National Mortgage Insurance Corporation (National Mi) has reported a robust financial performance for the third quarter of 2024, with record revenues and a significant return on equity. The company, known for its private mortgage insurance products, saw its total revenue reach a record $166.1 million, with GAAP net income at $92.8 million, indicating a healthy 17.5% return on equity. The quarter also saw National Mi generate $12.2 billion in new insurance written (NIW) volume and end with $207.5 billion of primary insurance in force, marking a 7% increase from the previous year.
Key Takeaways
- National Mi's total revenue for Q3 2024 hit a record $166.1 million.
- GAAP net income stood at $92.8 million, translating to a 17.5% return on equity.
- The company reported $12.2 billion in new insurance written (NIW) volume.
- Primary insurance in force reached a record $207.5 billion, up 7% year-over-year.
- Net premiums earned increased to $143.3 million, and investment income rose to $22.5 million.
- 12-month persistency was reported at 85.5%, with book value per share growing to $27.67.
Company Outlook
- National Mi is optimistic about the mortgage insurance market for 2024, with industry NIW volume expected to be around $285 billion.
- The market is buoyed by long-term secular drivers such as housing price resiliency and affordability constraints.
Bearish Highlights
- The company anticipates natural portfolio seasoning to affect default counts in the future.
Bullish Highlights
- National Mi boasts the lowest default rate in the industry at 87 basis points.
- The company has implemented targeted risk management strategies and secured new reinsurance treaties.
Misses
- There were no specific misses detailed in the summary provided.
Q&A Highlights
- President and CEO Adam Pollitzer emphasized the company's market leadership and its positioning for continued growth and value for shareholders.
- Pollitzer highlighted the MI industry's NIW volume for 2024 and the high quality of National Mi's book of business.
In summary, National Mi (ticker not provided) continues to demonstrate financial strength and strategic discipline in the mortgage insurance market. With an optimistic outlook for the industry, bolstered by strong market drivers and robust risk management strategies, the company is poised for sustained growth. The commitment to long-term investments and the recent upgrade in financial strength and issuer ratings by S&P to A-/BBB- further solidify National Mi's market position.
Full transcript - NMI Holdings Inc (NASDAQ:NMIH) Q3 2024:
Conference Operator: Please note this event is being recorded. I would now like to turn the conference over to John Slinson, to NMI Management. Please go ahead.
John Swenson, Vice President of Investor Relations and Treasury, National Mi: Thank you, operator. Good afternoon, and welcome to the 2024 Q3 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 Swiffenbank, 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 nationalmai.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 regulatory filings with the SEC. Given 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 provided a reconciliation of these measures to the most comparable measures under GAAP. Now I'll turn the call over to Brad.
Brad Shuster, Executive Chairman, National Mi: Thank you, John, and good afternoon, everyone. I'm pleased to report that in the 3rd quarter, National Mi again delivered strong operating performance, continued growth in our insured portfolio and record financial results. Our lenders and their borrowers continued to turn to us for critical down payment support and in the Q3 we generated $12,200,000,000 of NIW volume, ending the period with a record 207,500,000,000 of high quality, high performing insurance in force. In Washington, our conversations remain active and constructive and we believe there is broad recognition in DC about the value that the private mortgage insurance industry provides, offering borrowers down payment support and efficient access to mortgage credit, while also placing private capital in front of the taxpayer to absorb risk and loss in a downturn. At National Mi, we recognize the need to provide borrowers with a fair and sustainable opportunity to access the housing market, establish a community identity and build long term wealth through homeownership.
And we are proud to have helped nearly 2,000,000 borrowers to date. Overall, we had a terrific third quarter and are well positioned to continue to lead with impact and drive value for our people, our customers and their borrowers and our shareholders going forward. With that, let me turn it over to Adam.
Adam Pollitzer, President and Chief Executive Officer, National Mi: Thank you, Brad, and good afternoon, everyone. National Mi continued to outperform in the Q3, delivering significant new business production, consistent growth in our insured portfolio and record financial results. We generated $12,200,000,000 of NIW volume and ended the period with a record $207,500,000,000 of high quality, high performing primary insurance in force. Total (EPA:TTEF) revenue in the 3rd quarter was a record 166 $100,000 We delivered GAAP net income of $92,800,000 or $1.15 per diluted share and a 17.5% return on equity. Overall, we had an exceptionally strong quarter and are confident as we look ahead.
