NMI Holdings, Inc. Q4 FY2025 Earnings Call

Good day, and welcome to the NMI Holdings, Inc. Fourth Quarter 2025 Earnings Conference Call. Participants will be in a listen-only mode. 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 star, then one on a touch-tone phone. To withdraw your question, please press star, then two. Please note this event is being recorded. I would now like to turn the conference over to John Swenson, Vice President of Investor Relations and Treasury. Please go ahead, sir. Thank you.

Good afternoon, and welcome to the 2025 fourth quarter conference call for National MI. 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, and Aurora Swithenbank, our Chief Financial Officer. Financial results for the quarter were released after the close today. The press release may be accessed on NMI Holdings, Inc.'s website located at nationalmi.com under the Investors tab. During the course of this call, we may make comments about our expectations for the future. Actual results could differ materially from those contained in these forward-looking statements. Additional information about the factors that could cause actual results or trends to differ materially from those discussed on the call can be found on our website or through our 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, one should rely on the fact that the guidance of such statements is current at any time other than the time of this call. Also noted 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 Brad.

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 strong financial results, capping another year of success. We closed 2025 with $49 billion of total NIW volume and a record $221.4 billion of high-quality, high-performing primary insurance in force. We delivered broad success in customer development, continued to innovate in the capital and reinsurance markets, and once again achieved industry-leading credit performance. In 2025, we generated record net income of $388.9 million, up 8% compared to 2024. Record diluted EPS of $4.92, up 11% compared to 2024, and delivered a 16.2% return on equity. Looking ahead, I'm excited about the opportunity we have to continue to build on our success. As we move forward in 2026, we'll continue to focus on our people. They are talented, innovative, and dedicated. And we will continue to invest in our culture with a focus on collaboration, performance, and impact. We'll continue to differentiate ourselves with our customers. The mortgage market is connected and evolving, and we'll 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 will continue to focus on building value for our shareholders, growing earnings, compounding book value, delivering strong mid-teens returns, and prudently distributing excess capital. Before turning it over to Adam, I'd like to also comment on the current policy environment. Our conversations in Washington remain active and constructive. We have long noted that there is bipartisan recognition of the unique and valuable role that the private mortgage insurance industry plays. We are in the market every day with a clear mandate and purpose, offering a low-cost, high-value solution that helps borrowers bridge the down payment gap and meaningfully reduces the cash required at the closing table. In the process, we make home ownership more affordable and achievable for millions of Americans in communities across the country, with coverage that works to insulate the GSEs and taxpayers from risk and loss in a downturn. National MI and the broader private MI industry have never been stronger or better positioned to provide support than we are today, and we're looking forward to continuing to work with the administration to advance their important housing goals. With that, let me turn it over to Adam.

Thank you, Brad, and good afternoon, everyone. National MI continued to perform in the fourth quarter, delivering significant new business production, consistent growth in our insured portfolio, and strong financial results. We generated $14.2 billion of NIW volume and ended the period with a record $221.4 billion of high-quality, high-performing primary insurance in force. Total revenue in the fourth quarter was a record $180.7 million, and we delivered GAAP net income of $94.2 million, or $1.20 per diluted share, and a 14.8% return on equity. Overall, we had a terrific quarter and closed 2025 in a position of real strength. We generated $49 billion of NIW volume during the year and exited with $221.4 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 over 680,000 policies outstanding and have helped a record number of borrowers gain access to housing at a time when they needed us most. We enjoyed continued momentum and growth in our customer franchise, activating 90 new lenders in 2025 and ending the year with over 1,700 active accounts. We were once again recognized as a great place to work, our tenth 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 continue to innovate and found broad success and support in the reinsurance market, securing a series of new quota share and excess of loss treaties in the fourth quarter that further extend our comprehensive credit risk management framework and are amongst the best we've ever achieved in terms of their cost, capacity, duration, and structure. We achieved record full-year financial results, generating $706.4 million of total revenue, up 9% compared to 2024, $388.9 million of GAAP net income, up 8% compared to 2024, $4.92 of diluted EPS, up 11% compared to 2024, and a 16.2% return on equity. As we begin 2026, we're encouraged by both the broad resiliency that we've seen in the macro environment and housing market, and by the continued opportunity that we see across the private MI industry. Total MI industry NIW volume was over $300 billion in 2025, with the market demonstrating real strength despite the headwind of elevated rates for much of the year. Our lender customers and their borrowers continue to rely on us in size for critical down payment support, and we expect that the private MI market will remain just as strong in 2026 with long-term secular trends continuing to drive an attractive new business opportunity. More broadly, we remain encouraged by the continued discipline that we see across the industry and are confident as we look ahead. The private MI market opportunity is compelling, and we're well-positioned to continue to 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 is a robust balance sheet supported by the significant earnings power of our platform. With that, I'll turn it over to Aurora.

