Genworth Could End Up With No Major Bank Customers, but It's Not Our Base Case

At this stage we assume Genworth will extend its agreement to provide lender mortgage insurance, or LMI, to Commonwealth Bank beyond 2022. This is a crucial contract for Genworth, with premiums written on Commonwealth Bank loans accounting for 57% of premiums in fiscal 2020, which we estimate rises to around 65% in fiscal 2022. The power imbalance between wide-moat Commonwealth Bank and Genworth had already been factored into our forecasts, with the high customer concentration risk contributing to our very high uncertainty and no moat ratings. Genworth currently has a three-year exclusivity agreement with Commonwealth Bank, which ends on Dec. 31, 2022. Contract negotiations are normal, but Commonwealth Bank does not ordinarily issue a request for proposal as it intends to do this time. We suspect the entrance of Arch Capital into the Australian market may have encouraged the bank to review its current LMI solution.