Genworth float on hold as rise in mortgage defaults increase claims
The delay to the float plans, outlined in its latest financial accounts, came after the company suffered a jump in payouts in response to higher mortgage delinquencies, especially among self-employed borrowers.
US-listed Genworth, the country's largest provider of lenders mortgage insurance, first said it was planning to float 40 per cent of its Australian business in late 2011.
But the float, estimated to be worth about $800 million, has been repeatedly delayed. In April last year the initial public offering was pushed back to the first half of this year after a spike in claims caused it to post a loss in the first quarter.
Now the most recent financial statements, filed last week, say: "The ultimate parent anticipates selling up to 40 per cent of its holdings in the Australian business, and the partial sale is not expected to occur prior to late 2013, subject to market valuation and regulatory considerations."
Lenders mortgage insurance is designed to protect banks when borrowers default on their home loans, and is a requirement for many home-buyers without large deposits. In the year to December, Genworth's Australian gross revenue from premiums jumped by 37 per cent to $545 million, a trend it says was caused by increased activity in the housing market.
Frequently Asked Questions about this Article…
Genworth has delayed the planned float because a jump in payouts and claims, driven by higher mortgage delinquencies, squeezed earnings. Recent financial statements say a partial sale of up to 40% of the Australian business is not expected prior to late 2013, subject to market valuation and regulatory considerations.
Genworth originally planned to float 40% of its Australian business. The float was estimated to be worth about $800 million, but the listing has been repeatedly delayed amid higher claims and weaker earnings.
The rise in claims was caused by higher mortgage delinquencies, with particularly elevated delinquencies among self‑employed borrowers. That increase in payouts led to a loss in one quarter and contributed to the decision to push back the float.
Lenders mortgage insurance (LMI) protects banks when borrowers default on home loans and is often required for home‑buyers who don’t have large deposits. Genworth is the country’s largest provider of lenders mortgage insurance in Australia.
Yes. In the year to December, Genworth’s Australian gross revenue from premiums rose 37% to $545 million. The company said this increase was driven by higher activity in the housing market, even as claims and payouts rose.
According to the company’s most recent financial statements, the partial sale of up to 40% is not expected to occur prior to late 2013 and will depend on market valuation and regulatory considerations.
Higher delinquencies—especially among self‑employed borrowers—lead to more claims and payouts for mortgage insurers, which can squeeze earnings or even cause quarterly losses. That increased risk can also delay strategic plans like public listings.
From Genworth’s situation, investors should note that mortgage insurers’ earnings are sensitive to default rates: spikes in claims can hit profits and delay corporate actions such as IPOs. At the same time, premium revenue can grow with housing market activity, so both claims trends and housing demand are important to watch.
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