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NMI Holdings, Inc. Reports Record Fourth Quarter 2018 Financial Results

By GlobeNewswire,  February 12, 2019, 04:01:00 PM EDT


EMERYVILLE, Calif., Feb. 12, 2019 (GLOBE NEWSWIRE) -- NMI Holdings, Inc. (Nasdaq:NMIH) today reported GAAP net income of $35.5 million, or $0.46 per diluted share, and adjusted net income of $32.1 million, or $0.46 per diluted share, for its fourth quarter ended December 31, 2018. This compares with GAAP net income of $24.8 million, or $0.36 per diluted share, and adjusted net income of $31.8 million, or $0.46 per diluted share for the third quarter ended September 30, 2018. In the fourth quarter ended December 31, 2017, the company reported a GAAP net loss of $1.8 million, or $(0.03) per diluted share, and adjusted net income of $14.0 million, or $0.22 per diluted share. The non-GAAP financial measures adjusted net income, adjusted diluted earnings per share and adjusted return-on-equity are presented in this release to enhance the comparability of financial results between periods.  See "Use of Non-GAAP Financial Measures" and our reconciliation of such measures to their most comparable GAAP measures, below.

Claudia Merkle, CEO of National MI, said, "National MI delivered record fourth quarter financial results, capping a year of standout success in customer development, portfolio growth, risk management, and financial performance. We reported record fourth quarter new insurance written of $7.0 billion, record net premiums earned of $69.3 million, record adjusted net income of $32.1 million, and adjusted return-on-equity of 18.8%.  We continued to grow our high-quality insured portfolio at an industry-leading rate while actively shaping the risk profile of our new production with Rate GPS, our granular risk selection and pricing engine."

  • As of December 31, 2018, the company had primary insurance-in-force of $68.6 billion, up 8% from $63.5 billion at September 30, 2018 and up 41% compared to $48.5 billion as of December 31, 2017.



  • Net premiums earned for the quarter were $69.3 million, compared to $65.4 million in the third quarter of 2018. Net premiums earned for the quarter were up 38% compared to $50.1 million in the fourth quarter of 2017.



  • Total underwriting and operating expenses in the fourth quarter were $29.4 million compared to $30.4 million in the third quarter of 2018, and $28.3 million in the fourth quarter a year ago.



  • At quarter-end, cash and investments were $937 million and shareholders' equity was $701 million, equal to $10.58 per share. Return-on-equity for the quarter was 20.9% and adjusted return-on-equity (a non-GAAP measure) was 18.8%.



  • At quarter-end, the company had total PMIERs available assets of $734 million, which compares with risk-based required assets under PMIERs of $511 million.

The non-GAAP measures of adjusted net income, adjusted diluted EPS and adjusted return-on-equity for the quarters presented exclude the after tax impact of periodic capital markets transaction costs, changes in the fair value of our warrant liability and realized gains or losses from our investment portfolio.

    Quarter

Ended
Quarter

Ended
Quarter

Ended
Change (1) Change (1)
    12/31/2018 9/30/2018 12/31/2017 Q/Q Y/Y
Primary Insurance-in-Force ($billions) $ 68.6   $ 63.5   $ 48.5   8 % 41 %
New Insurance Written - NIW ($billions)          
  Monthly premium 6.3   6.7   5.7   (6 )% 10 %
  Single premium 0.7   0.7   1.2   (3 )% (42 )%
  Total 7.0   7.4   6.9   (5 )% 1 %
           
Premiums Earned ($millions) 69.3   65.4   50.1   6 % 38 %
Underwriting & Operating Expense ($millions) 29.4   30.4   28.3   (3 )% 4 %
Loss Expense ($millions) 2.1   1.1   2.4   95 % (10 )%
Loss Ratio 3.1 % 1.7 % 4.7 %    
Cash & Investments ($millions) $ 936.8   $ 892.6   $ 735.1   5 % 27 %
Book Equity ($millions) 701.5   660.5   509.1   6 % 38 %
Book Value per Share $ 10.58   $ 9.96   $ 8.41   6 % 26 %
(1) Percentages may not be recalculated based on the rounded figures presented in the table.

Conference Call and Webcast Details

The company will hold a conference call and live webcast today, February 12, 2019 at 2:00 p.m. Pacific Time / 5:00 p.m. Eastern Time.  The webcast will be available on the company's website, www.nationalmi.com, in the "Investor Relations" section.  The call also can be accessed by dialing (888) 734-0328 in the U.S., or (914) 495-8578 for international callers using Conference ID: 8580609, or by referencing NMI Holdings, Inc.

About NMI Holdings, Inc.

NMI Holdings, Inc. (NASDAQ:NMIH), is the parent company of National Mortgage Insurance Corporation (National MI), a U.S.-based, private mortgage insurance company enabling low down payment borrowers to realize home ownership while protecting lenders and investors against losses related to a borrower's default. To learn more, please visit www.nationalmi.com.

