8-K
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of
The Securities Exchange Act of 1934
Date of report (Date of earliest event reported): April 26, 2016
NMI Holdings, Inc.
(Exact Name of Registrant as Specified in Its Charter)
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Delaware | 001-36174 | 45-4914248 |
(State or Other Jurisdiction of Incorporation) | (Commission File Number) | (IRS Employer Identification No.) |
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2100 Powell Street, 12th Floor, Emeryville, CA. |
(Address of Principal Executive Offices) |
(855) 530-6642
(Registrant’s Telephone Number, Including Area Code)
(Former Name or Former Address, if Changed Since Last Report)
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):
⃞ Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
⃞ Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
⃞ Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
⃞ Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))
Item 2.02. Results of Operations and Financial Condition
On April 26, 2016, NMI Holdings, Inc. issued (1) a news release announcing its financial results for the quarter ended March 31, 2016, a copy of which is furnished as Exhibit 99.1 to this report and (2) a first quarter 2016 information supplement, a copy of which is furnished as Exhibit 99.2 to this report.
The information included in, or furnished with, this report has been "furnished" and shall not be deemed "filed" for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), nor shall it be deemed incorporated by reference in any filing or other document under the Securities Act of 1933, as amended, or the Exchange Act, except as shall be expressly set forth by specific reference in such filing or document.
Item 9.01. Financial Statements and Exhibits
(d) Exhibits.
99.1* NMI Holdings, Inc. News Release dated April 26, 2016
99.2* First Quarter 2016 Information Supplement
_____________________
* Furnished herewith.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
NMI Holdings, Inc.
(Registrant)
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Date: April 26, 2016 | By: | /s/ Nicole C. Sanchez |
| | Nicole C. Sanchez |
| | VP, Assistant General Counsel |
EXHIBIT INDEX
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Exhibit No. | Description |
99.1* | NMI Holdings, Inc. News Release dated April 26, 2016 |
99.2* | First Quarter 2016 Information Supplement |
* Furnished herewith
Exhibit
NMI Holdings, Inc. Reports First Quarter 2016 Financial Results,
Monthly Premium New Insurance Written Grows 23% Sequentially
EMERYVILLE, CALIF., Apr. 26, 2016 -- NMI Holdings, Inc. (Nasdaq: NMIH) today reported results for the first quarter ended Mar. 31, 2016. In the first quarter, monthly premium new insurance written (NIW) was $2.5 billion, up 23% over $2.0 billion in the prior quarter and up 170% compared with the first quarter of 2015.
The company reported a net loss for the first quarter of $3.9 million, or $0.07 per share, which compares with a net loss of $4.8 million, or $0.08 per share, in the prior quarter and a net loss of $7.8 million, or $0.13 per share, in the first quarter of 2015. In the first quarter, total revenue was $22.2 million, which compares with $18.9 million in the prior quarter and $9.1 million in the first quarter of 2015.
Bradley Shuster, chairman and CEO of National MI, said, “National MI delivered another excellent quarter, achieving total NIW of $4.3 billion, up more than 150% over the first quarter of 2015. Importantly, in the first quarter we grew monthly product by 23% over the prior quarter. This was on top of the 28% sequential increase achieved in the fourth quarter of 2015. Primary insurance-in-force grew 25% to $18.6 billion, driving record levels of earned premiums. We continue to expect GAAP profitability in the second half of 2016 and thereafter to demonstrate the growing earnings leverage this business produces as we scale into our largely fixed expense base. In addition, we currently are negotiating reinsurance relationships that we believe will provide substantial capital credit while allowing for continued growth in net premiums and the generation of internal capital. We expect that reinsurance will become a permanent part of our capital structure and will allow us to defer indefinitely an equity capital raise.”
