Genworth's mortgage insurance business is being crushed

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More cautious lending at the banks has cut Genworth’s first quarter mortgage insurance profits by 24.8% to to $67.3 million

The gross premiums of Genworth Mortgage Insurance Australia fell 33.4% to $85 million, reflecting a decline in the high loan to valuation (LVR) business.

A short time ago, Genworth shares were up 1.6% to $2.42 with investors seeing the fall in business not as bad as expected.

Lenders usually require loans with small deposits to be backed by insurance which pays out if the borrower fails to make payments.

Home loan lending is becoming more expensive and harder to come by for borrowers.

The banks have been getting tougher on lending as they adjust for a slowing in the housing market. And investor lending is shrinking as the financial sector regulator APRA (Australian Prudential Regulation Authority) demands tighter credit policies.

Australia’s biggest lender’s mortgage insurer says the high LVR market continues to be constrained and Genworth expects gross premiums to decline by about 20% this year.

“Our first quarter results are largely in line with our expectations,” says CEO Georgette Nicholas.

“We continue to see pressure on gross written premium 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.”

The red line in the chart below shows the declining business for mortgage insurance issued for high loan to value ratios:

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