I would now like to hand the conference over to Mr. Paul O'Sullivan, Head of Investor Relations. Please go ahead.
Hello, and welcome to the 2023 half year financial results briefing for Helia Group. I'm Paul O'Sullivan, Head of Investor Relations. This morning, we'll start with a presentation from our CEO, Pauline Blight-Johnston, who'll provide an overview of the results. Our CFO, Michael Cant, will then go into more detail on the financial results. Pauline will then wrap up with closing comments. At the end of the presentation, we'll pass back to the moderator and take questions from investors and analysts. I'll now hand over to Pauline.
Thank you, Paul. Good morning, everyone, and thank you for joining us today. Before I start, I'd like to acknowledge the Cammeraygal people of the Eora Nation, on whose land I'm hosting our call today. I pay my respects to the elders, past and present, and to all Aboriginal and Torres Strait Islander people here today. For over 65 years, Helia has been accelerating financial well-being through homeownership, helping Australians to buy homes through the ups and downs of economic cycles. Today, I'm pleased to provide an update on Helia's continued progress towards this goal, underpinned by a strong first half 2023 financial result, strategic and operational delivery, and financial resilience in changing economic times.
Over the last six months, Helia played a pivotal role in supporting more than 13,000 Australians to buy a home, and perhaps even more importantly, helped more than 4,000 Australians to stay in their homes during times of hardship by working with our lender customers to provide appropriate financial support to homeowners facing personal difficulties, natural disasters, and other challenges. We're proud of the impact our customer-focused partnership strategy is having on deepening our relationships with lender customers and helping Australia's homeowners. Once again, this half, we've been recognized externally for our commitment to innovation, being one of only six companies globally to be awarded Appian Innovation Award for work on our digital transformation to improve customer experience.
I'd like to take this opportunity to thank the entire Helia team for its passion and commitment to our purpose and to all our people for their collective and individual contributions to today's results. I'll now start walking through the results by turning to slide 5. In the first half of 2023, Helia delivered an underlying net profit after tax of AUD 137 million, 32% higher than the first half of 2022, reflecting the benefit of a continued low claims environment and higher investment income as interest rates increased. Statutory net profit after tax of AUD 147 million also benefited from unrealized mark-to-market gains on the investment portfolio. Claims incurred over the half were -AUD 41 million, in line with previous guidance.
Contributing to this result were some actuarial reserve releases in respect of claims incurred in previous years, as we continued to experience an extraordinarily low claims environment following the COVID-19 period. Insurance revenue was up 2% from the first half 2022 to AUD 220 million, despite low new business volumes, largely reflecting industry conditions. I'll discuss new business volumes in greater detail in a few minutes. Over the half, we continued to deliver on our strategy to enhance, evolve, and extend our business to accelerate financial well-being through homeownership. We continued to see the benefits of our investment in better understanding the needs of our customers and their borrowers, retaining all customers up for renewal and securing a new exclusive relationship as LMI provider to a major customer-owned bank.
We significantly uplifted our IT platform to modern cloud-based systems, setting ourselves up for improved customer flexibility and operational efficiency going forward. Importantly, the business remains financially strong and is making progress on its commitment to bring the capital position into the board's target range of a Prudential Capital Amount coverage ratio of 1.4-1.6 times. At 30 June 2023, the PCA ratio is 1.96 times, down from 2.2 times as at December 2022. This continued capital strength has enabled the board to announce today a fully franked ordinary interim dividend of AUD 0.14 per share and an additional on-market buyback of up to AUD 100 million.
The payment of the interim dividend and the proposed AUD 100 million buyback reduces the pro forma PCA coverage ratio to 1.8 times, which is AUD 180 million above the top end of the board targeted range. On slides 6 and 7, the key performance measures depict Helia's results in graphical format. As I mentioned previously, these are our first results prepared under AASB 17. Today, Michael will take a little more time to explain these results and what they mean. On slide 6, I'd particularly like to draw your attention to the underlying diluted earnings per share, which shows the strength of our recent results and the positive impact of our active capital management initiative. Also, note the underlying annualized return on equity graph, which highlights the value the business is creating for shareholders.
On slide 7, you can see the strength of the company's capital position and the impact of active capital management on both the PCA ratio and the net tangible assets per share. Turning now to slide 8 and the current economic environment. Interest rates have continued to rise this year. Following an aggregate 100 basis point rises in the Reserve Bank of Australia cash rate, the average new owner-occupier variable interest rate is now 5.7% per annum. Despite the higher interest rates, employment levels and dwelling values have been surprisingly resilient to date. The resilience in the Australian labor market has been a key positive for Australia and for Helia's financial performance during the half. In the first half of 2023, unemployment hovered around 50-year lows at around 3.5%. Hours worked remained near all-time highs, and wage growth picked up.
