We'd now like to hand the conference over to Mr. Paul O'Sullivan, Head of Investor Relations. Please go ahead.
Hello, and welcome to the first half 2022 results briefing for Genworth Mortgage Insurance Australia. I'm Paul O'Sullivan, Head of Investor Relations. This morning, we will 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, and Pauline will then wrap up with closing comments. At the end of the presentation, we will pass back to the moderator and take questions from investors and analysts. I'll now hand over to Pauline.
Thanks, Paul. Good morning, everyone, and thank you for joining us. Before I start today, 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, present, and emerging, and to all Aboriginal and Torres Strait Islander people here today. Today, we're pleased to report that Genworth has continued to deliver strong underlying business performance over the first half of 2022, despite the impact of unrealized mark-to-market investment losses weighing on the headline statutory profit results. We're pleased with the start of 2022 and that Genworth remains well-positioned to continue to support Australians through the changing economic environment ahead. Our purpose at Genworth is to accelerate financial wellbeing through homeownership. We exist to help people buy homes.
Even with the recent softening of housing prices in some markets, saving for a deposit and buying a home has never been more out of reach for many Australians. Helping these people realize their dreams is why we come to work every day. This purpose represents an exciting business opportunity as well. As the need continues to grow, we are evolving our business offerings to find more and better ways to help people access the dream of homeownership. The strong profitability and capital position delivered over the half provide a foundation from which we can continue to deliver for Australia's lenders and borrowers as we enter a more challenging economic environment. We have the financial capacity to meet our promises, invest in our strategic agenda and operational improvements, and to continue to return capital to shareholders through a wide range of possible future economic scenarios.
I'll now turn to slide five for an overview of the first half business performance. For the first half of 2022, Genworth delivered a strong underlying net profit after tax of AUD 134 million, 76% higher than the first half of 2021, underpinned by very strong underwriting results of AUD 173 million and net claims of -AUD 3 million. Statutory net profit after tax of AUD 18.9 million was materially lower than underlying profit due to unrealized mark-to-market investment losses as a result of rising bond rates. Increased bond rates have also resulted in an increased running yield of 3% as at 30 June, which will have a positive impact on investment returns going forward. Michael will spend more time talking about the impact of the bond rate changes on our portfolio.
Over the half, we saw a continuation of the exceptionally low claims environment, reflecting the strength in borrower finances that's been assisted by high savings levels through COVID, a strong labor market, and until recently, record low interest rates. As the economic environment changes, we expect this borrower strength, along with house price appreciation in recent years and a tightening of underwriting standards, to provide a buffer to delinquencies despite rising interest rates and declining house prices. Despite reduced new business volumes, the earned premium increased 27% to AUD 219 million, benefiting from the strong growth in premiums over recent years and some high levels of cancellation. Over the half, we continued to deliver on our strategic agenda to enhance, evolve, and extend our business to accelerate financial wellbeing through homeownership.
Our borrower-centric approach to evolving the MMI proposition to better meet the needs of today's home buyers was instrumental in securing two new exclusive contracts over the period. One with Bendigo Bank and the other with ME Bank, in conjunction with renewing our exclusive relationship with BOQ. We were delighted to recently be awarded Australian Broker Magazine's 2022 5-star mortgage innovator award and are pleased with the progress we're making with our strategic partner, OwnHome, to bring alternative deposit funding products to market. Through all this, the business has remained financially very strong, with a pro forma PCA ratio of 1.94x . This has allowed the board to today declare a first half dividend payment of AUD 0.12 per share and announce our intention to commence another AUD 100 million on-market share buyback.
Slides six and seven depict these business results and the growing business momentum in graphical format for you to read in your own time. Let's now turn to slide 8 for a closer look at the economic environment. Over the past 18 months, Genworth has benefited from unusually favorable economic conditions. However, we are beginning to see changes to the economic environment. Interest rates are expected to continue rising, putting negative pressure on dwelling values. Importantly for Genworth, we enter this period following two years of very strong growth in dwelling values, with a 26% increase in values over the two years to 30 June 2022. As a result, our portfolio is in a strong positive equity position. Also importantly, the labor force remains resilient with a historically low unemployment rate of 3.5%, workforce participation rate of 67%, and consistent annual wage growth.
