Press Release

NMI Holdings, Inc. Reports Second Quarter 2020 Financial Results
Aug 05, 2020

EMERYVILLE, Calif., Aug. 05, 2020 (GLOBE NEWSWIRE) -- NMI Holdings, Inc. (Nasdaq: NMIH) today reported GAAP net income of $26.8 million, or $0.36 per diluted share, for the second quarter ended June 30, 2020, which compares to $58.3 million, or $0.74 per diluted share, in the first quarter ended March 31, 2020 and $39.1 million, or $0.56 per diluted share, in the second quarter ended June 30, 2019. Adjusted net income for the quarter was $29.7 million or $0.40 per diluted share, which compares to $52.7 million or $0.75 per diluted share in the first quarter ended March 31, 2020 and $41.4 million or $0.59 per diluted share in the second quarter ended June 30, 2019. Results for the second quarter ended June 30, 2020, reflect the impact of additional claims and claim expenses incurred on higher default experience in connection with the COVID-19 pandemic. 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, "From the start of this crisis, we have taken steps to protect the health and safety of our employees and ensure our continued ability to seamlessly support our lenders and their borrowers. While still early, we have been encouraged by the resiliency we’ve seen in the housing market. Demand has been robust, house prices have continued to rise and record low interest rates have giving more Americans a chance to access homeownership at a time when it’s most critical.” Merkle continued, “This is the time when our customers need us most, and our broadly conservative stance heading into this crisis, and the recent success we have achieved in the capital and reinsurance markets positions us well to continue supporting them and the overall housing market during the COVID-19 pandemic.”

Selected highlights from the second quarter 2020 include:

  • Primary insurance-in-force at quarter end was $98.9 billion, up 21% compared to the second quarter of 2019
     
  • New insurance written was $13.1 billion, up 8% compared to $12.2 billion in the second quarter of 2019
     
  • Net premiums earned were $98.9 million, up 19% compared to $83.2 million in the second quarter of 2019
     
  • Underwriting and operating expenses were $30.4 million, including $0.2 million of capital market transaction costs, compared to $32.2 million in the second quarter of 2019, including $0.7 million of capital market transaction costs
     
  • Insurance claims and claim expenses were $34.3 million, compared to $2.9 million in the second quarter of 2019, reflecting higher default experience attributable to the COVID-19 pandemic
     
  • At quarter-end, cash and investments were $1.9 billion and shareholders’ equity was $1.3 billion, equal to $14.82 per share
     
  • Annualized return-on-equity for the quarter was 9.6% and annualized adjusted return-on-equity was 10.7%
     
  • At quarter-end, the company reported total PMIERs available assets of $1.7 billion and net risk- based required assets of $1.0 billion

Concurrent with the release of second quarter earnings, the company has filed a Form 8-K that includes its current assessment of the impact the COVID-19 outbreak will have on the U.S. economy and housing market, and its perspective on the implications for the U.S. mortgage insurance market, and its business performance and financial position. The Form 8-K also includes selected operating statistics for the month ended July 31, 2020. Investors may access the Form 8-K on the company’s website, www.nationalmi.com, in the “Investor Relations” section.

  Quarter Ended Quarter Ended Quarter Ended Change (1) Change (1)
  6/30/2020 3/31/2020 6/30/2019 Q/Q Y/Y
INSURANCE METRICS ($billions)
Primary Insurance-in-Force $ 98.9   $ 98.5   $ 81.7   —    % 21    %
New Insurance Written - NIW          
Monthly premium 11.9   10.5   11.1   14    %   %
Single premium 1.2   0.8   1.1   48    % 11    %
Total (2) 13.1   11.3   12.2   16    %   %
           
