Business Overview and History
NMI Holdings, Inc. (NMIH) is a leading provider of private mortgage insurance (MI) in the United States. Incorporated in May 2011 and headquartered in Emeryville, California, the company has established itself as a prominent player in the mortgage insurance industry by delivering robust financial performance, maintaining a disciplined risk management approach, and continuously adapting to the evolving market landscape.
NMI Holdings was founded with the goal of providing private mortgage guaranty insurance, which plays a crucial role in facilitating access to homeownership by supporting borrowers with less than a 20% down payment. The company's primary insurance subsidiary, National Mortgage Insurance Corporation (NMIC), issued its first mortgage insurance policy in April 2013 and is licensed to operate in all 50 states and the District of Columbia.
In addition to NMIC, NMI Holdings has two other wholly-owned subsidiaries: National Mortgage Reinsurance Inc One (Re One) and NMI Services, Inc. (NMIS). Re One historically provided reinsurance coverage to NMIC in accordance with certain statutory risk retention requirements, which have since been repealed. Although Re One remains a licensed insurance subsidiary, it currently does not have active insurance exposures. NMIS, capitalized in August 2015, offers outsourced loan review services to mortgage loan originators.
The company's common stock trades on the Nasdaq exchange under the ticker symbol NMIH. NMI Holdings operates as a single segment for the purposes of assessing performance and making operating decisions.
Since its formation in 2011, NMI Holdings has faced various challenges and milestones. The company had to build out its customer relationships with mortgage lenders and establish a diversified, high-quality insured portfolio from the ground up. Additionally, NMI Holdings has successfully navigated the evolving regulatory landscape, including meeting the private mortgage insurer eligibility requirements (PMIERs) established by the government-sponsored enterprises (GSEs) that it must comply with as an approved insurer.
Over the years, NMI Holdings has demonstrated a steadfast commitment to building a diversified customer base, underwriting discipline, and a high-quality insured portfolio. As of September 30, 2024, the company had issued master policies with 2,060 customers, ranging from national and regional mortgage banks to credit unions, community banks, and other non-bank lenders.
The company's focus on risk management and pricing discipline has been a key driver of its success. NMI Holdings introduced its proprietary risk-based pricing platform, Rate GPS, in June 2018, which allows for a more granular and analytical approach to evaluating and pricing risk. This strategy has enabled the company to maintain a high-quality insured portfolio, with a weighted average FICO score of 757 and a weighted average loan-to-value (LTV) ratio of 92.3% as of September 30, 2024.
Financial Performance and Liquidity
NMI Holdings has consistently delivered strong financial results, showcasing its ability to navigate through various market conditions. In the latest reported quarter (Q3 2024), the company achieved record total revenue of $166.1 million, representing a 12.1% year-over-year increase. GAAP net income for the quarter was $92.8 million, or $1.15 per diluted share, reflecting a 10.5% increase compared to the same period in the prior year. The company also reported operating cash flow of $357.78 million and free cash flow of $132.45 million for the quarter.
For the full fiscal year 2023, NMI Holdings reported revenue of $579.00 million, net income of $322.11 million, operating cash flow of $342.68 million, and free cash flow of $333.31 million. The company's strong financial performance has continued into 2024, with total revenues of $484.5 million and net income of $273.9 million for the nine months ended September 30, 2024.
The company's balance sheet remains robust, with total cash and investments of $2.8 billion as of September 30, 2024. NMI Holdings' shareholders' equity stood at $2.2 billion, and its book value per share was $27.67 at the end of the third quarter. The company's strong liquidity position, coupled with its access to a $250 million revolving credit facility (which remains undrawn), provides ample financial flexibility to support its growth initiatives and weather potential market volatility.
NMI Holdings maintains a healthy financial position with a debt-to-equity ratio of 0.1889, a current ratio of 3.32, and a quick ratio of 3.32 as of Q3 2024. The company's investment portfolio had a fair value of $2.7 billion as of September 30, 2024, generating $62.6 million in net investment income for the first nine months of the year.
Risk Management and Reinsurance
NMI Holdings' comprehensive risk management strategy has been a hallmark of its success. The company actively utilizes third-party reinsurance to manage its risk exposure, ensure compliance with regulatory requirements, and support the growth of its business. As of September 30, 2024, the company had $3 billion in total available assets under the Private Mortgage Insurer Eligibility Requirements (PMIERs) and $1.7 billion in risk-based required assets, resulting in $1.3 billion in excess available assets.