The macro environment and housing market have remained broadly resilient in the face of elevated interest 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 ahead. Our persistency remains well above historical trend and when paired with our strong NIW volume has helped to drive 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's supported by the significant earnings power of our platform.
Notwithstanding these strong positives, however, macro risks do remain and we've maintained a proactive stance with respect to our pricing, risk selection and reinsurance decisioning. It's an approach that has served us well and continues to be the prudent and appropriate course. In the Q3, we continued to make targeted changes to further manage our mix of new business by risk cohort and geography. And in October, we secured a series of new reinsurance treaties that will provide us with forward flow coverage, comprehensive risk protection and efficient PMIERs funding for our next several years of new business production. More broadly, we've been encouraged by the continued discipline that we see across the private MI market.
Underwriting standards remain rigorous and the pricing environment remains balanced and constructive. Overall, we had a terrific quarter, delivering strong operating performance, continued growth in our insured portfolio, and record 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.
Aurora Swiffenbank, Chief Financial Officer, National Mi: Thank you, Adam. I'm pleased to report that we again achieved record financial results in the 3rd quarter. Total revenue was a record $166,100,000 and we delivered GAAP net income of $92,800,000 or $1.15 per diluted share and a 17.5% return on equity. We generated $12,200,000,000 of NIW volume and our primary insurance in force grew to $207,500,000,000 up 2% from the end of the 2nd quarter and 7% compared to the Q3 of 2023. 12 month persistency was 85.5 percent in the 3rd quarter compared to 85.4% in the 2nd quarter.
Persistency continues to serve as an important driver of the growth and embedded value of our insured portfolio. Net premiums earned in the Q3 were a record $143,300,000 compared to $141,200,000 in the Q2 and $130,100,000 in the Q3 of 2023. Net yield for the quarter was 28 basis points consistent with the Q2. Core yields, which excludes the cost of our reinsurance coverage and the contribution from cancellation earnings was 34.3 basis points, also unchanged from the Q2. Investment income was $22,500,000 in the 3rd quarter compared with $20,700,000 in the Q2 and $17,900,000 in the Q3 of 2023.
We saw continued growth in investment income during the period as we deployed new cash flows and rolling maturities at favorable new money rates. Total revenue was a record $166,100,000 in the 3rd quarter, up 2% compared to the Q2 and 12% compared to the Q3 of 2023. Underwriting and operating expense were $29,200,000 in the 3rd quarter compared to $28,300,000 in the 2nd quarter. Our expense ratio was 20.3% in the quarter compared to 20.1% in the second quarter. We had 5,712 defaults at September 30, and our default rate was 87 basis points at quarter end compared to 76 basis points at June 30.
Claims expense in the Q3 was $10,300,000 compared to $276,000 in the 2nd quarter $4,800,000 in the Q3 of 2023. We have a uniquely high quality insured portfolio and our credit experience continues to benefit from the discipline with which we have shaped our book, the strong position of our existing borrowers and the broad resiliency we've seen in the housing market. Interest expense in the Q3 was $7,100,000 and reflects the run rate savings we achieved with our successful debt refinancing in May. GAAP net income was $92,800,000 up 1% from compared to $92,100,000 in the 2nd quarter and 11% compared to $84,000,000 in the Q3 of 2023. Diluted EPS was $1.15 up 1% compared to $1.13 in the 2nd quarter and 14% compared to $1 in the Q3 of 2023.
Total cash and investments were $2,800,000,000 at quarter end, including $148,000,000 of cash and investments at the holding company. We have $425,000,000 of outstanding senior notes and our $250,000,000 revolving credit facility remains undrawn and fully available. In October, S and P upgraded our financial strength and issuer ratings to A- and BBB- respectively. We're pleased that they recognize the quality of our insured portfolio, track record of underwriting performance and profitability and broadly balanced and diversified capital structure in their decision. Shareholders' equity as of September 30 was $2,200,000,000 and book value per share was $27.67 Book value per share excluding the impact of net unrealized gains and losses in the investment portfolio was $28.71 up 4% compared to the 2nd quarter and 17% compared to the Q3 of last year.
