SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

~~FORM 10-Q~~

FORM 10-Q



(Mark One)
x☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
	For the quarterly period ended	September 30, ~~2018~~2019



o☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
	For the transition period from ______ to ______



~~DELAWARE~~Delaware					45-4914248
(State or other jurisdiction of incorporation or organization)					(I.R.S. Employer Identification No.)

2100 Powell Street	,	Emeryville	,	CA	94608
(Address of principal executive offices)					(Zip Code)

~~(855)~~ (855) 530-6642

(Registrant's telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:



Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Class A Common Stock, par value $0.01	NMIH	Nasdaq

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

~~YES~~ x NO oYes☒No ☐

Indicate by check mark whether the registrant has submitted electronically ~~and posted on its corporate Web site, if any,~~ every Interactive Data File required to be submitted ~~and posted~~ pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit ~~and post~~ such files).

~~YES~~ x NO oYes☒No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting ~~company"~~company," and "emerging growth company" in Rule 12b-2 of the Exchange Act. ~~(Check one):~~



Large accelerated filer o	☒	Accelerated filer x	☐
Non-accelerated filer o	☐	Smaller reporting company o	☐

Emerging growth company x		☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. x☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

The number of shares of common stock, $0.01 par value per share, of the registrant outstanding on ~~October 26, 2018~~November 4, 2019 was ~~66,302,317~~67,980,992 shares.

TABLE OF CONTENTS

CAUTIONARY NOTE REGARDING FORWARD LOOKING STATEMENTS

This report contains forward looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (Securities Act), Section 21E of the Securities Exchange Act of 1934, as amended (Exchange Act), and the U.S. Private Securities Litigation Reform Act of 1995. Any statements about our expectations, beliefs, plans, predictions, forecasts, objectives, assumptions or future events or performance are not historical facts and may be forward looking. These statements are often, but not always, made through the use of words or phrases such as "anticipate," "believe," "can," "could," "may," "predict," "potential," "should," "will," "estimate," "plan," "project," "continuing," "ongoing," "expect," "intend" or words of similar meaning and include, but are not limited to, statements regarding the outlook for our future business and financial performance. All forward looking statements are necessarily only estimates of future results, and actual results may differ materially from expectations. You are, therefore, cautioned not to place undue reliance on such statements which should be read in conjunction with the other cautionary statements that are included elsewhere in this report. Further, any forward looking statement speaks only as of the date on which it is made and we undertake no obligation to update or revise any forward looking statement to reflect events or circumstances after the date on which the statement is made or to reflect the occurrence of unanticipated events. We have based these forward looking statements on our current expectations and projections about future events and financial trends that we believe may affect our financial condition, operating results, business strategy and financial needs. There are important factors that could cause our actual results, level of activity, performance or achievements to differ materially from the results, level of activity, performance or achievements expressed or implied by the forward looking statements including, but not limited to:

changes in the business practices of Fannie Mae and Freddie Mac (collectively, the GSEs), including decisions that have the impact of decreasing or discontinuing the use of mortgage insurance as credit enhancement;

our ability to remain an eligible mortgage insurer under the private mortgage insurer eligibility requirements (PMIERs) and other requirements imposed by the GSEs, which they may change at any time;

retention of our existing certificates of authority in each state and the District of Columbia (D.C.) and our ability to remain a mortgage insurer in good standing in each state and D.C.;

our future profitability, liquidity and capital resources;

actions of existing competitors, including ~~public~~other private mortgage insurers ~~such as~~and government mortgage insurers like the Federal Housing Administration (FHA), the U.S. Department of Agriculture's Rural Housing Service (USDA) and the Veterans Administration (VA) (collectively, government MIs), and potential market entry by new competitors or consolidation of existing competitors;

developments in the world's financial and capital markets and our access to such markets, including reinsurance;

adoption of new or changes to existing laws and regulations that impact our business or financial condition directly or the mortgage insurance industry generally or their enforcement and implementation by ~~regulators;~~regulators, including any action by the Consumer Financial Protection Bureau to address the planned expiration of the "QM Patch" under the Dodd-Frank Act Ability to Repay/Qualified Mortgage rule;

legislative or regulatory changes to the GSEs' role in the secondary mortgage market or other changes that could affect the residential mortgage industry generally or mortgage insurance in particular;

potential future lawsuits, investigations or inquiries or resolution of current lawsuits or inquiries;

changes in general economic, market and political conditions and policies, interest rates, inflation and investment results or other conditions that affect the housing market or the markets for home mortgages or mortgage insurance;

our ability to successfully execute and implement our capital plans, including our ability to access the capital, credit and reinsurance markets and to enter into, and receive approval of, reinsurance arrangements on terms and conditions that are acceptable to us, the GSEs and our regulators;

our ability to implement our business strategy, including our ability to write mortgage insurance on high quality low down payment residential mortgage loans, implement successfully and on a timely basis, complex infrastructure, systems, procedures, and internal controls to support our business and regulatory and reporting requirements of the insurance industry;

our ability to attract and retain a diverse customer base, including the largest mortgage originators;

failure of risk management or pricing or investment strategies;

emergence of unexpected claim and coverage issues, including claims exceeding our reserves or amounts we had expected to experience;

potential adverse impacts arising from ~~recent~~ natural disasters, including, with respect to ~~the~~ affected areas, a decline in new business, adverse effects on home prices, and an increase in notices of default on insured mortgages;

the inability of our counter-parties, including third party reinsurers, to meet their obligations to us;

our ability to utilize our net operating loss carryforwards, which could be limited or eliminated in various ways, including if we experience an ownership change as defined in Section 382 of the Internal Revenue Code;

failure to maintain, improve and continue to develop necessary information technology ~~(IT)~~ systems or the failure of technology providers to perform; and

ability to recruit, train and retain key personnel.