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• | Total NIW of $4.3 billion in the first quarter compares with total NIW of $4.5 billion in the prior quarter and total NIW of $1.7 billion in the first quarter of 2015. |
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• | Monthly premium NIW was $2.5 billion, an increase of 23% over $2.0 billion in the prior quarter and an increase of 170% over the first quarter of 2015. Single premium NIW of $1.8 billion was down 30% from the prior quarter and up 128% compared with the same quarter a year ago. |
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• | Premiums earned for the quarter were $19.8 million, up from $16.9 million in the prior quarter and $6.9 million in the same quarter a year ago. |
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• | Investment income in the first quarter was $3.2 million, up from $2.1 million in the prior quarter and $1.6 million in the first quarter of 2015. |
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• | Total underwriting and operating expenses in the first quarter were $22.7 million, including share-based compensation expense of $1.4 million. This compares with total underwriting and operating expenses of $21.7 million, including $2.3 million of share-based compensation, in the prior quarter, and $18.4 million, including $2.0 million of share-based compensation, in the same quarter a year ago. |
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• | As of the end of the first quarter, the company had approved master policies in place with 1,023 customers, up from 964 as of the end of the prior quarter, and up from 777 as of the end of the first quarter of 2015. Customers delivering NIW in the quarter grew to a new high of 469, which compares with 427 in the prior quarter and 291 in the same quarter a year ago. On an ever-to-date basis, customers delivering NIW grew to 594. |
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• | As of Mar. 31, 2016, the company had primary insurance-in-force of $18.6 billion, which compares with $14.8 billion at the prior quarter end and $4.8 billion as of Mar. 31, 2015. Pool insurance-in-force as of the end of the first quarter was $4.1 billion, which compares with $4.2 billion at the prior quarter-end and $4.6 billion as of Mar. 31, 2015. |
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• | At quarter-end, cash and investments were $630 million, including $84 million at the holding company, and book equity was $410 million, equal to $6.94 per share. This book value excludes any benefit attributable to the company’s deferred tax asset of approximately $66 million as of Dec. 31, 2015. |
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• | At quarter-end, the company had total PMIERs available assets of $434 million and based on its current risk-in-force was required to maintain PMIERs assets of $303 million. |
Outlook
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• | The company currently expects to write in the range of $19- $20 billion of new insurance in 2016. |
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• | To support this growth, the company expects in 2016 to execute reinsurance arrangements that would defer indefinitely the need for additional equity capital. |
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• | The company currently expects to achieve GAAP profitability in the second half of 2016. This outlook includes the impact of expected NIW growth, growth in volume-related expenses, and reinsurance. |
Conference Call and Webcast Details
NMI Holdings, Inc. will hold a conference call today, April 26, 2016, at 1:30 p.m. Pacific / 4:30 p.m. Eastern to discuss results for the quarter. The conference call will be broadcast live on the company’s website, on the "Events and Presentations" page of the "Investors" section at http://ir.nationalmi.com. The call may also be accessed by dialing (888) 734-0328 inside the U.S., or (914) 495-8578 for international callers using Conference ID: 91518762, or by referencing NMI Holdings, Inc. Investors and analysts are asked to dial-in ten minutes before the conference call begins.
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: our ability to implement our business strategy, including our ability to attract and retain a diverse customer base and to achieve a diversified mix of business across the spectrum of our product offerings; changes in the business practices of the GSEs that may impact the use of private mortgage insurance; our ongoing ability to comply with the financial requirements of the PMIERs; our ability to maintain sufficient holding company liquidity to meet our short- and long-term liquidity needs; our ability to successfully execute and implement our capital plans, including our ability to enter into, and receive approval of, reinsurance arrangements on terms and conditions that are acceptable to us and to the GSEs; heightened competition for our mortgage insurance business from other private mortgage insurers and the FHA; adoption of new or changes to existing laws and regulations or their enforcement and implementation by regulators; changes to the GSEs' role in the secondary mortgage market or other changes that could affect the residential mortgage industry generally or mortgage insurance in particular; potential future lawsuits, investigations or inquiries or resolution of current inquiries; 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; and general economic downturns and volatility. 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, 2015, 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.
