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Profits up, LVRs down for Genworth

by Nick Bendel10 minute read
The Adviser

Australia's booming housing market has delivered strong profit growth for Genworth, with a market analyst forecasting more good times ahead.

Genworth reported a net profit of $64 million for the three months to 30 September 2014, which was up 13.9 per cent on the year before.

Underlying net profit also rose, climbing 20 per cent to $70.2 million.

The LMI giant enjoyed an 11.4 per cent increase in new insurance volumes to $9.8 billion.


The share of new insurance with a maximum LVR of 80 per cent grew from 20.2 to 25.2 per cent.

The share of new insurance with LVRs between 80-90 per cent rose from 44.3 to 48.1 per cent.

Genworth booked relatively less insurance with LVRs above 90 per cent, with that share falling from 35.8 to 26.6 per cent.

The number of paid claims also declined, falling 31.4 per cent to 350.

Genworth attributed its improved performance to "the continuation of stable economic conditions, low interest rates and the solid fundamentals of the Australian housing market".

It also forecast that it would end 2014/2015 with a net profit of between $250 million and $270 million, up from the earlier estimate of $250 million.

This improved profit forecast has been driven by a reduction in claims, according to market analyst Morningstar.

"This is the second upgrade to 2014 guidance, and at the top end is now 17 per cent higher than the $231.1 million prospectus forecast," Morningstar said.

"Following the third quarter and no sign of near-term deterioration in the Australian economy which would derail earnings, our fiscal 2014 profit forecast is increased to $267 million."

Morningstar said Genworth's current low in claims is a reflection of inherent volatility and dependence on macroeconomic factors.

"Premium rate increases and tighter lending standards provide long-term benefits to profitability and returns on equity," it said.

"However, profit can fall just as quickly when claims begin rising. This is out of Genworth's hands, and simply a characteristic of the industry in which it operates."

[Related: LMI makes sense, say prominent brokers]

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