GENWORTH MI CANADA INC.

(1)

Condensed Consolidated Interim Financial Statements (In Canadian dollars)

GENWORTH MI CANADA INC.

Three and six months ended June 30, 2015 and 2014 (Unaudited)

(2)

Condensed Consolidated Interim Statements of Financial Position (In thousands of Canadian dollars)

(Unaudited)

Notes June 30,

2015 December 31, 2014

Assets

Cash and cash equivalents 5 $ 324,635 $ 190,375

Short-term investments 5 123,632 84,933

Accrued investment income and other receivables 134,514 30,099

Derivative financial instruments 5 16 303

Bonds and debentures 5 4,616,570 4,630,169

Bonds and debentures under securities lending program 5 424,578 367,190

Equity investments 5 203,078 106,703

Equity investments under securities lending program 5 7,167 63,753

Collateral receivable under reinsurance agreement 4(e) 28,889 28,446

Total invested assets, accrued investment income and other receivables 5,863,079 5,501,971

Income taxes recoverable 8 31,092 6,465

Subrogation recoverable 4(c) 68,935 66,976

Prepaid assets 2,812 2,924

Property and equipment 1,118 1,335

Intangible assets 8,641 7,461

Deferred policy acquisition costs 4(d) 179,913 172,289

Goodwill 11,172 11,172

Total assets $ 6,166,762 $ 5,770,593

Liabilities and Shareholders' Equity

Liabilities:

Accounts payable and accrued liabilities $ 276,545 $ 41,557

Loss reserves 4(b) 116,297 115,493

Share-based compensation liabilities 7 12,085 16,764

Derivative financial instruments 5 43,100 23,298

Long-term debt 10 432,317 432,137

Unearned premium reserves 4(a) 1,846,725 1,798,568

Accrued net benefit liabilities under employee benefit plans 38,228 36,307

Deferred tax liabilities 41,511 35,122

Total liabilities 2,806,808 2,499,246

Shareholders' equity:

Share capital 11 1,366,304 1,384,558

Retained earnings 1,811,890 1,701,707

Accumulated other comprehensive income 181,760 185,082

Total shareholders' equity 3,359,954 3,271,347

Total liabilities and shareholders' equity $ 6,166,762 $ 5,770,593

See accompanying notes to the condensed consolidated interim financial statements.

On behalf of the Board:

(signed) "Brian Hurley" Director (signed) "Brian Kelly" Director

(3)

Condensed Consolidated Interim Statements of Income (In thousands of Canadian dollars, except per share amounts) (Unaudited)

Three months ended Six months ended

June 30, June 30,

Notes 2015 2014 2015 2014

Premiums written 4(a)(e) $ 205,024 $ 160,462 $ 335,303 $ 244,596

Premiums earned 4(a)(e) $ 144,052 $ 141,135 $ 287,146 $ 282,075

Losses on claims 4(b) 24,553 16,964 55,975 44,750

Expenses:

Premium taxes and underwriting fees 16,392 12,976 26,422 20,406

Employee compensation 12,386 11,449 20,433 22,494

Office 4,475 4,432 8,708 8,756

Professional fees 1,286 1,374 2,395 2,287

Promotional and travel 1,031 1,317 2,659 2,625

Other 236 263 627 619

Total expenses 35,806 31,811 61,244 57,187

Net change in deferred policy acquisition

costs 4(d) (6,619) (4,354) (7,624) (2,875)

29,187 27,457 53,620 54,312

Net underwriting income 90,312 96,714 177,551 183,013

Investment income:

Interest 40,443 43,125 81,544 86,156

Dividends 2,171 1,396 3,709 3,146

Net investment gains 16,763 5,211 31,785 10,542

Total investment income 59,377 49,732 117,038 99,844

General investment expenses (915) (1,104) (2,019) (2,352)

58,462 48,628 115,019 97,492

Interest expense 10 5,678 6,584 11,292 12,242

Fee on early redemption of long-term debt — 7,249 — 7,249

Income before income taxes 143,096 131,509 281,278 261,014

Income taxes:

Current 8 41,083 38,766 63,975 67,711

Deferred (1,454) (4,521) 6,386 1,170

39,629 34,245 70,361 68,881

Net income for the period attributable to owners

of the Company $ 103,467 $ 97,264 $ 210,917 $ 192,133

Earnings per share: 9

Basic $ 1.12 $ 1.02 $ 2.27 $ 2.02

Diluted $ 1.12 $ 1.02 $ 2.23 $ 2.02

(4)

Condensed Consolidated Interim Statements of Comprehensive Income (In thousands of Canadian dollars)

(Unaudited)