FINANCIAL HIGHLIGHTS ($millions, except per share amounts)
Net Premiums Earned 98.9   98.7   83.2   —    % 19    %
Insurance Claims and Claim Expenses 34.3   5.7   2.9   503    % 1075    %
Underwriting and Operating Expenses (3) 30.4   32.3   32.2   (6 ) % (6 ) %
Net Income 26.8   58.3   39.1   (54 ) % (31 ) %
Adjusted Net Income 29.7   52.7   41.4   (44 ) % (28 ) %
Cash and Investments $ 1,855   $ 1,180   $ 1,053   57    % 76    %
Shareholders' Equity 1,257   975   812   29    % 55    %
Book Value per Share $ 14.82   $ 14.15   $ 11.99     % 24    %
Loss Ratio 34.7 % 5.8 % 3.5 %    
Expense Ratio (3) 30.7 % 32.7 % 38.7 %    

(1)  Percentages may not be replicated based on the rounded figures presented in the table.
(2)  Total may not foot due to rounding.
(3)  Certain "Underwriting and operating expenses" have been reclassified as "Service expenses" in prior periods.

Conference Call and Webcast Details  

The company will hold a conference call, which will be webcast live today, August 5, 2020, 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 conference call can also be accessed by dialing (888) 734-0328 in the U.S., or (914) 495-8578 internationally, and using Conference ID: 3189949 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 (the "Securities Act"), Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and the U.S. Private Securities Litigation Reform Act of 1995 (the "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: uncertainty relating to the coronavirus ("COVID-19") pandemic and the measures taken by governmental authorities and other third parties to combat it, including their impact on the global economy, the U.S. housing, real estate, housing finance and mortgage insurance markets, and the Company’s business, operations and personnel, 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 generally, or with first time homebuyers or on very high loan-to-value mortgages; 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 other private mortgage insurers and government mortgage insurers, such as the Federal Housing Administration, U.S. Department of Agriculture's Rural Housing Service and the U.S. Department of Veterans Affairs, 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, including any action by the Consumer Financial Protection Bureau to address the planned expiration of the "QM Patch" under the Dodd-Frank Act Ability to Repay/Qualified Mortgage Rule; 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 natural disasters, including, with respect to 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 counterparties, 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, 2019 and in Part II, Item 1A of our Quarterly Report on Form 10-Q for the quarter ended March 31, 2020, 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, adjusted diluted EPS, adjusted return-on-equity, adjusted expense ratio and adjusted combined ratio enhances 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 to increase transparency and enhance 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.

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 average 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 periods 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.

Adjusted expense ratio is defined as GAAP underwriting and operating expenses, excluding the pre-tax effects of periodic costs incurred in connection with capital markets transactions, divided by net premiums earned.

Adjusted combined ratio is defined as the total of GAAP underwriting and operating expenses, excluding the pre-tax effects of periodic costs incurred in connection with capital markets transactions and insurance claims and claims expenses, divided by net premiums earned.

Although adjusted income before tax, adjusted net income, adjusted diluted EPS, adjusted return-on-equity, adjusted expense ratio and adjusted combined ratio 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.

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,
    2020   2019   2020   2019
Revenues   (In Thousands, except for per share data)
Net premiums earned   $ 98,944       $ 83,249       $ 197,661       $ 157,118    
Net investment income   7,070       7,629       15,174       15,012    
Net realized investment gains (losses)   711       (113 )     639       (300 )  
Other revenues   1,223       415       2,123       456    
Total revenues   107,948       91,180       215,597       172,286    
Expenses                
Insurance claims and claim expenses   34,334       2,923       40,031       5,666    
Underwriting and operating expenses(1)   30,370       32,190       62,647       62,990    
Service expenses(1)   1,090       353       1,824       402    
Interest expense   5,941       3,071       8,685       6,132    
Loss (gain) from change in fair value of warrant liability   1,236       1,685       (4,723 )     7,164    
Total expenses   72,971       40,222       108,464       82,354    
                 
Income before income taxes   34,977       50,958       107,133       89,932    
Income tax expense   8,129       11,858       22,014       17,933    
Net income   $ 26,848       $ 39,100       $ 85,119       $ 71,999    
                 