For more information regarding these risks and uncertainties as well as certain additional risks that we face, you should refer to Part I, Item 2, "Management's Discussion and Analysis of Financial Condition and Results of Operations" and elsewhere in this report on Form 10-Q, including the exhibits hereto. In addition, for additional discussion of those risks and uncertainties that have the potential to affect our business, financial condition, results of operations, cash flows or prospects in a material and adverse manner, you should review the Risk Factors in Part I, Item 1A, of our Annual Report on Form 10-K for the year ended December 31, ~~2017 (2017~~2018 (2018 10-K) ~~and in Part II, Item 1A of our Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2018 (First Quarter 10-Q)~~, as subsequently updated in other reports we file from time to time with the U.S. Securities and Exchange Commission (SEC).

Unless expressly indicated or the context requires otherwise, the terms "we," "our," "us" and the "Company" in this document refer to NMI Holdings, Inc., a Delaware corporation, and its wholly owned subsidiaries on a consolidated basis.

PART I

Item 1. Financial Statements

INDEX TO FINANCIAL STATEMENTS



Condensed Consolidated Balance Sheets as of September 30, ~~2018~~2019 (Unaudited) and December 31, ~~2017~~2018	6
Condensed Consolidated Statements of Operations and Comprehensive Income (Loss) for the three and nine months ended September 30, 2019 and 2018 ~~and 2017~~(Unaudited)	7
Condensed Consolidated Statements of Changes in Shareholders' Equity for the ~~three and~~ nine months ended September 30, 2019 and 2018 ~~and 2017~~(Unaudited)	8
Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2019 and 2018 ~~and 2017~~(Unaudited)	10
Notes to Condensed Consolidated Financial Statements (Unaudited)	11

NMI HOLDINGS, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)


	September 30, 2018			December 31, 2017			September 30, 2019		December 31, 2018
Assets	(In Thousands, except for share data)						(In Thousands, except for share data)
Fixed maturities, available-for-sale, at fair value (amortized cost of $889,794 and $713,859 as of September 30, 2018 and December 31, 2017, respectively)	$	874,435		$	715,875
Cash and cash equivalents (including restricted cash of $1,406 and $0 as of September 30, 2018 and December 31, 2017, respectively)	18,187			19,196
Fixed maturities, available-for-sale, at fair value (amortized cost of $1,043,639 and $924,987 as of September 30, 2019 and December 31, 2018, respectively)							$	1,073,176	$	911,490
Cash and cash equivalents (including restricted cash of $2,933 and $1,414 as of September 30, 2019 and December 31, 2018, respectively)							45,889		25,294
Premiums receivable	34,675			25,179			45,730		36,007
Accrued investment income	5,881			4,212			6,885		5,694
Prepaid expenses	3,131			2,151			4,518		3,241
Deferred policy acquisition costs, net	44,437			37,925			56,642		46,840
Software and equipment, net	22,887			22,802			26,303		24,765
Intangible assets and goodwill	3,634			3,634			3,634		3,634
Prepaid reinsurance premiums	33,058			40,250			17,917		30,370
Deferred tax asset, net	6,880			19,929
Other assets	5,276			3,695			20,768		4,708
Total assets	$	1,052,481		$	894,848		$	1,301,462	$	1,092,043

Liabilities
Term loan	$	147,009		$	143,882		$	146,007	$	146,757
Unearned premiums	162,893			163,166			145,146		158,893
Accounts payable and accrued expenses	27,134			23,364			39,296		31,141
Reserve for insurance claims and claim expenses	10,908			8,761			20,505		12,811
Reinsurance funds withheld	28,953			34,102			16,072		27,114
Deferred ceding commission	4,161			5,024
Warrant liability, at fair value	10,930			7,472			6,364		7,296
Deferred tax liability, net							43,769		2,740
Other liabilities ⁽¹⁾							10,816		3,791
Total liabilities	391,988			385,771			427,975		390,543
Commitments and contingencies

Shareholders' equity
Common stock - class A shares, $0.01 par value; 66,285,847 and 60,517,512 shares issued and outstanding as of September 30, 2018 and December 31, 2017, respectively (250,000,000 shares authorized)	663			605
Common stock - class A shares, $0.01 par value; 67,927,370 and 66,318,849 shares issued and outstanding as of September 30, 2019 and December 31, 2018, respectively (250,000,000 shares authorized)							679		663
Additional paid-in capital	678,165			585,488			698,393		682,181
Accumulated other comprehensive loss, net of tax	(16,303		)	(2,859		)
Accumulated deficit	(2,032		)	(74,157		)
Accumulated other comprehensive income (loss), net of tax							19,165		(14,832		)
Retained earnings							155,250		33,488
Total shareholders' equity	660,493			509,077			873,487		701,500
Total liabilities and shareholders' equity	$	1,052,481		$	894,848		$	1,301,462	$	1,092,043


⁽¹⁾	Deferred Ceding Commissions have been reclassified to "Other liabilities" in prior periods.

See accompanying notes to condensed consolidated financial ~~statements.~~statements (unaudited).

NMI HOLDINGS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS) (UNAUDITED)


	For the three months ended September 30,						For the nine months ended September 30,						For the three months ended September 30,						For the nine months ended September 30,
	2018			2017			2018			2017			2019			2018			2019			2018
Revenues	(In Thousands, except for per share data)												(In Thousands, except for per share data)
Net premiums earned	$	65,407		$	44,519		$	181,936		$	115,661		$	92,381		$	65,407		$	249,499		$	181,936
Net investment income	6,277			4,170			16,586			11,885			7,882			6,277			22,894			16,586
Net realized investment (losses) gains	(8		)	69			51			198
Net realized investment gains (losses)													81			(8		)	(219		)	51
Other revenues	85			195			193			461			1,244			85			1,700			193
Total revenues	71,761			48,953			198,766			128,205			101,588			71,761			273,874			198,766
Expenses
Insurance claims and claim expenses	1,099			957			3,311			2,965			2,572			1,099			8,238			3,311
Underwriting and operating expenses	30,379			24,645			87,852			78,682			33,244			30,379			96,636			87,852
Total expenses	31,478			25,602			91,163			81,647			35,816			31,478			104,874			91,163
Other expense
Loss from change in fair value of warrant liability	(5,464		)	(502		)	(4,935		)	(679		)
Gain (loss) from change in fair value of warrant liability													1,139			(5,464		)	(6,025		)	(4,935		)
Interest expense	(2,972		)	(3,352		)	(11,951		)	(10,146		)	(2,979		)	(2,972		)	(9,111		)	(11,951		)
Total other expense	(8,436		)	(3,854		)	(16,886		)	(10,825		)	(1,840		)	(8,436		)	(15,136		)	(16,886		)

