Genworth's GWP growth slows, claims rising

Australia’s leading provider of lenders mortgage insurance (LMI) expects net claims to rise this year as higher borrowing costs deflate property values.

Genworth’s net claims incurred remained “very low” in the first half but are expected to increase in the back half of this year.

CEO and MD Pauline Blight-Johnston says dwelling values are likely to see modest declines, though strong recent house price rises across 2020 and 2021 provide a “healthy buffer” for existing policies in force.

“Over the next few years we expect to be entering a higher claim period than what we have been in. We are well positioned for that period,” she told investors at a briefing attended by insuranceNEWS.com.au today.

“The trick is the serviceability, particularly in the environment we are going into, and we are expecting going forward that we will enter a higher claims period than the last 18 months.”

Genworth’s GWP volumes grew 9.3% in 2021 when adjusted for loss of the National Australia Bank contract in 2020.

“We all know that we are heading into a different environment than we have seen for the last two years, an environment in which we do expect interest rates to continue to increase for a period of time,” she said. “We are all expecting that there will be more to come in Australia.”

GWP growth is slowing as market lending slows, Genworth says, although its Net Earned Premium is benefitting from previous growth and high remortgaging activity, and unemployment remains low and there are low levels of industry non-performing loans.

Dwelling values have been moderating, particularly in Sydney and Melbourne, and Genworth expects that to continue.

Unemployment drives mortgage delinquencies, while house prices are the key driver of how many of those go to claim, and to what severity of claim, investors heard.

Genworth’s claims have been historically low last year and into 2021 the first quarter of 2022,

“We do expect our GWP to slow from what it has been doing over the last 12 months. It does not take Einstein to realise that is not a sustainable position for our business. We do expect and welcome claims normalising,” she said.

“We thought that would have happened a little bit faster but we still do expect that will happen throughout the course of 2022 and into 2023.

“We have seen it coming, it has not been unexpected that we are going to enter a less benign environment.

“We have made sure during the good years that we have had that we have done a number of things and really challenged ourselves with our reserving, our capital position. We have got buffers in the business.”

Genworth, which has secured a new exclusive contract with the BOQ Group after its acquisition of ME Bank, says its portfolio includes “cross subsidies” in which premiums in areas of Australia with less favourable supply and demand dynamics are supported by stronger locations.

Regulatory measures have resulted in a decline in high loan-to-value mortgages, and Ms Blight-Johnston says the market has now “hit a reset on that”.

“From this point on, we expect the LMI market growth will grow again in line with housing loan commitments,” she said. “It would be extraordinary if we delivered the profit we have delivered in the last 12 months, but over the long-term we are very comfortable that we are well-positioned.”

Genworth will release first-half results on August 3.