Arch Lenders Mortgage Indemnity Ltd (Arch Indemnity) is well-positioned to capitalise on growth opportunities despite current pressures in Australia’s mortgage insurance market, with strong capitalisation and strategic backing from its parent company, Arch Capital Group Ltd. (ACGL).
Fitch Ratings made the comments on 3 November 2024, assigning Arch Indemnity a first-time Insurer Financial Strength (IFS) rating of ‘A+’ with a stable outlook. The rating benefits from a two-notch uplift, underscoring the substantial support Arch Indemnity receives from ACGL. The parent’s integration of Arch Indemnity into its human resources, risk management, and technology processes has bolstered the insurer’s operational capabilities, helping to drive stable growth in a dynamic market.
Arch Indemnity’s strong capital position has been a key enabler of its strategic progress. Fitch’s report noted its ‘Very Strong’ capitalisation, with a regulatory capital coverage (PCA) of 2.70x by June 2024, an increase from 2.45x at the end of 2023, achieved through reduced insurance risk charges and a seasoned portfolio. “We expect the ratio to remain above management’s internal target range of 1.60x-1.80x in the near term,” Fitch stated, highlighting the insurer’s prudent financial structure, which includes no debt.
The insurer’s ‘Moderate’ company profile reflects its standing in Australia’s LMI sector, holding a 32% share of gross written premiums (GWP) as of June 2023, ranking as the second-largest provider. Fitch also noted that, while Westpac Banking Corporation remains a primary client, recent expansions to include two additional lenders since 2021 demonstrate Arch Indemnity’s commitment to diversifying its customer base. According to the ratings agency, this strategy may yield positive long-term growth.
In terms of performance, Arch Indemnity has sustained a solid track record, benefiting from low delinquency rates and a strong refinancing environment, which has contributed to its underwriting success. While the ratings agency expects underwriting performance to normalise over the medium term due to anticipated interest rate increases, Fitch remains confident in Arch Indemnity’s capacity to manage these shifts. Australia’s stable employment levels and recent house price growth provide additional support for its underwriting portfolio, mitigating risks associated with rising delinquencies.
Although broader market trends, such as slower growth in high loan-to-value mortgages, have contributed to a 28% contraction in GWP as of June 2023, Arch Indemnity’s solid capital base and close alignment with ACGL provide it with the stability and resources to pursue further expansion.