Turning to slide nine. Indications are that we're entering a period of dwelling price depreciation precipitated by the steep increases in interest rates over recent months. In this context, slide nine provides an interesting historical perspective of house prices in Australia. Australia's housing market is somewhat unique globally, with periods of depreciation typically followed by strong recoveries rather than the long periods of housing price weakness experienced by some other markets. Key contributing factors to this resilience are the primarily floating rate mortgage market and the high proportion of national wealth stored in housing, which together result in interest rate changes flowing through the economy faster than in many other markets, and hence, typically shorter cycles. As it takes many months and sometimes years for a loan to move from delinquency to claim, Genworth is primarily impacted when there is a protracted downturn in housing.
As can be seen by the blue house price index line on the chart, periods of aggregate negative equity in Australia are typically fairly short, thereby reducing the financial impact of dwelling price depreciation on mortgage providers and insurers. While this historical context does provide some comfort, nevertheless, Genworth has taken the opportunity over recent years to ensure it is well-positioned for a weakening economy. Turning to slide 10. While we expect the economic environment over the coming years to be more difficult than we've seen in recent years, we are confident that Genworth is well positioned to navigate this period, commencing from a robust starting point. Over the past decade, we've progressively tightened and refined underwriting standards as we've come to understand our portfolio and its experience in greater detail.
This refinement has continued during 2021 and 2022, with a particular focus on positioning our portfolio for an environment of increasing interest rates. The portfolio has also benefited from strong dwelling price appreciation and household savings over the last two years. At present, only around 1.5% of our in-force portfolio has an effective LVR above 90%. The Reserve Bank of Australia estimates that for owner-occupied variable loans, the median mortgage holder has a repayment buffer of approximately 21 months, and 75% of loans have a buffer of greater than three months. Of course, in addition to these external factors, we have remained cognizant of the possibility of this emerging economic situation in our reserving since the onset of COVID.
Taken together, this means that while we expect claims to increase from their current levels, this is not a bad outcome, as paying a reasonable level of claims is ultimately good for our business. The portfolio and business settings are well positioned for this change. Now turning to slide 11 to discuss how we're progressing on our strategic priorities. Over the first half of 2022, we've continued to see progress on the delivery of our strategic agenda to enhance, evolve, and extend our business as we create more avenues to help Australians buy homes and to diversify our revenue base. Particularly pleasing over the period has been seeing how our three strategic pillars are creating synergistic value. With the customer solutions emerging from our evolve and extend pillars, key contributors to recent wins in our core LMI business.
In the past 18 months, we've renewed over 80% of our premium base, including the renewal of four of the top 10 industry lenders in the past year. During the half, we were delighted to be selected as the exclusive LMI provider for Bendigo and Adelaide Bank. This outcome and the recent exclusive renewal with Bank of Queensland, now including ME Bank, demonstrates the continued building of positive momentum in our business. In addition to our customer wins, Genworth was recently announced as the winner of Australian Broker Magazine's 2022 five-star Mortgage Innovator Award for our monthly premium and family assistance product. This recognition provides further evidence that we are successfully differentiating our LMI proposition in a way that is making a difference to our lender customers and their borrowers.
Alongside our core LMI offering, we have remained focused on expanding our business to include a range of flexible homeownership solutions for the future. Earlier this year, at our full year results, we announced that we'd entered into a strategic partnership with OwnHome. Over the half, we have worked with OwnHome to develop a deposit gap loan product for home buyers, which supports co-funding by friends and family investors. We are on track to have a proof of concept this year and a product in market within 12 months. Our progress with OwnHome is an important step forward for Genworth as we work to provide Australians with alternative pathways to homeownership. We've also been increasingly focused on how we can positively impact the key ESG factors relevant to our business and customers now and for the future. This year, we've seen Genworth's first Reconciliation Action Plan endorsed by Reconciliation Australia.
We have committed to the development of a net zero carbon plan, and we have developed a new strategic framework for sustainability to help guide our business as we strive to deliver social, economic, and environmental value through what we do and how we operate. While we still have plenty to do in this space, I'm pleased with the progress we're making and looking forward to providing you with a more detailed update at the full year. Moving to slide 12. As I mentioned earlier, our strong financial and capital position means that Genworth is able to both invest in the future of our business and deliver immediate value to shareholders through dividends and capital returns. Despite an active capital management program over the half, which included both a special dividend and a share buyback, the capital position of the business has strengthened, closing at 2.19x PCA.
