NMI Holdings Inc

Good afternoon and welcome to the NMI Holdings, Inc. Third Quarter 2025 Earnings Conference Call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on your telephone keypad. To withdraw your question, please press star, then two. Please note, this event is being recorded. I would now like to turn the conference over to John Swenson of Management. Please go ahead.

Thank you, Gary. Good afternoon, and welcome to the 2025 Third Quarter Conference Call for National MI. I'm John Swenson, Vice President of Investor Relations and Treasury. Joining us on the call today are Brad Schuster, Executive Chairman, Adam Pollitzer, President and Chief Executive Officer, and Aurora Swithin Bank, our Chief Financial Officer. Financial results for the quarter were released after the close today. Press release may be accessed on NMI's website located at nationalmi.com under the Investors tab. During the course of this call, we may make comments about our expectations for the future. Actual results could differ materially from those contained in these forward-looking statements. Additional information about the factors that could cause actual results or trends to differ materially from those discussed on the call can be found on our website or through our filings with the SEC. If and to the extent the company makes forward-looking statements, we do not undertake any obligation to update those statements in the future in light of subsequent developments. Further, no one should rely on the fact that the guidance of such statements is current at any time other than the time of this call. Also note that on this call, we may refer to certain non-GAAP measures. In today's press release and on our website, we provided a reconciliation of these measures to the most comparable measures under GAAP. Now I'll turn the call over to Brad.

Thank you, John, and good afternoon, everyone. I'm pleased to report that in the third quarter, National MI again delivered standout operating performance, continued growth in our insured portfolio, and strong financial results. Our lenders and their borrowers continued to turn to us for critical down payment support, and in the third quarter, we generated $13 billion of NIW volume, ending the period with a record $218.4 billion of high-quality, high-performing primary insurance and force. In Washington, our conversations remain active and constructive, and there continues to be broad recognition in D.C. of the unique and valuable role that the private mortgage insurance industry plays, offering borrowers low-cost down payment support and access to mortgage credit while also placing private capital in front of the taxpayer to absorb risk and loss in a downturn. and ultimately ensure the safety and soundness of the conventional mortgage market. National MI and the broader private mortgage insurance industry have never been stronger or better positioned to provide this critical down payment support than we are today. And we're excited to continue working with Director Pulte, other members of the administration, and the leadership teams of Fannie and Freddie to advance their important goal of helping more Americans than ever unlock the dream of home ownership. With that, let me turn it over to Adam.

Thank you, Brad, and good afternoon, everyone. National MI continued to outperform in the third quarter, delivering significant new business production, consistent growth in our insured portfolio, and strong financial results. We generated $13 billion of NIW volume, and ended the period with a record $218.4 billion of high-quality, high-performing primary insurance in force. Total revenue in the third quarter was a record $178.7 million, and we delivered gap net income of $96 million, or $1.22 per diluted share, and a 15.6% return on equity. Overall, we had a terrific quarter and are confident as we look ahead. The macro environment and housing market have remained resilient through an extended period of headline volatility. Our lender customers and their borrowers continue to rely on us in size for critical down payment support, and we see an attractive and sustained new business opportunity fueled by long-term secular trends and furthered by the recent improvement in mortgage rates. We have an exceptionally high-quality insured portfolio covered by a comprehensive set of risk transfer solutions, and our credit performance continues to stand ahead. We're delivering consistent growth and embedded value gains in our insured book, and we continue to manage our expenses and capital position with discipline and efficiency, building a robust balance sheet that's supported by the significant earnings power of our platform. Taken together, we see a clear opportunity for continued outperformance. Notwithstanding these strong positives, however, macro risks do remain, and we've maintained a proactive stance with respect to our pricing, risk selection, and reinsurance decisioning. It's an approach that has served us well and continues to be the prudent and appropriate course. More broadly, we remain encouraged by the continued discipline that we see across the private MI market. Overall, we had a terrific quarter, delivering strong operating performance, consistent growth in our insured portfolio, and strong financial results. We're in the market every day with a clear mandate and purpose, offering a low-cost, high-value solution that helps borrowers bridge the down payment gap and meaningfully reduces the cash required at the closing table. In the process, we helped to make homeownership more affordable and achievable for millions of Americans in communities across the country with coverage that works to insulate the GSEs and taxpayers from risk and loss in a downturn. Looking ahead, we're well positioned to continue to serve our customers and their borrowers, invest in our employees and their success, drive growth in our high-quality insured portfolio, and deliver through the cycle growth, returns, and value for our shareholders. With that, I'll turn it over to Aurora.

