Please note this event is being recorded. I would now like to turn the conference over to management. Please go ahead.
Thank you, operator. Good afternoon, and welcome to the 2026 third quarter conference call for National MI. I'm John Swenson, Vice President of Investor Relations and Treasury. Joining us on the call today are Brad Shuster, Executive Chairman, Adam Pollitzer, President and Chief Executive Officer, and Aurora Swithenbank, our Chief Financial Officer. Financial results for the quarter were released after the close today. The press release may be accessed on NMI's website located at nationalmi.com under the Investors tab. During the course of this call, we may make comments about our expectations for the future. Actual results could differ materially from those contained in these forward-looking statements. Additional information about the factors that could cause actual results or trends to differ materially from those discussed on the call can be found on our website or through our filings with the SEC.
If and to the extent the company makes forward-looking statements, we do not undertake any obligation to update those statements in the future in light of subsequent developments. Further, no one should rely on the fact that the guidance of such statements is current at any time other than the time of this call. Also note that on this call, we may refer to certain non-GAAP measures. In today's press release and on our website, we've provided a reconciliation of these measures to the most comparable measures under GAAP. Now I'll turn the call over to Brad.
Thank you, John, and good afternoon, everyone. I'm pleased to report that in the third quarter, National MI again delivered standout operating performance, continued growth in our insured portfolio, and strong financial results. Our lenders and their borrowers continued to turn to us for critical down payment support, and in the quarter, we generated $13.6 billion of NIW volume, ending the period with a record $229.7 billion of high-quality, high-performing primary insurance-in-force. In Washington, conversations remain focused on promoting broader access and affordability to the housing market, and we believe there is broad recognition of the unique and valuable role that the private mortgage insurance industry plays in this regard.
At National MI, we are in the market every day with a clear mandate and purpose, offering a low-cost, high-value solution that helps borrowers bridge the down payment gap, dramatically reduce the cash they need at the closing table, and buy a home years earlier than they otherwise could. In the process, we help to make homeownership more affordable and achievable for millions of Americans in communities across the country, with coverage that works to insulate the GSEs and taxpayers from risk and loss in a downturn. We recognize that there is a need, now more than ever, to support prospective buyers as they look to access the housing market, establish roots in their community of choice, and build long-term wealth through homeownership. We are proud of the work we do and the assistance we provide, and to date, we have helped more than 2.2 million borrowers realize their homeownership goals.
With that, let me turn it over to Adam.
Thank you, Brad, and good afternoon, everyone. National MI continued to perform in the third quarter, delivering significant new business production, consistent growth in our insured portfolio, and strong financial results. We generated $13.6 billion of NIW volume and ended the period with a record $229.7 billion of high-quality, high-performing primary insurance-in-force. Total revenue in the third quarter was $187.5 million, and we delivered adjusted net income of $93.7 million, or $1.23 per diluted share, and a 13.9% adjusted return on equity. Overall, we had a strong quarter and are confident as we look ahead. The macro environment and housing market have remained resilient. Despite elevated rates, our lender customers and their borrowers continue to rely on us in size for critical down payment support, and we see an attractive and sustained new business opportunity fueled by long-term secular trends.
We have an exceptionally high-quality insured portfolio covered by a comprehensive set of risk transfer solutions, and our credit performance continues to stand out. We are delivering consistent growth and embedded value gains in our insured book, and we continue to manage our expenses and capital position with discipline and efficiency, building a robust balance sheet that is supported by the significant earnings power of our platform. Taken together, we see a clear opportunity for continued success. Notwithstanding these strong positives, however, macro risks do remain, and we have maintained a proactive stance with respect to our pricing, risk selection, and reinsurance decisioning. It is an approach that has served us well and continues to be the prudent and appropriate course. More broadly, we have been encouraged by the continued discipline that we see across the private MI market.
Overall, we had another solid quarter, delivering standout operating performance, consistent growth in our insured portfolio, and strong financial results. Looking ahead, we're well-positioned to continue to serve our customers and their borrowers, invest in our employees and their success, drive growth in our high-quality insured portfolio, and deliver through the cycle growth, returns, and value for our shareholders. With that, I'll turn it over to Aurora.
