HLI
Click for more information
0.52% $3.84 helia group limited

The Outlook revision reflects Fitch's assessment that any...

  1. Alibrandi
    37 Posts.
    lightbulb Created with Sketch. 14
    clock Created with Sketch.
    22/05/21
    09:32
    Post #: 53346458
    https://hotcopper.com.au/data/attachments/3201/3201637-b5293d2bfabcb3696bb903a65f0b45fd.jpg


    The Outlook revision reflects Fitch's assessment that any additional impact of the pandemic-driven economic fallout on the mortgage insurer's credit profile will be within the tolerance for its rating. Australia has controlled the spread of the coronavirus well, and we think the stronger outlook for the economy will support GMA's financial performance and business profile over the next 12-to-24 months. Fitch's current expectations for GMA are more favourable than the pro forma results implied by our 2020 Covid-19 stress-test analysis, which was the basis for the Negative Outlook previously.


    We expect GMA's underwriting performance to improve in 2021 due to a stronger outlook for unemployment and house prices, the key drivers of higher claim frequencies and severity. Australia's economic performance has been sound relative to that of other countries as it has handled the health crisis associated with the pandemic well. Risks to economic prospects remain, particularly until the vaccination programme is completed, but our expectations for key macroeconomic indicators are more favourable than at the onset of the pandemic.


    Fitch expects Australia's GDP to grow by 4.7% in 2021 following a 2.4% contraction in 2020, while the unemployment rate is expected to average 6% in 2021 and improve to 5.4% in 2022 (2020: 6.5%). We also expect national home prices to rise by 5% in 2021.


    GMA recorded a combined ratio of 175% in 2020 (2019: 86%) and a net loss of AUD108 million (2019: profit of AUD120 million) due mainly to a Covid-19-related deferred acquisition cost writedown of AUD182 million following a periodic liability-adequacy test. GMA also strengthened its reserving methodology, holding additional loss reserves of AUD109 million for potential delinquencies, in response to the disruption in delinquency patterns due to repayment deferrals offered by lender customers. Australia's key economic indicators are better than GMA's reserve assumptions, and outstanding claim reserves include a risk margin to achieve a 75% probability of adequacy.


    Record low interest rates have spurred demand for mortgage insurance, especially among first-home buyers. GMA's gross written premiums (GWP) rose 30% in 2020, reversing from the 6% contraction in 2019. We expect premium growth to be supported by the low interest rate environment in the medium term, although premiums are likely to contract in 2021 due to the loss of a key lender customer in 2020. Low interest rates have also supported house prices, and we think this, coupled with better-than-expected economic performance, will limit losses for mortgage insurers should arrears levels increase following the removal of borrower support measures in 1H21.


    We consider GMA's capitalisation 'Very Strong', with coverage of regulatory prescribed capital amount (PCA) of 1.63x at end-March 2021 and 1.65x at end-2020 (end-2019: 1.91x), well above the company's target range of 1.32x-1.44x and Fitch's criteria guidelines for an IFS 'A' rating. The ratio dropped in 2020 and 1Q21 due to an increase in the insurance concentration risk charge following the insurance of a higher volume of mortgages with a loan/value ratio greater than 90%, and a higher asset risk charge. GMA's financial leverage remained low at 12% at end-2020 (end-2019: 12%).


    Fitch ranks GMA's business profile as 'Favourable' against that of other companies in Australia's lenders' mortgage insurance (LMI) market. It is the largest LMI provider in Australia, accounting for around half of the industry's GWP in 2020. GMA maintains relationships with over 50 lender customers, but has high concentration to its largest lender customer, which accounted for 57% of premiums in 2020. GMA's portfolio is concentrated in Australia although it is diversified across the country's states.



    RATING SENSITIVITIES

    Factors that could, individually or collectively, lead to negative rating action/downgrade:

    - PCA coverage ratio falling below 1.50x.

    - Combined ratio persistently above 96%.

    - Deterioration in GMA's business profile, including inability to renew contracts with key mortgage lenders.

    - Severe deterioration in the operating environment due to rising unemployment and other macroeconomic factors.


    Factors that could, individually or collectively, lead to positive rating action/upgrade:

    - Combined ratio remaining well below 74% while the PCA coverage ratio remains above 1.60x.


    GMA Price at posting: $2.72 Sentiment: Buy Disclosure: Held
    Likes Created with Sketch. 1  Upvote
    lightbulb Created with Sketch.  Great analysis
    Stroke 3 Created with Sketch. Comments Created with Sketch. Reply
 

Featured News

MTL Mantle Minerals to kick off drilling at Mt Berghaus in WA
right-arrow Created with Sketch.
BPH BPH Energy boost proves conviction – and a nation thinking about energy
right-arrow Created with Sketch.
WSR Westar uncovers historic ore in WA's Murchison grading 40g/t
right-arrow Created with Sketch.
NEWS Car EV-olution accelerates Oz into pole position
right-arrow Created with Sketch.
AL3 AML3D to investigate copper-nickel alloy printing for US Defence
right-arrow Created with Sketch.
AWJ Auric sends off first gold to Perth Mint of 2024
right-arrow Created with Sketch.

Top Stories

watchlist Created with Sketch. Add HLI (ASX) to my watchlist
(20min delay)
Last
$3.84 		Change
-0.020(0.52%) 		Mkt cap ! $1.120B
Open High Low Value Volume
$3.87 $3.89 $3.76 $4.317M 1.129M

Buyers (Bids)

No. Vol. Price($)
3 7707 $3.84
 

Sellers (Offers)

Price($) Vol. No.
$3.85 2540 1
View Market Depth
Last trade - 16.10pm 07/05/2024 (20 minute delay) ?
Last
$3.85 		  Change
-0.020 ( 0.23 %)
Open High Low Volume
$3.86 $3.88 $3.76 211856
Last updated 15.59pm 07/05/2024 ?
HLI (ASX) Chart
arrow-down-2 Created with Sketch. arrow-down-2 Created with Sketch.