Executive Summary / Key Takeaways

• NMI Holdings, Inc. ($NMIH) continues to demonstrate strong financial and operational performance, driven by a high-quality insured portfolio, disciplined risk management, and a differentiated technology platform.
• Record Q1 2025 results, including $173.2 million in total revenue and $102.6 million in net income, reflect robust growth in insurance-in-force and effective expense management, supported by favorable investment income trends.
• The company's proprietary Rate GPS pricing technology and proactive risk selection, coupled with a comprehensive reinsurance program and strong capital position (including $1.4 billion in PMIERs excess available assets), provide a significant competitive advantage and resilience against potential macroeconomic headwinds.
• While anticipating a normalization of credit experience as the portfolio seasons, management remains confident in the book's quality and expects the private MI market opportunity to remain attractive in 2025, supported by long-term secular trends and affordability constraints.
• Consistent capital return through share repurchases, backed by a substantial remaining authorization ($304.2 million at Q1 2025), underscores management's commitment to enhancing shareholder value alongside strategic investments in growth and efficiency.

NMI Holdings, Inc. ($NMIH) has carved out a significant position in the U.S. private mortgage guaranty insurance (MI) market since its inception in 2011 and the issuance of its first policy in 2013. Founded with a vision to offer a differentiated commitment to service and a clear strategy for engaging the market, NMIH operates primarily through its insurance subsidiary, National Mortgage Insurance Corporation (NMIC), licensed in all 50 states and D.C. The core of its business is providing MI to protect lenders and investors against default risk on high-loan-to-value (LTV) residential mortgages, a crucial function that facilitates the sale of these loans to government-sponsored enterprises (GSEs) like Fannie Mae and Freddie Mac and expands access to homeownership for qualified borrowers.

NMIH's strategic approach centers on building a diversified, high-quality insured portfolio by cultivating long-term relationships with a broad customer base, including national and regional banks, credit unions, and non-bank lenders, totaling over 2100 master policies issued and 1600 active accounts. This customer development, combined with disciplined and proactive risk selection and pricing, has fueled consistent growth in its insured portfolio. The company achieved a notable milestone in Q2 2024, surpassing $200 billion in primary insurance-in-force (IIF), which has continued to climb to a record $211.3 billion by the end of Q1 2025. This growth, alongside historically high persistency rates driven by the current interest rate environment limiting refinancing activity, translates directly into a growing stream of net premiums earned.

A key differentiator underpinning NMIH's strategy and competitive positioning is its technological capability, particularly its proprietary Rate GPS pricing platform. This technology provides a granular and analytical approach to evaluating and pricing risk by considering a broad range of individual loan and borrower variables. This allows NMIH to set premium rates commensurate with the underlying risk of each loan, a capability management views as enhancing its ability to build a high-quality portfolio and deliver attractive risk-adjusted returns. Beyond pricing, the company leverages technology for operational efficiency, as evidenced by its extended IT service agreement with Tata Consultancy Services (TCS) through 2032, which supports application development, infrastructure, and information security, aiming to drive innovation and cost efficiencies. While specific quantifiable metrics on the direct impact of Rate GPS on pricing advantages or risk selection compared to competitors are not detailed, management emphasizes its role in their disciplined approach and ability to manage risk effectively. The outsourced loan review services offered through NMIS also utilize technology to provide efficient processing for lenders, though this segment is a smaller contributor to overall revenue.