This morning, we've announced a new AUD 100 million on-market buyback to commence in August. The Helia board has also today declared a fully franked interim ordinary dividend of AUD 0.12 per share. We've previously indicated, our expectation is that we will be in a position to declare stable ordinary dividends with some scope for progression over the medium term, and we will continue to seek opportunities to bring Helia's capital position within the board's target range of 1.4-1.6x PCA within the next two years. I'll now hand over to Helia's CFO, Michael Cant, to provide more detail on our financial results.
Thank you, Pauline, and welcome to everyone on the call. Thank you very much for joining us today. I'd like to start on slide 14 with the half year income statement. First half of 2022 saw a very strong underlying net profit, offset by significant losses on the investment portfolio. Gross written premium was down 35%, impacted by slowing industry volumes of high LVR lending. This fall in the top line GWP needs to be seen in the context of the historically high levels of GWP in 2020 and 2021. Net earned premium for the half grew by 27% due to the strong written premium in recent years, combined with continuing high levels of policy cancellations. The claims outcome for the half was exceptionally low. Total net claims incurred was negative AUD 3 million, which reflected a very benign claims environment.
Investment markets for the half were down with a substantial rise in bond rates. This led to sizable unrealized losses on the fixed interest portfolio and a total investment income of -AUD 142 million. Please turn to slide 15 for a more granular view on the top line. New insurance written for the half was down 28%, largely reflecting a drop in industry lending volumes, particularly for higher LVR lending and first-time buyers. This fall in new insurance flowed through to gross written premium. GWP was also negatively impacted by a lower mix of business in the greater than 90% LVR category, which has higher premium rates. Net earned premium was up 27%, benefiting from high cancellations and the very high GWP in 2020, which is now coming into the peak years of the earnings curve.
As we've explained before, cancellations bring forward the release of unearned premium, and the contribution from this source was AUD 60 million higher than in the first half of 2021. Comparisons with the first half of last year are also impacted by earnings curve changes in 2021. Turning to slide 16. Net claims incurred for the half were -AUD 3 million, that is a credit to the P&L. This outcome was driven by low claims paid and an AUD 15 million reduction in outstanding claim reserves. Paid claims and mortgages in position continued to remain very low. This was a function of both the favorable economic environment, but also the COVID moratorium that lenders allowed on foreclosures.
These moratoriums have now come to an end, and we do expect to see increases in both mortgages in possession and claims paid in coming periods, and this is being anticipated in our reserves. The average level of paid claim was well below historic levels, in part due to the strong house price gain, which has dampened the extent of any negative equity in the portfolio. Slide 17 has some further detail on the claims analysis. The overall delinquency rate has fallen to 0.51%, with improvements across most parts of the portfolio. Closing delinquencies are at their lowest level since 2014. New delinquencies remain particularly subdued given the favorable economic environment for most of the half year.
Net aging, that is cures less aging, was a positive AUD 55 million, and this reflects a strong labor market, healthy borrower finances, and the impact of strong house price appreciation in recent years. Over the course of the half year, the impact of changes in the actuarial reserving basis was relatively minor at AUD 11 million, and this can be seen in the table on the other adjustments line. These changes in reserving basis include an allowance for the impact of potential future house price depreciation in the year ahead. If you can now please turn to slide 18 on investment returns. Total investment income was negative AUD 142 million, representing an investment return of -8% annualized. The big driver of the overall investment result is the unrealized losses of AUD 162 million, mainly due to rising bond rates.
Falling equity markets also contributed. While the rise in interest rates hurts the profit and loss in the short term, there is a longer-term positive impact on the profitability of the business, given the long-term nature of our liabilities. This can be seen in the higher running yields, which have risen from 1%-3% in the half. We typically hold our fixed interest assets to maturity, so the impact of the unrealized losses will unwind as the bonds mature over coming years. Slide 19 looks in further detail at the impact of interest rates. As I've noted, the half year saw a dramatic rise in interest rates, and across the curve, rates were up approximately 2% for the half year. Clearly, this has caused significant mark-to-market losses on the portfolio for the half.
On the flip side, higher rates have an offsetting impact on the value of the insurance liabilities, particularly noting that we adopt a matched investment portfolio for funds that back the insurance liabilities. To understand the impact of changing interest rates, it is instructive to look at both the assets and the liabilities. The tables on the slide show the actual experience for the half year, as well as a generic 50 basis point interest rate sensitivity. Due to the fact that the accounting liabilities are not discounted, changes in interest rates impact assets and not the liabilities, and as a consequence, create volatility in the profit and loss. However, our matched portfolio insures much more stability in the capital position and the underlying economic value. Moving now from the income statement to the balance sheet on slide 20.