Three months ended Six months ended

June 30, June 30,

2015 2014 2015 2014

Net income $ 103,467 $ 97,264 $ 210,917 $ 192,133

Other comprehensive income:

Items that may be reclassified subsequently to income:

Net change in fair value of Available-for-Sale

("AFS") financial assets (a) (50,638) 19,549 15,007 58,015 Gains on AFS financial assets realized and

reclassified to income (b) (11,839) (7,234) (18,329) (8,587) Total other comprehensive income for the period

attributable to owners of the Company (c) (62,477) 12,315 (3,322) 49,428 Total comprehensive income attributable to owners of

the Company $ 40,990 $ 109,579 $ 207,595 $ 241,561

(a) Net of income tax of $14,517 for the three months ended June 30, 2015 (June 30, 2014 - $6,682) and net of income tax of $8,621 for the six months then ended (June 30, 2014 - $20,336).

(b) Net of income tax of $8,246 for the three months ended June 30, 2015 (June 30, 2014 - $2,530) and net of income tax of $10,533 for the six months then ended (June 30, 2014 - $3,010).

(c) Net of income tax of $22,763 for the three months ended June 30, 2015 (June 30, 2014 - $4,152) and net of income tax of $1,912 for the six months then ended (June 30, 2014 - $17,326).

(5)

Condensed Consolidated Interim Statements of Changes in Equity (In thousands of Canadian dollars, except per share amounts) (Unaudited)

Accumulated

other Total

Share Retained comprehensive shareholders'

capital earnings income equity

Balance at January 1, 2015 $ 1,384,558 $ 1,701,707 $ 185,082 $ 3,271,347 Comprehensive income:

Net income — 210,917 — 210,917

Other comprehensive loss — — (3,322) (3,322)

Total comprehensive income — 210,917 (3,322) 207,595

Total transactions recognized directly in equity:

Dividends on common shares⁽¹⁾ — (72,348) — (72,348)

Issuance of common shares 3,367 — — 3,367

Repurchase of common shares

(note 11) (21,621) (28,386) — (50,007)

Total transactions recognized

directly in equity (18,254) (100,734) — (118,988)

Balance at June 30, 2015 $ 1,366,304 $ 1,811,890 $ 181,760 $ 3,359,954

Accumulated

other Total

Share Retained comprehensive shareholders'

capital earnings income equity

Balance at January 1, 2014 $ 1,408,213 $ 1,555,062 $ 124,043 $ 3,087,318 Comprehensive income:

Net income — 192,133 — 192,133

Other comprehensive income — — 49,428 49,428

Total comprehensive income — 192,133 49,428 241,561

Total transactions recognized directly in equity:

Dividends on common shares⁽¹⁾ — (66,473) — (66,473)

Issuance of common shares 3,837 — — 3,837

Total transactions recognized

directly in equity 3,837 (66,473) — (62,636)

Balance at June 30, 2014 $ 1,412,050 $ 1,680,722 $ 173,471 $ 3,266,243

(1)The Company paid dividends of $0.39 per ordinary common share in the first and second quarters of 2015 ($0.35 per ordinary common share in the first and second quarters of 2014).

(6)

Condensed Consolidated Interim Statements of Cash Flows (In thousands of Canadian dollars)

(Unaudited)

Six months ended June 30,

2015 2014

Cash provided by (used in):

Operating activities:

Net income $ 210,917 $ 192,133

Adjustments for:

Amortization of intangible assets and depreciation of

property and equipment 1,187 2,092

Expensing of deferred policy acquisition costs 28,294 26,224

Income taxes 70,361 68,881

Interest income (81,544) (86,156)

Dividend income (3,709) (3,146)

Net investment gains (31,785) (10,542)

Interest expense 11,292 12,242

Fee on early redemption of long-term debt — 7,249

Share-based compensation expense net of equity total return swap

re-measurement (348) 4,005

204,665 212,982

Change in non-cash balances related to operations:

Accrued investment income and other receivables (106,510) (185)

Prepaid assets 112 (157)

Subrogation recoverable (1,959) 6,098

Deferred policy acquisition costs (35,918) (29,099)

Accounts payable and accrued liabilities 234,900 29,044

Loss reserves 804 (12,497)

Unearned premium reserves 48,157 (37,479)

Accrued net benefit liability under employee benefit plans 1,921 1,502

346,172 170,209

Cash generated from (used in) operating activities:

Interest received from bonds and debentures 88,633 94,834

Dividends received from equity investments 3,992 3,182

Interest paid on long-term debt (11,204) (10,394)

Income taxes paid (86,684) (299,558)

