S&P Global has revised its outlook on lenders’ mortgage insurer Genworth Australia to negative from stable after it lost its second-largest client, Macquarie Bank.

Macquarie Bank represented about 14% of Genworth’s gross written premium (GWP) in 2015/16 but it elected not to renew its contract, effective next month.

It is Genworth’s second major client loss in the past couple of years, after Westpac left in 2015.

S&P Global expects Genworth Australia’s GWP to deteriorate further this year – a change from its previous expectation of modest growth.

This follows a 2015/16 decline in GWP of about 25%, more than the ratings agency had anticipated.

“While Genworth Australia remains the largest participant in the market, the further shrinking of its business… has pressured its very strong competitive position, in particular its market position and earnings resilience,” S&P Global says.

However, the agency has reaffirmed Genworth’s A+ rating, to reflect the “company’s leading market position, strong capitalisation and solid operating performance”.

“We recognise the decline in GWP has been partially driven by industry-wide contraction, reflecting regulatory measures to curb investor lending growth and reduced lender risk appetite for high loan-to-value ratio loans,” S&P Global says.

About 88% of residential mortgage-backed securities (RMBS) transactions in Australia and New Zealand are exposed to lenders’ mortgage insurance.

Genworth insures about 25% of loans underlying Australian RMBS transactions as of last December 31. In New Zealand the exposure is about 4%.

“Any deterioration in the financial strength of lenders’ mortgage insurance insurers could affect RMBS ratings,” S&P Global says.

It says RMBS exposure to lenders’ mortgage insurance has declined in recent years.

“We expect the trend to continue as issuers move to reduce ratings dependency risk caused by lenders’ mortgage insurance exposure.”

This also reflects a shift away from high loan-to-value ratio loans, for which lenders have traditionally obtained mortgage insurance.