Genworth's profits have dropped by a third but its shares are jumping

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Genworth posted a 34.7% fall in profit for the first half, to $88.7 million, as premiums from mortgage insurance shrink in a market where high loan to value ratios are becoming scarcer.

And premiums are expected to fall further during the rest of the financial year following regulatory changes to limit interest-only loans and as house price growth moderates.

The net profit includes an after-tax loss of $24.8 million on the company’s investment portfolio. Underlying profit was $113.5 million.

CEO Georgette Nicholas says the result demonstrates the resilience of the business model despite elevated mortgage delinquencies in resource-exposed regional economies and a smaller high loan-to-value ratio mortgage.

The company announced an on-market buy-back for shares up to a maximum of $100 million. The board also declared fully franked ordinary and special dividends totaling 14 cents a share.

A short time ago, Genworth shares were up 3.9% to $3.14.

Here’s how the number of high loan to valuation mortgages have fallen:

Source: Genworth

“We have strategic initiatives underway to redefine our core business model with a particular focus on improving our underwriting efficiency, enhancing our product offerings and where appropriate, leveraging our data and partnerships along the mortgage value chain,” says Nicholas.

New business volume, as measured by New Insurance Written, fell 6.4% to $13.1 billion in the first half. Gross Written Premiums fell 4% to $182.3 million.

New South Wales and Victoria continue to perform strongly.

However, Genworth says Queensland and Western Australia are challenging with increased delinquencies due to the slowdown in those regional and metropolitan areas which previously benefited from growth in the resources sector.

Genworth says house price growth is likely to moderate following regulatory measures to slow the growth in investment lending and limit the flow of new interest-only lending.

“Mortgage interest rate increases, particularly for investor and interest only loans, and recent changes to minimum bank equity requirements may also impact price growth this year,” the company says.

Overall, the company expects gross written premiums in 2017 to be below 2016, down between 10% and 15%.

The 2017 half year results:

Source: Genworth

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