Deferred acquisition costs are AUD 104 million, an increase of AUD 16 million in the half, reflecting the capitalization of new DAC post the write-off of DAC in 2019. Unearned premium has decreased by AUD 60 million or 4%, reflecting the fact that high cancellations exceeded the level of new business. Gearing remains low, with interest-bearing liabilities comprised of AUD 190 million five-year floating rate note. I'd now like to take a closer look at the investment portfolio on slide 21. As was previously outlined, the asset allocation varies between the technical funds backing the insurance liabilities and the capital in the shareholder funds. The technical funds are invested entirely in fixed interest assets, which are matched with the liability with an average duration of 3.3 years.
The shareholder funds have a higher risk return profile, with approximately 13% of funds invested in equities and infrastructure, and an additional AUD 120 million investment into infrastructure is due to fund shortly. The shareholder fund portfolio also has a greater allocation to corporate credit securities to enhance overall returns. Finally, the fixed interest portfolio that backs the shareholder fund has a much shorter duration of only 0.7 of a year and is well-positioned for a rising yield environment. If you could turn now to slide 22, which summarizes the breakdown of the outstanding claims liability. The total outstanding claims liability of AUD 464 million reduced by AUD 16 million during the half year. The reduction in reserves was a function of both the low delinquencies and house price appreciation.
As you can see on the chart, the outstanding claim liability has three main components, a reserve for reported delinquencies, a reserve for incurred but not reported claims, and thirdly, a reserve for future re-delinquencies. The reserving basis was strengthened significantly in 2020 due to the introduction of a new re-delinquency reserve, as well as other assumption changes to cater for the potential economic impact of COVID. While things have evolved differently to original expectations, the changes made back in 2020 mean we are well reserved going into the economic period ahead. Since the onset of COVID, the average reserve per reported delinquency has been fairly steady at approximately AUD 40 thousand, reflecting a degree of stability in the reserving basis.
The fall in the absolute level of reserves in recent periods, including the half year just gone, is largely a function of the number of delinquencies reducing rather than the assumption changes in our basis. In fact, the average reserve per reported delinquency increased 7% for the half due to mainly an allowance for future house price depreciation. Slide 23 shows our capital position, which remains strong. Regulatory capital base fell by AUD 196 million in the half, reflecting our active capital management during the period.
The APRA regulatory capital requirement is driven by the probable maximum loss or PML, and the PML has reduced significantly in the six months due to a combination of high cancellation and portfolio seasoning. A key co mponent of our regulatory capital requirement is AUD 800 million dollar offset we received for the reinsurance we have on the portfolio. The loss level of reinsurance has remained at the same AUD 800 million dollar quantum, but as a percentage of the PNL has increased to 50%. The resulting capital ratio is 2.11x PCA. This PCA ratio is before the completion of the AUD 100 million dollar on-market buyback that we announced this morning and the payment of the declared dividend. Together, these would reduce the ratio to 1.94x PCA on a pro forma basis. If you can now please turn to slide 24.
As Pauline has noted, despite the significant return of capital in the half, the PCA coverage ratio actually increased by eight basis points. The PCA ratio benefited from the run-off from cancellations and seasoning of the in-force book, which together was greater than the capital strain from writing new business. This demonstrates that the business is generating large amounts of capital organically, and we do expect this dynamic to continue. The capital position remains well above the board's target range even after the dividend and proposed buyback, highlighting scope for further ongoing capital management. As previously noted, we are committed to getting back into our target capital range within a two-year period.
That largely concludes the update and overview of the results for the half year, and I now wanted to spend a little bit of time on a few key matters relating to the future, starting on slide 24, 25, I'm sorry. Over the last 18 months, claims incurred have been exceptionally low, and clearly this cannot continue forever. While no one can forecast with certainty the level of future claims on lenders mortgage insurance, I did want to share some sensitivities. Economic conditions have changed significantly in the last three months. Economists are now forecasting official cash rates near 3% by year-end, house price falls of approximately 15% over the next 18 months. With unemployment remaining relatively low, and under 4.5%.
Under that economic scenario, we expect the claims incurred will return to long-term average levels from 2023. While rising interest rates and falling house prices will negatively impact claims in coming years, the magnitude is moderated by the house price appreciation of recent years, combined with relatively low unemployment. The slide also shows the sensitivity of claims for different economic variables using a three-year sensitivity. We have previously shown similar sensitivity information in relation to liabilities, but we are now also sharing the impact of these sensitivities on expected losses. The loss figures quoted in the table are cumulative three-year impacts, so the average annual impact is one-third of the total shown. Please also note that these sensitivities are incremental to the base case economic scenario outlined on the slide. Please now turn to slide 26, which has some more color on the unearned premium.
