Fitch Ratings has revised the outlook for Helia Insurance Pty Ltd, the primary operating entity of Helia Group Ltd, to “Negative” from “Stable” while affirming its “A” Insurer Financial Strength Rating.
The revision reflects uncertainty surrounding the company’s future earnings and market share following the potential loss of a major client.
The shift in outlook was triggered by Helia’s disclosure that Commonwealth Bank of Australia (CBA), its largest lender client, has entered exclusive talks with another provider for lenders mortgage insurance (LMI) services.
CBA accounted for 44% of Helia’s gross written premium (GWP) in 2024, according to the insurer’s filings.
Fitch noted that the existing arrangement with CBA is due to expire on Dec. 31, and there is a high probability the contract will not be renewed. As a result, Fitch has revised Helia’s company profile rating from “Favourable” to “Moderate,” citing the expected decline in new business volume and potential challenges in retaining other lender relationships.
Based on internal estimates, the insurer’s market share in GWP could fall from 38% to 21% on a pro forma basis if the CBA contract is lost. However, due to the long-term structure of LMI contracts – typically extending up to 15 years – revenue impacts are expected to emerge gradually.
The company continues to earn premiums written in previous years and remains the largest LMI provider in Australia by in-force business, accounting for half of the industry’s remaining coverage liabilities.
Helia Group Ltd recently released its full-year financial results for the 12 months ending Dec. 31, 2024 (FY24), reporting a 16% drop in statutory net profit after tax to $231.5 million. Underlying profit also declined 11% to $220.9 million. The company attributed the discrepancy to unrealised investment gains.
Helia increased its GWP by 6% year-on-year to $195.6 million, buoyed by higher loan volumes with loan-to-value ratios above 80% and a temporary gain in market share. However, insurance revenue fell 9% to $389.2 million, reflecting past GWP trends and premium experience adjustments.
The insurance service result declined 19% to $291.9 million, while the financial result dropped 7% on the back of weaker investment returns. Helia reported a net investment yield of 4.9%, slightly lower than the previous year.
Despite these developments, Fitch noted that Helia’s capital adequacy remains strong. At the end of 2024, the company held a prescribed capital amount (PCA) coverage ratio of 2.1x, well above regulatory requirements.
However, profitability is likely to come under pressure due to a reduction in revenue and potentially rising expense ratios. Fitch stated that a sustained return on equity below 8% or a PCA ratio falling below 1.5x could result in a further downgrade.
