Bank explains benefits of new LMI deal

A major-bank owned lender has explained the benefits of its new partnership with an offshore LMI provider after its parent company cancelled its agreement with an Australian mortgage insurer.

Speaking at the St. George Flame Forum 2015 in Melbourne last month, St. George Bank head of credit Rob Love explained that the bank’s LMI delinquencies are double the portfolio average at 92 basis points, a risk that is mitigated out of the group through Westpac’s partnership with an external mortgage insurer.

“The 92-basis-point figure highlights that there is a need to have a differential underwriting process for mortgage-insured business because it is higher risk,” Mr Love said, adding that the bank’s decision to partner with Bermuda-based Arch Capital Group was a “positive development” for the group.

“The key benefit there for us organisationally is that we have our existing relationship with our captive mortgage insurance provider – they will be originating all business,” he explained. “So their underwriters will be originating business on behalf of Arch.

“Part of the change was to simplify the process on underwriting for mortgage insured business.”

The new agreement has allowed the bank to have “one process”, Mr Love said, as opposed to previous years where multiple groups of underwriters “created bottlenecks” for the group and its broker partners.

In February, Westpac Bank, which owns St. George, terminated its agreement with Genworth Australia.

At the time the LMI group said that it would feel the “full effect” of the bank’s decision.

Genworth’s shares took a beating following the loss of the major-bank contract and have since fallen by 39 per cent.

Late on Friday the group announced that its CEO Ellie Comerford had stepped down, to be replaced by current chief financial officer Georgette Nicholas as acting CEO while the company conducts a global search for a permanent replacement.

Genworth and QBE LMI remain the dominant players in the Australian mortgage insurance space.

However, Deloitte partner of consulting Rick Shaw told Mortgage Business that using offshore LMI players is something that "we should all be comfortable with".

“Our biggest risk in Australia is our exposure to our housing market,” he said.

“If we can share that risk more broadly outside the Australian market I think that is something the regulators and us as Australians should have some comfort with.”

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