Genworth Mortgage (ASX:GMA) share price slumps on $107 million loss

The Genworth Mortgage Insurance Australia Ltd (ASX: GMA) share price took a hit today after the insurer released its annual report.

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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.

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Motley Fool contributor Marc Sidarous has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. 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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