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CEO AllenWargent Property Buyers, & WargentAdvisory (institutional). 6 x finance author.

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Saturday, 6 February 2016

Genworth delinquencies remain low

Result

Monoline mortgage insurer Genworth Mortgage Insurance Australia (GMA) released its FY15 results, with new CEO (and fellow former Deloittian) Georgette Nicholas taking the helm for its latest investor presentation.

I discussed why Genworth might represent an interesting proxy for housing market sentiment in a little more detail here

As expected following the loss of a key contract gross written premium was down by 20 per cent from FY14, largely due to Westpac canning its Lenders Mortgage Insurance (LMI) deal with Genworth in February 2015, but underlying earnings performance remained resilient.


The number of paid claims was well down to 616 in 2H15 from 664 in the prior corresponding period of 2H14 (and way down from 1,091 in 2H13) although the average paid claim increased year-on-year to $63,500 from $54,400.


Delinquencies very low

Genworth's ASX releases are perhaps most interesting for their ongoing insights into mortgage delinquencies, and the latest presentation showed that delinquencies remain at a very low level of just 0.38 per cent nationally. 

Queensland has the highest delinquency rate of the states (0.53 per cent), in no small part thanks to the now discredited belief that house prices and vacancy rates in mining towns could emerge unscathed from the end of the resources construction boom. 

Queensland's delinquency rate has also been elevated since the 2011 book year when delinquency developments were exacerbated by flooding across huge swathes of the state.

Strip out those exceptional items and mortgage books in the remainder of the Sunshine State are in reasonably solid nick.

South Australia is next in line at 0.51 per cent, perhaps unsurprising given the elevated rates of unemployment consistently being recorded in Adelaide and regional South Australia. 

Delinquency rates were exceptionally low in New South Wales for such a populous state at just 0.27 per cent.


Mapping GMA's delinquency developments by book year shows how delinquency rates have cascaded handsomely lower since the particularly troublesome 2008 and 2009 book years. 


Share price rebound

The share price responded positively to the FY15 investor presentation to trade up by +4.33 per cent by the market close yesterday at $2.65.


If Genworth is perceived to be any kind of worthwhile bellwether for property market sentiment (commonly claimed when the market cap is down) then the 20 per cent recovery in the share price from $2.21 to $2.65 augurs well for the mortgage default outlook.

This is particularly so given that the share price dipped sharply in September as the APRA crackdown on property investors bit hard, adversely impacting expected volumes through 2016.

The Genworth share price had slumped to a 52 week low of $2.21 on September 2015 as the Glencore share price crash rocked commodities companies and share market confidence.