Share based compensation rewards settled in cash (1,405) (1,628)

Settlement of equity total return swaps (869) —

Net cash generated from (used in) operating activities 338,635 (43,355) Financing activities:

Net proceeds from long-term debt issuance — 158,635

Repayment of long-term debt — (157,249)

Dividends paid (72,348) (66,473)

Repurchase of common shares (50,007) —

Proceeds from exercise of stock options 1,843 1,790

Net cash used in financing activities (120,512) (63,297)

Investing activities:

Purchase of short-term investments (241,901) (85,992)

Proceeds from sale or maturities of short-term investments 203,202 100,163

Purchase of bonds (728,704) (705,035)

Proceeds from sale or maturities of bonds 733,062 823,301

Purchase of equity investments (209,438) (20,914)

Proceeds from sale of equity investments 162,066 55,715

Purchase of intangible assets and property and equipment (2,150) (2,566) Net cash generated from (used in) investing activities (83,863) 164,672

Increase in cash and cash equivalents 134,260 58,020

Cash and cash equivalents, beginning of period 190,375 213,692

Cash and cash equivalents, end of period $ 324,635 $ 271,712

(7)

Notes to Condensed Consolidated Interim Financial Statements (In thousands of Canadian dollars, except per share amounts) Three months and six months ended June 30, 2015 and 2014 (Unaudited)

1. Reporting entity:

Genworth MI Canada Inc. (the "Company") was incorporated under the Canada Business Corporations Act on May 25, 2009 and is domiciled in Canada. Its shares are publicly traded on the Toronto Stock Exchange under the symbol "MIC". The Company's registered office is located at Suite 300, 2060 Winston Park Drive, Oakville, Ontario, L6H 5R7, Canada.

Genworth Financial Inc., a public company listed on the New York Stock Exchange, indirectly holds approximately 57.3% of the common shares of the Company.

The Company holds a 100% ownership interest in the holding companies Genworth Canada Holdings I Company ("Holdings I"), Genworth Canada Holdings II Company ("Holdings II") and MIC Holdings F Company ("Fco"). The Company also holds an indirect 100% ownership interest in Genworth Financial Mortgage Insurance Company Canada ("Genworth Mortgage Insurance Canada" or the "Insurance Subsidiary") through Holdings I and Holdings II. These condensed consolidated interim financial statements as at and for the three and six months ended June 30, 2015, reflect the consolidation of the Company and these subsidiaries.

The Insurance Subsidiary is engaged in mortgage insurance in Canada and owns all of the issued and outstanding shares of MIC Insurance Company Canada ("MICICC"). MICICC is licensed to service policies originated prior to its acquisition by the Company in 2012, and underwrite reinsurance limited to the class of mortgage insurance.

The Insurance Subsidiary is subject to regulation under the Protection of Residential Mortgage or Hypothecary Insurance Act ("PRMHIA"). Under the terms of PRMHIA, the Canadian federal government guarantees the benefits payable under eligible mortgage insurance policies issued by the Insurance Subsidiary, less 10% of the original principal amount of each insured loan, in the event that the Insurance Subsidiary fails to make claim payments with respect to that loan due to its bankruptcy or insolvency. The Insurance Subsidiary and MICICC are regulated by the Office of the Superintendent of Financial Institutions Canada ("OSFI") as well as applicable provincial financial services regulators.

(8)

Notes to Condensed Consolidated Interim Financial Statements (continued) (In thousands of Canadian dollars, except per share amounts)

Three months and six months ended June 30, 2015 and 2014 (Unaudited)

2. Basis of presentation:

(a) Statement of compliance:

These condensed consolidated interim financial statements were prepared in accordance with International Accounting Standard 34 - Interim Financial Reporting. Accordingly, the condensed consolidated interim financial statements contain selected explanatory notes to the financial statements and do not include all the disclosures required by International Financial Reporting Standards. Full disclosures were included in the Company's annual consolidated financial statements for the year ended December 31, 2014.

These condensed consolidated interim financial statements were approved by the Board of Directors on August 4, 2015.

(b) Use of estimates and judgments:

The preparation of financial statements requires management to make judgments, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets and liabilities at the date of the condensed consolidated interim financial statements and the reported amounts of income and expenses during the period. Actual results may differ from these estimates. These significant judgments and estimates made by the Company in preparing these condensed consolidated interim financial statements were the same as those applied to the consolidated financial statements as at and for the year ended December 31, 2014.