Income before income taxes	31,847			19,497			90,717			35,733			63,932			31,847			153,864			90,717
Income tax expense	7,036			7,185			18,310			11,917			14,169			7,036			32,102			18,310
Net income	$	24,811		$	12,312		$	72,407		$	23,816		$	49,763		$	24,811		$	121,762		$	72,407

Earnings per share
Basic	$	0.38		$	0.21		$	1.12		$	0.40		$	0.73		$	0.38		$	1.81		$	1.12
Diluted	$	0.36		$	0.20		$	1.07		$	0.38		$	0.69		$	0.36		$	1.75		$	1.07

Weighted average common shares outstanding
Basic	65,948			59,884			64,584			59,680			67,849			65,948			67,381			64,584
Diluted	68,844			63,089			67,512			62,773			70,137			68,844			69,520			67,512

Net income	$	24,811		$	12,312		$	72,407		$	23,816		$	49,763		$	24,811		$	121,762		$	72,407
Other comprehensive income (loss), net of tax:
Net unrealized gains (losses) in accumulated other comprehensive income, net of tax (benefit) expense of ($337) and $366 for the three months ended September 30, 2018 and 2017, respectively, and ($3,676) and $2,439 for the nine months ended September 30, 2018 and 2017	(1,267		)	768			(13,828		)	4,786
Reclassification adjustment for realized losses (gains) included in net income, net of tax expense (benefit) of ($2) and $24 for the three months ended September 30, 2018 and 2017, respectively, and ($27) and $69 for the nine months ended September 30, 2018 and 2017	7			(45		)	102			(129		)
Other comprehensive (loss) income, net of tax	(1,260		)	723			(13,726		)	4,657
Unrealized gains (losses) in accumulated other comprehensive income, net of tax expense (benefit) of $1,376 and ($337) for the three months ended September 30, 2019 and 2018, respectively and $8,991 and ($3,676) for the nine months ended September 30, 2019 and 2018, respectively													5,177			(1,267		)	33,824			(13,828		)
Reclassification adjustment for realized (gains) losses included in net income, net of tax expense (benefit) of $17 and ($2) for the three months ended September 30, 2019 and 2018, respectively and ($46) and ($27) for the nine months ended September 30, 2019 and 2018, respectively													(64		)	7			173			102
Other comprehensive income (loss), net of tax													5,113			(1,260		)	33,997			(13,726		)
Comprehensive income	$	23,551		$	13,035		$	58,681		$	28,473		$	54,876		$	23,551		$	155,759		$	58,681

See accompanying notes to condensed consolidated financial ~~statements.~~statements (unaudited).

~~NMI HOLDINGS, INC.~~

~~CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (UNAUDITED)~~

Common Stock - Class A Additional
Paid-in Capital Accumulated Other Comprehensive Income (Loss) Accumulated Deficit Total
Shares Amount
(In Thousands)
Balances, January 1, 2017 59,145
$ 591
$ 576,927
$ (5,287 ) $ (96,722 ) $ 475,509
Cumulative effect of change in accounting principle —
—
—
—
515
515
Common stock: class A shares issued under stock plans, net of shares withheld for employee taxes 638
7
(1,117 ) —
—
(1,110 )
Share-based compensation expense —
—
2,271
—
—
2,271
Change in unrealized investment gains/losses, net of tax expense of $664 —
—
—
1,233
—
1,233
Net income —
—
—
—
5,492
5,492
Balances, March 31, 2017 59,783
$ 598
$ 578,081
$ (4,054 ) $ (90,715 ) $ 483,910
Cumulative effect of change in accounting principle —
—
388
—
—
388
Common stock: class A shares issued under stock plans, net of shares withheld for employee taxes 75
—
82
—
—
82
Share-based compensation expense —
—
1,948
—
—
1,948
Change in unrealized investment gains/losses, net of tax benefit of $1,454 —
—
—
2,700
—
2,700
Net income —
—
—
—
6,012
6,012
Balances, June 30, 2017 59,858
$ 598
$ 580,499
$ (1,354 ) $ (84,703 ) $ 495,040
Common stock: class A shares issued under stock plans, net of shares withheld for employee taxes 70
1
234
—
—
235
Share-based compensation expense —
—
2,714
—
—
2,714
Change in unrealized investment gains/losses, net of tax benefit of $390 —
—
—
724
—
724
Net income —
—
—
—
12,312
12,312
Balances, September 30, 2017 59,928
$ 599
$ 583,447
$ (630 ) $ (72,391 ) $ 511,025

NMI HOLDINGS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (UNAUDITED)