In the Q3, we repurchased $16,900,000 of common stock, retiring 443,000 shares at an average price of $38.04 As of September 30, we had $108,000,000 of repurchase capacity remaining under our existing program. In October, we entered into a series of new quota share in excess of loss reinsurance treaties, which together will provide us with forward flow coverage and comprehensive risk protection for our next several years of new business production at an estimated 4% pre tax cost of capital. Reinsurance has long been a core pillar of our credit 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 growth capital to fund our premier's needs. 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 and duration and serve to highlight the quality of our insured portfolio and the differentiation we have achieved through our comprehensive credit risk management framework.
At quarter end, we reported $3,000,000,000 of total available assets under PMIERs and $1,700,000,000 of risk based required assets. Access available assets were $1,300,000,000 Overall, we achieved standout financial results during the quarter, delivering consistent growth in our high quality insured portfolio, record top line performance, continued expense efficiency and strong bottom line profitability and returns. And with that, let me turn it back to Adam.
Adam Pollitzer, President and Chief Executive Officer, National Mi: Thank you, Aurora. We had a terrific quarter, once again delivering significant new business production, consistent growth in our insured portfolio and record financial results. Looking ahead, we're confident. We have a strong customer franchise, a talented team that's driving us forward every day, an exceptionally high quality book covered by a comprehensive set of risk transfer solutions, a robust balance sheet and the significant earnings power of our platform. We are leading the MI market with discipline and distinction and are well positioned to continue delivering differentiated growth, returns and value for our shareholders.
Thank you for joining us today. I'll now ask the operator to come back on so that we can take your questions.
Conference Operator: We will now begin the question and answer session. The first question comes from Terry Ma from Barclays (LON:BARC). Please go ahead.
Terry Ma, Analyst, Barclays: Hey, thank you. Good afternoon. Maybe just starting with credit, the year over year increase in new notices this quarter accelerated and the cure rate was also lower. So I'm just curious if there is anything episodic that you observed? Or are we just starting to see a more material impact of vintage seasoning kind of play a role?
Adam Pollitzer, President and Chief Executive Officer, National Mi: Yes, Terry, I'll take that. Look, I'd say broadly speaking, we are greatly encouraged by the credit performance of our portfolio overall, including the trends that you're noting in our default population. Some of that obviously is the broad resiliency that we continue to see in the housing market and strength of the economy. They set quite a favorable backdrop. More importantly though, our existing borrowers remain well situated.
We have an incredibly high quality book by all objective measures and we're continuing to see that translate through the industry leading credit experience. At September 30, our default rate was 87 basis points, which we track as the lowest in the industry by far. Our default count did increase, as you noted, in the Q3. I'd say this, the one it should be expected and it really reflects a combination of what we would call normal seasonal trends and also the growth and natural seasoning of our portfolio. And I know there's been a lot of focus through the course of calls for the industry on these items.
And so I do want to elaborate a bit and make sure that everyone fully understands what we've talked about when we what it is that we're talking about when we say seasonal and seasoning dynamics. In terms of seasonality, we typically see an uptick in default experience as we move through the second half of the year. In the first half of the year, borrowers benefit from what I'll call net cash inflows, right? Some of them receive bonuses and many more of them are receiving tax refunds, all of which bolsters credit performance in the first half. 1, it helps borrowers who are in default cure out of their default status and it also helps ensure that performing borrowers stay current on their loans.
When we roll into the second half of the year, those net cash inflows are replaced by net cash outflows. In the Q3, what we typically see is that those inflows themselves stop, right? It's not bonus season or time for tax refunds. And so that lack of inflow coming in into the Q3 causes a seasonal shift in credit experience. That seasonal shift then continues in the Q4 when many households increase their spending for the holidays and so a new outflow actually comes in.
That's what it is that we talk about when we see seasonal patterns in our credit performance, our default population and default experience. In terms of growth and seasoning, we've talked about this one for a while now. We simply have a larger portfolio and expect our default count will increase with the growth and natural seasoning of our book, particularly as our more recent 2022 and even 2023 production begin to come into a period of normal loss in currents. And so that's really what came through. There's nothing else to it that we would point to in the Q3.