(c) Seasonality:

The mortgage insurance business is seasonal in nature. While net premiums earned, investment income and underwriting and administrative expenses are relatively stable from quarter to quarter, premiums written and losses may vary each quarter. These variations are driven by the level of mortgage originations and related mortgage policies written, which typically peak in the spring and summer months. Delinquencies and losses on claims vary from quarter to quarter primarily as the result of prevailing economic conditions as well as the characteristics of the insurance in-force portfolio, such as size and age. All revenue and expenses are recognized when they occur in accordance with the accounting policies referred to in the Company's annual consolidated financial statements.

No revenue or expenses are anticipated or deferred for interim reporting purposes if anticipation or deferral would not be appropriate at the end of the Company's financial year.

(9)

3. Significant accounting policies:

The Company's complete accounting policies have been included in the consolidated financial statements for the year ended December 31, 2014. Accounting policies and methods of computation followed in the preparation of these condensed consolidated interim financial statements were the same as those applied by the Company in the annual consolidated financial statements as at and for the year ended December 31, 2014.

4. Insurance contracts:

(a) Premiums and unearned premium reserves:

Changes in unearned premium reserves recorded in the condensed consolidated interim statements of financial position and their impact on premiums earned are as follows:

2015 2014

Unearned premium reserves, beginning of period $ 1,798,568 $ 1,723,768

Premiums written during the period 335,303 244,596

Premiums earned during the period (287,146) (282,075)

Unearned premium reserves, end of period $ 1,846,725 $ 1,686,289

(b) Losses on claims and loss reserves:

The carrying value of loss reserves reflects the present value of expected claims costs and expenses and provisions for adverse deviation and is considered to be an indicator of fair value.

There is no ready market for the trading of loss reserves and the value agreed between parties in an arm's-length transaction may be materially different.

Loss reserves comprise the following:

June 30, December 31,

2015 2014

Case reserves $ 75,846 $ 75,178

Incurred but not reported reserves 35,082 35,365

Discounting (1,525) (1,936)

Provision for adverse deviation 6,894 6,886

Total loss reserves $ 116,297 $ 115,493

(10)

4. Insurance contracts (continued):

The following table presents movement in loss reserves and the impact on losses on claims:

2015 2014

Loss reserves, beginning of period $ 115,493 $ 117,388

Claims paid during the period (55,171) (57,247)

Losses on claims incurred during the period 55,975 44,750

Loss reserves, end of period $ 116,297 $ 104,891

(c) Subrogation recoverable:

The following table presents movement in subrogation recoverable during the period:

2015 2014

Subrogation rights related to real estate,

beginning of period $ 46,195 $ 55,968

Subrogation rights related to real estate acquired as a

result of settling claims, at fair value 105,783 105,043 Change in market value of real estate on hand (4,120) (2,645) Subrogation rights related to real estate disposed of

during the period (98,637) (109,058)

Subrogation rights related to real estate, end of period 49,221 49,308

Borrower recoveries, beginning of period 20,781 19,486

Net estimated borrower recoveries recognized 1,670 3,930

Borrower recoveries received (2,737) (3,368)

Borrower recoveries, end of period 19,714 20,048

Subrogation recoverable, end of period $ 68,935 $ 69,356

The Company applies an expected recovery rate based on historical experience of successful recoveries from borrowers to past claims paid and current loss reserves to establish a recovery accrual. The Company reviews the expected recovery rate quarterly to ensure it reflects the most current historical experience of successful recoveries.

(11)

(d) Deferred policy acquisition costs:

The following table presents movement in deferred policy acquisition costs and the impact on total expenses:

2015 2014

Deferred policy acquisition costs, beginning of period $ 172,289 $ 158,427 Policy acquisition costs deferred during the period 35,918 29,099 Deferred policy acquisition costs

expensed during the period (28,294) (26,224)

Net change in deferred policy acquisition costs

during the period 7,624 2,875

Deferred policy acquisition costs, end of period $ 179,913 $ 161,302

(e) Reinsurance:

Effective December 1, 2014, the Company, through its indirect subsidiary MICICC, entered into a retrocession agreement with a third party reinsurance company, under which the Company assumed reinsurance risk for approximately 33% of the retroceded liabilities on claims paid by Genworth Financial Mortgage Insurance Pty Limited, an Australian company (“Genworth Australia") in excess of 700,000 Australian dollars within any one year up to a maximum exposure to the Company of 30,000 Australian dollars less claims paid by the Company in prior years.

The term of the agreement is 3 years. Genworth Australia has the right to terminate the reinsurance agreement after the first year of coverage. Under the Agreement, the Company receives premium equal to 6.75% of the maximum exposure of 30,000 Australian dollars in the first year of coverage and 5.75% of the maximum exposure in the second and third years of coverage.