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
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Consolidated statements of operations | For the three months ended March 31, |
| 2016 | | 2015 |
Revenues | (In Thousands) |
Net premiums written | $ | 38,129 |
| | $ | 12,921 |
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Increase in unearned premiums | (18,322 | ) | | (5,985 | ) |
Net premiums earned | 19,807 |
| | 6,936 |
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Net investment income | 3,231 |
| | 1,596 |
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Net realized investment (losses) gains | (885 | ) | | 613 |
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Other revenues | 32 |
| | — |
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Total revenues | 22,185 |
| | 9,145 |
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Expenses | | | |
Insurance claims and claims expenses | 458 |
| | 104 |
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Underwriting and operating expenses | 22,672 |
| | 18,350 |
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Total expenses | 23,130 |
| | 18,454 |
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Other (expense) income | | | |
Gain from change in fair value of warrant liability | 670 |
| | 1,248 |
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Interest expense | (3,632 | ) | | — |
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Loss before income taxes | (3,907 | ) | | (8,061 | ) |
Income tax benefit | — |
| | (241 | ) |
Net loss | $ | (3,907 | ) | | $ | (7,820 | ) |
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Consolidated balance sheets | March 31, 2016 | | December 31, 2015 |
| (In Thousands) |
Total investment portfolio | $ | 556,683 |
| | $ | 559,235 |
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Cash and cash equivalents | 73,302 |
| | 57,317 |
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Deferred policy acquisition costs, net | 20,948 |
| | 17,530 |
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Software and equipment, net | 17,219 |
| | 15,201 |
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Other assets | 16,162 |
| | 13,168 |
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Total assets | $ | 684,314 |
| | $ | 662,451 |
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Term loan | $ | 143,982 |
| | $ | 143,939 |
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Unearned premiums | 109,095 |
| | 90,773 |
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Reserve for insurance claims and claims expenses | 1,137 |
| | 679 |
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Accounts payable and accrued expenses | 19,108 |
| | 22,725 |
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Warrant liability | 797 |
| | 1,467 |
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Deferred tax liability | 137 |
| | 137 |
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Total liabilities | 274,256 |
| | 259,720 |
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Total shareholders' equity | 410,058 |
| | 402,731 |
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Total liabilities and shareholders' equity | $ | 684,314 |
| | $ | 662,451 |
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New Insurance Written, Insurance in Force and Premiums
The table below shows primary and pool IIF, NIW and premiums written and earned.
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Primary and pool IIF and NIW | As of and for the quarter ended |
| March 31, 2016 | | March 31, 2015 |
| IIF |
| NIW | | IIF | | NIW |
| (In Thousands) |
Monthly | $ | 9,209,600 |
| | $ | 2,491,671 |
| | $ | 2,258,776 |
| | $ | 918,697 |
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Single | 9,354,522 |
| | 1,762,403 |
| | 2,576,472 |
| | 777,445 |
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Primary | 18,564,122 |
| | 4,254,074 |
| | 4,835,248 |
| | 1,696,142 |
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Pool | 4,135,620 |
| | — |
| | 4,621,346 |
| | — |
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Total | $ | 22,699,742 |
| | $ | 4,254,074 |
| | $ | 9,456,594 |
| | $ | 1,696,142 |
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Primary and pool premiums written and earned | For the quarter ended |
| March 31, 2016 | | March 31, 2015 |
| (In Thousands) |
Net premiums written | $ | 38,129 |
| | $ | 12,921 |
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Net premiums earned | 19,807 |
| | 6,936 |
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Portfolio Statistics
The table below shows primary NIW, IIF, RIF, policies in force, the weighted average coverage and loans in default, by quarter, for the last five quarters.
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Primary portfolio trends | As of and for the quarter ended |
| March 31, 2016 | | December 31, 2015 | | September 30, 2015 | | June 30, 2015 | | March 31, 2015 |
| (Dollars in Thousands) |
New insurance written | $ | 4,254,074 |
| | $ | 4,546,759 |
| | $ | 3,632,740 |
| | $ | 2,548,515 |
| | $ | 1,696,142 |
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Insurance in force (1) | $ | 18,564,122 |
| | $ | 14,823,926 |
| | $ | 10,601,492 |
| | $ | 7,190,414 |
| | $ | 4,835,248 |
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Risk in force (1) | $ | 4,487,456 |
| | $ | 3,586,462 |
| | $ | 2,553,347 |
| | $ | 1,715,442 |
| | $ | 1,145,602 |
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Policies in force (1) | 79,700 |
| | 63,948 |
| | 46,175 |
| | 31,682 |
| | 21,225 |
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Weighted average coverage (2) | 24.2 | % | | 24.2 | % | | 24.1 | % | | 23.9 | % | | 23.7 | % |
Loans in default (count) | 55 |
| | 36 |
| | 20 |
| | 9 |
| | 6 |
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Risk in force on defaulted loans | $ | 2,765 |
| | $ | 1,705 |
| | $ | 962 |
| | $ | 528 |
| | $ | 350 |
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(1) | Reported as of the end of the period. |
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(2) | End of period RIF divided by IIF. |
The table below reflects a summary of the change in total primary IIF for the three months ended March 31, 2016 and 2015.
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Primary IIF | For the three months ended March 31, |
| 2016 | | 2015 |
| (In Thousands) | | |
IIF, beginning of period | $ | 14,823,926 |
| | $ | 3,369,664 |
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NIW | 4,254,074 |
| | 1,696,142 |
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Cancellations and other reductions | (513,878 | ) | | (230,558 | ) |
IIF, end of period | $ | 18,564,122 |
| | $ | 4,835,248 |
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The table below reflects a summary of our primary IIF and RIF by book year.