Thank you, Adam. We again delivered standout financial results in the third quarter. Total revenue was a record $178.7 million. Gap net income was $96 million, or $1.22 per diluted share, and return on equity was 15.6%. We generated $13 billion of NIW, and our primary insurance and force grew to $218.4 billion, up 2% from the end of the second quarter, and 5% compared to the third quarter of 2024. Twelve-month persistency was 83.9% in the third quarter compared to 84.1% in the second quarter. Net premiums earned in the third quarter were a record $151.3 million compared to $149.1 million in the second quarter and $143.3 million in the third quarter of 2024. Net yield for the quarter was 28 basis points consistent with the second quarter. Core yield, which excludes the cost of our reinsurance coverage and the contribution from cancellation earnings, was 34.2 basis points, also unchanged from the second quarter. Investment income was $26.8 million in the third quarter compared to $24.9 million in the second quarter and $22.5 million in the third quarter of 2024. Total revenue was a record $178.7 million in the third quarter compared to $173.8 million in the second quarter and $166.1 million in the third quarter of 2024. Underwriting and operating expenses were $29.2 million in the third quarter compared to $29.5 million in the second quarter. Our expense ratio was a record low, 19.3% in the quarter, highlighting the significant operating leverage embedded in our business and the success we have achieved in efficiently managing our cost base. We have a uniquely high-quality insured portfolio, and our credit performance continues to stand out. We had 7,093 defaults at September 30th compared to 6,709 at June 30th, and our default rate was 1.05% at quarter end. Claims expense in the third quarter was 18.6 million compared to 13.4 million in the second quarter, reflecting normal seasonal activity and the continued growth and seasoning of our portfolio. Gap net income for the quarter was 96 million, and diluted earnings per share was $1.22. Adjusted net income was 95.7 million, and adjusted diluted EPS was $1.21. Total cash and investments were $3.1 billion at quarter end, including $148 million of cash and investments at the holding company. Shareholders' equity at September 30th was $2.5 billion, and book value per share was $32.62. Book value per share, excluding the impact of net unrealized gains and losses in the investment portfolio, was $33.32. up 4% compared to the second quarter, and 16% compared to the third quarter of last year. In the third quarter, we repurchased $24.6 million of common stock, retiring 628,000 shares at an average price of $39.13. Through quarter end, we've repurchased a total of $319 million of common stock, retiring 11.3 million shares at an average price of $28.25. We have $256 million of repurchase capacity remaining under our existing program. At quarter end, we reported $3.4 billion of total available assets under PMIRs and $2 billion of risk-based required assets. Excess available assets were $1.4 billion. Overall, we achieved standout financial results during the quarter, delivering consistent growth in our high-quality insured portfolio, record top-line performance and expense efficiency, and strong bottom-line profitability in return. With that, let me turn it back to Adam.

Thank you, Aurora. We had a terrific quarter, once again delivering significant new business production, consistent growth in our high-quality insured portfolio, and standout financial results. We have a strong customer franchise, a talented team driving us forward every day, an exceptionally high quality book covered by a comprehensive set of risk transfer solutions, and a robust balance sheet supported by the significant earnings power of our platform. Taken together, we are well positioned to continue to serve our customers and their borrowers, invest in our employees and their success, drive growth in our high quality insured portfolio, and deliver through the cycle growth, returns, and value for our shareholders. Thank you for joining us today. I'll now ask the operator to come back on so we can take your questions.

We will now begin the question and answer session. To ask a question, you may press star then 1 on your telephone keypad. If you are using a speakerphone, please pick up your handset before pressing the keys. To withdraw your question, please press star then 2. At this time, we will pause momentarily to assemble our roster.

Our first question today is from Terry Ma with Barclays.

Please go ahead.

Hey, thank you. Good evening. Just wanted to start off with credit. As I look at new defaults in the quarter, it was up only about 5% year-over-year. That's a noticeable step down from the pace of year-over-year increases that you've seen in the last 10 quarters. So maybe just any color on what happened in the quarter. And as we look forward, How should we expect kind of new defaults to kind of emerge, like when we factor in kind of seasoning and everything? Thank you.

Yeah, Terry, it's a good question. Look, I'd say broadly speaking, we're still greatly encouraged by the performance of our portfolio overall, including the trends, obviously, in the default population. The you know, the impact of seasonality coming through this year was a bit more muted, which is encouraging. I think we traced that to a few things, right? We've got broad resiliency that we've seen in the macro environment, and so that continues to set a favorable backdrop. We have an incredibly high-quality insured book, and our existing borrowers, broadly speaking, remain well-situated, and we're seeing that continue to translate through to our credit experience. The increase in our default experience that you noted Some amount of that traces to seasonality, right? We tend to see a seasonal uptick in default experience as we roll through the second half of the year. And some portion of it traces to what we've talked about for a while now, the seasoning, just the natural growth and seasoning of our book. As we look forward, we do expect that Seasonality will continue to come through, and so we'll see an additional impact seasonally in Q4. And we do also expect that as we roll forward over the longer term, we'll continue to see that normalization in our credit experience. But overall, we're delighted with how our portfolio is performing. It's exceptionally high quality, and we're encouraged by the trends that we saw in the third quarter and really year to date.

