Genworth Mortgage Insurance Australia Limited Weak FY16 results and guidance dragged the stock lower

Weak FY16 results and guidance dragged the stock lower: Genworth Mortgage Insurance Australia Limited (ASX: GMA) stock dropped over 14.8% on February 08, 2017, impacted by their weak fiscal year of 2016 results. The group’s new business volume, as measured by New Insurance Written (NIW), fell 18.4% year on year (yoy) to $26.6 billion for the year 2016, while Gross Written Premium (GWP) lost 24.8% reaching $381.9 million during the year. This fall is mainly on the back of declining high-LVR penetration in the market and a lower LVR mix of business. Net Earned Premium (NEP) fell 3.6% yoy to $452.9 million in 2016 while the loss ratio rose to 35.1% in 2016, as compared to 24.0% in 2015. Meanwhile, the group reported that their Queensland and Western Australia markets were facing a slowdown. Moreover, for 2017, the group forecasts their GWP to be lower than their 2016 levels, which is a fall in the range of 10% and 15%. GMA also forecasts their 2017 NEP to fall by 10 to 15% while the full year loss ratio is expected to be in the range of 40% and 50%. On the other hand, the New South Wales and Victoria markets performed well. GMA business model is resilient and they are making efforts to make the best use of their excess capital. As a part of their strategy, the group is making efforts to further focus on their customers’ capital and risk management needs while enhancing their underwriting efficiency. The group also renewed their Supply and Service Contract with their major customer, the Commonwealth Bank of Australia, for a further 3 years to 31 December 2019 which accounts 47% of GWP in 2016. GMA reported a fully franked final ordinary dividend of 14.0 cents per share which is a better payout ratio of 71.8% up from 63.2% of second half of 2015.     

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