During the three and six months ended June 30, 2015, the Company recognized $487 and $977 of premiums respectively, and incurred no losses under the reinsurance agreement (2014 - $533 and $1,043 of premiums recognized and no losses incurred).

(12)

The Company is required to collateralize its reinsurance obligations by posting cash collateral equal to the maximum exposure of 30,000 Australian dollars. As at June 30, 2015, the Company has posted 30,000 Australian dollars, equivalent to $28,889 (December 31, 2014 - 30,000 Australian dollars, equivalent to $28,446), under the Agreement. The collateral is recorded as collateral receivable under reinsurance agreement on the Company’s condensed consolidated interim statements of financial position.

(13)

5. Investments:

The investments presented in the table below are carried at fair value:

June 30, 2015 December 31, 2014

Fair value Amortized

cost/cost Unrealized

gain (loss) % total fair

value Fair value Amortized

cost/cost Unrealized

gain % total fair value Cash and cash equivalents:

Canadian federal government treasury bills $ 233,484 $ 233,484 $ — 4.1 $ 135,628 $ 135,628 $ — 2.5

Cash 91,151 91,151 — 1.6 54,747 54,747 — 1.0

324,635 324,635 — 5.7 190,375 190,375 — 3.5

AFS investments:

Short-term investments:

Canadian federal government treasury bills⁽¹⁾ 123,632 123,632 — 2.2 84,933 84,933 — 1.6

Government bonds and debentures:

Canadian federal government 1,803,434 1,720,883 82,551 31.7 1,769,540 1,696,877 72,663 32.5

Canadian provincial and municipal government 964,623 887,354 77,269 16.9 897,897 829,461 68,436 16.5

2,768,057 2,608,237 159,820 48.6 2,667,437 2,526,338 141,099 49.0

Corporate bonds and debentures:

Financial 1,033,756 985,090 48,666 18.1 1,142,371 1,096,582 45,789 21.0

Energy 282,482 261,291 21,191 5.0 252,453 234,335 18,118 4.6

Infrastructure 218,277 202,392 15,885 3.8 240,940 226,616 14,324 4.5

All other sectors 583,208 533,496 49,712 10.2 568,746 532,185 36,561 10.4

2,117,723 1,982,269 135,454 37.1 2,204,510 2,089,718 114,792 40.5

Asset backed bonds⁽²⁾ 155,368 137,653 17,715 2.7 125,412 119,930 5,482 2.3

Total AFS bonds and debentures 5,041,148 4,728,159 312,989 88.4 4,997,359 4,735,986 261,373 91.8

Preferred shares:

Financial 113,619 118,255 (4,636) 2.0 — — — —

Energy 47,283 48,752 (1,469) 0.8

All other sectors 21,704 22,145 (441) 0.4 — — — —

182,606 189,152 (6,546) 3.2 — — — —

Common shares:

Financial 3,659 3,726 (67) 0.1 45,074 37,088 7,986 0.8

Energy 4,122 4,161 (39) 0.1 28,756 26,924 1,832 0.5

All other sectors 19,858 17,131 2,727 0.3 96,626 78,644 17,982 1.8

27,639 25,018 2,621 0.5 170,456 142,656 27,800 3.1

Total AFS equity investments 210,245 214,170 (3,925) 3.7 170,456 142,656 27,800 3.1

Total investments $ 5,699,660 $ 5,390,596 $ 309,064 ⁽³⁾ 100.0 $ 5,443,123 $ 5,153,950 $ 289,173 ⁽³⁾ 100.0

(1) Canadian federal government treasury bills includes $40,089 (December 31, 2014 - $22,418) in collateral posted for the benefit of the Company's counterparties to its derivative financial instrument contracts as described in the

derivative financial instruments section of note 5.

(14)

5. Investments (continued):

The fair value of investments, excluding equity investments and cash and cash equivalents, are shown by contractual maturity of the investment.

June 30, December 31,

2015 2014

Terms to maturity:

Federal, provincial and municipal bonds and debentures and short-term investments:

1 year or less $ 391,406 $ 288,499

1 - 3 Years 533,386 675,912

3 - 5 Years 985,332 768,565

5 - 10 Years 732,751 777,605

Over 10 Years 248,814 241,789

2,891,689 2,752,370 Corporate bonds and debentures and asset backed bonds:

1 year or less 206,207 257,817

1 - 3 Years 570,159 532,720

3 - 5 Years 454,698 501,109

5 - 10 Years 652,360 640,669

Over 10 Years 389,667 397,607

2,273,091 2,329,922

$ 5,164,780 $ 5,082,292

Investments denominated in foreign currencies:

Corporate bonds and debentures and asset backed bonds include $246,275 (December 31, 2014-

$229,870) of emerging market bonds and $155,368 (December 31, 2014 - $117,342) of collateralized loan obligations ("CLOs") denominated in U.S. dollars. The CLOs are structured credit securities, collateralized by U.S. bank loans with an average AA credit rating, that pay interest based on floating interest rates indexed to the London Interbank Offered Rate.

