Sanford C. Bernstein Investor Presentation

Transcription

1 NMI Holdings, Inc. (NMIH) Sanford C. Bernstein Investor Presentation May 14, Copyright. National MI

2 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 Act ), and the U.S. Private Securities Litigation Reform Act of Any statements about our expectations, beliefs, plans, predictions, forecasts, objectives, assumptions or future events or performance are not historical facts and may be forward-looking. These statements are often, but not always, made through the use of words or phrases such as anticipate, believes, can, would, should, could, may, predicts, potential, should, will, estimate, plans, projects, continuing, ongoing, expects, intends and similar words or phrases. All forward-looking statements are only predictions and involve estimates, known and unknown risks, assumptions and uncertainties that could cause our actual results to differ materially from those expressed in or contemplated by such forward-looking statements. Many risks and uncertainties are inherent in our industry and markets. Others are more specific to our business and operations. These risks and uncertainties include, but are not limited to, those set forth under the heading Risk Factors in our most recent Registration Statement on Form S-1, and described from time to time in subsequent reports, filed with the U.S. Securities and Exchange Commission, including our Annual Report on Form 10-K for the year ended December 31, 2013, filed on March 12, Any or all of our forward-looking statements in this presentation may turn out to be inaccurate. The inclusion of this forward-looking information should not be regarded as a representation by us or any other person that the future plans, estimates or expectations contemplated by us will be achieved. We have based these forward-looking statements largely on our current expectations and projections about future events and financial trends that we believe may affect our financial condition, operating results, business strategy and financial needs. There are important factors that could cause our actual results, level of activity, performance or achievements to differ materially from the results, level of activity, performance or achievements expressed or implied by the forward-looking statements including, but not limited to, statements regarding: (1) our limited operating history; (2) retention of our existing certificates of authority in each state and D.C. and our ability to remain a mortgage insurer in good standing in each state and D.C.; (3) changes in the business practices of the GSEs, including modifications to their mortgage insurer eligibility requirements or decisions to decrease or discontinue the use of mortgage insurance; (4) our ability to remain a qualified mortgage insurer under the requirements imposed by the GSEs; (5) actions of existing competitors and potential market entry by new competitors; (6) changes to laws and regulations, including changes to the GSEs role in the secondary mortgage market or other changes that could affect the residential mortgage industry generally or mortgage insurance in particular; (7) changes in general economic, market and political conditions and policies, interest rates, inflation and investment results or other conditions that affect the housing market or the markets for home mortgages or mortgage insurance; (8) changes in the regulatory environment; (9) our ability to implement our business strategy, including our ability to attract customers, implement successfully and on a timely basis, complex infrastructure, systems, procedures, and internal controls to support our business and regulatory and reporting requirements of the insurance industry; (10) failure of risk management or investment strategy; (11) claims exceeding our reserves or amounts we had expected to experience; (12) failure to develop, maintain and improve necessary information technology systems or the failure of technology providers to perform; (13) ability to recruit, train and retain key personnel; and (14) emergence of claim and coverage issues. All forward-looking statements are necessarily only estimates of future results, and actual results may differ materially from expectations. You are, therefore, cautioned not to place undue reliance on such statements. Any forward-looking statement is qualified in its entirety by reference to the matters discussed in this presentation. Further, any forward-looking statement speaks only as of the date on which it is made, and we undertake no obligation to update or revise any forward-looking statement to reflect events or circumstances after the date on which the statement is made or to reflect the occurrence of unanticipated events or circumstances, except as required by applicable law. 1

3 National MI (NMI Holdings, Inc.) Introduction Private mortgage insurance company capitalized in 2012 with approximately $510 million One of seven companies approved as an eligible mortgage insurer by Fannie Mae and Freddie Mac Licensed in all 50 states and D.C. Significant growth opportunities Long term growth prospects in first time homebuyer demographic and cyclical improvement in purchase origination market FHA pullback creating market share opportunity for private MI Highly favorable underwriting and credit quality environment Differentiated business model Clean balance sheet with no legacy liabilities or rescission history and simple organizational structure Industry leader in underwriting and coverage First and currently the only MI to underwrite every policy First MI to offer 12 month rescission relief (when industry standard was 36 months) and currently the only MI to automatically grant 12 month rescission relief on all loans Initial Public Offering Completed IPO in November 2013 Ticker symbol NMIH Mid teens targeted return on equity 2