Cautionary Note Regarding Forward-Looking Statements

Certain statements contained in this press release or any other written or oral statements made by or on behalf of the Company in connection therewith may constitute forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (Securities Act), Section 21E of the Securities Exchange Act of 1934, as amended (Exchange Act), and the U.S. Private Securities Litigation Reform Act of 1995 (PSLRA).  The PSLRA provides a "safe harbor" for any forward-looking statements.  All statements other than statements of historical fact included in or incorporated by reference in this release are forward-looking statements, including any statements about our expectations, outlook, beliefs, plans, predictions, forecasts, objectives, assumptions or future events or performance.  These statements are often, but not always, made through the use of words or phrases such as "anticipate," "believe," "can," "could," "may," "predict," "assume," "potential," "should," "will," "estimate," "plan," "project," "continuing," "ongoing," "expect," "intend" and similar words or phrases.  All forward-looking statements are only predictions and involve estimates, known and unknown risks, assumptions and uncertainties that may turn out to be inaccurate and could cause actual results to differ materially from those expressed in them.  Many risks and uncertainties are inherent in our industry and markets.  Others are more specific to our business and operations.  Important factors that could cause actual events or results to differ materially from those indicated in such statements include, but are not limited to: changes in the business practices of Fannie Mae and Freddie Mac (collectively, the GSEs), including decisions that have the impact of decreasing or discontinuing the use of mortgage insurance as credit enhancement; our ability to remain an eligible mortgage insurer under the private mortgage insurer eligibility requirements (PMIERs) and other requirements imposed by the GSEs, which they may change at any time; retention of our existing certificates of authority in each state and the District of Columbia (D.C.) and our ability to remain a mortgage insurer in good standing in each state and D.C.; our future profitability, liquidity and capital resources; actions of existing competitors, including government mortgage insurers, such as the Federal Housing Administration, U.S. Department of Agriculture's Rural Housing Service and the Veterans Administration, and potential market entry by new competitors or consolidation of existing competitors; developments in the world's financial and capital markets and our access to such markets, including reinsurance; adoption of new or changes to existing laws and regulations that impact our business or financial condition directly or the mortgage insurance industry generally or their enforcement and implementation by regulators; legislative or regulatory changes to the GSEs' role in the secondary mortgage market or other changes that could affect the residential mortgage industry generally or mortgage insurance industry in particular; potential future lawsuits, investigations or inquiries or resolution of current lawsuits or inquiries; changes in general economic, market and political conditions and policies, interest rates, inflation and investment results or other conditions that affect the housing market or the markets for home mortgages or mortgage insurance; our ability to successfully execute and implement our capital plans, including our ability to access the capital, credit and reinsurance markets and to enter into, and receive approval of reinsurance arrangements on terms and conditions that are acceptable to us, the GSEs and our regulators; our ability to implement our business strategy, including our ability to write mortgage insurance on high quality low-down payment residential mortgage loans, implement successfully and on a timely basis, complex infrastructure, systems, procedures, and internal controls to support our business and regulatory and reporting requirements of the insurance industry; our ability to attract and retain a diverse customer base, including the largest mortgage originators; failure of risk management or pricing or investment strategies; emergence of unexpected claim and coverage issues, including claims exceeding our reserves or amounts we had expected to experience; potential adverse impacts arising from recent natural disasters, including, with respect to the affected areas, a decline in new business, adverse effects on home prices, and an increase in notices of default on insured mortgages; the inability of our counter-parties, including third party reinsurers, to meet their obligations to us; failure to maintain, improve and continue to develop necessary information technology systems or the failure of technology providers to perform; and, our ability to recruit, train and retain key personnel.  These risks and uncertainties also include, but are not limited to, those set forth under the heading "Risk Factors" detailed in Item 1A of Part I of our Annual Report on Form 10-K for the year ended December 31, 2017 and in Item IA of Part II of our Quarterly Report on Form 10-Q for the quarter ended March 31, 2018, as subsequently updated through other reports we file with the SEC.  All subsequent written and oral forward-looking statements attributable to the company or persons acting on its behalf are expressly qualified in their entirety by these cautionary statements.  We caution you not to place undue reliance on any forward-looking statement, which speaks only as of the date on which it is made, and we undertake no obligation to publicly update or revise any forward-looking statement to reflect new information, future events or circumstances that occur after the date on which the statement is made or to reflect the occurrence of unanticipated events except as required by law.

Use of Non-GAAP Financial Measures

We believe the use of the non-GAAP measures of adjusted income before tax, adjusted net income and adjusted diluted earnings per share (EPS) enhance the comparability of our fundamental financial performance between periods, and provides relevant information to investors. These non-GAAP financial measures align with the way the company's business performance is evaluated by management. These measures are not prepared in accordance with GAAP and should not be viewed as alternatives to GAAP measures of performance.  These measures have been presented in order to increase transparency and enhance the comparability of our fundamental operating trends across periods.