As you can see in the chart, the unearned premium balance has grown strongly in recent years, but with a drop of 4% in the last six months. The slide also highlights the unearned premium balance is dominated by the last three years of business, which is a function of both the large volumes of premium written in 2020 and 2021, combined with the shape of the earnings curve. The high GWP in recent years and the resulting growth in the unearned premium balance provide a good foundation for future revenue in coming years, acknowledging that there will be year-to-year variability due to the level of cancellations. Finally, I'd like to turn to slide 27 and talk about the profitability by different book years and how this has changed over time.
We have shared this analysis previously at our 2021 year-end results, and I wanted to provide an update with the latest most recent view. The chart on the top left shows the cumulative loss ratios by different book years. That is, the ratio of cumulative claims incurred to date as a percentage of earned premium to date. Because the earnings curve is intended to reflect the timing of when claims are incurred over the life of the policy, the cumulative loss ratios to date for each cohort should be indicative of the ultimate profitability. The book years have been grouped in cohorts which have broadly similar loss experience. Book years 2008 and 2009 were very unprofitable, with a loss ratio of approximately 75%. These cohorts had a material proportion of low doc loans and were also significantly impacted by the GFC.
LMI pricing was also well below what it is today. The cohort from 2010 to 2014, with a loss ratio in the mid-30s, was adversely impacted by the mining boom and bust in regional Queensland and WA. Other states have performed well. The mining claims took some time to play out and were a drag on incurred claims in our business up until approximately 2019. The more recently booked years from 2015 onwards are showing much better loss ratios, reflecting enhanced pricing, better underwriting quality, geographic mix, and to date, a lack of any major significant claim events. Loss ratios for 2021 and the first half of 2022 are also low, but are not shown as they have not yet had sufficient time to develop.
Another useful way to look at the different cohorts is the embedded profits in the existing book. The excess and unearned premium over the premium liability effectively represents the expected future profits from the current in-force portfolio. The breakdown by cohorts again shows some interesting insights. The pre-2014 cohorts have negligible unearned premium due to the earned premium having largely been earned to date, but we will still have a small level of future claims. The cohorts from 2015 to 2019 have strong profitability, but much of it has already been earned. The business written post-2019 has sizable profits, the majority of which are expected to emerge in the future. Profitability can vary significantly by book year, reflecting the many different factors that I outlined earlier.
Over time, we expect that the run-off of the old cohorts and replacement by more profitable business written since 2015 can and is likely to lead to improving returns going forward. I'd now like to hand back to Pauline.
Thank you, Michael. Now moving on to slide 29, bringing it all together. As we look to the future and the changing economic environment, we're confident that Genworth is well-positioned. Despite slowing gross written premium, net earned premium is expected to remain strong over the remainder of the year, with a full year 2022 guidance range of AUD 375 million-AUD 435 million. Net incurred claims are expected to begin to normalize in the second half of the year. However, it may take some time for economic changes to flow through to delinquencies. We expect second half claims to remain below historic averages and as a result, full year 2022 net incurred claims are expected to be in a range of AUD 0-AUD 50 million.
In respect of investment returns, movements in bond rates and hence unrealized profits or losses are of course unpredictable over the short term. However, the current higher bond rates are expected to benefit our second half of 2022 investment income due to increased money yield. Turning to the medium-term outlook on slide 30. Moving forward, we anticipate the trends we expect to see over the second half of 2022 continuing to the medium term. As mentioned previously, the strong growth in premium and delivery of our strategic agenda should underpin net earned premium. We expect that while claims will likely revert to longer-term levels, the business is well positioned to navigate this transition.
Perhaps most importantly, all else equal, we expect ROE to improve over the coming years as we benefit from the run-off of low ROE book years, improved portfolio returns, and our ongoing commitment to returning excess capital. Turning over to slide 31. Those of you who were at our recent investment day will have seen this before, showing our outperformance in total shareholder return since listing, but I can't help talking to it again as I believe it's often missed by potential investors. Genworth has a proud history of delivering total shareholder return, which reflects the embedded value of our business. This embedded value enables us to deliver top quartile shareholder returns while we reposition the business to take advantage of the untapped long-term opportunities. Bringing it together on slide 32.