Got it. That's helpful. And then maybe just any color on the competitive environment. There has been some rumblings about a potential new entrant. So any color on how to think about how the dynamic may or may not change if there was a new entrant into the MI market? Thank you.

Yeah. I'd say, look, it's not necessarily new. I think there's been periodic chatter about new market entrants over the years, and we're aware of the latest effort that's out there. But I'd say we, perhaps more than anybody else, know the challenges and difficulties that come with building a private MI business. It is not easy at all. It's really hard to raise the capital. It's really hard to build an MI-specific operating platform. It's really hard to hire the right team to sign up customers, earn their trust. you know, and also manage through an extended J curve to get to a point of profitability. And when we look at things, say, today versus when we got our start back in 2011, the market's at a very different point today. And so today, there is no clear need in the market, right? At this point, the six incumbent MI players are all serving the market incredibly well we're showing up every day for lenders and their borrowers we've got ample capacity to support their origination volume we've got their trust we're offering i think broadly speaking fair and valuable solutions for every borrower that comes through our market and so it's difficult to know obviously exactly where things land uh we don't know what will happen with uh with the latest uh rumors but so you say it's a very high bar right it takes a lot of capital a very large amount of capital to fund a pmirs compliant uh business and you know if we were controlling purse strings and thinking about making an investment in a new entrant ourselves i'd say we'd be highly skeptical that now was the right time to do that given all the challenges that we would see for anybody who came into the market today and that's not because the market itself is challenged it's because the market is doing so well and the six companies that are there today are performing so well so we'll see you know we'll see ultimately if uh if somebody new came in you know everybody you know the market will adapt around it um but i think going from discussions to actually having a a fully funded capitalized approved entity that's a pretty wide gulf

Got it. Super helpful. Thank you.

The next question is from Bose George with KBW. Please go ahead.

Good afternoon. Can you give us an update on what you're seeing in terms of the strength of the consumer? Also, just any housing markets that you're keeping an eye on where, you know, in terms of home prices or other, you know, signs of potential weakness? Thanks.

Sure. Yeah, good question. I'd say broadly speaking, I noted in our prepared remarks, but we've been encouraged by the broad resiliency that we're seeing in the economy and the housing market for a while now. Headline unemployment remains low. Inflation's cooled. Consumers, broadly speaking, are still spending. Businesses are continuing to make significant investments. The equity market you know is uh is uh continuing to set new highs and so you know the overall picture today is is uh is an encouraging one um but for us obviously it's not just about today it's also what comes tomorrow and so we always think about risks that might be on the horizon and so you know when we parse through the data i think we can all see it on the macro side there are signs in the labor market of some degree of strain emerging we're not seeing unemployment increase, and we don't have government data for the last little while, but there are certain private data points that we can look at. So we don't see unemployment increasing, but certainly the pace of new hiring activity has slowed. I think consumer confidence is down, particularly amongst certain borrower cohorts. And there's broad talks of, I think we're terming it a K-shaped recovery. So we'll see. What I'd say from our vantage point, it's still a really encouraging and resilient backdrop, both macro and housing market, but we're always focused on what might come. And then, Boaz, I think you asked a question about geos. Yeah. Yeah. You know, we've talked for a while now that there are certain geographies, Florida, Texas, the Sunbelt Mountain West, where we're seeing some either a declining pace of house price appreciation or a turn in prices with inventory building. And that's still the case. Those same markets, there's nothing new. The pressure isn't new. But we're still seeing when we look at the world, you know, those markets that have been soft for a little while now continue to show signs of that they're soft. And we see continued strength, though, in, you know, the Northeast and the Midwest.

Okay, great. That's helpful. Thanks. And then, actually, just in terms of the reinsurance markets, can you just talk about, you know, what you're seeing there? Also, just, you know, I guess you guys are more active on the XOL side, just, you know, in terms of execution, like, you know, why there versus more on the ILM side. Thanks.

Sure. In terms of what we're seeing in the reinsurance markets, reinsurance markets remain very robust, and we look at the pricing achieved by some of our competitors in the marketplace year to date. It's the best pricing that's ever been achieved. If we wind the clock back to 2024, we placed full XOL and quota share coverage for 2025, 2026, and a portion of the 2027 year with respect to the quota share. So we have a really nice runway in terms of our locked-in capacity in the traditional reinsurance market. So you may recall that in the third and fourth quarter of the year, the back part of the year, we typically engage with our reinsurance partners and talk about the opportunity to lock in further coverage for forward years or to optimize the coverage that we have in place. And so you may imagine we're engaged in those discussions currently. But again, it's a very strong reinsurance market backdrop leading into those conversations. And with regards to ILN versus XOL, we like both of those markets. Both of them have been very good sources of capital for us as a company. Recently, we have been more biased towards the traditional reinsurance markets. in particular because it offers that forward coverage, which isn't available in the debt capital markets. And so that's been our recent preference, just from a cost, flexibility, and speed of execution perspective. But we like both of those markets, and I think you should expect us in the fullness of time to be active across all different markets.