Earnings per share                
Basic   $ 0.36       $ 0.58       $ 1.20       $ 1.07    
Diluted   $ 0.36       $ 0.56       $ 1.11       $ 1.04    
                 
Weighted average common shares outstanding                
Basic   73,617       67,590       71,090       67,143    
Diluted   74,174       69,590       72,407       69,348    
                 
Loss ratio(2)   34.7   %   3.5   %   20.3   %   3.6   %
Expense ratio(3)   30.7   %   38.7   %   31.7   %   40.1   %
Combined ratio (4)   65.4   %   42.2   %   51.9   %   43.7   %
                 
Net income   $ 26,848       $ 39,100       $ 85,119       $ 71,999    
Other comprehensive income, net of tax:                
Unrealized gains in accumulated other comprehensive income, net of tax expense of $8,978 and $3,662 for the three months ended June 30, 2020 and 2019, and $5,162 and $7,615 for the six months ended June 30, 2020 and 2019, respectively   33,773       13,779       19,418       28,647    
Reclassification adjustment for realized (gains) losses included in net income, net of tax expense (benefit) of $149 and ($24) for the three months ended June 30, 2020 and 2019, and ($258) and ($63) for the six months ended June 30, 2020 and 2019, respectively   (562 )     89       969       237    
Other comprehensive income, net of tax   33,211       13,868       20,387       28,884    
Comprehensive income   $ 60,059       $ 52,968       $ 105,506       $ 100,883    

(1)  Certain "Underwriting and operating expenses" have been reclassified as "Service expenses" in prior periods.
(2)  Loss ratio is calculated by dividing insurance claims and claim expenses by net premiums earned.
(3)  Expense ratio is calculated by dividing other underwriting and operating expenses by net premiums earned.
(4)  Combined ratio may not foot due to rounding.

 

 

         
Consolidated balance sheets   June 30, 2020   December 31, 2019
Assets   (In Thousands, except for share data)
Fixed maturities, available-for-sale, at fair value (amortized cost of $1,286,803 and $1,113,779 as of June 30, 2020 and December 31, 2019, respectively)   $ 1,339,771     $ 1,140,940  
Cash and cash equivalents (including restricted cash of $2,068 and $2,662 as of June 30, 2020 and December 31, 2019, respectively)   515,450     41,089  
Premiums receivable   46,408     46,085  
Accrued investment income   7,909     6,831  
Prepaid expenses   3,416     3,512  
Deferred policy acquisition costs, net   63,619     59,972  
Software and equipment, net   26,105     26,096  
Intangible assets and goodwill   3,634     3,634  
Prepaid reinsurance premiums   10,263     15,488  
Reinsurance recoverable (1)   14,307     4,939  
Other assets (1)   16,049     16,232  
Total assets   $ 2,046,931     $ 1,364,818  
         
Liabilities        
Debt   $ 392,773     $ 145,764  
Unearned premiums   115,236     136,642  
Accounts payable and accrued expenses   104,777     39,904  
Reserve for insurance claims and claim expenses   69,903     23,752  
Reinsurance funds withheld   12,205     14,310  
Warrant liability, at fair value   2,698     7,641  
Deferred tax liability, net   83,785     56,360  
Other liabilities   8,517     10,025  
Total liabilities   789,894     434,398  
         
Shareholders' equity        
Common stock - class A shares, $0.01 par value; 84,804,766 and 68,358,074 shares issued and outstanding as of June 30, 2020 and December 31, 2019, respectively (250,000,000 shares authorized)   848     684  
Additional paid-in capital   927,950     707,003  
Accumulated other comprehensive income, net of tax   37,675     17,288  
Retained earnings   290,564     205,445  
Total shareholders' equity   1,257,037     930,420  
Total liabilities and shareholders' equity   $ 2,046,931     $ 1,364,818  

(1)  Reinsurance recoverable has been reclassified from "Other assets" in the prior period.