Adjusted income before tax is defined as GAAP income before tax, excluding the pre-tax effects of the gain or loss related to the change in fair value of our warrant liability, periodic costs incurred in connection with capital markets transactions, net realized gains or losses from our investment portfolio, and discrete, non-recurring and non-operating items in the periods in which such items are incurred.

Adjusted net income is defined as GAAP net income, excluding the after-tax effects of the gain or loss related to the change in fair value of our warrant liability, periodic costs incurred in connection with capital markets transactions, net realized gains or losses from our investment portfolio, and discrete, non-recurring and non-operating items in the periods in which such items are incurred. Adjustments to components of pre-tax income are tax effected using the applicable federal statutory tax rate for the respective periods.

Adjusted diluted EPS is defined as adjusted net income divided by adjusted weighted diluted shares outstanding. Adjusted weighted average diluted shares outstanding is defined as weighted average diluted shares outstanding, adjusted for changes in the dilutive effect of non-vested shares that would otherwise have occurred had GAAP net income been calculated in accordance with adjusted net income. There will be no adjustment to weighted average diluted shares outstanding in the years that non-vested shares are anti-dilutive under GAAP.

Adjusted return-on-equity is calculated by dividing adjusted net income on an annualized basis by the average shareholders' equity for the period.

Although adjusted income before tax, adjusted net income and adjusted diluted EPS exclude certain items that have occurred in the past and are expected to occur in the future, the excluded items: (1) are not viewed as part of the operating performance of our primary activities; or (2) are impacted by market, economic or regulatory factors and are not necessarily indicative of operating trends, or both. These adjustments, and the reasons for their treatment, are described below.

(1)  Change in fair value of warrant liability. Outstanding warrants at the end of each reporting period are revalued, and any change in fair value is reported in the statement of operations in the period in which the change occurred. The change in fair value of our warrant liability can vary significantly across periods and is influenced principally by equity market and general economic factors that do not impact or reflect our current period operating results. We believe trends in our operating performance can be more clearly identified by excluding fluctuations related to the change in fair value of our warrant liability.
   
(2)  Capital markets transaction costs. Capital markets transaction costs result from activities that are undertaken to improve our debt profile or enhance our capital position through activities such as debt refinancing and capital markets reinsurance transactions that may vary in their size and timing due to factors such as market opportunities, tax and capital profile, and overall market cycles.
   
(3)  Net realized investment gains and losses.  The recognition of the net realized investment gains or losses can vary significantly across periods as the timing is highly discretionary and is influenced by factors such as market opportunities, tax and capital profile, and overall market cycles that do not reflect our current period operating results.
   
(4)  Infrequent or unusual non-operating items. Items that are the result of unforeseen or uncommon events, which occur separately from operating earnings and are not expected to recur in the future.  Identification and exclusion of these items provides clarity about the impact special or rare occurrences may have on our current financial performance. Past adjustments under this category include the effects of the release of the valuation allowance recorded against our net federal and certain state net deferred tax assets in 2016 and the re-measurement of our net deferred tax assets in connection with tax reform in 2017. We believe such items are non-recurring in nature, are not part of our primary operating activities and do not reflect our current period operating results.

We believe the disclosure of these items and adjustments provides increased transparency to investors and enhances the comparability of our fundamental operating trends across periods. Other companies may calculate these measures differently; their measures may not be comparable to those we calculate and present.

Investor Contact

John M. Swenson

Vice President, Investor Relations and Treasury

john.swenson@nationalmi.com

(510) 788-8417

Press Contact

Mary McGarity

Strategic Vantage Mortgage Public Relations

(203) 513-2721

MaryMcGarity@StrategicVantage.com

       
       
Consolidated statements of operations and comprehensive income For the three months ended December 31,   For the year ended December 31,
  2018   2017   2018   2017
               
Revenues (In Thousands, except for per share data)
Net premiums earned $ 69,261     $ 50,079     $ 251,197     $ 165,740  
Net investment income 6,952     4,388     23,538     16,273  
Net realized investment gains 6     9     57     208  
Other revenues 40     62     233     522  
Total revenues 76,259     54,538     275,025     182,743  
Expenses              
Insurance claims and claim expenses 2,141     2,374     5,452     5,339  
Underwriting and operating expenses 29,384     28,297     117,236     106,979  
Total expenses 31,525     30,671     122,688     112,318  
Other expense              
Gain (loss) from change in fair value of warrant liability 3,538     (3,426 )   (1,397 )   (4,105 )
Interest expense (3,028 )   (3,382 )   (14,979 )   (13,528 )
Total other expense 510     (6,808 )   (16,376 )   (17,633 )
               
