Q4 2023 NMI Holdings Inc Earnings Call

February 14, 2024

Operator: Pardon me, this is the conference operator. Thank you for joining us on the NMI Holdings conference call. We'll be starting the call in just a few minutes. We appreciate your patience, and please continue to hold for the NMI conference call. We'll be starting in just a few minutes. Thank you. The Ultimate Parody Site! www.nmi.nlm.nih.gov Copyright 2020, New Thinking Allowed Foundation. All rights reserved.

Pardon me. This is the conference operator, thank you for joining us for the N M. I Holdings conference call well be starting the call in just a few minutes. We appreciate your patience and please continue to hold for the N M. I conference call. We starting in just a few minutes. Thank you.

[music].

Operator: I'll see you next time. The Ultimate Parody Site! www. NMI.org, The Ultimate Parody Site!

Operator: Thank you for watching, and please like, share, and subscribe. Good afternoon, and welcome to the NMI Holdings 4th Quarter 2023 Earnings Conference Call. All participants will be in listen-only mode.

Operator: Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press the star key, then 1 on your telephone keypad.

John M. Swenson: To withdraw your question, please press star then 2. Please note, this event is being recorded. I would now like to turn the conference over to John Swenson of Management. Please go ahead.

Speaker Change: Good afternoon, and welcome to the N M I Holdings fourth quarter 2023 earnings Conference call.

Speaker Change: All participants will be in listen only mode should you need assistance. Please signal a conference specialist by pressing the star key followed by zero.

John M. Swenson: Thank you, Gary. Good afternoon. Welcome to the 2023 fourth quarter conference call for National M.I. I'm John Swenson, Vice President of Investor Relations and Treasury. Joining us on the call today are Brad Shuster, Executive Chairman; Adam Pollitzer, President and Chief Executive Officer; Ravi Malela, Chief Financial Officer; and Nick Rilmito, our Controller. Financial results for the quarter were released after the close today.

After today's presentation there'll be an opportunity to ask questions to ask a question you May Press Star then one on your telephone keypad.

Speaker Change: To withdraw your question. Please press Star then two.

Speaker Change: Please note this event is being recorded.

Speaker Change: I would now like to turn the conference over to John Swenson of management. Please go ahead.

John M. Swenson: The press release may be accessed on NMI's website, located at nationalmi.com, under the Investors tab. During this call, we may make comments about our expectations for the future. However, actual results could differ materially from those contained in these forward-looking statements.

John M. Swenson: Thank you Gary and good afternoon, and welcome to the 2023 fourth quarter conference call for National online.

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

John M. Swenson: Joining us on the call today are Brad Shuster Executive Chairman, Adam Pullets are President and Chief Executive Officer, Robert <unk>, Chief Financial Officer, and Nick Romito Our controller.

John M. Swenson: Additional information about the factors that cause actual results or trends to differ materially from those discussed on the call can be found on our website or through our regulatory filings with the SEC. If 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 in such statements is current at any time other than the time of this call.

John M. Swenson: Financial results for the quarter were released after the close today. The press release may be accessed and minimize website located at national My Dot com under the investors tab.

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

John M. Swenson: Actual results could differ materially from those contained in these forward looking statements.

Bradley M. Shuster: Also note that on this call, we may refer to certain on-gap measures. In today's press release and on our website, we provided a reconciliation of these measures to the most comparable measures under GAP. Now, I'll turn the call over to Bradley.

John M. Swenson: Additional information about the factors that could cause actual results or trends you differ materially from those discussed on the call can be found on our website or through our regulatory filings with the FCC.

Bradley M. Shuster: Thank you, John, and good afternoon, everyone. I'm pleased to report that in the fourth quarter, National MI again delivered standout operating performance. Continued growth in our insured portfolio and record financial results, capping a year of tremendous success. We closed 2023 with $40.5 billion of total NIW volume and a record $197 billion of high-quality, high-performing primary insurance enforced. We delivered broad success in customer development, continued to innovate in the reinsurance market, and once again achieved industry-leading credit performance. In 2023, we generated record gap net income of $322.1 million, up 10% compared to 2022. Record diluted earnings per share of $3.84, up 13% compared to 2022, and delivered an 18.2% return on equity. Looking ahead, I'm excited at the opportunity we have to continue to build on our success. As we plan for 2024, we'll continue to focus on our people.

John M. Swenson: It went 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.

John M. Swenson: 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.

Note that on this call we may refer to certain non-GAAP measures in today's press release and on our website. We've provided a reconciliation of these measures to the most comparable measures under GAAP now I'll turn the call over to Brett.

Brett: Thank you John and good afternoon, everyone.

Brett: I am pleased to report that in the fourth quarter Nast.

Brett: National M. I again delivered standout operating performance.

Growth in our insured portfolio.

Brett: Record financial results capping a year of tremendous success.

Brett: We closed 2023 with $40 5 billion of total niwa volume.

Brett: And a record 197 billion up high quality high performing primary insurance in force.

Brett: We delivered broad success and customer development.

Brett: Continue to innovate in the reinsurance market.

And once again achieved industry, leading credit performance.

Brett: In 2020 three we generated record GAAP net income of 322.1 million.

Bradley M. Shuster: They are talented, innovative, and dedicated and will 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.

Brett: Up 10% compared to 2022.

Brett: Record diluted earnings per share of $3.84.

Bradley M. Shuster: And we'll continue to work to stand out with our focus on customer service, value-added engagement, and technology leadership. We'll continue to prioritize discipline and risk responsibility as we grow our insured portfolio, working to write a large volume of high-quality, high-return business under the protective umbrella of our Comprehensive Credit Risk Management Framework, and we'll continue to focus on building value for our shareholders. Growing Earnings, Compounding Book Value, delivering strong mid-teens returns, and prudently distributing excess capital. With that, I will turn it over to Adam.

13% compared to 2022.

Brett: And delivered an 18.2% return on equity.

Brett: Looking ahead I'm excited at the opportunity we have to continue to build on our success.

Brett: As we plan for 'twenty 'twenty four will continue to focus on our people.

Brett: They are talented innovative and dedicated.

Brett: And we'll continue to invest in our culture with a focus on collaboration performance and impact.

Brett: We'll continue to differentiate with our customers.

Brett: The mortgage market is connected and evolving.

Adam Pollitzer: Thank you, Brad, and good afternoon, everyone. National MI continued to outperform in the fourth quarter, delivering significant new business production, consistent growth in our insured portfolio, and record financial results. We generated $8.9 billion of NIW volume and ended the period with a record $197 billion of high-quality, high-performing primary insurance in force. Total revenue in the fourth quarter was a record $151.4 million, and we delivered a gap net income of $83.4 million and an 18% return on equity.

Brett: And we'll continue we'll work to continue to stand out with our focus on customer service value added engagement and technology leadership.

Brett: We'll continue to prioritize disciplined in risk responsibility as we grow our insured portfolio.

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

Brett: And we will continue to focus on building value for our shareholders.

Brett: Growing earnings I'm counting book value.

Brett: Delivering strong mid teens returns and prudently distributing excess capital.

Adam Pollitzer: Overall, we had an exceptionally strong quarter and closed 2023 in a position of real strength. We generated $40.5 billion of NIW volume during the year and exited with $197 billion of primary insurance in force. Our portfolio is the fastest-growing, highest-quality, and best-performing in the MI industry and has enormous embedded value. We now have nearly 630,000 policies outstanding, and we have helped a record number of borrowers gain access to housing at a time when they needed us most.

Brett: With that let me turn it over to Adam.

Adam Pollitzer: Thank you Brad and good afternoon, everyone.

Adam: National and my continued to outperform in the fourth quarter delivering significant new business production.

Adam: And growth in our insured portfolio and record financial results.

Adam: We generated $8 9 billion of anti W. Volume and ended the period with a record 197 billion of high quality high performing primary insurance in force.

Adam: Total revenue in the fourth quarter was a record $151 4 million and.

Adam Pollitzer: We enjoyed continued momentum and growth in our customer franchise, activating 70 new lenders in 2023 and ending the year with over 1,500 active accounts. We continue to innovate and find success and broad support in the capital and reinsurance market. We completed four new reinsurance transactions during the year, further extending our comprehensive credit risk transfer program, and we continue to efficiently return capital and drive value for shareholders with our sized share repurchase program. We were once again recognized as a great place to work. Our eighth consecutive award, which we view as a reflection of our unique corporate culture and a testament to the hard work and dedication of our talented team. We achieved record full-year financial results, generating $579 million in total revenue, up 11% compared to 2022.

Adam: And we delivered GAAP net income of $83 4 million and an 18% return on equity.

Overall, we had an exceptionally strong quarter and closed 2023 in a position of real strength.

Adam: We generated $40 5 billion, then IW volume during the year and exited with 197 billion of primary insurance in force.

Adam: Our portfolio is the fastest growing highest quality and best performing in the semi industry and has enormous embedded value.

Adam: We now have nearly 630000 policies outstanding and it helped a record number of borrowers gain access to housing at a time when they needed us most.