	Common Stock - Class A			Additional Paid-in Capital			Accumulated Other Comprehensive Income (Loss)			Accumulated Deficit			Total			Common Stock - Class A			Additional Paid-in Capital			Accumulated Other Comprehensive Income (Loss)			Retained Earnings		Total
	Shares	Amount														Shares	Amount
	(In Thousands)															(In Thousands)
Balances, January 1, 2018	60,518	$	605	$	585,488		$	(2,859	)	$	(74,157	)	$	509,077
Cumulative effect of change in accounting principle	—	—		—			282			(282		)	—
Common stock: class A shares issued related to public offering	4,255	43		79,122			—			—			79,165
Balances, December 31, 2018																66,319	$	663	$	682,181		$	(14,832	)	$	33,488	$	701,500
Common stock: class A shares issued related to warrants	26	*		489			—			—			489			39	*		944			—			—		944
Common stock: class A shares issued under stock plans, net of shares withheld for employee taxes	770	8		(999		)	—			—			(991		)	1,144	12		(1,471		)	—			—		(1,459		)
Share-based compensation expense	—	—		2,805			—			—			2,805			—	—		2,981			—			—		2,981
Change in unrealized investment gains/losses, net of tax benefit of $423	—	—		—			(10,956		)	—			(10,956		)
Change in unrealized investment gains/losses, net of tax expense of $3,992																—	—		—			15,016			—		15,016
Net income	—	—		—			—			22,355			22,355			—	—		—			—			32,899		32,899
Balances, March 31, 2018	65,569	$	656	$	666,905		$	(13,533	)	$	(52,084	)	$	601,944
Balances, March 31, 2019																67,502	$	675	$	684,635		$	184		$	66,387	$	751,881
Common stock: class A shares issued related to warrants	3	*		63			—			—			63			128	1		3,835			—			—		3,836
Common stock: class A shares issued under stock plans, net of shares withheld for employee taxes	182	2		885			—			—			887			138	1		218			—			—		219
Share-based compensation expense	—	—		3,017			—			—			3,017			—	—		3,475			—			—		3,475
Change in unrealized investment gains/losses, net of tax benefit of $2,891	—	—		—			(1,510		)	—			(1,510		)
Change in unrealized investment gains/losses, net of tax expense of $3,686																—	—		—			13,868			—		13,868
Net income	—	—		—			—			25,241			25,241			—	—		—			—			39,100		39,100
Balances, June 30, 2018	65,754	$	658	$	670,870		$	(15,043	)	$	(26,843	)	$	629,642
Balances, June 30, 2019																67,768	$	677	$	692,163		$	14,052		$	105,487	$	812,379
Common stock: class A shares issued related to warrants	57	1		1,244			—			—			1,245			82	1		2,176			—			—		2,177
Common stock: class A shares issued under stock plans, net of shares withheld for employee taxes	475	4		3,092			—			—			3,096			77	1		655			—			—		656
Share-based compensation expense	—	—		2,959			—			—			2,959			—	—		3,399			—			—		3,399
Change in unrealized investment gains/losses, net of tax benefit of $335	—	—		—			(1,260		)	—			(1,260		)
Change in unrealized investment gains/losses, net of tax expense of $1,359																—	—		—			5,113			—		5,113
Net income	—	—		—			—			24,811			24,811			—	—		—			—			49,763		49,763
Balances, September 30, 2018	66,286	$	663	$	678,165		$	(16,303	)	$	(2,032	)	$	660,493
Balances, September 30, 2019																67,927	$	679	$	698,393		$	19,165		$	155,250	$	873,487


*	During the three months ended March 31, 2019, we issued 39,195 common shares with a par value of $0.01 in connection with the exercise of warrants, which is not identifiable in this schedule due to rounding.

* During the three month periods ended March 31, 2018 and June 30, 2018, we issued 25,686 ~~and~~ ~~3,751common shares, respectively, with a par value of $0.01 related to the exercise of warrants, which is not identifiable in this schedule due to rounding.~~

NMI HOLDINGS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (UNAUDITED)



	Common Stock - Class A			Additional Paid-in Capital			Accumulated Other Comprehensive Income (Loss)			Accumulated Deficit			Total
	Shares	Amount		Additional Paid-in Capital			Accumulated Other Comprehensive Income (Loss)			Accumulated Deficit			Total
	(In Thousands)
Balances, December 31, 2017	60,518	$	605	$	585,488		$	(2,859	)	$	(74,157	)	$	509,077
Cumulative effect of change in accounting principle	—	—		—			282			(282		)	—
Common stock: class A shares issued related to public offering	4,255	43		79,122			—			—			79,165
Common stock: class A shares issued related to warrants	26	*		489			—			—			489
Common stock: class A shares issued under stock plans, net of shares withheld for employee taxes	770	8		(999		)	—			—			(991		)
Share-based compensation expense	—	—		2,805			—			—			2,805
Change in unrealized investment gains/losses, net of tax benefit of $423	—	—		—			(10,956		)	—			(10,956		)
Net income	—	—		—			—			22,355			22,355
Balances, March 31, 2018	65,569	$	656	$	666,905		$	(13,533	)	$	(52,084	)	$	601,944
Common stock: class A shares issued related to warrants	3	*		63			—			—			63
Common stock: class A shares issued under stock plans, net of shares withheld for employee taxes	182	2		885			—			—			887
Share-based compensation expense	—	—		3,017			—			—			3,017
Change in unrealized investment gains/losses, net of tax benefit of $2,891	—	—		—			(1,510		)	—			(1,510		)
Net income	—	—		—			—			25,241			25,241
Balances, June 30, 2018	65,754	$	658	$	670,870		$	(15,043	)	$	(26,843	)	$	629,642
Common stock: class A shares issued related to warrants	57	1		1,244			—			—			1,245
Common stock: class A shares issued under stock plans, net of shares withheld for employee taxes	475	4		3,092			—			—			3,096
Share-based compensation expense	—	—		2,959			—			—			2,959
Change in unrealized investment gains/losses, net of tax benefit of $335	—	—		—			(1,260		)	—			(1,260		)
Net income	—	—		—			—			24,811			24,811
Balances, September 30, 2018	66,286	$	663	$	678,165		$	(16,303	)	$	(2,032	)	$	660,493


*	During the three months ended March 31, 2018 and June 30, 2018, we issued 25,686 and 3,751 common shares, respectively, with a par value of $0.01 in connection with the exercise of warrants, which is not identifiable in this schedule due to rounding.

See accompanying notes to condensed consolidated financial ~~statements.~~statements (unaudited).