In conclusion, Helia Group is excited to be on the forefront of evolving LMI to better meet the needs of homebuyers today and for the future. We are energized by the diverse range of alternative homeownership solutions we are working on to deliver to help meet the growing needs in Australia, and we remain confident of the business opportunity that this will create. This focus on evolving and extending our offerings has already yielded benefits in securing additional exclusive LMI contracts. Over coming periods, we look forward to supplementing our base LMI offering with alternatives such as the OwnHome deposit funding solution. We're proud of the momentum we're building and are pleased that this has been achieved alongside a solid underlying financial result today, allowing us to continue to deliver on our commitment to effective capital management.
We've had a strong start to 2022 and look forward to continuing to evolve and deliver for our customers, our people, Australia's aspiring homeowners, and for you, our shareholders. On behalf of the board and my fellow leaders, I would like to thank all of the people at Genworth for joining us on this journey and making it your own. Today's results are a reflection of your unique contribution and passion for homeownership in Australia. Finally, thank you to all our shareholders for your ongoing support and commitment to Genworth, because without you, nothing would be possible. With that, I'll open 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're on a speakerphone, please pick up the handset to ask your question.
Your first question comes from Andrew Lyons from Goldman Sachs. Please go ahead.
Thanks, good morning, team. Just a couple of questions for me. Firstly, just your FY 2022 guidance for NEP at the midpoint implies second half NEP of about AUD 190 million. I'm just wondering, just given the transparency you have around the NEP, given you know, it's obviously a function of previous GWP. Are you of the view that you'll be able to hold that sort of implied second half level into the first and second half of 2023? That's my first question. Maybe if you can answer that, and then I've got a few more.
Yeah, Andrew, it's Michael. A couple of comments without sort of stepping into the 2023 territory. A recent element of the net earned premium is quite stable from year to year, so the underlying of the earnings curve is quite stable and predictable. The amount that's harder to earn more volatile is the contribution from cancellations. As we've said, that has been particularly elevated the last 12 months. We do expect that to start to come off, and that is reflected in our guidance range. How quickly that comes off and what that means for 2023, I think it's a little early to speculate, but certainly, the forecast or the guidance we're giving for 2022 is.
Has an implicit level of cancellations coming back by the end of the year to a more normal level.
Okay. Just to be sure on that, like the cancellations, you would say your assumption on the NEP, I guess there is a range. It's fair. Is the range largely just, I guess, at one end, cancellations revert to sort of long run normal and at the other end, maybe hold, you know, somewhat above that closer to where it was in the first half?
Yep. That's a synopsis.
Okay, that's great. Thank you. Then just a second question, just, you know, again at off very low levels and still at very low levels. We did see a small turning point half over half in your mortgages in possession and in number of paid claims in an environment where unemployment, you know, has continued to fall, albeit house prices have rolled over. Is there anything that we should be reading into that, any sort of trends, or is there a seasonal element to it that you can maybe just help us to understand what may have driven that sort of, you know, very small turning point?
I would expect, Andrew, is largely a function of the moratoriums coming off in the industry. There was virtually nothing going through there for a period because of the lenders placing the moratoriums and that sort of regime. We're expecting that will pick up in the next six months. But again, just through the time for things to take through, you know, anything we see in the next six months is gonna be much more a function of, you know, those moratoriums coming off than it is, you know, any deterioration in economic environment.
Okay. That's helpful. Thank you. Just one final very quick one, and more just trying to sort of understand the business. Just on when you do have to foreclose on an account, can you maybe just help us understand how long on average does it take from a mortgage going delinquent to you know, your ultimate foreclosure realization? On average, what is the cost that I guess the negative equity costs of doing that, i.e., accrued interest, real estate fees, legal fees, et cetera. How much on average, just as a rough rule, does it cost to have to foreclose on someone?
I won't answer the second part of that question 'cause that's really some of that information is commercially sensitive, as you'd understand.
Sure.
The timeframe, it's really, you know, at the shortest end, probably about just under a year, about nine months at the absolute shortest, and more leaning towards 21 months to two years, at the longer end, is from the time that someone strikes trouble. It is quite a protracted period before a property will move to claim.
Great. Thanks. Thanks, Pauline. The median would be about in between that or is it biased to one side or the other of that sort of 9-21 months?
It really depends on a lot of individual times. Coming back towards the interest impact, you know, in a strong HPA environment, that delay helps us because the HPA is greater than the interest. The environment we're moving into with interest rates affecting HPA not so much, that equation will change.
