The sale of a majority stake in Genworth Mortgage Insurance Australia by its US parent may benefit the Lenders Mortgage Insurance (LMI) provider as it enjoys greater flexibility from a fully floating share register, S&P says.

Genworth Financial Inc (GFI) sold its entire 52% stake last week. Commercial agreements between GFI and Genworth will cease, as will a Trademark Licence Agreement, IT Services Agreement and Shared Services Agreement.

“We expect the removal of residual interlinkages will progressively occur but these are ratings neutral, given that we base our ratings on Genworth Australia on its stand-alone business credit characteristics,” the ratings agency said.

S&P affirmed its A rating on Genworth, saying its “stand-alone credit characteristics” insulates the insurer from its lower-rated US parent GFI, which S&P rates B-.

“In our view, Genworth Australia's capital management may benefit from greater flexibility,” S&P said. “We did not link the rating on Genworth Australia with that on GFI and recognised the factors supportive of its insulation - including listed minority shareholding of around 48% and strong local regulation - despite GFI being its majority shareholder.”

Fitch also affirmed its A rating on Genworth.

“We continue to view ownership as being neutral,” Fitch said, adding its negative outlook on Genworth reflected potential pressure on earnings from measures aimed at slowing the spread of the coronavirus.

Genworth’s earnings took a hit last year from delinquency reserving of $109.1 million and a large $181.8 million writedown, sending it to a full-year underwriting loss of $234 million.

The company has warned of “sustained pressure on claims throughout 2021,” as assistance such as JobKeeper and mortgage deferrals granted by lenders taper off, leaving many homebuyers exposed and poised to make LMI claims.

Fitch says Genworth's capitalisation has remained “very strong” despite the earnings headwinds, with a regulatory prescribed capital amount coverage of 1.65 times at end-2020.