanced between reinsured any uninsured space are you seeing.

I'm more waiting and deferrals to sort of one side of younger.

Then.

There was no change that number in that we only just recently got that reported was a preliminary report and those.

Touching the position as that much now we will be expecting.

More comprehensive reporting from lenders on the 15th of every month going forwards and that will certainly help us to get a better a level of a analysis on these deferrals I will say that yes. There was no doubt some you know overweighting into deferral population to Alberta as you would probably expect.

But beyond that it's fairly well there's that represented the a allocation across the country.

Great and fairly consistent between or whatever is uninsured or insured mortgages are being deferred because that is that fair.

You know, we only got the reporting on it showed off course, but I think it would be a fairly safe assumption that because of the the scale of the take up it would have been a fairly similar proportional allocation across ensured uninsured yes.

Okay, and what is the impact on your overall loan to value. If you assume that you know 13%.

Book.

Deferred for six months.

Let me say, it's a pretty minimal impact I mean, you're talking about the you know.

The lack of principal pay down and then a little bit of additional interest accrual for that period of time I don't expect it'll make a big difference in overall loan to value the bigger driver law close come from warehouse prices go.

Fair enough.

That's it for they take it.

You know Peco next question.

Jeff <unk> from RBC capital markets. Please go ahead your line is open.

Hi, Good morning, I'm, just wondering how dynamic <unk> change with respect.

<unk>.

Program.

Operating expenses Mitch.

But also to <unk> seems to be able to borrowers that are.

As for teens.

Wouldn't have been E readers.

<unk>.

Just yeah, I mean really what this is a large scale implementation of one of our best quarter tried and tested.

Hone and home ownership assistance program, so deferring payments through a period of temporary financial difficulty is very much something we've done in the past and successfully so I would say you know that is part of the reason why we have a degree of confidence around the number of barge that will resume payments clearly.

You know there's a lot of income version going on now from the government and if it's successful a lot of those people will be able to resume payments.

We still have access to borrowers and certainly our a loss mitigation team. Our homeownership assistance, Jim are actively engaged in working with borrowers, especially when they reach out to them directly anda through lenders that that has not stopped.

As April or results to be able to manage that it will certainly be active and helping them. So we are fully geared up to do that as you heard from my comment where cross training a number of our underwriters right now to be able to assist in this area and we feel confident that we can manage ah with that process.

Sorry, so are you.

Just to keep are saying you know all of those borrowers.

Yes, we do I mean, the lenders reported to us at the file level. So we are able to identify which of our borrowers which are the insured mortgages are on the deferral program.

And then and it just I guess it single arm study.

You know what are some factors that Tonight, you know which subset.

<unk> <unk>.

They would otherwise on delinquent.

Sure.

The factors are really going to be a combination of things clearly equities plays a big role. So if you have a lower loan to value, you're probably going to have a better chance of curing yourself. If you aren't in fact able to replace your income and you have to sell one day I'm sorry, if you have very little equity that probably isn't an option to you and then it's going to be a fee.

Function or what you know what the sector of the economy, you and then what type of implement you into full and whether or not that's something that can resume a once we come out of this and so.

But to a larger stand the borrowers that have taken up these deferrals.

Some of them have done it just because it's an additional form of flexibility not necessarily because they absolutely needed.

And I think you'll see that there's a high proportion of folks that would just.

Be able to resume payment once they are more comfortable with their there a particular personal situation.

And that's basically what we've we've been I'm expecting at this point, but we will know more once we get more comprehensive report.

Okay and just my last question was I'm going back to you.

So on its own.

The premium recognition therapy.

My recollection is acting.

You would think <unk> change in the premium.

Yeah, and my understanding I guess, just you know the thing that recognition purpose.

And sometimes uptime and experienced friend lots for nations.

<unk> <unk> <unk> and about a one time inc. or <unk> or <unk> launched formation.

Sounds interesting or meaningfully faster.

Did you see some sizable though.

Thanks.

Yeah.

Here.

Yeah.

Jeff itself back at the eye.

Yeah I'm back of the IPO time, there was a change is the definition at the time of the IPO.

The regulation requires you to use the prescribed.

Billions curve and what what's happened there was the loss emergence pattern was diverging from the prescribed.

Are you is curves that asked me at that time had prescribed does that was somewhat of a onetime catch up primarily because.

The Delta was growing between the prescribed curbing the actual loss emergence patterns.

Today.

Okay. Thank you.

I will note taker last question from Jane blown.

Please go ahead.

Your line is open.

AH yes. Thank you just want to get a little bit more color on now two items first that in the downside scenario a house price decline our art back then.

In the second half the 2020, and then material decline there after you.

Can you just a little bit of color around what you view as material house price declines.

Yeah, then you know I would say, it's an estimate at this point, but you know anything from 10% to 15% would certainly be within our remote possibility on a national basis.

As you know there is no national housing market. So you would expect to see more pressure, perhaps in certain parts of the country, Alberta is one area that would be Ohio risk.

But certainly a 10% to 15% is sort of the range we're thinking of.

Okay, Great and then that in terms of the or 13% of mortgages that are currently under payment deferral.

I think you mentioned, 60% have an LTV of less than 80% would you nailed also give or give us what percentage has that helped TV.

95% or in that and 90% to 95% bucket.

Okay. Thank you.

Active favorable.

I'd like turn the conference that humans, 11th funny additional that closed in the Max.

Listen de thank you again, and thanks to everyone for joining US today, we do appreciate the time, we would like to thank you for your questions and this concludes our first quarter cool.

I look forward to talking with you again in the near future.

That concludes today's call. Thank you for your participation you may now disconnect.

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