Yeah. That was the basis of the second question, but I can understand you not answering it. Okay. Thanks so much. Appreciate it.
Thank you. Your next question comes from Simon Fitzgerald from Jefferies. Please go ahead.
Good morning. Thanks for the additional disclosures around the sensitivities. That was very interesting, particularly the part around interest rates as well. I was gonna ask just very briefly, do you have any sort of thoughts about sort of, you know, how much is fixed versus variable in terms of some of these loans that have been taken out recently and, you know, when, say, you know, some of these larger cohorts are coming off that sort of fixed term and what that might mean in terms of their ability and worthiness as a borrower. I guess I'd also ask the same question with, you know, sort of those that come off, interest only as well.
Yeah. Simon, I'd. We haven't disclosed those fixed in our portfolio, but I wouldn't expect that our portfolio is gonna look materially different to the industry as a whole. I think there's been some fairly good disclosure from the banks, but also some analysis of the Reserve Bank on proportions of fixed and variable over time and time periods in which, you know, they would revert back to variable. Yeah, again, I think that's probably a reasonable proxy for what we would look like as well.
Yep. What about interest only, which you do disclose in terms of how much is interest only and principal and interest? Do you have any sort of thoughts about those borrowers that are coming off interest-only components and then having to pay principal in the next sort of couple of years, like what that might mean for their ability to repay?
Well, I mean, our interest-only components in our portfolio, the good news has been reducing over time. I guess, anecdotally, has the transition from interest only to principal and interest been a significant factor in our losses? No. It's not something that's really featured significantly in the way we manage our portfolio.
Okay, that's very helpful. Then my second question, we've talked before, and you've mentioned a lot about sort of postcode regions, Paul, and just, you know, in terms of sort of various analysis on that. I'm interested to know, you know, what exposures you might have to the flood regions, but what happens also in the case where, say, a borrower may have changed their insurance, home and content significantly. I'm thinking about those that may have opted out of flood insurance, for example. What, you know, maybe you can touch on if you do have any exposures there, but I'm interested to know, like, you know, whether there could be an increased severity there in terms of homes being sold at a really steep discount or indeed ones that are unable to be sold, like what might happen in that scenario.
We've been looking very closely at flood as we've been looking at climate risk. We've done a lot of work.
Yep.
We'll talk about it a bit and a lot with our lenders on very specific location-based climate risks. One of those is, of course, flood risk. Now, remembering that as a first order impact, if the property is damaged, we don't cover that. Any claim that we pay is discounted by the amount of property damage. Assuming that the property is still at a reasonable level of habitability, et cetera. It's really almost the land value in many ways that we are covering. Now, clearly as that first order issue is not ours.
The second order issue, of course, is if whole areas become less attractive to live in, that does decrease the property values and does flow through to us, which is why we've been focusing on climate risk, not just for flood areas, but also our coal mining towns, et cetera, to look at what our long-term exposure might look like. That's work that we've been doing with our lenders. We've worked very closely with them following an event around what's coming through the new business, how they're managing the claims that are coming through, how they're managing distress in the local area.
Yeah.
have been part of the refinement of our settings has been the climate risk issues over recent years.
Sure. Just, you know, given that first order, obviously a hit comes from the, you know, general insurer themselves in terms of protecting the property value, you know, the actual house, et cetera. If you have a borrower that changes their insurance coverage, do you get notified about that? Like, is it that there's been a whole, you know, a lot of people that have changed and opted out of flood insurance in some of those regions from what I understand.
We are supposed to be notified as is the mortgage provider. That doesn't always happen. Even if we don't get notified, it still doesn't come through to us. That's an issue for the mortgage lender, not for us, because our insurance doesn't cover it.
Okay. Understood. Thank you very much.
Thank you. Your next question comes from Harry Dudley from Watermark. Please go ahead.
Hi there. Thanks for taking the time for my question. Just on the additional disclosures that you put out on the sensitivities. I was just wondering if they're linear, as in, you know, if we can work backwards, you know, 1% and get to the current cash rate. Is that kind of the additional amount of claims we should expect from where we are and same with the unemployment rate? Yeah. I mean, within reasonable movements, they're not too far from linear. And they're also a trick of a question. They operate, you know, in the same way, you know, up and down.