Income before income taxes 45,244     17,059     135,961     52,792  
Income tax expense 9,724     18,825     28,034     30,742  
Net income (loss) $ 35,520     $ (1,766 )   $ 107,927     $ 22,050  
               
Earnings (losses) per share              
Basic $ 0.54     $ (0.03 )   $ 1.66     $ 0.37  
Diluted $ 0.46     $ (0.03 )   $ 1.60     $ 0.35  
               
Weighted average common shares outstanding              
Basic 66,308     60,219     65,019     59,816  
Diluted 69,013     60,219     67,652     62,186  
               
Loss Ratio(1) 3.1 %   4.7 %   2.2 %   3.2 %
Expense Ratio(2) 42.4 %   56.5 %   46.7 %   64.5 %
Combined ratio 45.5 %   61.2 %   48.9 %   67.7 %
               
Net income $ 35,520     $ (1,766 )   $ 107,927     $ 22,050  
Other comprehensive income (loss), net of tax:              
Unrealized gains (losses) in accumulated other comprehensive income, net of tax expense (benefit) of $392 and ($1,273) for the three months ended December 31, 2018 and 2017, respectively, and ($3,285) and $1,234 for the year ended December 31, 2018 and 2017, respectively 1,476     (2,094 )   (12,357 )   2,559  
Reclassification adjustment for realized (gains) losses included in net income, net of tax expense (benefit) of $1 and $73 for the three months ended December 31, 2018 and 2017, respectively, and ($27) and $73 for the year ended December 31, 2018 and 2017, respectively (4 )   (135 )   102     (131 )
Other comprehensive (loss) income, net of tax 1,472     (2,229 )   (12,255 )   2,428  
Comprehensive income $ 36,992     $ (3,995 )   $ 95,672     $ 24,478  
 
(1)  Loss ratio is calculated by dividing the provision for insurance claims and claims expenses by net premiums earned.
(2)  Expense ratio is calculated by dividing other underwriting and operating expenses by net premiums earned.
 



 
Consolidated balance sheets December 31, 2018   December 31, 2017
       
Assets (In Thousands, except for share data)
Fixed maturities, available-for-sale, at fair value (amortized cost of $924,987 and $713,859 as of December 31, 2018 and December 31, 2017, respectively) $ 911,490     $ 715,875  
Cash and cash equivalents (including restricted cash of $1,414 and $0 as of December 31, 2018 and December 31, 2017, respectively) 25,294     19,196  
Premiums receivable 36,007     25,179  
Accrued investment income 5,694     4,212  
Prepaid expenses 3,241     2,151  
Deferred policy acquisition costs, net 46,840     37,925  
Software and equipment, net 24,765     22,802  
Intangible assets and goodwill 3,634     3,634  
Prepaid reinsurance premiums 30,370     40,250  
Deferred tax asset, net     19,929  
Other assets 4,708     3,695  
Total assets $ 1,092,043     $ 894,848  
       
Liabilities      
Term loan $ 146,757     $ 143,882  
Unearned premiums 158,893     163,166  
Accounts payable and accrued expenses 31,141     23,364  
Reserve for insurance claims and claim expenses 12,811     8,761  
Reinsurance funds withheld 27,114     34,102  
Deferred ceding commission 3,791     5,024  
Warrant liability, at fair value 7,296     7,472  
Deferred tax liability, net 2,740      
Total liabilities 390,543     385,771  
       
Shareholders' equity      
Common stock - class A shares, $0.01 par value; 66,318,849 and 60,517,512 shares issued and outstanding as of December 31, 2018 and December 31, 2017, respectively (250,000,000 shares authorized) 663     605  
Additional paid-in capital 682,181     585,488  
Accumulated other comprehensive loss, net of tax (14,832 )   (2,859 )
Retain earnings (accumulated deficit) 33,488     (74,157 )
Total shareholders' equity 701,500     509,077  
Total liabilities and shareholders' equity $ 1,092,043     $ 894,848  
 



Non-GAAP Financial Measure Reconciliations
 
  Quarter ended   Quarter ended   Quarter ended
  12/31/2018   9/30/2018   12/31/2017
 As Reported (In Thousands, except for per share data)
Revenues          
Net premiums earned $ 69,261     $ 65,407     $ 50,079  
Net investment income 6,952     6,277     4,388  
Net realized investment gains (losses) 6     (8 )   9  
Other revenues 40     85     62  
Total revenues 76,259     71,761     54,538  
Expenses          
Insurance claims and claims expenses 2,141     1,099     2,374  
Underwriting and operating expenses 29,384     30,379     28,297  
Total expenses 31,525     31,478     30,671  
Other Expense          
Gain (Loss) from change in fair value of warrant liability 3,538     (5,464 )   (3,426 )
Interest expense (3,028 )   (2,972 )   (3,382 )
Total other expense 510     (8,436 )   (6,808 )
           
