Investing.com -- Fitch Ratings has amended the outlook for Helia Insurance Pty Limited (HIPL), a subsidiary of Helia Group Limited (HLI), from Stable to Negative. However, the Insurer Financial Strength (IFS) rating of the company remains affirmed at ’A’ (Strong). The revision of the outlook is a response to increased pressure on HLI’s competitive standing in the lenders’ mortgage insurance (LMI) market and its earnings, following the announcement that its primary lender customer may not renew its contract.

On March 24, 2025, HLI disclosed that its key lender customer, Commonwealth Bank of Australia (OTC: CMWAY ) (CBA, AA-/Stable), which constituted 44% of the gross written premium (GWP) in 2024, has initiated exclusive discussions with an alternate provider for LMI services. There is a reasonable chance that the current supply and service agreement between HLI and CBA will not be extended beyond its existing expiration date of December 31, 2025.

Fitch has also downgraded HLI’s company profile ranking to ’Moderate’ from ’Favourable’, considering the potential loss of the CBA contract could lead to a significant decline in new business volume. Without the CBA contract, HLI’s GWP market share, which stood at 38% in 2024, is estimated to fall to 21%.

The potential loss of CBA business will not immediately impact HLI’s insurance revenue due to the long-term nature of the contracts, typically spanning over 15 years, and the continued earnings from premiums written in previous years. HLI, being the largest LMI provider by in-force business, accounts for 50% of the industry’s liability for remaining coverage ( LRC ).

Despite the potential loss of the CBA business, HLI’s capitalisation is expected to remain ’Very Strong’ in the medium term. The company’s coverage of the regulatory prescribed capital amount (PCA) has been high, and it is projected to have a larger excess capital position as the CBA business winds down. However, HLI’s expense ratio is likely to increase as revenue declines.

Fitch may downgrade the rating if HLI’s company profile continues to deteriorate, including weaker competitive positioning and failure to renew contracts with key mortgage lenders. Other factors that could lead to a downgrade include sustained underwriting profitability and overall financial performance, with a return on equity (ROE) below 8% for an extended period, a PCA coverage ratio falling below 1.50x, and severe deterioration in the operating environment due to rising unemployment and other economic factors.

On the other hand, Fitch may affirm the rating at the current level if HLI’s company profile stabilises. This could be indicated by stability in business volume (after accounting for the potential loss of the CBA contract and industry-wide trends) and maintenance of existing key lender customer relationships.

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