NMI Holdings, Inc. Q3 FY2024 earnings call

Brad's Remarks - Pleased to report strong operating performance in Q3, continued growth in insured portfolio and record financial results. Lenders and borrowers turn to them for down payment support. Generated $12.2 billion of NIW volume, ended with $207.5 billion in force. Convoys in Washington are active and constructive, recognizing the value of private mortgage insurance industry. ### Adam's Remarks - Third quarter outperformance with significant new business production, consistent growth in insured portfolio and record financial results. Macro environment and housing market resilient. Lender customers and borrowers rely on them for down payment support. High-quality insured portfolio with comprehensive risk transfer solutions. Managed expenses and capital position with discipline. Maintained proactive stance on pricing, risk selection and reinsurance decisioning. Secured new reinsurance treaties in October. Encouraged by discipline in private MI market. ### Aurora's Remarks - Achieved record financial results in Q3. NIW volume $12.2 billion, primary insurance in force grew. Total revenue, net premiums earned, investment income reported. Expenses, default rate, claims expense, interest expense discussed. Financial position detailed, including S&P upgrade, shareholders' equity, book value per share. Repurchased common stock. Entered into new reinsurance treaties in October.

In the third quarter, National MI generated $12.2 billion of NIW volume and ended the period with a record $207.5 billion of high-quality, high-performing insurance in force. Total revenue was a record $166.1 million. GAAP net income was $92.8 million or $1.15 per diluted share, and return on equity was 17.5%. Net premiums earned in the third quarter were a record $143.3 million. Investment income was $22.5 million. Underwriting and operating expenses were $29.2 million with an expense ratio of 20.3%. Default rate was 87 basis points at quarter end. Claims expense in the third quarter was $10.3 million. Interest expense was $7.1 million. GAAP net income was up 1% from the second quarter and 11% from the third quarter of 2023. Diluted EPS was $1.15, up 1% from the second quarter and 14% from the third quarter of 2023. Total cash and investments were $2.8 billion at quarter end, with $425 million of outstanding senior notes and a $250 million undrawn revolving credit facility. Shareholders’ equity was $2.2 billion and book value per share was $27.67.

- Management expects that the new business opportunity in the MI market will be similar in 2024 with industry NIW volume pacing to be around $285 billion plus/minus. ### - Also expects a similarly attractive environment in 2025, though noting that things could shift depending on rate developments and macro environment.

- Macro risks do remain, and the company has maintained a proactive stance with respect to pricing, risk selection and reinsurance decisioning.

Q: Terry Ma asked about credit and targeted changes by risk cohort.

A: Adam Pollitzer responded that credit performance is encouraged by housing market resiliency and high-quality book. Default count increase is due to seasonal trends and growth/seasoning of portfolio. Regarding risk cohort changes, they monitor market and risk environment, refining where they are in Rate GPS based on local market differences like in Florida and Texas.

Q: Bose George asked about mark-to-market LTV on delinquent portfolio and claims paid.

A: Aurora Swithenbank said mark-to-market on defaulted portfolio is roughly 73%. Adam Pollitzer noted reserves are established based on ultimate claim exposure, but can't tell where actual claim payments will trend.

Q: Doug Harter asked about competitive dynamic for NIW and pricing.

A: Adam Pollitzer said industry pricing is generally stable and rational, with discipline in the market. Movements are due to natural fluctuation in customer business and individual company decisioning.

Q: Unidentified Analyst asked about expense trend and persistency.

A: Aurora Swithenbank said expense ratio was 20.3% in Q3, with no specific near-term investments altering the picture. Adam Pollitzer said persistency remains above historical trends, with some natural trending off, and rate volatility had little impact.

Q: Maxwell Fritscher asked about mortgage activity trend in 4Q.

A: Adam Pollitzer said generally, the market has a strong opportunity developing into next year, with 2024 MI industry NIW volume pacing to be around $285 billion plus/minus.

Q: Geoffrey Dunn asked about profit commission threshold and reserves.

A: Aurora Swithenbank said profit commission on quota shares is up to 62% for 2025 treaty, etc. Adam Pollitzer said no fundamental shifts in reserves, with default population attributes similar, and anchoring to downside forecast.

Q: Rick Shane asked about default formation timeline.

A: Adam Pollitzer said peak loss incurrence for a vintage occurs roughly between years three and six after origination, with performance depending on borrower, book risk profile, and environment. Also mentioned '22 and '23 books are high quality with similar risk characteristics.