Potential claims from “credit exposed classes” - lenders’ mortgage insurance, trade credit and landlords’ insurance – will define the QBE Group insurance profit in the period ahead, one defined by “significant uncertainty”, of course.
Given the current levels of government stimulus and credit support from the banking sector, “QBE will continue to monitor market developments closely, including the outcome of pending litigation related to policy coverages in certain jurisdictions” the group said in its FY2020 full-year result yesterday.
The combined operating ratio of QB’s LMI business improved to 55.1 per cent from 57.1 per cent in the prior period.
The LMI claims ratio “increased in line with expectations” to 37.3 per cent from 34.9 per cent in 2019, and the LMI result “benefited from higher reinsurance commission income, profit commission clawback and reduced expenses,” QBE said.
The insurer’s LMI net earned premium was down 7 per cent to A$72 million “due to the industry-wide contraction in lending and strengthened lending standards”.
QBE said it is “assuming a rise in the unemployment rate to 10.5 per cent and a 7.5 per cent decline in house prices” and thus “LMI claims frequency and severity is likely to increase”.
Writing clearly about the mortgage market as the domain of the privileged, QBE said “unemployment impacting LMI is likely to be around 1.5 per cent lower than headline unemployment reflecting a disproportionate impact of COVID-19 on non-mortgagors e.g. young, part-time and low-paid workers.”