Genworth shares surge on profit return amid lockdown warning

Genworth Mortgage shares surged after the mortgage insurer swung to profit, with investors looking through its caution on the outlook.

New insurance written jumped nearly 15 per cent to $15.5bn, which reflected improved home buyer confidence and affordability.

Genworth’s shares surged nearly 10 per cent on Wednesday after the mortgage insurer returned to profit, with investors looking through its caution on the uncertain near-term outlook brought by Covid-19 restrictions.

The strong housing market through the first half of the year helped push Genworth’s interim net profit to $59.4m, with new insurance written jumping 15 per cent over the period.

But chief executive Pauline Blight-Johnston sounded a note of caution even as she praised the return to profit.

“The result reflects the improved economy, housing market appreciation and low interest rates experienced during the half,” Ms Blight-Johnston said.

“Performance was also supported by operational initiatives implemented last year in response to the new operating environment created by Covid-19.”

But lockdowns and restrictions across multiple states had dampened the outlook, she warned.

“The stronger economy over the first half has provided good momentum for the company, however, the recent Covid-19 restrictions in some states will affect the ongoing economic recovery and have created renewed uncertainty.

“The latest round of borrower support programs will extend the duration of the subdued delinquency behaviour we have been experiencing, pushing out the time frame over which we will obtain increased clarity regarding ultimate claims outcomes.”

Attempting to reassure investors, Ms Blight-Johnston said Genworth was in a strong capital position and able to withstand “a wide range” of future claims outcomes.

“Clearly the latest lockdowns create a little bit more uncertainty, though we have seen the economy bounce back well and we’re hopeful that we’ll see the same thing again. Either way, we are well positioned to be able to manage any volatility to come.”

Genworth, which provides lenders mortgage insurance for the high loan-to-value market, swung to a net profit of $59.4m for the six months to June 30, after reporting a full-year loss in February.

Its underlying profit of $76.4m was underpinned by an underwriting profit of $87.7m, but the group took a hit from unrealised mark to market investment losses due to higher government bond rates.

Genworth shares closed Wednesday’s session up 7.55 per cent at $2.28 after jumping nearly 10 per cent earlier in the session.

New insurance written rose 15 per cent to $15.5bn, which Genworth said reflected improved home buyer confidence and affordability as owner-occupiers and first home buyers stepped into the market and took advantage of low interest rates.

The higher business flows will underpin earnings growth over future years, Genworth said.

Gross written premium increased 21 per cent to $289.7m, driven by the higher new insurance volumes and as its key lender customers grew above system amid a strong high loan-to-value mortgage origination market.

Net claims dropped 51 per cent to $49.3m as Covid-19 moratoriums constrained the number of mortgages in possession and claims paid.

Average paid claim amounts remain below historic levels due to borrower sales and house price appreciation but the mortgage insurer does not expect the lower delinquency numbers to continue over the longer term.

“While there has been lower than anticipated incurred claims to date, the company expects higher delinquencies to emerge post the expiry of the latest repayment deferrals and moratoriums,” the company told the market.

Following the group’s separation from parent company Genworth Financial earlier this year, Ms Blight-Johnston flagged one-off separation costs of between $15m and $19m, which will mostly be incurred this year. Of the total, $0.8m had already been incurred in the first half.

Genworth will pay an interim dividend of 5c a share, which the group said reflected the growth in earnings and the strength of its capital base.