Shares in Genworth fell sharply after Westpac’s decision to terminate its LMI agreement with the group following a strategic review of all of its lenders' LMI arrangements for all new residential mortgage loans with a loan-to-value ratio (LVR) of greater than 90 per cent.
However, according to Troy Phillips, founder of FirstPoint Mortgage Brokers, Westpac’s departure is likely to prompt Genworth to review its business and identify alternative revenue streams.
“Genworth has been a really good supporter of this market for a long time, but the LMI industry needs to look at itself,” Mr Phillips told Mortgage Business.
With property prices “at the higher end”, insuring higher risk loans for generations of Australians with an uncertain future for repayment could be risky, Mr Phillips warned.
“Losing a customer like Westpac could be a blessing for a company like Genworth,” he said. “They can look internally, they can look how they do business and they can look at other ways of doing business.”
Mr Phillips called lenders mortgage insurance the “the biggest misnomer of all time” as the customer pays the premium, not the bank. “The customer doesn’t get to choose their LMI provider; it should be a freer market for mortgage insurance,” he said.
Last week Standard & Poor's Ratings Services (S&P) affirmed its financial strength and issuer credit ratings on Genworth at 'A+' and changed its outlook to ‘developing’ from negative.
“The affirmation reflects our updated standalone assessment, which incorporates our view that the current ratings sufficiently capture any adverse brand, reputational, or financial influence related to developments at Genworth's US operations,” S&P noted.
“We have not delinked the ratings on Genworth's ongoing Australian and Canadian entities from the ratings on the core Genworth life companies.
“Rather, we have allowed greater notching due to our updated assessment about insulation," it said.
In revising the outlook to ‘developing’, S&P said the change in outlook reflects (Genworth US) management’s public statements about evaluating its strategic options with regards to its operations in Australia.
Mr Phillips believes that Genworth Australia will need to get closer to its customer going forward and consider a retail play.
“They do other forms of insurance in the US. They have a retail brand in the US. They need to get closer to the customer. They have a parent overseas that has done that,” he said.
Mr Phillips, who has worked in the mortgage industry for over 30 years, is confident Genworth will be considering new revenue streams and other markets.
“This will push them to look at other lenders and other forms of lending,” he said.
“It is an eye opener for everybody including the major banks of how quickly things can change.
“When it does, it changes fast.”