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Primary IIF and RIF | As of March 31, 2016 |
| IIF | | RIF |
| (In Thousands) |
2016 | $ | 4,232,299 |
| | $ | 1,010,827 |
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2015 | 11,805,280 |
| | 2,864,146 |
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2014 | 2,461,156 |
| | 597,166 |
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2013 | 65,387 |
| | 15,317 |
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Total | $ | 18,564,122 |
| | $ | 4,487,456 |
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The table below reflects our total primary IIF, RIF and average loan size, by FICO.
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| As of March 31, 2016 |
Primary | IIF | | RIF | | Average primary loan size |
| (Dollars in Thousands) |
>= 740 | $ | 12,191,260 |
| 65.7 | % | | $ | 2,954,383 |
| 65.8 | % | | $ | 239 |
|
680 - 739 | 5,696,679 |
| 30.7 |
| | 1,378,197 |
| 30.7 |
| | 224 |
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620 - 679 | 676,183 |
| 3.6 |
| | 154,876 |
| 3.5 |
| | 203 |
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<= 619 | — |
| — |
| | — |
| — |
| | — |
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Total | $ | 18,564,122 |
| 100.0 | % | | $ | 4,487,456 |
| 100.0 | % | | |
As of March 31, 2016, 98% of our primary RIF was comprised of insurance on fixed rate mortgages, with the remaining 2% of our primary RIF consisting of insurance on adjustable rate mortgages of five years or greater. As of March 31, 2016, 100% of our pool RIF was comprised of insurance on fixed rate mortgages.
The following table reflects the percentage and policy count of our RIF by LTV.
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Total RIF by LTV | As of March 31, 2016 |
| % of Total RIF | | Policy Count |
Primary | |
95.01% and above | 4.4 | % | | 3,741 |
|
90.01% to 95.00% | 54.0 |
| | 37,304 |
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85.01% to 90.00% | 33.4 |
| | 25,197 |
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85.00% and below | 8.2 |
| | 13,458 |
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Total primary | 100.0 | % | | 79,700 |
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Pool | | | |
80.00% and below | 100.0 | % | | 18,629 |
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Total pool | 100.0 | % | | 18,629 |
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Geographic Dispersion
The following tables show the distribution by state of our IIF and RIF, for both primary and pool insurance.
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Top 10 primary IIF and RIF by state | IIF | | RIF |
As of March 31, 2016 | |
1. | California | 14.0 | % | | 13.2 | % |
2. | Texas | 6.6 |
| | 6.8 |
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3. | Virginia | 5.9 |
| | 5.8 |
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4. | Florida | 5.1 |
| | 5.3 |
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5. | Michigan | 4.2 |
| | 4.3 |
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6. | Colorado | 4.0 |
| | 4.1 |
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7. | Arizona | 3.7 |
| | 3.8 |
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8. | Pennsylvania | 3.5 |
| | 3.6 |
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9. | North Carolina | 3.5 |
| | 3.5 |
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10. | Maryland | 3.2 |
| | 3.1 |
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| Total | 53.7 | % | | 53.5 | % |
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Top 10 pool IIF and RIF by state | IIF | | RIF |
As of March 31, 2016 | |
1. | California | 20.8 | % | | 20.7 | % |
2. | Texas | 6.1 |
| | 6.1 |
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3. | Illinois | 4.4 |
| | 4.3 |
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4. | Colorado | 3.8 |
| | 3.8 |
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5. | Washington | 3.6 |
| | 3.6 |
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6. | Florida | 3.6 |