 

 

 
Non-GAAP Financial Measure Reconciliations
  Quarter ended   Quarter ended   Quarter ended
  6/30/2020   3/31/2020   6/30/2019
 As Reported (In Thousands, except for per share data)
Revenues          
Net premiums earned $ 98,944       $ 98,717       $ 83,249    
Net investment income 7,070       8,104       7,629    
Net realized investment gains (losses) 711       (72 )     (113 )  
Other revenues 1,223       900       415    
Total revenues 107,948       107,649       91,180    
Expenses          
Insurance claims and claim expenses 34,334       5,697       2,923    
Underwriting and operating expenses(1) 30,370       32,277       32,190    
Service expenses(1) 1,090       734       353    
Interest expense 5,941       2,744       3,071    
Loss (gain) from change in fair value of warrant liability 1,236       (5,959 )     1,685    
Total expenses 72,971       35,493       40,222    
           
Income before income taxes 34,977       72,156       50,958    
Income tax expense 8,129       13,885       11,858    
Net income $ 26,848       $ 58,271       $ 39,100    
           
Adjustments:          
Net realized investment (gains) losses (711 )     72       113    
Loss (gain) from change in fair value of warrant liability 1,236       (5,959 )     1,685    
Capital markets transaction costs 2,790       474       664    
Adjusted income before taxes 38,292       66,743       53,420    
           
Income tax expense on adjustments 437       115       163    
Adjusted net income $ 29,726       $ 52,743       $ 41,399    
           
Weighted average diluted shares outstanding 74,174       70,401       69,590    
           
Diluted EPS $ 0.36       $ 0.74     (2 ) $ 0.56    
Adjusted diluted EPS $ 0.40       $ 0.75       $ 0.59    
           
Return-on-equity 9.6   %   24.5   %   20.0   %
Adjusted return-on-equity 10.7   %   22.1   %   21.2   %
           
           
Expense ratio (3) 30.7   %   32.7   %   38.7   %
Adjusted expense ratio (4) 30.5   %   32.2   %   37.9   %
           
Combined ratio (5) 65.4   %   38.5   %   42.2   %
Adjusted combined ratio (6) 65.2   %   38.0   %   41.4   %

(1)  Certain "Underwriting and operating expenses" have been reclassified as "Service expenses" in prior periods.
(2)  Diluted net income for the quarter ended March 31, 2020 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.
(3)  Expense ratio is calculated by dividing underwriting and operating expenses by net premiums earned.
(4)  Adjusted expense ratio is calculated by dividing adjusted underwriting and operating expense (underwriting and operating expenses excluding costs related to capital markets reinsurance transactions) by net premiums earned.
(5)  Combined ratio is calculated by dividing the total of underwriting and operating expenses and insurance claims and claims expense by net premiums earned.
(6)  Adjusted combined ratio is calculated by dividing the total of adjusted underwriting and operating expenses (underwriting and operating expenses excluding costs related to capital market reinsurance transaction) and insurance claims and claims expense by net premiums earned.

 

 

       
Historical Quarterly Data 2020   2019
  June 30   March 31   December 31   September 30   June 30   March 31
Revenues (In Thousands, except for per share data)
Net premiums earned $ 98,944     $ 98,717       $ 95,517     $ 92,381       $ 83,249       $ 73,868    
Net investment income 7,070     8,104       7,962     7,882       7,629       7,383    
Net realized investment gains (losses) 711     (72 )     264     81       (113 )     (187 )  
Other revenues 1,223     900       1,154     1,244       415       42    
Total revenues 107,948     107,649       104,897     101,588       91,180       81,106    
Expenses                      
Insurance claims and claim expenses 34,334     5,697       4,269     2,572       2,923       2,743    
Underwriting and operating expenses(1) 30,370     32,277       31,296     32,335       32,190       30,800    
Service expenses(1) 1,090     734       937     909       353       49    
Interest expense 5,941     2,744       2,974     2,979       3,071       3,061    
Loss (gain) from change in fair value of warrant liability 1,236     (5,959 )     2,632     (1,139 )     1,685       5,479    
Total expenses 72,971     35,493       42,108     37,656       40,222       42,132    
                       
