Executive Summary / Key Takeaways

• NMI Holdings, Inc. (NMIH) demonstrates robust financial performance, achieving record revenues and profitability in Q3 2025 and for the full year 2024, driven by consistent growth in its high-quality insured portfolio and efficient operations.
• The company's proprietary "Rate GPS" pricing platform and comprehensive risk management framework are key technological differentiators, enabling granular risk assessment, disciplined underwriting, and superior credit performance in a dynamic housing market.
• NMIH maintains a strong capital position, evidenced by significant excess available assets under PMIERs and a consistent share repurchase program, signaling a commitment to shareholder value.
• Despite macroeconomic uncertainties and regional housing market softness, NMIH's proactive stance on pricing, risk selection, and reinsurance decisioning positions it for continued through-the-cycle growth and strong returns.
• The competitive landscape remains balanced, with NMIH leveraging its agility and customer-centric approach to expand market presence, particularly among diverse lender types, while established barriers to entry protect its core business.

Forging a Path in Mortgage Insurance: Strategy and Technological Foundation

NMI Holdings, Inc. (NMIH), incorporated in May 2011, has rapidly established itself as a significant player in the U.S. private mortgage guaranty insurance (MI) market. Through its primary subsidiary, National Mortgage Insurance Corporation (NMIC), which issued its first policy in April 2013, NMIH provides crucial credit protection to lenders and investors on high-loan-to-value (LTV) residential mortgages. This service is vital for facilitating secondary market sales to government-sponsored enterprises (GSEs) and expanding homeownership access for qualified individuals. The company's overarching strategy centers on building a diversified, high-quality insured portfolio through long-term customer relationships, disciplined risk selection, and transparent claim practices.

A cornerstone of NMIH's competitive advantage is its technological differentiation, particularly its proprietary risk-based pricing platform, "Rate GPS." This advanced system dynamically evaluates risk by considering a broad range of individual variables, including property type, loan product, borrower credit characteristics, and lender and market factors. Rate GPS provides NMIH with a granular and analytical approach to evaluating and pricing risk, which management believes enhances its ability to build a high-quality mortgage insurance portfolio and deliver attractive risk-adjusted returns. While most new business is priced through Rate GPS, a rate card option is available for a limited number of lenders. This technological edge contributes to NMIH's competitive moat by allowing it to set premium rates commensurate with the underlying risk of each loan, fostering superior underwriting outcomes.

Further enhancing its operational efficiency and innovation, NMIH extended its long-term IT engagement with Tata Consultancy Services (TCS) into 2032. This partnership, initiated in 2020, has been instrumental in driving innovation and efficiency across NMIH's platform. Management anticipates that expenses under this extended agreement will remain roughly consistent with prior run rates, indicating a stable cost structure for continued technological advancement.

Competitive Dynamics and Market Positioning

The private mortgage insurance industry in the U.S. is characterized by a few incumbent players, with NMIH positioning itself as a notable challenger. The company's success in acquiring a large and diverse group of lender customers, totaling 2,172 as of September 30, 2025, including national and regional mortgage banks, credit unions, and non-bank lenders, underscores its effective market penetration. NMIH's share of the new business environment is larger than its share of industry insurance-in-force, suggesting an opportunity to capture a greater portion of refinancing activity that still requires MI coverage.

Management acknowledges the high barriers to entry in the MI market, including substantial capital requirements and the need to build an MI-specific operating platform and customer trust. Despite periodic discussions of new market entrants, NMIH believes the six incumbent MI players are adequately serving the market with ample capacity and fair solutions. The industry pricing environment is described as balanced and constructive, allowing NMIH to support its customers while protecting risk-adjusted returns. NMIH's strategy of using its Rate GPS engine means it "never say[s] no," but rather prices appropriately for the risk, avoiding direct pushback from lenders on pricing.

Compared to its peers, NMIH's focus on innovative technology integration and operational agility provides a competitive edge. While larger competitors like MGIC Investment Corporation (MTG) benefit from extensive market reach and economies of scale, NMIH's streamlined loan review services and adaptable market responses, particularly for internet-sourced and non-bank lenders, enhance its efficiency. NMIH's Net Profit Margin of 55.02% (TTM) stands favorably against some competitors, though direct comparisons of all financial metrics can be challenging. For instance, Radian Group Inc. (RDN) emphasizes data-driven insights, and Essent Group Ltd. (ESNT) focuses on prudent underwriting and capital management. NMIH's agility in adapting to new lending technologies and its customer-centric approach are key strengths against these rivals.