Income before income taxes 45,244     31,847     17,059  
Income tax expense 9,724     7,036     18,825  
Net income (loss) $ 35,520     $ 24,811     $ (1,766 )
           
Adjustments:          
Net realized investment (gains) losses (1) (6 )   8     (9 )
(Gain) Loss from change in fair value of warrant liability (3,538 )   5,464     3,426  
Capital markets transaction costs 102     1,871      
Adjusted income before taxes 41,802     39,190     20,476  
           
Income tax expense on adjustments 20     395     1,196  
Deferred tax (expense) adjustments         (13,554 )
Adjusted net income $ 32,058     $ 31,759     $ 14,009  
           
Weighted average diluted shares outstanding 69,013     68,844     60,219  
Adjusted diluted effect of non-vested shares         3,449  
Adjusted weighted average diluted shares outstanding 69,013     68,844     63,668  
           
Diluted EPS $ 0.46   (2 ) $ 0.36     $ (0.03 )
Adjusted diluted EPS $ 0.46     $ 0.46     $ 0.22  
           
Return-on-equity 20.9 %   15.4 %   (1.4 )%
Adjusted return-on-equity 18.8 %   19.7 %   11.0 %
 
(1)  Prior periods have been adjusted for consistency and presentation purposes.
(2)  Diluted net income excludes the impact of the warrant fair value change as it was anti-dilutive.  For all other periods presented, diluted net income equals reported net income as the impact of the warrant fair value change was dilutive.



 
Historical Quarterly Data 2018   2017
                       
  December 31   September 30   June 30   March 31   December 31   September 30
                       
Revenues (In Thousands, except for per share data)
Net premiums earned $ 69,261     $ 65,407     $ 61,615     $ 54,914     $ 50,079     $ 44,519  
Net investment income 6,952     6,277     5,735     4,574     4,388     4,170  
Net realized investment gains (losses) 6     (8 )   59         9     69  
Other revenues 40     85     44     64     62     195  
Total revenues 76,259     71,761     67,453     59,552     54,538     48,953  
Expenses                      
Insurance claims and claim expenses 2,141     1,099     643     1,569     2,374     957  
Underwriting and operating expenses 29,384     30,379     29,020     28,453     28,297     24,645  
Total expenses 31,525     31,478     29,663     30,022     30,671     25,602  
                       
Other expense (1) 510     (8,436 )   (5,451 )   (2,999 )   (6,808 )   (3,854 )
                       
Income before income taxes 45,244     31,847     32,339     26,531     17,059     19,497  
Income tax expense 9,724     7,036     7,098     4,176     18,825     7,185  
Net income (loss) $ 35,520     $ 24,811     $ 25,241     $ 22,355     $ (1,766 )   $ 12,312  
                       
Earnings (losses) per share                      
Basic $ 0.54     $ 0.38     $ 0.38     $ 0.36     $ (0.03 )   $ 0.21  
Diluted $ 0.46     $ 0.36     $ 0.37     $ 0.34     $ (0.03 )   $ 0.20  
                       
Weighted average common shares outstanding                      
Basic 66,308     65,948     65,664     62,099     60,219     59,884  
Diluted 69,013     68,844     68,616     65,697     60,219     63,089  
                       
Other data                      
Loss Ratio  (2) 3.1 %   1.7 %   1.0 %   2.9 %   4.7 %   2.1 %
Expense Ratio (3) 42.4 %   46.4 %   47.1 %   51.8 %   56.5 %   55.4 %
Combined ratio 45.5 %   48.1 %   48.1 %   54.7 %   61.2 %   57.5 %
 
(1)  Other expense includes the gain from change in fair value of warrant liability and interest expense.
(2)  Loss ratio is calculated by dividing the provision for insurance claims and claims expenses by net premiums earned.
(3)  Expense ratio is calculated by dividing other underwriting and operating expenses by net premiums earned.



 
New Insurance Written (NIW), Insurance in Force (IIF) and Premiums
 
The tables below present primary NIW and primary and pool IIF, as of the dates and for the periods indicated.
 
