Press Release

NMI Holdings, Inc. Reports Record Second Quarter 2018 Financial Results
Aug 01, 2018

EMERYVILLE, Calif., Aug. 01, 2018 (GLOBE NEWSWIRE) -- NMI Holdings, Inc. (Nasdaq:NMIH) today reported GAAP net income of $25.2 million, or $0.37 per diluted share, and adjusted net income of $27.4 million, or $0.40 per diluted share, for its second quarter ended June 30, 2018. This compares with GAAP net income of $22.4 million, or $0.34 per diluted share, and adjusted net income of $22.0 million, or $0.34 per diluted share in the first quarter ended March 31, 2018. In the second quarter of 2017, the company reported GAAP net income of $6.0 million, or $0.10 per diluted share, and adjusted net income of $7.9 million, or $0.13 per diluted share.

Adjusted net income and adjusted net income per diluted share for the quarters presented exclude the 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. In the second quarter of 2018, adjusted net income and adjusted net income per diluted share exclude costs of $2.9 million related to the issuance of Insurance-Linked Notes in July 2018, refinancing of the company’s existing senior secured term loan with a new $150 million five-year senior secured term loan and establishment of a new $85 million three-year senior secured revolving credit facility, as well as pre-tax gain of $0.1 million related to the change in fair value of the company’s warrant liability and pre-tax net realized investment gains of $0.1 million. The non-GAAP financial measures adjusted net income, adjusted net income per share and adjusted return-on-equity are presented in this release to increase the comparability of financial results between periods.  See "Use of Non-GAAP Financial Measures" below.

Bradley Shuster, Chairman and CEO of National MI, said, "National MI delivered record second quarter financial results, including record net premiums earned of $61.6 million, record net income of $25.2 million, and record return-on-equity of 16.4%. We continued to grow our high-quality insured portfolio at an industry leading rate and we successfully completed a number of important risk management and financing initiatives. In June, we launched Rate GPS, our Granular Pricing System. Rate GPS is a fully integrated and technology-driven pricing engine that allows us to dynamically consider a far broader and more granular set of risk attributes in our pricing process.  Customer adoption has been strong and, as of today, approximately 95% of our customers are delivering loans through the platform.  Earlier in the quarter, we refinanced our term loan and secured a debut revolving credit facility.  In July, we executed our second Insurance-Linked Notes transaction, which provides us significant PMIERs capital support and insulates National MI from adverse loss development in our insured portfolio.”

  • As of June 30, 2018, the company had primary insurance-in-force of $58.1 billion, up 9% from $53.4 billion at the prior quarter end and up 51% over $38.6 billion as of June 30, 2017.
     
  • Net premiums earned for the quarter were $61.6 million, including $3.1 million attributable to cancellation of single premium policies, which compares with $54.9 million, including $2.8 million related to cancellations, in the prior quarter.  Net premiums earned in the second quarter of 2018 were up 63% over net premiums earned of $37.9 million in the same quarter a year ago, which included $3.8 million related to cancellations.
     
  • NIW mix was 88% monthly premium product, which compares with 84% in the prior quarter and 81% in the second quarter of 2017.
     
  • Total underwriting and operating expenses in the second quarter were $29.0 million, including approximately $0.7 million of fees and expenses related to the recently completed Insurance-Linked Notes transaction. This compares with total underwriting and operating expense of $28.5 million in the prior quarter and $28.0 million in the same quarter a year ago, which included approximately $3.1 million of fees and expenses related to the issuance of Insurance-Linked Notes completed in May 2017.
     
  • At quarter-end, cash and investments were $855 million and book equity was $630 million, equal to $9.58 per share. Return on equity for the quarter was 16.4% and adjusted return on equity was 17.8%.
     