Thank you, Adam. For the third quarter, we generated $13.6 billion of NIW, and our primary insurance-in-force grew to $229.7 billion. 12-month persistency was 80.8% compared to 81.4% in the second quarter. Net premiums earned in the third quarter were $155.5 million compared to $157.5 million in the second quarter and $151.3 million in the third quarter of 2025. Net yield for the quarter was 27.2 basis points. Core yields, which excludes the cost of our reinsurance coverage and the contribution from cancellation earnings, was 33.4 basis points compared to 33.6 basis points in the second quarter. Investment income was $32.2 million in the third quarter compared to $30.3 million in the second quarter and $26.8 million in the third quarter of 2025.
Total revenue was $187.5 million in the third quarter compared to $187.9 million in the second quarter and $178.7 million in the third quarter of 2025. Underwriting and operating expenses were $30.8 million in the third quarter compared to $30.5 million in the second quarter. Our expense ratio was 19.8% in the quarter. We had 8,571 defaults at September 30th compared to 8,020 at June 30th, and our default rate was 1.23% at quarter end. Claims expense in the third quarter was $29.1 million compared to $13.1 million in the second quarter and $18.6 million in the third quarter of 2025. Claims experience in the quarter reflects normal seasonal activity and the continued growth and seasoning of our portfolio. Adjusted net income was $93.7 million compared to $106 million in the second quarter and $95.7 million in the third quarter of 2025.
Adjusted diluted earnings per share was $1.23 compared to $1.38 in the second quarter and $1.21 in the third quarter of 2025. Shareholders' equity as of September 30th was $2.7 billion. Book value per share, excluding the impact of net unrealized gains and losses in the investment portfolio, was $38.13, up 3% compared to the second quarter and 14% compared to the third quarter of last year. In the third quarter, we repurchased $27.1 million of common stock, retiring 626,000 shares at an average price of $43.18. Since starting our buyback program in 2022, we've repurchased a total of $435 million of common stock, retiring 14.3 million shares at an average price of $30.54. We have $140 million of repurchase capacity remaining under our existing program.
In October, we entered into a series of new quota share and excess of loss reinsurance treaties, which together further extend our comprehensive credit risk management program and provide us with forward flow coverage for all new business produced through 2030 at an estimated 4% pre-tax cost of capital. Reinsurance has long been a core pillar of our risk management strategy, working to mitigate the potential impact of credit volatility in our insured portfolio, and has consistently provided us with a deep, secure, and efficient source of PMIERs growth capital. We have significant experience, strong secondary market relationships, and a track record of leading with innovation across the risk transfer spectrum.
The deals we have just secured are among the best we've ever achieved in terms of their cost, capacity, duration, and structure, and serve to highlight the quality of our insured portfolio and the differentiation we've achieved through our comprehensive credit risk management framework. At quarter end, we reported $3.8 billion of total available assets under PMIERs and $2.2 billion of risk-based required assets. Excess available assets were $1.6 billion. Overall, we achieved strong financial results during the quarter, delivering consistent growth in our high-quality insured portfolio, continued expense efficiency, and significant bottom-line profitability, returns, and book value growth. With that, let me turn it back to Adam.
Thank you, Aurora. We had a strong quarter, once again delivering significant new business production, consistent growth in our high-quality insured portfolio, and strong financial results. We have a valuable customer franchise, a talented team driving us forward every day, an exceptionally high-quality book covered by a comprehensive set of risk transfer solutions, and a robust balance sheet supported by the significant earnings power of our platform. Taken together, we are well-positioned to continue to serve our customers and their borrowers, invest in our employees and their success, drive growth in our high-quality insured portfolio, and deliver through the cycle growth, returns, and value for our shareholders. Before turning to Q&A, I also want to take a moment to comment on recent housing policy developments in Washington. on October 22nd, the President signed a broad executive order focused on lowering housing costs for American families.
We share his goals and are proud to already be delivering a low-cost, high-value solution that helps open the door to homeownership opportunities for millions of deserving borrowers in communities across the country. We're looking forward to working with Director Pulte, FHFA staff, and the GSEs to continue advancing our shared objective of making homeownership more affordable and accessible in ways that protect the American taxpayer and uphold the safety and soundness of the mortgage market. Thank you for joining us today. I'll now ask the operator to come back on so we can take your questions.
Thank you. We will now begin the question-and-answer session. To ask a question, you may press star then one on your telephone keypad. If you're using a speakerphone, please pick up the handset before pressing the keys. To withdraw your question, please press star then two. Your first question comes from Doug Harter with BTIG.
