Lender Mortgage Insurer Genworth reported today, and gives a good snapshot of what is happening in the mortgage market. The volume of new higher LVR loans (HLVR) is falling. Claims are rising. But capital ratios remain strong, they have lifted premiums and are exploring new business opportunities.
They showed that claims volumes and value paid rose.
Within their book, delinquencies were at 0.78% in WA, whilst QLD had the largest number, and 0.68% of book.
They make the point that 2008 is a problem year.
Genworth Mortgage Insurance Australia Limited (Genworth) has reported statutory net profit after tax (NPAT) of $52.2 million down 22.4% on 1Q16, and underlying NPAT of $68.3 million for the quarter ended 31 March 2017, up 10.7% on 1Q16.
New business volume, as measured by New Insurance Written (NIW), increased 9.7 per cent to $6.8 billion in 1Q17 compared with $6.2 billion in 1Q16. The result included $1.3 billion in bulk portfolio transactions.
GWP increased 3.8 per cent to $88.2 million in 1Q17. This reflects a higher LVR mix of business compared with the same quarter in 2016 and the impact of the premium rate actions taken in 2016.
Reported NPAT includes after-tax mark-to-market loss of $16.1 million on the investment portfolio.
Net Earned Premium (NEP) of $107.9 million in 1Q17 decreased 4.9 per cent compared with $113.5 million in 1Q16 reflecting lower earned premium from recent book years.
The expense ratio in 1Q17 was 25.2 per cent compared with 23.4 per cent in 1Q16.
The loss ratio was 34.8 per cent in 1Q17, up from 27.0 per cent in 1Q16, due to lower NEP, an increase in the number of delinquent loans relative to a year ago and a higher average paid claim amount.
New South Wales and Victoria continue to perform strongly. However, the performance in Queensland and Western Australia remains challenging and delinquencies are elevated due to the slowdown in those regional and metropolitan areas that have been previously benefited from the growth in the resources sector.
As at 31 March 2017, the Company had invested $207 million in Australian equities in line with the previously stated strategy to improve investment returns on the portfolio within acceptable risk tolerances. After adjusting for the mark-to-market movements, the 1Q17 investment return was 3.14 per cent per annum, down from 3.55 per cent per annum in 1Q16.
Genworth previously announced that the exclusivity agreement for the provision of LMI with its second largest customer was terminated in April 2017. The Company has been successful in entering into new business with that customer that assists them in managing mortgage default risk through alternative insurance arrangements.
Genworth also advises that its customer, the National Australia Bank, has issued a Request For Proposal relating to its LMI requirements. The Company has submitted its proposal and will provide updates as to the outcome of its proposal.
Genworth continues to pursue other profitable opportunities in the market that meet its risk appetite and return on equity profile.
Overall, the Company expects GWP in 2017 to be below 2016 levels, down between 10 per cent and 15 per cent, subject to the timing and extent of any changes in the customer portfolio. Genworth expects 2017 NEP to decline by approximately 10 to 15 per cent and for the full year loss ratio to be between 40 and 50 per cent. The Board continues to target an ordinary dividend payout ratio range of 50 to 80 per cent of underlying NPAT.
