Q4 2021 NMI Holdings Inc Earnings Call

February 15, 2022

Thank you for standing by the NII Holdings' fourth quarter 2021 earnings conference call.

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Thank you operator, and good afternoon welcome to the 2021 fourth quarter conference call for National or mine.

I'm, John Swenson, Vice President of Investor Relations and Treasury.

Joining us on the call today are Brad Shuster Executive Chairman, Adam Pulitzer, President and Chief Executive Officer, Rob.

<unk> Malik chief.

<unk> financial Officer, and Julie Norberg, our controller and Chief Accounting Officer.

Financial results for the quarter were released after the close today.

The press release may be accessed on minimize website located at national <unk> Dot com under the investors tab.

During the course of this call we may make comments about our expectations for the future.

Actual results could differ materially from those contained in these forward looking statements.

Additional information about the factors that could cause actual results or trends could differ materially from those discussed on the call.

Can be found on our website.

Or through our regulatory filings with the SEC.

Yes, and to the extent the company makes forward looking statements, we do not undertake any obligation to update those statements in the future in light of subsequent developments.

Further no one should rely on the fact that the guidance of such statements is current at any time other than the time of this call.

Also note that on this call we refer to certain non-GAAP measures.

In today's press release and on our website, we provided a reconciliation of these measures to the most comparable measures under GAAP.

Now I will turn the call over to Brett.

Thank you John and good afternoon, everyone.

I am pleased to report that in the fourth quarter nationally.

Again delivered strong operating performance.

Significant growth in our insured portfolio.

And record financial results.

<unk> a year of standout success.

We closed 2021 with $85 6 billion of total <unk> volume.

And a record $152 3 billion of high quality high performing primary insurance in force.

We delivered broad success and customer development.

Continue to innovate in the reinsurance market.

Once again achieved industry, leading credit performance and.

<unk> <unk>, our CEO succession plan in a seamless fashion.

We generated a record $236 8 million of adjusted net income in 2021.

Up 36% compared to 2020.

And fully delivered on our strong mid teens return goal with a 16, 1% adjusted ROE for the year.

Shifting to Washington matters.

Policymakers regulators the FHFA and the <unk> remained focused on promoting broader access and affordability to the housing market for all borrowers.

Expanding access to homeownership and all the benefits it provides.

That appropriately GARS again systemic risk it is critically important.

At National MRI, we recognize the need to provide all borrowers with an equitable opportunity to access the housing market establish a community identity.

And build long term wealth through homeownership.

And we are actively engaged and committed to equally supporting borrowers from all communities.

We believe there is broad recognition in <unk>.

Washington of the value that the private mortgage insurance industry brings to this effort.

Providing borrowers with down payments support and equal access to mortgage credit.

While also placing private capital in front of it attached there to absorb risk and loss in a downturn.

Yeah.

Overall, I'm delighted with what we achieved last year and I am excited about our opportunity to continue to lead with impact and build value.

For our employees.

For borrowers for our customers and for our shareholders in 2022.

With that let me turn it over to Adam.

Thank you Brad and good afternoon, everyone.

I'm delighted to talk to you today on my first earnings call as President and CEO and to welcome Ravi Velella as our new CFO .

Rami brings a wealth of experience and proven track record as a senior finance leader International EMI.

A an opportunity to get to know him and the time ahead.

For today's discussion I will share some comments about our 2021 results.

<unk> the current mortgage insurance operating environment and update you on our key organizational priority.

I will then turn the call over to Ravi to review our fourth quarter results.

National or my plays a critical role in the housing market and serves an important social purpose, helping borrowers gain access to housing and supporting them as they build value and community for themselves and their families.

Our entire team understands its responsibility and we're proud of the impact we had and the success we achieved in 2021.

During the year, we generated record and IW volume of $85 6 billion and exited with $152 3 billion of high quality high performing insurance in force.

We now have over 500000 policies in force and it helps a record number of borrowers gain access to housing at a time when they needed us most.

We enjoyed continued momentum and growth in our customer franchise, activating 122, new lenders and ending the year with nearly 300 active customers.

We continue to innovate and find success and broad support and the capital and reinsurance markets.

We were once again recognized as a great place to work our sixth consecutive award a reflection of our unique corporate culture, and a testament to the hard work and dedication of our talented team.

And we achieved record financial results for the year generating $444 million of premium revenue up 12% compared to 2020 in.

Industry, leading credit performance with a two 8% loss ratio.

$237 million of adjusted net income up 36% compared to 2020, and a 16, 1% adjusted ROE.

The mortgage insurance market environment remains constructive and a significant success. We achieved in 2021 gives us confidence as we look forward.

Total industry volume was an estimated 585 billion in 2021.

And while increasing interest rates will impact refinancing activity purchase origination volume remains strong.

First time homebuyer demand in particular is that a high and private mortgage insurance penetration of the purchase market has increased as a growing number of borrowers turned to our industry for downpayment support.

The pricing environment is stable and balanced, allowing us to fully and fairly support lenders and their borrowers while at the same time appropriately protecting risk adjusted returns and our ability to deliver long term value for shareholders.

Persistency is improving with the arc of interest rates are real positive given the embedded quality and value of our portfolio.

And credit performance continues to trend in a favorable direction with underwriting discipline remaining paramount across the mortgage market.

Record house price appreciation, providing a sizable equity buffer and broad resiliency in the job market supporting the consumer and household balance sheets.

Sure.

The macro environment is dynamic highlighted by the recent omicron wave increased market volatility.

<unk> inflation and anticipation of fed will raise rates in 2022.

Overall, though as we look ahead, we expect the housing market will remain robust with sustained demand in house price appreciation.

And we expect mortgage insurance market conditions will remain favorable with strong and IW volume and equally constructive pricing and risk dynamics.

In 2022, we will continue to focus on our people.

They are talented innovative and dedicated and we'll continue to invest in our culture with a focus on collaboration performance and impact.

We'll continue to differentiate with our customers the mortgage market is connected and evolving and will work to continue to stand out with our focus on customer service value added engagement and technology leadership.

We will continue to invest in our community with ongoing investment partnership initiatives and philanthropic commitments aimed at helping all communities grow and thrive.

We will continue to prioritize disciplined and risk responsibility as we grow our insured portfolio.

Working to write a large volume of high quality high return and highly persistent business under the protective umbrella of our comprehensive credit risk management framework.

We will continue to focus on building value for our shareholders growing earnings compounding book value and delivering strong mid teen returns.

And we will advance our capital roadmap with today's announcement of our $125 million share repurchase authorization, serving as an important step as we work to maintain our funding balance and progress capital distribution opportunities for our shareholders.

This is an exciting time at national <unk>.

Our core mortgage insurance products are in greater demand than ever before and we're leading with impact in innovation expanding our customer reach delivering strong growth in our insured portfolio and bottom line financial results and helping a record number of borrowers gain access to homeownership with that I'll turn it over to Ravi.

Thank you Adam I am excited to joined National in mind and pleased to report that we have achieved record financial results in the fourth quarter with significant growth in our insurance portfolio and continued strength in our credit performance driving record revenue and bottom line profitability.

Net premiums earned in the fourth quarter were a record $113 9 million adjusted.

Adjusted net income was a record $63.

$5 million or <unk> 73 per diluted share and adjusted return on equity was 16, 5%.

We generated $18 3 billion of <unk> in the fourth quarter include.

Including $17 1 billion of purchase volume.

Our purchase volume increased 4% compared to the third quarter.

And 31% compared to the fourth quarter of 2020.

Primary insurance in force grew to $152 3 billion.

Up 6% from the end of the third quarter and up 37% compared to the fourth quarter of 2020.

