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The country’s largest private mortgage insurer reported its second quarter results on Tuesday, including one key statistic that might leave housing skeptics second-guessing themselves.
Genworth MI Canada (MIC.TO) posted its lowest loss ratio in seven years—12 percent—meaning that the insurer only paid $12,000 in claims for every $100,000 in premiums that it charged. In other words, this exceptionally low metric means fewer borrowers are defaulting on their mortgages and contradicts anyone who sees a U.S.-style housing crash in Canada’s future.
But CEO Brian Hurley called the latest quarter’s loss ratio “unusual” when he spoke to BNN on Wednesday.
“There’s no way this level’s going to stay,” said Hurley, though he added that the supporting elements behind it are “pretty good”.
“You have a good housing market, very good borrowing demographics, and very good borrower profiles for us when it comes to FICO scores and credit scores.”
He predicts the loss ratio will move upward as the year progresses—the company is guiding investors to the 20-25 percent range.
Genworth has been stress testing its portfolio, according to Hurley. After analyzing risks such as national unemployment, home prices and regional stresses, the company set a holding target of 220 percent to cover any risks that it might face. It’s a prudent approach, according to one analyst report by Tom MacKinnon from BMO Nesbitt Burns.
Even though Hurley is preparing the company for the worst, his general outlook on the housing market is good. He thinks that unemployment will be fairly stable, a factor that greatly affects his business since it drives mortgage delinquencies.
“Home appreciation has cooled down, just like we wanted it to,” he said. “Vancouver is a terrific example.”
The condo market doesn’t worry Hurley, either. He thinks builders were smart to stagger condo construction at a rate that gives the market a chance to keep pace and absorb supply. He also thinks there is demand for new condos among new immigrants, a market made of 100,000 people every year.
He isn’t concerned about the credit quality of new immigrants, either. That’s not to say the company is cavalier about who it insures—it just employs a unique underwriting approach in assessing applicants.
“We place their financials as best as we can. If they have some bank history where they came from, that’s valuable. If they have some credit card history here in Canada, that’s valuable,” he says.
“You need to take 15 or 20 elements versus just a pay stub and your bank account statements, but it works,” he explains, adding that it’s been a very successful profile for the company with one of its lower delinquency rates.
So what is Hurley concerned about?
In the GTA, the supply of single-family residences at the high end of the market is scarce and bidding wars are driving up the prices of such properties.
“That’s something we’re watching very closely.”