GMA
The midst of a pandemic turns out to be the best of times for Genworth’s claims ratio.
Underwriting profits were the healthiest they’ve looked in years.
Insurance companies aim to generate an underwriting profit, but the real aim is to generate solid returns from float. And with very low yields on bonds, this is difficult to do.
GMA need the sweet spot of rates sufficiently high so as to make a meaningful return in shareholder funds, and technical reserves, but not so high they imperil loan demand.
That’s usually a difficult tightrope to walk. Add in the challenges of powerful, large clients (like CBA) who use GMA for mortgage insurance, clients whom often float the idea of a) insourcing or b) provider switching and you’ve got a challenging investment case.
Given our concerns over lending volumes, the sustainability of the collateral value, the pandemics’ impact on delinquencies, and the idea that there are other companies with positive leverage to rising rates (e.g. insurance companies like QBE) we prefer to look elsewhere.
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Please note that past performance is not a reliable indicator of future performance.
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