12 month persistency in our primary portfolio was 63, 8%.

Up from 58, 1% in the third quarter.

In 2022, we expect persistency will continue to improve.

As refinancing activity slows and an increasing amount of the ni W. Volume, we have written at exceptionally low rate interest rates interest that 12 month persistency calculation.

Net premiums earned in the fourth quarter were $113 9 million compared to $113 6 million in the third quarter.

We earned $5 1 million from the cancellation of single premium policies compared to $7 7 million in the third quarter.

Reported yield for the quarter was 31 basis points compared to 32 basis points in the third quarter.

Reflecting the introduction of ceded premium cost for our most recent heartland completed in October .

A decreased contribution from cancellation earnings.

And the turnover of our pre Covid book.

Investment income was $10 million in the fourth quarter compared to $9 8 million in the third quarter.

Underwriting and operating expenses were $38 8 million compared to $34 7 million in the third quarter.

Expenses in the fourth quarter included $2 5 million of costs associated with our CEO transition and $1 5 million of costs incurred in connection with our island offering in October .

Excluding CEO transition in Ireland related costs.

Adjusted underwriting and operating expenses were $34 8 million in the fourth quarter.

Compared to $32 9 million in the third quarter.

Our GAAP expense ratio was 34, 1% and our adjusted expense ratio was 35%.

We expect to continue to drive efficiency and expense ratio improvement going forward.

We had 6227 defaults in our primary portfolio at December 31 <unk>.

Compared to 7670 <unk> at September 30.

And our default rates declined to one 2% at year end.

Overall, our credit performance continues to trend in a favorable direction.

With an increasing number of impacted borrowers sharing their delinquencies and fewer new defaults emerging as the acute stress of the pandemic recedes.

The performance of our early Covid default population those borrowers who entered forbearance programs and defaulted in 2020.

And are now reaching the end of their 18 month forbearance periods.

Has exceeded our expectations in a favorable way.

And prompted us to release a portion of the reserves, we establish for potential claims outcomes.

As a result, we recognized a claims benefit of $500000 in the fourth quarter.

With the reserves, we established on new defaults in the period fully offset by the release.

Interest expense in the quarter was $8 million and we recorded a $112000 gain from the change in the fair value of our warrant liability during the period.

GAAP net income was a record $60 5 million or <unk> 69 per diluted share for the quarter.

And adjusted net income was a record $63 5 million or <unk> 73 per diluted share.

Total cash and investments were $2 2 billion at quarter end, including $106 million of cash and investments at the holding company.

Shareholders equity at year end was $1 6 billion equal.

Equal to $18 25 per share up.

Up 3% compared to the third quarter, and 13% compared to the fourth quarter of last year.

Yes, $400 million of outstanding senior notes, and our $250 million revolving credit facility remains undrawn and fully available.

At quarter end, we reported total available assets under <unk> of $2 billion.

And risk based required assets of $1 2 billion.

Excess available assets were $855 million.

Capital will remain a focus for us in 2022 and.

And we are excited by the at the new opportunities, we see to further support policyholders.

Optimize our balance sheet and build value for shareholders.

We intend to pursue two island transactions during the year one in each half.

And we expect to begin to execute under our newly authorized $125 million two year share repurchase program.

Our funding profile today is exceedingly strong.

And we have the capacity to both fund the significant growth, we see ahead and.

And support distributions to our shareholders.

In summary, we achieved record results in insurance in force net.

Net premiums earned.

Total revenue.

Net income and adjusted net income.

Our credit performance continues to stand out in a favorable way.

And as we look ahead, we believe we are well positioned to continue to continue delivering strong mid teens returns that are significantly in excess of our cost of capital.

We expect the growing size and attractive credit profile of our insured portfolio.

And our broadly disciplined approach to managing risk expenses and capital will continue to drive our performance.

With that let me turn it back to Adam.

Thank you Ravi.

Overall, we delivered strong results for the quarter and year.

With a record volume and value of new business production and encouraging credit performance in our in force portfolio driving significant profitability and strong mid teen returns.

Looking forward, we are optimistic about the resiliency of the housing market and the long term growth opportunity, we see in the semi sector.

We believe we are well positioned to continue to win with customers drive outsized growth in our high quality and short portfolio maintain the right risk return balance and deliver strong financial results and value for our shareholders.

For joining us today I'll now ask the operator to come back on so we can take your questions.

As a reminder to ask a question you will need to press star one on your telephone.

To withdraw your question press the pound key.

Please stand by what we compile the Q&A roster.

Our first question will come from the line among Devries from Barclays You may begin.

Yes. Thank you.

Could you discuss the pace at which we should expect you to deploy the repurchase authorization.

And how your ability to grow insurance in force might impact that.

Yes, Mark happy to.

Look as a as a timing matter.

Authorization runs through the end of 2023, and we don't have a set schedule for our anticipated activity, rather we expect to execute on an open market basis through the.

Through the course of the authorization period.

Initially, we expect to be I'll call it somewhat programmatic.

And how we execute barring significant shifts in our views around the operating environment valuation or our expectations for portfolio needs and organic opportunity.

Got it.

And next question it looks like you guys gained share.

<unk> in the quarter.

Could you discuss what you think might have might have driven that.

Yes, I'll touch on volume and then I'll touch on share look we wrote $18 3 billion of high quality, new business in the fourth quarter and that rounds out a year, where we delivered nearly $86 billion of production, which for US is really an exceptional level of volume that volume grew our insured portfolio and really thats what were.

Focus on rate as staffing high quality, new production driving growth in our insurance in force, which will drive revenue expansion for us and as we're doing that making sure that we remain disciplined around risk expenses and capital in terms of volume for us in the fourth quarter. It was certainly a strong quarter, but there is no single specific.

Factor that drove our success, we've really just continue to work hard to differentiate with with lenders through our sales effort through our service offering and through our it capabilities on the market share side, Yes, I'd say its really not something that we focus on or manage towards we're most focused on.

Delivering for our customers and when we can succeed writing a large volume of high quality high returning IW.

Okay were there any adjustments that were made to your pricing in the quarter.

No.

Okay, great. Thank you.

Our next question from line of Rick Shane from JP Morgan.

Open.

Hey, good afternoon, everybody and thanks for taking my question.

Congratulations to everybody on your new official rules.

Just wanted to.

Sorry, Adam.

Just wanted to talk a little bit as we sort of reached the inflection point in the cycle for originators.

As some of their incentives shift a little bit in order to drive volume.

And how they can.

Continue to basically or how they can find ways to subsidize volume.

Curious what you guys do to sort of offset any potential risks associated with that and if there are any signs that youre already seeing that suggests that underwriters are shifting their behaviors.

Yes. It is.

Good question and certainly something that we're focused on.

In the prepared remarks, I mentioned that.

Underwriting rigor remains paramount across the mortgage market and we do continue to see that for us nearly all of the business that we're ensuring at this point is sold to or guaranteed by the <unk> and they really control the credit box that we participated in we haven't seen.

Really any notable moves in.

And credit standards by the Gse's and that comes through in the production that we're insuring, we certainly keep our eye on it and to the extent that there was any movement.

Have the ability to obviously express our own risk appetite through rate GPS right. We've got the ability to utilize the various tools between our individual risk underwriting approach the decisions, we make around pricing and also importantly, how we maintain our programmatic stance towards execution and the reinsurance market to ensure that as.

The environment may evolve from a credit risk standpoint, we're staying on our front foot and managing the risks that we allow them to our portfolio.

Great. Yeah look it's a fair point in terms of I think the gse's have maintained their discipline, but at the same time.

Obviously, where you participate.

Sort of puts you at the margin.

In terms of where.

