NMI Holdings (NMIH)

Mortgage insurance provider NMI Holdings (NASDAQ:NMIH) beat Wall Street’s revenue expectations in Q3 CY2025, with sales up 7.6% year on year to $178.7 million. Its non-GAAP profit of $1.21 per share was in line with analysts’ consensus estimates.

Company Overview

Founded in the aftermath of the 2008 housing crisis to bring new capacity to the mortgage insurance market, NMI Holdings (NASDAQ:NMIH) provides mortgage insurance that protects lenders against losses when homebuyers default on their mortgage loans.

Property & Casualty (P&C) insurers protect individuals and businesses against financial loss from damage to property or from legal liability. This is a cyclical industry, and the sector benefits when there is 'hard market', characterized by strong premium rate increases that outpace loss and cost inflation, resulting in robust underwriting margins. The opposite is true in a 'soft market'. Interest rates also matter, as they determine the yields earned on fixed-income portfolios. On the other hand, P&C insurers face a major secular headwind from the increasing frequency and severity of catastrophe losses due to climate change. Furthermore, the liability side of the business is pressured by 'social inflation'—the trend of rising litigation costs and larger jury awards.

NMI Holdings competes with other private mortgage insurers including MGIC Investment Corporation (NYSE:MTG), Essent Group (NYSE:ESNT), Radian Group (NYSE:RDN), and Enact Holdings (NASDAQ:ACT), as well as government-backed mortgage insurance provided by the Federal Housing Administration (FHA).

Insurers earn revenue three ways. The core insurance business itself, often called underwriting and represented in the income statement as premiums earned, is one way. Investment income from investing the “float” (premiums collected upfront not yet paid out as claims) in assets such as fixed-income assets and equities is the second way. Fees from various sources such as policy administration, annuities, or other value-added services is the third. Over the last five years, NMI Holdings grew its revenue at a solid 10.1% compounded annual growth rate. Its growth surpassed the average insurance company and shows its offerings resonate with customers, a great starting point for our analysis.

Long-term growth is the most important, but within financials, a half-decade historical view may miss recent interest rate changes and market returns. NMI Holdings’s annualized revenue growth of 11.1% over the last two years is above its five-year trend, suggesting its demand was strong and recently accelerated. Note: Quarters not shown were determined to be outliers, impacted by outsized investment gains/losses that are not indicative of the recurring fundamentals of the business.

This quarter, NMI Holdings reported year-on-year revenue growth of 7.6%, and its $178.7 million of revenue exceeded Wall Street’s estimates by 0.7%.

Net premiums earned made up 88.6% of the company’s total revenue during the last five years, meaning NMI Holdings barely relies on non-insurance activities to drive its overall growth.

Our experience and research show the market cares primarily about an insurer’s net premiums earned growth as investment and fee income are considered more susceptible to market volatility and economic cycles.

When insurers sell policies, they protect themselves from extremely large losses or an outsized accumulation of losses with reinsurance (insurance for insurance companies). Net premiums earned are therefore gross premiums less what’s ceded to reinsurers as a risk mitigation and transfer strategy.

NMI Holdings’s net premiums earned has grown at a 8.6% annualized rate over the last five years, slightly better than the broader insurance industry but slower than its total revenue.

When analyzing NMI Holdings’s net premiums earned over the last two years, we can paint a similar picture as it recorded an annual growth rate of 9.2%. Since two-year net premiums earned grew slower than total revenue over this period, it’s implied that other line items such as investment income grew at a faster rate. While these additional streams certainly contribute to the bottom line, their impact can vary. Some firms have shown greater success and long-term consistency in investing their float compared to peers. However, sharp fluctuations in the fixed income and equity markets can significantly affect short-term performance.

NMI Holdings’s net premiums earned came in at $151.3 million this quarter, up 5.6% year on year and in line with Wall Street Consensus estimates.

Revenue growth is one major determinant of business quality, and the efficiency of operations is another. For insurance companies, we look at the combined ratio rather than the operating expenses and margins that define sectors such as consumer, tech, and industrials.

Combined ratio = (costs of underwriting + what an insurer pays out in claims) / net premiums earned. If a company boasts a combined ratio under 100%, it is underwriting profitably. If above 100%, it is losing money on its core operations.

Given the calculation, a lower expense ratio is better. Over the last five years, NMI Holdings’s combined ratio has swelled by 23.5 percentage points, going from 35.2% to 27.8%. However, the company gave back some of its expense savings as its combined ratio worsened by 2.6 percentage points on a two-year basis.