Thank you, Adam. We again delivered strong financial results in the fourth quarter. Total revenue was a record $180.7 million. GAAP net income was $94.2 million, or $1.20 per diluted share, and return on equity was 14.8%. We generated $14.2 billion of NIW, and our primary insurance in force grew to $221.4 billion, up 1.4% from the end of the third quarter and 5.4% compared to 2024. Twelve-month persistency was 83.4% in the fourth quarter, compared to 83.9% in the third quarter. Net premiums earned in the fourth quarter were a record $152.5 million, compared to $151.3 million in the third quarter and $143.5 million in 2024. Net yield for the quarter was 28 basis points, consistent with the third quarter. Core yield, which excludes the cost of our reinsurance coverage and contribution from cancellation earnings, was 34 basis points, also unchanged from the third quarter. Investment income was $27.5 million in the fourth quarter, compared to $26.8 million in the third quarter and $22.7 million in 2024. Total revenue was a record $180.7 million in the fourth quarter, compared to $178.7 million in the third quarter and $166.5 million in 2024. Underwriting and operating expenses were $31.1 million in the fourth quarter, compared to $29.2 million in the third quarter and $31.1 million in 2024. Our expense ratio was 20.4%. We have a uniquely high-quality insured portfolio, and our credit performance continues to stand out. We had 7,661 defaults at December 31, compared to 7,093 at September 30. Our default rate was 1.12% at year-end. Claims expense for the fourth quarter was $21.2 million, compared to $18.6 million in the third quarter, reflecting normal seasonal activity and the continued growth and seasoning of our portfolio. GAAP net income for the quarter was $94.2 million, and diluted earnings per share was $1.20. Adjusted net income was $93.8 million, and adjusted diluted EPS was also $1.20. Shareholders' equity at December 31 was $2.6 billion, and book value per share was $33.98. Book value per share excluding the impact of net unrealized gains and losses in the investment portfolio was $34.58, up 4% compared to the third quarter and 16% compared to the fourth quarter of last year. In the fourth quarter, we repurchased $31 million of common stock, retiring 811,000 shares at an average of $37.72. Since starting our buyback program in 2022, we've repurchased a total of $349 million of common stock, retiring 12.1 million shares at an average price of $28.89, and we have $226 million of repurchase capacity remaining under our existing authorization. In the fourth quarter, we entered into a series of new quota share and excess of loss reinsurance treaties, which together further extend our comprehensive credit risk management program and provide us with forward flow coverage for all new business produced through 2028 at an estimated 4% pretax cost of capital. Reinsurance has long been a core pillar of our risk management strategy, working to mitigate the potential impact of credit volatility in our insured portfolio, and has consistently provided us with a deep, secure, and efficient source of PMIERs growth capital. We have significant experience, strong secondary market relationships, and a track record of leading with innovation across the risk transfer spectrum. The deals we have just secured are among the best we've ever achieved in terms of their cost, capacity, duration, and structure, and serve to highlight the quality of our insured portfolio and the differentiation we have achieved through our comprehensive credit risk management framework. At year-end, we reported $3.5 billion of total available assets under PMIERs and $2.1 billion of risk-based required assets. Excess available assets were $1.4 billion. Overall, we achieved robust financial results during the quarter, delivering consistent growth in our high-quality insured portfolio, record top-line performance, continued expense efficiency, bottom-line profitability, and returns. With that, let me turn it back to Adam.

Thank you, Aurora. Overall, we had a terrific quarter, capping a record year in which we delivered broad success in customer development, continued to innovate in the capital and reinsurance markets, once again achieved industry-leading credit performance, and generated exceptionally strong financial results with record profitability, significant growth in book value per share, and a 16.2% return on equity. Looking ahead, we're confident we're well-positioned to continue to serve our customers and their borrowers, invest in our employees and their success, drive growth in our high-quality insured portfolio, and deliver through-the-cycle growth, returns, and value for our shareholders. Thank you for joining us today. I'll now ask the operator to come back on so we can take your questions.

