LMI provider sees 34.7% drop in profits

by Miklos Bolza03 Aug 2017
Australia’s largest provider of lenders’ mortgage insurance (LMI) Genworth has reported an annual drop in net profit after tax (NPAT) of 34.7%, signalling further financial difficulties amidst economic and regulatory change.

In its first half 2017 earnings, the company reported a NPAT of $88.7m, down from the $135.8m reported in the same time period last year.

Underlying NPAT slightly increased (after adjusting for an after-tax mark-to-market move in the investment portfolio of $24.9m), moving 0.5% from $112.9m to $113.5m between 1H17 and 1H16.

These results were in line with the company’s expectations, said Georgette Nicholas, chief executive officer and managing director of Genworth, and demonstrated the resilience of the firm’s business model.

“Despite some challenging market dynamics, including elevated mortgage delinquencies in resource-exposed regional economies and a smaller high loan-to-value ratio (LVR) market, our profitability remains strong.”

New business volume for Genworth decreased by 6.4%, moving from $14bn in the first half of 2016 to $13.1bn in the first half of this year. This included $2.1bn in bulk portfolio transactions.

Volumes of high loan-to-valuation (HLVR) loans, ie loans with LVRs greater than 80%, have remained steady at 22% from 2017 to 2016. Last year, these loans accounted for $83bn of loans approved, according to APRA.

For Genworth, new insurance written for 1H17 included 17% of loans with an LVR of 90.01% and above and 49% of loans with LVR between 80% and 90%.

The number of portfolio delinquencies reported by Genworth has actually risen from 6,413 to 7,285 (a change of 872) between 1H16 and 1H17, indicating higher levels of mortgage stress.

Looking at a state-by-state breakdown, Queensland and Western Australia experienced the highest delinquency levels in the country.
 
State June 2016 June 2017 Change (bps)
NSW 0.30% 0.32% +2
Victoria 0.37% 0.41% +4
Queensland 0.62% 0.72% +10
WA 0.61% 0.86% +25
SA 0.59% 0.65% +6
Group 0.43% 0.51% +8

In yesterday’s investors briefing, Nicholas also announced a $100m share buy-back scheme as part of the firm’s ongoing capital management strategy.

“Our business focus is to address our customers’ capital and risk management needs and to deliver a sustainable return on equity for shareholders,” she said.

“As announced in February, we have strategic initiatives underway to redefine our core business model with a particular focus on improving our underwriting efficiency, enhancing our product offerings and where appropriate, leveraging our data and partnerships along the mortgage value chain.”

Related stories:

Pressure points increase risk for LMI provider

Leading LMI provider hires banking exec

LMI provider sees 22.4% drop in net profit