Genworth sees profits fall as market pressures mount

The ASX-listed mortgage insurer’s profits continued to slide over the first quarter of 2016, following a 29.7 per cent decrease in statutory net profit after tax (NPAT) for the 2015 calendar year.

Genworth last week reported an NPAT of $67.3 million and underlying NPAT of $61.8 million for the quarter ended 31 March 2016, down 11.5 per cent and 24.8 per cent respectively over the prior corresponding period.

Genworth CEO Georgette Nicholas said the group’s first quarter results are largely in line with expectations.

“We continue to see pressure on Gross Written Premium (GWP) levels due to changes in the mortgage market, specifically, a noticeable decline in the proportion of high loan-to-value ratio (LVR) loans originated and changes in lender risk appetite,” Ms Nicholas said.

Genworth’s GWP fell by 33.4 per cent from $127.7 million in Q1 2015 to $85 million in Q1 2016. The group noted in its trading update that the result reflects the combined impact of reduced business volumes, including the full impact of the changes in customers in the first half of 2015, as well as a decline in the LVR mix of business.

Given current market conditions, Ms Nicholas said the group remains focused on maintaining its risk management discipline.

“We are also actively managing the group’s capital position to ensure we are appropriately balancing our objectives of meeting our policyholder obligations, delivering long-term shareholder returns and having the flexibility to grow the business in the future,” she said.

New business volumes, as measured by New Insurance Written (NIW), of $6.2 billion in Q1 2016, decreased 13.9 per cent compared with the previous corresponding period.

However, the group maintains that the overall portfolio is performing in line with expectations.

“Performance in NSW and Victoria remains strong, while pressure in WA and Queensland continues as those regions navigate through tough economic conditions,” Genworth said in a statement to the ASX.

“The portfolio delinquency rate increased sequentially in 1Q16 versus the final quarter of 2015. This is in line with a typical seasonal increase in delinquencies in the first quarter of each calendar year.”

While the group believes the outlook for the Australian residential mortgage market remains strong, supported by sound fundamentals including low unemployment, record low interest rates and a continued focus by regulators on lending standards, Genworth expects house price appreciation to moderate in 2016.

“The high LVR market continues to be constrained in 2016 and Genworth continues to expect GWP to decline by approximately 20 per cent due to these market conditions,” it said.

[Related: Genworth profits fall 29% as lending changes hurt LMI demand]