Financial Performance and Operational Strength

NMI Holdings has consistently delivered strong financial results, reflecting its effective strategy and operational discipline. For the three months ended September 30, 2025, total revenue reached a record $178.7 million, an 8% increase from $166.1 million in Q3 2024. Net premiums earned, the primary revenue driver, also hit a record $151.3 million, up 5.6% from $143.3 million in the prior year's quarter. This growth was primarily fueled by an increase in monthly insurance-in-force (IIF) and corresponding premium receipts.

Net income for Q3 2025 was $96.0 million, or $1.22 per diluted share, contributing to a 15.6% return on equity. For the nine months ended September 30, 2025, net income was $294.7 million, an 8% increase over $273.9 million in the same period of 2024. The company's expense management is particularly noteworthy, with an expense ratio of a record low 19.3% in Q3 2025, highlighting significant operating leverage and efficient cost control.

Investment income has also been a growing contributor, reaching $26.8 million in Q3 2025, up 19% from $22.5 million in Q3 2024. This increase is attributed to the growth in NMIH's total invested asset base and an improved book yield from deploying new cash flows and reinvesting at higher rates. The company's investment portfolio, entirely comprised of fixed maturity instruments, had a fair value of $3.02 billion as of September 30, 2025.

Credit performance remains a key strength for NMIH. The default rate stood at 1.05% at September 30, 2025, with 7,093 loans in default. While claims expense increased to $18.6 million in Q3 2025, reflecting normal seasonal activity and portfolio seasoning, management emphasizes the exceptionally high quality of its insured portfolio and strong credit profiles of its borrowers. The average mark-to-market LTV on the defaulted population was 73.2%, indicating substantial borrower equity.

Capital Management and Shareholder Returns

NMIH maintains a robust capital position, crucial for its regulated insurance operations. As of September 30, 2025, the company reported $3.4 billion of total available assets under PMIERs (Private Mortgage Insurer Eligibility Requirements) and $2.0 billion of risk-based required assets, resulting in $1.4 billion of excess available assets. NMIC's Risk-to-Capital (RTC) ratio was 13.10, well within regulatory limits. The company's liquidity is further supported by $148.1 million in cash and investments at the holding company and access to a $250 million undrawn revolving credit facility.

Capital return to shareholders is a consistent focus. NMIH has two active share repurchase programs, with $256.4 million of authority remaining as of September 30, 2025. The company has consistently repurchased approximately $25 million of common stock per quarter, a pacing management expects to continue, while also maintaining flexibility for opportunistic buybacks. While a common dividend is not the immediate primary focus, management indicates it may be considered in the future as the dividend stream from the operating company to the holding company continues to grow.

Outlook and Risk Assessment

NMIH's outlook remains confident, underpinned by the broad resiliency of the macro environment and housing market. Management anticipates an attractive and sustained new business opportunity driven by long-term secular trends and recent improvements in mortgage rates. While a natural normalization in credit experience is expected over the longer term due to portfolio growth and seasoning, the impact of seasonality on defaults in Q3 2025 was more muted than in prior years, which is encouraging. The core yield is expected to remain stable, supported by strong persistency, with the net yield influenced by claims experience.

Despite this positive outlook, NMIH acknowledges persistent macroeconomic risks, including elevated interest rates, flagging consumer confidence, and potential increases in jobless claims. These factors could lead to a decline in housing demand, a decrease in home prices, or an increase in default and claim experience. Regional housing markets, particularly in Florida, Texas, the Sunbelt, and Mountain West, continue to show signs of softness with declining house price appreciation or inventory building. NMIH mitigates these risks through its proactive stance on pricing, risk selection, and reinsurance decisioning, embedding conservatism in its underwriting to account for potential downturns. The company's comprehensive reinsurance program, including quota share and excess-of-loss treaties, provides robust risk transfer solutions, with coverage already secured for 2025, 2026, and a portion of 2027.

Conclusion

NMI Holdings, Inc. stands as a compelling investment case, demonstrating consistent financial outperformance and strategic acumen within the private mortgage insurance sector. Its history of disciplined growth, coupled with a forward-looking approach to risk management and technological innovation, has cultivated a high-quality insured portfolio and robust financial health. The proprietary "Rate GPS" platform provides a distinct competitive advantage, enabling precise risk pricing and underwriting that underpins its superior credit performance and efficiency.

Looking ahead, NMIH is well-positioned to capitalize on ongoing housing market opportunities while prudently managing emerging macroeconomic risks. The company's strong capital base, active share repurchase program, and disciplined operational execution underscore its commitment to delivering through-the-cycle growth and value for shareholders. While the housing market faces regional variations and broader economic uncertainties, NMIH's proactive strategies, technological leadership, and strong competitive standing suggest a continued trajectory of profitable growth and resilient returns.