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Genworth outlook downgraded to ‘negative’

A major ratings agency has downgraded its outlook for the mortgage insurer amid expectations of a sharper than anticipated deterioration in Genworth’s financial position.

S&P Global Ratings has announced that its outlook for Genworth Mortgage Insurance has been revised down from “stable” to “negative” across both its Australia and New Zealand businesses.  

According to the ratings agency, the revision reflects its view that Genworth’s financial performance may “deteriorate beyond our expectations in the upcoming 18-24 months” and be “inconsistent with the ‘A’ rating”.

Genworth is also expected to face stiffer competition for new business throughout 2020 as housing credit growth slows.  

S&P claimed that Genworth’s earnings are sensitive to weakened economic conditions associated with the COVID-19 crisis, which have lifted the unemployment rate and threatened to spark an increase in mortgage insurance claims.

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Despite affirming Genworth Australia’s “A” insurer financial strength and issuer credit rating, S&P warned that the rating could be downgraded if:

  • a weakening in its capital adequacy, as measured by S&P’s capital model, reflecting higher-than-expected claims stemming from higher mortgage defaults as a consequence of higher unemployment
  • a deterioration in the insurer’s competitive position resulting in a material weakening in its market share; or
  • a further material decline in operating performance

However, according to S&P, loan relief measures and associated mortgage payment deferral assistance provided by the major banks would “lessen near-term mortgage insurance defaults” and, in turn, reduce the volume of claims.

The ratings agency added that the government’s JobKeeper program, record-low interest rates, the recent uptick in home values and stronger mortgage underwriting standards would also help limit the deterioration in credit quality.

Earlier this month, Genworth released its results for the first quarter of the 2020 financial year (1Q20), reporting that its statutory net profit after tax has fallen from $47.8 million in 1Q19 to a loss of $125.6 million.

The result was impacted by a $181.8 million write-down in deferred acquisition costs, with Genworth expecting a sharp increase in mortgage insurance claims off the back of the COVID-19 crisis.

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[Related: Genworth earnings dragged into negative territory]

Genworth outlook downgraded to ‘negative’
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