Nmi Holdings Inc · NASDAQ:NMIH

Nmi — Investor Day (November 2015)

62 slides from Nmi's investor day presentation, Nov 19, 2015

Slide 2: Cautionary Note Regarding Forward-Looking Statements
1 EXHIBIT 99.1 Cautionary Note Regarding Forward–Looking Statements This presentation contains forward looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the "Securities Act"), Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange
Slide 3: Agenda
2 EXHIBIT 99.1 Agenda 8:30 Introduction Brad Shuster Chairman & Chief Executive Officer 9:00 Customer Development & Insurance Operations Claudia Merkle Executive VP, Sales & Insurance Operations 10:00 Break 10:15 Risk Management Patrick Mathis Executive VP & Chief Risk Officer 10:45 Pricing & Return
Slide 5: Founding Principles / Differentiated Vision
4 EXHIBIT 99.1 Founding Principles/ Differentiated Vision  “Built to Pay Claims” means following-through on our obligations to policyholders  In the aftermath of the financial crisis, the then- existing 7 private mortgage insurers rescinded or denied ~$10 billion of claims  National MI was first
Slide 6: Customer-Centric Approach
5 EXHIBIT 99.1 Customer-Centric Approach  Founding vision: National MI built to pay its claims  Offer rescission relief and certainty of coverage after 12 months of timely borrower payments  12-month rescission relief reduces repurchase risk  Clean balance sheet with no legacy liabilities  Low
Slide 7: Mortgage Insurance Premium Illustration
6 EXHIBIT 99.1 Mortgage Insurance Premium Illustration  Mortgage insurance is a highly “sticky” product with an average life of five years and a persistency rate of ~80%  As new insurance written layers onto prior vintages, it creates a positive “stacking” effect, whereby MI policies deliver predi
Slide 8: Illustration: Earnings Power of Fast-Growing Mortgage Insurer
7 EXHIBIT 99.1 Illustration: Earnings Power of Fast-Growing Mortgage Insurer Interest Income Premium Earned Expenses & Claims Development Stage Losses Profit Opportunity First 3 Years Next 5 Years Not a forecast. For illustrative purposes only.
Slide 9: Market Overview
EXHIBIT 99.1 MARKET OVERVIEW
Slide 10: Mortgage Insurance Market Overview
9 EXHIBIT 99.1 Mortgage Insurance Market Overview  Mortgage insurance protects lenders against losses that result from defaults on home mortgages  Freddie Mac's and Fannie Mae's federal charters prohibit the GSEs from purchasing a low down payment loan, unless the loan is credit enhanced  MI prov
Slide 11: Historically Profitable Industry
10 EXHIBIT 99.1  The MI industry has been characterized by long periods of profitability  The industry has demonstrated the ability to generate attractive ROEs  Public markets often have rewarded these businesses with valuations at a premium to book value Historically Profitable Industry 45 % 49
Slide 12: Improving Purchase Market
11 EXHIBIT 99.1 Improving Purchase Market Source: Mortgage Bankers Association Mortgage insurance penetration of purchase is 4x that of refinancing Est
Slide 13: Favorable Demographic Trend
12 EXHIBIT 99.1 Favorable Demographic Trend 2,750,000 3,250,000 3,750,000 4,250,000 4,750,000 34-Year-Old Population 2015-2024  First-time homebuyers represent a significant future opportunity  Average age of a first-time homebuyer is 34 • More Americans will enter the typical first-time homebuyer
Slide 14: Steady Improvement in Home Purchase Sentiment
13 EXHIBIT 99.1 Steady Improvement in Home Purchase Sentiment 40 45 50 55 60 65 70 75 80 85 90 Ma r-1 1 Jun-1 1 Se p -1 1 De c-1 1 Ma r-1 2 Jun-1 2 Se p -1 2 De c-1 2 Ma r-1 3 Jun-1 3 Se p -1 3 De c-1 3 Ma r-1 4 Jun-1 4 Se p -1 4 De c-1 4 Ma r-1 5 Jun-1 5 Se p -1 5 Home Purchase Sentiment Index • Ho
Slide 15: Competitive/Regulatory Environment
14 EXHIBIT 99.1  Strong public policy bias toward decreasing taxpayer exposure to mortgage market • Despite this bias, FHA/VA expected to continue to be attractive option for low down payment and higher risk borrowers • Public statements of many lenders indicate they are de-emphasizing government l
Slide 16: Themes for Today
15 EXHIBIT 99.1  Differentiated value proposition is winning with customers  Achieving rapid growth in a competitive industry  Poised for profitability in 2016 and targeted mid-teens returns over time  Led by a talented and deep management team Themes for Today