4 Key Accomplishments and Future Milestones We have made significant progress since forming the Company We are only the 2 nd mortgage insurer to be GSE approved in the last 20 years We have several near term targets which will allow us to broadly address the mortgage insurance market April 2012 January 2013 June 2013 September 2013 YTD April 2014 Raised $510 MM through a 144A equity offering Received GSE approvals Lenders authorized to deliver loans insured by National MI to Fannie Mae Connected to LPS and FiServ Generated NIW with six of the largest National Accounts Continued lender integration Received final state license April May 2012 April 2013 July 2013 Q Remaining 2014 Hired senior management team and began staffing key functions Lenders authorized to deliver loans insured by National MI to Freddie Mac Issued first mortgage insurance policies Executed risk sharing agreement with Fannie Mae Successfully completed IPO Integrated with Ellie Mae Encompass Anticipate generating NIW with additional large National Accounts 3

5 What is Private MI and Why is it Critical? U.S government has been insuring conventional mortgages since 1934 through the FHA The Private MI industry was established in 1957 to provide a private market alternative Approximately 33% of all GSE-securitized purchase mortgages in the first half of 2013 were first time home buyers MI provides the credit enhancement needed for lower down payment buyers MI reduces the time it takes to save a down payment from approximately 14 years to under 6 years MI premium Private Mortgage Insurer Insurance against default Private MI-backed mortgage Freddie Mac / Fannie Mae Borrower Mortgage Principal, interest and MI premium Mortgage Origination & Servicing (banks, brokers, etc) MI premium Insurance against default FHA/VA-backed mortgage Ginnie Mae FHA / VA Source: National Association of Home Builders; Federal Reserve Bank of St. Louis; Inside Mortgage Finance First time homebuyer average income: $73,486; Average home price for a first time home buyer: $186,302; National savings rate: 4.35% (through August 2013); Closing costs: 5% of loan 4

6 Price / Book Multiple % 49% 48% 37% 35% 33% 31% 30% 40% 27% 27% 26% 26% 24% 25% 24% 21% 22% 26% 26% 21% 22% 24% 19% 24% 24% 24% 19% 19% 24% 20% 24% 25% 29% 19% 28% 65% 58% 50% 53% 59% 51% 50% 41% 19% 15% 19% 22% 26% 32% 38% 36% 41% 60% 79% 74% 116% 103% 79% 64% 134% 112% 135% 77% 174% 165% 192% 92% 84% 76% 77% 84% 75% 71% 63% 58% 45% 36% 41% 46% 45% Combined Ratio 62% 60% 65% 218% 108% 211% 116% 109% 130% 256% 108% 149% 165% 152% 154% 194% 190% 222% 237% 235% 280% Historically Profitable Industry 300% Private MI Combined Ratio ( ) Expense Ratio Loss Ratio The MI industry has been characterized by long periods of profitability 250% 200% 17 years of profitability The industry has demonstrated the ability to generate attractive ROEs 150% 100% 50% 0% 5.0x 4.0x 3.0x 2.0x 1.0x 0.0x 2.35x 2.21x 2.14x 2.40x 2.79x Historical Private MI Price / Book Multiple and ROE ( ) 18.2% 18.1% 18.2% 19.3% 20.2% 17.6% 18.0% 18.7% 18.6% 17.1% 15.9% 4.23x 2.20x 2.85x 2.52x 14.2% 13.3% 13.7% 13.1% 1.94x (33.8%) 1.26x 1.43x 1.46x 1.75x (30.1%) (63.9%) 1.30x 1.16x 1.24x (78.9%) 0.53x 0.16x 0.42x 0.52x (105.4%) 3.27x (2.7%) (35.2%) 20% 10% 0% ROE (40%) -10% (80%) -20% (120%) -31% Public markets often have rewarded these businesses with valuations at a premium to book value The financial crisis beginning in 2007 caused significant dislocation and capital destruction The industry has paid over $40 B in claims since the end of of the 8 legacy MI companies have ceased writing new business 2 new MI providers have been formed post-financial crisis Industry Price/Book Source: SNL Financial, Regulatory filings for MI companies ROE 5

7 The MI Industry s Capital Need Continues We estimate, based on the assumptions below, that the private mortgage insurance industry requires between $1.5 - $2.1 billion of additional capital each year. Industry-wide expectation that the GSEs will establish a new, lower, Risk-to-Capital level at 18: E Mortgage Originations $1.1 trillion - $1.3 trillion ~32% insured by private mortgage insurers or FHA/VA Total Insured Market $385 billion ~40% written by private mortgage insurers Private MI New Insurance Written (NIW) Private MI New Risk Written $150 billion ~25% insured coverage $45 billion Annual Capital Need 25:1 statutory maximum risk to capital $1.5 billion 18:1 historical targeted risk to capital $2.1 billion Source: Mortgage Bankers Association; Inside Mortgage Finance, Fannie Mae. Freddie Mac 6