NMI HOLDINGS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)



	For the nine months ended September 30,
	2019			2018
Cash flows from operating activities	(In Thousands)
Net income	$	121,762		$	72,407
Adjustments to reconcile net income to net cash provided by operating activities:
Net realized investment losses (gains)	219			(51		)
Loss from change in fair value of warrant liability	6,025			4,935
Depreciation and amortization	6,661			5,825
Net amortization of premium on investment securities	943			1,176
Amortization of debt discount and debt issuance costs	754			3,141
Share-based compensation expense	9,855			8,781
Deferred income taxes	31,991			16,698
Changes in operating assets and liabilities:
Premiums receivable	(9,723		)	(9,496		)
Accrued investment income	(1,191		)	(1,669		)
Prepaid expenses	(1,472		)	(980		)
Deferred policy acquisition costs, net	(9,802		)	(6,512		)
Other assets	(8,428		)	927
Unearned premiums	(13,747		)	(273		)
Reserve for insurance claims and claim expenses	7,694			2,147
Reinsurance balances, net	(779		)	565
Accounts payable and accrued expenses	(1,195		)	1,728
Net cash provided by operating activities	139,567			99,349
Cash flows from investing activities
Purchase of short-term investments	(190,122		)	(168,751		)
Purchase of fixed-maturity investments, available-for-sale	(186,793		)	(310,286		)
Proceeds from maturity of short-term investments	200,105			148,997
Proceeds from redemptions, maturities and sale of fixed-maturity investments, available-for-sale	66,996			154,438
Additions to software and equipment	(7,449		)	(5,326		)
Net cash used in investing activities	(117,263		)	(180,928		)
Cash flows from financing activities
Proceeds from issuance of common stock related to public offering, net of issuance costs	—			79,165
Proceeds from issuance of common stock related to employee equity plans	13,733			12,557
Proceeds from issuance of common stock related to warrants	—			320
Taxes paid related to net share settlement of equity awards	(14,317		)	(10,113		)
Proceeds from senior note, net	—			149,250
Repayments of term loan	(1,125		)	(147,000		)
Payments of debt issuance/modification costs	—			(3,609		)
Net cash (used in) provided by financing activities	(1,709		)	80,570

Net increase (decrease) in cash, cash equivalents and restricted cash	20,595			(1,009		)
Cash, cash equivalents and restricted cash, beginning of period	25,294			19,196
Cash, cash equivalents and restricted cash, end of period	$	45,889		$	18,187

Supplemental disclosures of cash flow information
Interest paid	$	8,060		$	9,233
Income tax (refunded) paid, net	$	(119	)	$	687

For the nine months ended September 30,
2018 2017
Cash flows from operating activities (In Thousands)
Net income $ 72,407
$ 23,816
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Net realized investment gains (51 ) (198 )
Loss from change in fair value of warrant liability 4,935
679
Depreciation and amortization 5,825
4,871
Net amortization of premium on investment securities 1,176
1,200
Amortization of debt discount and debt issuance costs 3,141
1,112
Share-based compensation expense 8,781
6,933
Deferred income taxes 16,698
11,340
Changes in operating assets and liabilities:
Premiums receivable (9,496 ) (7,328 )
Accrued investment income (1,669 ) (1,177 )
Prepaid expenses (980 ) (660 )
Deferred policy acquisition costs, net (6,512 ) (5,992 )
Other assets ⁽¹⁾
927
(273 )
Unearned premiums (273 ) 8,439
Reserve for insurance claims and claim expenses 2,147
3,122
Reinsurance balances, net ⁽¹⁾
565
(259 )
Accounts payable and accrued expenses 1,728
(3,847 )
Net cash provided by operating activities 99,349
41,778
Cash flows from investing activities
Purchase of short-term investments (168,751 ) (111,551 )
Purchase of fixed-maturity investments, available-for-sale (310,286 ) (166,640 )
Proceeds from maturity of short-term investments 148,997
142,722
Proceeds from redemptions, maturities and sale of fixed-maturity investments, available-for-sale 154,438
75,785
Additions to software and equipment (5,326 ) (6,869 )
Net cash used in investing activities (180,928 ) (66,553 )
Cash flows from financing activities
Proceeds from issuance of common stock related to public offering, net of issuance costs 79,165
—
Proceeds from issuance of common stock related to employee equity plans 12,557
3,105
Proceeds from issuance of common stock related to warrants 320
—
Taxes paid related to net share settlement of equity awards (10,113 ) (3,883 )
Proceeds from senior note, net 149,250
—
Repayments of term loan (147,000 ) (1,125 )
Payments of debt issuance/modification costs (3,609 ) (370 )
Net cash provided by (used in) financing activities 80,570
(2,273 )

Net decrease in cash, cash equivalents and restricted cash (1,009 ) (27,048 )
Cash, cash equivalents and restricted cash, beginning of period 19,196
47,746
Cash, cash equivalents and restricted cash, end of period $ 18,187
$ 20,698

Supplemental disclosures of cash flow information
Interest paid $ 9,233
$ 10,350
Income tax paid 687
802

⁽¹⁾ ~~Ceded losses recoverable on the QSR Transactions were reclassified from "Other Assets" in prior periods to "Reinsurance balance, net".~~

See accompanying notes to condensed consolidated financial ~~statements.~~statements (unaudited).

NMI HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

1. Organization, Basis of Presentation and Summary of Accounting Principles

NMI Holdings, Inc. (NMIH) is a Delaware corporation, incorporated in May 2011, to provide private mortgage guaranty insurance (which we refer to as mortgage insurance or MI) through its wholly owned insurance subsidiaries, National Mortgage Insurance Corporation (NMIC) and National Mortgage Reinsurance Inc One (Re One).

