Jay Sherwood - CFO Brad Shuster - Chairman and CEO.

Steve Stelmach - FBR Christine Worley - JMP Securities Randy Raisman - Marathon Asset Management.

Good day, ladies and gentlemen. And welcome to the NMI Holdings Incorporated Third Quarter 2014 Earnings Conference Call. At this time, all participant lines are in a listen-only mode. Later, we'll be conducting a question-and-answer session and instructions will follow at that time.

(Operator Instructions) As a reminder, this conference is being recorded. I would now like to turn the call over to Mr. Jay Sherwood, Chief Financial Officer. Sir, you have the floor..

Thank you, Andrew. Good afternoon and thank you for joining us today and for your interest in NMI Holdings. I'm Jay Sherwood, the Chief Financial Officer of NMI. Joining me on the call today to discuss the results for the third quarter 2014 is Brad Shuster, the company's Chairman and Chief Executive Officer.

I want to remind all participants that today's earnings release, which may be accessed on NMI's website under the Investors tab, includes additional information about the company's quarterly results, which we may refer to during the call. During the course of the 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 those factors that could cause actual results or trends to differ materially from those discussed on the call can be found on our website under the Investors tab or through our regulatory filings with the SEC.

If and speaks tend to company makes any forward-looking statements, we do not undertake any obligation to update those statements in the future in light of subsequent developments. Further, no interested party should rely on the fact that the guidance of forward-looking statements is current at any time other than the time of this call.

I'll now make some brief comments related to our financial information and then turn the call over to Brad. For the third quarter of 2014, the company reported a net loss of $11 million or $0.19 per share versus a net loss of $12.9 million or $0.22 per share for the quarter ended June 30, 2014.

In the third quarter of 2014, the company had primary new insurance written of $975 million compared to $403 million of primary new insurance written in the second quarter of 2014. As of September 30, 2014 the company had primary insurance in-force of $1.8 billion compared to $940 million at June 30, 2014.

Pool insurance in-force at the end of the third quarter was $4.8 billion compared to $4.9 billion at the end of the previous quarter. As of September 30, 2014, the company had primary risk-in-force of $436 million compared to $220 million at June 30, 2014; pool risk-in-force at September 30, 2014 and June 30, 2014 was $93 million.

For the third quarter of 2014, the company had premiums written and premiums earned of $9.7 million and $3.9 million respectively. This compares to $5.1 million written and $2.1 million earned in the prior quarter. Investment income in the third quarter was $1.3 million compared to $1.5 million in the second quarter.

For the third quarter of 2014, the company had total expenses of $17.9 million compared to $18.7 million in the second quarter. Total net operating expenses for the quarter were down primarily due to lower litigation defense cost as a result of the settlement of the TMI litigation in the second quarter.

Turning to the balance sheet at September 30, 2014, the company had approximately $446 million of cash and investments and book equity of $434.4 million or $7.44 in book value per share. This book value excludes any benefit attributable to the company's net deferred tax asset. And with that, I'll turn it over to Brad..

Thank you, Jay. National MIs saw tremendous growth in our customer base and in our new insurance written and risk-in-force during the third quarter. Customers generating NIW within the third quarter grew to 180, nearly doubling from the 94 customers generating NIW within the second quarter.

The number of customers with whom we have approved master policies has increased to 664 at the end of the third quarter up from 565 at the end of the second quarter, which we believe is the leading indicator of our ability to activate new customer accounts and convert them into our ongoing generators of NIW in the future.

We continue to increase our footprint in the marketplace and continue to acquire new customers while strengthening existing customer relationships.

We also continue to see a shift in MI business from the FHA to the private mortgage insurers and estimate the private mortgage insurance market share without harp is now above 40% up from 15% at or above in 2010 during the economic crisis. Turning to the draft.

PMIERs released by the FHFA during the summer, we provided our comments on the proposed requirements to the FHFA ahead of the September 8th, deadline for public comments. In general, we are very supportive of the framework and we believe the PMIERs when finalized will provide very strong and financially stable mortgage insurance industry.

Our comments included a recommendation to include future earned premiums from all book years in the calculation of available assets. And we also requested clarification in the PMIERs as to how insured business for particular book years will be treated as a book ages.

As we believe, the charges reflected in the risk based model should recognize the lower probability of the fault as [definitive] (ph) age. We expect that the FHFA will release a final version of these graphed PMIERs by the end of mid-2015.

If the PMIERs were implemented today, we believe that based on the industries mix of primary mortgage insurance written this year, and pricing from our rate card that we would be able to produce a return on assets in the mid-teens.

We are encouraged by our third quarter results and the positive response in the marketplace to our differentiated products, superior coverage terms and capital strength.

We believe National MI's innovative leadership in the MI industry and the company’s success in offering 12 months seasonally is favorably changing the way customers manage their risk. And with that, I will open it up to your questions..

(Operator Instructions) First question is from the line of Steve Stelmach from FBR. Your line is open..

Hi. Good afternoon guys and congrats on the progress. Brad, you talked about the number of customers you have is growing. How should we think about the - relative to market share opportunity sort of harvesting your existing relationships, your existing customers versus signing up new customers obviously the both, so low hanging fruit for you guys.

What's the more meaningful channel?.

Well Steve, we look at both - we think it's important to continue to expand our - the total size of our pipeline we have into the marketplace and that's kind of a total number of customer relationships that we have. And we are always working to grow that total number and we’re seeing very good growth and very good take-up in that regard.

But then once we get that first policy from a customer, we are extremely focused on deepening the relationship and increasing the allocation and making sure that that first loan turns into a very beneficial long term relationship for us. So, we focus on both..