Terry Ma, Analyst, Barclays: Got it. That's helpful color. And then I think you mentioned in your prepared remarks, you guys made some targeted changes by risk cohort. Can you maybe just give a little bit more color and maybe just talk about what you observed to kind of make you implement these changes? Thank you.
Adam Pollitzer, President and Chief Executive Officer, National Mi: Sure. Look, I'd say broadly speaking, we're always monitoring the market. We're always tracking developments in the risk environment. And we always talk about risk based pricing as a dominant theme and that as changes in the risk environment develop that will make changes in our pricing. We do this all the time.
In the Q3, the magnitude of changes are posture towards engaging in the market where we see value, where we see opportunity, none of that fundamentally shifted. We're still broadly encouraged by what we're seeing across all markets nationally. Where we do see differences, but we've seen them now for a few quarters is differences emerging in certain local markets, right, Florida and Texas being in the headlines, but some other areas, where we saw some of the most significant house price increases during the pandemic rally, but we're now seeing a fairly sharp supply demand and what I call affordability constraint emerge. And so we continually are refining where we are in Rate GPS and that was the case again in the Q3 just as it's been at every point since we introduced the engine.
Conference Operator: The next question comes from Bose George from KBW. Please go ahead.
Bose George, Analyst, KBW: Hey, everyone. Good afternoon. Actually, I wanted to ask about the mark to market LTV on the delinquent portfolio. Obviously, your claims paid has been pretty minimal. And as long as home prices remain steady, is that a reasonable expectation that claims paid will remain low?
Aurora Swiffenbank, Chief Financial Officer, National Mi: So I will give you the mark to market on the defaulted portfolio, which is roughly 73%. And so that has come down a little bit quarter over quarter and that's sort of it should be expected as our 2022 population, Adam made reference to the seasoning of the portfolio. But as those vintages, which inherently have a little bit less embedded equity just given the HPA path over the past 2 years. But that is the number, it's 73.
Terry Ma, Analyst, Barclays: Yes.
Adam Pollitzer, President and Chief Executive Officer, National Mi: And Boz, as to your question on expectations for actual claim payments out the door, look, we established reserves for loans that are in default and delinquent status based on our expectations of our ultimate claim exposure and responsibility for those loans. And so we can't tell you where the actual dollars out the door will trend. But obviously, we're establishing reserves with an expectation that some subset of the loans that are in our default population today will progress through towards a claimable outcome and we'll have to obviously satisfy our obligation there.
Bose George, Analyst, KBW: Okay, great. Thanks. And then actually just switching to the investment portfolio, I don't know if you said this, but what's the new money yield versus the current yield on the portfolio?
Aurora Swiffenbank, Chief Financial Officer, National Mi: So the current yield on the portfolio is 3.1% and obviously interest rates are bouncing around quite a bit, but we're seeing new money being put to work in and around 5%.
Bose George, Analyst, KBW: Okay, great. Thanks.
Conference Operator: The next question comes from Doug Harter from UBS. Please go ahead.
Doug Harter, Analyst, UBS: Thanks. Hoping we could talk a little bit more about, kind of the competitive dynamic for NIW. This quarter saw 1 player kind of take significant share, while everyone else was kind of in a similar situation. So can you just expand on what you're seeing in terms of pricing on new business?
Adam Pollitzer, President and Chief Executive Officer, National Mi: Yes. Look, maybe I'll comment first on pricing and just give a broader perspective on moves. What we see is that industry pricing is generally stable and we would say rational. We're really encouraged by the discipline that we see across the market and what we interpret as a really deliberate approach that the industry is taking. We think today where we should be at a point of balance where most importantly we've got to make sure that we're fully and fairly supporting our customers and their borrowers.
And at the same time using rate among other tools but using rate to appropriately protect our balance sheet, our returns and our ability to deliver long term value for shareholders. That's where we see the market today. In terms of the movements you noted, look, there's always some amount of movement quarter to quarter. There's always going to be some natural fluctuation in part just based on how your customers are doing, right? If you're winning more business from a set of customers who themselves are on the upswing, you could see a natural pickup and the opposite holds true as well.
