NMI Holdings, Inc. — 2022 Form 10-K
Reporting period: Fiscal year ended December 31, 2022. This is an annual report, not a standalone fourth-quarter filing; quarterly figures are noted separately below. NMI provides private mortgage insurance, primarily through National Mortgage Insurance Corporation (NMIC), protecting lenders against a portion of losses on higher loan-to-value residential mortgages.
Business context
At year-end, NMI reported $185.0 billion of total insurance-in-force (IIF), including $184.0 billion of primary IIF, and $47.7 billion of gross risk-in-force. Full-year new insurance written (NIW) was $58.7 billion. The company had 1,875 master-policy customers and 1,434 active customer relationships. Its business depends substantially on the GSEs’ purchase of insured loans and their eligibility and capital requirements.
Key financial results
| Metric | 2022 | 2021 | Change / context |
|---|---|---|---|
| Total revenue | $523.3 million | $485.1 million | Up 8% |
| Net premiums earned | $475.3 million | $444.3 million | Up 7% |
| Net investment income | $46.4 million | $38.1 million | Up 22% |
| Insurance claims and claim expenses | $(3.6) million | $12.3 million | 2022 benefit reflects reserve releases; loss ratio was (0.8)% versus 2.8% |
| Underwriting and operating expenses | $117.5 million | $142.3 million | Down 17%; expense ratio improved to 24.7% from 32.0% |
| Net income | $292.9 million | $231.1 million | Up 27%; diluted EPS was $3.39 versus $2.65 |
| Operating cash flow | $313.4 million | $325.7 million | Down $12.3 million |
The combined ratio improved to 24.0% from 34.8%. Adjusted net income, a non-GAAP measure, was $291.6 million, compared with $236.8 million. Fourth-quarter 2022 net income was $72.9 million, versus $60.5 million in fourth-quarter 2021; Q4 net premiums earned were $119.6 million, versus $113.9 million.
Portfolio, capital and liquidity
- NIW fell 31% to $58.7 billion, primarily reflecting a smaller mortgage insurance market. Primary IIF nevertheless grew 21% to $184.0 billion, while persistency rose to 84% from 64%, mainly as higher mortgage rates slowed refinancing.
- Defaults in the primary portfolio declined to 4,449 loans, or 0.75% of policies in force, from 6,227 loans, or 1.22%. Claims paid totaled $1.7 million; management cited cures, home-price appreciation and pandemic-related assistance as factors supporting low claims.
- Gross reserves for claims and claim expenses were $99.8 million, down from $103.6 million. Claims incurred included a $48.8 million net benefit from prior-year reserve development. The reserve estimate was identified as a critical audit matter.
- At December 31, NMIC reported $2.379 billion of PMIERs available assets against $1.204 billion of required assets, a $1.175 billion excess. Statutory capital was $2.246 billion and the risk-to-capital ratio was 11.1:1.
- Consolidated investment portfolio fair value was $2.099 billion, with $44.4 million in cash and cash equivalents. The portfolio had $254.7 million of gross unrealized losses, largely attributed to higher interest rates and credit spreads; the company recorded no investment credit-loss allowance.
- Debt was $396.1 million on the balance sheet, principally $400 million principal of 7.375% senior secured notes due June 2025. The $250 million revolving facility was undrawn. NMIH held $88.9 million of cash and investments; NMIC had capacity for up to $98.0 million of ordinary dividends to the parent during 2023, subject to applicable requirements.
- Shareholders’ equity was $1.614 billion. Accumulated other comprehensive loss was $204.3 million, primarily reflecting investment valuation changes. The company repurchased 2.9 million shares for $56.6 million in 2022; $68.4 million remained under its $125 million authorization. NMI has not paid common dividends.
Changes, outlook and risks
Revenue and earnings increased despite lower new business production, supported by growth in the in-force portfolio, higher investment income, lower claims expense and lower operating costs. NIW mix shifted strongly toward purchase loans: purchase NIW was $57.0 billion and refinance NIW was $1.7 billion. The weighted-average FICO score on 2022 NIW was 750 and weighted-average LTV was 92.2%.
Management provided no specific numerical earnings or production guidance in the supplied filing text. It noted that inflation, higher interest and mortgage rates, reduced affordability, weaker housing demand, potential home-price declines and unemployment could affect originations, defaults and claims. The filing also highlights competition from government mortgage insurers and alternative credit-risk structures, changes in GSE policy or PMIERs, reinsurer performance and capital-credit treatment, reserve-estimation uncertainty, and operational, vendor and cybersecurity risks.
Reinsurance remains important to capital management. Two insurance-linked note transactions were in lock-out at year-end: the 2018 transaction due to reference-pool default experience and the 2021-2 transaction while building its target credit enhancement. The 2019 transaction’s lock-out cleared in August 2022. The company stated that it remained in compliance with debt covenants at year-end. An HOPA-related premium-refund lawsuit was pending; NMI said it could not assess the outcome and had not recorded a material accrual. BDO issued unqualified opinions on the financial statements and internal control over financial reporting.
Important facts for investors to verify
- Whether the large prior-year reserve release and unusually low reported loss ratio are sustainable as defaults age and pandemic-era borrower assistance unwinds.
- How 2023 mortgage origination volumes, home prices, unemployment and refinancing affect NIW, persistency, claims and premium growth.
- Whether PMIERs and statutory capital headroom remains adequate as risk-in-force grows, and whether GSEs continue to recognize full capital credit for reinsurance.
- The status and collateral implications of the 2018 and 2021-2 ILN lock-outs, as well as counterparty exposure under quota-share and traditional excess-of-loss treaties.
- How the $254.7 million of unrealized investment losses, debt service and the 2025 note maturity affect capital flexibility and parent-company liquidity.
- The progress and potential exposure from the HOPA litigation, and any material developments in regulation, GSE policy or competitors’ alternatives to private mortgage insurance.