Fitch has affirmed its AA- rating on QBE LMI, with a stable outlook.

The agency says the rating reflects the lenders’ mortgage insurer’s “robust, stand-alone credit profile” and solid capital ratios, historically strong operating performance and a conservative risk approach.

QBE LMI is Australia’s second-largest lenders’ mortgage insurer by premium volume.

“In a tightly regulated environment, characterised by strong customer relationships that change infrequently, barriers to entry are high, which will help underpin the company’s competitive position and future profitability,” Fitch says.

QBE LMI’s loss ratio last year was 26%. It averaged 18% over the five years to last year. 

On the potential for a future downgrade, Fitch says as a “monoline” insurer QBE LMI is susceptible to a slide in the housing market.

“A very severe housing downturn, most likely due to a sharp rise in unemployment and other deteriorating macroeconomic conditions, would constitute the most serious threat to QBE LMI’s rating.”

However, Fitch says this scenario is unlikely.