  • At quarter-end, the company had total PMIERs available assets of $653 million, which compares with risk-based required assets under PMIERs of $587 million.  The PMIERs required assets do not reflect the benefit of the recently completed Insurance-Linked Notes transaction and related excess-of-loss reinsurance coverage, which occurred after the close of the quarter.  During the second quarter of 2018, the company contributed $70 million to National Mortgage Insurance Corporation, its primary mortgage insurance subsidiary.
    Quarter
Ended
Quarter
Ended
Quarter
Ended
Change Change
    6/30/2018 3/31/2018 6/30/2017 Q/Q Y/Y
Primary Insurance-in-Force ($billions) $ 58.1   $ 53.4   $ 38.6   9 % 51 %
New Insurance Written - NIW ($billions)          
  Monthly premium 5.7   5.5   4.1   4 % 39 %
  Single premium 0.8   1.0   0.9   (20 )% (11 )%
  Total 6.5   6.5   5.0   % 30 %
           
Premiums Earned ($millions) 61.6   54.9   37.9   12 % 63 %
Underwriting & Operating Expense ($millions) 29.0   28.5   28.0   2 % 4 %
Loss Expense ($millions) 0.6   1.6   1.4   (63 )% (57 )%
Loss Ratio 1.0 % 2.9 % 3.6 %    
Cash & Investments ($millions) $ 854.7   $ 825.7   $ 693.7   4 % 23 %
Book Equity ($millions) 629.6   601.9   495.0   5 % 27 %
Book Value per Share 9.58   9.18   8.27   4 % 16 %

Conference Call and Webcast Details

The company will hold a conference call and live webcast 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: 9083349, or by referencing NMI Holdings, Inc.

About National MI
National Mortgage Insurance Corporation (National MI), a subsidiary of NMI Holdings, Inc. (NASDAQ:NMIH), is 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 current or future versions of their 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 other private mortgage insurers and governmental mortgage insurers like the Federal Housing Administration and the Veterans Administration and potential market entry by new competitors or consolidation of existing competitors; developments in the world's financial, capital and reinsurance markets and our access to such markets; 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; changes to the GSEs' role in the secondary mortgage market  driven by Congressional or regulatory action 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 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 reinsurance market and to enter into, and receive approval for 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 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 our pricing, risk management or investment strategies; emergence of unexpected claims and coverage issues, including claims exceeding our reserves or amounts we 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; our ability to utilize our net operating loss carryforwards, which could be limited or eliminated in various ways, including if we experience an ownership change as defined in Section 382 of the Internal Revenue Code; failure to maintain, improve and continue to develop necessary information technology systems or the failure of technology providers to perform as expected; 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 that use of the non-GAAP measures of adjusted pre-tax income, adjusted net income, adjusted net income per share and adjusted return-on-equity facilitate the evaluation of our fundamental financial performance, thereby providing 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 recognized in accordance with GAAP and should not be viewed as alternatives to GAAP measures of performance.  These measures have been established in order to increase transparency for the purposes of evaluating our fundamental operating trends and enabling more meaningful comparisons with our peers.

Adjusted pre-tax income is defined as GAAP income before tax, excluding the 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 net income per diluted share is calculated in a manner consistent with the accounting standard regarding earnings per share by dividing (i) adjusted net income by (ii) diluted weighted average common shares outstanding, which shares of common stock outstanding and common stock equivalents that would be issuable upon the vesting of service based RSUs, and exercise of vested and unvested stock options and outstanding warrants.

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 pre-tax income and adjusted net income exclude certain items that have occurred in the past and are expected to occur in the future, the excluded items are: (1) not viewed as part of the operating performance of our primary activities; or (2) impacted by market, economic or regulatory factors and are not necessarily indicative of operating trends, or both. These adjustments, along with the reasons for their treatment, are described below. Trends in the profitability of our fundamental operating activities can be more clearly identified by adjusting for fluctuations in these items. Other companies may calculate these measures differently. Therefore, their measures may not be comparable to those used by us.

(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 statements of operations in the period in which the change occurred.  The change in the fair value of our warrant liability can vary significantly across periods and is influenced principally by equity market and general economic factors which may not impact or reflect our current period operating results. Trends in our operating performance can be more clearly identified without the fluctuations of the change in fair value of our warrant liability.

(2)  Capital markets transaction costs. Capital markets transaction costs result from discretionary 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.

(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 of specific securities sold is highly discretionary and is influenced by the factors as market opportunities, tax and capital profile and overall market cycles.

