The country's largest private mortgage insurer says it expects rising losses on its portfolio of Alberta mortgages this year and is more heavily scrutinizing new applications from oil-sensitive regions of the province as low crude prices weigh on Western Canada's housing market.
Genworth MI Canada Inc. is raising its target loss ratio, a measure of claims paid compared to premiums earned, to a range of 20 per cent to 30 per cent, up from 15 per cent to 25 per cent, on expectations of rising unemployment and a 3- to 5-per-cent drop in Alberta home prices.
"Clearly, the current environment, specifically the low oil prices, will put some pressure on losses and potentially the size of the housing market in Alberta," Stuart Levings, Genworth's president and CEO, prices, told analysts during a conference call to report its fourth-quarter earnings Wednesday Alberta represents a fifth of the company's mortgage insurance business, although the province accounted for 27 per cent of new insurance premiums written last year. The bulk of Genworth's Alberta portfolio consists of insured mortgages dating back to 2012 and now average 20 per cent equity, offing a buffer against "a moderate downturn in house prices," chief risk officer Craig Sweeney said.
For the $8.8-billion worth of outstanding Alberta mortgages from the last two years, however, the borrowers tended to have relatively high loan-to-value ratio, with equity averaging just 16 per cent in 2013 and 9 per cent in 2014, due to slow home price appreciation and borrowers paying off less of the principal on their mortgages in those years, the company said.
It is also watching the Ontario housing market, where it sees "a modest degree of overvaluation" in prices of single-family homes.
Genworth is focusing on stemming losses in Alberta by more closely examining new applications, looking at whether borrowers will be able to afford their mortgage and conducting more detailed reviews of the home values supporting the loan.
It has been monitoring news of job losses in the oil patch, combing its databases to see where borrowers are employed. When Suncor Energy Inc. announced last month it was laying off 1,000 workers, the insurer scoured its portfolio for Suncor employees it thought would be potentially affected and contacted them with offers of modified payment plans and other programs.
Even as it braces for a rocky year in the Prairies, Genworth said the current downturn bears little resemblance to the financial crisis of 2009, when the company's loss ratio soared to 42 per, with half those losses coming from Alberta. Underwriting standards have improved since then, many of the more risky products, such as no-downpayment mortgages and 40-year amortizations, are a thing of the past. The average credit score in Alberta is 21 points higher today than it was in 2007.
The company, which controls an estimated 30 per cent of the country's mortgage insurance market, reported fourth-quarter net operating income of $84-million, down $9-million from the previous quarter, but up 39 per cent from the previous year, driven by a jump in the price of new insurance premiums. Losses on claims also rose 7 per cent in the fourth quarter to $37-million, although they were down 22 per cent for the year as a whole. Annual premiums rose 25 per cent.
Genworth Canada's stock has plummeted 25 per cent since November, when ratings agencies began downgrading the company's major shareholder, U.S.-based Genworth Financial, to junk status.