In terms of the margin in terms of credit and certainly, particularly sensitive to HPA. So I think that I think that's sort of.

Go ahead, yes.

So I think thats less.

Less of a of a credit box decision and it's more of a what's the environment that surrounds the risk we're taking on and obviously there is a lot that we monitor at all times right. We look at not just HPA. We look at the course of the virus, we look at what's happening as an inflationary and fiscal policy matter, we do look at what happens with national.

And regionally from an unemployment standpoint, certainly warehouse prices are and where they're trending and what that means for affordability.

On an absolute basis, but also given the rise that we've seen in interest rates at this point there is nothing that's giving us cause for real concern.

It's times like these where there is perhaps the perception that we're at an inflection point, where that generally conservative stance that we've always taken really serves us well right. The conservative stance around how we underwrite our policies the mix and quality of our new business production.

And also really our comprehensive use of reinsurance.

Got it yes.

A fair point and I think what I'm not articulating is that one of the factors.

We would anticipate as we sort of reached this point in the mortgage cycle given.

Given HPA is more cash out refi, so I'm sort of limping.

Jumping that in with the credit and sort of the changing landscape.

Got it outlook from a cash out refi standpoint, I think there's broad limitations in terms of how those loans flow through to the <unk> and by extension for us at this point.

We don't have any cash out.

Refi business coming through and we can certainly price for that as a risk variable.

Okay, great. Thank you and sorry for so many questions. Thank you guys.

And our next question comes from the line of Doug Harter from Credit Suisse. Your line is open.

Thanks.

I guess back to the buyback can you just talk about what your holding company.

Liquidity position is today, and whether you would need to get or plan to get dividends out of CMI subsidiary in order to fund the buyback.

Sure, Doug we have $106 million.

Cash and liquidity cash and investments at the holding company, we do aim over time to maintain well I'll call it an appropriate liquidity cushion.

Roughly equal to one year's worth of interest expense and non Reimbursable holding company cost, which.

So about $40 million, so a chunk of the capital that we expect to deploy in support of the repurchase program will come from existing holding company resources, but we do also anticipate that we will look to extract capital from the operating company to fund the balance we expect when our K comes out over the next few days Youll see in.

Update on our expected dividend position, we do expect that we'll have ordinary course dividend capacity from NMFC given the strength of our performance in its statutory profitability last year.

I guess given that would you expect it to be kind of regular <unk>.

Regular recurring dividends or would you expect kind of a special dividend.

The subsidiary I guess, how are you how are you thinking about that.

Yes.

We don't have a need to extract extraordinary dividends from the operating company over the course of the repurchase authorization to.

To fund it.

To the extent that we progress conversations.

On that topic with with Wisconsin, It might give us an ability to.

To factor that in in terms of timing to execution.

Great. Thank you Rob.

Our next question will come from.

Bose George from <unk>.

Begin.

Hey, everyone. Good afternoon actually one more on the buybacks when you think about the valuation.

In terms of where the stock is trading on a price to book or.

How does that sort of.

Analysis work into your buybacks.

Yes, it's a good question I think in terms of valuation guidepost I'll touch on a few but we obviously want to buy low and see our shares outperform we also have a high degree of conviction about our future opportunity.

But we don't have brightline valuation thresholds above or below which we.

We will or we won't repurchase shares we do look at pro formats right. The pro forma impact at various prices and what we look at and most importantly, there is the earn back period for initial book value per share dilution and we will be opportunistic given that framework as we execute in the market, but the goal of our program overall is really to rightsize.

Our funding profile and manage the cost as I think about it really attacks of carrying an excessive amount of excess capital and so we intend to be programmatic in how we execute as I mentioned earlier in terms of timing its sort of a lines here for valuation barring I would call. It a significant shift in our view of the operating environment.

Our.

Overall outlook and perspective on valuation.

Okay, Great. That's helpful. Thanks, and then actually I just wanted to follow up on the pricing questions.

You guys noted your pricing was stable.

Would you characterize the competitive environment generally is.

As being stable and also can you remind me do participate in the bulk market.

Yes.

The second question first we don't participate in that business.

We know where it's happening we know the prices at which is clearing but it's not a market that we actively participate in in terms of the overall pricing environment, but I think generally speaking we're encouraged is a naturally competitive market, but we continue to see a rational and constructive pricing environment, which affords us the.

<unk> ability to capture attractive unit economics, and expected returns on new business production take a step back I think that the industry is really at a point of balance and Thats constructive right, where we can both fully and fairly support lenders and their borrowers when they need us right as rates are rising they really need us to obviously be balanced and fair.

While at the same time appropriately protecting returns and our ability to deliver value for our shareholders. When we are in the market everyday we are capturing business at rates that are supportive of our strong mid teens return objective and we're optimistic that that balance will carry forward.

Okay, great. Thanks, a lot.

Our next question will come from the line of Cullen Johnson from B Riley Securities you may begin.

Hey, good afternoon, thanks for taking my questions.

Last quarter, we discussed an estimate of roughly 85% of new notices that work in a forbearance program is there a similar estimate.

For this quarter.

It's come down a bit as we would expect but we're getting closer obviously to the pandemic being behind us in terms of drivers of borrower strain in the fourth quarter of the new defaults that emerged I think we had a little over 200, new defaults emerge roughly 72% of those new defaults came in through a forbearance program.

Okay, Great that's helpful and.

And then looking at the favorable development in the quarter was that primarily on Covid era delinquencies are marshaling delinquencies took place prior to 2020.

It's both I would say primarily for us just given the the balance of our default population. We have we have such a small number of defaults coming into the pandemic and many of those that were in default at the start of the pandemic. Those borrowers have many of them have already cure. So when you look at the overall totality of our default.

Position and our reserve position.

Significant significant majority relates to COVID-19 .

<unk>, if you will COVID-19 driven default, that's where we saw the most significant portion of our release and it was as Ravi mentioned it was on those early stage COVID-19 default. So those borrowers who entered forbearance programs and when does the default.

At the onset of the pandemic in 2022 state in default through now but are carrying out in an increasingly.

Great. Thanks, that's helpful. And then just last one for me I guess as you kind of look at.

The dynamic in which higher home prices.

All else equal lower the risk on your current book of business by kind of reducing the chance of foreclosure.

Guess higher home prices can also serve as a headwind to future originations into the top line. So just directionally. When you think of the net impact of home price appreciation on earnings.

Would you think of that as positive or negative.

I would say generally it's going to be a positive for us right anything that bolsters. The performance of the borrower is a real it's a real positive for us and obviously HPA does that in a meaningful way by appetizing, our exposure and providing them with real value and incentive to.

To find ways to to stay current and perform on their mortgage for us in terms of the values the volume impact.

Obviously, we've had record levels of HPA over the last few years and we've also had record levels of <unk>.

Volume across the sector. So there is not necessarily the same direct.

Hi.

We do think as we look out into 2022 that the market will stay strong.

Although we won't necessarily see we don't expect to see the same level of ni W production across the market as we've seen in the last two years now from an HPA standpoint, though the interesting dynamic is that the pace of activity because of warehouse prices are and where interest rates are moving may weigh on purchase activity a bit.

But for US it's not the number of units or the number of policies that we issue and the number of units that we ensure it's the value of the mortgage that drives our niwa volume and drives ultimately the premium payment that we received on that coverage, so with HPA comp larger mortgages and the ratable exposure that we're covering.

Actually grow in a strong HPA environment. So there's a balance between what might come from a unit slowdown balanced by value expansion and an increase in the ratable exposure.

Great. Thank you that's helpful. Those are all my questions.

Our next question comes from the line of Mark Hughes from tourists may begin.

Yes. Thank you.

