MOODY'S ASSIGNS A2 INSURANCE FINANCIAL STRENGTH RATING TO ROYAL & SUN ALLIANCE LENDERS MORTGAGE INSURANCE LIMITED
SYDNEY, 4 September, 1997 - Moody's Investors Service assigned an A2 insurance financial strength rating to Royal & Sun Alliance Lenders Mortgage Insurance Limited. This is the first time Moody's has rated Royal & Sun Alliance Lenders Mortgage Insurance Limited. According to Moody's, the A2 rating reflects the mortgage insurer's moderate size, its conservative underwriting standards, its solid management, and its ownership by Royal & Sun Alliance Lenders Insurance Group Plc, a United Kingdom-based insurance group with insurance financial strength ratings of Aa3 at its major operating subsidiaries.
Moody's is concerned, however, by the firm's focus on high loan-to-value mortgages, its exposure to equity-release home lending, and its concentrated customer base. The uncertainty about the impact of the corporatisation of Housing Loans Insurance Corporation, and the weak industry fundamentals were also cited as credit rating concerns.
Royal & Sun Alliance Lenders Insurance Limited is the leader in automated underwriting in Australia, and has been using it to strengthen its relationship with major lenders. Expected additional benefits from automated underwriting are greater operating efficiency and risk control. According to Moody's, Royal & Sun Alliance Mortgage Lenders Insurance Limited focuses on higher loan-to-value mortgage insurance in part because premiums generated from low loan-to-value mortgages do not meet its return objectives. The company's presence in the New Zealand mortgage insurance market improves its portfolio diversification and overall profitability.
The risks of the mortgage insurance industry in Australia are substantial, notes Moody's. The current low-interest rate, low-inflation environment, the rising risk profile of mortgages insured, modest insurance premiums, and weakening lenders' underwriting standards will likely lead to higher delinquencies and rising ultimate losses. The rating agency is concerned that these risk factors, along with shifting mortgage origination approaches and the rise of securitisation, could result in material shifts in the character of the mortgage insurance business.
Royal & Sun Alliance Lenders Mortgage Insurance Limited is a mortgage insurer that provides primary mortgage insurance on single-family dwellings in Australia and New Zealand. Royal & Sun Alliance Insurance Group plc owns Royal & Sun Alliance Lenders Mortgage Insurance Limited through its Royal & Sun Alliance Insurance Australia Holdings Limited subsidiary. Based in Chatswood, New South Wales, Royal & Sun Alliance Lenders Mortgage Insurance Limited had assets of A$136 million, and equity of A$55 million, at 31 December 1996.
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