The Genworth Mortgage Insurance Australia (ASX: GMA) share price could fall lower this morning after the company received a credit ratings downgrade from Standard & Poor's Ratings Services (S&P).
What did Genworth announce to the market yesterday?
In an after-market update, Genworth noted the outcomes from a number of recent credit rating agency reviews.
On 18 June 2019, Fitch Ratings reaffirmed the insurer financial strength ratings (IFSR) at 'A+' but revised its outlook from 'stable' to 'negative'.
On 31 May 2019, S&P reaffirmed Genworth's financial strength rating at 'A+' and its outlook as 'negative'.
However, S&P subsequently published a revised methodology for rating insurer groups on 1 July 2019 and Genworth was part of a list of insurance issuers who were "under criteria observation".
As reported by Genworth, S&P yesterday announced that due to revisions in its ratings methodology, it has now downgraded its issuer rating for Genworth from 'A+' to 'A' and its outlook from 'negative' to 'stable'.
S&P wrote that the "stable outlook reflects our expectation that Genworth Australia's earnings will stabilise over the next 2 years and it will maintain its strong competitive position as the largest LMI (lenders mortgage insurer) in Australia, as well as its current level of capitalisation".
While Genworth said the rating change does not have an immediate impact on the contractual agreements between the company and its lender customers, it did note potential impact down the track.
According to the update, one customer contract allows Genworth a 30-day period to demonstrate its standalone credit strength and ensure that the potential termination right under this provision is not exercised.
Genworth said that this provision, if exercised, would not have a material impact on FY19 gross written premium (GWP) for the group but on an annualised basis represents 14% of the company's GWP.
The Aussie insurer is due to report its first half 2019 earnings next Wednesday on 31 July 2019, with all eyes likely to be on where its earnings are coming from and any potential risk factors in the second half of the year.
