Helia’s competitive position in the lenders’ mortgage insurance market “could weaken” if it loses its Commonwealth Bank contract, S&P Global Ratings has warned.

S&P cut its rating outlook for Helia to negative from stable after the LMI insurer said in March that the CBA deal, which will expire at the end of the year, was unlikely to be renewed.

“The negative outlook on Helia reflects our view that its competitive position could weaken over the next one to two years, which a declining market share would indicate,” the ratings agency said.

“Helia now relies on a range of small and mid-tier banks and non-bank lenders to originate new mortgage insurance, in a market that the four major Australian banks dominate.”

S&P says the LMI insurer’s competitive strength and business profile will hinge on its ability to retain key client contracts and win new tenders.

It estimates Helia will retain about a 21% market share by gross written premium, even after the loss of the CBA business.

“The loss of CBA as customer is unlikely to materially affect the insurer’s earnings for at least three years. This is because the insurer recognises upfront premiums over a 15-year period.

“We could lower the ratings on Helia over the next one to two years if the insurer’s competitive position weakens with further material declines in its share of premium written or adverse operating performance compared with peers.

“A significant decline in capital adequacy during this period could also prompt us to lower our ratings.” 

S&P expects Helia to report another strong set of earnings this financial year.

“Sustained low unemployment, rising house prices and declining interest rates will help to reduce the claims rate for mortgage insurers.”