Ravi anything on the inflation front that might impact.

This year I think you said you are looking for more leverage with that.

Could that be a little bit slower, perhaps because of inflation and wages.

Let me talk a little bit about how we see the impact of inflation on our expense profile, we're likely to see some impact however.

As you know, we're not a manufacturing company.

Lending with a rising cost of raw materials, and we have a fairly small employee group by head count is only up about 247 employees at year end and so when you layer that on our relationship with Tcs are technology provider. It's also helpful for us.

It has been sort of our largest expense between people and systems and the Tcs contract has a seven year fixed price agreement. So we pay the same regardless of what the cost.

What the cost is to them to provide the services under the contract and then on the human capital side, we've been monitoring what's been happening with wage growth and to make sure we're retaining our people and appropriately incentivizing them to drive our business forward.

So overall, we expect to see some growth in our payroll costs given the current environment, but nothing that we expect to meaningfully shift our expense profile going forward.

And where are you in that seven year.

Contract.

We signed the contract in March of 2020. So we're now just about two years into that seven year agreement I'll say just.

It's going really well for us I think the performance that we're seeing right and this was driven first and foremost by operating decisions not expense sufficiency expense outcome as it really favorable one for us, particularly as Ravi noted given what's happening more broadly.

With inflation it really helps to manage the impact for us, but but from an operating standpoint, we've seen tremendous benefit come through already in the first two years.

On the reserve gains in the quarter was that just based on actual cures or did you make some change in assumptions around.

How many of the claims are actually going to be paid out I guess I'm just sort of wondering.

This is Jeff.

The start of something Thats likely to continue for a few quarters.

Yes, let me I'll touch on both sort of what drove it whether its assumption are performed or experience driven and then I'll give you some sense on the go forward.

In the fourth quarter and really through all of 2021, we saw significant cure activity in our pre COVID-19 and early covenant default populations and as a reference.

Over 90% of the defaults that were first reported to us in the second quarter of 2020, those earliest COVID-19 impacted borrowers have since cured out of their delinquency status and when we initially established reserves for those loans, we did consider the beneficial impact that forbearance foreclosure.

Moratoriums and other assistance programs would have on our ultimate claims experience, but the actual performance has exceeded our initial expectations in a favorable way. So it's primarily driven by the performance of the borrower now the one piece that I would say, it's not assumption, but it's also performance is that alongside that favors.

Will cure experience. We've also had record levels of HPA and so we haven't changed our forward look if you will about.

House price paths or other macro factors that will drive our modeled assumptions for cure activity going forward, but we do factor in the acquisition of risk that comes with actual HPA as it develops and so in the fourth quarter. We had another three months of actual HPA that was quite significant and both of those items.

And then the favorable care experience.

And the additional quarters worth of significant HPA put us in a redundant position at year end and drove drove the release.

As to how we look at things going forward with our reserve today were at year end reflects our best estimate of our ultimate claims exposure and we feel really good about our position at year end.

I would say to the extent.

We see continued moves in our default population continued strength in the HPA environment. Those are items that will have to factor for we do reevaluate our reserve position every quarter and so it's always possible that we will have a shift from period.

To period, but for right now we've reflected.

At year end, our view of our past estimate expectation for claims outcomes going forward.

And then Adam.

Just to get your perspective from where you sit on the <unk>.

Origination market for 2023 lot of moving parts.

Fed rate hike environment is obviously an issue.

You've made a number of statements where you feel good about the first time.

Homebuyer demand.

Et cetera.

Any kind of ranges you care to share if we think about that.

<unk>.

Origination volume in the purchase market.

No.

Yes, I wont put a $1 two at all.

Generally say, we see real health and strength on the purchase side, we do have knowledge and expect that.

Activity will be impacted to a degree by rates.

Also by constrained inventory and the extraordinary run of HCA that we've seen but.

Notwithstanding what what may come through in terms of near term impact we still see interest rates that are quite low in a historical context, and I think we see a number of fundamental drivers of growth in the purchase market that we think will sustain.

Hi opportunity if we tally earlier, we talked about house price appreciation, but increasing values drive increased loan sizes all else equal.

There has been an increase a significant increase this year and conforming loan limits, which will help drive drive volume from the jumbo market, but we really don't participate into the conforming market.

There is a demographic tailwind that we've spent a lot of time talking about with the aging of the millennial generation and their increasing focus on homeownership and just the broader COVID-19 driven shift that we've seen right is practical and emotional pull towards homeownership.

That's resulted in so we look at all of those as being sources of support for continued health.

In the purchase market.

Thank you very much.

Our next question comes line of Ryan.

Ryan Gilbert from.

<unk> Your line is open.

Hi, Thanks, good afternoon everybody.

My first question was on the new defaults I think it was kind of interested in the quarter that default went down sequentially versus if you look at your.

Our other peers, who have reported they went up in the fourth quarter from the third quarter. So just any details on.

New default trends in the quarter and then how you expect.

New defaults to progress in 'twenty two it would be helpful.

Sure.

I would say there really isn't anything specific that happened in the quarter that we've noted around that trend.

Our default experience sort of the same message actually we shared when there was a little bit of a bounce in Q3 default experience when we're dealing with such small numbers can move a bit from quarter to quarter, but ultimately there is an individual borrower who's sitting behind each of the loans who's facing stress and that stress and their individual experience doesn't necessarily.

Develop.

Linear path overall, I'd say, we're really encouraged by the performance of our portfolio in the quarter and we're optimistic that we will see continued strength as we go forward.

Okay great.

Second question on <unk> I'm wondering if you can attribute any of the performance in this quarter just to better market share or better wallet share.

With some of the new accounts that you've opened the last year or two like how much is that just expanding your account.

Account list, helping that IW relative to the more stabilized device versus <unk>.

Market share positioning or anything else.

Yes. It was it was a strong year for us and we closed on a high actually in Q4 in the fourth quarter, we activated 36 36 new customers.

Which was up from 29 in the third quarter, we're really pleased with the continued growth in our client franchise that we have seen our sales team is doing a terrific job of engaging with customers and our message continues to resonate with lenders in a meaningful way in any given quarter, though our niwa outcome.

He has driven much more by the lenders that we have activated in prior periods and lenders we activate in the current period and for US It is.

Not necessarily customers any one customer it's really doing the things that have made us successful with consistency over the last 10 years.

Looking to differentiate with with our sales message and with a consultative approach with our service offering and with our it capabilities.

Okay, great. Thanks very much.

Our next question comes from the line now.

<unk> done on daily.

And again.

Thanks, Good evening.

A couple of questions.

<unk> Holdco liquidity did you did you actually have an opco dividend in the quarter or is the increase due to tax or reimbursement type things.

Yes, so one it depends on how we settle intercompany payables, but we did have a dividend during the quarter in the quarter. We paid a one time $26 million dividend from our sister reinsurance subsidiary <unk> to the holding company a portion of that a small portion was an ordinary course distribution and the majority.

Of it was an extraordinary distribution.

I'd say one time there.

It was related to a commutation of the reinsurance agreement between that sister entity. We won in our primary insurance subsidiary when we commuted that reinsurance arrangement because it was no longer necessary as a statutory matter.

<unk> allowed us to take.

To take most of the capital out of <unk> and send it to the holding company.

Got it and then Adam how do you think about earn back on buyback because it <unk>.

Three years of a good ballpark.

Yes.

Again, we don't we don't have a hard and fast rule about it I know some others may be more specific.

I think three years.

A good way to look at it we expect that at current valuation levels. The earn back on a repurchase would be well inside of that that three year benchmark.

Alright, and then my last question is.

We look at your risk in force is clearly got a lower risk profile versus peers.