In October 2024, NMI Holdings further strengthened its risk management framework by securing a series of new quota share and excess-of-loss reinsurance treaties. These agreements provide the company with forward flow coverage, comprehensive risk protection, and efficient PMIERs funding for its next several years of new business production. The company's proactive approach to reinsurance has been a key differentiator, allowing it to manage its capital position effectively and support the growth of its high-quality insured portfolio.
Industry Dynamics and Market Position
The private mortgage insurance industry has faced various challenges in recent years, including the COVID-19 pandemic, rising interest rates, and macroeconomic uncertainties. However, NMI Holdings has demonstrated its resilience and adaptability, navigating these headwinds and maintaining its competitive position.
The company's strong focus on disciplined underwriting, prudent risk management, and innovative reinsurance strategies has allowed it to weather these challenges. As of September 30, 2024, NMI Holdings had a primary insurance-in-force (IIF) of $207.5 billion, reflecting a 7% year-over-year increase, and a primary risk-in-force (RIF) of $55.3 billion.
Furthermore, the company's consistent performance and industry-leading credit quality have been recognized by rating agencies. In October 2024, S&P Global Ratings upgraded NMI Holdings' financial strength and issuer ratings to A- and BBB-, respectively, citing the company's "quality of insured portfolio, track record of underwriting performance and profitability, and broadly balanced and diversified capital structure."
The private mortgage insurance industry has experienced steady growth, with a compound annual growth rate (CAGR) of approximately 10% over the past five years. This growth has been driven by strong housing market conditions and increased demand for private mortgage insurance from borrowers seeking to purchase homes with low down payments.
Business Segments and Operations
NMI Holdings operates through two main product segments: Mortgage Insurance and Outsourced Loan Review Services.
The Mortgage Insurance segment, which is the company's primary business, provides private mortgage insurance through NMIC. This insurance protects lenders and investors from default-related losses on a portion of the unpaid principal balance of a covered mortgage. MI plays a critical role in the U.S. housing market by mitigating mortgage credit risk and facilitating the secondary market sale of high-loan-to-value (LTV) residential loans to the Government-Sponsored Enterprises (GSEs), Fannie Mae and Freddie Mac.
The company's approach in this segment focuses on building long-term customer relationships, practicing disciplined risk selection and pricing, providing fair and transparent claim payment practices, delivering responsive customer service, and maintaining financial strength and profitability. As of September 30, 2024, NMIH had issued master policies with 2,060 customers and had $207.5 billion of primary insurance-in-force (IIF) and $55.3 billion of primary risk-in-force (RIF).
The Outsourced Loan Review Services segment, operated through NMIS, offers outsourced loan review services to mortgage loan originators. This segment generates revenue from fees charged for these services, which are reported within the "Other revenues" and "Service expenses" lines on NMIH's consolidated statements of operations.
It's worth noting that NMI Holdings primarily operates in the United States and does not have significant geographic diversification outside of the US.
Outlook and Future Prospects
Looking ahead, NMI Holdings remains optimistic about its growth prospects, driven by the company's strong customer relationships, innovative product offerings, and disciplined approach to risk management. The company expects the new business opportunity in the mortgage insurance market to remain robust in 2024 and 2025, with industry new insurance written (NIW) volume estimated to be around $285 billion per year.
While NMI Holdings has not provided specific numerical guidance for the future, management has expressed confidence in the company's ability to continue serving its customers and their borrowers, investing in its employees, driving growth in its high-quality insured portfolio, and delivering through-the-cycle growth, returns, and value for shareholders.
In the third quarter of 2024, NMIH delivered strong operating performance and continued growth in its insured portfolio, generating $12.2 billion of new insurance written (NIW) volume and ending the period with a record $207.5 billion of high-quality, high-performing primary insurance in force. The company achieved record financial results, with total revenue of $166.1 million, GAAP net income of $92.8 million ($1.15 per diluted share), and a 17.5% return on equity.
NMI Holdings' commitment to investing in its people, systems, and risk management strategies positions the company well to navigate the evolving market landscape and continue delivering value to its customers, shareholders, and the broader housing finance ecosystem.
Conclusion
NMI Holdings has demonstrated its resilience and adaptability in the face of industry challenges, leveraging its robust risk management framework, disciplined underwriting approach, and innovative reinsurance strategies to maintain its position as a leading provider of private mortgage insurance. The company's strong financial performance, high-quality insured portfolio, and favorable industry outlook suggest that NMI Holdings is well-positioned to capitalize on the growth opportunities in the mortgage insurance market and create long-term value for its shareholders.
With a solid foundation built on customer relationships, risk management expertise, and financial strength, NMI Holdings is poised to continue its growth trajectory and navigate the dynamic mortgage insurance landscape successfully in the coming years.