And then layer on to that the fact that everyone has their own point of view, right. Everyone is making their own decisions on risk, on mix, on rate adequacy all the time. And so you can see things naturally move around a little bit. We can't really speculate as to what the decisioning strategy or what's happening inside one of our competitors. But overall, we've seen discipline in the market and a broadly constructive and balanced pricing environment for quite some time, and that remains the case today.
Doug Harter, Analyst, UBS: Great. Appreciate that Adam.
Conference Operator: The next question comes from Nate Rickman of Bank of America (NYSE:BAC). Please go ahead.
Nate Rickman, Analyst, Bank of America: Hi, good afternoon and thanks for taking my question. You guys previously guided to like incremental operating expense growth. You used some more like internal investments, but your expense ratio is still trading towards that like low end of like 28% to 25% that long term range. I'm just curious like how you expect expenses to trend from here and like what would net you closer to that high end of that range?
Aurora Swiffenbank, Chief Financial Officer, National Mi: Sure. I'm happy to take that. So it was a strong quarter and we're always managing the business with discipline and efficiency, and we're pleased to have delivered the 20.3% expense ratio that you saw this quarter. In terms of quarter to quarter moves, there's nothing particular in the quarter that I would point to. And although we do expect natural growth in our expense base, just in line with normal inflationary trends, I don't think there's anything specific that I'd point to in terms of near term investments that we are going to make that are fundamentally going to alter that picture.
Adam Pollitzer, President and Chief Executive Officer, National Mi: Yes. We're going through our planning process now, sort of thinking both in the immediate term and over the long term. And as you should expect, right, we're here to manage our business for the long term and for the long term means that we need to be making long term investments. And so just the natural areas, investing in our people, our systems, our risk management strategies and our growth will continue to be a focus for us and obviously doing that in a way that allows us to maintain the discipline that we've achieved so far is something we're focused on.
Nate Rickman, Analyst, Bank of America: That's helpful. And then on persistency, it was very stable quarter over quarter, but we did see some like rate movement under the tail end of the quarter. I'm just curious if you saw any changes there to persistency like intra quarter and the effect that's a change in the near term?
Adam Pollitzer, President and Chief Executive Officer, National Mi: Yes. Look, I'd say as we look forward, I'll talk about the look forward and then and talk about anything we noted. Certainly, persistency remains well above historical trend today. And as we look out into Q4 and into next year, we do expect that that will remain the case, but that will probably see some natural trending off of our recent peaks as we go forward. In terms of the rate volatility that we saw intra quarter, boy, it was just so quick, right?
I mean, rates like down by 100 basis points or so, but just for such a short period of time, and then bounce back up so sharply and so quickly that it doesn't we wouldn't expect that to have a meaningful impact or give us meaningful insight into say sensitivities within the portfolio. We did see a little bit of uptick in refinancing activity, which is valuable, right. It's an opportunity for us to capture some incremental NIW, recapture whatever is in rotation from our portfolio, but we're talking a matter of weeks of opportunity there.
Nate Rickman, Analyst, Bank of America: Makes sense. That's all from me. Thank you.
Conference Operator: The next question comes from Maxwell Fritchard from Truist. Please go ahead.
Doug Harter, Analyst, UBS: Hi, I'm calling on for Mark Hughes. Can you give us a sense on how you see mortgage activity trending thus far in 4Q October and I guess 1st few days in November?
Adam Pollitzer, President and Chief Executive Officer, National Mi: Sure. Maybe I'll give you a broader perspective, because we don't provide intra period updates or candidly guidance on our own production. But I'll talk just more broadly about the market and kind of how we see the opportunity developing as we roll into next year. Generally speaking, we expect that the new business opportunity in the MI market will be similar next year to what we've seen this year, which for us is a very strong year overall where the long term secular drivers of demand and activity that we've talked about as key continue to come through where resiliency in house prices supports incrementally larger loan sizes and where candidly with rates moving higher again, affordability constraints drive an increasing number of borrowers to the private MI market for down payment support. Our sense is that 2024 Mi Industry NIW volume is pacing to be roughly call it around $285,000,000,000 plus or minus or so.
And we expect a similarly attractive environment in 2025. Obviously, things can always shift depending on how rates continue to develop and how the macro environment evolves that could create some incremental opportunity or headwind. But our outlook is still it's quite positive for where the industry will trend next year.