But if you look in the last year in particular.

Your appetite at least on high Ltvs has expanded.

So how do we interpret that is that more historically it was maybe more of a capital preservation play or have you seen something different in that market that expands the appetite in that specific segment.

No Jeff it's a good question, what I would say, it's not about capital preservation at all we've had ample capital to support all of our needs at all points.

The risk profile of the production that we're seeing come through today and that we're comfortable taking is very similar to the profile of production that.

That we were taking in 2019 and at that time, we were perfectly comfortable what happened in the intervening period, and what Skus I would call. It that perspective is obviously the experience of the pandemic during the pandemic, we did make very specific decisions to meaningfully curtail the flow of risk into our portfolio at the early onset of the pandemic and that carries for sort of six <unk>.

Nine months or so and that was because we were in an unprecedented environment without clarity at least early on on what the pandemic would mean for the housing market and for borrower risk exposure. If you take the pandemic experience out and instead look at where it was our portfolio and generally the trend in our <unk>.

<unk> and risk mix through 2019, what we're seeing come through today is consistent the other item that I would note is not just the pandemic in our decisioning around risk, but we've also had distortion over the last two years because of the balance between refinancing and purchase origination volume right periods, where we tend to have.

<unk>.

Elevated refinancing activity and an elevated refinancing mix will show as though we have a lower mix of risk coming through into the portfolio, because typically refinancing business carries lower ltvs and higher borrower FICO scores. If you normalize for those two things our risk appetite really hasnt shifted in.

Any any consequential way.

Thanks Shlomo.

Showing no further questions in the queue I'd like to turn the call back over to the speakers for any closing remarks.

Great well. Thank you again for joining us will be participating in the RBC Global financial institutions Conference on March nine we look forward to speaking with you again soon.

This concludes today's conference call. Thank you for participating you may now disconnect everyone have a great day.

Yes.

Okay.

[music].

Thanks.

Okay.

[music].

Good day, and thank you for standing by.

NII Holdings' fourth quarter 2021 earnings conference call.

At this time all participants are in a listen only mode.

The speaker presentations, there will be a question and answer session.

Question during our session you wanted to.

Press Star one on your telephone.

Alright, any further assistance please press star zero.

I hand, the conference over to your Speaker today, John Swenson. Please go ahead.

Thank you operator, and good afternoon welcome to the 2021 fourth quarter conference call for National online.

I'm, John Swenson, Vice President of Investor Relations and Treasury.

Joining us on the call today are Brad Shuster executive Chairman.

Adam Pulitzer, President and Chief Executive Officer.

Rubbing Malaya.

Malia.

Chief Financial Officer, and Julie Norberg, our controller and Chief Accounting Officer.

Financial results for the quarter were released after the close today.

The press release may be accessed on minimize website located at national <unk> Dot com under the investors tab.

During the course of this call we may make comments about our expectations for the future.

Actual results could differ materially from those contained in these forward looking statements.

Additional information about the factors that could cause actual results or trends could differ materially from those discussed on the call.

Can be found on our website.

Or through our regulatory filings with the SEC.

Okay.

Yes, and to the extent the company makes forward looking statements, we do not undertake any obligation to update those statements in the future in light of subsequent developments.

Further no one should rely on the fact that the guidance of such statements is current at any time other than the time of this call.

Also note that on this call we refer to certain non-GAAP measures.

The press release and on our website. We've provided a reconciliation of these measures to the most comparable measures under GAAP.

Now I will turn the call over to Brett.

Thank you John and good afternoon, everyone.

I am pleased to report that in the fourth quarter nationally.

Again delivered strong operating performance Cigna.

Significant growth in our insured portfolio.

And record financial results.

Being a year of standout success.

We closed 2021 with $85 6 billion of total <unk> volume.

And a record $152 3 billion of high quality high performing primary insurance in force.

We delivered broad success and customer development.

Continue to innovate in the reinsurance market.

Once again achieved industry, leading credit performance and.

<unk> <unk>, our CEO succession plan in a seamless fashion.

We generated a record $236 8 million of adjusted net income in 2021.

Up 36% compared to 2020.

And fully delivered on our strong mid teens return goal with a 16, 1% adjusted ROE for the year.

Shifting to Washington matters.

Policymakers regulators the FHFA and the <unk> remained focused on promoting broader access and affordability to the housing market.

All borrowers.

Expanding access to homeownership and all the benefits it provides.

In a manner that appropriately guards against systemic risk is critically important.

At National MRI, we recognize the need to provide all borrowers with an equitable opportunity to access the housing market establish a community identity.

Build long term wealth to homeownership.

And we are actively engaged and committed to equally supporting borrowers from all communities.

We believe there is broad recognition in one in Washington, or the value that the private mortgage insurance industry brings to this effort.

Providing borrowers with down payments support and equal access to mortgage credit.

While also placing private capital in front of the taxpayer to absorb risk and loss in a downturn.

Overall, I'm delighted with what we achieved last year and I am excited about our opportunity to continue to lead with impact and build value.

For our employees.

For borrowers for our customers and for our shareholders in 2022.

With that let me turn it over to Adam.

Thank you Brad and good afternoon, everyone.

I'm delighted to talk to you today on my first earnings call as President and CEO and to welcome Ravi Malala as our new CFO .

Rami brings a wealth of experience and proven track record as a senior finance leader International EMI.

A an opportunity to get to know him and the time ahead.

For today's discussion I will share some comments about our 2021 results discuss the current mortgage insurance operating environment and update you on our key organizational priorities.

I will then turn the call over to Ravi to review our fourth quarter results.

National MRI plays a critical role in the housing market and serves an important social purpose, helping borrowers gain access to housing and supporting them as they build value and community for themselves and their families.

Our entire team understands its responsibility and we are proud of the impact we had and the success we achieved in 2021.

During the year, we generated record in IW volume of $85 6 billion and exited with $152 3 billion of high quality high performing insurance in force.

We now have over 500000 policies in force and it helps a record number of borrowers gain access to housing at a time when they needed us most.

We enjoyed continued momentum and growth in our customer franchise, activating 122, new lenders and ending the year with nearly 300 active customers.

We continue to innovate and find success and broad support and the capital and reinsurance markets.

We were once again recognized as a great place to work our sixth consecutive award a reflection of our unique corporate culture, and a testament to the hard work and dedication of our talented team.

And we achieved record financial results for the year generating $444 million of premium revenue up 12% compared to 2020.

Industry, leading credit performance with a two 8% loss ratio.

$237 million of adjusted net income up 36% compared to 2020, and a 16, 1% adjusted ROE.

The mortgage insurance market environment remains constructive and a significant success. We achieved in 2021 gives us confidence as we look forward.

Total industry volume was an estimated $585 billion in 2021.

And while increasing interest rates will impact refinancing activity purchase origination volume remains strong.

Persistency is improving with the arc of interest rates are real positive given the embedded quality and value of our portfolio.

And credit performance continues to trend in a favorable direction with underwriting discipline remains paramount across the mortgage market.

Record house price, depreciation and providing a sizable equity buffer and broad resiliency in the job market supporting the consumer and household balance sheets.

Yes.

The macro environment is dynamic highlighted by the recent omicron wave increased market volatility.

<unk> inflation in anticipation of fed will raise rates in 2022.

Overall, though as we look ahead, we expect the housing market will remain robust with sustained demand in house price appreciation.

And we expect mortgage insurance market conditions will remain favorable with strong and IW volume and equally constructive pricing and risk dynamics.

In 2022, we will continue to focus on our people, they're talented innovative and dedicated and we will continue to invest in our culture with a focus on collaboration performance and impact will.

