The ASX listed scrip of Genworth Australia – the country’s largest mortgage insurer - was hit by another bout of selling on Monday after S&P placed the company’s long term credit ratings on negative outlook.
The global ratings agency warned that the deteriorating economic environment and the prospect of rising unemployment might force it to downgrade Genworth’s 'A' insurer financial strength and issuer credit ratings.
“Our negative outlook reflects our view that Genworth Australia's financial profile may deteriorate beyond our expectations in the upcoming 18-24 months, and be inconsistent with the 'A' rating,” S&P said in a statement.
“The one-in-three chance of a downgrade will take into account the effects of higher unemployment and how that translates into higher mortgage insurance claims, as well as moderating factors such as a quicker economic rebound or company actions.”
S&P indicated it could downgrade the mortgage insurer’s ratings if there was a material weakening in the company’s share of the mortgage insurance market or a decline in operating performance.Genworth dominates the local mortgage insurance sector along with its main competitor, QBE.
Genworth’s leading position in the Australian market is expected to come under pressure this year as the expected slide in home loan volumes induces stiffer price competition from rivals.
S&P noted that the federal government’s first home loan deposit scheme that was launched in January could undermine Genworth’s competitive position, with lenders given government guarantees on up to 10,000 first homebuyer loans this year.
Genworth Australia’s share price closed down 20 cents or 9 per cent to $2.05.
The company’s scrip has lost more than half its value since hitting a 12 month peak of $4.37 in November.
Genworth Australia is majority owned by the US-based Genworth Financial Inc, but S&P highlighted that it considered the local business to be a “non-strategic subsidiary” of the parent.
“We consider Genworth Australia to be a nonstrategic subsidiary of GFI, and the ratings on Genworth Australia are delinked from the group,” S&P said.
“As such, the ratings on Genworth Australia do not benefit from, nor are they constrained by, any extraordinary group support.”
The US parent has a lower rating (insurer financial strength “B”) than the Australian subsidiary.