~~In April 2012, we completed a private placement of our securities, through which we offered and sold an aggregate of 55 million of our Class A~~ Our common stock resulting in net proceeds of approximately $510 million (the Private Placement), and we completed the acquisition of our insurance subsidiaries for $8.5 million in cash, common stock and warrants, plus the assumption of $1.3 million in liabilities. In November 2013, we completed an initial public offering of 2.4 million shares of our common stock, and our common stock began tradingis listed on the NASDAQ exchange ~~on November 8, 2013,~~ under the ticker symbol "NMIH." ~~In March 2018, we completed the sale of an additional 4.3 million shares of common stock including a 15% option to purchase additional shares, which was exercised in full.~~

In April 2013, NMIC, our primary insurance subsidiary, issued its first mortgage insurance policy. NMIC is licensed to write mortgage insurance in all 50 states and D.C. In August 2015, NMIH capitalized a wholly owned subsidiary, NMI Services, Inc. (NMIS), through which we offer outsourced loan review services to mortgage loan originators.

Basis of Presentation

The accompanying unaudited condensed consolidated financial statements, which include the results of NMIH and its wholly owned subsidiaries, have been prepared in accordance with the instructions to Form 10-Q as prescribed by the SEC for interim reporting and include other information and disclosures required by accounting principles generally accepted in the U.S. (GAAP). Our accounts are maintained in U.S. dollars. These statements should be read in conjunction with our consolidated financial statements and notes thereto for the year ended December 31, ~~2017,~~2018, included in our ~~2017~~2018 10-K. All intercompany transactions have been eliminated. The preparation of financial statements in accordance with GAAP requires management to make estimates and assumptions that affect reported amounts of assets and liabilities, as well as disclosure of contingent assets and liabilities as of the balance sheet date. Estimates also affect the reported amounts of income and expenses for the reporting period. Actual results could differ from those estimates. Certain reclassifications to our previously reported financial information have been made to conform to current period presentation. The results of operations for the interim period may not be indicative of the results that may be expected for the full year ending December 31, ~~2018.~~2019.

Significant Accounting Principles

There have been no changes to our significant accounting principles as described in Item 8, "Financial Statements and Supplementary Data - Notes to Consolidated Financial Statements - Note 2 - Summary of Accounting Principles" of our ~~2017 Form~~2018 10-K, other than as noted in "~~Reinsurance", "~~Variable interest ~~entity"~~entities" and "Recent Accounting Pronouncements - ~~Adopted"~~Adopted" below.

~~Reinsurance~~Variable Interest Entities

~~We account for premiums, claims and claim expenses that are ceded~~NMIC is a party to reinsurers on a basis consistent with those we use to account for the original policies we issue and pursuant to the terms of our reinsurance contracts. We account for premiums ceded or otherwise paid to reinsurers as reductions to premium revenue.

Effective January 1, 2018, NMIC entered into a second quota share reinsurance transaction (2018 QSR Transaction) which is similar in nature to the quota share reinsurance transaction we entered into in September 2016 (2016 QSR Transaction, together with 2018 QSR Transaction, the QSR Transactions) (see Note 5, "~~Reinsurance~~"). We earn profit and ceding commissions in connection with the QSR Transactions. Profit commissions represent a percentage of the profits recognized by reinsurers that are returned to us, based on the level of claims and claim expenses that we cede. We recognize any profit commissions we earn as increases to premium revenue. Ceding commissions are calculated as a percentage of ceded written premiums under the 2016 QSR Transaction and as a percentage of ceded earned premiums under the 2018 QSR Transaction, to cover our costs to acquire and service the direct policies. We earn the ceding commissions in a manner consistent with our recognition of earnings on the underlying insurance policies, over the terms of the policies reinsured. We account for ceding commissions earned as a reduction to underwriting and operating expenses.

Under the QSR Transactions, we cede a portion of claims and claim expenses reserves to our reinsurers, which are accounted for as reinsurance recoverables in "Other Assets" on the consolidated balance sheets and as reductions to claim expense on the consolidated statements of operations. We remain directly liable for all loss payments in the event we are unable to collect from any reinsurer.

~~NMI HOLDINGS, INC.~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)~~

~~Variable interest entity~~

~~NMIC entered into aggregate excess of loss~~ reinsurance agreements with 3 special purpose reinsurance entities - Oaktown Re Ltd. ~~(Oaktown Re)~~, Oaktown Re II Ltd. and Oaktown Re ~~II Ltd (Oaktown Re II), each a Bermuda-domiciled special purpose reinsurer, in~~III Ltd. - respectively dated May 2, 2017, July 25, 2018 and ~~August 2018, respectively.~~July 30, 2019. At inception of ~~each~~the respective reinsurance ~~agreement,~~agreements, we determined that ~~each of~~ Oaktown Re Ltd., Oaktown Re II, Ltd. and Oaktown Re IIIII, Ltd, were variable interest entities (VIEs), as defined under GAAP ~~(ASC 810),~~Accounting Standards Codification (ASC) 810, because they did not have sufficient equity at risk to finance their respective activities. We evaluated the VIEs at inception to determine whether NMIC was the primary beneficiary under each deal and, if so, whether we were required to consolidate the assets and liabilities of each VIE. The primary beneficiary of a VIE is an enterprise that (1) has the power to direct the activities of the VIE, which most significantly impact its economic performance and (2) has significant economic exposure to the ~~VIE;~~ VIE, i.e., the obligation to absorb losses or receive benefits that could potentially be significant. The determination of whether an entity is the primary beneficiary of a VIE is complex and requires management judgment regarding determinative factors, including the expected results of the VIE and how those results are absorbed by beneficial interest holders, as well as which party has the power to direct activities that most significantly impact the performance of the VIE.

We concluded that we are not the primary beneficiary of ~~either Oaktown Re or Oaktown Re II because NMIC does not have significant economic exposure to either Oaktown Re or Oaktown Re II,~~each VIE and as such, we do not consolidate ~~the VIEs~~them in our consolidated financial statements.