Thank you. We will now begin the question and answer session. To ask a question, you may press star, then 1 on your touch-tone phone. If you are using a speakerphone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw your question, please do so. At this time, we will pause momentarily to assemble our roster. And the first question will come from Bose George with KBW. Please go ahead.

Hey, everyone. Good afternoon. Actually, first, have you seen any changes in the competitive landscape in the industry? And should we expect the core premium yield to remain pretty steady in 2026?

Yeah, but I'll talk about the industry and then turn it to Aurora to comment on premium yield. I'd say broadly speaking, we see a really balanced and constructive environment. We continue to be encouraged by volume, pricing, rate, and the underlying unit economics that we're able to achieve on new business. We think today, certainly, we had natural admiration where we should be, which is at a point of balance where we're fully and fairly supporting our customers and their borrowers. At the same time, we are able to use rates that we're achieving in the market to appropriately protect our balance sheet, our returns, and our ability to deliver value for shareholders. So a really constructive environment as we look out across the landscape. And Aurora will pick up on yield.

In terms of outlook, we don’t provide guidance on that, but we do expect our core yield, which obviously strips away the impact of movements in reinsurance costs and cancellation earnings, to remain generally stable going forward. Obviously, the potential for a little bit of plus or minus, but generally stable. The net yield will benefit from that core stability, but will also be impacted by our loss experiences since our profit commissions fluctuate with changes in our suit claim seeded claims expense.

Okay. Great. Thanks. And then just one on the front. One concern in the market seems to be, you know, what might a potential reduction of premiums at the FHA. You know, just from your interaction with regulators, how do you think that potentially plays out?

Yeah. Look, I think it's a fair question, certainly given the focus on affordability and the fact that the FHA reported at least as a headline matter what appears to be a healthy capital position. But I guess I note a few points. First, certainly, the private MI industry is already providing a seamless low-cost, high-value solution to the vast majority of borrowers who need support. And we're encouraged, as Brad mentioned, that there's really broad bipartisan recognition of the unique and valuable role that our industry plays. I think when you look at it, I don't want to speak for anybody in DC. Obviously, it's not our decision. But when we look at there are some real challenges that we would note at the FHA as a credit of capital, a regulatory, and a budget matter. We certainly are focused on when we think about the potential for an FHA rate cut. We don't, at this point, given all those constraints, think that there should be any additional FHA rate adjustment. We don't think it serves the interests of the American taxpayer to ask them to take on even more risk and provide a larger subsidy to the housing market, particularly when the MI industry is ready, willing, and able to provide all the support necessary.

The next question will come from Terry Ma with Barclays. Please go ahead.

Hi, thank you. Good evening. Maybe just to start off with, can you talk about what you're seeing in terms of the health of the consumer as we look out into 2026? And to the extent possible, any color you can give us on credit trends by state or region, and if there are any states that are more stressed than others?

Yeah. Why don’t we take them in turn? We'll talk just generally perhaps not just consumer, but about the macro environment. I talked in my comments, prepared remarks about the continued resiliency that we have seen in the macro environment and housing market. And I say we’re really encouraged by that broad resiliency.

Headline unemployment remains low. I think consumers outside of today's print are still spending. Businesses are continuing to make significant investments. The equity market, notwithstanding some recent volatility, continues to set new highs. And I also think the larger tax refunds that are expected this year should serve as a bit of added stimulus. On balance, though, when we look out across the macro landscape, there’s a lot to be really optimistic about. But there are also items to focus on and risks that do remain. Right? We've got a labor market that is showing some strain with a slowdown in hiring activity. Consumer debt balances are at all-time highs. Confidence among consumers is down, particularly among certain cohorts. There has been a lot of talk about a K-shaped economy taking hold. So we see all of that, and we think looking forward, there's reasons to be optimistic, but there's still reasons to focus and protect against the downside. In many respects, that’s the approach that we've been taking for a while now that has served us best, which is to plan for the potential that stress might emerge in the near term. And if it doesn't, to be happy that we planned and protected nonetheless. And I think, Terry, you also asked questions about what we're seeing in terms of credit trends in different regions or different cohorts. To be frank, aside from things that we've talked about extensively in previous quarters in terms of keeping an eye on those states where there is a downward trend in terms of home price appreciation, there's nothing that's emerging in terms of default experience or claims experience that is notable in that regard with regard to any particular geography or particular cohort.

