Genworth Australia Outlook Revised To Negative From Ratings Affirmed At #A+#

Stocks and Financial Services Press Releases Monday March 20, 2017 17:30
MELBOURNE--20 Mar--S&P Global Ratings

MELBOURNE (S&P Global Ratings) March 20, 2017--S&P Global Ratings revised its outlook on Genworth Financial Mortgage Insurance Pty Ltd. (Genworth Australia) to negative from stable. At the same time, we affirmed our 'A+' ratings on the insurer.

The outlook revision to negative reflects our expectations of a possible weakening of Genworth Australia's competitive position, and subsequent operating performance, as a consequence of the continued decline in the insurer's market position. Genworth Australia has lost two large customers over the past three years, with its most recent announcement relating to the loss of its second-largest customer, which has elected to not renew its contract (effective April 2017).

This customer represented about 14% of its gross written premium in fiscal 2016 (ended Dec. 31, 2016). As a result, we expect Genworth Australia's full-year 2017 gross written premium to contract further, which is below our previous expectation of modest premium growth.

This follows a decline in gross written premium of about 25% for fiscal 2016, which was larger than we had anticipated.

While Genworth Australia remains the largest participant in the market, the further shrinking of its business in 2017 has pressured its very strong competitive position, in particular its market position and earnings resilience. The 'A+' ratings on Genworth Australia reflect the company's leading market position, strong capitalization, and solid operating performance.

We recognize the decline in gross written premium has been partially driven by industry-wide contraction reflecting regulatory measures to curb investor lending growth and reduced lender risk-appetite for high loan-to-value ratio loans. We rate Genworth Australia higher than its majority owner, Genworth Financial Inc. (GFI; B/Watch Dev/B), reflecting our view that the insurer is reasonably insulated from GFI. The rating reflects our criteria interpretation allowing for a rating differential of greater than three notches from GFI that takes into account local regulatory oversight, external minority ownership, and restriction on capital fungibility.

The negative outlook reflects a one-in-three chance we may lower the ratings on Genworth Australia over the next two years.

We would consider a downward rating action if: There is a material deterioration in our view of the insurer's competitive position that may be reflected in a further weakening in market position, or a material decline in operating performance due to unfavorable claims experience; orThere is evidence of excessive risk taking through inadequate pricing or loosening of underwriting standards.

We could revise the outlook to stable over the next two years if: Genworth Australia's competitive position stabilizes, while it maintains its underwriting and pricing discipline; Our view of prospective operating performance is sound; andCapital adequacy remains strong.


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