Okay. And then just in regard to the FHFA sort of 3% down payment.

Is there a best way to size that opportunity for you guys? And is there any reason to believe it maybe the newer fresher pools of capital maybe compared with advantage drops to mainly legacy players that may yield more capital constrain under PMIERs?.

Well Steve, it's Brad again. As you know there is not a lot of details about the way that program will be constructed. So we can't say anything specific about it. Historically, it's been sort of on a 3% to 5% of the markets, as we go back and look at what's historically going to that type of execution.

So, we are certainly interested and see it as a potential expansionary factor in the market but as I said no specific so we can't really quantify it for you.

As far as being relatively advantaged, I think we always think that clean fresh capital has an advantage in the marketplace but we’ll need to see the details about those programs as they develop..

Okay. And then maybe just two quick ones for Jay.

Jay, any quick - or any update on sort of breakeven guys for the insurance or force need to breakeven? And then secondly the size of the DTA?.

Yeah Steve, we've given previous guidance that we expect to breakeven with insurance and force of $12 billion to $14 billion. Let's always assume then average premium yield of around 55 basis points.

So, to the extent aggregated single becomes a larger portion of that of our insurance and force, it would certainly push you to the upper-end of that range given you that's a discounted product..

Correct. Okay, great. Thanks guys.

On the DTA?.

So we're going to look that up. We'll get right back to you on that Steve..

Great. Thanks..

Thanks, Steve..

Thank you. Our next question is from the line of Christine Worley from JMP Securities. Your line is open..

Thank you. Just a couple of numbers questions. For the expense line, I think it was a little bit wider than I was forecasting for the quarter.

Could we sort of take this as a go forward run rate now that the litigation expenses are stripped out?.

So Christine, we haven't taken a detailed look at 2015 yet, but certainly for Q4 I think you're going to assume something similar..

Okay.

And then potentially a little bit of an increase in 2015 as the book continues to grow?.

Yeah. I would expect to rise very modestly in 2015..

Okay, perfect. And then, turning to the growth of the new insurance written growth. Now that you’ve got some of the largest lenders in the company signed up or in the country signed up – that's opened the correspondent channel. Can we expect to see the same level of sequential growth that we saw this quarter, next quarter and over the next fewer.

Would you expect that to slow as you’re dealing with - starting to deal with some larger numbers?.

Christine, it's Brad. We haven’t given guidance because we are just still at that point where we are so new and we are so small. It's difficult to predict the exact ramp and exact run-off because we are not seeing a slowing, we continue to see very, very good growth going forward.

So, we're excited about our penetration of the market and the way we're deploying the capital..

Great. And then one final question.

I just wanted to make sure that I heard you correctly, do you say you thought that we would get final a final word from the FHFA on PMIERs by the middle of 2015?.

You did hear me correctly. We do not know for sure and when we ask people in Washington, we get a variety of answers. But I think we are building a little consortium in there. I know some people maybe expecting a little bit sooner but given the rate at which these things get finalized that's sort of our expectation..

Okay.

I know it's hard to say with anything sort of definitive but would by the end of 2014 be pretty out of the almost possibilities from what you’re hearing?.

Well, I'll say to that, there is not much of 2014 left. So again at the rate when these things get exposed and they get commented on and then the regulators take time to consider the comments, it just seems to us to be a little bit on the outside to get it done this year..

Okay, great. Well, thank you for your answers and congrats on the progress..

Thank you, Christine..

Thank you. Our next question is from the line of [Amy Didon] (ph) from Focus Point. Your line is open..

Hi, guys. Thanks for taking my questions and congrats on a good quarter. Previously you had announced $950 million with new insurance written but it came in a little bit above the mount.

Can you, if saying what's driving the different?.

So there is a chance. We are just trying to approximate a number at the time that we announced it. The quarter hasn't quite ended so we didn’t know the exact number..

Okay.

And in terms of cash balance, it looks – increased previous [interest] (ph) rates, looks higher than it's ever been, what's driving that change?.

Sure. We shifted a portion of our investment portfolio. So we liquidated a number of securities and that's just hasn’t been reinvested at this point. So it's a really temporary phenomenon..

Okay.

But it's expected to go back to the pervious run rate level?.

Correct..

Okay. And lastly on - in terms of the premium, it looks like it improved a little bit for warranty business and improved significantly for aggregated single premium business.

Can you just describe what's driving the improvement and the credit mix?.

Yes. You'll notice we give cycle on LTVs in the press release as well. It may not corresponded exactly but typically the difference there is going to be a result of a slightly different credit package..

Okay.

Do you foresee a continued improvement as years goes on into next year?.

I would read too much into any fluctuations you see here. The credit package is relatively sooner from one pool to the next. So it really depends on that but I wouldn't read anything into that trend there..

Okay, great. Thank you..

So, Steve Stelmach going back to your DTA question, it was approximately $45 million at the end of the quarter..

(Operator Instructions) I have a question from Randy Raisman from Marathon Asset Management. Your line is open..

Hey guys, how're you doing? When you talk about new insurance written growing at a similar rate, are you implying a similar dollar rate of growth or percentage rate of growth from here?.

Randy, this is Brad, I was just responding to the earlier question where we're seeing things slowing down or anything I was just saying, no, we are not seeing it slow down. So we weren't providing a forecast or any kind of guidance about the growth rate..

Got it. Okay. Thank you..

Sure..

Thank you. And there are no other questionnaires in the queue at this time..

Okay. Well, thank you everybody for joining us today. We appreciate your interest in the company. Thank you very much..

Ladies and gentlemen, thank you for your participation in today's conference. This now concludes the program. And you may all disconnect. Everyone have a great day..