After falling in 2022, national dwelling values looked to have troughed in February 2023, down 9.1% from their peak, has since risen 3.4% to the 30th of June, 2023. It is, of course, likely that the cumulative effect of interest rate rises is yet to fully feed through to the economy, so it's possible that we will see increased economic weakness in the period ahead, Helia is well-positioned should this occur. Turning to slide 9, which provides a closer look at the residential mortgage market. The first half of 2023 continued to show weakness in residential mortgage lending across the industry, particularly in respect of higher loan-to-value ratio lending. Industry housing new loan commitments were 18% below 2022 levels.
The number of first-time buyer commitments was around half the peak seen during COVID-19 in January 2022. Sorry, 2021. Increased interest rates adversely impact serviceability considerations in respect of high LVR lending. As a result, we've seen high LVR lending volumes decrease more than proportionately, falling to below 30% of residential lending for the first time since the current data series began in 2019. These industry conditions have impacted Helia's new insurance written and gross written premium, as demonstrated on slide 10. Turning to slide 10. Helia's new business volumes over the half were soft, driven by a cyclical low in new high LVR lending and exacerbated by the structural impact of the federal government's First Home Guarantee on the industry as a whole. Helia's new insurance written during the half was down 45% on the prior corresponding period.
In addition to the weak industry conditions, volumes were impacted by the extension of the federal government's First Home Guarantee and a modest reduction in the proportion of high LVR loans insured by the Commonwealth Bank, in line with the previously disclosed flexibility allowed within the contract. Gross written premium was down 49% on the prior corresponding period, primarily reflecting the reduced volume, with some contribution from reducing premium rates reflective of recent claims experience. Whilst the reduced levels of lending across the industry are not expected to persist into the long term, we do expect the impact of the First Home Guarantee to be ongoing, and so have been actively working to attract new lender customers, grow our industry footprint, and ensure our credit risk settings are appropriate for the current environment to mitigate against ongoing revenue risk.
Let's turn now to slide 11, which provides more detail on industry arrears and the strength of Helia's portfolio. Industry arrears have remained lower than expected, aided by a strong employment market and increased sophistication in the application of lender hardship solutions. We are yet to see material increases in 90 days past due statistics, either at an industry or a Helia level. However, we have started to observe some increase in earlier stage arrears. In aggregate, Helia's new delinquencies have increased modestly over the half from historically low levels, with total delinquencies remaining below 2021 and 2022 levels as a result of strong cures. Turning to slide 12, we'll walk through the progress we've made on the delivery of our strategic agenda. Our enhanced evolve and extend strategy continues to serve us well.
Our focus on enhancing Helia's existing LMI franchise continues to pay dividends, as we successfully retained all 3 customers up for renewal during the half, as well as winning a new exclusive LMI relationship with a large customer-owned bank, Helia's third new exclusive customer in the last 12 months. At the same time, we've continued to enhance our digital experience, implementing a new underwriting and administration platform, replacing legacy systems, and significantly increasing the adoption of cloud technology. The rollout of new APIs has improved lender integration and is contributing to efficient customer onboarding. We've continued to progress our partnership and investments in Household Capital, OSQO, and Tic:Toc. Our new venture partnerships are expected to diversify our revenue base over time and contribute to medium-term growth. We continue to assess new partnership opportunities that can deliver on our purpose to accelerate financial wellbeing through homeownership.
Turning to slide 13 now for an update on our progress on sustainability. Helia's approach to sustainability is tailored to our business and built on 3 foundational pillars across which we believe we can have a real impact. Firstly, driving financial wellbeing and housing accessibility is a core part of our purpose. In the 1st half of 2023, we approved over 4,000 hardship requests with our lenders, keeping people in their homes during times of difficulty. We also continued to provide and improve resources to support first-time buyers in their journey to homeownership.... We've deepened our community partnerships of which we're very proud, which focus on homelessness, an increasingly important societal issue that aligns with our purpose. Secondly, enhancing climate resilience will assist the business to drive medium-term value for shareholders as we better understand the impact of climate change on mortgage risks.