Adam: We enjoyed continued momentum in growth in our customer franchise, activating 70, new lenders in 2020, three and ending the year with over 1500 active accounts.

Adam Pollitzer: $322 million of GATT net income, up 10% compared to 2022. $3.84 of diluted earnings per share, up 13% compared to 2022, and an 18.2% ROE. As we begin 2024, we're encouraged by both the broad resiliency that we've seen in the macro environment and housing market and by the continued opportunity and discipline that we see across the private M.I. industry. The housing market has been strong, and house prices have reached new highs.

Adam: We continue to innovate and find success and broad support in the capital and reinsurance market.

Adam: We completed four new reinsurance transactions during the year further extending our comprehensive credit risk transfer program and we continue to efficiently return capital and drive value for shareholders with our Upsized share repurchase program.

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

Adam Pollitzer: Declining rates have spurred incremental activity. An underlying strength in the labor market and the recent rally in equity markets have worked to both bolster household balance sheets and drive increasing confidence for prospective buyers. The mortgage insurance market environment remains constructive as well.

Adam: And we achieved record full year financial results generating 579 million of total revenue up 11% compared to 2022.

Adam: 322 million of GAAP net income up 10% compared to 2022.

$3.84 of diluted earnings per share up 13% compared to 2022, and an 18, 2% Roe.

Adam Pollitzer: Total MI industry NIW volume was estimated to be $285 billion in 2023, with the market demonstrating real strength despite the headwind of rising rates through much of the year. Our lender customers and their borrowers continue to rely on us for critical downpayment support, and we expect that the private MI market will remain just as strong in 2024, with long-term secular trends continuing to drive an attractive new business opportunity. The M.I.

Adam: As we begin 2024, we're encouraged by both the broad resiliency that we've seen in the macro environment and housing market and by the continued opportunity and discipline that we see across the private M I industry.

Adam: The housing market has been strong.

Adam: House prices have reached new heights declining rate, that's for incremental activity and underlying strength in the labor market and the recent rally in equity markets have worked to both bolster household balance sheets and drive increasing confidence for prospective buyers.

Adam Pollitzer: The pricing environment remains stable and balanced as well, 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 our shareholders. Credit Performance Continues to Track, with underwriting discipline across the mortgage market and existing borrowers well-situated with strong credit profiles, record levels of home equity, and, for most, fixed monthly payments at historically low note rates. As we look ahead, we're confident. The macro environment remains resilient, the private MI market opportunity is compelling, and we are well positioned to continue to lead with impact and deliver value for our people, our customers, and their borrowers, and our shareholders. We have a strong customer franchise, a talented team driving us forward every day, an exceptionally high-quality book covered by a comprehensive set of risk transfer solutions, and a robust balance sheet supported by the significant earnings power of our platform. With that, I'll turn it over to Robbie.

Adam: The mortgage insurance market environment remains constructive as well.

Adam: Total MRI industry and I W volume with an estimated 285 billion in 2023 with the market demonstrating real strain despite the headwind of rising rates through much of the year.

Adam: Our lender customers and their borrowers continue to rely on us in size, where critical downpayments support and we expect that the private market will remain just as strong in 2024.

With long term secular trends continuing to drive an attractive new business opportunity.

Adam: Yeah, my pricing environment remains stable and balanced as well, allowing us to fully and fairly support lenders and their borrowers while at the same time appropriately protect risk adjusted returns and our ability to deliver long term value for our shareholders.

Adam: And credit performance continues to track.

Ravi Malela: Thank you. We delivered record financial results in the fourth quarter with significant new business production, strong growth in our high-quality insured portfolio, record top-line performance, favorable credit experience, continued Expense Efficiency, and Record EPS. Total revenue in the fourth quarter was a record $151.4 million.

Adam: With underwriting discipline across the mortgage market and existing borrowers well situated with strong credit profiles record levels of home equity and for most fixed monthly payments and historically low note rates as.

Adam: As we look ahead, we're confident.

Adam: The macro environment remains resilient the private M&A market opportunity is compelling and we are well positioned to continue to lead with impact and deliver value for our people our customers and their borrowers and our shareholders.

Ravi Malela: The GAAP net income was $83.4 million, for a record $1.01 per diluted share, and our return on equity was 18%. We generated $8.9 billion of NIW, and our primary insurance in force grew to $197 billion, up 1% from the end of the third quarter and 7% compared to the fourth quarter of 2022. 12 month persistency was 86.1% in the fourth quarter compared to 86.2% in the third quarter. Persistency remains well above historical trend and continues to serve as an important driver of the growth and embedded value of our insured portfolio. Net premiums earned in the fourth quarter were a record $132.9 million, compared to $130.1 million in the third quarter. We earned $983,000 from the cancellation of single-premium policies in the fourth quarter, compared to $864,000 in the third quarter. Net yield for the quarter was 27 basis points, and Core Yield, which excludes the cost of our reinsurance coverage and the contribution from cancellation earnings, was $34,000, both unchanged from the third quarter. Investment income was $18.2 million in the fourth quarter, compared to $17.9 million in the third quarter.

Adam: We have a strong customer franchise.

Adam: Talented team driving us forward every day.

Adam: And exceptionally high quality book covered by a comprehensive set of risk transfer solutions and a robust balance sheet supported by the significant earnings power of our platform with that I'll turn it over to Ravi.

Ravi: Thank you Adam.

Ravi: We delivered record financial results in the fourth quarter with significant new business production.

Ravi: Growth in our high quality insured portfolio.

Speaker Change: Record top line performance.

Ravi: Favorable credit experience continued expense efficiency and record EPS.

Ravi: Total revenue in the fourth quarter was a record $151 4 million gap.

Ravi: GAAP net income was $83 4 million or a record $1.01 per diluted share.

Ravi: And our return on equity was 18%.

Ravi: We generated $8 9 billion and then IW.

Ravi: And our primary insurance in force grew to 197 billion.

Ravi: Up 1% from the end of the third quarter, and 7% compared to the fourth quarter of 2022.

Ravi: 12 month Persistency was 86, 1% in the fourth quarter compared to 86, 2% in the third quarter.

Ravi Malela: Total revenue was a record $151.4 million in the fourth quarter, up 2% compared to the third quarter and 14% compared to the fourth quarter of 2022. Underwriting and operating expenses were $29.7 million in the fourth quarter, compared to $27.7 million in the third quarter. Our expense ratio is 22.4%, compared to 21.3% in the third quarter. We had 5,099 defaults as of December 31st, compared to 4,594 as of September 30th. And our default rate was 81 basis points at quarter end. Plains expense in the fourth quarter was $8.2 million, compared to $4.8 million in the third. Interest expense for the quarter was $8.1 million.

Ravi: Persistency remains well above historical trend in.

Ravi: Continues to serve as an important driver of the growth in embedded value of our insured portfolio.

Ravi: Net premiums earned in the fourth quarter were a record $132 9 million.

Ravi: Paired to $130 1 million in the third quarter.

Ravi: We earned 983000 from the cancellation of single premium policies in the fourth quarter.

Ravi: Paired with 864000 in the third quarter.

Ravi: Net yield for the quarter was 27 basis points and core yield which excludes the cost of our reinsurance coverage and the contribution from cancellation earnings was 34 basis points, both unchanged from the third quarter.

Ravi: Investment income was $18 2 million in the fourth quarter.

Ravi: Compared to $17 9 million in the third quarter.

Ravi: Total revenue was a record $151 4 million in the fourth quarter.

Ravi: Up 2% compared to the third quarter, and 14% compared to the fourth quarter of 2022.

Ravi Malela: Net income was $83.4 million, or a record $1.01 per diluted share, up 1% compared to $1 per diluted share in the third quarter and 17% compared to 86 cents per diluted share in the fourth quarter of 2022. Total cash and investments were $2.5 billion at quarter end, including $114 million of cash investments at the holdings. Shareholders' equity as of December 31st was $1.9 billion, and book value per share was $23.81. Book value per share, excluding the impact of net unrealized gains and losses in the investment portfolio, was $25.54, a 4% increase compared to the third quarter and 17% compared to the fourth quarter of last year.

Ravi: Underwriting and operating expenses were $29 7 million in the fourth quarter compared to $27 7 million in the third quarter.

Ravi: Our expense ratio was 22, 4% compared to 21, 3% in the third quarter.

Ravi: We had 5099 defaults as of December 31.

Ravi: Compared to 4594 as of September 30th.

Ravi: And our default rate was 81 basis points at quarter end.

Ravi: Claims expense in the fourth quarter was $8 2 million.

Ravi: Compared to $4 8 million in the third quarter.

Ravi: Interest expense in the quarter was $8 1 million.

Ravi: Net income was $83 4 million or a record $1.01 per diluted share.

Ravi: Up 1% compared to $1 per diluted share in the third quarter and.

Ravi: 17% compared to 86 cents per diluted share in the fourth quarter of 2022.

