NMI Holdings, Inc. (NASDAQ:NMIH) Q3 2019 Earnings Conference Call - Final Transcript
Nov 06, 2019 • 05:00 pm ET
Certainly. [Operator Instructions] Your first question comes from Rick Shane from J.P. Morgan. Your line is open.
Hey guys, thanks for taking my question this afternoon. Not surprisingly given the path of rates over the last five years, the persistency declined the most among the -- in the 2018 cohort. I'm curious if 2018 borrowers at this point have enough home price appreciation that they're able to refinance without taking PMI or it's one of the things that's actually driving the strength of the book rotation from 2018 loans to 2019 loans and are you basically recapturing existing paper?
Yeah, Rick, it's Adam. I think that's exactly right. So we are observing an increased penetration of MI into the refi market and we trace it to largely to the 2018 book year. What's unique this go around is that we've had rates fall so quickly and by so much without a corresponding macro credit event. And so that means that those borrowers who took out loans really in the back end of '18 in a much higher note rate environment are now coming into the market and can benefit from a refinancing opportunity, but they haven't yet benefited from near as much HPA or also as much time to amortize down their principle balance through monthly payments. And so we do see increased penetration and expect that to continue to hold through at least the near term.
Got it. And do you find that because the originators have incentive to go back to those same borrowers and you have strong relationships with those originators that your recapture rate tends to be pretty high on those transactions?
Yeah, look, it's difficult to trace it to a specific recapture rate. One thing I would note is that broadly speaking, the interest rate environment that we're seeing, as Brad mentioned, is really spurring a significant increase in overall origination activity. So that's a ripe environment for MI companies in general, ourselves included, to really capture strong new business volume and that's what's happening.
Beyond that, in terms of the business that's actually in rotation, we are a newer company with a smaller in-force portfolio. And if you look at it, we have about a 7% share of total industry, IIF. And we have a much higher share of new business production. And so simply the math of it, when business comes into rotation, there's a higher likelihood that we will be on the -- I'll call it the winning end of that equation than actually having loss business, simply because we have less to lose and we're capturing a greater portion of new business flow.
And that's a great way to describe it. Thank you very much.
Your next question comes from the line of Sam Choe from Credit Suisse. Your line is open.
Hi guys, I'm on for Doug today. So just looking at the expense ratio, I mean, you guys have been making good progress on that front. And if you exclude