Our partnership with Munich Re is providing insights as we work with customers. Closer to home, Helia is targeting a 50% reduction in its own Scope 1 and 2 emissions by 2030. We'll provide more details on progress towards meeting this goal in the periods ahead. Finally, our focus on demonstrating good corporate citizenship is a core part of who we are. We're proud of the progress we continue to make towards gender equality, with 50% female board member representation and greater than 40% of leadership positions filled by women. We are increasingly turning our attention to other dimensions of diversity to ensure all of our people have the opportunity to grow and contribute to their full potential.
This is just one of the factors that has boosted employee engagement into the top quartile of the financial services industry, demonstrating Helia's commitment to our people as a key foundation for our future. Finally, a word on capital management, and I'll turn to slide 14. Despite completing the AUD 100 million on-market share buyback, reducing the share count by 9.1%, the company's capital position remains very strong, with a PCA coverage ratio at 30 June 2023 of 1.96 times. In recognition of the strong first half profitability and capital position, the Helia board has today declared a fully franked interim ordinary dividend of AUD 0.14 per share and an additional on-market share buyback of up to AUD 100 million. These two initiatives amount to AUD 144 million of capital to be returned to shareholders for the half.
The pro forma 30 June 2023 PCA ratio, taking account of both of these capital initiatives, would be 1.8 times. The company still intends to manage its capital position to within the board's targeted range of 1.4-1.6 times PCA, following the payment of the full year 2024 dividend, and has increased its view of sustainable ordinary annual dividends to be AUD 0.28 per share, with some scope for growth over time. I'll now hand over to Helia's Chief Financial Officer, Michael Cant, who'll provide more detail on our financial results.
Thank you, Pauline, and welcome to everybody on the call. Really appreciate you taking the time to join us. As Pauline outlined, this is our first reporting period under the new accounting standard, AASB 17. I'd like to start my section on slide 16 with a brief recap on the key aspects of the new accounting standard and how it impacts Helia. While AASB 17 represents a fundamental change to financial reporting for insurers, there is no change to the lifetime policy, cash flows, or the business economics. The accounting standard, however, does result in changes to revenue and expense recognition, which will flow through to the timing of profit recognition. While there is a change in timing, the lifetime profit for a cohort is the same. We expect that the average reported NPAT over time to be of a similar magnitude.
Reported financial results under AASB 17 are expected to be less volatile, particularly in response to changes in interest rates. As we have previously communicated, the transition to AASB 17 reduced the opening net assets by AUD 215 million, and consequently, we expect the Helia return on equity to be higher. Importantly, the accounting standard does not change the overall regulatory capital requirements. Accordingly, the board's target capital range and our capacity to pay dividends and return capital is unchanged. Slide 17 shows a quick refresher on some of the key concepts under AASB 17. At the outset of a group of contracts, typically a year of new business, the amount of contractual service margin or CSM is determined. The starting CSM for a cohort represents the expected present value of profit over the life of those policies.
Profit is not recognized at the time of writing new business, but rather a liability is established, and a portion of the revenue is recognized in each future period. For a cohort of business, the liability for remaining coverage will reduce over time, and revenue emerges via a combination of the expected cash flows, release of risk margin, and the CSM. Slide 18 depicts the profile of revenue recognition for a representative cohort of new business. The pattern of revenue recognition reflects the expected cash flows and the timing of the provision of the service for insurance under LMI. Revenue is recognized over a 15-year period, with just over 80% of the revenue expected to be recognized in the first seven years.
This profile largely reflects the run-off profile of policies due to cancellations, but also the reducing frequency and severity of claims as the policies move into longer durations. I'd now like to turn to the 2023 half year results, starting with the income statement on slide 19. Statutory net profit after tax was AUD 147.5 million. underlying NPAT, which removes the unrealized gains and losses on the shareholder funds, was AUD 137.2 million, up 32% on the prior comparative period. The key features of this result were revenue, up 2% on the prior comparative period. As Pauline noted, a very low claims environment, leading to a credit on incurred claims, and thirdly, positive investment returns following the very significant mark-to-market investment losses in 2022.
Slide 20 has a breakdown of the insurance revenue into its major component parts. The key components of revenue are the expected insurance service expense, the release of risk adjustment, and the contractual service margin recognized. There is also a component representing the share of premiums for acquisition costs, which offsets exactly with the amortization of acquisition expenses on the expense line. Most elements of revenue are largely a function of the balances in the opening liability for remaining coverage, and a proportion of this liability is recognized as revenue each year. These components should be relatively stable from year to year, unless there are major changes in actuarial assumptions. Please now turn to slide 21 for some analysis on the top line.