Recent Accounting Pronouncements - Adopted

In ~~May 2014,~~February 2016, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) ~~2014-09,~~ ~~Revenue from Contracts with Customers~~ ~~(Topic 606). This update is intended to provide a consistent approach in recognizing revenue. In December 2016, the FASB clarified that all contracts that are within the scope of Topic 944,~~ ~~Financial Services-Insurance~~, are excluded from the scope of ASU 2014-09. Accordingly, this update did not impact the recognition of revenue related to insurance premiums or investment income, which represent a majority of our total revenues. The update impacted our loan review services revenue, which is the only revenue stream in scope of the update. We adopted this update on January 1, 2018 using the modified-retrospective approach and the impact was immaterial to our consolidated financial statements.

~~In January 2016, the FASB issued ASU 2016-01,~~ ~~Financial Instruments - Overall: Recognition and Measurement of Financial Assets and Financial Liabilities~~ (Subtopic 825-10). This update requires entities to reduce the carrying amount of deferred tax assets, if necessary, by the amount of any tax benefit that is not expected to be realized. We adopted this update effective January 1, 2018. The impact was immaterial to our consolidated financial statements.

~~In February 2018, the FASB issued ASU 2018-02,~~ ~~Reclassification of~~ Ce~~rtain Tax Effects from Accumulated Other Comprehensive Income~~ (Topic 220). This update permits a company to reclassify the disproportionate income tax effects as a result of the 2017 Tax Cuts and Jobs Act (the TCJA) on items within accumulated other comprehensive income (AOCI) to retained earnings. ~~This standard will take effect for public business entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. Early adoption is permitted.~~ ~~We adopted this update on January 1, 2018 and adjusted the disproportionate income tax effects, or "stranded tax effects," resulting in a $0.3 million reduction to our beginning retained earnings as of January 1, 2018.~~

~~Recent Accounting Pronouncements - Not Yet Adopted~~

~~In February 2016, the FASB issued ASU~~ 2016-02,Leases (Topic 842). This update requires that businesses recognize rights and obligations associated with certain leases as assets and liabilities on the balance sheet. The standard also requires additional disclosures regarding the amount, timing, and uncertainty of cash flows arising from leases. ~~For public business entities,~~We adopted this ~~update is effective for annual periods beginning after December 15, 2018 and interim periods therein. Early adoption is permitted in any period. We expect to adopt this guidance~~ASU on January 1, ~~2019. In September 2017, ASU 2017-13 added guidance from a SEC Staff Announcement, "Transition Related to Accounting Standards Update No. 2016-02,"~~2019 using the modified-retrospective method and ~~in July 2018, the FASB issued ASU 2018-11,~~ ~~Leases~~ ~~(Topic 842),~~ ~~Targeted Improvement,~~ ~~which provides companies the option to apply the provisions of the new lease standard~~applied it prospectively as of the effective date, without adjusting comparative periods ~~presented. The effect~~presented as permitted by ASU 2018-11, Leases (Topic 842), Targeted Improvements. Adoption of ~~adoption will depend on~~this new standard increased our ~~current lease portfolio at time of adoption; however, upon adoption, we anticipate that our reported~~ assets and liabilities ~~will increase~~by $7.6 million in connection with the recognition of ~~any~~ right-of-use (ROU) assets and lease liabilities, ~~such as~~primarily related to the operating lease on our corporate headquarters. Adoption of this standard did not impact our consolidated statements of operations or cash flows. See Note 10,"Leases" for additional information related to our leases.

NMI HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

In July 2017, the FASB issued ASU 2017-11, Earnings Per Share (Topic 260), Distinguishing Liabilities from Equity (Topic 480), and Derivatives and Hedging (Topic 815). This update is intended to simplify the accounting for certain equity-linked financial instruments. We adopted this ASU on January 1, 2019. Adoption of this standard had no impact on our consolidated financial statements.

In June 2018, the FASB issued ASU 2018-07, Compensation-Stock Compensation (Topic 718). This update expands the scope of Topic 718 to include share-based payments made to non-employees in connection with the acquisition of goods and services. We adopted this ASU on January 1, 2019. Adoption of this standard had no impact on our financial results as we have not made any share-based grants to non-employees as defined in ASC 718-10-20.

Recent Accounting Pronouncements - Not Yet Adopted

In June 2016, the FASB issued ASU 2016-13, Financial Instruments-Credit Losses (Topic 326) and subsequently issued amendments to the initial guidance: ASU 2019-04, Codification Improvements to Topic 326, Financial Instruments-Credit Losses, (Topic ~~326)~~815, Derivatives and Hedging, and Topic 825, Financial Instruments, and ASU 2019-05, Financial Instruments – Credit Losses: Targeted Transition Relief. ~~This update requires~~These updates will require companies to measure ~~all~~and establish reserves for lifetime expected credit losses ~~for~~on many financial assets held at ~~the~~a given reporting date. ~~The standard also amends~~Under the ~~accounting~~guidance, the methodology for measuring lifetime credit losses will generally shift from an incurred loss model, whereby losses are only recognized once probable and estimable, to a current expected credit loss (CECL) model, whereby losses are recognized upfront based on a future economic forecast. Credit losses relating to available-for-sale fixed maturity securities will be recorded through an allowance for credit losses, ~~on available-for-sale debt securities and purchased financial assets~~rather than a write-down of the asset as is currently required, with the amount of the allowance limited to the amount by which fair value is less than amortized cost. The length of time an available-for sale fixed maturity security has been held in an unrealized loss position will no longer impact its credit ~~deterioration.~~loss determination. The standard will take effect for public business entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. ~~We are currently reviewing the impacts the adoption~~The impact of this guidance and the extent of the impact will ~~have, if any,~~depend on, among other things, economic conditions and the composition and credit quality of our ~~accounting for credit losses on our~~

~~NMI HOLDINGS, INC.~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)~~

~~investment portfolio. We~~financial assets as of the date of adoption. While we are still evaluating the impact of this guidance, we do not expect it to have a material impact on our consolidated financial statements. This standard will not impact our accounting for insurance claims and ~~claims~~claim expenses as these items are not in the scope of this ASU.

