LMI provider sees 22.4% drop in net profit

by Miklos Bolza04 May 2017
Genworth, one of Australia’s leading providers of lenders mortgage insurance (LMI), is currently struggling due to changing economic conditions, according to the firm's latest quarterly financial results.

Reported net profit after tax fell 22.4% from $67.3m to $52.2m from the first quarter in 2016 to the first quarter of 2017. However, the underlying net profit increased by 10.7% from $61.7m to $68.3m during the same time period. This included a $21m after-tax gain after the firm rebalanced its investment portfolio.

Genworth is under pressure as the number of high loan to valuation (HLVR) loans drops over time. In 2016, 22% of all loans were HLVR compared to 37% eight years prior.

According to the most recent statistics from the Australian Prudential Regulation Authority (APRA), $376bn worth of loans were approved in 2016. Out of this, $31bn had LVRs over 90% while $52bn had LVRs between 80% and 90%.

Within Genworth’s book, delinquency rates rose slightly by eight basis points to 0.48% on a nationwide basis. This was split in the following way for each state and territory:
 
  March 2016 March 2017 Change
New South Wales 0.29% 0.31% 2 bps
Victoria 0.35% 0.38% 3 bps
Queensland 0.55% 0.68% 13 bps
Western Australia 0.53% 0.78% 25 bps
South Australia 0.52% 0.66% 14 bps
Australian Capital Territory 0.18% 0.19% 1 bps
Tasmania 0.38% 0.36% -2 bps
Northern Territory 0.21% 0.42% 21 bps

New business volume, measured by new insurance written, was $6.2bn. Of this, 17% was for loans with an LVR of 90.01% and above. This can be compared with the same quarter of 2016 when $7.2bn worth of new insurance was written, 29% of which was for loans with an LVR of more than 90.01%.

“Our results in the first quarter of the year were in line with our expectations. Our profitability remains strong despite revenue being pressured by a smaller high loan-to-value ratio market. At this time, our full year 2017 guidance is unchanged from that provided to the market in February,” said Georgette Nicholas, chief executive officer and managing director of Genworth.

“Australian regulators have taken further steps recently to reinforce sound housing lending practices, with a particular focus on slowing the growth in investor lending and limiting the flow of new interest-only lending. We are supportive of regulatory measures that promote prudent mortgage lending standards and ultimately foster long-term sustainable credit growth.”

Related stories:

S&P rating now negative for national LMI provider

Mortgage stress sees cut to LMI provider profits

Australia’s largest insurer raises LMI pricing loader

COMMENTS

  • by Really? 4/05/2017 9:44:20 AM

    "Sound Practises"? All APRA did was ensure banks made it harder for first home buyers to get a loan.
    We now have 95%LVR including LMI; compared to 95%+LMI - makes a big difference to a first home buyer. Plus in some cases now a higher interest rate based on the LVR.
    Ensures they need approx. 7.5% instead of 5% deposit, + Stamp duties etc..
    Big banks have now worked out that LMI is a cash cow, and hence they self insure (effectively LMI is their 'other' Application Fee).
    A few years ago, it was apparent the LMI providers had gotten too greedy for too long; and this allowed the big 4 banks to easily step in and take it over - now they only have the 2nd tier lenders....