As Pauline has outlined, gross written premium for the half year was down 49%, largely due to the drop in industry new lending volumes, particularly for high LVR lending. The federal government's First Home Loan Deposit Scheme continues to have a negative impact on the volume of LMI written. The fall in GWP was predominantly volume-related, with only a small impact from mix and rate. Cancellations across the industry continue to be high, reflecting elevated levels of loan refinancing activity. The combination of low gross written premium and high cancellations has resulted in a fall in the level of in-force volume. The recognition of revenue over the life of a cohort means the insurance revenue in any period is largely driven by the business volumes over a period of years.
This dynamic means that insurance revenue in any particular period is much more stable than the cyclical ups and downs in the headline gross written premium. Slide 22 shows a breakdown of the insurance services expense. Total incurred claims were -AUD 41 million. That is a credit to the bottom line, and this was due to a substantial benefit from changes in the liabilities for prior period incurred claims. Current year claims incurred were up slightly on 2022, but were again relatively light. Insurance expenses were in line with 2022 levels, and together with the amortization of acquisition costs, represent an expense ratio of 25% of gross insurance revenue. Slide 23 contains some key statistics on claims and delinquencies. Paid claims and mortgages in possession continue to remain very low.
This outcome has benefited from both high cures and a larger than normal volume of what we refer to as sold no claim. This term refers to a situation where customers in arrears sell their property with a positive equity position, meaning there is no LMI claim. Both total and new delinquencies remain at historically low levels, noting that we have seen a leveling off of the downward trend and some very early signs of a small uptick in early-stage delinquencies. On slide 24 is some further claims analysis. New delinquencies continued to be relatively benign, given the strong employment market. New incurred claims for the current period represented a loss ratio of approximately 20%. As I noted before, the big positive impact on the total claims incurred line arose from the changes in liabilities on the prior period incurred claims.
The experience on the opening liability for these prior incurred claims was AUD 58 million more favorable than expected. Aging and cures were positive, while the high levels of sold no claims and high cancellations also had a positive impact. In addition to the favorable experience, there was a AUD 28 million benefit from changes in the actuarial reserving basis, which I will expand upon a little later. On slide 25, there is a table which looks at the drivers of the insurance service result, rather than the traditional income statement view of revenue and expenses. Under AASB 17, each year there is a certain amount of profit that is expected to emerge if experience exactly matches the actuarial assumptions, and this is represented by the CSM recognized in the period, plus the expected release of risk adjustment.
The expected insurance result for the half was AUD 77 million, equivalent to 35% of gross insurance revenue. In addition to this expected profit, experience variations can contribute either a positive or a negative during the period. Experience variations represent the difference between actual and expected, the largest of these would typically be claims. In the last few years, there has been very significant positive experience variations relating to incurred claims. I'd now like to turn to slide 26 on investment returns. The total investment income represented an investment return of 3.1% per annum. This was a big turnaround on the sizable investment loss in 2022, which was dominated by unrealized losses due to rising bond yields.
Higher rates have seen an increase in both the interest received and the running yield on the portfolio, and this is a big positive for the profitability of the business. I'd now like to turn to the insurance finance expense on slide 27. The first component of the insurance finance expense is the interest accretion on the opening insurance liability. Effectively, this is the unwind of the discount rate on the net present value calculation. The second component relates to the change in interest rates. Insurance contract liabilities are valued at a market rate of interest, and accordingly, any change in market rates has an impact on the value of liabilities. For the half year, the contribution from this source was minor, reflecting a relatively stable interest rate environment over the six months.
To protect against changes in interest rates, Helia's investment portfolio is closely matched to our liabilities. Therefore, we expect to see offsets in the investment income and the insurance finance expense. Accordingly, the end result will be reduced volatility in the income statement. Slide 28 shows the summarized balance sheet. Assets are down over the half due to payment of dividends and the ongoing share buyback. The deferred tax asset, as you will see, is quite substantial, as there is a difference between the liabilities used for tax purposes and the accounting liabilities. Treasury has flagged their intention to align the two bases. Accordingly, we expect the DTA will reduce over time. On the liability side of the balance sheet, the major item is the insurance contract liabilities, which are further split into the liability for remaining coverage and the liability for incurred claims.
