Genworth Australia shares slide as quarterly profit plunges

Genworth shares have fallen almost 5pc in early trade after the mortgage insurer booked a sharp drop in quarterly profit.

Genworth CEO Georgette Nicholas. Picture: James Croucher

Genworth Mortgage Insurance, a provider of insurance to lenders against the risk of borrowers defaulting, forecast the country’s housing market to moderate in 2018 as it reported a sharp drop in quarterly profit.

Genworth Australia (GMA), spun out of US-based Genworth Financial in 2014, on Wednesday said housing market conditions in Australia should continue to ease as macro-prudential measures take effect and new supply comes onto the market.

The company recorded first-quarter net profit of $8.4 million, a drop of 84 per cent from $52.2m a year earlier.

Stripping out the aftertax impact of unrealised gains and losses on its investment portfolio, Genworth Australia’s earnings fell 71 per cent to $19.9m for the three months through March. That came as its net earned premium dropped by 38 per cent to $67.4m.

Still, the company said it was making good progress in a strategic overhaul and announced an on-market share buyback of up to $100m.

Genworth Australia provides lenders with insurance against a loss if borrowers default on their home loans, allowing a borrower who doesn’t have a large down payment to buy a home sooner or to borrow a higher portion of the purchase price. It remains majority owned by Genworth Financial.

Australia’s biggest banks have tightened lending standards in recent years, clamping down on interest-only mortgages and loans with a high loan-to-valuation ratios to comply with restrictions imposed by regulators.

Last week, the prudential regulator said it would remove a 10 per cent cap on investor loan growth that was introduced in 2014 and replace it with permanent measures aimed at strengthening lending standards, including policy limits on debt-to-income levels for individual borrowers.

“We continue to be focused on ensuring we have an optimal capital structure,” said Georgette Nicholas, Genworth Australia’s chief executive and managing director.

By 10.46am (AEST), Genworth shares had dropped 11 cents, or 4.62 per cent, to $2.27.

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