Ravi Malela: In the fourth quarter, we repurchased $31.5 million of common stock, retiring 1.1 million shares at an average price of $27.60. As of December 31st, we had $177 million of repurchase capacity remaining under our existing program. At Quarter End, we reported total available assets under PMERS of $2.7 billion, and risk-based required assets of $1.5 billion. Excess available assets were $1.2 billion.

Ravi: Total cash and investments were $2 5 billion at quarter end <unk>.

Ravi: Including $114 million of cash and investments at the holding company.

Ravi: Shareholders' equity as of December 31 was $1 9 billion.

Ravi: And book value per share was $23 81.

Ravi: Book value per share, excluding the impact of net unrealized gains and losses in the investment portfolio.

Ravi: Was $25.54.

Ravi: Up 4% compared to the third quarter, and 17% compared to the fourth quarter of last year.

Ravi Malela: In January, we entered into a new quota share reinsurance treaty and a new excess of loss reinsurance agreement, which together will provide forward flow coverage and comprehensive risk protection for our 2024 new business production at an estimated 5% pre-tax cost of capital. Reinsurance remains a core pillar of our credit risk management strategy and an efficient source of growth capital for our business, and we're pleased to have achieved such favorable outcomes in both the quota share and XOL market. In January, we also saw significant upward movement in our insurer financial strength and holding company credit ratings from all three major agencies, receiving upgrades from Moody's and S&P and strong investment grade debut readings from FIT. We're pleased that each of the agencies has recognized the continued strength of our counterparty profile, our uniquely high-quality insured portfolio, and our best-in-class credit performance.

Ravi: In the fourth quarter, we repurchased $31 $5 million of common stock.

Hiring one 1 million shares at an average price of $27 60.

Ravi: As of December 31, we had 177 million of repurchase capacity remaining under our existing program.

Ravi: At quarter end, we reported total available assets underpin years of $2 7 billion in.

Ravi: In risk based required assets of $1 5 billion.

Ravi: Excess available assets were $1 2 billion.

In January we entered into a new quota share reinsurance treaty and a new excess of loss reinsurance agreement, which together will provide board low coverage and comprehensive risk protection for our 2024, new business protect production at an estimated 5% pre tax cost of capital.

Ravi: Reinsurance remains a core pillar of our credit risk management strategy and an efficient source of growth capital for our business and we're pleased to have achieved such favorable outcomes in both the quota share in all markets.

Ravi Malela: With that, let me turn it back to the robust balance sheet and consistently strong financial results announced. Overall, we delivered standout financial results during the fourth quarter, with consistent growth in our high-quality insured portfolio and Record Top Line Performance Favorable Credit Experience and Continued Expense Efficiency, driving significant profitability, record EPS, and strong returns.

Ravi: In January.

Ravi: We also saw significant upward movement in our insurer financial strength and holding company credit ratings from all three major agency.

Ravi: Receiving upgrades from Moody's and S&P and strong investment grade debut ratings from Fitch.

Ravi: We're pleased that each of the agencies has recognized the continued strength of our counterparty profile.

John M. Swenson: Thank you, Robbie. Overall, we had a terrific quarter, tapping into a record year in which we delivered broad success in customer development, continued to innovate in the reinsurance market, once again achieved industry-leading credit performance, and generated exceptionally strong financial results with record profitability, significant growth in book value per share, and an 18.2% return on equity. Looking ahead, we're confident in our ability to continue to lead with impact and deliver value for our people, our customers and their borrowers, and our shareholders. Thank you for joining us today.

Ravi: Nicoli high quality insured portfolio.

Ravi: Best in class credit performance robust balance sheet and consistently strong financial results with their announcements.

Ravi: Overall, we had we delivered standout financial results during the fourth quarter with consistent growth in our high quality insured portfolio and.

Ravi: And record top line performance favorable credit experience and continued expense efficiency.

Ravi: Giving significant profitability record EPS and strong returns.

Ravi: With that let me turn it back to al.

al: Thank you Ravi.

Operator: I'll now ask the operator to come back on so we can take your questions. We will now begin the question and answer session. To ask a question, you may press star, then 1 on your telephone keypad. If you are using a speakerphone, please pick up your handset before pressing the key.

al: Overall, we had a terrific quarter.

al: Capping a record year in which we delivered broad success in customer development continued to innovate in the reinsurance market. Once again achieved industry, leading credit performance and generated exceptionally strong financial results with record profitability significant growth in book value per share and an 18 point.

Terry MA: To withdraw your question, please press star then 2. At this time, we will pause momentarily to assemble our roster. The first question is from Terry Ma with Barclays. Please go ahead. Hey, thanks. Good afternoon.

al: 2% return on equity.

al: Looking ahead, we're confident in our ability to continue to lead with impact and deliver value for our people our customers and their borrowers and our shareholders.

Unidentified Speaker: So I'm just curious, as we look forward to more of the 2021 and 2020 through 2023 ventures season and reach peak loss, is there a way to think about the trajectory of the default rate or even a normalized loss ratio? Look, I mean, when we look at our claims expense, in particular, we had an $8.2 million claims expense in Q4 and a 6.2% loss ratio. And we had an, you know, uptick in defaults, 5,099. And our default rate went up a little bit to 81 basis points. And I think, you know, we see a little bit of an upward trend in the quarter, but we're really encouraged by the quality and credit performance of our portfolios. But maybe to look forward to here, Terry, you know, we've talked about it a little while.

Speaker Change: Thank you for joining us today I'll now ask the operator to come back on so we can take your questions.

Speaker Change: We will now begin the question and answer session.

Speaker Change: To ask a question you May press Star then one on your telephone keypad.

Speaker Change: If youre using a speakerphone please pick up your handset before pressing the keys.

Speaker Change: To withdraw your question. Please press Star then two.

Speaker Change: At this time, we will pause momentarily to assemble our roster.

Speaker Change: Mhm.

Speaker Change: The first question is from Terry MA with Barclays. Please go ahead.

Terry MA: Hey, Thanks, good afternoon. So I'm just curious as we look forward and more of the 2021 and 'twenty 'twenty through 'twenty two 'twenty three vintages season and reach peak loss is there a way to think about the trajectory of the default rate or even a normalized loss ratio.

Unidentified Speaker: The default population, we expected it to increase because, frankly, there's just natural growth and seasoning of the portfolio, in particular, the books, you know, that you had mentioned, the 2020, 2021, and 2022 books, but they're coming into a period of normal loss occurrence. But really, the performance has been strong, and we're really encouraged by just looking ahead at what's happening.

Terry MA: Okay.

Terry MA: If we look at our claims expense in particular, you know we had a two $8 2 million claims expense in Q4, and a six 2% loss ratio and we had a uptick in defaults <unk> 5099, and our default rate went up a little bit to 81 basis points and I think you know we've.

Unidentified Speaker: Okay. And then just on the persistency ratio, it's been flat for the past couple quarters. Have we reached kind of like a natural plateau here? And is that sustainable going forward? Or is there something that could serve as a catalyst to bring that? Yeah, maybe Terry, I'll start.

Terry MA: We see a little bit of an upward trend in the quarter, but we're really encouraged by the quality and credit performance in our portfolio, but maybe to look forward here Terry we've talked about it a little while the default population, we expect it to increase because frankly, there's just natural growth and seasoning of the portfolio in particular, the books that you had.

Unidentified Speaker: So obviously, we were 86-1 in the quarter. And again, right, we're well above historical norms. And strong persistency is helping us to drive continued growth and embedded value in the insured portfolio. We expect that our persistency will remain well above historical trends as we progress through 2024. But as you said, we don't expect that it will increase from here, and we'll likely see some natural trending off of the current peak as we go through the year. Got it. That's helpful. That's it for me.

Terry MA: Mentioned, the 2000, 22021, and 2022 books will start coming into a period of normal loss occurrence, but really the performance has been strong and we're really encouraged by just looking ahead at what's happening.

Terry MA: Got it Okay and then just on the persistency ratio, it's been flat for the past couple of quarters, because we reached kind of Lucky natural plateau here and is that sustainable going forward or is there something that may.

Doug Harder: Thank you. The next question is from Doug Harder with UBS. Please go ahead. Thanks.

Terry MA: Serving as a catalyst to bring that lower.

Unidentified Speaker: Can you talk about your outlook for capital return in 2024, you know, kind of given the strong level of P Myers and relatively consistent credit quality? Sure. Look, we're delighted with what we've achieved on our repurchase program thus far, retiring, I think, $148 million or returning $148 million of capital. And if you look at it, actually, as to where we've executed, the weighted average price to book for execution since we launched the program in February of 22 is 1.01 times. We're really delighted with that execution.

Speaker Change: Yeah, maybe carry out but obviously, we were 86 one in the quarter.

Speaker Change: And again, right, where we're well above historical norms and strong persistency is helping us to drive continued growth in embedded value in the insured portfolio. We expect that our persistency will remain well above historical trends as we progress through 2024, but as you said, we don't expect it will increase from here and we'll light.

Speaker Change: We see some natural trending off of the current peak as we run through the year.

Speaker Change: Got it that's helpful. That's it for me thank you.

The next question is from Doug Harter with UBS. Please go ahead.