8 Private MI Share Growth vs. FHA / VA FHA and VA have filled the gap left by the capital constraints facing the private MI industry during the economic downturn As of year end 2013, FHA had a capital ratio of (0.11%), despite its 2.0% statutory minimum Market share continues to shift back to private MI companies, primarily due to several FHA price increases MI Market Share: Private MI vs. FHA / VA (1990-4Q 2013) 100% 85% 80% FHA 60% Private MI Average: 47% 62% 40% 20% 0% 15% Private MI 38% Private MI (no HARP) FHA & VA Source: Inside Mortgage Finance, FHA, excludes HARP 7

9 1950 (Age 63) 1952 (Age 61) 1954 (Age 59) 1956 (Age 57) 1958 (Age 55) 1960 (Age 53) 1962 (Age 51) 1964 (Age 49) 1966 (Age 47) 1968 (Age 45) 1970 (Age 43) 1972 (Age 41) 1974 (Age 39) 1976 (Age 37) 1978 (Age 35) 1980 (Age 33) 1982 (Age 31) 1984 (Age 29) 1986 (Age 27) 1988 (Age 25) 1990 (Age 23) 1992 (Age 21) 1994 (Age 19) 1996 (Age 17) 1998 (Age 15) 2000 (Age 13) 2002 (Age 11) 2004 (Age 9) 2006 (Age 7) 2008 (Age 5) 2010 (Age 3) 2012 (Age 1) Highly Favorable Demographic Trends First-time homebuyers represent a significant future opportunity Average age of a first-time homebuyer is 34 years old More Americans will enter the typical first-time homebuyer age nearly every year over the next decade Over 40 MM Americans will reach the age of an average first time homebuyer over the next decade U.S. Births by Year 4,750,000 4,250,000 Growing first-time homebuyer population 3,750,000 3,250,000 2,750,000 Source: U.S. Centers for Disease Control and Prevention; NAHB Special Studies Characteristics of Homebuyers 8

10 $ Billions Growing Purchase Originations Increasing purchase vs. refinance mix is driving a relatively flat MI market, despite a decreasing overall origination market MI penetration is approximately 4x higher in purchase mortgages than refinancing Purchase originations have recovered since the financial crisis and are expected to reach their highest level since 2008 Total Originations projected to be between $1.1 trillion and $1.3 trillion in 2014 Total Mortgage Originations ( E) $4,500 $4,000 $3,812 $3,500 $3,000 $2,854 $2,773 $3,027 $2,726 $2,500 $2,243 $2,532 $2,306 $1,514 $1,995 $2,000 $1,757 $1,463 $1,326 $1,656 $1,698 $1,750 $1,800 $1,166 $1,509 $1,379 $1,436 $1,283 $1,500 $1,139 $1,200 $1,020 $1,331 $893 $862 $500 $777 $1,168 $1,247 $1,132 $769 $785 $833 $1,000 $234 $931 $468 $563 $640 $459 $421 $535 $211 $225 $243 $795 $878 $905 $960 $1,097 $1,280 $1,309 $1,512 $1,399 $500 $145 $1,140 $70 $177 $389 $385 $472 $486 $557 $494 $559 $590 $731 $664 $530 $505 $668 $732 $503 $ E Growth -1.0% 22.6% 3.0% 14.6% -11.3% 13.2% 5.5% 34.7% 10.4% 3.1% 6.1% 14.3% 16.7% 2.3% 15.5% -7.5% -18.5% -35.9% -9.2% -20.1% -4.8% -0.4% 32.8% 9.6% Purchase Refi Source: Mortgage Bankers Association, Fannie Mae, Freddie Mac 9

11 Private MI Volume ($ Billions) Penetration Rate of Total Originations Strong Outlook For Private MI Volume Private MI volume and penetration is rebounding from historical lows due to Recovery in housing market Increased purchase mortgage volume Market share shift towards private MI as the FHA pulls back by raising prices Private MI Volume and Penetration $450 $400 $350 $337 $404 $357 20% 18% 16% $300 $250 $200 $150 $100 $50 $39 $54 $101 $137 $131 $110 $127 $121 $187 $189 $163 $283 $265 $268 $266 $193 $82 $70 $72 $131 $175 $150 14% 12% 10% 8% 6% 4% 2% $ E Private MI Volume (No HARP) Penetration Rate of Total Originations 0% Source: Inside Mortgage Finance., Fannie Mae. Freddie Mac, 2014E Management estimate 10

