10-Q: NMI Holdings Reports Q3 2025 Earnings Growth Amid Rising Claims

NMI Holdings, Inc. announced increased net income and EPS for Q3 2025, driven by revenue growth, despite a significant rise in insurance claims and default rates.

Summary

• Net income for the three months ended September 30, 2025, increased 3% to $96.0 million, with diluted EPS rising 6% to $1.22.
• For the nine months ended September 30, 2025, net income grew 8% to $294.7 million, and diluted EPS increased 11% to $3.72.
• Net premiums earned increased 6% for the quarter to $151.3 million and 7% for the nine months to $449.8 million.
• Net investment income rose 19% for the quarter to $26.8 million and 20% for the nine months to $75.4 million, driven by a larger asset base and higher yields.
• New Insurance Written (NIW) increased 6% to $13.0 billion for the quarter and 2% to $34.7 billion for the nine months.
• Primary Insurance-in-Force (IIF) grew 5% year-over-year to $218.4 billion, and Primary Risk-in-Force (RIF) increased 6% to $58.5 billion.
• Insurance claims and claim expenses surged 80% for the quarter to $18.6 million and 155% for the nine months to $36.5 million.
• The loss ratio increased to 12.3% for the quarter (from 7.2%) and 8.1% for the nine months (from 3.4%).
• Loans in default increased to 7,093 (1.05% default rate) as of September 30, 2025, compared to 5,712 (0.87% default rate) a year prior.
• Claims paid increased to 281 for the nine months (from 168), with average amount paid per claim rising to $57,000 (from $34,000).
• Claims severity increased to 74% for the nine months (from 58%), attributed to claims on more recent vintage loans with less accumulated equity.
• The company repurchased 2.0 million shares for $73.7 million during the nine months ended September 30, 2025, with $256.4 million remaining under current authorizations.
• NMIC's statutory capital increased to $3.14 billion, and PMIERs available assets of $3.4 billion significantly exceeded the $2.0 billion net risk-based required assets.

Sentiment

Score: 5

Explanation: While the company reported growth in revenues, net income, and key operational metrics like IIF and NIW, and maintains a strong capital position, the significant increase in insurance claims, loss ratio, and default rates indicates a deterioration in underwriting performance or a challenging macroeconomic environment impacting the insured portfolio. The positives are largely offset by these rising costs and risks.

Positives

• Strong revenue growth, with net premiums earned up 6% for the quarter and 7% for the nine months.
• Significant increase in net investment income (up 19% for the quarter, 20% for the nine months) due to a larger invested asset base and higher book yields.
• Continued growth in New Insurance Written (NIW), Insurance-in-Force (IIF), and Risk-in-Force (RIF).
• Robust capital position, with PMIERs available assets of $3.4 billion significantly exceeding net risk-based required assets of $2.0 billion.
• Active share repurchase program, with 2.0 million shares repurchased for $73.7 million in the nine months, indicating capital return to shareholders.
• Expense ratio decreased to 19.3% for the quarter and 19.8% for the nine months, showing operational efficiency.
• NMIC's financial strength ratings are Aby Fitch, A3 by Moody's, and Aby S&P, with positive outlooks from Fitch and Moody's, and stable from S&P.
• Claims severity for each period was below long-term industry norms.

Negatives

• Significant increase in insurance claims and claim expenses (up 80% for the quarter and 155% for the nine months).
• Loss ratio increased substantially to 12.3% for the quarter (from 7.2%) and 8.1% for the nine months (from 3.4%).
• Increase in loans in default (7,093 at September 30, 2025, up from 5,712 a year prior) and default rate (1.05% from 0.87%).
• Higher average amount paid per claim ($57,000 for nine months, up from $34,000) and increased claims severity (74% for nine months, up from 58%).
• Persistency rate slightly decreased to 83.9% from 85.5% year-over-year.
• Risk-to-capital (RTC) ratio increased to 13.1:1 from 12.7:1, indicating a slight increase in risk relative to capital.

Risks

• Changes in general economic, market, and political conditions (including interest rates, inflation, economic downturn, home prices, geopolitical instability) could negatively impact business.
• Changes in the charters, business practices, policy, pricing, or priorities of Fannie Mae and Freddie Mac (GSEs) may decrease or discontinue the use of mortgage insurance.
• Inability to remain an eligible mortgage insurer under the Private Mortgage Insurer Eligibility Requirements (PMIERs) imposed by the GSEs.
• Actions of existing competitors (other private and government mortgage insurers) and potential market entry by new competitors or consolidation.
• Adoption of new or changes to existing laws, rules, and regulations impacting the business or mortgage insurance industry.
• Potential legal and regulatory claims, investigations, actions, audits, or inquiries.
• Inability to successfully execute and implement capital plans, including accessing equity, credit, and reinsurance markets.
• Lenders, the GSEs, or other market participants seeking alternatives to private mortgage insurance.
• Failure of risk management or pricing or investment strategies.
• Decrease in the length of time insurance policies are in force (persistency).
• Emergence of unexpected claim and coverage issues, including claims exceeding reserves.
• Potential adverse impacts from natural disasters, climate risk, man-made disasters, or public health emergencies (e.g., pandemics).
• Inability of counterparties, including third-party reinsurers, to meet their obligations.
• Failure to maintain, improve, and develop necessary information technology (IT) systems or exposure to cybersecurity risks.
• Ability to recruit, train, and retain key personnel.