Doug Harter: Oh, thanks can.

Doug Harter: You talk about your outlook for capital return in 2024, you know kind of given the strong level of P Myers and relatively consistent credit quality.

Unidentified Speaker: We're focused; we have $177 million of runway remaining under our existing authorization that runs through year-end 2025, and we're focused on pursuing that opportunity. We expect that we'll be in the market, you know; we'll always depend on where valuation is and what we see immediately in front of us, but on a roughly rateable basis through the expiry of the program. And I guess, you know, how are you thinking about a dividend as one of the tools and returning capital? Yeah, look, again, right now, we're most focused on the repurchase program and deploying the remaining capacity. We really see repurchase as a way for shareholders to directly participate in the significant value that we're creating.

Doug Harter: Sure look we're delighted with what we've achieved on our repurchase program thus far.

Doug Harter: Tiring I think $148 million, returning 148 million of capital and if you look at it actually some where we've executed the weighted average price to book for execution. Since we launched the program in February of 'twenty. Two is 101 times really delighted with with that execution. We're focused we have a $177 million of runway remaining under.

Doug Harter: Our existing authorization that runs through year end 2025, and we're focused on prosecuting that opportunity, we expect that will be in the market.

Doug Harter: Well always depend on where valuation is and what we see immediately in front of us, but on a roughly ratable basis through the expiry of the program.

Unidentified Speaker: And importantly, right, by releasing capital, whether it's in dividend or repurchase format, we're trying to maintain the right funding balance, right, optimizing between equity debt, reinsurance usage, and importantly, supporting EPS and ROE outcomes. As I said, we're really pleased with what we've achieved in the execution we have under the repurchase program. For now, that is our primary focus. We like the flexibility that a repurchase program affords us.

Doug Harter: Yeah.

Doug Harter: And I guess you know how are you thinking about a dividend.

Doug Harter: <unk> is one of the tools in returning capital.

Speaker Change: Yeah look again, right now where we're most focused on the repurchase program and deploying the remaining capacity, we really see repurchase as a way for shareholders to directly participate in the significant value that we're creating and importantly, right by releasing capital whether it's in dividend or repurchase format.

Speaker Change: We're trying to maintain the right funding balance right optimizing between equity debt reinsurance usage, and importantly, supporting EPS and are in RMB outcomes.

Unidentified Speaker: But as we continue to perform and grow the dividend stream that we can extract from our primary operating company, we may have an ability to introduce a common dividend over time. But for right now, we're focused on repurchase and the opportunity we have under the existing authorization. Great. Thank you. The next question is from Arren Cyganovich with Citi. Please go ahead.

Speaker Change: As I said, we're really pleased with what we've achieved in the execution. We have under the repurchase program will now that is our primary focus we like the flexibility that a repurchase program affords us, but as we continue to perform and grow the dividend stream that we can extract from our primary operating company. We may have an ability to introduce common dividends.

Arren Saul Cyganovich: Thanks. Your core premium yield has been pretty stable here. What are your thoughts into 2024? Do you expect to see more stability on the premium side? Yeah, Arren, you know, we've been seeing our yield inflect higher over the last several quarters, and I think in this quarter, we've seen continued strength. And core yield, you know, we expect it to remain generally stable and strong. Look, I mean, persistency has helped, certainly, and the rate actions we've taken over the last year and a half have also helped us with providing a stable sort of yield environment. But, as always, you know, when you want to think about it, where it's always impacted by reinsurance execution and loss experience because profit commission moves with changes in seeded claims expenses. And we'll just have to see how, from a loss perspective, the macroeconomic environment evolves. But, you know, we generally think it will remain stable and strong. Yeah, that's the key. Robbie's hit it.

Speaker Change: Over time, but for right now we're focused on repurchase and the opportunity we have under the existing authorization.

Speaker Change: Great. Thank you Adam.

Speaker Change: The next question is from <unk> <unk> with Citi. Please go ahead.

Thanks.

Citi: Your core premium yield has been pretty stable here what are your thoughts into 2024 do you expect to see more stability on the premium side.

Adam: Yes, Erin we've been seeing are our yield inflect higher over the last several quarters and I think in this quarter. We've seen continued strength in core yield.

Adam: We expect it to remain generally stable and strong persistency.

Adam: Persistency has helped certainly and the rate actions, we've taken over the last year and a half have also helped us with our providing a stable yield environment, but as always.

Adam: When you want to think about it where it is always impacted by reinsurance execution.

Unidentified Speaker: Yeah, core yield, we expect will be generally stable through the course of the year, and that's a real positive for us. We'll see potentially some fluctuation in the net yield, really based on reinsurance execution and then claims experience, which is counterintuitive, how does claims experience impact net premium revenue and net yield, but it's because of the profit commission dynamic with our quota shares. Got it, that's helpful.

Adam: Loss experience because profit commission moves with changes in ceded claims expenses and we'll just have to see what from a loss perspective, how the macroeconomic environment evolves, but we generally think it will remain stable and strong yeah. That's the key.

Adam: Ravi said it yeah core yield we expect will be generally stable through the course of the year and that's a real positive for US we will see potentially some fluctuation in the net yield really based on reinsurance execution, and then claims experience, which seems counterintuitive how does claims experience impact.

Unidentified Speaker: And then to follow up, maybe on the point of, you know, reinsurance costs and suited claims, are those, how are those trending? Are you seeing any kind of increase in that? And then just quickly, did you say how much there was a reserve release in this quarter?

Adam: Net premium revenue and net yield, but it's because of the the profit commission dynamic with our quota shares.

Unidentified Speaker: Look, we're, you know, maybe just touching on reinsurance. Look, we're really pleased that we just placed our forward flow quota share and excess of loss treaties. Look, it provides us with comprehensive risk protection for our 2024 NIW production, and so we really have no other immediate execution needs.

Speaker Change: Got it that's helpful.

Speaker Change: And then.

Speaker Change: A follow up maybe on the on the point of you.

Speaker Change: Reinsurance costs and see the claims are those how are those trending are you seeing any kind of increase in that and then just quickly.

Speaker Change: Did you say how much if there was a reserve release in this call.

Unidentified Speaker: And look, we'll look for opportunities to further refine and enhance as we achieve and innovate when we see opportunities in the marketplace. But when you think about the new quota share and the XOLs, you know, they're going to come on with an incremental amount of cost. But really, we think a lot of that will be offset by amortization of our existing reinsurance deal. So net net, you know, pretty, pretty flat in terms of the impact.

Speaker Change: Yeah.

Well maybe.

Speaker Change: Maybe just touching on reinsurance look we're pretty we're really pleased that we just placed our forward flow quota share and excess of loss treaties looked provides us with comprehensive risk protection for our 2024 and IW production and so we really have no. Other immediate execution needs. Then look we'll look for.

Unidentified Speaker: Yeah. And in terms of the run through for product commissions and reserve movement in the quarter, we had an 8.2 million claims expense in the quarter, which is obviously up. And so as our claims expense is growing on a net basis, what that means is, in almost all scenarios, we've also increased the session through under the reinsurance programs. And so that will have weighed on profit commissions in the quarter. In the quarter, we reported it in the press release. It included a $17.3 million provision for current year results, offset by $9.8 million of release related to the prior year. Thank you. The next question is from Bo George with KBW. Please go ahead. Hey, everyone.

Speaker Change: Opportunities to further refine and enhance as we achieve.

Speaker Change: And innovate when we see opportunities in the marketplace, but when you think about the new quota share and the extra wells, they're going to come on with an incremental amount of cost, but really we think a lot of that will be offset by amortization of our existing reinsurance deal. So net net.

Speaker Change: Pretty pretty flat in terms of the impact yeah and in terms of the run through for profit Commission and reserve movement in the quarter. We had an $8 2 million claims expense in the quarter, which is obviously often so much our claims expenses growing on a net basis what that means is in almost all scenarios. We've also increased the session through.

Bose George: Good afternoon. I wanted to go back to credit. First, recently, a large percentage of your claims are being settled, you know, without payment. Are those generally, you know, more seasoned loans with more equity or any other way to sort of categorize those? No, that's exactly it, right?

Speaker Change: Under the reinsurance programs and so that will have weighed on profit commission in the quarter in the quarter. We reported its in the press release the exhibits I've included a $17 $3 million.

Speaker Change: Our provision for current year results offset by $9 8 million of release related to prior years.

Speaker Change: Thank you.

Speaker Change: The next question is from Bose, George with K B W. Please go ahead.

Unidentified Speaker: Ultimately, we sit behind both the borrower's down payment and appreciated equity on a property. And in the event that we have a claim that progresses or a default that progresses to a claim where there's significant embedded equity, we're effectively able to harvest that to defuse our exposure. And that's what drives that. It's really about the appreciated equity position of borrowers who stay in default status and ultimately progress through the claim. Okay, great. Thanks.

Bose George: Hey, everyone. Good afternoon, I wanted to go back to credit first reasonably a large percentage of your claims are being settled without payment are those generally more seasoned loans with more equity or any other way to sort of categorize those.