Thanks, and good afternoon. You guys have been pretty remarkably consistent on the pacing of your share repurchase. With higher rates and a slowdown in the market, and the reinsurance deals you've done, would you consider accelerating the pace, or what would it take for you to accelerate the pace of share repurchase?
Yeah, look, good question. I think I'd start and say we're really delighted with the consistency and success that we've achieved with our repurchase program thus far. We've retired $435 million of stock, which represents 14.3 million shares or 17% of our total outstanding at the time that we initiated the program in February of 2022. We are always thinking about our balance sheet and the right balance, if you will, between our funding needs and the sizing and pacing of our shareholder distributions. It's something we constantly think about. I've also mentioned in the past that capital distribution for us is both a near-term focus and also it's a longer-term opportunity. You talked about the NIW opportunity.
If you look at it, in the four and a half years since we launched our repurchase program, we've grown our insurance-in-force by 51% compared to 14% for the rest of the industry. We certainly consider how market conditions are going to impact new business opportunities, where the broader macro is, but we think we've got a lot of opportunity to continue delivering growth, organic growth in our in-force portfolio. We're going to continue to be balanced in how we execute. For now, I think a good assumption is that we're going to, as we look forward, we'll continue to pace roughly in line with where we've been.
Great. Appreciate the answer, Adam. Thank you.
Your next question comes from Rick Shane with JPMorgan.
Hey, guys. Thanks for taking my question. First, just sort of a housekeeping question. It looked like the persistency on the 2020 vintage fell fairly sharply. What is going on there? Just want to make sure I am not missing something.
Yeah, so, Rick, I think it is actually more than a housekeeping item, so it is a valuable one to talk about because I think it dovetails with the executive order that I referenced. What I mean by that is that our policies already have a range of embedded cancellation features in them that drive turnover in our portfolio, right? Private MI policies automatically cancel when the principal balance of a covered loan amortizes to a 78% LTV. Borrowers today have the ability to separately initiate a cancellation based on the appreciation in value of their home. So we see turnover in our book in all periods and in all interest rate environments, whether they are increasing or whether they are decreasing. So that is what we are seeing come through in our 2022 book. It is those embedded cancellation features that are already coming through.
We're at a point where that HOPA cancellation, if you will, that 78 scheduled LTV, starts to come into focus a little bit more for the books that we wrote six-plus years ago.
Got it. Okay. It's interesting because obviously we've tracked this for a long time, and I know my sense is what you're describing is specific to contractual amortization rather than HPA-driven, and we just haven't ever seen that emerge in a single vintage as significantly as it did in that 2020 vintage in the third quarter. Is there something specific going on there, or is there a behavioral change amongst borrowers where they're becoming more proactive about actually taking advantage of the underlying HPA?
No. I think actually, what we've seen on our end, right, with the internal data is obviously we always see the scheduled contractual, call it HOPA cancellation. It's embedded in the Homeowners Protection Act from the late '90s. We always see that. We know at the time that we originate a policy, what is that outer date at which it's going to cancel if it hasn't otherwise turned over because the note has been repaid or there's been a borrower-initiated cancellation. But actually, for the last several years, we've seen much higher utilization on the borrower-initiated cancellation as well, based on value. I think that what's underpinning that is there's a lot more equity in the homes. Borrowers are aware of that, and so it's been coming through.
But also in an environment where the low note rate on your existing mortgage is keeping existing homeowners in their current homes, they're not moving with the same frequency, there's not the same opportunity to refinance. If they need to access the equity in that home, what they're doing is either taking out a second or they're taking out a home equity line. As part of that process, because the home is collateral, you're getting an updated appraisal, and that updated appraisal then serves as a benchmark to go and initiate a cancellation. That whole dynamic, there's nothing unique that changed in Q3. That dynamic has been a rich one that we've been seeing come through for several years now.
Got it. That is really interesting. The home equity explanation, wow, that is not easy for me to say at this hour, really probably explains a great deal of it because I am assuming your 2019 vintage loans, those borrowers may have actually moved along the way, but that 2020 vintage, those borrowers are so locked in because of those rates that they are starting to tap equity. Okay, that makes sense. Thank you, guys.
Your next question comes from Rowland Mayor with RBC.
Hi, good evening. Thank you for taking my question. I wanted to quickly start on the prior year, or I guess the reserve releases. There is a really sharp slowdown in the reserve development. It looked like cure activity was fairly stable. Was there some assumption change there, or could you walk through what drove the reserve slowdown?
