Don’t be put off by the 242-page Product Disclosure Statement – the Genworth Mortgage Insurance Australia Limited IPO is priced to sell. Yield investors, who scroll through this document using the 11-page glossary of acronyms, will discover a mono-line insurance business that will in most years, provide an attractive income return. They will also discover a business that is incredibly capital intensive.
Genworth Mortgage Insurance
Genworth is the leading provider of lenders mortgage insurance (LMI) in Australia with approximately 45% market share and an insurance book of $300 billion of mortgages. LMI facilitates residential mortgage lending by transferring risk from lenders (banks) to LMI providers such as Genworth, predominantly for high loan to value ratio (HLVR) residential mortgages. HLVR mortgages are typically those with an LVR over 80%, with 75% being owner occupied loans and 25% being investor loans.
One in every three residential mortgages in Australia attracts LMI. While the premium is effectively paid by the borrower, the insurance is arranged by the lender as a condition of the loan. Accordingly, 86% of Genworth’s new business is sourced from banks who operate under a “Supply and Service Contract”, with 66% coming from Commonwealth, NAB and Westpac.