Genworth posts strong results as east coast housing market improves

Genworth Mortgage Insurance ASX GMA Commonwealth Bank CBA lender
Mortgage insurance giant Genworth has reported its “best quarter” with gross written premiums rising to $115 million as housing markets improve in Sydney, Melbourne and Brisbane.

Genworth Mortgage Insurance Australia (ASX: GMA) has posted a near 30% lift in third quarter net profit as signs point to an improvement in the housing market across Sydney, Melbourne and Brisbane.

The mortgage insurance giant today announced its third quarter earnings, reporting a statutory net profit after tax (NPAT) of $25.1 million, up 28.1% on the same period in 2018.

Underlying NPAT, which excludes one-off items, was up 29.9% to $26.5 million.

In addition, gross written premiums rose 24.4% to $114.6 million with growth in traditional lenders mortgage insurance (LMI) being driven by increased volumes in high loan-to-value lending, Genworth stated.

LMI protects banks and other lenders from mortgage defaults by homeowners or investors with a loan-to-value ratio above 80%. This means, if customers want to borrow more than 80% of a property’s worth, they would be required to add this insurance premium to their loan.

In 2018, Genworth had reported a 7% drop in new premiums written, attributed to a weaker housing market and tighter lending rules.

But, this year’s 26.4% increase in third quarter new insurance written to $6.4 billion points to signs of a recovery in the country’s housing market.

“We are beginning to see signs of stability across metro Sydney, Melbourne and Brisbane with more favourable market conditions acting as a catalyst for greater activity in the housing market,” Genworth chief executive officer Georgette Nicholas said.

“Pleasingly, this translated into our best quarter by gross written premium in four years for our flow LMI business,” she added.

Economic outlook

According to Genworth, a historically low cash rate, tax cuts and continued infrastructure investment at both state and federal levels is expected to provide positive momentum into the fourth quarter and extend through 2020.

“Strong export growth of commodities and liquefied natural gas, supported by a weaker Australian dollar and continued stability of commodity prices is also providing foundational support for the economy,” the company stated.

However, it said continued geopolitical uncertainty, particularly due to the ongoing trade tensions between the US and China, could potentially impact global economic growth over the remainder of 2019.

As for the Australian property market, Genworth said it expects house price stability this current quarter across metropolitan Sydney, Melbourne and Brisbane, followed by a “slow-paced recovery into 2020”.

Genworth’s interpreted signs of stability align with data showing Australian house prices have been heading toward their strongest month of gains since mid-2017, according to Reuters.

The newswire cited record-low interest rates and easier lending laws as the catalyst for a reported rise in lending volumes.

Perth is the unfortunate exception, with challenging market conditions expected to continue into the first half of 2020 as the Western Australian suffers the ongoing impact of the mining boom’s end.

Renewed deal with CBA

Genworth also announced today it has renewed its supply and service contract with Commonwealth Bank of Australia (ASX: CBA) to provide LMI services until the end of 2022.

Ms Nicholas said the renewal for another three years is “evidence of the broader demand by lenders for [Genworth’s] risk and capital management solutions”.

“Importantly, the agreement opens further opportunities to expand our relationship through continued investment in technology, product offerings and services that provide a better borrower experience,” she added.

Leadership transition

In a separate announcement to the market, Genworth revealed Ms Nicholas, who is also the company’s managing director, will be retiring at the end of the year.

Genworth chairman Ian MacDonald thanked Ms Nicholas for her contribution and commitment to the company over the past five years.

“Georgette has left Genworth in a strong position to compete and grow over the next phase of our strategic journey. She has led significant cultural change within the business resulting in a diverse and highly engaged workforce,” he said.

Ms Nicholas announced her intentions to retire back in May and the board has been conducting an Australian and international executive search ever since.

The board has now asked non-executive director Duncan West to step in as acting chief executive officer from January 2020 until a permanent appointment is made.

Mr MacDonald said Mr West’s experience in previous senior executive roles at various insurance companies will be valuable in leading the company.

Ms Nicholas is still expected to remain with Genworth until the end of March to assist in the handover.

Genworth shares surged 11.73% to $4.00 on today’s news by early afternoon trade.

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