Ratings agency Standard & Poor’s (S&P) forecasts a stable outlook for the Australian lenders’ mortgage insurance (LMI) market this year, despite a major local player reporting an “elevated loss experience” in the first quarter. 

US life and mortgage insurer Genworth Financial has postponed the planned initial public offering (IPO) of up to 40% of its Australian LMI business due to “recent business performance in Australia”.

The IPO of its local entity had been slated for the second quarter of this year, but is now scheduled for early next year.

“This new timeframe primarily reflects business performance in Australia,” says Genworth, which expects a “modest” first-quarter loss in Australia.

Genworth says that during the first quarter, lenders accelerated foreclosures “at a higher rate and severity than expected, particularly in coastal areas of Queensland that experienced natural catastrophes and regional economic slowdowns and among certain groups of small business owners and self-employed borrowers”.

But S&P believes the frequency and severity of LMI claims in Australia is likely to remain stable this year, underpinned by static unemployment rates and a relatively stable property market.

“We expect unemployment rates to remain stable at around 5-5.5% in 2012 and believe households are likely to remain deleveraged, leading to relative stability in the frequency and severity of claims,” S&P credit analyst Lucy Huynh said.

She says its forecast of continued softening, rather than a significant correction, in local property prices, due to the strong labour market, undersupply of housing, improved affordability and positive population growth means the state of the housing market will not “materially affect claims severity” in the LMI market.

“We believe Australian LMIs are structured to remain resilient to deteriorating economic conditions, and have remained very strong through the global and local events of the past decade,” S&P concludes.