Bose George: No that's exactly right ultimately we sit behind both the are the borrowers downpayment appreciated equity on the property and in the event that we have a claim that progressive or a default different races to claim where theres significant embedded equity, we're effectively able to harvest after disease, our exposure and thats what drives that it's really about.

Unidentified Speaker: And then, you know, your incurred losses on the 2022 vintage are 20.9%. I know your claim activity is, you know, very limited there. But do you have an early read for, you know, the actual current claim rate versus, you know, the assumptions you were making when you built, as you built that provision? Yeah, let me touch on that. So, one, obviously, the incurred loss ratio that's reported in NRK and it's in the release, it really relates to two things: the reason that it stands out relative to other vintages that we disclosed. One is the math behind the calculation itself.

Bose George: The appreciated equity position of borrowers to stay in default status and ultimately progressed or decline.

Okay, Great. Thanks, and then you know you incurred losses on the 2022 vintages, it's 29% I know you're a claim activity is very limited there, but do you have an early read for the actual cramp claim rate versus the assumptions you were making when you bill as you built that provision.

Speaker Change: Yeah, Let me, let me touch on so one obviously the incurred loss ratio that's reported in Italy in our K and it's in the release it really relates to two items. The reason that it stands out relative to other vintages.

Speaker Change: We disclosed one is the math behind the calculation itself.

Unidentified Speaker: What that number represents is a cumulative incurred loss ratio that we tally. And so, it's cumulative claims expense divided by cumulative net premiums earned. Because our 2022 book is newer, it has accumulated fewer years of premium revenue than earlier book years, which it will accumulate over time, but it can skew the presentation in, I'll call it, the periods immediately after or soon after that production period has ended. And second, it does relate, in fact, to some dynamics with that particular book year. As we're seeing defaults begin to emerge in that book year, which is natural; it happens with all vintages as they season, they are coming through with less embedded equity than defaults from earlier book years, for natural reasons, right? Borrowers who purchased their homes in 2022 didn't benefit from the record COVID HPA rally that those from earlier book years did.

Speaker Change: That number represents is a cumulative incurred loss ratio.

Speaker Change: We tally and so it's cumulative claims expense divided by cumulative net premiums earned because our 2022 book is newer it has accumulated your years of premium revenue than earlier book years, which it will over time, but it can skew the presentation in I'll call. It the periods immediately after or soon after.

Speaker Change: That production period has ended.

Speaker Change: Second it does relate in fact to some dynamics with that particular book year as we're seeing defaults to begin to emerge in that book here, which is natural it happens with all vintages as they season, they are coming through with less embedded equity than defaults from earlier book years.

For natural reasons right borrowers to purchase their homes in 2022 didn't benefit from the record Covid HVA rally that those from earlier book years did and that contributes to some increase in modeled loss expectations for that book relative to others and also to our loss picks as those defaults are coming through.

Unidentified Speaker: And that contributes to some increase in model loss expectations for that book relative to others and also to our loss picks as those defaults are coming through. Overall, though, what I would say is that our 2022 book year is exceptionally high quality if you look at the contours of the pool, and we're really encouraged by how it's performing. While it's performing worse than earlier vintages, really because of the equity dynamic, it's performing exceptionally well against our original model expectations. Okay, that's great.

Speaker Change: Overall, though what I would say is that our 2022 book year is exceptionally high quality. If you look at the contours of the pool and we're really encouraged by how it's performing well, it's performing worse than earlier vintages really because of the equity dynamic, it's performing exceptionally well against our original modeled expectations.

Speaker Change: Okay, that's great and if it continues to if it performs better than expectations. I mean, eventually that loss ratio declines right I guess, you'll you'll release reserves to reflect that as that how that plays out over time.

Unidentified Speaker: And if it continues to, if it performs better than expectations, I mean, eventually, that loss ratio declines, right? I guess you'll release reserves to reflect that. Is that how that plays out over time? Yeah, and obviously, we'll have to see where that trend goes. Okay. Great. Thanks. The next question is from Mahir Bhatia with Bank of America. Please go ahead. Good afternoon.

Bose George: Yeah, Bose and obviously, we'll have to see where that trends over time.

Speaker Change: Okay, great. Thanks.

The next question.

Speaker Change: <unk> is from Mihir Bhatia with Bank of America. Please go ahead.

Mihir Bhatia: Good afternoon. Thank you for taking my question wanted to start with I. Just I think you mentioned you had 1500 active accounts how much of the market does that cover and is that a segment of the market, where you have an opportunity to grow wherever you may be underrepresented.

Mahir Bhatia: Thank you. Thank you. I wanted to start with, I just, I think you mentioned you had 1,500 active users.

Unidentified Speaker: How much of the market does that cover? And is there a segment of the market where you have an opportunity to grow where we are maybe underrepresented? Yeah. It's a good question.

Mihir Bhatia: Yeah.

Mihir Bhatia: It's a good question. So the roughly 5000 after the counts that we have represent they gave us we estimate access to about 95% or so of the addressable market, which for all intents and purposes is the entire market. There's always going to be a couple of accounts that are large in size that we tried really hard and we're not able to access.

Unidentified Speaker: So the roughly 1,500 active accounts that we have represent, they give us access to about 95% or so of the addressable MI market, which for all intents and purposes is the entire market. There's always going to be a couple of accounts that are large in size that we try really hard and we're not able to access in the near term, and there's going to be a bunch of smaller accounts that we also access. But 95% access, when we look at it, that's really a fully representative access across the entirety of the market. There are some, there's a very, very small number of larger accounts that have the potential to be needle movers, and we're trying; our sales team is out there every day looking to continue to build relationships and help us gain access to those accounts, and that could come over time. The other one, though, as we look at it from a growth standpoint, it's not just white space, what are new accounts that we could access, but it's doing more with our existing customers. How do we bring them value? How do we bring them thought leadership?

Mihir Bhatia: In the near term and Theres going be a bunch of smaller accounts that we also but 95% access when we look at it that is really a fully representative.

Mihir Bhatia: Access across the entirety of the market there are some.

Very very small number of larger accounts that have the potential to be needle movers and we're trying our sales team is out there every day looking to continue to build relationships and help us gain access into those accounts and that could come on overtime. The other one though as we look at it from a growth standpoint, it's not just.

Mihir Bhatia: White space, what are new accounts that we could access, but it's doing more with our existing customers. How do we bring them value how do we bring them thought leadership, how do we prove ourselves as their best and most prioritized counterparty and how do we capture more and more of their wallet share.

Unidentified Speaker: How do we prove ourselves as their best and most prioritized counterparty, and how do we capture more and more of their wallet share every period that we roll forward? That's a big focus for us. Thank you. In terms of the expense ratio, maybe there's a slight pick up this quarter. Anything to call out there? And if you can share your expense outlook for next year, whether in dollar terms or ratio. Sure.

Mihir Bhatia: Every carrier that we roll forward and that's a big focus for us.

Speaker Change: Got it. Thank you in terms of the expense ratio, maybe there's a slight tick up this quarter anything to call out there and just if you can show your expense outlook for next year, rather than dollar to absorb ratios right.

Speaker Change: Sure I mean look we're always focused on managing with discipline and efficiency and we're pleased to have delivered a 22, 4% expense ratio is in line with our long run expectations around being in that low to mid Twenty's expense ratio area and look at supportive of an 18% Roe.

Ravi Malela: I mean, look, we're always focused on managing with discipline and efficiency, and we're pleased to have delivered a 22.4% expense ratio. It's in line with our long-run expectations around being in that low to mid-20s expense ratio area. And look, it's supportive of an 18% ROE. And so, you know, from a comparative basis, we also feel really good.

Speaker Change: And so from a.

Speaker Change: Comparative basis, we also feel really good we have the lowest expense base by a wide margin and the lowest expense ratio and so we're thinking about the quarter in particular.

Ravi Malela: We have the lowest expense base by white margin and the lowest expense ratio. And so, you know, we're thinking about the quarter in particular. You know, there were certain local non-income tax-related items. We had incentive-based compensation items that came through, and small movements sort of up and down across a range of categories that really led to the quarter-over-quarter difference. And look, we're happy about how we did.

Speaker Change: There were certain local non income tax related items, yes incentive based compensation items that came through and small movements sort of up and down across a range of categories that really led to the quarter over quarter difference and look where we're happy about wherever we're with how we've done.

Ravi Malela: And we don't typically provide expense guidance, but maybe I'll highlight a few items. But first, we manage the business, again, with discipline and efficiency. We're pleased with how Q4 developed. And as we look ahead, we do expect to see some growth in net operating expenses from a dollar perspective as we continue to invest in people and systems. But really, as we progress through the year, we're really pleased where we are right now.

Speaker Change: And we don't typically provide expense guidance, but maybe I'll highlight a few items first we manage the business again with discipline and efficiency. We're pleased with how we how Q4 develops and as we look out we do expect to see some growth in net operating expenses from a dollar perspective, as we continue to invest in people and systems.

Speaker Change: But really as we progressed through the year, we're really pleased where we are right now.