Income before income taxes 34,977     72,156       62,789     63,932       50,958       38,974    
Income tax expense 8,129     13,885       12,594     14,169       11,858       6,075    
Net income $ 26,848     $ 58,271       $ 50,195     $ 49,763       $ 39,100       $ 32,899    
                       
Earnings per share                      
Basic $ 0.36     $ 0.85       $ 0.74     $ 0.73       $ 0.58       $ 0.49    
Diluted $ 0.36     $ 0.74       $ 0.71     $ 0.69       $ 0.56       $ 0.48    
                       
Weighted average common shares outstanding                      
Basic 73,617     68,563       68,140     67,849       67,590       66,692    
Diluted 74,174     70,401       70,276     70,137       69,590       68,996    
                       
Other data                      
Loss Ratio(2) 34.7 %   5.8   %   4.5 %   2.8   %   3.5   %   3.7   %
Expense Ratio(3) 30.7 %   32.7   %   32.8 %   35.0   %   38.7   %   41.7   %
Combined ratio (4) 65.4 %   38.5   %   37.2 %   37.8   %   42.2   %   45.4   %

(1)  Certain "Underwriting and operating expenses" have been reclassified as "Service expenses" in prior periods.
(2)  Loss ratio is calculated by dividing insurance claims and claim expenses by net premiums earned.
(3)  Expense ratio is calculated by dividing underwriting and operating expenses by net premiums earned.
(4)  Combined ratio may not foot due to rounding.

 

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,
2020
  March 31,
2020
  December 31,
2019
  September 30,
2019
  June 30,
2019
  March 31,
2019
  (In Millions)
Monthly $ 11,885     $ 10,461     $ 11,085     $ 12,994     $ 11,067     $ 6,211  
Single 1,239     836     864     1,106     1,112     702  
Primary $ 13,124     $ 11,297     $ 11,949     $ 14,100     $ 12,179     $ 6,913  

 

Primary and pool IIF As of
  June 30,
2020
  March 31,
2020
  December 31,
2019
  September 30,
2019
  June 30,
2019
  March 31,
2019
  (In Millions)
Monthly $ 82,848     $ 81,347     $ 77,097     $ 71,814     $ 63,922     $ 55,995  
Single 16,057     17,147     17,657     17,899     17,786     17,239  
Primary 98,905     98,494     94,754     89,713     81,708     73,234  
                       
Pool 2,340     2,487     2,570     2,668     2,758     2,838  
Total $ 101,245     $ 100,981     $ 97,324     $ 92,381     $ 84,466     $ 76,072  

 

The following table presents the amounts related to the company's quota-share reinsurance transactions (the 2016 QSR Transaction, 2018 QSR Transaction and 2020 QSR Transaction, and collectively, the QSR Transactions), and Insurance-Linked Note transactions (the 2017 ILN Transaction, 2018 ILN Transaction and 2019 ILN Transaction, and collectively, the ILN Transactions) for the periods indicated.

    For the three months ended
    June 30,
2020
  March 31,
2020
  December 31,
2019
  September 30,
2019
  June 30,
2019
  March 31,
2019
     
The QSR Transactions                        
Ceded risk-in-force   $ 4,563,676     $ 4,843,715     $ 5,137,249     $ 4,901,809     $ 4,558,862     $ 4,534,353  
Ceded premiums earned   (23,210 )   (23,011 )   (23,673 )   (23,151 )   (20,919 )   (21,468 )
Ceded claims and claim expenses   8,669     1,532     1,030     766     770     899  
Ceding commission earned   4,428     4,513     4,691     4,584     4,171     4,206  
Profit commission   5,271     12,413     13,314     13,254     11,884     12,061  
                         