(4)  Infrequent or unusual non-operating items. Income Statement items occurring separately from operating earnings that are not expected to recur in the future. They are the result of unforeseen or uncommon events.  Exclusion of these items provides clarity about the impact of special or rare circumstances on current financial performance. An example is income tax expense adjustments due to a re-measurement of the net deferred tax assets in connection with tax reform, which are non-recurring in nature and are not part of our primary operating activities.  We did not adjust for any infrequent or unusual non-operating items to calculate the non-GAAP measures presented in this release.

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
June 30,
  For the six months ended June
30,
  2018   2017   2018   2017
Revenues (In Thousands, except for per share data)
Net premiums earned $ 61,615     $ 37,917     $ 116,529     $ 71,142  
Net investment income 5,735     3,908     10,309     7,715  
Net realized investment gains 59     188     59     130  
Other revenues 44     185     108     265  
Total revenues 67,453     42,198     127,005     79,252  
Expenses              
Insurance claims and claim expenses 643     1,373     2,212     2,008  
Underwriting and operating expenses 29,020     28,048     57,473     54,037  
Total expenses 29,663     29,421     59,685     56,045  
Other expense              
Gain (Loss) from change in fair value of warrant liability 109     19     529     (177 )
Interest expense (5,560 )   (3,300 )   (8,979 )   (6,794 )
Total other expense (5,451 )   (3,281 )   (8,450 )   (6,971 )
               
Income before income taxes 32,339     9,496     58,870     16,236  
Income tax expense 7,098     3,484     11,274     4,732  
Net income $ 25,241     $ 6,012     $ 47,596     $ 11,504  
               
Earnings per share              
Basic $ 0.38     $ 0.10     $ 0.74     $ 0.19  
Diluted $ 0.37     $ 0.10     $ 0.70     $ 0.18  
               
Weighted average common shares outstanding              
Basic 65,664     59,823     63,891     59,577  
Diluted 68,616     63,010     67,171     62,689  
               
Loss Ratio(1) 1.0 %   3.6 %   1.9 %   2.8 %
Expense Ratio(2) 47.1 %   74.0 %   49.3 %   76.0 %
Combined ratio 48.1 %   77.6 %   51.2 %   78.8 %
               
Net income $ 25,241     $ 6,012     $ 47,596     $ 11,504  
Other comprehensive income (loss), net of tax:              
Net unrealized gains (losses) in accumulated other comprehensive income, net of tax expense (benefit) of ($2,879) and $1,388 for the three months ended June 30, 2018 and 2017, respectively, and ($3,304) and $2,073 for the six months ended June 30, 2018 and 2017
(1,464 )   2,822     (12,429 )   4,017  
Reclassification adjustment for realized (gains) included in net income, net of tax expenses of $12 and $66 for the three months ended June 30, 2018 and 2017, respectively, and $10 and $45 for the six months ended June 30, 2018 and 2017 (46 )   (122 )   (37 )   (84 )
Other comprehensive income (loss), net of tax (1,510 )   2,700     (12,466 )   3,933  
Comprehensive income $ 23,731     $ 8,712     $ 35,130     $ 15,437  

(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 June 30, 2018   December 31, 2017
Assets (In Thousands, except for share data)
Fixed maturities, available-for-sale, at fair value (amortized cost of $852,029 and
$713,859 as of June 30, 2018 and December 31, 2017, respectively)
$ 838,265     $ 715,875  
Cash and cash equivalents 16,454     19,196  
Premiums receivable 31,252     25,179  
Accrued investment income 4,789     4,212  
Prepaid expenses 2,907     2,151  
Deferred policy acquisition costs, net 42,363     37,925  
Software and equipment, net 22,803     22,802  
Intangible assets and goodwill 3,634     3,634  
Prepaid reinsurance premiums 35,798     40,250  
Deferred tax asset, net 12,378     19,929  
Other assets 5,836     3,695  
Total assets $ 1,016,479     $ 894,848  
       
