NMI Holdings, Inc. (NMIH) Q4 2025 Earnings Report, Transcript and Summary

Good day, and welcome to the NMI Holdings, Inc. Fourth Quarter 2025 Earnings Conference Call. [Operator Instructions] 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's website located at nationalmi.com under the Investor's 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, 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. Also 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 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, continue 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 at 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'll 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, and we'll work to continue 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. Before turning it over to Adam, I'd also like to 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 help to make homeownership more affordable and achievable for millions of Americans in communities across the country with covers 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 among the best we've ever achieved in terms of their cost, capacity, duration and structure. And 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 and 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 the fourth quarter of 2024. 12-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 the fourth quarter of 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 the 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 the fourth quarter of 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 the fourth quarter of 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 the fourth quarter of 2024. Our expense ratio was 20.4%. We have a uniquely high-quality insured portfolio and our credit performance continues to stand out. We have 7,661 defaults at December 31, and compared to 7,093 at September 30, and 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 price 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. 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.

[Operator Instructions] And the first question will come from Bose George with KBW.

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?

Yes. I'll talk about the industry and then turn it to Aurora to talk about the forward view premium yields. I'd say, broadly speaking, we see a really balanced and constructive environment. And we're -- we continue to be encouraged by volume, pricing rate, underlying unit economics that we're able to achieve on new business. We think today, certainly, we at National MI are where we should be, which is at a point of balance where we're fully and fairly supporting our customers and their borrowers, and at the same time, we're 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 yields.

In terms of outlook, we don't provide guidance on that, but we do expect our core yields, which obviously strips away the impact of movements in reinsurance costs and cancellation earnings. We expect that to remain generally stable going forward. Obviously, the potential for a little bit of plus/minus, but generally stable. And 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 ceded claims expense.

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

Yes. 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'd 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 D.C. Obviously, it's not our decision. But when we look at it, there are some real challenges that we would note at the FHA as a credit, a capital, a regulatory and a budget matter that we certainly are focused on when we think about the potential for an FHA rate cut. We don't, at this point, given all of those constraints, I think that there should be any additional FHA rate adjustment. We don't think it serves the interest of the American taxpayer to ask them to take on even more risk and provide an even 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.

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 any states that are more stressed than others?

Yes, 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've seen in the macro environment and housing market. And I'd 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 also, I think the larger tax refunds that are expected this year following the One Big Beautiful Bill Act, should serve as a bit of added stimulus. On balance, though, when we look out across the macro landscape, it's still an environment where we say there's a lot to be really optimistic about all of those reasons, but there's 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. Consumer confidence is down, particularly among certain cohorts. And there's been a lot of talk about a K-shaped economy taking hold. And so we see all of that -- and we think looking forward, again, there's reasons to be optimistic. There's reasons though still to focus and protect against the downside. And 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 obviously 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. And 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 the default experience or the 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 gives us the ability to manage our mix of business at a very granular level across 950 different MSAs. And 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. And so we look at the headlines in areas like Florida, Texas, the Southeast, the Mountain West. But when we look at our default population in part because of how we have shaped our mix, not only are we managing our exposure in many of those markets that are now experiencing house price pressure, but we're also managing the mix within those geographies. And so for us, we don't see concentrations developing in our default population.

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

Yes. We obviously saw a decline of 50 basis points in our persistency in the fourth quarter. And that was to be expected, just given what we saw with rates rallying in the fourth quarter, and that's spurring 2 things, really a bit of refi activity as well as some stimulation of the purchase market. And so we don't give guidance or we don't speak about current quarter trends that we're seeing. But I would say that in terms of persistency going forward, we do expect -- the persistency is well above historical trends and continues, notwithstanding the 50 basis point decrease last quarter to be well above trend. So we do expect, as we go through time that, that will down more in line with historical norms. And we've talked about that quite extensively. But in terms of potential movements within the quarter, a lot of that will be rate driven, just thinking about what that refi activity is going to look like.

We were already seeing this independent of any notable movement in rates. It's just the natural trend in the portfolio when we're coming off of the pandemic years with record low note rates, naturally, our persistency has been trending a little bit of additional movement because of the refinancing opportunity. But as Aurora alluded to, there's also an opportunity there for us, right, which is in an environment where rate has moved to the point that we're seeing an uptick in refinancing activity and the pace of turnover those lower rates can unlock both the purchase market and obviously, refi origination volume, which can drive incremental NIW, and we saw that in the strength of our results in the fourth quarter.

Next question will come from Rick Shane with JPMorgan.

It's sort of been asked and answered, but maybe a nuance here. When we really disaggregate the persistency what you start to see sort of the tail of 2 portfolios persistency on the '23 and '24 cohorts, our vintages fell fairly sharply, the '22s, '21s and '20s, not nearly as much, and that makes sense in the context of rate distributions. I am curious as you think about that tail of 2 portfolios, how should we start to think about credit and the implications of one part of the portfolio paying off fairly quickly and the other being pretty sticky?