12 GSE Reform Senate Committee Proposals Timing and Results Uncertain Unlikely anything will happen pre-november elections 11

13 Significant Value Proposition We believe our approach represents a differentiated and better way to insure mortgages Strong Capital Base Differentiated Product Superior Ease of Use 12

14 Significant Value Proposition Capitalization Our balance sheet is among the strongest in the industry Strong Capital Base Differentiated Product Superior Ease of Use Approximately $450 million of available capital (excluding deferred tax asset) as of March 31, 2014 No corporate debt No legacy liabilities to influence decisions No rescission history Simple Corporate Structure Well received by National Accounts and GSEs 13

15 Significant Value Proposition Differentiation Based on our feedback to date, NMI s product offering is being received favorably by our customers Strong Capital Base Differentiated Product Superior Ease of Use Every policy is underwritten individually and automatically covered by 12 month rescission relief Delegated and non-delegated Direct retail and correspondent We believe our product: Delivers clear master policy terms of coverage Significantly reduces repurchase risk We believe this will lead to capturing a disproportionate market share with National Accounts 14

16 Significant Value Proposition Ease of Use Our technology and focus on customer service will be key to our growth and profitability Strong Capital Base Differentiated Product Superior Ease of Use Modern, custom-developed technology to support the lifecycle of MI policy Competitive pricing Clear guidelines Flexibility to meet clients needs We believe this will be a significant competitive advantage 15

17 Focused Sales Effort Regional Accounts 55 person sales team 2,000+ lenders Make MI decision on loans they originate prior to selling to National Accounts MI Decision ~70% of all MI Loans originated by Regional Accounts Sold to National Accounts National Accounts 5 person sales team Approximately 40 of the largest lenders Do not make MI decision on loans purchased from Regional Accounts MI Decision ~30% of all MI Approval by National Accounts facilitates access to Regional Accounts The approximately 40 lenders we have identified as National Accounts purchase ~75% of loans sold by Regional Accounts The two largest National Accounts dominate the origination market ~37% of the correspondent origination market ~23% of the retail origination market Source: Inside Mortgage Finance (Copyright 2014) 16

18 Apr-13 May-13 Jun-13 Jul-13 Aug-13 Sep-13 Oct-13 Nov-13 Dec-13 Jan-14 Feb-14 Mar-14 Apr-14 Apr-13 May-13 Jun-13 Jul-13 Aug-13 Sep-13 Oct-13 Nov-13 Dec-13 Jan-14 Feb-14 Mar-14 Apr-14 Number of Customers Number of Customers Growing Customer Base We have made tremendous progress in our efforts to establish relationships with both regional and national accounts We have master policies signed with 478 lenders as of April 30, 2014 Approval by large aggregators significantly increases our ability to source business from small and medium-sized lenders who regularly sell loans to these entities. As of April 30, 2014, we have secured correspondent-channel approvals from approx. 20 aggregators. Newly Issued and Cumulative Master Policies Customers Generating Applications, Commitments and NIW (Cumulative) Newly Issued Cumulative Applications Commitments NIW 17

19 Portfolio Review as of March 31, 2014 Risk-In-Force by FICO Score Primary Pool Total 1% 4% 2% 28% 19% 24% >= >= >= % 77% 74% Risk-In-Force by LTV Primary Pool Total 11% 1% 0% > 95% > 95% 26% > 95% 47% 90% - 95% 85% - 90% 90% - 95% 85% - 90% 45% 90% - 95% 85% - 90% 41% 80% - 85% <= 80% 80% - 85% <= 80% 23% 80% - 85% <= 80% 100% 6% 18

20 Conclusion Private mortgage insurance company capitalized in 2012 with approximately $510 million One of seven companies approved as an eligible mortgage insurer by Fannie Mae and Freddie Mac Licensed in all 50 states and D.C. Significant growth opportunities Long term growth prospects in first time homebuyer demographic and cyclical improvement in purchase origination market FHA pullback creating market share opportunity for private MI Highly favorable underwriting and credit quality environment Differentiated business model Clean balance sheet with no legacy liabilities or rescission history and simple organizational structure Industry leader in underwriting and coverage First and currently the only MI to underwrite every policy First MI to offer 12 month rescission relief (when industry standard was 36 months) and currently the only MI to guarantee 12 month rescission relief on all loans Initial Public Offering Completed IPO in November 2013 Ticker symbol NMIH Mid teens targeted return on equity 19