Australia’s mortgage insurance sector developed, transparent: Fitch Ratings
Sector faces growing challenges due to the gov’t’s first-home buyer deposit scheme.
Fitch Ratings has assessed the regulatory environment for Australian mortgage insurers as developed and transparent, with effective enforcement.
Lenders’ mortgage insurance (LMI) providers are governed by the Insurance Act 1973 and regulated by the Australian Prudential Regulation Authority (APRA), with consumer protection overseen by the Australian Securities and Investments Commission (ASIC).
APRA uses a risk-based approach to capital adequacy, consistently reviewing insurers' capital and management processes to maintain sector confidence.
Australia’s mortgage insurance market is technically sophisticated but lacks diversity, being highly exposed to fluctuations in house prices, unemployment, and interest rates. Insurers do achieve some diversification by geography and book year.
LMI products target residential mortgage loans with high loan-to-value ratios (LVR), with variations based on employment status and first-home buyer status. Channels include flow LMI, for individually assessed loans, and portfolio LMI, for aggregated previously originated mortgages.
The competitive profile of the sector is increasingly challenging due to the government’s first-home buyer deposit scheme expansion and the entry of a new independent LMI provider in 2019, intensifying competition.