Liabilities      
Term loan $ 147,262     $ 143,882  
Unearned premiums 165,658     163,166  
Accounts payable and accrued expenses 21,407     23,364  
Reserve for insurance claims and claim expenses 10,601     8,761  
Reinsurance funds withheld 31,011     34,102  
Deferred ceding commission 4,507     5,024  
Warrant liability, at fair value 6,391     7,472  
Total liabilities 386,837     385,771  
Commitments and contingencies      
       
Shareholders' equity      
Common stock - class A shares, $0.01 par value;
65,753,784 and 60,517,512 shares issued and outstanding as of June 30, 2018 and
December 31, 2017, respectively (250,000,000 shares authorized)
658     605  
Additional paid-in capital 670,870     585,488  
Accumulated other comprehensive loss, net of tax (15,043 )   (2,859 )
Accumulated deficit (26,843 )   (74,157 )
Total shareholders' equity 629,642     509,077  
Total liabilities and shareholders' equity $ 1,016,479     $ 894,848  


Non-GAAP Financial Measure Reconciliations
  Quarter ended   Quarter ended   Quarter ended
  6/30/2018   3/31/2018   6/30/2017
 As Reported (In Thousands, except for per share data)
Revenues          
Net premiums earned $ 61,615     $ 54,914     $ 37,917  
Net investment income 5,735     4,574     3,908  
Net realized investment gains 59         188  
Other revenues 44     64     185  
Total revenues 67,453     59,552     42,198  
Expenses          
Insurance claims and claims expenses 643     1,569     1,373  
Underwriting and operating expenses 29,020     28,453     28,048  
Total expenses 29,663     30,022     29,421  
Other Expense          
Gain from change in fair value of warrant liability 109     420     19  
Interest expense (5,560 )   (3,419 )   (3,300 )
Total other expense (5,451 )   (2,999 )   (3,281 )
           
Income before income taxes 32,339     26,531     9,496  
Income tax expense 7,098     4,176     3,484  
Net income $ 25,241     $ 22,355     $ 6,012  
           
Adjustments:          
Net realized investment gains (59 )       (188 )
Gain from change in fair value of warrant liability (109 )   (420 )   (19 )
Capital markets transaction costs 2,921         3,105  
Adjusted income before income taxes 35,092     26,111     12,394  
           
Income tax expense (benefit) on adjustments 578     (88 )   1,014  
Adjusted net income $ 27,416     $ 22,023     $ 7,896  
           
Weighted average diluted shares outstanding - Reported 68,616     65,697     63,010  
Dilutive effect of non-vested shares and warrants          
Weighted average diluted shares outstanding - Adjusted 68,616     65,697     63,010  
           
Diluted EPS - Reported $ 0.37     $ 0.34     $ 0.10  
Diluted EPS - Adjusted $ 0.40     $ 0.34     $ 0.13  
           
Return on Equity - Reported 16.4 %   16.1 %   4.9 %
Return on Equity - Adjusted 17.8 %   15.9 %   6.5 %


Historical Quarterly Data 2018   2017
  June 30   March 31   December 31   September 30   June 30   March 31
Revenues     (In Thousands, except for per share data)
Net premiums earned $ 61,615     $ 54,914     $ 50,079     $ 44,519     $ 37,917     $ 33,225  
Net investment income 5,735     4,574     4,388     4,170     3,908     3,807  
Net realized investment gains (losses) 59         9     69     188     (58 )
Other revenues 44     64     62     195     185     80  
Total revenues 67,453     59,552     54,538     48,953     42,198     37,054  
Expenses                      
Insurance claims and claim expenses 643     1,569     2,374     957     1,373     635  
Underwriting and operating expenses 29,020     28,453     28,297     24,645     28,048     25,989  
Total expenses 29,663     30,022     30,671     25,602     29,421     26,624  
                       
Other expense (1) (5,451 )   (2,999 )   (6,808 )   (3,854 )   (3,281 )   (3,690 )
                       
Income before income taxes 32,339     26,531     17,059     19,497     9,496     6,740  
Income tax expense 7,098     4,176     18,825     7,185     3,484     1,248  
Net income $ 25,241     $ 22,355     $ (1,766 )   $ 12,312     $ 6,012     $ 5,492  
                       
