S&P says Australia’s lenders’ mortgage insurance market will remain low-risk over the next year or two as the sector continues to perform despite premium growth retracting.  

The ratings agency noted strong sector fundamentals as key to the outlook, with low unemployment rates, house pricing appreciation, and strong underwriting support for insurers all contributing.  

The fundamentals have proven critical as the sector saw subdued lending conditions, which resulted in premium decreases of about 36% in 2023, and flat premiums last year. Premiums are expected to grow by 5% next year, on the anticipation of interest rate cuts.  

Profitability is also likely to moderate, but insurers are expected to see more than a 10% return on equity.  

S&P expects claims frequency to go up but says house price appreciation and lower risks of defaulting will negate the impact.  

“While claims frequency will likely increase over the next one to two years, this is from a very low base, and we expect any such claims costs to be manageable for mortgage insurers,” it said.  

“Sector profitability has also benefited from reserve releases over the past few years, which will likely decline over the coming years.”