Our investment portfolio is summarized on slide 29. The asset mix is much the same as in the prior year. The technical funds, which back the insurance liabilities, are invested entirely in fixed interest assets, which are matched to the liabilities with an average duration of 3.2 years. The shareholder funds, which support the capital in the business, have a higher risk-return profile, with approximately 23% in equities and infrastructure, and also an increased allocation to corporate credit. Given the rise in interest rates, over the last 12 or 18 months, the bond portfolio has been progressively transitioning from floating to fixed rate. Slide 30 contains a breakdown of the insurance contract liabilities. The liability for incurred claims, or LIC, represents the liability arising from existing or past delinquency events.
The LIC is comparable to the old outstanding claims liability and incorporates a risk margin of 17%. The liability for remaining coverage, or LRC for short, represents the liability arising from expected future delinquencies, and it has replaced the previous unearned premium liability. The LRC has components for expected future cash flows, risk adjustment, and CSM. Of the AUD 1.5 billion in the liability for remaining coverage, approximately AUD 830 million is expected to emerge as profit in future periods via either release of risk adjustment or contractual service margin. The aggregate LRC has reduced over the half year, due largely to lower volumes of insurance in force. Slide 31 summarizes the breakdown and components of the liability for incurred claims.
The reserves for reported delinquencies were down over the half year by AUD 37 million, mainly due to a reduction in the average reserve per reported delinquency. In turn, this reflected both a change in the mix of delinquencies and also some changes in the actuarial reserving basis. The key changes in reserving basis related to assumptions for future house price movements, and secondly, assumptions around the progression of arrears to claim settlement, which was unusually distorted during the COVID moratorium relating to mortgages in possession. Reserves for potential future re-delinquencies fell by AUD 19 million, largely due to cancellations, which reduced the number of previously delinquent in-force policies. Overall, the reserving basis was strengthened significantly during 2020, much of which still remains in place.
We are comfortable that the reserves are appropriate for the economic environment that is ahead of us. I'd now like to spend a little bit of time on the claims outlook, which also underpins our estimate of the insurance contract liabilities. This, some of this information is summarized on slide 32. Despite the interest rate rises over the last 15 months, we have not yet seen any discernible rise in delinquencies, which is consistent with trends across the industry. However, we do expect the combination of higher mortgage rates and cost of living pressures will see delinquencies rise in the second half of 2023 and into 2024. This will be exacerbated by a high volume of fixed rate loan maturities, rolling over onto higher variable rates. Notwithstanding these headwinds, the portfolio is very well positioned coming into a more challenging period. Starting delinquencies are at low levels.
Strong house price appreciation from 2020 to 2021 has meant most borrowers have good levels of positive equity. While there are clearly some households who are struggling with higher rates, many households have built up substantial savings during the COVID-19 period, which are being drawn upon. Importantly, the industry, including Helia, has actively managed credit settings over the last couple of years, and the quality of business remains high. Our base case economic forecast that was used in our 30 June valuation of liabilities is summarized on the slide. Given this backdrop, we do expect delinquencies and claims to start to increase. The pace and magnitude of this increase is very difficult to predict, but we do expect claims will start to return to more normal levels in the second half of 2023 and 2024.
As with previous results, we've also shared some information on the expected sensitivity of future claims to the economic environment. The most significant driver of the frequency of claims is unemployment, while property prices are the key driver of claims severity. Mortgage rates, as expected, have a moderate direct impact via interest serviceability, but mortgage rates do also have a secondary impact via house prices. Claims in any particular year will be a function of the prevailing economic conditions and are often volatile from period to period. Through the cycle, we expect average claims ratios to be similar to the past, and as a guide, our average claims ratio over the last 10 years has been approximately 30% of gross premium. Slide 33 shows a walk of the balance of the contractual service margins.
The closing CSM balance is at much the same level as at the start of the period. However, as you can see from the walk, the CSM added by new business was less than what was recognized in the year, and this is primarily due to the low levels of new business written during the six months. There were also movements in the CSM due to assumption changes or changes in estimates, which do have a corresponding offset in the LRC. These changes in estimates largely relate to the volume of top-ups and future premium credits. Claims assumptions were fairly consistent from period to period. On the right-hand side of the chart, you can see a view of the CSM by year of origination. The book years in this chart have been grouped in cohorts which have broadly similar loss experience.
Book years prior to 2015 were less profitable. Given the passage of time, most revenue and profit on these cohorts has already been recognized. Book years from 2015 to 2019 are showing very good levels of profitability and still have sizable CSM to be recognized. Cohorts from 2020 to 2023 are not yet as well developed, are expected to meet pricing claim ratios of approximately 30%. To wrap up the financial section, I'd now like to spend a little bit of time on the regulatory capital position. Slide 34 shows the regulatory capital ratios with a very strong PCA ratio of 1.96x. Over the half, the regulatory capital base fell by AUD 120 million, reflecting the substantial dividends and capital through the share buybacks.