Earnings per share                      
Basic $ 0.38     $ 0.36     $ (0.03 )   $ 0.21     $ 0.10     $ 0.09  
Diluted $ 0.37     $ 0.34     $ (0.03 )   $ 0.20     $ 0.10     $ 0.09  
                       
Weighted average common shares outstanding                      
Basic 65,664     62,099     60,219     59,884     59,823     59,184  
Diluted 68,616     65,697     60,219     63,089     63,010     62,339  
                       
Other data                      
Loss Ratio  (2) 1.0 %   2.9 %   4.7 %   2.1 %   3.6 %   1.9 %
Expense Ratio (3) 47.1 %   51.8 %   56.5 %   55.4 %   74.0 %   78.2 %
Combined ratio 48.1 %   54.7 %   61.2 %   57.5 %   77.6 %   80.1 %

(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
  June 30, 2018   March 31,
2018
  December 31,
2017
  September
30, 2017
  June 30, 2017   March 31,
2017
      (In Millions)
Monthly $ 5,711     $ 5,441     $ 5,736     $ 4,833     $ 4,099     $ 2,892  
Single 802     1,019     1,140     1,282     938     667  
Primary $ 6,513     $ 6,460     $ 6,876     $ 6,115     $ 5,037     $ 3,559  


Primary and pool IIF As of
  June 30, 2018   March 31,
2018
  December 31,
2017
  September
30, 2017
  June 30, 2017   March 31,
2017
      (In Millions)
Monthly $ 41,843     $ 37,574     $ 33,268     $ 28,707     $ 24,865     $ 21,511  
Single 16,246     15,860     15,197     14,552     13,764     13,268  
Primary 58,089     53,434     48,465     43,259     38,629     34,779  
                       
Pool 3,064     3,153     3,233     3,330     3,447     3,545  
Total $ 61,153     $ 56,587     $ 51,698     $ 46,589     $ 42,076     $ 38,324  

                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
  June 30, 2018   March 31,
2018
  December 31,
2017
  September
30, 2017
  June 30,
 2017
  March 31,
 2017
      (In Thousands)
Ceded risk-in-force 3,606,928     $ 3,304,335     $ 2,983,353     $ 2,682,982     $ 2,403,027     $ 2,167,745  
Ceded premiums written (15,318 )   (14,525 )   (15,233 )   (14,389 )   (12,034 )   (10,292 )
Ceded premiums earned (18,077 )   (16,218 )   (14,898 )   (13,393 )   (11,463 )   (9,865 )
Ceded claims and claims expenses 173     543     800     277     342     268  
Ceding commission written 3,064     2,905     3,047     2,878     2,407     2,058  
Ceding commission earned 3,536     3,151     2,885     2,581     2,275     2,065  
Profit commission 10,707     9,201     8,139     7,758     6,536     5,651  

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
  June 30,
2018
  March 31,
2018
  December
31, 2017
  September
30, 2017
  June 30,
2017
  March 31,
2017
  ($ Values In Millions)
New insurance written $ 6,513     $ 6,460     $ 6,876     $ 6,115     $ 5,037     $ 3,559  
New risk written 1,647     1,580     1,665     1,496     1,242     868  
Insurance in force (IIF) (1) 58,089     53,434     48,465     43,259     38,629     34,779  
Risk in force (1) 14,308     13,085     11,843     10,572     9,417     8,444  
Policies in force (count) (1) 241,993     223,263     202,351     180,089     161,195     145,632  
Average loan size (1) $ 0.240     $ 0.239     $ 0.240     $ 0.240     $ 0.240     $ 0.239  
Average coverage (2) 24.6 %   24.5 %   24.4 %   24.4 %   24.4 %   24.3 %
Loans in default (count) 768     1,000     928     350     249                     207
Percentage of loans in default 0.3 %   0.5 %   0.5 %   0.2 %   0.2 %   0.1 %
Risk in force on defaulted loans $ 43     $ 57     $ 53     $ 19     $ 14     $ 12  
Average premium yield (3) 0.44 %   0.43 %   0.44 %   0.43 %   0.41 %   0.40 %
Earnings from cancellations $ 3.1     $ 2.8     $ 4.2     $ 4.3     $ 3.8     $ 2.5  
Annual persistency (4) 85.5 %   85.7 %   86.1 %   85.1 %   83.1 %   81.3 %
Quarterly run-off (5) 3.5 %   3.1 %   3.9 %   3.8 %   3.4 %   2.9 %

