NMI Holdings, Inc. (NMIH) is a leading provider of private mortgage insurance (MI) in the United States. The company, headquartered in Emeryville, California, was incorporated in 2011 and began operations in 2012, writing its first MI policy in 2013. Over the past decade, NMI Holdings has established itself as a premier player in the private MI market, delivering consistent growth, strong financial performance, and exceptional returns for its shareholders.

Business Overview

NMI Holdings operates through its primary insurance subsidiary, National Mortgage Insurance Corporation (NMIC), which is licensed to write mortgage insurance in all 50 states and the District of Columbia. The company's core business is providing private MI, which protects lenders and investors from default-related losses on a portion of the unpaid principal balance of covered mortgages. MI plays a critical role in the U.S. housing market by facilitating the secondary market sale of high loan-to-value (LTV) residential loans to the government-sponsored enterprises (GSEs), Fannie Mae and Freddie Mac.

NMI Holdings has built a diverse customer base, partnering with 1,984 mortgage lenders, including national and regional banks, credit unions, and non-bank lenders. The company's focus on long-term customer relationships, disciplined risk selection and pricing, responsive customer service, and financial strength has enabled it to consistently grow its insured portfolio and maintain a high-quality book of business.

Financials

NMI Holdings has delivered exceptional financial results, showcasing its ability to capitalize on the growing demand for private MI. In the fiscal year 2023, the company reported annual net income of $322.11 million, annual revenue of $579.00 million, annual operating cash flow of $342.68 million, and annual free cash flow of $333.31 million.

The company's strong financial performance has continued into 2024, with the first quarter delivering record results. In Q1 2024, NMI Holdings reported net income of $89.05 million, a 19.6% increase compared to the same period in 2023. Total revenue for the quarter reached a record $156.25 million, up 14.2% year-over-year, driven by growth in net premiums earned and investment income.

Operational Highlights

NMI Holdings' operational performance has been equally impressive. In the first quarter of 2024, the company generated $9.40 billion in new insurance written (NIW), a year-over-year increase of 8%. This robust new business production, combined with strong persistency rates, has led to a record $199.37 billion in primary insurance-in-force (IIF) as of March 31, 2024, up 6.8% from the same period in 2023.

The company's disciplined approach to risk selection and pricing has resulted in a high-quality insured portfolio. As of March 31, 2024, the average FICO score of NMI Holdings' primary IIF was 757, and the weighted average LTV was 92.3%. The company's default rate remained low at 0.80% as of the end of the first quarter.

Reinsurance and Capital Management

NMI Holdings has a comprehensive reinsurance program in place, which includes both excess-of-loss and quota share agreements. These reinsurance arrangements not only provide risk transfer benefits but also enhance the company's capital efficiency and PMIERs (Private Mortgage Insurer Eligibility Requirements) asset position.

As of March 31, 2024, NMI Holdings reported total available assets under PMIERs of $2.82 billion, against a net risk-based required asset amount of $1.56 billion, resulting in a $1.26 billion "excess" funding position. This strong capital position provides the company with the flexibility to support continued growth and return capital to shareholders.

In the first quarter of 2024, NMI Holdings repurchased $25.2 million of its common stock, retiring 840,000 shares at an average price of $29.98 per share. As of March 31, 2024, the company had $151.8 million of repurchase authority remaining under its existing program.

Outlook

NMI Holdings remains optimistic about the long-term growth prospects for the private MI industry, driven by several secular trends. These include the ongoing need for down payment support, the demographic tailwind of population growth, and the persistent supply-demand imbalance in the housing market, which is driving continued house price appreciation and larger loan sizes.

The company believes that the private MI market will remain robust, with industry new insurance written (NIW) volume expected to be around $285 billion in 2024, similar to the level seen in 2023. NMI Holdings is well-positioned to capitalize on this opportunity, leveraging its strong customer relationships, disciplined risk management, and comprehensive reinsurance program.

Risks and Challenges

While NMI Holdings has demonstrated resilience in the face of macroeconomic headwinds, the company remains vigilant to potential risks. These include changes in the GSEs' policies, increased competition from government mortgage insurers, and the potential for a significant and prolonged decline in the housing market or rise in unemployment.

The company also faces regulatory risks, as it must maintain compliance with the PMIERs financial requirements and state-level capital and solvency standards. Any failure to meet these requirements could limit the company's ability to write new business or pay dividends to its parent, NMI Holdings, Inc.

Conclusion

NMI Holdings has established itself as a premier provider of private mortgage insurance in the United States. The company's consistent growth, strong financial performance, and exceptional returns have positioned it as a leader in the industry. With a high-quality insured portfolio, comprehensive reinsurance program, and robust capital position, NMI Holdings is well-equipped to navigate the evolving market landscape and capitalize on the long-term growth opportunities in the private MI sector.