| | 3.6 |
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7. | Pennsylvania | 3.1 |
| | 3.1 |
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8. | Massachusetts | 3.1 |
| | 3.1 |
|
9. | Michigan | 3.1 |
| | 3.1 |
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10. | Wisconsin | 3.0 |
| | 3.0 |
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| Total | 54.6 | % | | 54.4 | % |
a1q16earningsinformat8b7
© 2016 NMI Holdings, Inc. First Quarter 2016 Information Supplement April 26, 2016 NMI Holdings, Inc. (NMIH)
1© 2016 NMI Holdings, Inc. NIW, Market Share, Application Mix $919 $1,461 $1,582 $2,030 $2,492 $777 $1,088 $2,051 $2,517 $1,762 $0 $1,000 $2,000 $3,000 1Q15 2Q15 3Q15 4Q15 1Q16 New Insurance Written $Millions Monthly Single $32 $43 $44 $35 $34 $12 $17 $17 $15 $14 2.9% 3.4% 3.6% 5.7% 7.4%6.3% 6.5% 11.9% 16.6% 12.2% 0% 2% 4% 6% 8% 10% 12% 14% 16% 18% $- $10 $20 $30 $40 $50 1Q15 2Q15 3Q15 4Q15 1Q16 Ma rk et S iz e $ B Market Size and Share by Product Market - Monthly Market - Single NMI Share - Monthly NMI Share - Single Based on company estimates and competitor results 44% 47% 50% 63% 62% 60% 68% 0% 10% 20% 30% 40% 50% 60% 70% 80% Oct -15 Nov-15 Dec-15 Jan-16 Feb-16 Mar-16 MTD Apr- 16 % Monthly Product - Applications
2© 2016 NMI Holdings, Inc. Growing Customer Base *Customers with Approved Master Policies and Those Generating Applications/NIW During the Period • Signed up 59 new customers to master policies • 64 new customers delivered their first application to National MI • 69 new customers generated NIW In 1Q 2016: 64 195 305 436 570 664 735 777 842 906 964 1023 1023 6 19 43 55 145 222 288 320 366 419 469 504 648 4 9 22 35 94 180 251 291 340 391 427 469 594 - 200 400 600 800 1,000 1,200 Q2 2013 Q3 2013 Q4 2013 Q1 2014 Q2 2014 Q3 2014 Q4 2014 Q1 2015 Q2 2015 Q3 2015 Q4 2015 Q1 2016 Ever to Date at 3/31/16 N u m b e r o f C u st o m e rs Master Policies Generating Apps Generating NIW *Some customers do not generate applications or NIW in every quarter
3© 2016 NMI Holdings, Inc. Financial Highlights 4.8 7.2 10.6 14.8 18.6 $5.7 $7.6 $11.6 $15.7 $18.7 0 5 10 15 20 25 30 0 5 10 15 20 25 1Q15 2Q15 3Q15 4Q15 1Q16 In suran ce in F o rc e $B ill io n s P re m iu m Ea rn e d $ M ill io n s Insurance-in-Force & Premiums Earned Primary Insurance in Force Premium Earned - Primary $18.4 $20.9 $19.7 $21.7 $22.7 $2.1 $3.6 $(7.8) $(10.4) $(4.8) $(4.8) $(3.9) $(12.0) $(10.0) $(8.0) $(6.0) $(4.0) $(2.0) $- $- $5 $10 $15 $20 $25 $30 1Q15 2Q15 3Q15 4Q15 1Q16 N et L o ss Ex p en se s $mi lli o n s Expenses & Net Loss Operating Expenses Interest Expense Net Loss 276 271 286 517 546 158 163 161 100 84 $0 $100 $200 $300 $400 $500 $600 $700 1Q15 2Q15 3Q15 4Q15 1Q16 Cash & Investments $millions Insurance Companies Holding Company 248 234 229 431 434 $0 $100 $200 $300 $400 $500 1Q15 2Q15 3Q15 4Q15 1Q16 PMIERs Available Assets $millions
4© 2016 NMI Holdings, Inc. Rethinking the MI Pricing Model Illustrative Loan-Level Example* Pre-Crisis Post-PMIERs Legacy1 Steady State Private MI Market Size $265B (2004) $220B (2016E) Weighted Average FICO 685 750 Weighted Average Premium 62 bps 50 bps Default Frequency 3.5% 2% Loss Ratio 31% 22% Expense Ratio 16% 20% Combined Ratio 47% 42% Underwriting Margin 53% 58% Required Assets (as % of risk)2 8.0% 5.78% After-Tax Investment Yield3 3% 2% Return-on-Required Assets 14.87% 14.95% 1. Legacy operating ratios 1990-2006 2. Initial post-PMIERs asset charge is 6.5%, however under PMIERs, capital charges are relieved over time by seasoning credit, which makes the effective asset charge lower 3. 35% effective tax rate * For illustration purposes only; this is not formal guidance or a forecast Total return on required assets may be less than loan-level pricing model depending upon expense and capital efficiency Return on equity (ROE) for the enterprise can be enhanced through use of debt, reinsurance, or offshore tax structure Acquisition and servicing expenses are fixed on a per-unit basis and are the same regardless of premium rate or loan size; as premium rate decreases, expense ratio increases