Primary NIW Three months ended
  December

31, 2018
  September

30, 2018
  June 30,

2018
  March 31,

2018
  December

31, 2017
  September

30, 2017
                       
  (In Millions)
Monthly $ 6,296     $ 6,675     $ 5,711     $ 5,441     $ 5,736     $ 4,833  
Single 666     686     802     1,019     1,140     1,282  
Primary $ 6,962     $ 7,361     $ 6,513     $ 6,460     $ 6,876     $ 6,115  



Primary and pool IIF As of
  December

31, 2018
  September

30, 2018
  June 30,

2018
  March 31,

2018
  December

31, 2017
  September

30, 2017
                       
  (In Millions)
Monthly $ 51,655     $ 46,967     $ 41,843     $ 37,574     $ 33,268     $ 28,707  
Single 16,896     16,560     16,246     15,860     15,197     14,552  
Primary 68,551     63,527     58,089     53,434     48,465     43,259  
                       
Pool 2,901     2,974     3,064     3,153     3,233     3,330  
Total $ 71,452     $ 66,501     $ 61,153     $ 56,587     $ 51,698     $ 46,589  

The following table presents the amounts related to the company's quota-share reinsurance transactions (the 2016 QSR Transaction and 2018 QSR Transaction, and collectively, the QSR Transactions) for the periods indicated.

  As of and for the three months ended
  December 31,

2018
  September

30, 2018
  June 30,

2018 
  March 31,

2018
  December 31,

2017
  September

30, 2017
  (In Thousands)
Ceded risk-in-force $ 4,292,450     $ 3,960,461     $ 3,606,928     $ 3,304,335     $ 2,983,353     $ 2,682,982  
Ceded premiums written (17,799 )   (16,546 )   (15,318 )   (14,525 )   (15,233 )   (14,389 )
Ceded premiums earned (20,487 )   (19,286 )   (18,077 )   (16,218 )   (14,898 )   (13,393 )
Ceded claims and claims expenses 710     337     173     543     800     277  
Ceding commission written 3,549     3,320     3,064     2,905     3,047     2,878  
Ceding commission earned 4,084     3,814     3,536     3,151     2,885     2,581  
Profit commission 11,666     11,272     10,707     9,201     8,139     7,758  
                                   



Portfolio Statistics
 
The table below highlights trends in our primary portfolio as of the date and for the periods indicated.
 
Primary portfolio trends As of and for the three months ended
  December

31, 2018
  September

30, 2018
  June 30,

2018
  March 31,

2018
  December

31, 2017
  September

30, 2017
  ($ Values In Millions)
New insurance written $ 6,962     $ 7,361     $ 6,513     $ 6,460     $ 6,876     $ 6,115  
New risk written 1,799     1,883     1,647     1,580     1,665     1,496  
Insurance in force (IIF) (1) 68,551     63,527     58,089     53,434     48,465     43,259  
Risk in force (1) 17,091     15,744     14,308     13,085     11,843     10,572  
Policies in force (count) (1) 280,825     262,485     241,993     223,263     202,351     180,089  
Average loan size (1) $ 0.244     $ 0.242     $ 0.240     $ 0.239     $ 0.240     $ 0.240  
Average coverage (2) 24.9 %   24.8 %   24.6 %   24.5 %   24.4 %   24.4 %
Loans in default (count) (1) 877     746     768     1,000     928     350  
Percentage of loans in default 0.3 %   0.3 %   0.3 %   0.5 %   0.5 %   0.2 %
Risk in force on defaulted loans (1) $ 48     $ 42     $ 43     $ 57     $ 53     $ 19  
Average premium yield (3) 0.42 %   0.43 %   0.44 %   0.43 %   0.44 %   0.43 %
Earnings from cancellations $ 2.1     $ 2.6     $ 3.1     $ 2.8     $ 4.2     $ 4.3  
Annual persistency (4) 87.1 %   86.1 %   85.5 %   85.7 %   86.1 %   85.1 %
Quarterly run-off (5) 3.1 %   3.3 %   3.5 %   3.1 %   3.9 %   3.8 %
 
(1)  Reported as of the end of the period.
(2)  Calculated as end of period risk in force (RIF) divided by IIF.
(3)  Calculated as net primary and pool premiums earned, net of reinsurance, divided by average gross primary IIF for the period, annualized.
(4)  Defined as the percentage of IIF that remains on our books after any 12-month period.
(5)  Defined as the percentage of IIF that is no longer on our books after any 3-month period.



The tables below present our total primary NIW by FICO, loan-to-value (LTV) ratio, and purchase/refinance mix for the periods indicated.
 
Primary NIW by FICO For the three months ended
  December 31, 2018   September 30, 2018   December 31, 2017
           
  ($ In Millions)
>= 760 $ 3,125     $ 3,191     $ 2,847  
740-759 1,198     1,228     1,055  
720-739 1,033     1,095     943  
700-719 797     878     877  
680-699 559     632     611  
<=679 250     337     543  
Total $ 6,962     $ 7,361     $ 6,876  
Weighted average FICO 750     747     743  



Primary NIW by LTV For the three months ended
  December 31, 2018   September 30, 2018   December 31, 2017
           
  (In Millions)
95.01% and above $ 582     $ 676     $ 988  
90.01% to 95.00% 3,409     3,553     2,889  
85.01% to 90.00% 2,224     2,373     1,870  
85.00% and below 747     759     1,129  
Total $ 6,962     $ 7,361     $ 6,876  
Weighted average LTV 92.1 %   92.5 %   92.3 %



Primary NIW by purchase/refinance mix For the three months ended
  December 31, 2018   September 30, 2018   December 31, 2017
  (In Millions)
Purchase $ 6,627     $ 7,022     $ 5,739  
Refinance 335     339     1,137  
Total $ 6,962     $ 7,361     $ 6,876  

The table below presents a summary of our primary IIF and RIF by book year as of December 31, 2018.

