NMI (US:NMIH)2022-11-02 01:59Financial Data and Key Metrics Changes - The company reported record net income of $76.8 million or $0.90 per diluted share, with a return on equity of 20.1% for the quarter [12][21][26] - The primary insurance-in-force grew to $179.2 billion, up 6% from the end of the second quarter and 25% compared to the third quarter of 2021 [21][26] - Net premiums earned were $118.3 million, a slight decrease from $120.9 million in the second quarter [22] - The expense ratio reached a record low of 22.9%, down from 25.4% in the previous quarter [60] Business Line Data and Key Metrics Changes - The company generated $17.2 billion of new insurance written (NIW) volume in the third quarter [11][21] - The 12-month persistency in the primary portfolio improved to 80.1%, compared to 76% in the second quarter [21] Market Data and Key Metrics Changes - Mortgage rates are at a 20-year high, impacting affordability for prospective buyers and leading to a reevaluation of planned moves by existing homeowners [13] - House prices have begun to trend down sequentially from their pandemic peaks, indicating new tensions in buyer-seller negotiations [13] Company Strategy and Development Direction - The company is focused on maintaining a durable, risk-responsible approach, with a comprehensive credit risk management framework [9] - The company has secured comprehensive reinsurance protection for nearly the entirety of its insured portfolio, enhancing its ability to perform across market cycles [9][16] - The company is proactively adjusting policy pricing and managing its mix of new business by risk cohort and geography in response to evolving risks [15][17] Management's Comments on Operating Environment and Future Outlook - Management acknowledges growing macroeconomic headwinds but does not expect a deterioration similar to the financial crisis [6] - The company is confident in its ability to navigate through potential stress periods due to its strong credit profiles and embedded equity in homes [7][9] - Management expects unemployment to rise and an increasing number of households to face stress in the event of a recession [13] Other Important Information - The company repurchased $21 million of its common stock, retiring 1 million shares at an average price of $20.94 [27] - Total cash and investments were reported at $2.1 billion, with a significant portion available for future needs [26][30] Q&A Session Summary Question: Are competitors also increasing pricing in response to changing risks? - Management confirmed that there is a broad discipline across the market, with rates hardening as macro volatility increases [36] Question: What is the impact of recent pricing changes on the enterprise pricing framework? - Management noted that the elimination of upfront fees for lower-income borrowers could lead to a significant market impact, with an estimated 15% of current FHA and VA volume potentially migrating to the conforming market [38] Question: How do you approach lifetime losses and pricing adjustments? - Management stated that pricing adjustments are necessary to cover anticipated loss costs, emphasizing the importance of maintaining rate adequacy [41][43] Question: What are the reserving expectations for new defaults? - Management indicated that credit trends remain strong, with default rates declining and cure rates holding constant [50][51] Question: How do you view the impact of unemployment on the existing book? - Management expressed confidence in the existing portfolio's equity buffer, suggesting that a rise in unemployment alone may not significantly impact claims experience [72][74]