Slide 17: Customer Development & Insurance Operations
© 2015 Copyright. NMI Holdings Inc. EXHIBIT 99.1 Customer Development & Insurance Operations Claudia Merkle, Executive VP, Sales & Insurance Operations
Slide 18: Sales Structure & Customer Development
EXHIBIT 99.1 SALES STRUCTURE & CUSTOMER DEVELOPMENT
Slide 19: Sales Structure
18 EXHIBIT 99.1  Field Sales, Regional Accounts: 7 Geographic Regions, managed by 7 Managing Directors, ~50 Sales Representatives  National Accounts: 5 Sales professionals, managing 40-50 lenders Sales Structure
Slide 20: Customer Development Market Structure
19 EXHIBIT 99.1 Customer Development Market Structure Few instances where all 7 MI’s are approved and allocated share National MI Penetrates New Account (Approved Master Policy) Central Allocation Transactional MI allocated centrally and share distribution is driven by customer management, usually b
Slide 21: Mortgage Insurance Market Stratification
20 EXHIBIT 99.1 Mortgage Insurance Market Stratification Top 10 Lenders [PERCENT AGE] Top 11-40 Lenders [PERCENT AGE] All [CATEGOR Y NAME] [PERCENT AGE] Total Controllable MI (Retail / Wholesale MI by Lender) • Top 10 Lenders who control the MI decision represent 19% of the MI market • The next 30 l
Slide 22: Current Penetration Based on Active Customer Relationships
21 EXHIBIT 99.1 Current Penetration Based on Active Customer Relationships [CATEGO RY NAME] 6 [CATEGO RY NAME] 4 Top 10 Mortgage Originators Inside Mortgage Finance YTD2015 [CATEGO RY NAME] 12 [CATEGO RY NAME] 18 Top 11-40 Mortgage Originators Inside Mortgage Finance YTD2015  National MI is active
Slide 23: Achieved Critical Mass in the Correspondent Market
22 EXHIBIT 99.1 Achieved Critical Mass in the Correspondent Market 16.3% 15.4% 7.3% 7.2% 4.8% 3.7% 3.4% 2.8% 2.7% 2.5% 2.2% 2.1% 2.0% 1.7% 1.5% 1.3% 1.2% 1.2% 1.1% 0.9% 0.7% 0.6% 0% 2% 4% 6% 8% 10% 12% 14% 16% 18% C u st o m e r 1 C u st o m e r 2 C u st o m e r 3 C u st o m e r 4 C u st o m e r 5 C
Slide 24: NIW Growth and Market Share Gains
23 EXHIBIT 99.1 NIW Growth and Market Share Gains 0.4% 1.2% 1.0% 1.9% 3.7% 3.9% 4.3% 5.9% 0% 1% 2% 3% 4% 5% 6% 7% 8% 9% 10% Q4 2013 Q1 2014 Q2 2014 Q3 2014 Q4 2014 Q1 2015 Q2 2015 Q3 2015 National MI Market Share 557 936 1154 1945 2934 6033 418 757 542 603 699 1844 0 5,000 10,000 1Q14 2Q14 3Q14 4Q14
Slide 25: Customer Base
24 EXHIBIT 99.1 Customer Base Customers with Approved Master Policies and Those Generating Applications/NIW During the Period  Approved master policies with 906 lenders as of September 30, 2015  Master policies growing by approximately 15-20 per month YTD  Recently approved master policies now co
Slide 26: Customer Development - Differentiation
25 EXHIBIT 99.1 Customer Development - Differentiation  National MI has designed its value proposition to appeal to both MI decision models by providing “best in class” offerings across all facets of private mortgage insurance • Terms of Coverage / Financial Strength (Counter-Party Risk): With an i
Slide 27: What We Are Hearing from Customers
26 EXHIBIT 99.1 What We Are Hearing from Customers “Fantastic turn times!” “Your system is easy to use.” “You are consistent!”
Slide 28: In Summary
27 EXHIBIT 99.1  Great momentum for continued success  Proven track record to continue to win  Large market opportunity  Financial capacity for counter party strength  Unique differentiators in our coverage terms and how we approach the business  Ease of use  Seasoned sales team that’s built
Slide 29: Operations & Underwriting
EXHIBIT 99.1 OPERATIONS & UNDERWRITING
Slide 30: Operations & Underwriting Fulfillment Process
29 EXHIBIT 99.1 Lender Approval Lender Requests MI Insurance from National MI Underwriting Review Processes Service Active Policies & Billing Remittance Manage Defaults & Claims Operations & Underwriting Fulfillment Process Joint Review process, Risk Ops & Policy Servicing Approved Customer submits
Slide 31: Underwriting Channel Options
30 EXHIBIT 99.1 Underwriting Channel Options Non- Delegated Customer submits transaction data and credit file to National MI National MI Underwriters perform risk assessment and ensure eligibility Decision communicated to customer Commitment and Certificate of Insurance Issued by National MI Delegat
