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20. Mortgage Insurance Scheme claim liability
|
Group |
Parent |
Group |
Parent | |
|
2008 |
2007 |
2008 |
2007 | |
| Mortgage Insurance Scheme claim liability | 11 | 9 | 11 | 9 |
HNZC provides mortgage insurance to 11 commercial lenders. The insurance premium is currently set at 3% of the loan value, of which 1% is paid by the borrower and 2% by the Government.
The Mortgage Insurance Scheme is assessed six-monthly by an independent actuary to ensure the provision for claims is based on the best estimate of the present value of future claims. The present value of the estimated future claims is invested in short-term bank securities in accordance with approved HNZC treasury policies.
Cases that are under management are reviewed closely and regularly by both the lender and by the HNZC credit team. There is no reinsurance for the Mortgage Insurance Scheme.
The actuarial assessment of provision for Mortgage Insurance Scheme claims was made on 30 June 2008 by John Melville and Janet Lockett, both Fellows of the New Zealand Society of Actuaries. The assessment reports comply with professional standards applicable to actuarial reports on technical liabilities for general insurance operation and requirements of NZ IFRS 4 Insurance Contracts. The actuaries have expressed their satisfaction as to the nature, sufficiency and accuracy of the data used to determine the outstanding claims provisions.
Key assumptions made as part of this review related to the nature of the borrowers and the future patterns of loan repayments and defaults under the Mortgage Insurance Scheme. The discount rate used in the calculation of the provision for Mortgage Insurance Scheme claims was 4.5% (2007, 4.5%). The equity of the Parent $3,835 million (2007, $3,767 million) is considered sufficient to meet the future claim liabilities of the scheme.
The probability of sufficiency and risk margin used is 75%.
The Corporation works closely with the lending organisations to proactively manage mortgage holders with the intention to minimise mortgage failure and subsequent insurance claims by the lending institutions.
The insured underlying loans have a maturity period of 0 to 30 years. Cash flows maturing are expected to fall mainly in the first six years of the insured loans, however there is a degree of uncertainty as to the exact timing.
At the present time there is relatively little sensitivity of profit or loss and equity to changes in the variables associated with the actuarial assessment of the mortgage insurance provision due to the low value of the insured mortgages.
The Parent, which manages the Mortgage Insurance Scheme, has a long-term credit rating of AAA from credit rating agency Standard & Poor's.
