Genworth Mortgage Insurance Australia has strengthened its claims reserving due to reduced loan delinquency visibility caused by COVID-19 restrictions and government and lender support packages, and with an uneven economic recovery expected.

“The lockdown in Victoria and continuing border closures in some states demonstrate that the impact of the pandemic still has a while to play out, so there remains considerable uncertainty about the ultimate impact on Australian borrowers and on Genworth claims,” CEO Pauline Blight-Johnston told a third-quarter results briefing today.

The company increased claims reserving by $47.1 million in the quarter, resulting in the loss ratio deteriorating to 63.5%, compared to 52.9% a year earlier. The ratio improved from 86.9% in the second quarter when it announced a $35.5 million increase in loss reserving.

Jobs packages, legal moratoriums and lender customer loan deferral programs are supporting the economy and providing individual financial respite, while delaying the emergence of possible claims.

“We will continue to assess the appropriateness of our reserving methodology as we obtain more data on repayment deferrals, and the nature of the economic recovery becomes more apparent,” Ms Blight- Johnston said.

“Importantly, Genworth remains in a strong capital position and able to withstand a wide range of volatility in claims outcomes.”

Third quarter net profit fell to $24.6 million from $25.1 million, with the result impacted by reduced investment income.

Gross written premium rose 25.5% to $143.8 million reflecting strong volumes from lender customers as the housing market held up better-than expected, particularly in the owner-occupier segment.

The quarter result took the 9-month loss to $65.4 million, which includes a write-down in the first half. A profit of $113.2 million was reported in the previous year-to-date corresponding period.

Genworth says it has maintained strict underwriting standards and its business is skewed away from the big banks, which have higher loan deferral rates on average than the rest of the market.

Active deferrals have fallen from a high of 50,302 in May to 31,139 at the third quarter, representing 3% of insured loans in-force.

CFO Michael Bencsik says work is underway on the reinsurance program renewal, with initial indications from firms in Europe and the US suggesting pricing will be “quite elevated” and capacity could be constrained.

“But the overall feedback that we are getting is they are very comfortable with the level of Australian mortgage risk across our book,” he said. “We will continue to work through that renewal over the course of November.”