We will continue to differentiate with our customers. The mortgage market is connected and evolving and will work to continue to stand out with our focus on customer service value added engagement and technology leadership.

We will continue to invest in our community with ongoing investment partnership initiatives and philanthropic commitments aimed at helping all communities grow and thrive.

We will continue to prioritize disciplined and risk responsibility as we grow our insured portfolio.

Working to write a large volume of high quality high return and highly persistent business under the protective umbrella of our comprehensive credit risk management framework.

We will continue to focus on building value for our shareholders growing earnings compounding book value and delivering strong mid teen returns.

This is an exciting time at National Ahmad our core mortgage insurance products are in greater demand than ever before and we're leading with impact in innovation expanding our customer reach delivering strong growth in our insured portfolio and bottom line financial results and helping a record number of borrowers gain access to homeownership.

With that I'll turn it over to Robyn.

Thank you Adam.

I'm excited to join National in mind and pleased to report that we have achieved record financial results in the fourth quarter with significant growth in our insurance portfolio and continued strength in our credit performance driving record revenue and bottom line profitability.

Net premiums earned in the fourth quarter were a record $113 9 million adjust.

Adjusted net income was a record $63.

<unk> 5 million or <unk> 73 per diluted share and adjusted return on equity was 16, 5%.

We.

<unk> $18 3 billion of NII W. In the fourth quarter include.

Including $17 1 billion of purchase volume.

Our purchase volume increased 4% compared to the third quarter.

And 31% compared to the fourth quarter of 2020.

Primary insurance in force grew to $152 3 billion.

Up 6% from the end of the third quarter and up 37% compared to the fourth quarter of 2020.

12 month persistency in our primary portfolio was 63, 8%.

Up from 58, 1% in the third quarter.

In 2022, we expect persistency will continue to improve.

As refinancing activity slows and an increasing amount of the ni W. Volume, we have written at exceptionally low rate interest rates interest that 12 month persistency calculation.

Net premiums earned in the fourth quarter were $113 9 million compared to $113 6 million in the third quarter.

We earned $5 1 million from the cancellation of single premium policies compared to $7 7 million in the third quarter.

Reported yield for the quarter was 31 basis points compared to 32 basis points in the third quarter.

Reflecting the introduction of ceded premium cost for our most recent island completed in October .

A decreased contribution from cancellation earnings.

And the turnover of our pre Covid book.

Investment income was $10 million in the fourth quarter compared to $9 8 million in the third quarter.

Underwriting and operating expenses were $38 8 million compared to $34 7 million in the third quarter.

Expenses in the fourth quarter included $2 5 million of costs associated with our CEO transition and $1 5 million of costs incurred in connection with our island offering in October .

Excluding CEO transition in Ireland related costs.

Adjusted underwriting and operating expenses were $34 8 million in the fourth quarter.

Compared to $32 9 million in the third quarter.

Our GAAP expense ratio was 34, 1% and our adjusted expense ratio was 35%.

We expect to continue to drive efficiency and expense ratio improvements going forward.

We had 6227 defaults in our primary portfolio at December 31.

<unk> to 7670 at September 30.

And our default rates declined to one 2% at year end.

Overall, our credit performance continues to trend in a favorable direction.

With an increasing number of impacted borrowers sharing their delinquencies and fewer new defaults emerging as the acute stress of the pandemic recedes.

The performance of our early Covid up default population those borrowers who entered forbearance programs and defaulted in 2020.

And are now reaching the end of their 18 month forbearance periods.

Has exceeded our expectations in a favorable way.

And prompted us to release a portion of the reserves, we established for potential claims outcomes.

As a result, we recognized a claims benefit of $500000 in the fourth quarter.

With the reserves, we established on new defaults in the period fully offset by the release.

Interest expense in the quarter was $8 million and we recorded a $112000 gain from the change in the fair value of our warrant liability during the period.

GAAP net income was a record $60 5 million or <unk> 69 per diluted share for the quarter.

And adjusted net income was a record $63 5 million or <unk> 73 per diluted share.

Total cash and investments were $2 2 billion at quarter end, including $106 million of cash and investments at the holding company.

Shareholders equity at year end was $1 6 billion equal.

Equal to $18 25 per share up.

Up 3% compared to the third quarter, and 13% compared to the fourth quarter of last year.

We have $400 million of outstanding senior notes and our $250 million revolving credit facility remains undrawn and fully available.

At quarter end, we reported total available assets under <unk> of $2 billion.

And risk based required assets of $1 2 billion.

Excess available assets were $855 million.

Capital will remain a focus for us in 2022 and.

And we are excited by the at the new opportunities, we see to further support policyholders optum.

Optimize our balance sheet and build value for shareholders.

We intend to pursue two island transactions during the year one in each half.

And we expect to begin to execute under our newly authorized $125 million two year share repurchase program.

Our funding profile today is exceedingly strong and we have the capacity to both fund the significant growth we see ahead.

And support distributions to our shareholders.

In summary, we achieved record results in insurance in force net.

Net premiums earned.

Total revenue.

Net income and adjusted net income.

Our credit performance continues to stand out in a favorable way.

And as we look ahead, we believe we are well positioned to continue to continue delivering strong mid teens returns that are significantly in excess of our cost of capital.

We expect the growing size and attractive credit profile of our insured portfolio.

And our broadly disciplined approach to managing risk expenses and capital will continue to drive our performance.

With that let me turn it back to Adam.

Thank you Ravi.

Overall, we delivered strong results for the quarter and year.

With a record volume and value of new business production and encourage and credit performance in our in force portfolio driving significant profitability and strong mid teen returns.

Looking forward, we are optimistic about the resiliency of the housing market and the long term growth opportunity, we see in the semi sector.

We believe we are well positioned to continue to win with customers drive outsized growth in our high quality insured portfolio maintain the right risk return balance and deliver strong financial results and value for our shareholders.

For joining us today I'll now ask the operator to come back on so we can take your questions.

As a reminder to ask a question you will need to press star one on your telephone.

To withdraw your question press the pound key.

<unk> finally composite Q&A roster.

Our first question will come from the line Mark Devries from Barclays You may begin.

Yes. Thank you.

Could you discuss the pace at which we should expect you to deploy the repurchase authorization.

And how your ability to grow insurance in force might impact that.

Yes, Mark happy to.

Look I think as a timing matter.

Authorization runs through the end of 2023, and we don't have a set schedule for our anticipated activity, rather we expect to execute on an open market basis through the.

Through the course of the authorization period.

Initially, we expect to be I'll call it somewhat programmatic in.

And how we execute barring significant shifts in our views around the operating environment valuation or our expectations for portfolio needs and organic opportunity.

Got it.

And next question it looks like you guys gained share.

And <unk> in the quarter.

Could you discuss what you think might have might have driven that.

Yes, I'll touch on volume and then I'll touch on share we wrote $18 3 billion of high quality, new business in the fourth quarter and that rounds out a year, where we delivered nearly $86 billion of production, which for US is really an exceptional level of volume that volume grew our insured portfolio and really thats what were.

<unk> focused on right is stacking high quality, new production driving growth in our insurance in force, which will drive revenue expansion for us and as we are doing that making sure that we remain disciplined around risk expenses and capital in terms of volume for us in the fourth quarter. It was certainly a strong quarter, but theres no single specific.

Delivering for our customers and when we can succeed writing a large volume of high quality high return and IW.

Okay were there any adjustments that were made to your pricing in the quarter.

No.

Okay, great. Thank you.

Our next question from line of Rick Shane from JP Morgan.

Your line is open.

Hey, good afternoon, everybody and thanks for taking my question.

Gratulation to everybody on your new official rules.

Just wanted to sorry, Adam I, just wanted to talk a little bit as we sort of reached the inflection point.