And, Terry, one of the things we have the benefit of is Rate GPS, which gives us the ability to manage our mix of business at a granular level across 950 different NSAs. We’ve been using that tool actively for the last several years to shape the mix of our portfolio, not just by underlying borrower loan level or product risk attributes, but also by geographic mix of business. We look at the headlines in areas like Florida, Texas, the Southeast, and the Mountain West. But when we look at our default population, partly because of how we've shaped our mix, not only are we managing our exposure in those markets that are now experiencing house price pressure, but we're also managing the mix within those geographies. Therefore, we don’t see concentrations developing in our default population.

Got it. That's helpful. And then just to follow up, like quarterly runoff accelerated in the fourth quarter. Are you seeing that trend continue early this year? And then what's the outlook for persistency?

Yeah. We obviously saw a decline of up 50 basis points in our persistency in the fourth quarter. That was to be expected, just given what we saw with rates rallying in the fourth quarter, spurring two things: a bit of refinance activity and some stimulation of the purchase market. We don’t provide guidance or speak about current quarter trends that we're seeing, but I would say in terms of persistency going forward, we expect persistency to remain well above historical trends and continues, notwithstanding the 50 basis point decrease last quarter, to be well above trends. So we do expect as time goes on that will come down more in line with historical norms. We have talked about that quite extensively. In terms of potential movements within the quarter, a lot of it will be rate-driven, just thinking about what that refinancing activity is going to look like.

Yeah. We were already seeing this independent of any notable movement in rates. It's just the natural trend in the portfolio coming off of the pandemic years with record low note rates. Naturally, our persistency has been trending a bit more, with additional movement because of refinancing opportunities. But as Aurora alluded to, there’s also an opportunity there, right? In an environment where rates have moved to the point that we are seeing an uptick in refinancing activity, the pace of turnover among lower rates can unlock both the purchase market and origination volume, which can drive incremental NIW. We saw that reflected in the strength of our results in the fourth quarter.

Got it. Thank you.

Next question will come from Rick Shane with JPMorgan. Please go ahead.

Hey, everybody. Thanks for taking my question. It's sort of been asked and answered, but maybe with a nuance here. When we really disaggregate the persistency, what you start to see is the tale of two portfolios; persistency on the 2023 and 2024 cohorts fell fairly sharply. The 2022, 2021, and 2020 cohorts not nearly as much, and that makes sense in the context of rate distributions. I am curious as you think about that tale of two portfolios, how should we start to think about credit and the implications of, you know, one part of the portfolio paying off quickly and the other being pretty sticky?

Yeah. Rick, it's a good question. And you know, it's something we look at because, obviously, there's an opportunity that comes in when rates drive an uptick in activity. Both in purchase and refinancing isn't just volume related, but there's also a derivative impact or potential for derivative impact on credit, to the positive. Right? So as you noted, the pandemic years, the insurance in force that traces to the pre-pandemic and pandemic years for us have incredibly low underlying note rates. While that business is going to naturally run off because of life events and hope of cancellations and all these things, we really don’t see that those vintages are going to have run off for refinancing opportunity. Instead, it's going to be the late 2022, really the 2023, 2024, and even parts of the 2025 vintages. Those are the book years that, when we talk about normalization in credit experience, are large. Even though they’ve been underwritten in a rigorous environment and the underlying credit profile for those borrowers is incredibly strong, they simply don’t have the same level of embedded equity because of house price appreciation that some of the pandemic years do. As those portfolios age and get to a point of natural loss incurrence, that sort of three to four-year period, we would expect to see our credit experience overall continue to normalize. If there’s an uptick in refinancing activity in a consequential way, and you see a more accelerated turnover of those post-COVID vintages, it could also refresh the starting point for that normalization of the credit experience and, in fact, push off some that would otherwise have come through. We’re not seeing the level of turnover yet that we would say is going to meaningfully impact and interrupt that normalization of the credit cycle, but it's a positive potential that we’re looking at.

Got it. Okay. Thank you. And just a follow-up. If we look at your NIW for the fourth quarter, and again, there are many companies still to report, indications are you guys are getting very close to parity market share. When, and I know you don’t target market share, but when you think about 2026, do you think that 2026 is the year where you essentially achieve parity share in NIW?

