In a trading update yesterday, Genworth reported statutory net profit after tax (NPAT) of $52.2 million, down 22.4 per cent on the first quarter of 2016. However, the LMI provider’s underlying NPAT of $68.3 million for the quarter ended 31 March 2017 was 10.7 per cent higher than the prior corresponding period.
Genworth managed to boost new business volumes, as measured by new insurance written (NIW), by 9.7 per cent to $6.8 billion in 1Q17 compared with $6.2 billion in 1Q16. The company noted that the result included $1.3 billion in bulk portfolio transactions.
Meanwhile, gross written premiums (GWP) increased 3.8 per cent to $88.2 million in 1Q17.
“This reflects a higher LVR mix of business compared with the same quarter in 2016 and the impact of the premium rate actions taken in 2016,” the group said.
Genworth Australia boss Georgette Nicholas said the results were in line with expectations.
“Our profitability remains strong despite revenue being pressured by a smaller high loan-to-value ratio (LVR) market. At this time, our full year 2017 guidance is unchanged from that provided to the market in February,” she said.
“Australian regulators have taken further steps recently to reinforce sound housing lending practices, with a particular focus on slowing the growth in investor lending and limiting the flow of new interest-only lending. We are supportive of regulatory measures that promote prudent mortgage lending standards and ultimately foster long-term sustainable credit growth.”
Ms Nicholas noted that Genworth has strategic initiatives underway to redefine its core business model with a particular focus on improving underwriting efficiency, enhancing product offerings and where appropriate, leveraging its data and partnerships along the mortgage value chain.
Earlier this year Genworth lost its second biggest client, Macquarie Bank. In March, Morningstar analyst David Ellis warned that regulatory initiatives will slow investor home lending growth, potentially impacting new business flows for Genworth.
While Morningstar does not envisage any significant structural change in the use of LMI in Australia, Mr Ellis highlighted that banks’ risk appetite is cyclical, changing with market conditions.
He noted that CBA, Genworth’s largest client, contracted a lower percentage of insurance in 2014, and lower again in 2015.
[Related: 'Regulatory risk' bad news for LMI]