Yes, Rick, it's a good question. And it's something we look at because obviously, there's the opportunity that comes in a -- 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 a derivative impact on credit to the positive, right? So as you noted, the pandemic years, the insurance-in-force that traces to sort of the prepandemic and pandemic years for us, some of the incredibly low underlying note rates. And while that business is going to naturally run off because of life events and hope of cancellations and all of these things, really, we don't see that those vintages are going to have run off or refinancing opportunity. And instead, it's going to be the late '22, really the '23, '24 and even parts of the 2025 vintages. Those are the book years that when we talk about a normalization and credit experience, right, these are book years that: one, they're large; two, 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 of some of the pandemic years do. And so as those -- those vintages age and they get to a point of natural loss incurrence right, that sort of 3- to 4-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 of that -- some that would otherwise have come through. We're not seeing the level of turnover yet that we would say, boy, this is something noteworthy that really is going to meaningfully impact and interrupt that normalization of the credit cycle. But it's a positive -- potential positive that we're looking at.

And just a follow-up. If we look at your NIW for the fourth quarter, and again, there are many companies still to report, but indications are you guys are getting very, 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?

Well, Rick, maybe I'll give you a perspective on the fourth quarter, and I'll also talk about our broad outlook for the market. In 2026, I'd say, overall, we're delighted with our performance in our results during the quarter. We note the strong performance that we've had and really the success that we've had traces 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, by geography, all these things that we want to do. And we're generally just showing up in the market every day with consistency for lenders and their borrowers. In the fourth quarter, in terms of overall trend, right, we've talked about it now, but declining rates certainly spurred some incremental activity, both on the purchase side and on the refinancing side. And for us, that can be an added plus because refinancing volume tends to have stronger credit characteristics, right? These are borrowers who typically have higher FICO scores and lower LTVs given the payment experience that they have on their existing loans. And we generally outperform in higher-quality risk cohorts. And so it's an attractive opportunity for us. I mean, first and foremost, it's an attractive opportunity for borrowers and then it can help in or to our benefit. As we look out into next year, the 2025 industry NIW volume, we peg at roughly $310 billion. And I'd say we expect a similarly attractive environment in 2026 with the big caveat that that's all premised on rates holding roughly where they are now. If rates hold where they are now, we could actually see perhaps a little bit of upside as affordability improves for some prospective buyers, and the refinancing opportunity continues to come through. But all in, we're delighted with our performance and the growth that we were able to achieve in our volume, in our portfolio, and we really do see a compelling opportunity in the industry as we look ahead.

[Operator Instructions] The next question will come from Mark Hughes with Truist.

The quota share and XOL, I think you talked about the 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 that?

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. So we've previously gone out 3 years, and that's consistent with what we did this year. What I would say that is a little bit different or incremental is the size that we were able to achieve in terms of the 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 were able to achieve last year. So I don't think anything here is transformational or real -- hugely different to what we've previously done, but it is incrementally better and shows the strength of the reinsurance market at this time.

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

Yes. Look, I think 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. And I'd say, as we look ahead, well, we don't have a set schedule, $25 million per quarter is still a good assumption for where we'll be. But we'll take advantage if there's opportunities from a value standpoint, our shares traded off early in the fourth quarter that provided us with an attractive point to retire a little bit more during the period than we'd otherwise been pacing. And so still plus/minus $25 million is a good assumption.

Yes. 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 jumped out at you that could contribute to some efficiencies?

Sure. I'll just comment on our expenses, and I'll let Adam tackle the AI question. So expenses in the quarter were $31.1 million, which was identical to the $31.1 million we spent in the fourth quarter of 2024. And obviously, given the higher earned premiums in the quarter, a slightly lower expense ratio. So again, we don't give guidance on expenses. 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. So in terms of quarter-over-quarter changes, obviously, up a little bit versus the third quarter. I think you've seen that historically where sequentially, the fourth quarter is a little bit heavier than third quarter and also the first quarter tends to be a heavier quarter for different reasons, the fourth quarter because of some of the vesting around incentive compensation and in the first quarter due to 401(k) contributions, FICO reset and other matters. So no particular initiatives in terms of spend that we have in 2026 that would, in any way, change the expense discipline that we've demonstrated.

Yes. And then I'll pick up on that and talk specifically about AI. And I'll start with just a broader sense as to where we are and where we're using tools because at NMI, we've already begun, and really, for some time now, have been deploying AI in 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 is using tools to help with this very call here, right? We're able to streamline our close process to assist with the development of our SEC filings. Our legal team is using these tools. We've got them embedded in our cybersecurity process now. And so they're really valuable solutions. And as we look even more expansively, we're excited as to the additional use cases that we're focused on and there'll be additional areas that we look to deploy in 2026 and beyond. As an expense matter, though, the short answer is no, we don't expect that there's going to be either significant incremental investment that we need to make to continue to deploy these valuable solutions. And then on the in terms of the potential for savings, look, I think anything we do, we want to make sure that we're helping to drive increased productivity, efficiency and scalability. But we also, today, have by far the smallest head count in the MI sector by a meaningful margin. We've got the most modern IT and operating platform, the most scalable stack and the most efficient expense profile in our sector by a wide margin. And so we really see AI as a way to make our team even more efficient and productive and not necessarily as a way to specifically strip out expenses because we've already been so disciplined.

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 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.