In terms of the way that we present our reserve tables, we present prior year reserve releases. As you go on in the year, in Q1, 100% of our releases relate to prior years. Once you get to the third quarter like we are right now, most of our reserve releases relate to loans that went into default status in Q1 and Q2. So those are current year releases, and those get embedded in the current year reserve numbers. So that is a net number which reflects the current releases. I think you hit on the correct issue, which is the cure rate. We are not seeing anything unusual in that. So our cure rate was 26% this quarter versus 29% last quarter. That small deterioration is something that we would typically see in the third quarter, just given the seasonal patterns of default behavior.
Thank you. I did want to ask on the quota share. I believe you said it was through 2030 at a 4% pre-tax cost of capital. How does that flow through your pricing engine, and how quickly does that impact your pricing decisions?
Yeah, so we price on a gross line basis. It's great when we can achieve long-term favorable outcomes in the reinsurance market. It's enormously valuable as we think about capital planning, as we think about risk management, for our ability to deliver consistent returns. But when we price, we're pricing on a gross line basis, assuming we don't have reinsurance in place. The reinsurance is additive to what we can then achieve. The outcome that, especially when we're They are the best deals that we've ever achieved, as Aurora said, in terms of their price, their structure, the duration, the terms. But that's not going to necessarily flow through to pricing decisions. Those will be benefits that we realize over time on the back end.
Perfect. Thank you for the answers.
Your next question comes from Bose George with KBW.
Yes, good afternoon. Actually, just wanted to follow up on the credit. On the cure ratio, I guess I was seeing it as like 70%. Is that right? That does seem lower than prior quarters. Was there anything to call out there?
No. I think what Aurora mentioned is that our cure rate, this is simply cures as a percentage of our beginning period NOD balance.
Okay.
In Q3, it was 26%, and in Q2, it was 29%. That sort of roughly three-point movement is what we see every year between the second quarter and the third quarter because of seasonal patterns, right? We've talked for a while about how there's a seasonality to credit development in the portfolio. Borrowers, as you get into the second half of the year, you start to see a little bit of a deterioration in performance. In the first half of the year, you get stronger outcomes because of tax refunds, some bonus income that they receive. As you progress into the second half, Q3 is really defined not by any outflows, but it's the lack of the inflow, the tax refund and bonus income for households. You see a little bit of additional movement in Q4 because of spending for the holidays.
That's sort of the typical cadence. There's nothing really, though, in the numbers that's unexpected for us.
Okay, great. Thanks. Just actually one more on that. The provision for new delinquencies this quarter, was that pretty similar to last quarter?
Yes. For new delinquencies, we put up 13,500 per new NOD, which is broadly consistent with the 14,000 from last quarter.
Okay, great. Actually one on persistency. Just given the move up in rates, I guess there's a lag in terms of how it shows up, is the persistency going to sort of increase the next quarter? I guess the rates are kind of moving back down again, but just leaving that aside, just the move we saw in the last few months.
Yeah, I think that you've described it correctly, which is persistency is driven by rates. We have had a spike up in rates, although you don't see that in the persistency numbers, since what we publish is a 12-month number, that encompasses a much broader period of time than the recent run-up in rates. Anything going forward would be dictated by the forward trajectory of rates.
Yeah, but I will give you, for example, October. But I'd say we don't know that it's going to go up necessarily and by how much, but we're certainly seeing. I mean, the decline that we've been seeing has been a modest amount, so it's been sort of a shallow slope of decline, but we've seen that stabilize in the most recent data that we're looking at.
Okay, great. Thanks.
Your next question comes from Mihir Bhatia with Bank of America.
Hi. Thank you for taking my question. I wanted to go back to Rick's question a little bit on just the borrower-initiated cancellations, if you will. Couple of your peers were able to size this for us, just how much is borrower-initiated versus HPA, sorry, the amortization-driven. I was wondering if you would be willing to do the same.
Yeah, Mihir, we don't share that information and have it readily available to give to you now. We'll do some work on the back end. What I'd say is we have a broad sense, but the servicer, it's ultimately a function of servicer reporting, isn't the cleanest. So we know when obviously a policy is canceled because the note has been repaid. We also know when a policy has been canceled, but the underlying note remains outstanding. But in terms of a specific split between, in that scenario, policy's canceled but note remains outstanding, exactly what flows from a borrower-initiated cancellation versus a HOPA cancellation, the reporting is a little bit uneven, I'll call it. We're not prepared to share that. But we absolutely do see a healthy amount of borrower-initiated cancellations, and we have.