Okay, great. Thank you.

The next question is from Mark Hughes with Truist. Please go ahead.

Yeah, thank you very much. The core yield has been holding pretty steady at 34 basis points. Is that a good run right here? What moves that one way or the other in kind of near to medium term?

Sure, I'm happy to start out here. It has been very stable, and that's obviously been supported by the tremendous persistency that we've had in the book and continue to have in the third quarter. So, again, we don't give forward guidance, but given the strength of the in-force book, we would expect that plus minus, that kind of number for The core yield will be good. Obviously, the net yield is influenced by claims expense in the quarter and how that runs through our reinsurance contracts.

And then Andy talked about the impact on persistency. If we do see interest rates drop, that would be great from a new business perspective. A lot of purchase activity would ramp up, presumably. but you get a lot of refi. How would you see the puts and takes if you get a refi market and then if you can get multiple rounds of it, given where recent borrowers have been borrowing at?

Yeah. So I think, as you termed it, there's both puts and takes. Our persistency was 83.9 in the third quarter. And as it were noted, again, helped to drive continued growth and embedded value gains in our insured portfolio. Overall, our portfolio is broadly well situated because we've got a 5.2% weighted average note rate underpinning our exposure at quarter end. But it's not even, obviously, across the entirety of our book. There are vintages, parts of our in-force that have greater degrees of refi sensitivity and where we will likely see an uptick in some prepayment speeds given the recent moves in rates. That's going to be natural, right? So that's the put. The take, as you noted, though, is one, some portion of the borrowers in our portfolio who will benefit from a refinancing today are very likely to still need MI coverage because while HPA has generally trended higher, it's trended higher at a normal, not record pace. And so there's an opportunity to see penetration of refinancing origination activity grow if there were, you know, if we saw an uptick in overall refi activity. As you noted, if rates lay down to the point where we see a more pronounced pressure on persistency, we'd also expect to see a benefit in new business activity, NIW volume, bringing prospective buyers' purchase demand off the sidelines. And the one other one to note is there's a potential knock-on benefit from a credit experience standpoint to a refinancing cycle, right? If we see refinancings accelerate, it's most likely just because of where the underlying note rates are that that will come from our more recent vintages. And those are the vintages that we're looking at for that normalizing credit experience. If those vintages begin to turn over, it'll extend that normalization cycle from a credit performance standpoint.

Appreciate that. And then were there any one-timers in the expense ratio? It's obviously, as you say, a record number. Anything non-recurring there, or is that a good run rate?

I'd say with regard to the expense ratio, there was nothing in particular that I'd point out in the quarter. And if you look at the raw dollars, it's within a couple hundred thousand dollars of what we spent last quarter. And so there were a few positives and negatives, but again, nothing of note. I would say if you're looking forward, typically the second and third quarter are lightest in terms of expenses, and the fourth and then the first quarter tend to be heavier just in terms of both dollars of expense and also the ratio goes up during those quarters. And in the fourth quarter, that typically results from the accrual of some of our people-related expenses. So that's the only thing that I would note with regard to the fourth quarter.

Appreciate it. Thank you.

The next question is from Rick Shane with JP Morgan. Please go ahead.

Hey, this is AJ on for Rick. So if rates fall and refis do start to take up, is there anything kind of proactive you can do to recapture MI on more of those loans? Could you maybe just walk through your playbook, sharing your early experience you've had there?

Yeah. So I'd say on the margin, there are things that you might try to do. But more broadly, the most important piece of the playbook is to be everywhere in the market and be offering valuable solutions for our customers to be plugged in with as many lenders as possible and so that we could serve their borrowers. We've noted for a while that one of the unique attributes that we have to our benefit is that our share of the new business environment is larger than our share of industry insurance and force. So to the extent that there is some amount of industry insurance in force that's in motion because it's refinancing but still needs MI coverage, we have an opportunity, we think, to capture a little bit more of that than we will necessarily lose. And so that's not a strategy per se. It's just where the numbers are. But the real strategy behind it is make sure that we are connected to our customers, that we're offering them valuable solutions, that we're present for their borrowers across all markets so that that business that is potentially in motion is business that we can capture.

Thank you.

This concludes our question and answer session. I would like to turn the conference back over to management for any closing remarks.

Thank you again for joining us. We look forward to speaking with you again soon.

The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.