The Genworth Mortgage Insurance Australia Ltd (ASX: GMA) share price took a pummelling today. Shares in the lender's mortgage insurance provider opened at $2.50 – compared to yesterday's close of $2.68 — and sunk as low as $2.44 in early trade. The Genworth share price made a small recovery in afternoon trading to close the day at $2.58.
The losses come off the back of the company's publication of its 2020 annual report.
Why the Genworth share price is tanking
Genworth Mortgage haemorrhaged a $107.6 million loss for the 2020 calendar year. To understand the magnitude of that number, in the prior corresponding period (pcp) Genworth made $120 million profit.
In a glimmer of good news, the net earned premium of the mortgage insurance broker was up on the pcp ($312 million versus $298 million). However, this was overwhelmed by the company's operating expenses.
Net claims incurred were up 92.6% on the pcp (from $150.8 million to $289.8 million). Acquisition costs were up 319% on the pcp (from $46.9 million to $196.2 million). All up the underwriting result went from $42.1 million in the black to $234 million in the red.
Further compounding Genworth's misery, investment income on assets backing insurance liabilities was down $6 million on the pcp. As well, investment income on equity holders' funds collapsed by $43 million.
Earnings per share (EPS) went from 28.6 cents per share in 2019 to a loss of 26.1 cents per share in 2020.
Unsurprisingly, the company did not pay a dividend in the calendar year.
Why did it all go so wrong for Genworth in 2020?
According to Chair Ian MacDonald, the blame lies squarely on the COVID-19 pandemic.
"Genworth's 2020 financial performance was materially impacted by the effects of COVID-19 on the economy, that led to increased reserving for anticipated future claims outcomes contributing to a full-year Statutory NPAT [net profits after tax] loss of $107.6 million."
He added:
"As at 31 December 2020, Genworth's regulatory solvency ratio was 1.65 times the Prescribed Capital Amount…representing surplus capital of $203.2 million above the top end of the range."
According to the Australian Prudential Regulatory Authority, from May to December 2020, the gross value of loan deferrals totalled $156 billion. Housing loan deferral rates peaked at 11% in May 2020.
Genworth's share price snapshot
Although investors offloaded Genworth's shares en masse today, the stock has been trending upward over the last 6 months.
At one point the Genworth share price was trading at an all-time low of $1.33 in September 2020 – in the midst of the harsh Victorian lockdown.