Slide 32: Sales Support, Solution Center, Risk Ops Customer Support
31 EXHIBIT 99.1 Sales Support Solution Center Risk Ops Customer Support – Team Approach National MI’s Risk Operations group (DROs) provides timely responses on a variety of customer and program requests National MI’s Solution Center is staffed to help our customers and provide technical underwriting
Slide 33: Intermission
EXHIBIT 99.1 INTERMISSION
Slide 35: Risk Management Framework
34 EXHIBIT 99.1 Risk Management Framework  Board and senior management oversight • Board Risk Committee • Management Risk Committee  Policies governing critical risk activities including: • Insurance underwriting: Underwriting Guidelines Manual • Other risk management activities: Risk Policy Manua
Slide 36: Management Risk Committee Responsibilities
35 EXHIBIT 99.1 Management Risk Committee Responsibilities  Management Risk Committee approves: • Pricing changes • Bids on aggregated flow transactions or pool transactions, such as the 2013 Fannie Mae pool • Material Credit Policy changes • New products  Management Risk Committee reviews: • Port
Slide 37: Concentration Limits and Monitoring
36 EXHIBIT 99.1 Concentration Limits and Monitoring  Risk limits tracked via established reports and monitored by Risk Management and Risk Committee in regularly scheduled monthly and quarterly meetings  Portfolio concentrations are reported to Management Risk Committee monthly and Board Risk Comm
Slide 38: Underwriting Today Versus Before the Crisis
37 EXHIBIT 99.1 Underwriting Today Versus Before the Crisis  Qualified Mortgage requirements and prevailing winds of sanity among key investors have led to near extinction of the riskier categories of >80 LTV loans: • Stated income • No/alternative documentation • Negative amortization • Interest o
Slide 39: National MI Book Now Versus Legacy Book 2009
38 EXHIBIT 99.1 National MI Book Now Versus Legacy Book 2009  We have none of the most volatile layered risk loans in our portfolio: • Stated Income and No doc • Subprime (< 620 FICO) • Interest only • 100% LTV  The FICO distribution is significantly better today than it was during the 2004-2008 t
Slide 40: Estimated Stress Losses - Portfolio Today Versus 2007
39 EXHIBIT 99.1 Estimated Stress Losses – Portfolio Today Versus 2007 Source: Milliman, Inc – Analysis Of Deep Coverage Mortgage Insurance, October 15, 2015. http://www.usmi.org/wp-content/uploads/2015/10/Milliman-Report-Analysis-of-Deep-Coverage-MI-FINAL.pdf Industry-reported loss rates Modeled str
Slide 41: Key Risk Management Themes
40 EXHIBIT 99.1 Key Risk Management Themes  Regulatory changes and “industry PTSD” have led to: • Benign underwriting environment that will likely last for many years • Higher average FICO score in the over 80 LTV conventional market that will drive lower expected and stress losses  National MI ha
Slide 43: Pricing Model Overview
42 EXHIBIT 99.1 Pricing Model Overview  Three main components of MI pricing: 1. Expected losses  Estimated by historical performance of similar insured loans  High quality of today’s originations lead to low expected loss 2. Expenses  MI expenses are largely fixed; acquisition costs are 10-20% o
Slide 44: 1. Expected Losses
43 EXHIBIT 99.1 1. Expected Losses  Expected (non-stress) losses are lower than historical norms due to differences in loan quality Source: Milliman, Inc – Analysis Of Deep Coverage Mortgage Insurance, October 15, 2015 http://www.usmi.org/wp-content/uploads/2015/10/Milliman-Report-Analysis-of-Deep-
Slide 45: 2. Expenses - Example
44 EXHIBIT 99.1 2. Expenses - Example  With a 710 FICO/95% LTV loan, and 30% coverage, the premium was built primarily on expected losses, with expense representing only 9% of the premium a Loan Size $ 220,000 b LTV 95% c FICO 710 d Coverage 30% e Loss Rate 4.00% f Average Life Yrs 4.50 Expenses g
Slide 46: 2. Expenses - Example
45 EXHIBIT 99.1 2. Expenses - Example  As mid-teens expected returns are held constant, but expected loss rates come down, acquisition and allocated expenses can be more than 50% of the premium rate a Loan Size $ 220,000 $ 220,000 b LTV 95% 85% c FICO 710 790 d Coverage 30% 12% e Loss Rate 4.00% 1.
Slide 47: 3. Capital
