The big four bank has decided not to extend its LMI contract with Genworth in a bid to “simplify” its home lending business.
In February, NAB submitted a request for proposal (RFP) to Genworth Mortgage Insurance Australia and QBE Insurance, which currently hold supply and service contracts with the bank for the provision of lender’s mortgage insurance (LMI).
After reviewing bids from both insurers, NAB advised Genworth that it would not extend its contract with the group, which is set to expire in November this year.
QBE has been selected as NAB’s sole LMI provider, with the bank confirming that moving forward, it would only deal with one insurer as part of a broader strategy to “simplify” its core home lending business.
“Genworth and QBE have been great partners with us for many years – and this was a difficult decision given the strong value of their service to NAB and our customers,” a NAB spokesperson said.
“We will continue to work with Genworth to manage and support existing LMI customers.
“We look forward to continuing to work with QBE in providing an LMI solution to all our customers.”
Reflecting on NAB’s decision, Genworth managing director and CEO Pauline Blight-Johnston commented: “We are disappointed in the outcome given our longstanding relationship with NAB and would have welcomed the opportunity to continue the partnership.
“We believe we presented a strong offer that reflected the risk of the portfolio while maintaining adequate returns on equity for our shareholders.
“We will continue to work closely with NAB through to November to ensure we are supporting them and their borrowers and maintaining our service standards.”
LMI business underwritten under Genworth’s contract with NAB represented approximately 12 per cent of gross written premium (GWP) in the 2019 financial year (FY19).
However, Genworth stressed that it has relationships with over 100 lenders across Australia, including a major contract with the Commonwealth Bank of Australia (CBA), which was extended last year for an additional three years from January 2020.
Genworth claimed that it has also recently secured exclusive three-year LMI contracts with an unnamed non-major bank and a mutual bank, both effective from April 2020.
This latest announcement concerning Genworth’s contract with NAB comes just days after S&P Global Ratings downgraded its outlook for the insurer from “stable” to “negative”.
According to the ratings agency, the revision reflects its view that Genworth’s financial performance may “deteriorate beyond our expectations in the upcoming 18-24 months” and be “inconsistent with the ‘A’ rating”.
Genworth is also expected to face stiffer competition for new business throughout 2020 as housing credit growth slows.
Despite affirming Genworth Australia’s “A” insurer financial strength and issuer credit rating, S&P warned that the rating could be downgraded if conditions deteriorate beyond current expectations.
Earlier this month, Genworth released its results for the first quarter of the 2020 financial year (1Q20), reporting that its statutory net profit after tax has fallen from $47.8 million in 1Q19 to a loss of $125.6 million.
The result was impacted by a $181.8-million write-down in deferred acquisition costs, with Genworth expecting a sharp increase in mortgage insurance claims off the back of the COVID-19 crisis.