The ILN Transactions                        
Ceded premiums   $ (3,267 )   $ (3,872 )   $ (4,263 )   $ (4,409 )   $ (2,895 )   $ (3,023 )

 

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,
2020
  March 31,
2020
  December 31,
2019
  September 30,
2019
  June 30,
2019
  March 31,
2019
    ($ Values In Millions, except as noted below)
New insurance written   $ 13,124     $ 11,297     $ 11,949     $ 14,100     $ 12,179     $ 6,913  
New risk written   3,260     2,897     3,082     3,651     3,183     1,799  
Insurance in force (IIF) (1)   98,905     98,494     94,754     89,713     81,708     73,234  
Risk in force (1)   25,238     25,192     24,173     22,810     20,661     18,373  
Policies in force (count) (1)   372,934     376,852     366,039     350,395     324,876     297,232  
Average loan size ($ value in thousands) (1)   $ 265     $ 261     $ 259     $ 256     $ 252     $ 246  
Coverage percentage (2)   25.5 %   25.6 %   25.5 %   25.4 %   25.3 %   25.1 %
Loans in default (count) (1)   10,816     1,449     1,448     1,230     1,028     940  
Percentage of loans in default (1)   2.90 %   0.38 %   0.40 %   0.35 %   0.32 %   0.32 %
Risk in force on defaulted loans (1)   $ 799     $ 84     $ 84     $ 70     $ 58     $ 53  
Average premium yield (3)   0.40 %   0.41 %   0.41 %   0.43 %   0.43 %   0.42 %
Earnings from cancellations   $ 15.5     $ 8.6     $ 8.0     $ 7.4     $ 4.5     $ 2.3  
Annual persistency (4)   64.1 %   71.7 %   76.8 %   82.4 %   86.0 %   87.2 %
Quarterly run-off (5)   12.9 %   8.0 %   7.7 %   7.5 %   5.1 %   3.3 %

(1)  Reported as of the end of the period.
(2)  Calculated as end of period risk-in-force (RIF) divided by end of period IIF.
(3)  Calculated as net premiums earned, divided by average primary IIF for the period, annualized.
(4)  Defined as the percentage of IIF that remains on our books after a given 12-month period.
(5)  Defined as the percentage of IIF that is no longer on our books after a given three 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, 2020   March 31, 2020   June 30, 2019
  ($ In Millions)
>= 760 $ 8,052     $ 6,290     $ 5,627  
740-759 1,866     1,615     2,165  
720-739 1,607     1,579     1,785  
700-719 959     1,038     1,337  
680-699 514     565     891  
<=679 126     210     374  
Total $ 13,124     $ 11,297     $ 12,179  
Weighted average FICO 762     757     751  

 

Primary NIW by LTV For the three months ended
  June 30, 2020   March 31, 2020   June 30, 2019
  (In Millions)
95.01% and above $ 547     $ 721     $ 971  
90.01% to 95.00% 5,385     5,009     5,931  
85.01% to 90.00% 5,067     4,082     4,085  
85.00% and below 2,125     1,485     1,192  
Total $ 13,124     $ 11,297     $ 12,179  
Weighted average LTV 90.7 %   91.3 %   92.0 %

 

Primary NIW by purchase/refinance mix For the three months ended
  June 30, 2020   March 31, 2020   June 30, 2019
  (In Millions)
Purchase $ 7,776     $ 7,991     $ 10,697  
Refinance 5,348     3,306     1,482  
Total $ 13,124     $ 11,297     $ 12,179  

 

The table below presents a summary of our primary IIF and RIF by book year as of June 30, 2020.