Future Outlook

The company expects to continue building its position in the private MI market, expanding its customer base, and growing its insured portfolio of high-quality residential loans. This strategy focuses on long-term customer relationships, disciplined risk selection and pricing, fair and transparent claim payment practices, responsive customer service, and financial strength and profitability. Macroeconomic factors like persistent inflation, elevated interest rates, flagging consumer confidence, and increasing jobless claims could impact the housing market, mortgage insurance industry, and future new insurance written volume, or contribute to an increase in future default and claim experience.

Management Comments

• Our success in acquiring a large and diverse group of lender customers and growing a portfolio of high-quality IIF traces to our founding principles, whereby we aim to help qualified individuals achieve their homeownership goals, ensure that we remain a strong and credible counter-party, deliver a high-quality customer service experience, establish a differentiated risk management approach that emphasizes the individual underwriting review or validation of the vast majority of the loans we insure, utilizing our proprietary Rate GPS pricing platform to dynamically evaluate risk and price our policies, and foster a culture of collaboration and excellence that helps us attract and retain experienced industry leaders.
• Our strategy is to continue to build on our position in the private MI market, expand our customer base and grow our insured portfolio of high-quality residential loans by focusing on long-term customer relationships, disciplined and proactive risk selection and pricing, fair and transparent claim payment practices, responsive customer service, and financial strength and profitability.
• We generally observe that forbearance, repayment and modification, and other assistance programs are an effective tool to bridge dislocated borrowers from a time of acute stress to a future date when they can resume timely payment of their mortgage obligations, and note higher cure rates on defaults benefitting from broad-based assistance programs than would otherwise be expected on similarly situated loans that did not benefit from such programs.
• The number of claims paid in each period was modest relative to the size of our insured portfolio and we generally observe that the borrowers of the loans we insure are well-situated with strong credit profiles, stable 30-year fixed rate mortgages, manageable debt service obligations and significant appreciated equity in their homes.

Industry Context

The mortgage insurance industry is influenced by the U.S. housing market, interest rates, and government policies. The company's high persistency rate is attributed to a slowdown in mortgage refinancing activity due to the prevailing interest rate environment, which is a broader industry trend. The increase in claims severity for more recent vintage loans suggests a potential shift in market dynamics where borrowers have less accumulated equity, possibly reflecting recent housing market conditions or lending practices. The company's reliance on GSEs (Fannie Mae and Freddie Mac) highlights its embeddedness in the broader U.S. mortgage finance system, making it susceptible to changes in GSE policies and housing objectives.

Comparison to Industry Standards

• Claims severity for each period was below long-term industry norms, indicating relatively better performance in managing claim payouts compared to historical industry averages.

Corporate Governance

Legal Proceedings

• No material accrual liability recognized for lawsuits and claims arising in the ordinary course of business.
• No current expectation that these matters will result in a material liability to the Company.

Stakeholder Impact

• Shareholders: Positive impact from continued share repurchase program ($256.4 million remaining authority) and increased EPS. Potential negative impact from rising claims and default rates which could affect future profitability and stock performance.
• Employees: New severance benefit plans (Severance Plan and Change in Control Severance Benefit Plan) adopted on November 2, 2025, providing clarity and benefits upon certain involuntary terminations or change-in-control events.
• Customers (Mortgage Originators): Continued focus on long-term customer relationships, disciplined risk selection, and responsive customer service.
• Lenders/Investors (insured by MI): Mortgage insurance protects against default-related losses, but rising claims and severity could indicate increased risk in the underlying mortgage portfolio, though the company's capital remains strong.
• Regulators (GSEs, Wisconsin OCI): Company remains in compliance with PMIERs and statutory capital requirements, indicating regulatory stability.

Next Steps

• Continue to build position in the private MI market.
• Expand customer base.
• Grow insured portfolio of high-quality residential loans.
• Evaluate reinsurance opportunities in the normal course of business.
• Monitor compliance with PMIERs.
• Evaluate the impact of ASU 2024-03 (Disaggregation of Income Statement Expense) on consolidated financial statements.
• Evaluate the impact of ASU 2025-06 (Targeted Accounting for Internal-Use Software) on consolidated financial statements.

Key Dates

Recommendation

While NMI Holdings demonstrated revenue and earnings growth, supported by a strong investment portfolio and active share repurchases, the significant increase in insurance claims, loss ratio, and default rates presents a notable concern. The rise in claims severity, particularly from more recent loan vintages, suggests potential underlying portfolio quality issues or a challenging macroeconomic environment. The company's robust capital position and continued market presence are positives, but the deteriorating claims experience warrants a cautious "hold" stance until there is clearer evidence of stabilization or improvement in loss trends. Investors should monitor future filings for trends in defaults and claims.

Keywords

Mortgage Insurance, NMI Holdings, NMIH, SEC Filing, 10-Q, Financial Results, Earnings Report, Insurance-in-Force, Risk-in-Force, New Insurance Written, Claims Expenses, Loss Ratio, Default Rate, Share Repurchase, PMIERs, Reinsurance, Mortgage Market, Housing Market