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Press Release: S&PGR Says Australia's Mortgage IICRA Remains Low

23 May 2017 4:11 am
 
 
The following is a press release from Standard & Poor's: 
 
MELBOURNE (S&P Global) May 22, 2017--S&P Global Ratings today said that it has 
maintained its insurance industry and country risk assessment (IICRA) for the 
mortgage insurance sector in Australia (AAA/Negative/A-1+, unsolicited 
ratings) at low. The IICRA score is based on our view of the sector's 
intermediate industry risk and Australia's very low country risk. The low risk 
IICRA is the second-strongest on a scale of six, and provides the context for 
our analysis of an insurer's competitive position and business risk profile 
(see "Australia Mortgage," for the full report, published today.) 
 
Australia is one of two countries to carry a low risk score for its mortgage 
insurance sector alongside Canada. Australia's low risk mortgage IICRA is in 
line with the Australian life, property/casualty, and health insurance 
sectors. Supportive structural aspects of the market, sound profitability, and 
our positive view of the country's institutional framework, including the 
regulatory framework, have largely underpinned the IICRA, along with the very 
low country risk. 
 
However, we now believe there is heightened potential for product risks to 
trigger return on equity volatility in the Australian mortgage insurance 
sector and have therefore assessed this risk as negative to the mortgage 
IICRA. This reflects our view of the increased macroeconomic risks to the 
sector following very strong house price appreciation, particularly in 
Melbourne and Sydney, and the continued increase in the ratio of household 
debt relative to disposable income. 
 
In our opinion, the sector has significant exposure to product risk as the 
economic imbalances in Australia have increased due to strong growth in 
private sector debt and residential property prices in the past four years. As 
noted in "Ratings On 23 Australian Financial Institutions Lowered On Buildup 
of Economic Imbalances," published May 22, 2017, we believe financial 
institutions operating in Australia now face an increased risk of a sharp 
correction in property prices and, if that were to occur, a significant rise 
in credit losses. This increases the risk of material adverse claims 
experience for lenders' mortgage insurers in Australia. Despite increased 
downside risks, our base case assumes that recent and possible further actions 
by the Australian authorities could lessen the impact of this scenario. 
 
Only a rating committee may determine a rating action and this report does not 
constitute a rating action. 
 
AUSTRALIA 
Standard & Poor's (Australia) Pty. Ltd. holds Australian financial services 
licence number 337565 under the Corporations Act 2001. Standard & Poor's 
credit ratings and related research are not intended for and must not be 
distributed to any person in Australia other than a wholesale client (as 
defined in Chapter 7 of the Corporations Act). 
 
The report is available to subscribers of RatingsDirect at 
www.globalcreditportal.com and at www.spcapitaliq.com. If you are not a 
RatingsDirect subscriber, you may purchase a copy of the report by calling (1) 
212-438-7280 or sending an e-mail to research_request@spglobal.com. Ratings 
information can also be found on the S&P Global Ratings' public website by 
using the Ratings search box located in the left column at 
www.standardandpoors.com. Members of the media may request a copy of this 
report by contacting the media representative provided. 
 
Primary Credit Analyst: Daiwyn S Naidoo, Melbourne (61) 3-9631-2175; 
                        daiwyn.naidoo@spglobal.com 
Secondary Contact: Craig A Bennett, Melbourne (61) 3-9631-2197; 
                   craig.bennett@spglobal.com 
 
 
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Copyright (c) 2017 by Standard & Poor's Financial Services LLC. 
All rights reserved. 
 
 

(END) Dow Jones Newswires

May 23, 2017 00:11 ET (04:11 GMT)
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