Primary IIF and RIF As of June 30, 2020
  IIF   RIF
  (In Millions)
June 30, 2020 $ 23,949     $ 6,039  
2019 34,658     9,017  
2018 14,322     3,643  
2017 11,548     2,877  
2016 9,595     2,428  
2015 and before 4,833     1,234  
Total $ 98,905     $ 25,238  

 

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, 2020   March 31, 2020   June 30, 2019
  (In Millions)
>= 760 $ 48,898     $ 47,340     $ 37,830  
740-759 15,764     16,060     13,731  
720-739 13,882     14,002     11,388  
700-719 10,228     10,518     9,028  
680-699 6,657     6,879     6,045  
<=679 3,476     3,695     3,686  
Total $ 98,905     $ 98,494     $ 81,708  

 

Primary RIF by FICO As of
  June 30, 2020   March 31, 2020   June 30, 2019
  (In Millions)
>= 760 $ 12,433     $ 12,076     $ 9,551  
740-759 4,031     4,121     3,499  
720-739 3,585     3,626     2,904  
700-719 2,625     2,696     2,286  
680-699 1,706     1,760     1,524  
<=679 858     913     897  
Total $ 25,238     $ 25,192     $ 20,661  

 

Primary IIF by LTV As of
  June 30, 2020   March 31, 2020   June 30, 2019
  (In Millions)
95.01% and above $ 8,453     $ 8,838     $ 7,925  
90.01% to 95.00% 45,862     46,318     38,371  
85.01% to 90.00% 32,603     31,729     25,099  
85.00% and below 11,987     11,609     10,313  
Total $ 98,905     $ 98,494     $ 81,708  

 

Primary RIF by LTV As of
  June 30, 2020   March 31, 2020   June 30, 2019
  (In Millions)
95.01% and above $ 2,387     $ 2,478     $ 2,145  
90.01% to 95.00% 13,463     13,587     11,206  
85.01% to 90.00% 7,985     7,767     6,108  
85.00% and below 1,403     1,360     1,202  
Total $ 25,238     $ 25,192     $ 20,661  

 

Primary RIF by Loan Type As of
  June 30, 2020   March 31, 2020   June 30, 2019
           
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, 2020   March 31, 2020   June 30, 2019
  (In Millions)
IIF, beginning of period $ 98,494     $ 94,754     $ 73,234  
NIW 13,124     11,297     12,179  
Cancellations, principal repayments and other reductions (12,713 )   (7,557 )   (3,705 )
IIF, end of period $ 98,905     $ 98,494     $ 81,708  

 

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, 2020   March 31, 2020   June 30, 2019
California 11.3 %   11.5 %   12.3 %
Texas 8.1     8.2     8.2  
Florida 6.2     5.9     5.4  
Virginia 5.4     5.3     5.2  
Illinois 4.0     3.8     3.6  
Colorado 3.8     3.6     3.4  
Pennsylvania 3.6     3.7     3.6  
Maryland 3.5     3.4     3.3  
Washington 3.4     3.3     3.0  
Massachusetts 3.4     3.3     2.8  
Total 52.7 %   52.0 %   50.8 %

 

The table below presents selected primary portfolio statistics, by book year, as of June 30, 2020.

  As of June 30, 2020
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)   Current default rate  (3)
  ($ Values in Millions)    
2013 $ 162   $ 17   10 %   655   98   1   1   0.3 %   0.3 %   1.0 %
2014 3,451   649   19 %   14,786   3,633   117   46   4.2 %   1.1 %   3.2 %
2015 12,422   4,167   34 %   52,548   20,466   559   106   3.4 %   1.3 %   2.7 %
2016 21,187   9,595   45 %   83,626   42,628   1,385   107   3.1 %   1.8 %   3.2 %
2017 21,582   11,548   54 %   85,897   51,702   2,132   65   5.2 %   2.6 %   4.1 %
2018 27,295   14,322   52 %   104,043   62,237   2,732   37   8.4 %   2.7 %   4.4 %
2019 45,141   34,658   77 %   148,423   119,696   3,357   3   12.5 %   2.3 %   2.8 %
2020 24,421   23,949   98 %   73,653   72,474   533     8.5 %   0.7 %   0.7 %
Total $ 155,661   $ 98,905       563,631   372,934   10,816   365            

(1)  Calculated as total claims incurred (paid and reserved) divided by cumulative premiums earned, net of reinsurance.
(2)  Calculated as the sum of the number of claims paid ever to date and number of loans in default divided by policies ever in force.
(3)  Calculated as the number of loans in default divided by number of policies in force.