The APRA Prudential Capital requirement has had two material moving parts during the half year. The probable maximum loss, or PML, fell significantly due to lower GWP and higher cancellations. This fall in PML was more than offset by a reduction in the capital credit for reinsurance, as we reduced our level of reinsurance in response to lower business volumes. Please now turn to the capital walk on slide 35. The PCA ratio benefited from the runoff and ceasing of the in-force book, which was greater than the capital strain on new business. The business is generating large amounts of organic capital, and we expect this dynamic to continue. The sizable impact of the reduction in reinsurance cover is also apparent in the walk. Overall, our capital position remains well above the board's target range, highlighting scope for further ongoing capital management.
I'd now like to hand back to Pauline to wrap up the presentation.
Thank you, Michael. I just want to add my thanks to Michael, to our entire team for the work they've done to prepare those AASB 17 results. That was a huge amount of work, I know, going on across the industry and within Helia, so thank you. I'll now turn to slide 37 and the outlook for Helia, based on current economic expectations. Helia is well positioned to navigate the changing economic environment, to continue to deliver its purpose of accelerating financial well-being through homeownership, and to continue to deliver value to shareholders. Full year 2023 insurance revenue under AASB 17 is expected to be between AUD 420 million and AUD 460 million. As we've noted repeatedly over recent years, recent claims experience has been extraordinarily low and is not expected to continue at such levels for the medium term.
The timing and magnitude of future claims will be driven by the economic environment and is, by nature, very difficult to predict. However, over the course of the second half of 2023 and throughout 2024, we do expect incurred claims to increase towards long-term average levels. Net interest and dividend income is expected to continue to benefit from higher reinvestment rates, noting the 4.9% running yield as at 30 June 2023. We expect annual ordinary dividends to be sustainable at AUD 0.28 per share, with some scope for growth over time, and the PCA coverage ratio is expected to return to the board target range of 1.4-1.6 times PCA, following the payment of the year-end 2024 dividends. Now turning to slide 38 to wrap up.
Helia is proud to be Australia's leading LMI provider, setting the bar for the industry. The delivery of our strategic focus to improve the LMI experience of our customers and their borrowers is solidifying this position, with the successful renewal of existing customer relationships and the addition of new ones. As the Australian residential lending market moves through the current cycle, there continues to be significant unmet need for homeownership solutions, where we can play an integral role consistent with our purpose to accelerate financial well-being through homeownership. Our deep expertise and responsible financial management has positioned the company for profitable growth, with sustainable returns growing in excess of our cost of capital as older, less profitable books run off, creating value for our shareholders.
This sustainable ROE, combined with capital releases from the back book, allows the business to deliver value for shareholders while still investing in our strategic agenda. It has enabled Helia to deliver superior total shareholder returns over a sustained period, of which we're very proud. The second highest amongst peers over the period since listing 2014 to 2023, and the highest over the past one and three years. We remain well positioned to manage the ongoing cyclical impacts of the current environment and identify new opportunities to achieve our vision of being the leading provider of flexible homeownership solutions for the Australian housing market. We look forward to continuing to deliver against this vision for the benefit of future generations of Australian homeowners and for you, our shareholders.
On behalf of the board and the senior leadership team, I'd like to once again thank all of our people at Helia for their continued passion and hard work, and for making my job a pleasure. Thank you to our customers for your continued support and collaboration to make homeownership more accessible for Australians. Finally, thank you to all our shareholders for your ongoing support. With that, I'll open it up to any questions.
Thank you. If you wish to ask a question, please press star one on your telephone and wait for your name to be announced. If you wish to cancel your request, please press star two. If you are on a speakerphone, please pick up the handset to ask your question. Today's first question comes from Jason Shao with Macquarie. Please go ahead.
Hi, Pauline and Michael. Thanks for taking my question. Well, this question's around cancellations. Cashbacks are mostly removed from most of the banks, except for one or two. With continually higher serviceability requirements, how have the trends of cancellations progressed over the first half, and how are they progressing to date in the second half?