One of the ways that we can sanity check that is, while the servicer reporting may be a little bit uneven, we know the date at which a loan is otherwise going to hit a HOPA cancellation. So we match up the cancellation that we have and the information we get versus what was otherwise scheduled, and we could then see, oh, we've got more cancellations, far more cancellations coming through where the note rate is staying outstanding, but that are happening far earlier than the HOPA cancellation date. But we haven't sized it externally.
Got it. Maybe just turning to pricing for a second. I think of your, some of your books, the 2022, 2023 vintages, I think their inception to loss ratio is now in around 17%, 18%, and defaults are still rising as those policies season. What's the lifetime loss ratio that you price for? Where does it typically, where does that curve end up and peak and kind of start plateauing, if you will?
Yeah. So, what we price to is a lifetime claim rate, not necessarily a lifetime loss ratio. But what we're seeing on the post-COVID vintages, the 2022, 2023, 2024, as you've noted, they're in and around that 17% loss ratio. Those have largely stabilized, right? So what we tend to see is that by the time you are now through, say, the 2022 book, even if we have incremental default experience coming through, the book also is heavily seasoned, and so we're getting a significant amount of that lifetime premium flow through. I don't want A lot of where does it ultimately land is going to be a function of what happens with the existing default population, how does it cure out, and where does the macro and housing market environment go from here.
But that sort of high teens is, I'd say, in line to better than our price expectations when we originated those books.
All right. This is one last one from me. The reserve for new delinquent per default, if you will, I think it was like 13,500, similar kind of to last quarter, 14,000. But the paid claims rose pretty sharply versus a year ago. I think even the average claim is up to 71,000. Just trying to understand, is there anything unusual you're seeing in terms of when policies go into default? Is severity increasing or anything to call out there?
No. Look, I think what we've been saying for a while, though, is that the profile of loans that are in the default population that trace to the post-COVID period, 2022 and more recent, versus those that are from the COVID and pre-COVID period, they're all roughly a similar profile. We use the same rigor and discipline in managing our mix and underwriting those loans and evaluating the credit. The key difference is simply loans that were originated more recently that are in default status didn't have the same HPA backdrop as some of the loans from the earlier period. That's the only reason that we're seeing differences in the number of loans that are progressing to claim payment that go into default, and also the severity on those. But nothing is different with, I'd say, has shifted quarter to quarter that's different from our expectations.
All of that is embedded in our reserving, right? We are carrying reserves based on our expectation and for the unique attributes of each of those underlying loans in the default population.
Okay. Thank you. Very helpful. Thank you.
Again, if you have a question, please press star then one. Your next question comes from Maxwell Fritscher with Truist.
Hi, thank you. I am calling in for Mark Hughes. Adam, you called out the discipline in the PMI industry, which is consistent with what you have said previously. Have you seen any incremental change in behavior from competitors and kind of what that implies in terms of NIW growth for the end of the year and to next?
No. Look, I think everybody obviously manages their book and wants to do something constructive for their customers, the borrowers they support, themselves, their shareholders. There is always and everybody, the views on underlying markets, the macro environment, particular geos, risk cohorts, all of that is always evolving. So the market is never static. I would say, broadly speaking, what we observe is we are at a market that has got real balance to it, right? I think where we are all able to fully and fairly support our customers and their borrowers, but at the same time, use the tools that we have each developed, rates and others, to deliver the outcomes that we also want for our balance sheet and for our shareholders. So nothing that is really moving.
I think what will dictate and drive the NIW opportunity going forward is, we've got an affordability dial, if you will, and where rates are is going to impact things. But then also there's just really powerful and supportive long-term secular trends that, as we look out beyond Q4 and longer, have us really optimistic as to the new business environment.
Great. Thank you. Switching gears to expenses, is there anything seasonal we should be paying attention to in 4Q? I believe it's been historically seasonally higher sequentially. Should we expect a similar trajectory going into next quarter?
Yeah. It's fair to say that the fourth quarter does tend to have higher accruals in years that we have performed well associated with employee comp. That is a typical trend that we see in the fourth quarter.
Great. Thank you.
That does conclude our question and answer session and our conference call for today. Thank you for attending today's presentation. You may now disconnect.