(15)

Derivative financial instruments:

Derivative financial instruments are used by the Company for hedging purposes and for the purpose of modifying the risk profile of the Company's investment portfolio, subject to exposure limits specified within the Company's investment policy guidelines, which have been approved by the Board of Directors.

The Company uses derivative financial instruments in the form of foreign currency forwards and cross currency interest rate swaps to mitigate foreign currency risk associated with bonds denominated in U.S. dollars and reinsurance collateral denominated in Australian dollars. Foreign currency forwards and cross currency interest rate swaps are contractual obligations to exchange one currency for another at a predetermined future date.

The Company uses equity total return swaps to hedge a portion of its economic exposure from the changes in fair market value of the Company's common shares, in relation to risks associated with share-based compensation expense. Additional disclosure of the Company's equity total return swaps is included in note 7.

The following table shows the fair value and notional amounts of the derivatives by terms of maturity, in Canadian dollars:

Notional amount

June 30, Net 1 year 1 - 3 3 - 5 Over 5

2015 fair value or less years years years Total

Foreign currency forwards⁽¹⁾ $ (25,187) $ 28,386 $ 34,567 $ 25,955 $ 203,737 $ 292,645 Cross currency interest rate

swaps⁽¹⁾ (17,519) — 134,612 — — 134,612

Equity total return swaps⁽¹⁾ (378) — — — — —

Total $ (43,084) $ 28,386 $169,179 $ 25,955 $ 203,737 $ 427,257

(16)

Notional amount

December 31, Net 1 year 1 - 3 3 - 5 Over 5

2014 fair value or less years years years Total

Foreign currency forwards⁽¹⁾ $ (14,902) $ 29,322 $ 5,752 $ 16,500 $ 203,033 $ 254,607 Cross currency interest rate

swaps⁽¹⁾ (8,249) — 120,558 — — 120,558

Equity total return swaps⁽¹⁾ 156 — — — — —

Total $ (22,995) $ 29,322 $126,310 $ 16,500 $ 203,033 $ 375,165

(1) As at June 30, 2015, foreign currency forwards included $25,203 of derivative financial instrument liabilities and $16 of derivative financial instrument assets. All cross currency interest rate swaps and all equity total return swaps were in a liability position. As at December 31, 2014, foreign currency forwards included $15,049 of derivative financial

instrument liabilities and $147 of derivative financial instrument assets. All cross currency interest rate swaps were in a liability position and all equity total return swaps were in an asset position.

The Company enters into collateral arrangements with its derivative counterparties that require the posting of collateral upon certain net exposure thresholds being met. As at June 30, 2015, the Company had posted collateral of $40,089 (December 31, 2014 - $22,418) in the form of Canadian federal government treasury bills for the benefit of its counterparties to the foreign currency forwards, cross currency interest rate swaps and equity total return swaps.

Fair value measurements:

Fair value measurements are based on a three-level fair value hierarchy based on inputs used in estimating the fair value of financial instruments. The hierarchy of inputs is summarized below:

• Level 1 - inputs used to value the financial instruments are unadjusted quoted prices in active markets for identical assets or liabilities;

• Level 2 - inputs used to value the financial instruments are other than quoted prices included in Level 1 that are observable for the asset or liability either directly or indirectly; and

• Level 3 - inputs used to value the financial instruments are not based on observable market data.

(17)

The following table sets forth inputs used as of June 30, 2015 in valuing the Company's financial instruments carried at fair value:

Level 1 Level 2 Level 3 Total

Bonds and debentures $ — $ 5,041,148 $ — $ 5,041,148

Equity investments 210,245 — — 210,245

Short-term investments 123,632 — — 123,632

Net derivative financial instruments — (43,084) — (43,084)

$ 333,877 $ 4,998,064 $ — $ 5,331,941

During the three and six months ended June 30, 2015, the Company did not hold any investments measured at fair value using unobservable inputs (Level 3). Transfers between levels of the fair value hierarchy may occur if the inputs used to value the investments change. Any transfers between the levels are deemed to have occurred at the end of the reporting period. Given the types of assets classified in Level 1, which are short-term investments and equity investments, the Company does not typically have any transfers between Level 1 and Level 2 of the fair value hierarchy, and there were no such transfers during the three and six months ended June 30, 2015.

