Genworth Mortgage Insurance Australia hit by declining higher-risk loans

Credit: Alex Livet

Genworth Mortgage Insurance Australia (ASX: GMA) is suffering from the banks’ cutting back on lending to investors, and other restrictions placed on higher-risk lending.

The insurer makes most of its revenues from Lenders Mortgage Insurance (LMI) which covers the bank if borrowers default and has around 45% market share in Australia. But with the big four banks and other lenders lowering the loan-to-valuation ratios (LVRs) for which they will lend against, it means fewer loans require LMI.

CEO Ms Georgette Nicholas says, “We continue to see pressure on Gross Written Premium (GWP) levels due to changes in the mortgage market, specifically a noticeable decline in the proportion of high loan-to-valuation loans originated and changes in lender risk appetite.

Australia and New Zealand Banking Group (ASX: ANZ), Commonwealth Bank of Australia (ASX: CBA), National Australia Bank Ltd (ASX: NAB) and Westpac Banking Corp (ASX: WBC) have all taken steps since July 2015 to slow the rate of property investor loan growth through a number of measures. ANZ, CBA and Westpac have also stopped lending to foreign residents – cutting off a substantial number of property buyers – particularly for new apartments.

Genworth reported today that GWP for the March quarter was down a whopping 33.4% to 85 million, compared to $127.7 million last year.

Underlying net profit has fallen as a result by 11.5% to $61.7 million for the quarter. Genworth also saw an increase in delinquent loans from 5,378 in 2015 to 5,889 in the March 2016 quarter.

For the full 2016 financial year, Genworth expects GWP to fall by 20%, and its Net Earned Premium (NEP) to fall by 5%.

Foolish takeaway

Despite what might be considered bad news, Genworth’s share price is up 0.8% in early trading – perhaps with investors buying in to participate in the company’s 34 cents per share return of capital, which was announced on March 31.

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Motley Fool writer/analyst Mike King doesn't own shares in any companies mentioned. You can follow Mike on Twitter @TMFKinga

The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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