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24 Aug 2000
MOODY'S PUBLISHES REPORTS ON EACH OF THE AUSTRALIAN LENDERS MORTGAGE INSURANCE FIRMS; AFFIRMS THEIR RATINGS
New York , August 24, 2000 -- Sydney, August 24, 2000 -- Moody's Investors Service recently released credit reports on each of the lenders mortgage insurance ("LMI") companies operating in Australia and New Zealand.
The high investment-grade ratings of all the LMI companies (ratings range from A2 to Aa1) are indicators of their good financial and operating fundamentals, and of their ownership by large and strong parents. The Moody's credit reports elaborate on the factors that differentiate the four LMI groups, wile also reviewing the particularities of the Australian and New Zealand mortgage markets and their impact on ratings.
The rating agency noted that areas of differentiation among the LMI firms encompass their market presence, the state of their technology, and their strategic importance to their parent. The larger LMI firms are at a competitive advantage, as they can offer their services to larger lenders without depending too much on any single lenders. LMIs are trying to differentiate themselves through technology-based services to lenders. Lenders want to reduce the time and cost associated with mortgage origination, and LMI firms are trying hard to establish strong strategic relationships with originators through their underwriting technology. Until recently, Royal & Sun was the only LMI firm with a sophisticated underwriting technology, but the other mortgage insurance firms are at different stages of development of their own services, and should catch up soon.
The operational and financial support that a LMI firm enjoys from its parent is also an important rating consideration, noted Moody's. The size and scope of its parent company's presence in Australia, its commitment to LMI globally, and its ultimate credit risk profile are differentiating factors across LMI firms. General Electric and PMI are the only two companies with substantial commitment to LMI, while all groups except PMI have a meaningful presence in Australia beyond LMI.
According to Moody's the four LMI groups face many similar structural challenges. The small size of the mortgage insurance market in Australia and New Zealand, the high lender concentration and limited differentiation across LMI firms make it difficult to create strong franchise value and generate attractive core earnings. In addition, the 100% coverage provided under the typical Australian LMI policy exposes the LMI firms to catastrophic losses in the event of a severe downturn; most other mortgage systems have a cap on per loan losses. One area of specific concern is the deterioration of credit standards, such as the relaxing of appraisal requirements, as lenders and mortgage insures compete for business. Credit losses have not yet shown a change from historical trends as a result of the good economic environment, but bear watching. In light of these negatives, the author of the reports, Stanislas Rouyer, a Vice President and Senior Credit Officer in Moody's Real Estate Finance Group highlighted that, "none of the LMI firms would have their current rating without consideration of the formal and implied support they receive from their parents."
The insurance financial strength ratings of the Australian LMI companies rated by Moody's are as follows:
CGU Lenders Mortgage Insurance Limited A2, under review for upgrade
GE Capital Mortgage Insurance Corporation (Australia) Pty Ltd Aa2
GE Mortgage Insurance Pty Ltd Aa1
PMI Mortgage Insurance Ltd A1
Royal & Sun Alliance Lenders Mortgage Insurance Ltd A2
Moody's affirms all of these ratings, as well as reiterates the review for upgrade for CGU-LMI.
Moody' also rates specialized LMI firms in Canada and in the USA.
NOTE TO JOURNALISTS: For a copy of the reports, please contact Moody's Sydney office at 02 9270 2111, or Moody's New York office at 212 553 1653.
No Related Data.
© 2019 Moody’s Corporation, Moody’s Investors Service, Inc., Moody’s Analytics, Inc. and/or their licensors and affiliates (collectively, “MOODY’S”). All rights reserved.
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