Doug Harter, Analyst, UBS: Yes. That's great color. That's all for me. Thank you.
Conference Operator: The next question comes from Geoffrey Dunn from Dowling. Please go ahead.
Doug Harter, Analyst, UBS: Thanks. Good afternoon. Are you able to share the profit commission threshold on the new QSR?
Conference Operator: Sure.
Aurora Swiffenbank, Chief Financial Officer, National Mi: On the quota shares, so there's quite a bit of detail on this in our 10 Q on this. There's a subsequent event footnote, which will give you all the details. But the profit commission is up to 62% on our 2025 quota share treaty. We also fully placed our 20% 2026 quota share treaty at the same profit commission level and we partially placed our 2027 quota share at a 61% threshold.
Doug Harter, Analyst, UBS: Okay.
Adam Pollitzer, President and Chief Executive Officer, National Mi: Yes. So Jeff, these are tied for the lowest, say the lowest margins, right, highest profit commissions that we've ever achieved. And we locked in 3 years' worth of coverage. As Orest said, there's a little bit that we'll have to place as a stub for 27, but they're terrific, terrific deals and we're really happy with the execution we were able to achieve.
Doug Harter, Analyst, UBS: Right. And then the average provision for notice this quarter was down sequentially. Is that mix driven or were there any fundamental changes in your reserve and assumptions?
Adam Pollitzer, President and Chief Executive Officer, National Mi: Yes. So look, we carried so a couple of things. We carried at the end of the Q3 roughly $25,000 sorry, dollars 24,000 average reserve per NOD at September 30 and that compares to about $25,000 per NOD at June 30. So I'd say no fundamental shifts there, right. Our default population in Q3 has generally similar attributes to our default population at the end of the Q2, right, in terms of, pick it, FICO, DTI, LPV, other key variables.
There's always small differences in the underlying that can come through as small differences in our reserve picks. And to be told, particularly just because we have such a small number of defaults themselves, you can get small differences that sort of roll through. But generally speaking, nothing really shifted. And I'd say more broadly though, one of the keys for us that we've talked about for a while now is that for reserving purposes, and generally in terms of embedding conservatism and discipline and how we manage, but explicitly for reserving purposes that we continue to anchor more to our downside forecasts when we're setting reserves. We did that at Q3 just as we had done in the second quarter.
Doug Harter, Analyst, UBS: Okay. Thank
Conference Operator: you. The next question comes from Rick Shane from JPMorgan (NYSE:JPM). Please go ahead.
Rick Shane, Analyst, JPMorgan: Hey, everyone. Thanks for taking my question this afternoon. I'd like to talk a little bit about default formation, cumulative default formation over time. When does formation sort of peak? Obviously, I realize it's cumulative, but when do you see the trajectory start to flatten out in terms of timeline for any cohort?
Adam Pollitzer, President and Chief Executive Officer, National Mi: It's a great question, Rick. So, I want to say, obviously a lot depends on, right, the environment in which those loans themselves were originated, how those borrowers are situated and what develops after they took out their mortgage, right. And if you know, the 2020 2021 vintages will have far from normal experience because of the record run of house price appreciation, the buoyant labor market that we had right for an extended stretch and still have on the labor side after those origination years. But if we step back from any specific year and instead just talk conceptually, what we typically see is that peak loss incurrence for a vintage occurs roughly between years 3 year 6 after the origination. And if you think about it, this makes sense, right?
So essentially, when a borrower is taking out a loan, right, they're making the decision to buy a home, that decision is driven, 1, by life events, typically that many of them may have gotten married, had kids, want to put down roots in a particular community. It's oftentimes a financial decision, right? They may do the rent versus buy calculus, and they'll also look at housing as a way for them to save and build wealth over the long term. I'd say there's a very heavy emotional aspect to it, right. For many borrowers, they're taking on the single largest financial obligation that they'll ever carry.
And when you make that decision, you don't do it lightly, right. What you're really saying is you're providing a signal around the confidence that you have in your job prospects, the confidence you have in your household financial profile, your ability to service carry that debt, stay current on it and obviously have a successful outcome with that purchase. But like any forecast, right, like any forecast, the ability to predict with accuracy goes down the longer out the longer in the forecast horizon that you stretch. And so that indication, that sort of personal indication statement and confidence that borrowers are signaling typically holds true for those 1st 3 years barring a meaningful shift in the environment in which they've made that decision. But by the time you get to year 3 or so, right, it could start to fray a little bit.