Thanks, Jason. I, I didn't get the entire context, but I think the question is just a bit more color on the cancellations during the half. They've continued to be pretty elevated, but maybe not quite at the level they were at the second half of 2022, but much, much higher than we would have experienced historically. Certainly continues to be a feature in our results that, that I guess on balance, we think is a net positive. It certainly has a positive capital impact. It does have an impact too, on our delinquency books through the release of reserves for delinquencies. The, yeah, the economic outcome for us with high cancellations is a positive one. Hopefully that helps.
Did a change under AASB 17. Under AASB 1023, cancellations brought forward profits, so they did, change the shape of the profit. They don't do that the same way under AASB 17, it's really just a net positive without that negative impact coming through.
Okay, cool. Thanks. Related question on serviceability requirements. Given a lot of people probably struggling to take out bigger and bigger loans as higher rates are still being passed on to customers taking out new mortgages, on, on your existing bank contracts, do you see any growth in new business anytime soon in the medium term?
You know, as I said, we, we say repeatedly, we're not born, born with crystal balls. You're right. A lot of the industry, lending at the moment is refinances, and that tends to be sub-80 LVR business. Once someone's had an LMI approved, and they don't tend to try to pay one again. We are seeing a lot of that. That is a cyclical impact. Over the long term, of course, Australian state housing, we're expecting 700,000 new immigrants to come into the country over the next 2 years. At some point, we don't expect that trend to be able to continue forever, but it certainly is a feature of the current environment. Michael, do you want to add?
I think you could... I mean, the only thing I'd say, and you, you'll see it in the, you know, each of the, the bank results, their, their share of, of lending above sort of 80% is, you know, at a pretty historical low. Again, you know, if you look at the mix of business that the banks are, are riding, it's, it's much more skewed to the below 80 than in most parts of the cycle, so.
Yeah, it's, it's just mathematical, to be honest, in many ways. When interest rates are higher, more people are restricted by the serviceability rather than savings for the deposit, proportionately. When interest rates are lower, serviceability is not the issue, it's savings for the deposit, that's the issue. We can solve savings and deposit, our product doesn't solve serviceability. When that mix changes, that has an impact. As we move through the interest rate cycle, we expect the mix, at some point in time, to move back towards the deposit being the limiting factor. That will be good for our business.
Okay, great. Thanks. If I could just sneak in, if I could just sneak in another one. Just very quickly on the sensitivities you guys provided on slide 32. Those sensitivities, do they only apply to assumptions on existing reserves, or do they account for potential new delinquencies and the new reserves you have to set aside for, you know, an increased non-employment rate causing potential extra delinquencies?
Yeah, no, they, they do also pick up the impact on from new delinquencies. To the extent that they're factored into the liabilities remaining coverage, so we've, we've got to make an assumption about future re-delinquencies. Yes, that's what those numbers represent. There's also, within those numbers, would be a small impact for when you're writing new business, but the majority of that sensitivity would relate to the existing book.
Okay, great. Thank you.
Thank you. Once again, if you wish to ask a question, please press star one on your telephone and wait for your name to be announced. Our next question comes from Simon Fitzgerald at Jefferies. Please go ahead.
Good morning. Thank you for the guidance statements, very helpful. A couple of things I was hoping to explore regarding the comment of the average claims ratio over the last 10 years. Can I just confirm whether you've done any adjustments for changes of revenue recognition and also the non-recurring items? If I adjust for that FY 2020, just the DAC only, for instance, the write-off of AUD 180 million, that would pull that down to around about 25%. Just interested to know your comments in terms of some of those distortions that wash through over time.
We, we haven't made any explicit adjustments, Simon. I mean, we, we did it deliberately over a fairly long-term period. We're also conscious that, you know, the majority of that period was under a double- a different accounting basis. I think as I tried to explain, that while there's a timing difference in the recognition, over the longer term, we wouldn't expect the magnitude of revenue to be materially different between the two accounting standards. And look, and given the, you know, the potential volatility and difficulty of predicting the, the, the claims, levels in any particular year, we, we felt trying to sort of make precise adjustments for the historic numbers was perhaps a little bit spurious accuracy. That's. The other thing, just to remind, when we've quoted that claims ratio, that's a gross of reinsurance, revenue.
I think in the past times we've spoken about net loss ratios, so that's probably the one distinction we've made.
Yeah, and so it's not, yeah, not the loss ratio that we used to talk about. I've got another, another sort of part to this that I'm really interested to explore. The other sort of element in all of this is that the book has changed materially over time. Like, we don't have any more of those really low, you know, or higher LVR, 95% plus, no low-doc loans, probably been a wash out of the mining related concentrations. There's also one other element, I think, that's worthy of attention at the moment, is that there's a lot of loan modifications and support for hardship that there probably wasn't in the past. What sort of comments do you have about that?
