Risks ease for Australia’s mortgage insurers – S&P Global

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Risks associated with the COVID-19-induced slowdown have eased for Australia’s mortgage insurers, according to S&P Global Ratings. The ratings agency tipped the sector’s profitability to be sound over the medium term, supported, among other factors, by very low unemployment and strong house price appreciation over the past couple of years.

The global ratings agency has revised its insurance industry and country risk assessment for Australia’s mortgage insurance sector from intermediate to low and its outlook for Australia’s mortgage insurance sector from negative to stable.

“Australia’s mortgage insurers performed strongly in calendar 2021, with ultra-low interest rates and government initiatives spurring a high level of activity in the mortgage market over 2020 and 2021,” said Julian Nikakis, an insurance analyst at S&P Global Ratings. “A significant volume increase in new home loans, combined with low levels of claims and some reserve releases, supported strong underwriting performance across the sector. We expect a slowdown in new home loans in response to interest rate increases to curb inflation. However, we do not expect the rate hikes to materially affect mortgage insurers’ claims.”

Australia’s economy rebounded strongly after it was hit by the impacts of the COVID-19 pandemic and resultant economic downturn. And while macroeconomic and geopolitical risks continue to weigh on the global economy, S&P Global ratings expect Australia’s economy to support mortgage insurers’ near-term profitability.

“Our view of Australia’s country risk remains unchanged at very low, and we now assess the sector’s industry risk as moderately low, from moderately high,” Nikakis said.

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