In the competitive landscape, NMIH operates alongside established players like MGIC Investment Corporation (MTG), Essent Group Ltd. (ESNT), Radian Group Inc. (RDN), and Genworth Financial (GNW). While NMIH, with a market capitalization of approximately $2.79 billion and TTM revenue of $650.97 million, is smaller in scale than the largest competitor, MTG (TTM revenue significantly higher), it positions itself as a nimble challenger. NMIH's focus on a differentiated customer experience, value-added engagement, and technology leadership aims to stand out. Its emphasis on disciplined underwriting and risk selection has resulted in an industry-leading credit performance, with a default rate of 1.04% at March 31, 2025, which management tracks as among the lowest. Compared to peers, NMIH's TTM operating profit margin of 72.96% and net profit margin of 55.93% are competitive, although some larger peers like MTG and ESNT exhibit higher operating margins (MTG ~83%, ESNT ~68%). NMIH's return on equity (ROE), at 18.1% in Q1 2025 and 17.6% adjusted ROE in 2024, demonstrates strong profitability relative to its equity base, comparing favorably to peers like ESNT (~13% ROE) and RDN (~13% ROE). The company's lower debt-to-equity ratio (TTM 0.00, though this likely reflects a specific calculation method and the 10-Q shows debt of $415.6M vs equity of $2.32B, implying a ratio closer to 0.18) generally indicates a more conservative financial structure than some competitors like RDN (~0.51) and GNW (~0.18), although MTG and ESNT also maintain low leverage. NMIH's technological edge, particularly in risk assessment and pricing via Rate GPS, is a key competitive moat, potentially offering efficiencies and better risk selection compared to competitors relying on more traditional methods.

Financial Performance and Operational Strength

NMIH's financial performance in the first quarter of 2025 underscores the effectiveness of its strategy. Total revenue reached a record $173.2 million, an 11.0% increase from $156.3 million in Q1 2024. This growth was primarily fueled by a 9.0% increase in net premiums earned, rising to $149.4 million from $136.7 million, driven by the expanding monthly IIF and high persistency. Net investment income also contributed significantly, growing 22.0% to $23.7 million, reflecting both the growth in the invested asset base and improved book yield from deploying capital at higher prevailing interest rates.

Profitability remained strong, with income before income taxes increasing 15.0% to $131.4 million, leading to record net income of $102.6 million, up 15.0% from Q1 2024. Diluted earnings per share (EPS) rose 19.0% to $1.28, benefiting from both net income growth and a reduction in weighted average diluted shares outstanding due to share repurchase activity. The company's expense management remained disciplined, with the expense ratio at 20.2% in Q1 2025, within management's long-term goal of the low to mid-20s. The combined ratio, a key measure of underwriting profitability, stood at a healthy 23.2%.

Operational metrics reflect the quality of the insured portfolio. While the number of loans in default increased slightly to 6,859 at March 31, 2025, from 6,642 at December 31, 2024, the default rate remained relatively low at 1.04%. Insurance claims and claim expenses increased to $4.5 million in Q1 2025 from $3.7 million in Q1 2024, primarily due to an increase in newly defaulted loans and higher average case reserves as loans aged in delinquency. However, this was partially offset by favorable prior year development due to cure activity and ongoing analysis of loss trends. Management notes that cure rates on storm-related defaults tend to be higher, influencing average reserve levels. The average reserve per default (before reinsurance) was $22.1 thousand at March 31, 2025, down from $24.9 thousand at March 31, 2024, reflecting changes in housing market conditions, macroeconomic factors, and the mix of default types.

Liquidity and capital resources are robust. Total cash and investments stood at $2.81 billion at March 31, 2025, with $74.2 million in cash and cash equivalents. The holding company (NMIH) held $76.4 million in cash and investments and has access to a $250 million undrawn revolving credit facility. NMIC's statutory capital position is strong, with a risk-to-capital (RTC) ratio of 12.6:1 at March 31, 2025, well within regulatory requirements. Under PMIERs, NMIC reported $3.23 billion in available assets against $1.87 billion in net risk-based required assets, resulting in $1.4 billion of excess available assets, providing ample capital flexibility. The successful refinancing of senior notes and the revolving credit facility in May 2024 lowered the cost of debt capital, contributing to a decline in interest expense to $7.1 million in Q1 2025 from $8.0 million in Q1 2024, and is expected to save approximately $3.5 million annually.