Rick, let me give you some perspective on the fourth quarter, and I'll also talk about our broad outlook for the market. In 2026, overall, we're delighted with our performance and results during the quarter. We note the strong performance that we've had and the success that traces back to on-the-ground execution. Right? We're adding more customers. We're providing value-added input to our existing accounts so that we can win increasing share. We're managing our mix in our NIW flows by borrower, geography, and all these things that we want to do. We’re showing up in the market every day with consistency for lenders and their borrowers. In the fourth quarter, in terms of overall trend, we talked about it now, but declining rates spurred some incremental activity, both on the purchase side and refinancing side. For us, that can be an added plus because refinancing volume tends to have stronger credit characteristics. Right? These borrowers typically have higher FICO scores and lower LTVs given the payment experience they have on their existing loans. We generally outperform in higher quality risk cohorts. For us, it's an attractive opportunity for borrowers, which can help us as well. As we look ahead into the following year, we peg 2025 industry NIW volume at roughly $310 billion and expect a similarly attractive environment in 2026, with the caveat that this is all premised on rates holding roughly where they are now. If rates hold steady, we could potentially see a little bit of upside as affordability improves for some prospective buyers and the refinancing opportunity continues to come through. But all in all, we're truly delighted with our performance and the growth we’ve achieved in our volume and our portfolio, and we really do see a compelling opportunity in the industry as we look ahead.

Great. Thank you as always for taking my questions.

The next question will come from Mark Hughes with Truist. Please go ahead.

Yeah, thank you. The quarter share in XOL, I think you talked about forward flow through 2028. Is that going to have a little further in the future than usual? And is there something you saw in the market or anticipate about coming in the market that influences them?

When you look back to what we did in 2024, we were able to secure forward flow quota share coverage for all of 2025, 2026, and into 2027. We've previously gone out three years, and that's consistent with what we did this year. What I would say is a little bit different or incremental is the size that we were able to achieve in terms of quota share coverage that we secured for that third year in this instance, the 2028 year. Was greater, and the economics of that transaction were incrementally better versus what we could achieve last year. So I don't think anything here is transformational or hugely different from what we've done previously, but it is incrementally better, and shows the strength of the reinsurance market at this time.

And how about share buybacks or capital management in 2026? Continue with this recent pace or accelerate a bit?

Yeah. Look, we're delighted with the execution that we've achieved on our program thus far. We bought back roughly $31 million of stock in the fourth quarter. As we look ahead, we don't have a set schedule; $25 million per quarter is still a good assumption for where we'll be. But we will take advantage if there are opportunities from a value standpoint. Our shares traded off early in the fourth quarter, providing us with an attractive point to retire a bit more during the period than we'd otherwise have been pacing. So, still, a $25 million buyback per quarter is a good assumption.

Yeah. And how about, from an expense standpoint, any particular initiatives one way or the other as we think about 2026? And then anything on the AI front that jumps out at you that could contribute to some efficiencies?

Sure. I'll just comment on our expenses, and I'll let Adam tag the AI question. The expenses in the quarter were $31.1 million, which was identical to the $31.1 million we spent in 2024. Given the higher earned premiums in the quarter, we saw a slightly lower expense ratio. We don’t provide guidance on expenses, but we do have a broad target of 20% to 25% low to mid-20s, and we're thrilled that we achieved that expense ratio within the quarter. In terms of quarter-over-quarter changes, obviously, up a little bit versus the third quarter. You've seen that historically; the fourth quarter is heavier than the third quarter, and the first quarter tends to be heavier for different reasons. So there are no particular initiatives in terms of spend that we have in 2026 that would change our expense discipline.

And then I'll pick up on that and talk specifically about AI. At NMI, we've begun and have been deploying AI across virtually every department. We're using advanced tools in our indexing and imaging functions to increase the speed and accuracy of the data that we capture from loan files at the time of underwriting. We're using these tools in our IT and modeling development efforts to streamline our coding process. Our finance team uses these tools to help with this very call; we're able to streamline our close process to assist with the development of our SEC filings. Our legal team is using these tools, and we’ve embedded them in our cybersecurity process now. They’re really valuable solutions, and as we look even more expansively, we’re excited about additional use cases that we're focused on that we’ll look to deploy in 2026 and beyond. From an expense matter, the short answer is that we don’t expect significant incremental investment would be needed to continue these valuable solutions. Anything we do should be aiming to drive increased productivity, efficiency, and scalability. As it stands today, we have the smallest headcount in the MI sector by a meaningful margin. We boast the most modern IT and operating platform, the most scalable stack, and the most efficient expense profile in our sector. Therefore, we see AI as a means to enhance our team's productivity rather than a method to strip out expenses because we've already been disciplined.

This concludes our question and answer session. 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 RBC Financial Services Conference in New York on March 11. We look forward to speaking with you again soon.

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