Genworth Mortgage Insurance Australia (GMA) says it may continue returning capital to its shareholders after unveiling another special dividend, and another forecast of a slide in premium income as the high Loan to Valuation ratio home lending market continues to cool.
And the company, which insurers high LVR Loans, warned that there are continuing pockets of pressure in the home loans market, especially in the mining areas of Western Australia and Queensland (that is in the Pilbara and Central Queensland).
Genworth Australia said its net profit totalled $135.8 million for the six months through June, against $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.
The Company implemented a capital management initiative in the June half year by way of a capital reduction and associated share consolidation. A distribution of 34 cents per share, representing a total payment of approximately $202 million, was paid to shareholders on 1 June 2016. The cash distribution was combined with a related share consolidation, through the conversion of each share into 0.8555 shares, which was designed to provide shareholders an earnings per share outcome similar to a share buy-back.
"The capital reduction is a continuation of the capital management actions that are designed to bring the Company’s solvency ratio more in line with the Board’s target capital range of 1.32 to 1.44 times the Prescribed Capital Amount (PCA) on a Level 2 basis. As at 30 June 2016, the Company’s regulatory solvency ratio was 1.56 times PCA,”directors said yesterday.
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.”
"The overall portfolio continues to be supported by strong performance in New South Wales and Victoria. However, the performance in Queensland and Western Australia is still challenging, reflecting increased delinquencies, particularly in regions exposed to the slowdown in the resources sector as the economy in those areas navigates through a period of transition.”
"The outlook for the Australian residential mortgage market remains strong, supported by sound fundamentals including low unemployment, record-low interest rates and a continued focus by regulators on lending standards. Genworth expects house price appreciation to moderate in 2016. ,” she said.
The crack down last year and earlier this year on high LVR lending by key regulators, APRA and the Reserve Bank, has seen that part of the home mortgage market contract sharply, meaning Genworth’s business has also contracted.
This has allowed it to make the capital return in the June half year, pay the special dividend for the half year results, and probably announce a repeat the latter next February when the full year figures are released.
The contraction in the high LVR loans market has seen Genworth Australia forecast an around 20% per cent fall in gross written premiums this year(the company has a calendar financial year). It expects net earned premiums to fall by around 5% this year, and for the full-year loss ratio to be between 25% and 35%.
Directors said the company is targeting a dividend payout ratio of between 50% and 80%of net profit. For the June half of its financial year, the ratio was 63.2%.
