Genworth MI Canada Inc. Outlook Revised To Negative On Increased Credit Risk From COVID-19; 'BBB+' Ratings Affirmed

  • Canadian economic fallout from the protective measures to slow the spread of COVID-19 and a drop in oil prices will raise potential mortgage delinquencies and could lead to higher credit losses for Genworth Canada.
  • Swift actions through mortgage deferral program, a smaller origination market in recent years, price increases in 2015, 2016, and 2017 to reflect higher capital requirements, and structural benefits of the Canadian mortgage insurance market should help mitigate near-term pressures.
  • We are revising our outlook on Genworth Canada to negative and affirming our 'BBB+' long-term issuer credit and senior debt ratings.
  • The negative outlook reflects the high degree of uncertainty associated with the depth and the duration of the current economic environment and the resultant impact on company's performance and capitalization.
NEW YORK (S&P Global Ratings) March 26, 2020--S&P Global Ratings said today it revised its outlook on Genworth MI Canada Inc. and Genworth Financial Mortgage Insurance Co. of Canada (GFMICC) to negative from stable. We also affirmed our 'BBB+' long-term issuer credit and senior debt ratings on Genworth MI Canada Inc., and our 'A+' long-term issuer credit and financial strength ratings on GFMICC.
The deterioration in the economy because of the impact of COVID-19 and an increasing trend in unemployment will lead to a higher rate of delinquencies and potential losses for the company. However, there is a high degree of uncertainty about the ultimate level of delinquencies and the cure activity and severity of defaulted loans, especially if there is a deep and protracted recession, which can potentially impact the company's capitalization. Additionally, an elevated degree of consumer leverage for Canadian households may serve to exacerbate the risk.
Offsetting some of the pressures are the support from the government stimulus for the company, improved quality of the business underwritten in recent years due to higher average credit scores, the lower proportion of stacked risk factors, improved pricing from premium rates increases in 2015, 2016, and 2017, a smaller origination market in recent years that limited the vintage years that are most at risk, and strong capitalization (measured by both the Mortgage Insurer Capital Adequacy Test & S&P's proprietary model) in spite of capital returned to shareholders over the last two years. Additionally, given swift movement by the lenders, mortgage insurers and the federal government to provide a six-month reprieve to mortgage payments should limit the immediate impact to delinquencies, but if that window is not extended or things do not improve quickly in the recovery phase, delinquencies could still rise.
The negative outlook reflects the economic uncertainty and subsequent impact on the company's loss experience and risk-adjusted capitalization over the next 12 months due to the uncertainty associated with COVID-19.
We can lower our ratings in the next 12 months if the pressures from unemployment lead to higher-than-anticipated losses, especially in larger areas where risk in force is underwritten (i.e., the Greater Toronto area and Ontario), leading to a potential weakening of capitalization, in our view.
We could affirm the ratings and revise the outlook to stable if we see an accelerated improvement in macroeconomic conditions and the company's capitalization doesn't significantly deteriorate.
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