Standard & Poor’s (S&P) has maintained its insurance industry and country risk assessment (IICRA) for the mortgage insurance sector in Australia at “low”.

The rating is based on the sector’s intermediate industry risk and Australia’s very low country risk.

“The low-risk IICRA is the second-strongest on a scale of six and provides the context for our analysis of an insurer’s competitive position and business risk profile,” S&P says.

Australia and Canada are the only countries with a low-risk score for their mortgage insurance sectors.  

The low-risk IICRA is in line with the Australian property and casualty, life and health insurance sectors.

Supportive market structures, sound profitability and a positive view of the country’s institutional and regulatory frameworks underpin the ratings agency’s decision.

However, S&P has revised to negative its assessment of market growth prospects for Australian mortgage insurance, due to “likely material decline” in gross written premium (GWP) last year.

“We also expect [this year] will show a similar contraction in the industry,” S&P says.

Key drivers of the recent and prospective GWP falls include reduced lender risk appetite for high-loan-to-value business and waning first-homebuyer demand.

“While the business base is contracting, the quality of business underwritten is improving, with an expectation that GWP will stabilise [next year] on the back of benign economic conditions.

“We expect earnings to be sound, with net earned premiums remaining stable over coming years given the long-term earnings pattern associated with mortgage insurance in Australia, and our expectation that underwriting and risk discipline will be maintained.”