In the cycle for originators.

As some of their incentives shift a little bit in order to drive volume.

And how they can.

Continue to basically how they can find ways to subsidize volume.

Curious what you guys do to sort of offset any potential risks associated with that and if there are any signs that you're already seeing that suggests the underwriters are shifting their behaviors.

Yes.

Good question and certainly something that we're focused on.

In the prepared remarks, I mentioned that underwriting.

The credit box that we participated in we haven't seen really any notable moves.

In credit standards by the <unk> and that comes through in the production that we're insuring, we certainly keep our eye on it and to the extent that there was any movement.

The environment may evolve from a credit risk standpoint, we're staying on our front foot and managing the risks that we allow them to our portfolio.

Great. Yeah look it's a fair point in terms of I think the gse's have maintained their discipline, but at the same time.

Obviously, where you participate.

Puts you at the margin.

In terms of where.

In terms of the Mark the margin in terms of credit and certainly, particularly sensitive to HPA. So I think I think that's sort of.

Go ahead.

So I think that that's less of a of a credit box decision and it's more of a what's the environment that surrounds the risk we're taking on and obviously there is a lot that we monitor at all times right. We look at not just HCA. We look at the course of the virus, we look at what's happening as an inflationary and fiscal policy matter, we do look at what happens with Nash.

Externally and regionally from an unemployment standpoint, certainly warehouse prices are and where they're trending and what that means for affordability. Both on an absolute basis, but also given the rise that we've seen in interest rates at this point, there's nothing that's giving us cause for real concern.

But it's times like these where there is perhaps the perception that we're at an inflection point, where that generally conservative stance that we've always taken really serves us well right. The conservative stance around how we underwrite our policies the mix and quality of our new business production.

It also really our comprehensive use of reinsurance.

Got it and it's a fair point and I think what I'm.

Not articulating is that one of the factors.

We would anticipate as we sort of reached this point in the mortgage cycle.

Given HPA is more cash out refi, so I'm sort of limping lumping that in with the credit and sort of the changing landscape.

Got it outlook from a cash out refi standpoint, I think there's there's broad limitations in terms of how those loans flow through to the <unk> and by extension for us at this point.

We don't have any cash out.

Refi business coming through and we can certainly price for that as a risk variable.

Okay, great. Thank you and sorry for so many questions. Thank you guys.

And our next question comes from the line of Doug Harter from Credit Suisse. Your line is open.

Thanks.

I guess back to the buyback can you just talk about what your holding company.

Liquidity position is today, and whether you would need to get or plan to get dividends out of CMI subsidiary in order to fund the buyback.

Sure, Doug we have a $106 million.

Cash and liquidity, our cash and investments at the holding company. We do aim over time to maintain well I'll call it an appropriate liquidity cushion.

Roughly equal to one year's worth of interest expense and non Reimbursable holding company costs, which.

So about $40 million, so a chunk of the capital that we expect to deploy and support the repurchase program will come from existing holding company resources, but we do also anticipate that we will look to extract capital from the operating company to fund the balance we expect when our K comes out over the next few days Youll see.

An update on our expected dividend position, we do expect that we'll have ordinary course dividend capacity from NMFC given the strength of our performance in its statutory profitability last year.

I guess given that would you expect it to be kind of regular <unk>.

Regular recurring dividends or would you expect kind of a special dividend.

The subsidiary I guess, how are you how are you thinking about that.

Yes.

We don't have a need to extract extraordinary dividends from the operating company over the course of the repurchase authorization too.

To fund it but to the extent that we progress conversations.

On that topic with.

With Wisconsin, it might give us an ability to.

To factor that in in terms of timing too to execution.

Great. Thank you Rob.

Our next question.

All stores from Dolby you.

You may begin.

Hey, everyone. Good afternoon.

One more on the buybacks when you think about the valuation.

Where the stock is trading on a price to book or <unk>, how does that sort of.

Analysis work into your buybacks, yes.

Yes. So that's a good question I'd say in terms of valuation guidepost I'll touch on a few but we obviously want to buy low and see our shares outperform we also have a high degree of conviction about our future opportunity.

But we don't have brightline valuation thresholds above or below which we.

Our funding profile and manage the cost as I think about it really attacks of carrying an excessive amount of excess capital and so we intend to be programmatic in how we execute as I mentioned earlier in terms of timing its sort of aligned to that revaluation barring I would call. It a significant shift in our view of the operating environment.

Our hour.

Overall outlook and perspective on valuation.

Okay, Great. That's helpful. Thanks, and then actually I just wanted to follow up on the pricing questions.

You guys noted your pricing was stable.

Would you characterize the competitive environment generally is.

As being stable and also can you remind me do participate in the bulk market.

Yes.

The second question first we don't participate in that business.

Okay, great. Thanks, a lot.

Our next question will come from the line of Cullen Johnson from B Riley Securities you may begin.

Hey, good afternoon, thanks for taking my questions.

Last quarter, we discussed an estimate of roughly 85% of new notices that works in a forbearance program is there a similar estimate.

For this quarter.

Okay, Great. That's helpful. And then looking at the favorable development in the quarter was that primarily on Covid era delinquencies.

Marshall on delinquencies type of place prior to 2020.

It's both I would say primarily for us just given the the.

The balance of our default population, we have we have such a small number of defaults coming into the pandemic and many of those that were in default at the start of the pandemic those borrowers have.

Any of them have already cure. So when you look at the overall totality of our default position and our reserve position the significant significant majority relates to COVID-19 .

<unk>, if you will COVID-19 driven defaults, that's where we saw the most significant portion of our release and it was as Ravi mentioned it was on those early stage COVID-19 default. So those borrowers who entered forbearance programs that went into default at the onset of the pandemic in 2022 state in default through now but are <unk>.

Now in an increasingly.

Great. Thanks, that's helpful. And then just last one from me I guess as you kind of look at the.

The dynamic in which higher home prices.

All else equal lower the risk on your current book of business by kind of reducing the chance of foreclosure.

Yes, higher home prices can also serve as a headwind to future originations into the top line. So just directionally. When you think of the net impact of home price appreciation on earnings.

Would you think of that as positive or negative.

Yes, I would say generally it's going to be a positive for us right anything that bolsters. The performance of the borrower is a real it's a real positive for us and obviously HVA does that in a meaningful way by advertising, our exposure and providing them with real value and incentive to.

To find ways to to stay current and perform on their mortgage for us in terms of the value the volume impact.

We've had record levels of HPA over the last few years and we've also had record levels of <unk>.

Volume across the sector. So there is not necessarily the same direct.

Hi.

We do think as we look out into 2020 to set the market will stay strong.

Actually grow in a strong HPA environment. So there's a balance between what might come from a unit slowdown balanced by value expansion and an increase in the ratable exposure.

Great. Thank you that's helpful. Those are all my questions.

Our next question comes from the line of Mark Hughes from tourists may begin.

Yes. Thank you.

Anything on the inflation front that might impact.

<unk>. This year I think you said you are looking for more leverage with that.

Could that be a little bit slower, perhaps because of inflation and wages.

Let me talk a little bit about how we see the impact of inflation on our expense profile, we're likely to see some impact however, as.

As you know, we're not a manufacturing company.

Ending with a rising cost of raw materials, and we have a fairly small employee group by head count and we have about 247 employees at year end and so when you layer that on our relationship with Tcs are technology provider. It's also helpful for us.

It has been sort of our largest expense between people and systems and the Tcs contract has a seven year fixed price agreement. So we pay the same regardless of what the cost.

So overall, we expect to see some growth in our payroll costs given the current environment, but nothing that we expect to meaningfully shift our expense profile going forward.

