NMI Holdings, Inc. — Q1 2024 Form 10-Q
Business and period: NMI provides private mortgage insurance through NMIC and outsourced loan-review services through NMIS. This summary covers the three months ended March 31, 2024; comparisons are with Q1 2023 unless stated otherwise. NMI reported as one operating segment.
Financial and operating performance
| Metric | Q1 2024 / March 31, 2024 | Comparable period / prior date |
|---|---|---|
| Total revenue | $156.3 million | $136.8 million; up 14% |
| Net premiums earned | $136.7 million | $121.8 million; up 12% |
| Net investment income | $19.4 million | $14.9 million |
| Net income | $89.1 million | $74.5 million; up 20% |
| Diluted EPS | $1.08 | $0.88 |
| Loss / expense / combined ratios | 2.7% / 21.8% / 24.5% | 5.5% / 21.2% / 26.7% |
| Operating cash flow | $111.6 million | $89.8 million |
| Cash and cash equivalents | $139.7 million | $96.7 million at Dec. 31, 2023 |
| Investments at fair value | $2.394 billion | $2.371 billion at Dec. 31, 2023 |
| Debt | $398.0 million carrying value | $400 million principal; 7.375% notes mature June 1, 2025 |
| Total assets / shareholders’ equity | $3.006 billion / $1.978 billion | $2.941 billion / $1.926 billion at Dec. 31, 2023 |
Net premiums written were $130.2 million, up 15%. NIW grew 8% to $9.4 billion; primary insurance-in-force rose 7% year over year to $199.4 billion, and risk-in-force reached $52.6 billion. Annual persistency was 85.8%, versus 85.1% a year earlier.
Q1 operating cash flow increased year over year. Investing activities used $37.8 million and financing activities used $30.8 million, including $25.2 million for share repurchases. Cash and investments totaled about $2.5 billion; the filing reports $91.9 million of these held at the holding company. Investment portfolio pre-tax book yield was 2.9%.
Material changes and drivers
- Revenue growth reflected a larger monthly-premium in-force portfolio, higher investment income, and lower premiums ceded under reinsurance, partly offset by less revenue from single-premium policy cancellations.
- Investment income increased with higher portfolio yields and a larger invested asset base. The company attributed the yield improvement to new cash deployment and reinvestment at higher rates.
- Claims expense fell to $3.7 million from $6.7 million, primarily because of favorable development on prior-year defaults. Prior-year reserve development was favorable by $29.3 million, compared with $20.9 million in Q1 2023.
- Underwriting and operating expenses rose to $29.8 million from $25.8 million, mainly due to employee compensation and adjustments to deferred policy acquisition cost amortization.
- Weighted-average diluted shares declined to 82.1 million from 84.8 million; the company cited repurchases as contributing to higher diluted EPS.
- Unrealized investment losses in accumulated other comprehensive income increased during the quarter. Gross unrealized losses were $190.2 million at March 31, 2024, primarily attributed to interest-rate movements and, to a lesser extent, credit spreads; the company recorded no investment credit-loss allowance.
Capital, liquidity, outlook and risks
NMIC reported $2.822 billion of PMIERs available assets against $1.562 billion of net risk-based required assets, a $1.260 billion excess. Its statutory capital was $2.647 billion and its risk-to-capital ratio was 11.7:1. NMIC could pay up to $96.3 million in ordinary dividends to NMIH during the 12 months ending December 31, 2024, subject to applicable requirements. The company said it complied with its revolving-credit covenants at quarter-end.
No numerical full-year guidance was provided in the supplied filing text. Management cautioned that persistent inflation, elevated interest and mortgage rates, weaker housing demand, falling home prices, or sustained unemployment could reduce new business or increase defaults and claims. Other key risks include GSE policy or PMIERs changes, competition, reinsurance counterparty performance, investment-market risk, and legal or regulatory matters.
On April 29, 2024, NMIH entered into a new $250 million five-year unsecured revolving credit facility intended to replace its existing secured facility. Closing is conditional, including on termination of the existing facility and redemption or satisfaction and discharge of the outstanding notes. The new facility retains a 35% maximum debt-to-total-capitalization covenant and PMIERs compliance requirements; it removes the minimum statutory capital covenant. The notes’ June 2025 maturity remains an important refinancing consideration.
A mortgage-insurance premium-refund lawsuit under the Homeowners Protection Act was dismissed in September 2023 and is pending appeal. The company reported that it did not expect a material loss and had not accrued a litigation liability. It reported no material changes to the risk factors in its 2023 Form 10-K.
Investor verification priorities
- Track default counts, default rates, claims paid, reserve adequacy, and whether favorable prior-year reserve development continues; defaults were 5,109, or 0.80%, versus 4,475, or 0.75%, a year earlier.
- Verify the closing and terms of the new unsecured revolver, the treatment/refinancing of the $400 million notes, and the plan for their June 2025 maturity.
- Monitor PMIERs excess assets, statutory capital, risk-to-capital ratio, and the capacity to upstream dividends from NMIC.
- Assess investment portfolio sensitivity to rates and credit spreads, including the $190.2 million gross unrealized loss position and portfolio duration of 3.85 years.
- Review the pace and price of repurchases: 840,209 shares were repurchased in Q1 at an average $29.98 per share, with $151.8 million of authority remaining at March 31.
- Follow housing-market, mortgage-rate, persistency, NIW, and reinsurance developments, as these affect premiums, capital relief, and future claims.