46 EXHIBIT 99.1 3. Capital  PMIERs required asset charges are likely to be the binding constraint in managing capital • The first PMIER grid below is the required asset charge expressed as a percentage of risk in force • The second grid is the inverse, a maximum risk to assets multiple  State regu
Slide 48: Capital Multipliers
47 EXHIBIT 99.1 Capital  Multipliers further impact pricing, especially in regards to LPMI Risk Feature Multiplier Not underwritten with full documentation 3.00 Investment property at origination 1.75 DTI ratio greater than 50% 1.75 Mortgage payment is not fully amortizing 2.00 Cash out refinance 1
Slide 49: Pricing Changes
48 EXHIBIT 99.1 Pricing Changes  Current industry rate cards, created pre-PMIERs, do not produce consistent returns post-PMIERs  LPMI Price Increase Effective 1/1/2016: • To generate mid-teens returns, we are increasing our LPMI Single Premium national rates by approximately 16% on average, effect
Slide 50: In Summary
49 EXHIBIT 99.1  National MI’s risk-based pricing model is designed to deliver mid-teens returns across the FICO/LTV/Coverage spectrum and eliminate the cross-subsidies across the BPMI rate card  National MI is offering a rational response to PMIERs capital requirements In Summary
Slide 52: 2015 YTD Financial Highlights
51 EXHIBIT 99.1  New Insurance Written YTD 2015 more than double full year 2014  Primary insurance-in- force tripled YTD to $10.6B as of 9/30/15 2015 YTD Financial Highlights 0.5 0.9 1.8 3.4 4.8 7.2 10.6 0.5 0.7 2.6 4.2 5.7 7.6 11.6 0 2 4 6 8 10 12 14 0 2 4 6 8 10 12 14 1Q14 2Q14 3Q14 4Q14 1Q15 2Q
Slide 53: New Insurance Written Product Mix
52 EXHIBIT 99.1  We have opportunistically penetrated new accounts and grown scale with a higher mix of LPMI singles  Going forward, we expect our LPMI single premium price increases and balanced BPMI monthly rates will drive change in product mix Product Mix Monthl y Premiu m 50% Single Premiu m
Slide 54: Expense History and Outlook
53 EXHIBIT 99.1  Establishing requisite infrastructure – principally insurance operations, IT, and sales – drove expense level through 2015  Going forward, we expect the majority of expense growth will be volume-related Expense History and Outlook Interest Income Premium Earned Expenses
Slide 55: Clean Post Crisis Insurance Book
54 EXHIBIT 99.1  Unencumbered by legacy book of business  Weighted Average FICO of 750 and Weighted Average LTV of 92% as of Sept. 30, 20151 Clean Post Crisis Insurance Book RIF by Vintage RIF by LTV 2015, 73.0% 2014, 26.3% 2013, 0.7% RIF by FICO Score 740+, 62.2% 680- 739, 33.7% 620- 679, 4.1% Ex
Slide 56: Balance Sheet & Capital Position
55 EXHIBIT 99.1 412 408 408 150 0 100 200 300 400 500 600 Q2 2015 Q3 2015 Q32015 Pro Forma Total Capital Equity Debt Balance Sheet & Capital Position 434 447 592 0 100 200 300 400 500 600 700 Q2 2015 Q3 2015 Q32015 Pro Forma Cash & Investments $558M
Slide 57: Recent Capital Raise
56 EXHIBIT 99.1  On November 10, 2015, we raised $150 million senior secured Term Loan B • Provides capital for growth – now have capacity to write ~$20 billion of new insurance • Enables PMIERs compliance as of 12/31/2015 • Lower cost capital relative to equity • JP Morgan was sole arranger • Smal
Slide 58: Loss Development
57 EXHIBIT 99.1 Loss Development 1 2 3 4 5 6 7 8 9 10 Vintage 10 Vintage 9 Vintage 8 Vintage 7 Vintage 6 Vintage 5 Vintage 4 Vintage 3 Vintage 2 Vintage 1 5.0% 9.0% 16.0% 17.5% 18.0% 16.0% 12.0% 3.0% 2.0% 1.0% 1 2 3 4 5 6 7 8 9 10 0% 5% 10% 15% 20% Percentage of Total Expected Loss That Develops, by
Slide 59: Summary
58 EXHIBIT 99.1  We are driving strong growth in NIW, insurance-in- force, and revenue  Expense growth is moderating with build-out of infrastructure  Expect profitability in 2016  Financial model drives significant operating leverage going forward  Well capitalized Summary
Slide 60: Questions & Answers
EXHIBIT 99.1 QUESTIONS & ANSWERS
Slide 61: Appendix
EXHIBIT 99.1 APPENDIX
Slide 62: Highly Experienced Management Team
61 EXHIBIT 99.1 Highly Experienced Management Team Bradley Shuster Chairman of the Board and Chief Executive Officer  Chairman and CEO of NMI since 2012  Served as an executive of The PMI Group, Inc. (‘‘PMI’’) from 2003 to 2008, with roles as President of International and Strategic Investments, C

