Big jump in LMI costs
QBE has raised the price of mortgage insurance by 9 per cent this year, citing the long-term risk of volatility in the Australian property market.
The sharp increase in mortgage insurance, which can add thousands of dollars to the cost of buying a home, comes despite falling mortgage defaults, as borrowers are cushioned by low interest rates.
Lenders' mortgage insurance (LMI) protects banks against losses from soured home loans.
In a sign of the strong profits being made in the local industry, QBE said on Tuesday that its Australian LMI business had pushed through price rises of 9 per cent this year.
Chief executive John Neal explained the increase by saying LMI was a long-term product and QBE expected slightly more volatility in the housing market in the next two to three years.
In Australia, QBE and US company Genworth control about 75 per cent of the market for LMI.
Mr Neal said QBE's pricing was similar to Genworth's - and it reflected long-term trends. "When someone pays us a premium in 2013, we think the life of the policy is between nine and 10 years," he said.
US-listed Genworth is planning to float 40 per cent of its Australian mortgages insurance arm later this year or early next year.