(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 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 are 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
  June 30, 2018   March 31, 2018   June 30, 2017
  ($ In Millions)
>= 760 $ 2,807     $ 2,619     $ 2,376  
740-759 1,129     1,073     793  
720-739 964     914     626  
700-719 747     811     568  
680-699 469     567     368  
<=679 397     476     306  
Total $ 6,513     $ 6,460     $ 5,037  
Weighted average FICO 747     743     749  


Primary NIW by LTV For the three months ended
  June 30, 2018   March 31, 2018   June 30, 2017
  (In Millions)
95.01% and above $ 971     $ 997     $ 474  
90.01% to 95.00% 2,932     2,765     2,297  
85.01% to 90.00% 1,888     1,755     1,506  
85.00% and below 722     943     760  
Total $ 6,513     $ 6,460     $ 5,037  
Weighted average LTV 92.7 %   92.5 %   92.2 %


Primary NIW by purchase/refinance mix For the three months ended
  June 30, 2018 March 31, 2018   June 30, 2017
  (In Millions)
Purchase $ 6,137   $ 5,425     $ 4,518  
Refinance 376   1,035     519  
Total $ 6,513   $ 6,460     $ 5,037  

                 The table below presents a summary of our primary IIF and RIF by book year as of the dates indicated.

Primary IIF and RIF As of June 30, 2018
  IIF   RIF
  (In Millions)
June 30, 2018 $ 12,758     $ 3,174  
2017 19,784     4,837  
2016 16,800     4,109  
2015 7,505     1,877  
2014 1,210     303  
2013 32     8  
Total $ 58,089     $ 14,308  

                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
  June 30, 2018   March 31, 2018   June 30, 2017
  (In Millions)
>= 760 $ 27,311     $ 25,371     $ 19,224  
740-759 9,460     8,635     6,269  
720-739 7,722     6,981     4,927  
700-719 6,355     5,814     3,973  
680-699 4,174     3,852     2,615  
<=679 3,067     2,781     1,621  
Total $ 58,089     $ 53,434     $ 38,629  


Primary RIF by FICO As of
  June 30, 2018   March 31, 2018   June 30, 2017
  (In Millions)
>= 760 $ 6,758     $ 6,246     $ 4,720  
740-759 2,344     2,125     1,535  
720-739 1,905     1,710     1,198  
700-719 1,558     1,416     960  
680-699 1,016     932     627  
<=679 727     656     377  
Total $ 14,308     $ 13,085     $ 9,417  


Primary IIF by LTV As of
  June 30, 2018   March 31, 2018   June 30, 2017
  (In Millions)
95.01% and above $ 5,747     $ 4,872     $ 2,367  
90.01% to 95.00% 26,119     23,937     17,441  
85.01% to 90.00% 17,319     16,034     12,157  
85.00% and below 8,904     8,591     6,664  
Total $ 58,089     $ 53,434     $ 38,629  


Primary RIF by LTV As of
  June 30, 2018   March 31, 2018   June 30, 2017
  (In Millions)
95.01% and above $ 1,522     $ 1,294     $ 648  
90.01% to 95.00% 7,610     6,978     5,120  
85.01% to 90.00% 4,154     3,831     2,893  
85.00% and below 1,022     982     756  
Total $ 14,308     $ 13,085     $ 9,417  


Primary RIF by Loan Type As of
  June 30, 2018   March 31, 2018   June 30, 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
  June 30, 2018   March 31, 2018   June 30, 2017
  (In Millions)
IIF, beginning of period $ 53,434     $ 48,465     $ 34,779  
NIW 6,513     6,460     5,037  
Cancellations and other reductions (1,858 )   (1,491 )   (1,187 )
IIF, end of period $ 58,089     $ 53,434     $ 38,629  