Yes, that's well said Ravi the one other item I would note just as we get into Q1, we always we actually see a little bit of a seasonal dynamic in expenses typically the one item that comes through with consistency in the first quarter is we get a pickup usually.

Ravi Malela: The one other item I would note, just as we get into Q1, we actually see a little bit of a seasonal dynamic in expenses. The one item that comes through with consistency in the first quarter is we get a pickup, usually related to the reset of payroll taxes and our FICA contributions and then some increases in 401k contributions that generally happen at the start of the year. That's helpful. And then just answer my last question.

Speaker Change: Related to the reset of payroll taxes, and our FICA contribution and then some increases in 401K contribution that generally happen at the start of the year.

Speaker Change: Got it.

Speaker Change: Helpful. And then just my last question I think.

Mahir Bhatia: I think in response to Doug's questions about the dividend, you had mentioned being able to extract dividends from the primary operating company. Can you just remind us where you are with that? Are you able to do that today? Or are you still in building mode because of the statutory capital rules? I know they're a little different.

Ravi: In response to Doug's questions about you know the dividend you had mentioned.

Ravi: Being able to extract dividends from their primary operating company can you just remind us where you are with that are you able to do that today or are you still like in building mode like from this because of the statutory capital rules I know, they're a little different so yeah great.

Ravi Malela: So, thank you. Yeah, great. I'll just highlight what I did.

Ravi: Just a highlight what I said is to increase the our ability to extract dividends. So we are able to take out ordinary course dividends from animal feed today in 2023, we had $98 million of ordinary course dividend capacity, we extracted $98 million in May of 2023 based on our performance through the course of the year in 2012.

Ravi Malela: What I did was to increase our ability to extract dividends. So, we are able to take out ordinary course dividends from NMIC today. In 2023, we had $98 million of ordinary course dividend capacity. We extracted $98 million in May of 2023.

Ravi Malela: Based on our performance through the course of the year in 2023 and where our balance sheet sits at the end of the year, we have $96 million of ordinary course dividend capacity available to us to extract from NMIC in 2024. And so, what we're looking at as we think about planning, the prospect of incremental capital distributions, the form of those distributions, there's a range of things that go into it outside of just what can we take out of the OPCO. But one of those items that we're focused on is making sure that we maintain that strong pipeline and, over time, see it grow. All right.

Ravi: Three and where our balance sheet sits at the end of the year, we have $96 million of ordinary course dividend capacity available to us to extract from them I see in 2024, and so what we're looking at as we think about planning the prospect of incremental capital distributions. The form of those distributions Theres a range of items that go into it outside of just.

Ravi: What can we take out of the Opco, but one of those items that we're focused on is making sure we maintain that strong pipeline and over time see it grow.

Ravi Malela: That's helpful. Thank you so much for taking my question. The next question is from Rick Shane with J.P. Morgan. Please go ahead. Most of my questions have actually been asked and answered, but I want to talk a little bit about the seasoning of the 22 vintage versus the 21 vintage and the 20 vintage.

Speaker Change: Got it that's helpful. Thank you so much for taking my questions.

Speaker Change: The next question is from Rick Shane with J P. Morgan. Please go ahead.

Thanks, guys for taking my questions. Most have actually been asked and answered, but I wanted to talk a little bit.

Richard Shane: About the seasoning of the 22 vintage versus the 'twenty one vintage.

Richard Shane: Vintage in the 20th vintage if you sort of compare them on a static basis after 18 months of seasoning.

Richard Shane: If you sort of compare them on a static basis after 18 months of seasoning, Adam, as you cited, the default rate is up, call it 25 basis points, maybe 83 or 84 versus 58. I'm curious if one of the other factors here is that you think that 22 vintage borrowers are overly reliant on the possibility of being able to refinance. It's sort of the classic buy the house, rent the

Richard Shane: Adam as you cited.

Richard Shane: The default rate is up call. It 25 basis points, maybe 83 or 84 versus 58.

Richard Shane: On a static pool basis for the 'twenty one.

Richard Shane: I'm curious if one of the other factors here is that you think that 22 vintage borrowers are.

Richard Shane: Overly reliant on the possibility of being able to refinance its sort of the classic buy the house rent the mortgage and do you think that borrowers in that cohort may have looked at interest rates said, yes, they're really high but I know, they're going to be lower and now we're stuck.

Adam Pollitzer: And do you think that borrowers in that cohort may have looked at interest rates and said, yes, they're really high, but I know they're going to be lower, and now we're stuck? Yeah, Rick, so your reading of the data is right, and your question is a terrific one. Look, I will reiterate, though, our 2022 book is performing really well. If you look at the underlying contours, it is high quality, just like the rest of the portfolio.

Speaker Change: Yeah, Rick So your read of the data is right in your question is a terrific one.

Speaker Change: I will reiterate our 2022 book is performing really well if you look at the underlying contours.

Speaker Change: It is high quality just like the rest of the portfolio. We applied the same rigor in our risk selection and mix in shaping our 2022 production as we've always done. We also importantly source comprehensive reinsurance protection for our 2022 vintage production again, just as we have always done so theres really no notable differences.

Adam Pollitzer: We apply the same rigor to risk selection and mix in shaping our 2022 production, as we've always done. We also, importantly, source comprehensive reinsurance protection for our 2022 vintage production, again, just as we have always done. So, there are really no notable differences that you could observe in the underlying borrowers from a borrower, a loan level, a geographic, or a product risk attribute standpoint. The one key difference that we do expect will come through, and is coming through already, is just the difference in the embedded equity position. Now, your question about whether they are, or is this a cohort of borrowers that were perhaps more reliant on expectations that they could refinance a loan? It's one of the real reasons that we find rate GPS to be so powerful, because that dynamic is playing out in the market.

Speaker Change: You can observe in the underlying borrowers from a borrower alone level, a geographic or a product risk attribute standpoint, the one key difference.

Speaker Change: We do expect will come to come through is coming through already it's just the difference in the embedded equity position now. Your question about are they are different cohort of borrowers that were perhaps.

Speaker Change: More reliance on expectations that they could refinance alone.

Speaker Change: It's one of the real reasons that we find rates you have to be so powerful because that dynamic is coming through the market. It's actually come through in a more pronounced way not in 2022, but in 2023 and what do we see that expressed is the increase anywhere in any given period in 2023 about 5% to 10% of the market we estimate.

Adam Pollitzer: It's actually come through in a more pronounced way, not in 2022, but in 2023. And where we see that expressed is the increase anywhere in any given period in 2023; about 5% to 10% of the market, we estimate was, from a product profile standpoint, temporary buy-down products. So these are loans with really introductory teaser rates that will automatically, after a year and then again after two years, typically, see their rates move higher unless the borrower is able to refinance.

Speaker Change: Was.

Speaker Change: From a product profile standpoint was temporary buy down products. So these are loans with really introductory teaser rates that will automatically after a year and then again after two years typically see their rates move higher and less the borrow was able to refinance that is an area of emerging risk that we observed very early on in 2020.

Adam Pollitzer: That is an area of emerging risk that we observed very early on in 2023, late 2022. And so we price for that, and we are actively managing the mix of temporary buy-down products that come through. We have nearly none of that business coming through our portfolio, and we're sitting well behind where the market is, anywhere from 5% to 10%, depending really on how interest rates chart in late 2022 and through the course of 2023. So yes, that is something that will impact late 2022 and 2023 production broadly for the high LTV market. That's not really going to be a contributor for us because we took steps early on to make sure that we were managing the flow of that risk coming in. Okay, very, very helpful.

Speaker Change: Three late 2022, and so we price for that and we are actively managing the mix of temporary bayyan product that comes through we have nearly none of that business coming through our portfolio and we're sitting well behind where the market is anywhere from 5% to 10% depending really on.

Speaker Change: How interest rates charted in late 'twenty two went through the course of 2023. So yes that is something that will impact. The 2022 late 'twenty two and 2023 production broadly for the high end TV market, that's not really going to be a contributor for us because we took steps early on to make sure that we were managing the flow of that risk coming in.

Speaker Change: Got it okay, very very helpful and again.

Mark Hughes: And again, recognizing that we are trying to glean trends off of very, very small numbers. So it is, and I want to be careful about that. So I appreciate the answer. The next question is from Mark Hughes with Truist Securities. Please go ahead.

Speaker Change: Recognizing that we are trying to glean trends off of very very small numbers. So it is and want to be careful about that so I appreciate the answer.

Speaker Change: The next question is from Mark Hughes with <unk> Securities. Please go ahead.

Mark Hughes: Yeah. Thank you good afternoon.

Mark Hughes: Yeah, thank you. Good afternoon, Adam. You talked about the private MI market being just as strong in 2024. Is that your view of the opportunity for new insurance? Yeah, maybe overall. Look, we expect that 24 is going to be similar to 23.

Mark Hughes: Adam you talked about the private and my marketing just as strong in 'twenty 'twenty four is that.

Mark Hughes: What is your view of the opportunity for a new.

Mark Hughes: New insurance written.

