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Claim reserves eat into Genworth’s Q2 results

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Genworth Mortgage Insurance’s loss ratio blew out to 87% in the second quarter as it earmarked $35.5 million for expected future COVID-19-related claims.

The figure compares with 41.4% in the final three months of last year, before Genworth wrotedown $181.8 million as the pandemic broke out in March.

The ASX-listed company is bracing for further claims as property sales stall and unemployment rises due to the impact of the coronavirus on the economy. Net claims incurred rose to $101.1 million in the first half and the loss ratio was 67%.

CEO and MD Pauline Blight-Johnston says the impacts of COVID-19 are playing out broadly in line with first quarter assumptions, which gave a “central estimate” of a peak unemployment rate of 8.2% and property prices falling 5.4% this year.

Genworth’s ultimate COVID-19-related claims number will depend on the pace of economic recovery, which will influence losses when temporary mortgage repayment deferrals are lifted by lenders.

“These certainly are challenging times,” Ms Blight-Johnston told analysts during a conference call. She stepped into MD role just 10 days before COVID-19 was declared a pandemic by the World Health Organisation on March 12.

“We’re in times we’re not used to in many ways. Our actuaries don’t have a lot of history [and] we’re trying the best we can with very limited information.

“The ultimate impact on our loss experience is still unknown. The impact on borrowers will be ongoing … at least through 2021.”

Volume increased in Genworth’s core Lenders Mortgage Insurance (LMI) business, with gross written premium (GWP) jumping 30% from a year earlier to $239.3 million. Of that, $125.3 million was in the second quarter, though since then house prices in the metropolitan centres have moderated.

Genworth posted a net loss of $90 million for the half, from a profit of $79.8 million a year earlier, reflecting the COVID reserves. Investment income in the second quarter was $58.6million, reversing losses the previous quarter, due to tightening credit spreads and a rally in fixed income and equity prices.

New mortgage delinquencies fell 9.6%, lowered by mortgage repayment deferrals and postponed legal activity. Genworth received over 48,000 payment deferrals from lender customers, or around 4% of its insured loans.

Ms Blight-Johnston says unemployment and structural industry changes “will weigh heavily on the medium-term outlook” and recent weeks had seen a reversal in gains in consumer confidence.

Genworth will not pay a dividend in 2020.