Genworth Financial plans to sell up to 40 per cent of its lenders' mortgage business in Australia through a listing on the ASX. The US-based insurer announced the plan on Friday.Genworth is the larger of the two firms that dominate the mortgage insurance sector and has a market share of around 50 per cent, though this has fallen recently. The other dominant firm is QBE Lenders Mortgage Insurance, which is building market share.All providers of "prime" home loans in Australia rely on mortgage insurance to underwrite their credit risks. This form of insurance is common (and bordering on mandatory) for loans where the loan-to-valuation ratio is 80 per cent or higher.Banks also buy pool mortgage insurance to cover all loans refinanced through mortgage-backed securities, as do most non-bank issuers of mortgage securities.The December 2010 financial statements of Genworth Financial Mortgage Insurance Pty Ltd, the main operating entity in Australia, show: -- a book value at the end of 2010 of A$1.8 billion-- an underwriting profit of A$161 million for the year-- a net profit of A$191-- gross written premiums for 2010 of $367 million, a decline of one third on premium revenue in 2009. Genworth also contributed additional capital in 2011, though the details on this are not clear.The proposed ASX listing is an initiative by Genworth in the US to release capital for the parent company, though some of the proceeds of an initial public offering may be used to increase the capital base of the Australian business.Martin Fraizer, chief executive of Genworth, told an investor call on Friday that the decision to sell down the equity in its Australian arm "is similar to the strategy we executed in 2009 with the Canadian MI [mortgage insurance] platform and would include the sale of up to a 40 per cent stake while maintaining a control position."In the Canadian case, one tenth of the IPO proceeds were retained by the local subsidiary and the remainder repatriated to the US parent.Fraizer told investors that "we have seen clear benefits in diversifying and deepening the capital base in Australia through expansion of third-party reinsurance and the tier-two debt issuance earlier this year. "We believe this additional step adds to those benefits, while aiding Australia's future business growth strategies… and supporting objectives to rebalance the portfolio."Earnings for Genworth in Australia fell by four per cent over the first nine months of 2011, mainly because of lending losses arising from the Queensland floods, as well as subdued demand for new loans.While lacklustre demand may restrain future earnings, it may also allow Genworth to release capital to its shareholders over coming years.Martin Klein, chief financial officer of Genworth, said on Friday: "The revenue line in this environment remains pressured for most of our mortgage insurance platforms. "However, given the smaller books of business being written in more recent years, as the larger, earlier books roll-off, these platforms will generate excess capital for the company over the next few years."Australian Prudential Regulation Authority data shows that the mortgage