Primary IIF and RIF As of December 31, 2018
  IIF   RIF
       
  (In Millions)
2018 $ 26,310     $ 6,664  
2017 18,858     4,627  
2016 15,400     3,795  
2015 6,860     1,723  
2014 1,093     275  
2013 30     7  
Total $ 68,551     $ 17,091  

The tables below present our total primary IIF and RIF by FICO and LTV and total primary RIF by loan type as of the dates indicated.

Primary IIF by FICO As of
  December 31, 2018   September 30, 2018   December 31, 2017
           
  (In Millions)
>= 760 $ 31,870     $ 29,627     $ 23,438  
740-759 11,294     10,386     7,781  
720-739 9,338     8,566     6,259  
700-719 7,574     7,008     5,179  
680-699 5,062     4,655     3,408  
<=679 3,413     3,285     2,400  
Total $ 68,551     $ 63,527     $ 48,465  



Primary RIF by FICO As of
  December 31, 2018   September 30, 2018   December 31, 2017
           
  (In Millions)
>= 760 $ 7,955     $ 7,361     $ 5,764  
740-759 2,836     2,592     1,909  
720-739 2,341     2,131     1,527  
700-719 1,886     1,732     1,256  
680-699 1,256     1,145     821  
<=679 817     783     566  
Total $ 17,091     $ 15,744     $ 11,843  



Primary IIF by LTV As of
  December 31, 2018   September 30, 2018   December 31, 2017
           
  (In Millions)
95.01% and above $ 6,774     $ 6,309     $ 3,946  
90.01% to 95.00% 31,507     28,879     21,763  
85.01% to 90.00% 20,668     19,074     14,766  
85.00% and below 9,602     9,265     7,990  
Total $ 68,551     $ 63,527     $ 48,465  



Primary RIF by LTV As of
  December 31, 2018   September 30, 2018   December 31, 2017
           
  (In Millions)
95.01% and above $ 1,801     $ 1,670     $ 1,054  
90.01% to 95.00% 9,185     8,416     6,354  
85.01% to 90.00% 4,994     4,590     3,523  
85.00% and below 1,111     1,068     912  
Total $ 17,091     $ 15,744     $ 11,843  



Primary RIF by Loan Type As of
  December 31, 2018   September 30, 2018   December 31, 2017
           
Fixed 98 %   98 %   98 %
Adjustable rate mortgages:          
Less than five years          
Five years and longer 2     2     2  
Total 100 %   100 %   100 %

The table below presents a summary of the change in total primary IIF during the periods indicated.

Primary IIF For the three months ended
  December 31, 2018   September 30, 2018   December 31, 2017
           
  (In Millions)
IIF, beginning of period $ 63,527     $ 58,089     $ 43,259  
NIW 6,962     7,361     6,876  
Cancellations and other reductions (1,938 )   (1,923 )   (1,670 )
IIF, end of period $ 68,551     $ 63,527     $ 48,465  
 

Geographic Dispersion

The following table shows the distribution by state of our primary RIF as of the periods indicated.

Top 10 primary RIF by state As of
  December 31, 2018   September 30, 2018   December 31, 2017
           
California 13.0 %   13.3 %   13.5 %
Texas 8.2     8.1     7.8  
Florida 5.0     4.9     4.5  
Arizona 4.9     5.0     4.6  
Virginia 4.9     4.9     5.3  
Michigan 3.6     3.7     3.7  
Pennsylvania 3.6     3.6     3.6  
Colorado 3.5     3.4     3.6  
Illinois 3.4     3.4     3.4  
Maryland 3.2     3.2     3.5  
Total 53.3 %   53.5 %   53.5 %

The following table shows portfolio data by book year, as of December 31, 2018.