Mark Hughes: Yeah, maybe overall look we we.

That 24 is going to be similar to the 23 right as we look at it 23 was a very strong year, where long term secular drivers of demand and activity continue to come through where.

Adam Pollitzer: As we look at it, 23 was a very strong year where long-term secular drivers of demand and activity continued to come through, where we had resiliency in house prices that not only supported credit, but higher house prices also mean incrementally larger loan sizes. And since our rateable exposure is the size of the loan, not the number of units, higher-priced homes with higher loan sizes are also helpful. And then, look, given that interest rates have had some movement, but they're still sitting at or above 7%. We see affordability constraints driving an increasing number of borrowers towards the private MI market for down payment support. And so this year, we will tally it.

Where we have resiliency in house prices.

Mark Hughes: That not only support credit, but higher house prices also mean incrementally larger loan sizes and since our ratable exposure is the size of the loan not the number of units.

Mark Hughes: Price homes with higher loan sizes are also help helpful. And then look given that interest rates, we have some movement, but there is still sitting at or above 7%, we see affordability constraints driving an increasing number of borrowers towards the private market for downpayment support and so this year, we tally it the market was right about.

Mark Hughes: The market was right about $285 billion. We expect a similarly attractive market environment in 24. And then, really, we may have, I'd say, some upside potential if we see moderation in rates, and that could potentially spur some incremental activity. And then your net investment income, did you give the new money yield in the quarter?

Mark Hughes: 285 billion, we expect a similarly attractive market environment in 'twenty, four and then really.

Mark Hughes: We may have I think some upside potential.

Mark Hughes: If we see moderation in rates and that has you know could potentially spur some incremental activity.

Mark Hughes: And then are you.

Mark Hughes: Net investment income did you give the new money yield in the quarter and generally speaking do you think that's going to continue to trend up.

Mark Hughes: And generally speaking, do you think that's going to continue to trend up? Yeah, Mark, really what we're seeing in terms of new money opportunities is a blended average rate of around 5%. And then, you know, I think maybe it's just worthwhile to talk a little bit about Q4.

Speaker Change: Yes, Mark.

Really what we're seeing in terms of new money opportunities, we're seeing a blended average rate of around 5%.

Speaker Change: And then I think maybe it's worthwhile to talk a little bit about Q4 or Q.

Ravi Malela: Our Q4 NII developed sort of exactly how we expected it, with growth in the quarter coming sort of in a more muted way because of our purchase of tax and loss bonds early in October. And, you know, if you remember, these are IRS instruments that allow us to take a deduction for our contingency reserve and defer cash tax, but they're non-interest-bearing securities, and that had an impact on our NII trend from Q3 to Q4. We purchased about 80 million of those tax and loss bonds, which means we redirected about 80 million of short-term liquidity that actually had been generating investment income in Q3 but didn't in Q4. And so if you look from a quarter-to-quarter basis, you see sort of not as much of an increase in terms of net investment income. But really, our NII has benefited both from the growing size of our investment portfolio and the increasing yields that we've been able to capture on new investments. And we expect those trends to continue.

Speaker Change: Q4, NII developed sort of exactly how we expected it with growth in the quarter coming sort of in a more muted way because of our purchase of tax and loss bonds early in October and if you remember these are I R. S instruments that allow us to take a deduction for our contingency reserve and deferred cash taxes.

Speaker Change: But there are noninterest bearing securities and that had an impact on our NII trend from Q3 to Q4, we purchased about 80 $80 million of those tax and loss bonds, which means we redirect it about $80 million of short term liquidity that actually had been generating investment income in Q3, but didnt in Q4.

Speaker Change: So if you look from quarter to quarter basis, you see sort of not as much of a increase.

Speaker Change: In terms of net net investment income.

Speaker Change: But really our NII has benefited both from the growing size of our investment portfolio and increasing yield that we've been able to capture on new investments and we expect those trends to continue I mean, we're generating significant operating cash flows everyday drives consistent and significant growth in our asset base and you know with the current interest rate environment.

Bradley M. Shuster: I mean, we're generating significant operating cash flows every day, which drives consistent and significant growth in our asset base. And, you know, with the current interest rate environment, it presents us with an attractive opportunity to capture new money rates that are above our portfolio yield. Yeah, and look, this is a really nice tailwind for us as we look forward and think about performance. Every dollar of incremental net investment income flows straight to the bottom line.

Speaker Change: <unk> us with an attractive opportunity to capture new money rates that are above our portfolio yield.

Speaker Change: Yeah well. This is this is a really nice tailwind for us as we look forward and think about performance and every dollar of incremental net investment income plus straight to the bottom line theres almost no marginal cost associated with it de minimis amounts of.

Bradley M. Shuster: There's almost no marginal cost associated with it, the minimum amount of, you know, third-party management costs. So every dollar really flows straight to the bottom line. And given the leverage that we have from an asset invested asset to equity standpoint, every 100 basis points of improvement in our portfolio yield, that dollar-for-dollar isn't just pre-tax, means we will see roughly 100 basis points of ROE improvement as well. So every point of portfolio yield improvement is a point of ROE support, and that's a terrific one as we look forward, given the new money rates that we're capturing now in the portfolio. I appreciate it. Thank you. The next question is from Eric Hagan with KPMG. Please go ahead.

Speaker Change: You know our third party management costs. So every dollar of really flow straight to the bottom line.

Speaker Change: And given the leverage that we have from an asset invested asset to equity standpoint.

Speaker Change: Every 100 basis points of improvement in our portfolio yield that dollar for dollar isn't just pre tax. It means we will see roughly a 100 basis points of ROE improvement as well. So every point of portfolio yield improvement as a point of ROE support and that is a terrific. One as we look forward given the new money rates that were captured now in our portfolio.

Speaker Change: I appreciate it thank you.

Speaker Change: The next question is from Eric Hagen with K P. M. G. Please go ahead.

Eric Hagan: Yeah, we've got BTIG here. So, you know, in the NIW that was written for the industry last year, you know, how much variability would you say there was within that volume in the first place? Like, if you wanted to take materially more or even less risk, would you say that opportunity was even available in the NIW that was written for the industry last year? And at lower interest rates and higher growth for the industry overall, do you feel like the credit profile would actually take on more range, if you will? Yes, look, I mean, risk is real, right? And even in generally buoyant markets, there are real distinctions between borrowers, between loans, between geographies.

Eric Hagen: Oh, we gotta BTG here so.

Eric Hagen: Uh huh.

Eric Hagen: <unk> in the Ni W that was written for the industry last year, how much variability would you say there was.

Eric Hagen: Within that.

Eric Hagen: And that volume in the first place like like if you wanted to take materially more or even less rescue is that would you say that opportunity was even available and then IW that was written for the industry last year and at lower and lower interest rates and higher growth for the industry overall do you feel like.

Eric Hagen: Profile would actually take on more range, if you will.

Speaker Change: Yeah, well I mean risk is real right, even in generally buoyant markets, they're real distinctions between borrowers between loans.

Speaker Change: Between geographies and so it is as you know we.

Adam Pollitzer: And so it is, you know, we are very actively managing the mix of risk that's coming through across a range of borrower loan-level products and geographic risk attributes, and all of those are interconnected. So we would expect that there will still be opportunities to continue to do that, and not just opportunities. There's going to be a real need to do that in 2024, and the profile of the risk pool coming through is identical. There's a pretty broad dispersion of risk coming into the market, and we need to stay proactive in our stance toward manufacturing. Okay, that's interesting.

Speaker Change: We are very actively managing the mix of risk that's coming through across a range of borrower loan level product and geographic risk attributes and all of those interconnected.

Speaker Change: So we would expect that they will still be opportunities to continue to do that and not to stop to theres going to be a real need to do that in in 2024, even if the market is the same size.

Speaker Change: And the profile of the risk pool coming through is identical.

Speaker Change: Pretty broad dispersion of risk coming into the market and we need to stay proactive in our stance sports mountain came out.

Speaker Change: Okay that's interesting.

And going back to the expenses for a second is there a way to quantify the amount of operating leverage do you feel like is embedded in the business.

Adam Pollitzer: Going back to the expenses for a second, is there a way to quantify the amount of operating leverage you feel is embedded in the business? Like, do you feel like you have an estimate for how much more insurance you can bring into the portfolio and the corresponding increase in expenses would be or is, or how do you think about that? And then how do you feel like the operating leverage actually translates to lower costs, maybe in the reinsurance market, you're able to achieve? Yeah, absolutely.

Speaker Change: Do you feel like you have an estimate for how much more insurance you can bring into the portfolio.

Speaker Change: A corresponding increase in expenses would be areas.

Speaker Change: Or just how to think about that and then how do you feel like the operating leverage actually translates to lower cost maybe in the reinsurance market.

Speaker Change: We're able to achieve.

Speaker Change: Yes, absolutely, let me touch on operating leverage.

Adam Pollitzer: When we touch on operating leverage, look, obviously, there's always going to be certain variable costs that we incur, and Ravi talked about continuing to invest in our people and our systems. But by and large, our business is really a fixed cost model. And so there's a significant, significant ability to continue to scale the portfolio without needing to make wholesale changes to our expense profile. That's been the case for quite some time.