Valuation of Level 2 financial instruments:

Fair values of bonds and debentures, including CLOs, are obtained primarily from industry-standard pricing services and third party brokers utilizing market observable inputs. Fair value is assessed by analyzing available market information through processes such as benchmark curves, benchmarking of like securities and quotes from market participants.

Observable information is compiled and integrates relevant credit information, interest rates of the underlying investment, perceived market movements and sector news. Market indicators, industry and economic events are also monitored as triggers to obtain additional data. The primary inputs used in determining fair value of bonds and debentures are interest rate curves and credit spreads.

(18)

Derivative financial instruments are non-exchange traded foreign currency forwards, cross currency interest rate swaps and equity total return swaps. The value of these derivative financial instruments is determined using an income approach in which future cash flows expected from the contracts are discounted to reflect the current value of the derivative financial instruments. The primary inputs used in determining fair value of foreign currency forwards and cross currency interest rate swaps are interest rate yield curves and foreign currency exchange rates. The primary inputs used in determining fair value of equity total return swaps are market prices for referenced assets and interest rate yield curves.

6. Related party balances and transactions:

The Company enters into related party transactions with Genworth Financial Inc. and its subsidiaries.

Services rendered by Genworth Financial Inc. and affiliated companies consist of information technology, finance, human resources, legal and compliance, and other specified services. The services rendered by the Company and the Insurance Subsidiary relate mainly to financial reporting and tax compliance support services. These transactions are in the normal course of business and are at terms and conditions no less favourable than market. Balances owing for service transactions are non-interest bearing and are settled on a quarterly basis.

The Company incurred net related party charges of $1,584 and $3,134 for the three and six months ended June 30, 2015, respectively (June 30, 2014 - $1,306 and $2,604, respectively). The balance payable for related party services at June 30, 2015 is $215 (December 31, 2014 - $317) and is reported in accounts payable and accrued liabilities in the condensed consolidated interim statements of financial position.

Effective December 1, 2014, the Company, through its indirect subsidiary MICICC, entered into a retrocession agreement with a third party reinsurance company under which the Company assumed reinsurance risk for approximately 33% of the retroceded liabilities on claims paid by Genworth Australia in excess of 700,000 Australian dollars within any one year up to a maximum exposure to the Company of 30,000 Australian dollars, less claims paid by the Company in prior years. Additional information about the reinsurance transaction is disclosed in note 4(e).

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7. Share-based compensation:

The Company provides long-term incentive plans for the granting of stock options ("Options"), restricted share units ("RSUs"), directors' deferred share units ("DSUs"), performance share units ("PSUs"), and executive deferred share units (“EDSUs”). The Company has reserved 3,000,000 common shares of its issued and authorized shares for issuance under these long-term incentive plans. As at June 30, 2015, the Company has 1,771,247 common shares remaining that are available for distribution. Disclosure of long-term incentive plans is included in the Company's annual consolidated financial statements for the year ended December 31, 2014.

During the year ended December 31, 2014, the Company entered into equity total return swaps to hedge a portion of its economic exposure from the changes in fair market value of the Company's common shares. Equity total return swaps are contracts by which one counterparty agrees to pay or receive from the other cash amounts based on changes in the value of a referenced asset or group of assets, including any returns such as interest earned or dividends accrued on these assets in exchange for amounts that are based on prevailing market funding rates. Changes in fair value of the equity total return swaps are recognized in employee compensation expense in the condensed consolidated interim statements of income.

The following table summarizes information about the Company's share-based compensation plans:

Number of share-based awards outstanding as at June 30, 2015

Fair value of share-based awards as at June 30, 2015

Share-based compensation expense for the three months ended June 30, 2015

Share-based compensation expense for the six months ended June 30, 2015

Options 966,904 $ 6,204 $ 2,854 $ (2,771)

RSUs 102,106 3,349 393 228

DSUs 60,020 1,969 367 (18)

PSUs 99,723 3,271 626 639

EDSUs 30,473 1,000 174 172

1,259,226 $ 15,793 $ 4,414 $ (1,750)

Effect of equity total

return swaps (2,503) 1,402

Net share-based

compensation expense $ 1,911 $ (348)

Total share based compensation liability as of June 30, 2015 was $12,085 (December 31, 2014 -

$16,764).

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8. Income Taxes:

During the six months ended June 30, 2015, the Company recorded a favourable tax adjustment of

$4,501 in respect of taxes for prior periods.

