National MI takes a 4Q loss because of tax reform

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NMI Holdings set a record for new insurance written in the fourth quarter, but reported a net loss for the period due to tax reform.

The company had a net loss of $1.8 million for the quarter, compared with net income of $59.7 million one year prior.

During the fourth quarter, it recorded a one-time noncash expense of $13.6 million primarily related to the re-measurement of the company's net deferred tax asset and a pretax noncash expense of $3.4 million related to the change in fair value of the company's warrant liability as a result of the increase in its stock price.

NMI Holding's common stock ended the third quarter trading at $12.40 per share. It closed at $17 per share on Dec. 29 and on Feb. 16 it closed at $20.58.

Its National MI subsidiary did $6.9 billion of new insurance written for the fourth quarter; Randy Binner, an analyst for B. Riley FBR, expected $5.3 billion of NIW.

This compares with $6.1 billion in the third quarter and $5.2 billion in the fourth quarter last year.

The quarter-to-quarter growth in NIW is against the trend. The latest Mortgage Bankers Association residential forecast looks at a $56 billion decline in total originations between the two periods.

But National MI has been underwriting for less than five years and is in a growth mode.

"We activated 29 new customers in the fourth quarter, bringing our total activations in 2017 to 127 new accounts, representing approximately $20 billion of NIW opportunity," NMI Holdings Chairman and CEO Bradley Shuster said during the conference call.

The company is poised for future success, Binner said.

"Expenses have been an issue in several past quarters as the company ramped up its book of business, so a better result here is a clear positive. NMI has decidedly transitioned to profitable operations as the top line has ramped," Binner said in a research note.

"Our view is that the premium ramp is coming at a good time, given our broadly constructive view on the macro environment for mortgage insurance writers. We continue to believe that NMI and mortgage insurers broadly offer a favorable risk/reward dynamic in the financials space given growth potential, manageable Washington policy issues, and reasonable valuations compared to other financials."

NMI Holdings has an 18% capital cushion under the current Private Mortgage Insurer Eligibility Requirements. The government-sponsored enterprises are proposing changes to the standards that would go into effect later this year and there have been concerns about capital sufficiency for the industry.

National MI should remain at a surplus with its current resources, and "in full compliance upon effectiveness and anticipate we will continue to maintain an access position based on our current capital plan," Shuster said.

This includes plans to issue an insurance-linked note in mid-2018.

"Given high growth at NMI, the company's ability to comply with PMIERs 2.0 assumes another capital transaction, which is consistent with our expectation," Binner said.

National MI's default inventory grew to 928 loans as of Dec. 31, from 350 on Sept. 30, 2017. However, 533 of the loans in the inventory were in areas affected by hurricanes Harvey and Irma as well as the California wildfires.

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