Speaker Change: I think there's always going to be certain variable costs that we incur and Ravi talked about continuing to invest in our people and our systems.

Speaker Change: But by and large our business is is.

Speaker Change: Really a fixed cost model and so there is significant significant ability to continue to scale the portfolio without needing to make wholesale changes to our expense profile.

Speaker Change: That's been the case for quite some time it continues to be the case now we have 238 employees, who are working hard and they're committed everyday we don't see a need to dramatically change our our footprint from a head count standpoint, or our overall system profile added to your $1 billion portfolio. Even if we were to have a 300 billion dollar.

Adam Pollitzer: It continues to be the case now. We have 238 employees who are working hard, and they're committed every day. We don't see a need to dramatically change our footprint from a headcount standpoint or our overall system profile at a $200 billion portfolio, even if we were to have a $300 billion insured portfolio or larger. And so there's always going to be some operating leverage, positive operating leverage that's embedded there. I think... As we look forward, though, You know, we've signaled for a while now that our long-term targets are to deliver a low-to-mid 20% expense ratio. We are fully there today, right, with the absolute lowest dollars of expense footprint in the industry and at or near the lowest expense ratios.

Speaker Change: In short portfolio or larger and so theres always going to be.

Speaker Change: Some operating leverage positive operating leverage that's that's embedded there.

Speaker Change: I think.

Speaker Change: We look forward, though.

Speaker Change:

Speaker Change: We signaled for.

Speaker Change: For a while now that our long term targets are to deliver a low to mid 20% expense ratio. We are fully there today right with the absolute lowest dollar so expense footprint in the industry and at or near the lowest expense ratios.

Adam Pollitzer: It's still our goal to manage our business with discipline and maintain that leadership as to where that operating leverage and portfolio growth relative to expense discipline will lead our expense ratio over time. I think right now, you know, we're still focused on maintaining that long-term low-to-mid 20 as a target that we think will allow us to ultimately support the return objectives that we have for our business, which are strong mid-teens.

Speaker Change: It's still our goal to manage our business with discipline and maintain that leadership as to where that operating leverage and portfolio growth relative to expense discipline will will lead our expense ratio over time, I think right now.

Speaker Change: We're still focused on maintaining that that long term low to mid twenty's as a target that we think will allow us to ultimately support the return objectives that we have for our business strong mid teens.

Speaker Change: In terms of.

Adam Pollitzer: In terms of reinsurance and the impact of operating leverage, there's really not... There is not a direct link between our operating expense profile and the outcomes that we achieve in the reinsurance market. But there is a critical link that we talked about during Investor Day and that we introduced and talked about on our last earnings call. And it's the fact that because we are so disciplined from an operating expense standpoint, it really gives us unique flexibility to be far more selective from a risk-taking standpoint than others in the market, right? It's the strategic value. It's very clear all the time, lower expenses, right, industry-leading expense base, smallest but part of the industry by a wide margin. There's a financial impact that's easy to see, but the strategic value, we think, is often overlooked.

Speaker Change: Of reinsurance and the impact from operating leverage there is really not there.

Speaker Change: There is not a direct link between our operating expense profile and the outcomes that we achieve in the reinsurance market, but there is a critical link that we talked about during investor day, and that we introduced and talked about on our last earnings call and it's the fact that because we are so disciplined from an operating expense standpoint.

Speaker Change: It really gives us.

Speaker Change: Unique flexibility to be far more selective from a risk taking standpoint than others in the market right. It's the strategic value. It is very clear all the time lower expenses for our industry, leading expense base smallest footprint in the industry by a wide margin, there's a financial impact that's easy to see.

Speaker Change: The strategic value, we think is often overlooked and it's the strategic value that feeds directly into our risk management approach right because with an extensive advantage, we simply don't need the right higher concentration of higher risk higher yielding business.

Adam Pollitzer: And it's this strategic value that feeds directly into our risk management approach, right? Because with an expense advantage, we simply don't need to write higher concentrations of higher-risk, higher-yielding business to cover our operating base. We could achieve the return objectives that we have for our business, really best-in-class returns while also taking the most proactive and disciplined stance toward managing our mix of business. And so while it's not direct, because our expense advantage feeds directly into our risk management strategy, it's the risk management, right, our credit discipline, the profile of our production, that does yield differentiated outcomes in the reinsurance market. So they're connected, and spending ultimately allows us to do things that, in the end, help us achieve better outcomes in the reinsurance market, but it's not a direct sort of read-through, one for one.

Speaker Change: Our operating base, we could achieve the return objectives that we have for our business really best in class returns. While also taking the most proactive and disciplined stance towards managing our mix of business.

Speaker Change: And so while it's not direct because our expense advantage feeds directly into our risk management strategy. It's the risk management right, our credit discipline and the profile of our production that does yield differentiated outcomes in the reinsurance market.

Speaker Change: They're connected and expense ultimately allows us to do things that.

Speaker Change: In the end help us achieve better outcomes in the reinsurance market, but it's not a direct sort of read through a one for one.

Adam Pollitzer: Great stuff. I appreciate you guys. The next question is a follow-up from Bose George with KBW. Please go ahead.

Speaker Change: Alright, I appreciate it guys.

Speaker Change: The next question is a follow up from Bose George with K B W. Please go ahead.

Bose George: Yeah, thanks. So just a quick follow up. Ravi, you made a comment about net interest income and the impact of, I think, the bonds. There is some tax benefit, I guess, on some of the bonds; the tax rate was a little lower than usual. Is that that kind of the offset? The investment income, you know, didn't go up as much, and the tax rate was a little lower. Both, they're actually unrelated items. You know, the tax rate going down in the quarter was really a benefit that really came through from exercising certain stock options in the period. And it was a little bit offset by 162 limitations during the period.

Bose George: Yeah. Thanks, So just a quick follow up.

Bose George: Ravi you made a comment about net interest income and the impact of I think the bonds. There were some tax benefit I guess on some of the bonds. The tax rate was a little lower than usual.

Bose George: So is that kind of the offset the investment income.

Bose George: Then go up as much in the tax rate was a little lower.

Bose George: Both they're actually unrelated items.

Bose George: Tax rate going down.

Bose George: The quarter was really.

Bose George: Really a benefit.

Bose George: It really came through of exercising certain stock options in the periods and it was a little bit offset by some by 162 limitations during the period, but the tax really the change in the tax rate quarter over quarter. It Didnt really have anything to do with net investment income give us so tax and loss bonds are purely a statutory items they don't.

Ravi Malela: But the tax, really, the change in the tax rate quarter over quarter didn't really have anything to do with net investment income. So tax and loss bonds are purely a statutory item. They don't impact the tax rate. They don't impact our GAAP ETR at all. It's just that instead of paying cash taxes, we purchase what are known as tax and loss bonds. It's an instrument that's uniquely available to MI companies. And it's valuable from a cash tax standpoint and a regulatory capital standpoint but has no impact other than the fact that the name is tax and loss bonds, and is completely separate from the tax expense and our effective tax rate in any period.

Bose George: Impact tax rate, they don't impact our GAAP ETR at all it's just instead of paying cash taxes, we purchased what are known as tax and loss bonds as an instrument that's uniquely available to MRI companies and it's valuable from a cash tax standpoint, and a regulatory capital standpoint, It has no impact.

The fact that the name of the tax law firms.

Bose George: It is completely separate from.

Bose George: The tax expense and our effective tax rate in any period.

Ravi Malela: Okay, great. That's helpful. Thank you. This concludes our question and answer session. I would like to turn the conference back over to management for any closing remarks. Well, thank you again for joining us. We'll be participating in the Bank of America Insurance and Financial Services Conference on February 22nd and the RBC Financial Institutions Conference on March 5th. We look forward to speaking with you again soon. The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.

Speaker Change: Okay, Great. That's helpful. Thank you.

Speaker Change: This concludes our question and answer session I would like to turn the conference back over to management for any closing remarks.

Speaker Change: Well. Thank you again for joining us will be participating in the bank of America insurance and financial services Conference on February 22nd and the RBC financial institutions Conference on March 5th we look forward to speaking with you again soon.

Speaker Change: The conference has now concluded. Thank you for attending today's presentation you may now disconnect.

Operator: Copyright 2020 Mooji Media Ltd. All Rights Reserved. No part of this recording may be reproduced without Mooji Media Ltd.'s express consent. Copyright 2020, New Thinking Allowed Foundation, www.mytrendyphone.co.uk Copyright 2020, New Thinking Allowed Foundation, and Copyright 2020 Mooji Media Ltd. All Rights Reserved. No part of this recording may be reproduced without Mooji Media Ltd.'s express consent. Copyright 2020, New Thinking Allowed Foundation.

Speaker Change: [music].

Speaker Change: Yeah.

[music].

Q4 2023 NMI Holdings Inc Earnings Call

Request a DemoDemo

NMIH

NMI Holdings

Earnings