9. Earnings per share:

Basic earnings per share have been calculated using the weighted average number of shares outstanding of 92,459,207 (2014 - 94,976,887) and 92,806,650 (2014 - 94,949,184) for the three and six months ended June 30, 2015. Diluted earnings per share have been calculated using the diluted weighted average number of shares outstanding of 92,475,757 (2014 - 95,220,038) and 93,267,763 (2014 - 95,097,485) for the three and six months ended June 30, 2015. For the three months ended June 30, 2015, 913,804 Options, 67,183 RSUs, 75,037 PSUs and 55,023 DSUs (June 30, 2014 - 622,234 Options, 61,311 RSUs, 17,338 PSUs and 20,549 EDSUs) were excluded from the calculation of diluted weighted average number of shares since their effect would have been anti-dilutive due to the cash settlement option. For the six months ended June 30, 2015, 167,600 Options and 24,686 PSUs (June 30, 2014 - 1,014,664 Options, 10,203 RSUs, 17,338 PSUs and 20,549 EDSUs) were excluded from the calculation of diluted weighted average number of shares since their effect would have been anti-dilutive due to the cash settlement option.

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9. Earnings per share (continued):

Three months ended

June 30, Six months ended

June 30,

2015 2014 2015 2014

Basic earnings per share:

Net income $ 103,467 $ 97,264 $ 210,917 $ 192,133

Diluted earnings per share:

Re-measurement amount net of income

taxes (49) 3 (3,211) 33

Earnings for purposes of diluted earnings per

share $ 103,418 $ 97,267 $ 207,706 $ 192,166

Basic common shares outstanding, beginning of

period 93,171,550 94,930,071 93,147,778 94,910,880

Effect of share-based compensation exercised

during the period 22,165 46,816 28,155 38,304

Effect of repurchase of common shares

during the period (734,508) — (369,283) —

Weighted average basic common shares

outstanding, end of period 92,459,207 94,976,887 92,806,650 94,949,184

Basic earnings per share $ 1.12 $ 1.02 $ 2.27 $ 2.02

Diluted earnings per share:

Basic weighted average common shares

outstanding 92,459,207 94,976,887 92,806,650 94,949,184

Effect of share-based compensation during

the period 16,550 243,151 461,113 148,301

Diluted weighted average common shares

outstanding, end of period 92,475,757 95,220,038 93,267,763 95,097,485

Diluted earnings per share $ 1.12 $ 1.02 $ 2.23 $ 2.02

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10. Long-term debt:

The following table provides details of the Company's long-term debt:

Series 1 Series 3

Date issued June 29, 2010 April 1, 2014

Maturity date June 15, 2020 April 1, 2024

Principal amount outstanding $275,000 $160,000

Fixed annual rate 5.68% 4.242%

Semi-annual interest payment due each

period on: June 15 October 1

December 15 April 1

The Company's long-term debt balances are as follows:

June 30, 2015 Series 1 Series 3 Total

Carrying value $ 273,542 $ 158,775 $ 432,317

Fair value 309,323 165,874 475,197

December 31, 2014 Series 1 Series 3 Total

Carrying value $ 273,418 $ 158,719 $ 432,137

Fair value 310,896 165,579 476,475

The Company incurred interest expense of $5,678 and $11,292 for the three and six months ended June 30, 2015,respectively, (June 30, 2014 - $6,584 and $12,242) with accrued interest payable of $2,337 at June 30, 2015 (December 31, 2014 - $2,429) recorded in accounts payable and accrued liabilities in the condensed consolidated interim statements of financial position.

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11. Share capital:

2015:

On April 28, 2015, the Company received approval by the Toronto Stock Exchange for the Company to undertake a normal course issuer bid ("NCIB"). Pursuant to the NCIB, the Company can purchase, for cancellation, up to 4,658,577 shares representing approximately 5% of its outstanding common shares. Purchases of common shares under the NCIB can commence on or after May 5, 2015 and will conclude on the earlier of May 4, 2016 and the date on which the Company has purchased the maximum number of shares under the NCIB.

During the three and six months ended June 30, 2015, under the terms of the NCIB, the Company purchased 1,454,196 shares for cancellation, for an aggregate purchase price of $50,007. The Company's majority shareholder, Genworth Financial Inc., through its subsidiaries, participated proportionately in the share purchase transaction and maintained a 57.3% ownership interest in the Company.

The shares purchased under the NCIB were recognized as a reduction to share capital equal to the average carrying value of the common shares repurchased for cancellation. Any difference between the aggregate purchase price and the average carrying value of the common shares was recorded in retained earnings.

2014:

The NCIB which commenced on April 29, 2014 expired on May 4, 2015. The Company did not purchase any shares under the NCIB in the six months ended June 30, 2014.