Genworth Australia unveils special dividend

Mortgage insurer Genworth’s shares jumped on news of a special payout, as it warned of pressure in home loans.

Pressure in some areas: Genworth CEO Georgette Nicholas. Pic: Renee Nowytarger

Genworth Mortgage Insurance Australia said it may continue returning capital to its shareholders after unveiling another special dividend, even as it warned of pockets of pressure in the home loans market.

The news of the unexpected dividend sparked significant interest from traders, who sent the group’s shares up as much as 9.3 per cent, the biggest rise for the company in four months.

At 11.20am (AEST), Genworth shares had given back some of their gains but still traded 6 per cent higher at $3.075, against a broader market fall of 1 per cent.

Genworth Australia (GMA), spun out of US-based Genworth Financial in 2014, said its net profit totalled $135.8 million for the six months through June compared to $113 million a year earlier.

Management said it would pay an interim dividend of 14.0 cents a share plus a special dividend of 12.5 cents, while weighing further capital management initiatives that could be implemented this financial year.

Chief Executive Georgette Nicholas said economic conditions remain supportive and the fundamentals of the residential mortgage market are sound, but there is pressure in some areas.

“It is clear that the business is navigating through some variability and changes in the residential mortgage market,” she said. “In particular, there has been a significant decline in the proportion of high loan-to-value ratio loans originated given regulatory changes and changes in lender risk appetite.”

Lenders mortgage insurance, introduced in Australia by the government in 1965, provides lenders with insurance against a loss if borrowers default on their loans. It is a type of home-loan insurance that allows 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.

The constrained high LVR loans market led Genworth Australia to forecast an around 20 per cent fall in gross written premiums during the current financial year. Also, it expects net earned premiums to fall by around 5 per cent this year, and for the full-year loss ratio to be between 25 per cent and 35 per cent.

The company is targeting a dividend payout ratio of between 50 per cent and 80 per cent. For the first half of its financial year, the ratio was 63.2 per cent.

Dow Jones Newswires