And where are you in that seven year.

Contract.

Where were we.

We signed the contract in March of 2020. So we're now just about two years into that seven year agreement I'll say just.

It's going really well for us I think the performance that we're seeing right and this was driven first and foremost by operating decisions not expense decisions. The extent outcome as it really favorable one for us, particularly as Ravi noted given what's happening more broadly.

With inflation it really helps to manage the impact for us, but but from an operating standpoint, we've seen tremendous benefit come through already in the first two years.

On the reserve gain in the quarter was that just based on actual cures or did you make some change in assumptions around.

And many of the claims are actually going to be paid out I guess I'm just sort of wondering is.

This is Jeff.

The start of something Thats likely to continue for a few quarters.

Yes, let me I'll touch on both sort of what drove it whether its assumption are performed or experienced driven and then I'll give you. Some sense on the go forward like I say in the fourth quarter really through all of 2021, we saw significant activity in our pre COVID-19 and early covenant default populations and as a rep.

<unk>.

<unk> and other assistance programs would have on our ultimate claims experience, but the actual performance has exceeded our initial expectations in a favorable way. So it's primarily driven by the performance of the borrower now the one piece that I would say is not assumption, but it's also performance is that alongside that favorable.

Cure experience. We've also had record levels of HPA and so we haven't changed our forward look if you will about.

House price paths or other macro factors that will drive our modeled assumptions for cure activity going forward, but we do factor in the optimization of risk that comes with actual HPA as it develops and so in the fourth quarter. We had another three months of actual HPA that was quite significant and both of those items.

And then the favorable care experience.

And the additional quarters worth of significant HPA put us in a redundant position at year end and drove drove the release.

As to how we look at things going forward with our reserve today were at year end reflects our best estimate of our ultimate claims exposure and we feel really good about our position at year end.

I would say to the extent.

We see continued moves in our default population continued strength in the HVA environment. Those are items that will have to factor for we do reevaluate our reserve position every quarter and so it's always possible that we will have a shift from period.

To period, but for right now we've reflected.

At year end, our view of our cost estimate expectation for claims outcomes going forward.

And then Adam.

Just to get your perspective from where you sit on the <unk>.

Purchase origination market for 2023, a lot of moving parts.

Fed rate hike environment is obviously an issue.

You've made a number of statements where you feel good about first time.

Homebuyer demand.

Et cetera.

Any kind of ranges you care to share if we think about that.

<unk>.

Origination volume in the purchase market.

Yes, I wont put a $1 two at all.

Let's say, we see real health and strength on the purchase side, we do have knowledge and expect that.

Activity will be impacted to a degree by rates.

Also by constrained inventory and the extraordinary run of HCA that we've seen but.

Hi opportunity if we tally earlier, we talked about house price depreciation, but increasing values drive increased loan sizes all else equal.

There has been an increased rate of significant increase this year and conforming loan limits, which will help drive volume from the jumbo market, where we really don't participate into the conforming market.

There is a demographic tailwind that we spent a lot of time talking about with the aging of the millennial generation and their increasing focus on homeownership and just the broader COVID-19 driven shift that we've seen right is practical and emotional pull towards homeownership that that's resulted in so we look at all of those as being sources of support for continued health.

In the purchase market.

Thank you very much.

Our next question comes line of.

Ryan Gilbert.

<unk> Your line is open.

Hi, Thanks, good afternoon everybody.

My first question was on the new defaults I think it was kind of interested in the quarter that default went down sequentially versus if you look at.

The other peers, who have reported they went up in the fourth quarter from the third quarter. So just any details on.

New default trends in the quarter and then how you expect.

New defaults to progress in 'twenty two it would be helpful.

Sure I'd say, there really isn't anything specific that happened in the quarter that we've noted around that trend.

Our default experience sort of the same message actually we shared when there was a little bit of a bounce in Q3 default experience when we're dealing with such small numbers can move a bit from quarter to quarter, but ultimately there is an individual borrower who is sitting behind each of the loans who's facing stress and that stress and their individual experience doesn't know.

<unk> developed.

Linear path overall, I'd say, we're really encouraged by the performance of our portfolio in the quarter and we're optimistic that we will see continued strength as we go forward.

Okay great.

Second question on <unk> I'm wondering if you can attribute any of the performance in this quarter just to better market share or better wallet share.

With some of the new accounts that you opened in the last year or two like how much is that just expanding your account.

Account list, helping that IW relative to the more stabilized device versus.

Market share positioning or anything else.

Yes, it was.

It was a strong year for us and we closed on a high actually in Q4 in the fourth quarter, we activated 30 36 new customers.

Which was up from 29 in the third quarter, we're really pleased with the continued growth in our client franchise that we have seen our sales team is doing a terrific job.

Engaging with customers and our message continues to resonate with lenders in a in a meaningful way in any given quarter, though or NID.

W outcome is driven much more by the lenders that we have activated in prior periods and lenders we activate in the current period and for us.

Not necessarily customers any one customer it's really doing the things that have made us successful with consistency over the last 10 years.

Looking to differentiate with with our sales message and with a consultative approach with our service offering and with our IP capabilities.

Okay, great. Thanks very much.

Our next question comes from line Jeff.

Geoffrey Dunn from Dowling you may begin.

Thanks, Good evening.

A couple of questions.

The Holdco liquidity did you did you actually have an opco dividend in the quarter or is the increase due to tax or reimbursement type things.

Yes so.

It depends on how we settle intercompany payables, but we did have a dividend during the quarter in the quarter. We paid a one time $26 million dividend from our sister reinsurance subsidiary re won two of the holding company a portion of that a small portion was an ordinary course distribution and the majority of it was an extraordinary disk.

<unk> and I would say one time, there because it was related to a commutation of the reinsurance agreement between that sister entity. We won in our primary insurance subsidiary when we commuted that reinsurance arrangement because it was no longer necessary as a statutory matter.

Allowed us to to <unk>.

Most of the capital out of everyone and send it to the holding company.

Got it and then Adam how do you think about earn back on buyback is it.

Three years of a good ballpark.

Yeah look again, we don't we don't have a hard and fast rule about it I know some others may be more specific.

I think three years.

Is a good way to look at it we expect that at current valuation levels. The earn back on a repurchase would be well inside of that three year benchmark.

Alright, and then my last question as we look at your risk in force.

Clearly got.

Lower risk profile versus peers.

But if you look in the last year in particular.

Your appetite at least on high Ltvs has expanded.

How do we interpret that is that more historically it was maybe more of a capital preservation play or if you're seeing something different in that market that expands the appetite in that specific segment.

No Jeff it's a good question.

I would say is it's not about capital preservation at all we've had ample capital to support all of our needs at all points.

The risk profile of the production that we're seeing come through today and that we're comfortable taking is very similar to the profile of production.

Nine months or so and that was because we were in an unprecedented environment without clarity at least early on on what the pandemic would mean for the housing market and for borrower risk exposure. If you take the pandemic experience out and you extend look at where it was our portfolio and generally the trend in our <unk>.

Duction in risk mix through 2019, what we're seeing come through today is consistent the other item that I would note is not just the pandemic in our decisioning around risk, but we've also had distortion over the last two years because of the balance between refinancing and purchase origination volume right periods, where we tend to have.

<unk>.

Any any consequential way.

Thanks Shlomo.

Showing no further questions in the queue excellent call back over to the speakers for any closing remarks.

Great well. Thank you again for joining us will be participating in the RBC Global financial institutions Conference on March nine we look forward to speaking with you again soon.

This concludes today's conference call. Thank you for participating you may now disconnect everyone have a great day.

Q4 2021 NMI Holdings Inc Earnings Call

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