QBE Group has raised its LMI premiums by 9% this year, claiming long-term volatility risk in the Australian property market is behind the decision, despite falling mortgage default rates across the country.
The insurance giant’s CEO, John Neal, told journalists at a media briefing yesterday that LMI is a 'long-term' product and that QBE anticipated more volatility in the housing market in years to come.
His argument mirros that made by Genworth chief commercial officer, Bridget Sakr, in an interview with Australian Broker earlier this year, following revelations that the company had increased premiums for self-employed clients.
‘‘Our assumptions are not that there’s going to be a housing price crash in Australia,” says Neal, “but... if you look out beyond certainly the next two to three years, there’s a little bit more volatility. So hence adjusting the prices now for products that will actually be in force right the way through to 2023 to 2025.’’
Neal's comments arrive in the wake of QBE Group’s half-year financial results, which announced the company's profits fell 37%, down to $523m in the latter half. APRA’s most recent figures place QBE’s gross earned premium in 2012 at $234.4m.
QBE shares a duopoly on the Australian LMI sector with Genworth (the two companies together control 75% of the market) and Neal says QBE’s pricing is similar to that of its only major competitor.
‘‘When someone pays us a premium in 2013, we think the life of the policy is between nine and ten years…So you’re trying to look forward into the market place and make sure you’ve charged the right premium today over quite an extended period.’’
However, recent bank reports site fewer mortgage defaults – though Neal claims there has been ‘no change’ in delinquency rates.
According to Fairfax reports, QBE’s results yesterday said it expected premium revenue from Australian LMI products to be US$400m (A$440m) this year, while separate results filed for QBE’s LMI division in April showed combined operating ratio was 64% - meaning it was paying out significantly less in claims than it received from premiums.