I think, you know, within reasonable movements, say if we've given a 1% sensitivity on interest rates, then it's probably not an unreasonable thing to double it for a 2% and similarly on the, you know, the unemployment. I'd probably caution extrapolating it out way out, because then I think linearity will remove. I'd also just caution a little bit around extrapolating from, you know, we've come to a very unusual period in the economic environment and a very unusual base level of claims.
I guess the way we thought it was most useful to try and convey the information was to sort of say that under the baseline scenario, it's largely a pretty sort of average of economists that was outlined, but we're expecting our claims to return to a more normal long-term level and then present sensitivities from there rather than try to give you sensitivities relative to, you know, 2022, which has been a very unusual period.
Sure. Just one specific question. Did you use a cash rate of 1.35 or 1.85 as your beginning cash rate?
We have factored in the expectations in from the economists that the cash rate is gonna rise to around 3% by early 2023.
Okay. Thank you.
Thank you. Your next question comes from Richard Hamming from Euromonitor. Please go ahead.
Good morning. A query on capital management, please. What is the reasoning behind doing share buybacks? Which the latest share buyback will amount to, in round numbers, about AUD 0.25 per share, rather than giving a capital return or a dividend if there are franking credits available for paying a dividend or an unfranked dividend, which you have done in the past. Thank you.
The reason really largely does come down to franking. Because we don't have a franking balance. If we had a greater franking balance, we may have considered a special dividend. We don't have a franking balance to be able to frank a special dividend, any material level of special dividend. Likewise, an off-market capital return is typically tax inefficient for some shareholders, and so we figure by on-market, we give the shareholders the opportunity to take them off based on any tax impacts for them.
Okay. Thank you.
Thank you. Your next question comes from Bob Schlotman, Private Investor. Please go ahead.
Hi. Good morning. I think my question's actually been answered already about, you know, Genworth's approach to climate change, fire and floods. But thank you so much.
Thanks, Bob.
Thank you. Your next question comes from Felix Von-Kim, Private Investor. Please go ahead.
Hi. May I ask, what are your exposure to the builders who will not be able to finish homes? I see that on your underwriting policies, people can get a construction loan from Genworth as well. Like, who will have to pay money first to the home buyers, before Genworth have to? Thank you.
Yeah. That's got a very similar answer to the one about, like, claims. If the building is not completed, that's a general insurance event, not a mortgage insurance event. Our policies assume that there is no loss of value due to a building issue.
That's okay.
Thank you. Your next question comes from Leroy Soh , Private Investor. Please go ahead.
Congratulations, team, on a solid result. I've got another question around capital management. With today's upgraded guidance and moderating GWP, it appears that the forward PTA multiple will remain broadly stable in the next six months, despite the buyback and the dividend. My question is, what else can be done to try to bring this PTA multiple down?
Yeah. Our projections are still that we will get there within the two-year period, with the capital management activities we have in mind, and our projected experience. One of the things that will probably change in the second half is the impact of claims on that. Now, I know that's not necessarily the best way you want us to get into that PTA range, but we don't expect it. We've had an incredibly benign claim environment for the last half, which has really been the main reason why, despite the active capital management, we've gone furthest on that range, and we don't expect that to continue over the next years.
The other thing is obviously we will continue to monitor over the period ahead, the capital position and, you know, if we need to go faster, we'll look at options for that, including if we need to slow down because the environment deteriorates significantly, which we're not expecting. It's, you know, I would say it's something we have a constant, you know, watch on, and we're very comfortable that the actions that we've announced today are the right actions in the current environment. You know, we will continue to monitor and tweak that going forward.
Thank you, Michael.
Thank you. There are no further questions at this time. I'll now hand back for closing remarks.
Okay. Thank you very much. Thank you for those questions. It's all very thoughtful. Just in summary, as I've mentioned, we are very pleased with the way the business is currently performing. We know we've been through a benign period. The business performed well during that period, both financially and strategically. We don't expect the next 12 months to be quite as easy financially as the last 12 months were, but we have taken the opportunity during that period to set the business up for that. The business is well positioned from a risk management perspective and from a financial perspective to navigate what is coming ahead and to continue to deliver on a strategic agenda.
Really that's the thing that we are the most proud of, the way the business is increasingly meeting the needs of Australians, and that is resonating with lenders and with borrowers in Australia, and we see that that's what's gonna drive success for the business going forward. Thank you for your time today and your support. We are available. If you have more questions, you can send them through to the contact details in our ASX announcement. Thank you.
Thank you. That does conclude our conference for today. Thank you for participating. You may now disconnect.