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RSA to wind down its mortgage insurance business

Royal & SunAlliance has decided to wind down its mortgage insurance business, as opposed to selling it.

Thursday, April 17th 2003, 8:04AM

by Jenny Ruth

Royal & SunAlliance has decided to wind down its mortgage reinsurance business, forcing it’s newest customer Westpac to go elsewhere.

"We've put our business with GE Capital. The change doesn't especially faze us – it has excellent credit ratings and is the biggest operator," Westpac spokesman Paul Gregory says.

Most banks insist that borrowers of more than 80% of the value of a residential property insure the additional amount, usually though a one-off upfront fee to companies such as RSA’s subsidiary or its two rivals PMI and GE Capital.

The Promina prospectus says that in the year ended 31 December, its business with Westpac and ANZ Bank accounted for about 75% of gross written premiums. The rest was accounted for by Australian mortgage wholesalers AMS, Interstar and RAMS Mortgage Corp.

RSA’s lenders mortgage insurance (LMI) business is being discontinued "due to the relatively high levels of capital required to maintain a financial strength rating of AA which is generally required by mortgage lenders and securitisers."

The high capital levels mean it is difficult to meet targeted rates of return on capital from the business.

The decision to wind down the business follows a failed attempt to sell the business – the Australian Financial Review had estimated the business’ worth at up to $A300 million.

The prospectus says the business made a $25.3 million profit in calendar 2001 and a $45.6 million profit in 2002.

RSA ceased underwriting new policies from 31 March, subject to contractual obligations that expire no later than 27 September. It will continue to manage and service existing policies until their expiry or cancellation.

At the end of last year, it had about 306,000 policies in force and the unearned premium reserve was about $183 million. This includes an allowance for profit margins which are released into income as earned.

"Promina expects that more than half of the unearned premium reserve and the embedded profit margin will be released over the next four years," the prospectus says.

« HSBC picks up AMP mortgage businessTough call on OCR this week »

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Mortgage Rates Table

Full Rates Table | Compare Rates

Lender Flt 1yr 2yr 3yr
AIA - Back My Build 5.44 - - -
AIA - Go Home Loans 7.99 5.99 5.69 5.69
ANZ 7.89 6.59 6.29 6.29
ANZ Blueprint to Build 7.39 - - -
ANZ Good Energy - - - 1.00
ANZ Special - 5.99 5.69 5.69
ASB Bank 7.89 5.99 5.69 5.69
ASB Better Homes Top Up - - - 1.00
Avanti Finance 8.40 - - -
Basecorp Finance 9.60 - - -
BNZ - Classic - 5.99 5.69 5.69
Lender Flt 1yr 2yr 3yr
BNZ - Mortgage One 7.94 - - -
BNZ - Rapid Repay 7.94 - - -
BNZ - Std 7.94 5.99 5.69 5.69
BNZ - TotalMoney 7.94 - - -
CFML 321 Loans 6.20 - - -
CFML Home Loans 6.45 - - -
CFML Prime Loans 8.25 - - -
CFML Standard Loans 9.20 - - -
China Construction Bank - 7.09 6.75 6.49
China Construction Bank Special - - - -
Co-operative Bank - First Home Special - 5.79 - -
Lender Flt 1yr 2yr 3yr
Co-operative Bank - Owner Occ 7.65 5.99 5.75 5.69
Co-operative Bank - Standard 7.65 6.49 6.25 6.19
Credit Union Auckland 7.70 - - -
First Credit Union Special - 6.40 6.10 -
First Credit Union Standard 8.50 7.00 6.70 -
Heartland Bank - Online 7.49 ▼5.65 ▼5.55 ▼5.55
Heartland Bank - Reverse Mortgage - - - -
Heretaunga Building Society 8.90 7.00 6.50 -
ICBC 7.49 5.99 5.65 5.59
Kainga Ora 8.39 7.05 6.59 6.49
Kainga Ora - First Home Buyer Special - - - -
Lender Flt 1yr 2yr 3yr
Kiwibank 7.75 6.89 6.59 6.49
Kiwibank - Offset 8.25 - - -
Kiwibank Special 7.75 5.99 5.69 5.69
Liberty 8.59 8.69 8.79 8.94
Nelson Building Society 8.44 ▼6.39 ▼6.09 -
Pepper Money Advantage 10.49 - - -
Pepper Money Easy 8.69 - - -
Pepper Money Essential 8.29 - - -
SBS Bank 7.99 6.95 6.29 6.29
SBS Bank Special - ▼6.15 5.69 5.69
SBS Construction lending for FHB - - - -
Lender Flt 1yr 2yr 3yr
SBS FirstHome Combo 5.44 ▼5.15 - -
SBS FirstHome Combo - - - -
SBS Unwind reverse equity 9.75 - - -
TSB Bank 8.69 6.79 6.49 6.49
TSB Special 7.89 5.99 5.69 5.69
Unity ▼7.64 5.99 5.69 -
Unity First Home Buyer special - 5.49 - -
Wairarapa Building Society 8.50 ▼6.19 ▼5.79 -
Westpac 8.39 6.89 6.39 6.39
Westpac Choices Everyday 8.49 - - -
Westpac Offset 8.39 - - -
Lender Flt 1yr 2yr 3yr
Westpac Special - 6.29 5.79 5.79
Median 7.99 6.17 5.79 5.69

Last updated: 30 October 2024 9:36am

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