Strategic Initiatives and Outlook

NMIH's strategic initiatives are focused on reinforcing its competitive position and driving shareholder value. The company actively manages its risk exposure through a comprehensive reinsurance program, utilizing quota share, excess-of-loss (XOL), and insurance-linked note (ILN) transactions. These arrangements not only manage risk but also ensure compliance with PMIERs and state capital requirements and provide efficient growth capital. Recent reinsurance treaties secured in October 2024 provide forward flow coverage for new business production through 2027 on favorable terms, described as among the best achieved in cost, capacity, and duration.

Capital return remains a priority. The company has a significant share repurchase program, with a new $250 million authorization approved in February 2025 and the prior $200 million program extended through December 31, 2027. In Q1 2025, NMIH repurchased 0.7 million shares for $26.1 million, leaving $304.2 million in remaining repurchase authority at quarter-end. This consistent return of capital, coupled with strong earnings growth, has been a key driver of book value per share growth, which stood at $29.65 at March 31, 2025.

Looking ahead, management anticipates the private MI market opportunity in 2025 to be similar to 2024, which saw estimated industry NIW volume around $285 billion +/-. This outlook is supported by long-term secular trends favoring MI demand and affordability constraints in the current rate environment. While acknowledging potential macroeconomic risks, management is confident in the disciplined approach to risk management, including proactive pricing adjustments in specific local markets showing signs of pressure. They expect default experience and claim costs to trend higher over time as the portfolio naturally seasons, particularly the 2022 and 2023 vintages, which have less embedded equity than earlier books due to differences in house price appreciation paths. However, they emphasize that the performance of these books is currently holding well against original price expectations. Persistency is expected to remain high but may see some gradual decline from recent peaks. Core yield is anticipated to remain generally stable, supported by persistency and the pricing environment, while net yield will be influenced by loss experience and its impact on reinsurance profit commissions. Expenses are expected to remain within the low to mid-20s range, with natural growth offset by ongoing efficiency efforts.

Risks and Challenges

Despite the strong performance and favorable outlook, NMIH faces several risks. Macroeconomic factors, including persistent inflation, elevated interest rates, and potential increases in unemployment, could negatively impact housing demand, home prices, and ultimately lead to higher default and claim rates. While the company's portfolio is high-quality and benefits from embedded equity, a significant and protracted decline in house prices could erode this buffer and increase claims severity.

Regulatory risks, particularly changes to the GSEs' Private Mortgage Insurer Eligibility Requirements (PMIERs) or housing policy objectives, could impact capital requirements, the use of MI, or the competitive landscape. The company's ability to maintain compliance with PMIERs and state capital requirements is critical. Counterparty risk related to reinsurance arrangements exists, although the company actively monitors its reinsurers and benefits from collateralization requirements. Market risks include interest rate fluctuations impacting the investment portfolio value and interest expense on variable-rate debt, as well as prepayment risk affecting policy persistency. Litigation risk, such as the pending appeal related to the Homeowners Protection Act, also remains, though the company does not currently expect a material loss.

Conclusion

NMI Holdings stands out in the private mortgage insurance market with its combination of a high-quality, rapidly growing insured portfolio, disciplined risk management practices, and a strategic focus on technology and customer service. The record financial results in Q1 2025, driven by strong revenue growth and efficient operations, underscore the effectiveness of its approach. The company's robust capital position, comprehensive reinsurance program, and ongoing share repurchase initiatives highlight its commitment to financial strength and shareholder value creation.

While the natural seasoning of the portfolio is expected to lead to some normalization in credit experience over time, the underlying quality of the book, proactive risk selection via Rate GPS, and the resilience of the housing market provide a solid foundation. The competitive environment is viewed as balanced, and NMIH's differentiated strategy, particularly its technological capabilities and focus on customer relationships, positions it well to capture future opportunities. Investors should monitor macroeconomic trends, particularly those impacting housing and employment, as well as the trajectory of credit performance as newer vintages age. However, based on its current performance, strategic execution, and favorable outlook, NMIH appears well-positioned to continue delivering strong returns through various market cycles.