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Genworth watching bank lending data as claims uncertainty persists

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Genworth Mortgage Insurance says it is working closely with its lender customers and will carefully monitor home loan data over the course of this year as uncertainty over the claims outlook persists.

The Genworth team is working with the banks to understand loan restructuring in detail and to determine the most appropriate hardship solutions to mitigate potential losses.

Australian borrowers who were in hardship due to COVID mostly had their loans restructured and this closed out all active repayment deferrals at Genworth’s lender customers by the end of March, which had numbered 8,162 at the end of 2020 and 31,139 three months prior to that.

“As at 31 March 2021, these arrangements have effectively terminated, with arrears reset or loans restructured,” Genworth said.

Mortgage defaults have mostly been avoided so far due to support packages which Genworth says “interrupted the typical incidence patterns of delinquencies and claims”.

The insurer has maintained prudent reserving to compensate for any lag effects of COVID-19 moratoriums on property possessions, as well as the potential impact of the NSW and south east Queensland storms and floods.

“We still need to see what happens in the loan book when the loan has to perform again and that’s when we can really refine those (claims) assumptions,” CEO and MD Pauline Blight-Johnston said.

“We look forward to a clearer picture of the ultimate impact of COVID-19 on Genworth’s business emerging over the course of the year.”

Genworth posted a $34.8 million underwriting profit in the first quarter as strong house prices and a robust economy boosted uptake of home loans and also improved the outlook for claims.

Australia’s leading provider of lenders mortgage insurance (LMI) says Gross Written Premium (GWP) jumped 25% to $142.7 million in the first three months of the year.

Australians were taking advantage of cheap mortgages, with demand for housing unmet for many years, Ms Blight-Johnston said, and Genworth has “every expectation the growth will continue”.

“First time buyers and upgraders are taking the opportunity of the low interest rate environment to get their little piece of Australia,” she said. “While interest rates are low and house prices are in reach, we don’t see any change to these underling (GWP) trends.”

Genworth’s first quarter loss ratio was 41.8%, versus 47.1% a year earlier.

The swing to the black comes after a loss of $234 million in 2020 as Genworth shored up its reserve war chest with reserving of $109.1 million in anticipation of claims spurred by mortgage delinquencies.

The first quarter delinquency rate was little changed at 0.58%. Genworth paid 186 claims for net claims incurred of just $35.9 million in the first quarter, down substantially from $138 million in the fourth quarter.

Genworth says the impacts of the winding back of support programs are yet to flow through the economy and it “will remain vigilant to the signals arising from economic indicators and loan delinquency data”.

“Over coming periods, it will become increasingly evident how many insured loans may continue to experience difficulty,” Ms Blight-Johnston said.