NMI Holdings’s combined ratio came in at 31.5% this quarter. This result was 4 percentage points worse than the same quarter last year.

We track the long-term change in earnings per share (EPS) for the same reason as long-term revenue growth. Compared to revenue, however, EPS highlights whether a company’s growth is profitable.

NMI Holdings’s EPS grew at a solid 15.1% compounded annual growth rate over the last five years, higher than its 10.1% annualized revenue growth. However, this alone doesn’t tell us much about its business quality because its combined ratio didn’t improve.

Diving into NMI Holdings’s quality of earnings can give us a better understanding of its performance. As we mentioned earlier, NMI Holdings’s combined ratio worsened this quarter but improved by 23.5 percentage points over the last five years. Its share count also shrank by 7.9%, and these factors together are positive signs for shareholders because improving profitability and share buybacks turbocharge EPS growth relative to revenue growth.

Like with revenue, we analyze EPS over a shorter period to see if we are missing a change in the business.

For NMI Holdings, its two-year annual EPS growth of 13.8% was lower than its five-year trend. This wasn’t great, but at least the company was successful in other measures of financial health.

In Q3, NMI Holdings reported adjusted EPS of $1.21, up from $1.15 in the same quarter last year. This print was close to analysts’ estimates. Over the next 12 months, Wall Street expects NMI Holdings’s full-year EPS of $4.78 to grow 5.1%.

Insurance companies are balance sheet businesses, collecting premiums upfront and paying out claims over time. The float – premiums collected but not yet paid out – are invested, creating an asset base supported by a liability structure. Book value captures this dynamic by measuring:

• Assets (investment portfolio, cash, reinsurance recoverables) - liabilities (claim reserves, debt, future policy benefits)

BVPS is essentially the residual value for shareholders.

We therefore consider BVPS very important to track for insurers and a metric that sheds light on business quality. While other (and more commonly known) per-share metrics like EPS can sometimes be lumpy due to reserve releases or one-time items and can be managed or skewed while still following accounting rules, BVPS reflects long-term capital growth and is harder to manipulate.

NMI Holdings’s BVPS grew at an incredible 16.2% annual clip over the last five years. BVPS growth has also accelerated recently, growing by 21.9% annually over the last two years from $21.94 to $32.62 per share.

The debt-to-equity ratio is a widely used measure to assess a company's balance sheet health. A higher ratio means that a business aggressively financed its growth with debt. This can result in higher earnings (if the borrowed funds are invested profitably) but also increases risk.

If debt levels are too high, there could be difficulties in meeting obligations, especially during economic downturns or periods of rising interest rates if the debt has variable-rate payments.

NMI Holdings currently has $416.5 million of debt and $2.51 billion of shareholder's equity on its balance sheet, and over the past four quarters, has averaged a debt-to-equity ratio of 0.2×. We think this is safe and raises no red flags. In general, we’re comfortable with any ratio below 1.0× for an insurance business. Anything below 0.5× is a bonus.

Return on equity (ROE) serves as a comprehensive measure of an insurer's performance, showing how efficiently it converts shareholder capital into profits. Strong ROE performance typically translates to better returns for investors through a combination of earnings retention, share repurchases, and dividend distributions.

Over the last five years, NMI Holdings has averaged an ROE of 17.3%, excellent for a company operating in a sector where the average shakes out around 12.5% and those putting up 20%+ are greatly admired. This shows NMI Holdings has a strong competitive moat.

It was good to see NMI Holdings narrowly top analysts’ revenue expectations this quarter. On the other hand, its EPS was in line. Overall, this quarter was without many surprises, good or bad. The stock remained flat at $37.52 immediately following the results.

Updated: December 4, 2025 at 11:25 PM EST

A common mistake we notice when investors are deciding whether to buy a stock or not is that they simply look at the latest earnings results. Business quality and valuation matter more, so we urge you to understand these dynamics as well.

NMI Holdings is an amazing business ranking highly on our list. First of all, the company’s revenue growth was solid over the last five years. And while its projected EPS for the next year is lacking, its improving combined ratio shows the business has become more productive. On top of that, NMI Holdings’s BVPS growth was exceptional over the last five years.

NMI Holdings’s P/B ratio based on the next 12 months is 1.1x. Looking across the spectrum of insurance companies today, NMI Holdings’s fundamentals shine bright. We like the stock at this price.

Wall Street analysts have a consensus one-year price target of $44.43 on the company (compared to the current share price of $37.41), implying they see 18.8% upside in buying NMI Holdings in the short term.