Genworth profits dive 190% amid COVID-19 crisis

Genworth Mortgage Insurance Australia has released its financial results for the full-year ending 31 December 2020 (FY20), posting a statutory net loss after tax (NLAT) of $107.6 million in the 12 months to December 2020.

This was down almost 190 per cent from a statutory net profit after tax (NPAT) of $120.1 million in FY19.

The FY20 underwriting result of a $234.0 million loss was impacted by the coronavirus pandemic, which the mortgage insurer said led to a write-down of deferred acquisition costs of $181.8 million (pre-tax) as at 31 March 2020, and the 18 December 2020 reserving review of $109.1 million (pre-tax).

The increased level of reserving during the year in response to anticipated future claims arising due to COVID-19 increased Genworth’s loss ratio to 92.9 per cent in FY20, up from 50.6 per cent in FY19.

Statutory and underlying NPAT losses were also impacted by lower investment income from declining fixed interest yields, which was offset by higher realised gains, according to the mortgage insurer.

The FY20 results included 4Q20 net claims incurred of $138.2 million, at the lower end of Genworth’s market guidance range provided on 18 December 2020 for 4Q20 net claims incurred of between $135.0 million and $150.0 million.

Genworth’s underlying loss came despite a 29.7 per cent increase in gross written premium, from $433.2 million in FY19 to $561.7 million in FY20, which Genworth attributed to higher lender’s mortgage insurance (LMI) flow volumes across lender customers over the second half of 2020, and added that underwriting quality remained strong.

The LMI volume flow growth was driven by a low interest rate environment, with new insurance written (NIW) increasing as owner-occupiers and first home buyers (FHB) continuing to underpin national housing market growth, while Genworth’s lender customers achieved above market lending growth rates, it said.

Genworth reported that new business underwriting quality had remained strong as it and many of its lender customers applied greater scrutiny in the uncertain economic environment.

This growth is expected to offset the impact on gross written premium of the National Australia Bank contract that expired in November 2020.

Net earned premium also increased over the year, up 4.6 per cent from $298.2 million in FY19 to $312.0 million in FY20.

Bracing for rocky economic road ahead

Commenting on Genworth’s FY20 financial results, CEO and managing director Pauline Blight-Johnston said that while recent economic indicators have been positive, economic uncertainty has continued to linger as the gradual wind-down of government stimulus measures, such as JobKeeper support and home loan repayment deferral facilities, looms in 2021.

She added that localised outbreaks and snap lockdowns (similar to the lockdown that began in Victoria on Friday, 12 February) would add to the uncertainty.

“The economic assumptions of Genworth’s central estimate that underpin the company’s loss forecasting reflect the ongoing uncertainty,” she said.

Warning that the recent COVID-19 outbreaks serve as a reminder of the “long road ahead”, Ms Blight-Johnston said that “we remain supportive of government, regulatory and lender customer programs that assist the recovery and help borrowers navigate challenging circumstances”.

Furthermore, Ms Blight-Johnston said that deferral programs and government support packages had interrupted the typical incidence patterns of delinquencies and claims during 2020, leading to lower than anticipated claims activity over the year, due to which Genworth boosted reserving in 2020, including increasing the outstanding claims risk margin.

It also modified its reserving methodology, which brought forward the average timing for recognising the liability for expected losses, she added.

“While reserving has been strengthened, COVID-19 is expected to result in sustained pressure on claims throughout 2021,” Ms Blight-Johnston said.

Commenting on lender loan deferral programs, while noting that they are being phased out, Ms Blight-Johnston said that some support would likely remain in the short-term.

Genworth reported that as at 31 December 2020, most borrowers on repayment deferral arrangements had either opted out or had their loans restructured, with 8,100 active repayment deferrals remaining from lender customers, down from over 31,000 reported as at 30 September 2020.

It processed over 55,000 repayment deferrals in total, it said.

“Genworth’s level of reported delinquencies continues to be affected by the repayment deferral programs that have resulted in lower delinquencies and ageing,” Ms Blight-Johnston said.

“Despite the reduced number of active delinquencies, the reported delinquency rate has increased as a result of higher policy cancellations.”

[Related: Genworth announces board reshuffle]