The Genworth Mortgage Insurance Australia (ASX: GMA) share price could trade heavily this morning after reporting a lower underlying profit in its half-year results.
What were the highlights from Genworth's half-year results?
In its half-year earnings for 1H 2019, Genworth reported a 20.7% year-on-year (YoY) rise in New Insurance Written (NIW) to $12.48 billion, but Gross Written Premium (GWP) plummeted 31.0% lower to $184.1 million.
The higher NIW result was largely due to growth in Genworth's traditional lender's mortgage insurance (LMI) inflow and bulk business over the past 12 months, while the higher GWP in last year's result included a bespoke transaction written through Genworth's Bermudian insurance entity.
Genworth's net earned premium climbed 3% higher over the year to $147.6 million, while the company's underlying net profits after tax (NPAT) fell 14.3%, despite a 110.3% increase in its statutory profit result.
The statutory result included an after-tax unrealised mark-to-market gain of $45.4 million on its investment portfolio, compared to an unrealised after-tax loss of $8.4 million in 1H 2018.
Other highlights from the Genworth result include:
- First-half earnings in line with full-year guidance (NEP up 3%; loss ratio 54.1%) with the higher loss ratio reflecting the historical seasonal uptick in delinquencies experienced in the first half of the year.
- Regulatory solvency ratio 2.08 times the prescribed capital amount (on a level 2 basis) as at 30 June 2019
- Strong capital position with net tangible assets (NTA) of $4.14 per share as at 30 June 2019 (versus $3.94 per share as at 31 December 2018).
- Fully franked interim ordinary dividend of 9 cents per share and unfranked special dividend of 21.9 cents per share
- Strategic initiatives progressing well with Genworth announcing a new regular (monthly) premium LMI as an alternative option to its upfront singe premium LMI offering.
What does this all mean for the Genworth share price?
The obvious downside for investors is the lower underlying profit numbers, while the loss ratio remains at the upper end of management's 45% to 55% target range.
Genworth management did note that economic conditions in the second half of the year, including volatility in global investment markets, could be a big factor in the company's full-year result.
Positively, despite a recent credit rating downgrade from Standard & Poor's (S&P), the Genworth business remains well-capitalised and well above both internal and regulatory requirements.
Despite boasting a strong market share, Genworth's book does remain concentrated with its top 3 customers in terms of GWP accounting for approximately 71% in 1H19; however, this has fallen from 82% a year ago.
All in all, the Genworth result doesn't look too bad on the surface despite the number of one-off charges in both 1H 2018 and 1H 2019 making the underlying harder to evaluate, and I'd expect the Genworth share price to push higher in early trade.