 

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

    For the three months ended   For the six months ended
    June 30, 2020   June 30, 2019   June 30, 2020   June 30, 2019
    (In Thousands)
Beginning balance   $ 29,479     $ 15,537     $ 23,752     $ 12,811  
Less reinsurance recoverables (1)   (6,193 )   (3,678 )   (4,939 )   (3,001 )
Beginning balance, net of reinsurance recoverables   23,286     11,859     18,813     9,810  
                 
Add claims incurred:                
Claims and claim expenses incurred:                
Current year (2)   34,958     3,492     42,516     7,401  
Prior years (3)   (624 )   (569 )   (2,485 )   (1,735 )
Total claims and claim expenses incurred   34,334     2,923     40,031     5,666  
                 
Less claims paid:                
Claims and claim expenses paid:                
Current year (2)   39         39      
Prior years (3)   1,985     674     3,209     1,368  
Reinsurance terminations (4)       (549 )       (549 )
Total claims and claim expenses paid   2,024     125     3,248     819  
                 
Reserve at end of period, net of reinsurance recoverables   55,596     14,657     55,596     14,657  
Add reinsurance recoverables (1)   14,307     3,775     14,307     3,775  
Ending balance   $ 69,903     $ 18,432     $ 69,903     $ 18,432  

(1)  Related to ceded losses recoverable under the QSR Transactions.
(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, the 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 before the start of the current year. Amounts are presented net of reinsurance.
(4)  Represents the settlement of reinsurance recoverables in conjunction with the termination of one reinsurer under the 2016 QSR Transaction on a cut-off basis. 

 

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, 2020   June 30, 2019   June 30, 2020   June 30, 2019
Beginning default inventory 1,449     940     1,448     877  
Plus: new defaults 9,770     546     10,282     1,120  
Less: cures (353 )   (433 )   (828 )   (907 )
Less: claims paid (49 )   (25 )   (83 )   (62 )
Less: claims denied (1 )       (3 )    
Ending default inventory 10,816     1,028     10,816     1,028  

 

The following table provides details of our claims paid, before giving effect to claims ceded under the QSR Transactions, for the periods indicated.

  For the three months ended   For the six months ended
  June 30, 2020   June 30, 2019   June 30, 2020   June 30, 2019
  (In Thousands)
Number of claims paid (1) 49     25     83     62  
Total amount paid for claims $ 2,578     $ 788     $ 4,081     $ 1,714  
Average amount paid per claim $ 53     $ 32     $ 49     $ 28  
Severity(2) 89 %   77 %   87 %   69 %

(1)  Count includes one and two claims settled without payment for the three and six months ended June 30, 2020, respectively, and four and seven claims settled without payment for the three and six months ended June 30, 2019, respectively.
(2)  Severity represents the total amount of claims paid including claim expenses divided by the related RIF on the loan at the time the claim is perfected, and is calculated including 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 June 30, 2020   As of June 30, 2019
  (In Thousands)
Case (1) $ 5.6     $ 16.4  
IBNR (1)(2) 0.9     1.5  
Total $ 6.5     $ 17.9  

(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
  June 30, 2020   March 31, 2020   June 30, 2019
  (In Thousands)
Available Assets $ 1,656,426     $ 1,069,695     $ 878,550  
Risk-Based Required Assets 1,047,619     912,321     782,460  

 

 

National MI Logo 9in.png

 

Source: NMI Holdings Inc