Contract talks uneasy for Genworth
At least one more big bank is making noises about reducing its reliance on, or even walking away from, Genworth Australia as its supplier of lenders mortgage insurance.The half year profit for Genworth, the dominant supplier of this form of insurance, spells out the elevated risk of losing two banks, its second largest and third largest customers, before the end of 2017."The contract with the second largest customer expires in February 2017," Genworth said, adding that it was "aware that the customer is considering other alternatives to traditional LMI."Genworth also cautioned that "the current contract with its third largest customer is due to expire on 20 November 2017 and that this customer may, or may not, issue a request for proposal prior to that time."Combined with secular shifts in the supply of mortgage finance - thanks mainly to APRA's crack down on bank's investment loans - Genworth expects gross written premium to fall between ten per cent and 15 per cent over 2017.This on top of a fall of 25 per cent, to A$382 million, over the full year to December 2016.The loss of Westpac's custom to Arch, a recent foreign entrant, is one dimension of the slide in GWP, along with the reduced demand for loans with higher loan to valuation ratios.Claims paid climbed 41 per cent over the year to $159 million.The net profit fell by 11 per cent to $203 million.Downside macro risks continue for Genworth.Pointing to "increasing mortgage stress in certain regional economies," Genworth said it expected elevated delinquencies in these regions in 2017, adding that: "under-employment remains near-record highs, implying a greater degree of spare capacity in the economy."The company's share price fell 50 cents, or 15 per cent, to $2.87.