You could have unexpected things that have developed that have stranger household position, job changes, job loss, all things that can be introduced. And so you typically see then that conviction, the performance can lag from years 3. By the time though you get to year 6, a borrower who's been servicing their debt responsibly consistently for 6 years, even if their original forecast, if you will, doesn't hold, that original statement they're making, affirmative statement about their position and their wherewithal to service the debt may have shifted, but they have found ways. They've built equity. They've built wealth.
They've generally advanced in their careers. They've enjoyed some amount of wage growth, and it becomes then obviously a different story in year 6 and on. And so that's why we tend to see from years 3 through 6 as to the pattern within year 3 through 6, I'll give you the one that you're not going to want, which is it depends. It depends on the borrower. It depends on the book, the risk profile and the environment in which it's obviously developing.
Rick Shane, Analyst, JPMorgan: No, Adam. Look, it's a fair question and I will follow-up with the question you don't want in a second. But it's interesting to me because I would have assumed to some extent that once you get what you're describing makes total sense. My experience would have been once you sort of get through that 1st year and digest what that means through a year, that it becomes easier. But I think you're exactly right.
It is job loss, health, divorce, and the further out you go, the higher the greater risk that that occurs. You had said you want to talk about things generically. I'd love to talk about one thing specifically, and I don't want to put too fine a point on this. But if we look at the 23 or the 22 cohort so far versus the 22 cohort last year at the same time, the 23 cohort is actually doing a tad bit better. And again, I don't want to over read into that, but at least now as we look at the cumulative default table, 22 is the one that sort of jumps out.
Is there anything fundamentally different about the 23 cohort that should actually cause it to be a little bit better than the 22? Or should we extrapolate the 22 for the 23?
Adam Pollitzer, President and Chief Executive Officer, National Mi: We don't give you guidance. So I know you want to talk specifics, but it becomes a bit easier to say we don't give you guidance. What I will say though is, let me focus on I'll just say broadly about the 2022 and 2023 books. We think that they're performing exceptionally well. We're really pleased with how they've been developing.
Those books for us are high incredibly high quality just like the rest of our portfolio. We have applied the same rigor to the risk selection and mix in shaping our 2022 and 2023 production as we have always done. If you look at the underlying risk characteristics on a vintage by vintage basis, they're quite similar, no notable differences. We've sourced comprehensive reinsurance protection for both of those vintages, again, just as we've always done. So, I'd say not to highlight differences between the 2 of those vintages, but obviously between our more recent production and prior year vintages, the key difference that we've talked about for some time now is simply the embedded equity position that underpins our more recent book years compared to the older vintages.
Borrowers who bought their homes more recently just haven't seen the same record run of house price appreciation as those borrowers who took out their loans and purchased their homes during the pandemic. But they're also benefiting, I'd say, broadly from still a strong macro backdrop, right, resilient housing market. And so I'd say as we model it, I won't tell you how we model it out between 2022 2023. We do expect that both 2022 and 2023 will incur higher cumulative claim costs than our earlier book years than 20 21 earlier. Again, it's really the equity dynamic.
We expect that performance though will continue to track in a really constructive and encouraging way. And I'll also share that our actual experience though on both of those books is holding quite well versus our original priced expectations.
Rick Shane, Analyst, JPMorgan: Got it. Okay. Yes. And again, recognizing that benchmarking these versus 2020 2021, which could be 2 of your best cohorts ever, is
Adam Pollitzer, President and Chief Executive Officer, National Mi: a little bit of a false.
Rick Shane, Analyst, JPMorgan: So I appreciate the answer, Adam. Thank you.
Conference Operator: This concludes our question and answer session. I would like to turn the conference back over to management for closing remarks.
Adam Pollitzer, President and Chief Executive Officer, National Mi: Thank you again for joining us. We'll be hosting our annual Investor Day on Thursday, November 21st in New York and we'll be participating in the Goldman Sachs (NYSE:GS) Financial Services Conference on December 10th. We look forward to speaking with you again soon.
Conference Operator: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
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