Improving economic environment
The Australian economy was severely impacted by the COVID-19 pandemic in 2020, and its resilience was supported by an unprecedented level of Government fiscal policy stimulus, accommodative monetary policy and lender support programs.
COVID-19 proved particularly disruptive for Australia’s labour market. Whilst employment growth strengthened in the fourth quarter, JobKeeper support measures will shortly expire and local lockdowns and border closures continue to occur. The effects of the pandemic were also visible on the Australian housing market with home values initially declining from April to September 2020. Lower mortgage rates, home loan repayment deferrals and government stimulus packages have supported a housing market recovery in the latter part of the year.
Whilst recent economic indicators have been encouraging, economic uncertainty remains as Government stimulus measures are gradually phased out in 2021 and localised outbreaks and lockdowns continue. The economic assumptions of Genworth’s Central Estimate that underpin the Company’s loss forecasting reflect this ongoing uncertainty.
Ongoing LMI volume growth
Genworth delivered strong Lenders Mortgage Insurance (LMI) volume flow growth over the second half of 2020, reflecting a low interest rate environment. New insurance written (NIW) increased as Owner Occupiers and First Home Buyers continued to underpin national housing market growth; and Genworth’s lender customers achieved above market lending growth rates. Higher LMI flow volumes were the main driver of GWP growth, with mix and rate also contributing.
New business underwriting quality remained strong, as Genworth and many of its lender customers applied greater scrutiny in the uncertain economic environment. This business growth is expected to some extent to offset the impact on 2021 GWP of the NAB contract that expired in November 2020.
Claims environment altered by pandemic
During 2020, lender customer programs and government support packages interrupted the typical incidence patterns of delinquencies and claims, leading to lower than anticipated claims activity over the year. To allow for the unusual circumstances, Genworth strengthened reserving in 2020, including increasing the outstanding claims risk margin, and refining its reserving methodology which brought forward the average timing for recognising the liability for expected losses. While reserving has been strengthened, COVID-19 is expected to result in sustained pressure on claims throughout 2021.
The majority of lender programs are now being phased out, although we anticipate that some support is likely to remain in the short term. As at 31 December 2020, most borrowers on repayment deferral arrangements had either opted out or had their loans restructured, with over 8,100 active repayment deferrals remaining from Genworth’s lender customers, down from over 31,000 reported as at 30 September 2020.
Genworth’s level of reported delinquencies continues to be affected by the repayment deferral programs, that have resulted in lower delinquencies and ageing. Despite the reduced number of active delinquencies, the reported delinquency rate has increased as a result of higher policy cancellations.
The reported Loss Ratio of 92.9% reflects an increased level of reserving during the year in response to anticipated future claims arising as a result of COVID-19.
Supporting our customers and people
Genworth responded quickly to the onset of COVID-19, taking actions to decisively and prudently support its people and customers. Genworth’s people successfully transitioned to remote working and together with lender customers, supported borrowers while meeting all contractual service level agreements.
Genworth redirected people to where they were needed the most, to process over 55,000 home loan repayment deferrals and to support the high volumes in new business growth. The Company expanded its Natural Disaster Policy and supported the lender repayment deferral programs and government packages that have been assisting Australians in their time of need. As Genworth manages through the economic recovery, the Company will remain sensitive to borrower circumstances, working closely with lender customers around appropriate hardship solutions to mitigate potential losses.
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