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Sagen MI Canada Inc. 2020 Earnings, Price Target Update

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Sagen MI Canada (MIC-TSX), previously Genworth MI Canada Inc. is a private sector residential mortgage insurer engaged in providing mortgage default insurance. The company has built a broad underwriting and distribution platform across Canada that provides mortgage insurance services to the majority of Canada's residential mortgage lenders and originators. The market includes underwriting mortgage insurance for residential properties in all provinces and territories of Canada and has market share among private sector mortgage insurers.

Sagen's mortgage insurance products are available thru an established network of Canadian residential mortgage lenders that include Canadian chartered banks, mortgage brokers, and financial services companies. Genworth underwrites mortgage insurance for residential properties across Canada. Canada Mortgage and Housing Corporation (CMHC), a crown corporation, is their major competitor. Their major private competitor is the Canada Guaranty Mortgage Insurance Company owned by the Ontario Teacher's Pension Plan acquired from AIG Canada in 2007 when AIG Corp. became insolvent following the Global Financial Crisis. Genworth is regulated under the Insurance Companies Act., Job, Growth and Long Term Prosperity Act that also governs CMHC, the Office of the Superintendent of Financial Institutions, National Housing Act, Protection of Residential Mortgage or Hypothecary Insurance Act, and a Government Guarantee Agreement. They must also meet the Minimum Capital Test (MCT).

They have been a leading Canadian private residential mortgage insurer since 1995, providing mortgage insurance services to Canadian chartered banks, trust companies and other lending institutions. Genworth Canada was 57% owned by Genworth Financial (GNW-NYSE) who operate in the US. Genworth Financials interest was acquired by Brookfield Asset Management through their subsidiary Brookfield Business Partners (BBU.UN) in Dec-2019. Federally regulated lenders in Canada are required to purchase transactional (high ratio) mortgage insurance in respect of a residential mortgage loan whenever the loan-to-value ratio exceeds 80%. They also provide portfolio mortgage insurance to lenders for loans with loan-to-value ratios of 80% or less. Transaction mortgage insurance comprises about 90% of revenues. Funds held in an investment portfolio pending possible claims payouts, contributed approximately 30% of income before tax, the balance primarily from transactional (high ratio) insurance. Profits are earned from insurance fees, and the investment portfolio after operating expenses, regulatory reserves, interest and costs of foreclosures are paid. The transition of the Genworth Financial Inc. management and administration contract was transferred to Brookfield Asset Management (BAM.A). The sale closed in Dec-2019. The purchase of the remaining 33% is expected to be completed in Jun-2021.

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