NMI Holdings, Inc. — FY2023 Form 10-K
Reporting period: Fiscal year ended December 31, 2023. The filing is an annual report; fourth-quarter figures are included in its unaudited quarterly data. NMI provides private mortgage insurance through National Mortgage Insurance Corporation (NMIC), alongside loan-review services. Its common stock trades as NMIH on Nasdaq.
Financial and operating performance
| Metric | FY2023 | FY2022 | Change |
|---|---|---|---|
| Total revenue | $579.0 million | $523.3 million | +10.6% |
| Net premiums earned | $510.8 million | $475.3 million | +7.5% |
| Net investment income | $67.5 million | $46.4 million | +45.5% |
| Net income | $322.1 million | $292.9 million | +10.0% |
| Diluted EPS | $3.84 | $3.39 | +13.3% |
| Operating cash flow | $342.7 million | $313.4 million | +9.3% |
The GAAP net income margin was approximately 55.6%, compared with 56.0% in 2022. The combined ratio was 26.1% (loss ratio 4.4%; expense ratio 21.7%), versus 24.0% in 2022. These insurance ratios reflect the filing’s definitions and do not represent conventional operating margins.
- Q4 2023: Net premiums earned were $132.9 million, net investment income $18.2 million, pretax income $105.2 million, and net income $83.4 million; diluted EPS was $1.01. Q4 2022 net income was $72.9 million and diluted EPS was $0.86.
- Business volume: 2023 new insurance written (NIW) fell 31% to $40.5 billion from $58.7 billion. Primary insurance-in-force (IIF) nevertheless grew 7% to $197.0 billion; risk-in-force was $51.8 billion. Persistency improved to 86% from 84%, as higher mortgage rates reduced refinancing.
- Claims: The year-end default rate rose to 0.81% from 0.75%; defaults numbered 5,099 versus 4,449. Claims and claim expenses were $22.6 million, compared with a $3.6 million benefit in 2022. The 2023 provision included $56.4 million of favorable prior-year reserve development, principally from cures and updated loss analysis.
- Balance sheet and liquidity: Total assets were $2.94 billion, shareholders’ equity $1.93 billion, and consolidated cash and investments approximately $2.47 billion. Operating cash flow was $342.7 million; investing activities used $200.0 million and financing activities used $90.4 million, mainly reflecting share repurchases.
- Debt: Debt was $397.6 million, principally $400 million principal amount of 7.375% senior secured notes due June 1, 2025. The $250 million revolving facility was undrawn. The company reported compliance with its covenants.
Material changes and capital position
- Investment income increased as new cash flows and maturing securities were reinvested at higher yields, and the invested asset base grew. Underwriting and operating expenses declined to $110.7 million from $117.5 million, partly due to higher persistency, reinsurance commissions, and lower technology costs.
- Net premiums written rose 4% to $480.5 million despite lower NIW, reflecting growth in monthly-pay IIF and premium receipts. Premiums earned increased 7%.
- NMIC reported $2.718 billion of PMIERs available assets against $1.516 billion of risk-based required assets, an excess of about $1.202 billion. Its statutory capital was $2.536 billion and risk-to-capital ratio 11.4:1, compared with 11.1:1 in 2022.
- The investment portfolio’s fair value was $2.371 billion, with $184.3 million of gross unrealized losses, largely attributed to interest rates and credit spreads. No investment-security credit-loss allowance was recorded. Pre-tax book yield was 2.6%.
- NMI repurchased 3.5 million shares for $92.3 million during 2023; $176.9 million of authorization remained at year-end. The company has not paid common dividends.
Outlook, risks, and notable items
The filing provides no numerical earnings or production guidance. Management describes the business as exposed to mortgage-market conditions and notes that inflation, elevated interest and mortgage rates, affordability pressures, housing demand, home prices, and unemployment could affect future originations and claims. It also cites competition from government mortgage insurers and alternative credit-risk structures, GSE/FHFA policy changes, and possible changes to bank capital rules as material uncertainties.
- Third-party reinsurance supports risk management and regulatory capital, but NMI remains directly liable for insured claims and could face counterparty or loss-of-capital-credit risks. The 2019 insurance-linked-note transaction was in lock-out at year-end because of its pool’s default experience. NMI terminated and commuted its Oaktown Re II transaction in July 2023.
- Effective January 2024, NMIC entered new quota-share coverage for 20% of eligible 2024 production and excess-of-loss coverage of up to $162.5 million for specified 2024 delinquencies. The 2020 quota-share agreement was also amended effective January 2024.
- Insurance claim reserves were $124.0 million at year-end and were identified as the audit’s critical audit matter because frequency, severity, and assistance-program assumptions involve significant judgment. A one-percentage-point change in estimated claim frequency was estimated to change reserves by about $3.4 million; the comparable claim-severity sensitivity was about $0.9 million.
- A lawsuit concerning refunds of mortgage-insurance premiums under the Homeowners Protection Act was dismissed in September 2023; the plaintiff appealed. NMI reported no material litigation accrual and did not expect a material loss, while noting outcomes remain uncertain.
- BDO issued unqualified opinions on the financial statements and internal control over financial reporting. Management also concluded disclosure controls and internal control over financial reporting were effective as of December 31, 2023.
Investor verification priorities
- Track NIW, persistency, premium yield, and the effect of sustained high rates or any refinancing rebound on IIF and future revenue.
- Review default growth, claims severity, cure trends, and reserve development; distinguish favorable prior-year releases from current-year claim costs.
- Monitor PMIERs excess assets, statutory capital, dividend capacity, and the terms and performance of reinsurance, especially the 2019 ILN lock-out and 2024 treaties.
- Assess the 2025 note maturity and refinancing plans, holding-company liquidity, and restrictions on upstream insurer dividends.
- Watch unrealized investment losses, interest-rate sensitivity, and the impact of any required investment sales.
- Follow GSE/FHFA policy, government MI pricing, and proposed bank-capital changes that could affect private MI demand.