LMI player ‘at the frontline’ of rising delinquencies

Risks are rising for Australia’s largest mortgage insurer with one banking analyst warning that Australia’s “benign credit environment” won’t last forever.

In a recent research report, Morningstar analyst Ravi Reddy explained how Genworth is under pressure from rising delinquencies in mining-related regions and APRA measures to curb high LVR lending.

While NSW accounts for 51 per cent of Genworth’s insured portfolio, Queensland and Western Australia make up 35 per cent of group insurance as at 31 December 2016.

“We forecast claims to trend higher on expectations of higher delinquencies as we do not expect the benign credit environment in Australia to continue indefinitely,” Mr Reddy said.

“Genworth is exposed to the riskier end of the home loan market by the very nature of its business in the high LVR segment, so it will be at the frontline of a rise in home loan delinquencies,” he said.

The Morningstar report highlighted that Genworth is also facing “top line” pressure as macroprudential measures reduce new high LVR loan volumes.

“While moves by the prudential regulator to slow investment home loan growth and push tougher lending standards bode well for delinquencies on new business and demand on capital, it hurts new business volumes and mix,” Mr Reddy said.

In April, Genworth lost Macquarie Bank as a client. The bank represented 14 per cent of Genworth’s gross written premiums for the 2016 financial year.

Morningstar said another of Genworth’s contracts of a similar size is up for renewal in November this year.

[Related: Former third-party boss to join Genworth]

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