I'll take that one, Simon. I think you're, you're right. What we are seeing at the moment is a change in lending standards, we believe, generally across the industry. The impact of responsible lending, we think, is having a, an ongoing impact to some extent. We're watching that pretty closely. Obviously, we need to set our risk settings to be appropriate for the environment in which we're operating. That-- because we, we don't want to be, you know, we might be missing out on good risk now, given that the risk at the industry seems to be taking as a whole, seems to have reduced. We're watching it pretty carefully.
Being career insurers, we both know that things can change pretty quickly. If we get through this period without seeing a material uptick in claims, then we think it's appropriate that we have a pretty good look at our risk settings and see if it's appropriate that we should be taking more risk, given some of the secular changes that we've seen. I, I just want to, I won't get ahead of myself yet because I, I say I've been in insurance my whole career, and I think it can change quickly. Let's see what happens through this current period.
Simon, to build on a little bit, and, you know, we talked in the presentation a bit around some of the profitability of different cohorts, and I think some of the factors you talked about in your question sort of go back to pre-2015 or 2016, you know, certainly feature the industry and, you know, have largely dissipated, I think. As Pauline said, probably underwriting standards strengthened further post the Royal Commission in the banking side. To your other comment on the hardships, I think absolutely a feature of the dynamic in the industry at the moment. Certainly really, I mean, since the sort of COVID, where that almost became the norm, the lenders have got much more active and I think nuanced. It's not a one-size-fits-all.
Yeah, certainly, I think that is having a positive impact on delinquency levels in our book and at an industry level. Time will tell if that's a sort of a, you know, a permanent improvement or whether it's, you know, a deferral. Certainly, it's been an encouraged sign, I think. Each, and each of the banks, I think, certainly the major banks, have talked in, you know, in different ways around the way they're managing this hardship situation.
Yeah, it's a real win-win-
Sure.
for us.
Yeah, just 1 final question, just on the pro forma PCA walk. Can you just help me with trying to think about the, the in-force run-off for the second half? Just, you know, all things being equal, should we be thinking about, yeah, something similar to the first half that we're seeing?
Well, I guess all I'll say on that, without giving a, a forecast, is that the drivers of that run-off are largely a function of 2, 2 things: the volume of new business and the volume of cancellations. You know, the volume of new business will be a function of, of new hire LVR lending in the market, and the volume of cancellations tends to be heavily a function of amount of refi activity. I, I guess all I'd do is probably point you to, if you have a view about what's happening at the industry on those 2 measures, then, you know, if you think they're gonna be at a similar level to the 1st half of this year, then I would expect the capital release would be at a similar level.
There's no, aging in that?
There is a bit, but it's fairly predictable from period to period, Simon. The way the capital requirements work, you know, you, you, you, business in the first year has a higher capital requirement, and then, you know, the capital drops down a bit, and then after the year three, it drops down again. There's a little bit of a dynamic of... Particularly from the business we wrote a lot of business in 2020 and 2021, and some of that is coming up to its sort of 3-year mark, and the capital requirements sort of significantly reduce on a policy past the 3-year anniversary. We are getting a bit of a benefit from that as well.
All right. That's helpful. Thank you very much.
Thank you. There are no further questions at this time. I'll now hand back to Ms. Blight- Johnston for closing remarks.
Thank you. Thank you, everyone, for joining us today, for your interest in the stock, for your support and your questions. We are very proud of the results we've delivered today. Yes, clearly there's some industry factors going on, underneath it all, we have a strong, soundly managed business, and that, that operational excellence and sound financial management has put us in a really good position for the current environment that we're in. Whilst new business is weaker than we would like, the change we've seen in the industry really underlines the importance of our strategy to enhance, evolve and extend, and to reduce our revenue reliance, to improve our revenue diversification going forward. So we're really pleased the momentum that's building in the business around this.
It's been a quite a stark change in our business over the last 2 years, and we think, again, positions us well for the future. We do know we can't predict the future, we can't predict the economic, the economic environment, and we can't predict the claims. Whilst we do expect that they will increase over a period of time, we are, as you can see, well positioned for that and to withstand it, to continue to invest in the business and to continue to reward you, our shareholders, which we look forward to doing over the coming years. Thank you for your time.
Thank you. That does conclude our conference for today. Thank you for participating.