Genworth Australia has released a mixed set of 1Q17 results with underlying profitability of AUD68.3m (1Q16 AUD61.7m) offset by slowing growth in investor lending and lower interest only lending
Genworth Australia has released a mixed set of 1Q17 results with underlying profitability of AUD68.3m (1Q16 AUD61.7m) offset by slowing growth in investor lending and lower interest only lending.
Delinquencies continue to uptick in stressed geographies such as Western Australia and Queensland due to the mining slowdown as well as South Australia with recent manufacturing shutdowns.
The main difference from statutory and underlying NPAT is related to the investment portfolio. Underlying includes the AUD21m after tax realised gain following a rebalance of the portfolio, whereas the statutory number includes after tax mark-to-market losses in the investment portfolio.
Source: Genworth
As previously highlighted, the LMI contract with Macquarie Bank was terminated in April 2017.
We note however, that Genworth has entered into revised arrangements with them in managing default risk through alternative insurance arrangements. Further details are unknown at this stage. Concurrently, NAB has requested a “Request for Proposal” relating to its lenders mortgage insurance (LMI) requirements. Genworth has submitted its proposal however the potential loss or shrinking of the NAB contract should not be ignored.
As expected, the Prescribed Capital Amount Coverage Ratio strengthened during the quarter and sits comfortably above the minimum regulatory capital requirement. We continue to take comfort in the regulatory protections for Genworth Australia’s capital base that limit the offshoring of surplus capital to Genworth Inc. to a maximum of 100% of NPAT.
The balance sheet remains strong with AUD3.5bn in Cash/Investments and a further AUD1.1bn in unearned premium income.
Source: Genworth
The outlook for 2017 and beyond is weak.
Mindful of the upward trend in delinquencies and softer volume growth, gross written premiums and net earned premium are forecast by management to drop 10%-15% on 2016 levels and the loss rate to rise further to a range of 40%-50%. The loss ratio for 1Q17 was 34.8% versus 27% year on year.