An annual earnings curve review of mortgage insurance lenders Genworth (ASX:GMA) has shown a negative impact of its net earned premium (NEP) by approximately $40 million, which results in a 17 to 19 per cent loss in 2017 NEP, instead of the previous guidance of a 10 to 15 per cent reduction.
The company expects the full year loss ratio to remain between 35 to 40 per cent, as the NEP reduction is expected to be partially offset by the fourth quarter incurred loss expectations.
The evaluation reflects future risk expectations based on losses from mining related regions, and improvements in underwriting quality in response to regulatory actions, along with continued lower interest rates.
The change will lengthen the average duration which Genworth recognises its revenue by approximately 12 months, and also has the effect of introducing a third separate earnings curve for business written in 2015 and after.
The change, however, does not affect the total amount of revenue expected to be earned over time from premiums already written.
Shares in Genworth Mortgage Insurance Australia (ASX:GMA) are trading 7.05 per cent lower to $2.90.