  As of December 31, 2018
Book year Original

Insurance

Written
  Remaining

Insurance in

Force
  %

Remaining

of Original

Insurance
  Policies

Ever in

Force
  Number of

Policies in

Force
  Number

of Loans

in Default
  # of

Claims

Paid
  Incurred

Loss Ratio

(Inception to

Date) (1)
  Cumulative

default rate (2)
  ($ Values in Millions)
2013 $ 162     $ 30     19 %   655     161         1     0.2 %   0.2 %
2014 3,451     1,093     32 %   14,786     5,709     51     28     3.6 %   0.5 %
2015 12,422     6,860     55 %   52,548     31,846     181     56     2.7 %   0.5 %
2016 21,187     15,400     73 %   83,626     64,320     258     39     2.2 %   0.4 %
2017 21,582     18,858     87 %   85,897     77,617     293     6     2.8 %   0.3 %
2018 27,295     26,310     96 %   104,043     101,172     94         1.3 %   0.1 %
Total $ 86,099     $ 68,551         341,555     280,825     877     130          
 
(1)  The ratio of claims incurred (paid and reserved) divided by cumulative premiums earned, net of reinsurance.
(2)  The sum of claims paid ever to date and notices of default as of the end of the period divided by policies ever in force.
 

The following table provides a reconciliation of the beginning and ending reserve balances for primary insurance claims and claims expenses:

  For the three months ended   For the year ended
  December 31,

2018
  December 31,

2017
  December 31,

2018
  December 31,

2017
               
               
               
               
  (In Thousands)
Beginning balance $ 10,908     $ 6,123     $ 8,761     $ 3,001  
Less reinsurance recoverables (1) (2,517 )   (1,174 )   (1,902 )   (297 )
Beginning balance, net of reinsurance recoverables 8,391     4,949     6,859     2,704  
               
Add claims incurred:              
Claims and claim expenses incurred:              
Current year (2) 2,770     2,594     7,860     6,140  
Prior years (3) (629 )   (220 )   (2,408 )   (801 )
Total claims and claims expenses incurred 2,141     2,374     5,452     5,339  
               
Less claims paid:              
Claims and claim expenses paid:              
Current year (2) 93     27     130     27  
Prior years (3) 629     437     2,371     1,157  
Total claims and claim expenses paid 722     464     2,501     1,184  
               
Reserve at end of period, net of reinsurance recoverables 9,810     6,859     9,810     6,859  
Add reinsurance recoverables (1) 3,001     1,902     3,001     1,902  
Ending balance $ 12,811     $ 8,761     $ 12,811     $ 8,761  
 
(1)  Related to ceded losses recoverable under the QSR Transactions, included in "Other Assets" on the Condensed Consolidated Balance Sheets.
(2)  Related to insured loans with their most recent defaults occurring in the current year. For example, if a loan had defaulted in a prior year and subsequently cured and later re-defaulted in the current year, that default would be included in the current year. Amounts are presented net of reinsurance.
(3)  Related to insured loans with defaults occurring in prior years, which have been continuously in default since that time. Amounts are presented net of reinsurance.
 

The following table provides a reconciliation of the beginning and ending count of loans in default for the periods indicated.

  For the three months ended   For the year ended
  December 31,

2018
  December 31,

2017
  December 31,

2018
  December 31,

2017
               
Beginning default inventory 746     350     928     179  
Plus: new defaults 479     783     1,559     1,262  
Less: cures (318 )   (194 )   (1,521 )   (486 )
Less: claims paid (30 )   (11 )   (89 )   (27 )
Ending default inventory 877     928     877     928  

The following table provides details of our claims paid, before giving effect to claims ceded under the 2016 QSR Transaction, for the periods indicated. We did not cede any claims paid under the 2018 QSR Transaction during the periods indicated.

  For the three months ended   For the year ended
  December 31,

2018
  December 31,

2017
  December 31,

2018
  December 31,

2017
               
  (In Thousands)
Number of claims paid (1) 30     11     89     27  
Total amount paid for claims $ 947     $ 535     $ 3,164     $ 1,266  
Average amount paid per claim (2) $ 34     $ 49     $ 39     $ 47  
Severity(3) 64 %   90 %   72 %   86 %
 
(1)  Count includes claims settled without payment.
(2)  Calculation is net of claims settled without payment.
(3)  Severity represents the total amount of claims paid including claims expenses divided by the related RIF on the loan at the time the claim is perfected which included claims settled without payment.
 

The following table shows our average reserve per default, before giving effect to reserves ceded under the QSR Transactions, as of the periods indicated.

Average reserve per default: As of December 31,

2018
  As of December 31,

2017
       
  (In Thousands)
Case (1) $ 14     $ 8  
IBNR (2) 1     1  
Total $ 15     $ 9  
 
(1)  Defined as the gross reserve per insured loan in default.
(2)  Amount includes claims adjustment expenses.
 

The following table provides a comparison of the PMIERs financial requirements as reported by NMIC as of the dates indicated.

  As of
  December 31, 2018   September 30, 2018   December 31, 2017
  (In Thousands)
Available Assets $ 733,762     $ 702,020     $ 527,897  
Risk-Based Required Assets 511,268     398,975     446,226  

Source: NMI Holdings Inc

This article appears in: News Headlines

Referenced Stocks: NMIH










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