NMI Holdings — Investor Day (November 2015) on 6ix

Nmi — Investor Day (November 2015)

Slide 1: National MI

Slide 2: Cautionary Note Regarding Forward-Looking Statements

Slide 3: Agenda

Slide 4: Introduction to National MI

Slide 5: Founding Principles / Differentiated Vision

Slide 6: Customer-Centric Approach

Slide 7: Mortgage Insurance Premium Illustration

Slide 8: Illustration: Earnings Power of Fast-Growing Mortgage Insurer

Slide 9: Market Overview

Slide 10: Mortgage Insurance Market Overview

Slide 11: Historically Profitable Industry

Slide 12: Improving Purchase Market

Slide 13: Favorable Demographic Trend

Slide 14: Steady Improvement in Home Purchase Sentiment

Slide 15: Competitive/Regulatory Environment

Slide 16: Themes for Today

Slide 17: Customer Development & Insurance Operations

Slide 18: Sales Structure & Customer Development

Slide 19: Sales Structure

Slide 20: Customer Development Market Structure

Slide 21: Mortgage Insurance Market Stratification

Slide 22: Current Penetration Based on Active Customer Relationships

Slide 23: Achieved Critical Mass in the Correspondent Market

Slide 24: NIW Growth and Market Share Gains

Slide 25: Customer Base

Slide 26: Customer Development - Differentiation

Slide 27: What We Are Hearing from Customers

Slide 28: In Summary

Slide 29: Operations & Underwriting

Slide 30: Operations & Underwriting Fulfillment Process

Slide 31: Underwriting Channel Options

Slide 32: Sales Support, Solution Center, Risk Ops Customer Support

Slide 33: Intermission

Slide 34: Risk Management

Slide 35: Risk Management Framework

Slide 36: Management Risk Committee Responsibilities

Slide 37: Concentration Limits and Monitoring

Slide 38: Underwriting Today Versus Before the Crisis

Slide 39: National MI Book Now Versus Legacy Book 2009

Slide 40: Estimated Stress Losses - Portfolio Today Versus 2007

Slide 41: Key Risk Management Themes

Slide 42: Deep Dive on MI Pricing

Slide 43: Pricing Model Overview

Slide 44: 1. Expected Losses

Slide 45: 2. Expenses - Example

Slide 46: 2. Expenses - Example

Slide 47: 3. Capital

Slide 48: Capital Multipliers

Slide 49: Pricing Changes

Slide 50: In Summary

Slide 51: Driving Financial Performance

Slide 52: 2015 YTD Financial Highlights

Slide 53: New Insurance Written Product Mix

Slide 54: Expense History and Outlook

Slide 55: Clean Post Crisis Insurance Book

Slide 56: Balance Sheet & Capital Position

Slide 57: Recent Capital Raise

Slide 58: Loss Development

Slide 59: Summary

Slide 60: Questions & Answers

Slide 61: Appendix

Slide 62: Highly Experienced Management Team