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
  June 30, 2018   March 31, 2018   June 30, 2017
California 13.4 %   13.5 %   13.8 %
Texas 8.0     8.0     7.5  
Arizona 5.0     4.8     4.2  
Virginia 5.0     5.1     6.0  
Florida 4.7     4.7     4.4  
Michigan 3.7     3.7     3.6  
Pennsylvania 3.6     3.6     3.6  
Colorado 3.5     3.5     3.9  
Utah 3.3     3.4     3.7  
Illinois 3.3     3.2     3.3  
Total 53.5 %   53.5 %   54.0 %

                The following table shows portfolio data by book year, as of June 30, 2018.

  As of June 30, 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     $ 32     20 %   655     171     1     1     0.3 %   0.3 %
2014 3,451     1,210     35 %   14,786     6,245     54     21     3.6 %   0.5 %
2015 12,422     7,505     60 %   52,548     34,641     235     33     2.9 %   0.5 %
2016 21,187     16,800     79 %   83,626     69,454     283     18     2.2 %   0.4 %
2017 21,582     19,784     92 %   85,897     80,646     188     1     2.0 %   0.2 %
2018 12,973     12,758     98 %   51,457     50,836     7         0.5 %   %
Total $ 71,777     $ 58,089         288,969     241,993     768     74          

(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 six months ended
  June 30, 2018   June 30, 2017   June 30, 2018   June 30, 2017
               
  (In Thousands)
Beginning balance $ 10,391     $ 3,761     $ 8,761     $ 3,001  
Less reinsurance recoverables (1) (2,334 )   (564 )   (1,902 )   (297 )
Beginning balance, net of reinsurance recoverables 8,057     3,197     6,859     2,704  
               
Add claims incurred:              
Claims and claim expenses incurred:              
Current year (2) 1,212     1,376     3,152     2,331  
Prior years (3) (569 )   (3 )   (940 )   (323 )
Total claims and claims expenses incurred 643     1,373     2,212     2,008  
               
Less claims paid:              
Claims and claim expenses paid:              
Current year (2)              
Prior years (3) 481     421     852     563  
Total claims and claim expenses paid 481     421     852     563  
               
Reserve at end of period, net of reinsurance recoverables 8,219     4,149     8,219     4,149  
Add reinsurance recoverables (1) 2,382     899     2,382     899  
Ending balance $ 10,601     $ 5,048     $ 10,601     $ 5,048  

(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.
(3) Related to insured loans with defaults occurring in prior years, which have been continuously in default since that time.

                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 six months ended
  June 30, 2018   June 30, 2017   June 30, 2018   June 30, 2017
Beginning default inventory 1,000     207     928     179  
Plus: new defaults 287     147     700     271  
Less: cures (501 )   (97 )   (825 )   (189 )
Less: claims paid (18 )   (8 )   (35 )   (12 )
Ending default inventory 768     249     768     249  

                The following table provides details of our claims paid, before giving effect to claims ceded under the 2016 QSR Transaction, for the periods indicated. No claims paid were ceded under the 2018 QSR Transaction during the periods indicated.

  For the three months ended   For the six months ended
  June 30, 2018   June 30, 2017   June 30, 2018   June 30, 2017
  (In Thousands)
Number of claims paid (1) 18     8     35     12  
Total amount paid for claims $ 607     $ 429     $ 1,089     $ 571  
Average amount paid per claim (2) $ 36     $ 54     $ 35     $ 48  
Severity(3) 78 %   86 %   76 %   87 %

(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 divided by the related RIF on the loan at the time the claim is perfected.

                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 June 30, 2018   As of June 30, 2017
  (In Thousands)
Case (1) $ 13     $ 19  
IBNR 1     1  
Total $ 14     $ 20  

(1) Defined as the gross reserve per insured loan in default.

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

  As of
  June 30, 2018   March 31, 2018   June 30, 2017
  (In Thousands)
Available assets $ 653,080     $ 555,336     $ 485,019  
Risk-based required assets 587,235     522,260     298,091  
           

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Source: NMI Holdings Inc