OREANDA-NEWS. The Insurer Financial Strength (IFS) Rating for Australian-based Genworth Mortgage Insurance Australia Ltd's (GMA) operating subsidiary, Genworth Financial Mortgage Insurance Pty Limited (A+/Stable) is unaffected by GMA's planned capital reduction, says Fitch Ratings.

GMA's proposed AUD202m capital reduction would result in a coverage ratio of its prescribed capital amount of 1.46x, on a pro-forma basis at end-2015. This is slightly above its target range of 1.32x-1.44x and remains comfortably above Fitch's negative rating sensitivity of 1.30x.

Solid earnings have historically provided the capital to support the company's growth requirements. However, declining premium volumes mean future capital requirements are likely to be lower. The company's probable maximum loss declined 3% in 2015. This forms part of the lenders mortgage insurance concentration risk charge and is the largest component of the regulatory capital requirement. This risk charge component contributed 82% of GMA's prescribed capital amount at end-2015.

Fitch expects solid underwriting performance and declining premiums to continue generating surplus capital, and for GMA to maintain coverage of its prescribed capital amount towards the higher end of its target range.

GMA is also considering putting an ordinary resolution to shareholders to allow the company to buy back up to 150 million ordinary shares over 12 months from May 2016. GMA is proposing combined initiatives totalling AUD250m, although if adopted, the proposals would provide flexibility to go higher.