~~In July 2017, the FASB issued ASU 2017-11,~~ ~~Earnings Per Share~~ ~~(Topic 260),~~ ~~Distinguishing Liabilities from Equity~~ ~~(Topic 480), and~~ ~~Derivatives and Hedging~~ (Topic 815). This update is intended to simplify the accounting for certain equity-linked financial instruments. The standard will take effect for public business entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. Early adoption is permitted. The guidance must be applied using a full or modified retrospective approach. We expect to adopt this ASU in the first quarter of 2019 and have determined that it will have no impact on our consolidated financial statements.

~~In June 2018, the FASB issued ASU 2018-07,~~ ~~Compensation-Stock Compensation (Topic 718).~~ This update expands the scope of Topic 718 to include share-based payments made to non-employees in connection with the acquisition of goods and services. The standard will take effect for public business entities for fiscal years, beginning after December 15, 2019, and interim periods within fiscal years, beginning after December 15, 2020. We expect to adopt this ASU in the first quarter of 2019 and have determined that it has no impact on our financial results at this time as we have not made any share-based grants to nonemployees as defined in ASC 718-10-20.

In August 2018, the FASB issued ASU 2018-12,Targeted Improvements to the Accounting for Long-Duration Contracts. This update provides guidance to the existing recognition, measurement, presentation and disclosure requirements for long-duration contracts issued by an insurance entity. The standard will take effect for public business entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020. We are currently evaluating the impact the adoption of this ASU will have, if any, on our consolidated financial statements.

In August 2018, the FASB issued ASU 2018-13,Fair Value Measurement (Topic 820). This update ~~requires companies to make disclosures about recurring and nonrecurring~~modifies the fair value ~~measurements.~~measurement disclosure requirements of ASC 820. The standard will take effect for public business entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. We ~~are currently evaluating~~do not expect the ~~impact the adoption of this ASU will~~revised disclosure requirements to have ~~if any,~~a material impact on our ~~fair value of~~consolidated financial ~~instruments disclosures.~~statements.

In August 2018, the FASB issued ASU ~~2018 -15,~~ 2018-15, Intangibles - Goodwill and Other - Internal-Use Software ~~(Subtopic~~(Subtopic 350-40). This update applies to cloud computing arrangements ~~hosted by a vendor~~structured as service contracts, and provides companies with guidance on the criteria for capitalizing implementation, set-up and other up-front costs incurred in association with these arrangements. The standard will take effect for public business entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, ~~2019. We~~2019, and we have elected to adopt this ASU prospectively for eligible costs incurred after the effective date of January 1, 2020. While we are ~~currently evaluating the impact the adoption~~still finalizing our analysis of this ~~ASU will~~guidance, we do not expect it to have ~~if any,~~a material impact on our consolidated financial statements.

2. Investments

We have designated our investment portfolio as available-for-sale and report it at fair value. The related unrealized gains and losses are, after considering the related tax expense or benefit, recognized through comprehensive income and loss, and on an accumulated basis in shareholders' equity. Net realized investment gains and losses are reported in ~~income~~earnings based ~~upon~~on specific identification of securities ~~sold.~~sold or other-than-temporarily impaired.

NMI HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Fair Values and Gross Unrealized Gains and Losses on Investments


	Amortized Cost		Gross Unrealized					Fair Value		Amortized Cost		Gross Unrealized					Fair Value
	Amortized Cost		Gains		Losses			Fair Value		Amortized Cost		Gains		Losses			Fair Value
As of September 30, 2018	(In Thousands)
As of September 30, 2019										(In Thousands)
U.S. Treasury securities and obligations of U.S. government agencies	$	48,292	$	—	$	(2,483	)	$	45,809	$	48,198	$	1,095	$	(40	)	$	49,253
Municipal debt securities	93,945		20		(1,933		)	92,032		103,974		1,790		(133		)	105,631
Corporate debt securities	536,240		323		(10,217		)	526,346		663,066		23,432		(520		)	685,978
Asset-backed securities	169,061		113		(1,236		)	167,938		179,651		3,765		(31		)	183,385
Total bonds	847,538		456		(15,869		)	832,125		994,889		30,082		(724		)	1,024,247
Short-term investments	42,256		54		—			42,310		48,750		179		—			48,929
Total investments	$	889,794	$	510	$	(15,869	)	$	874,435	$	1,043,639	$	30,261	$	(724	)	$	1,073,176

~~NMI HOLDINGS, INC.~~



	Amortized Cost		Gross Unrealized					Fair Value
	Amortized Cost		Gains		Losses			Fair Value
As of December 31, 2018	(In Thousands)
U.S. Treasury securities and obligations of U.S. government agencies	$	48,171	$	35	$	(1,376	)	$	46,830
Municipal debt securities	92,014		206		(963		)	91,257
Corporate debt securities	554,079		847		(11,688		)	543,238
Asset-backed securities	171,990		792		(1,457		)	171,325
Total bonds	866,254		1,880		(15,484		)	852,650
Short-term investments	58,733		107		—			58,840
Total investments	$	924,987	$	1,987	$	(15,484	)	$	911,490

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)~~

The following table presents a breakdown of the fair value of our corporate debt securities by issuer industry group as of September 30, 2019 and December 31, 2018:



	September 30, 2019		December 31, 2018
Financial	38	%	38	%
Consumer	27		27
Communications	10		12
Utilities	10		7
Industrial	8		7
Technology	5		6
Energy	2		2
Other	—		1
Total	100	%	100	%

Amortized
Cost Gross Unrealized Fair
Value
Gains Losses
As of December 31, 2017 (In Thousands)
U.S. Treasury securities and obligations of U.S. government agencies $ 65,669
$ —
$ (981 ) $ 64,688
Municipal debt securities 89,973
534
(659 ) 89,848
Corporate debt securities 435,562
4,231
(1,958 ) 437,835
Asset-backed securities 100,153
916
(125 ) 100,944
Total bonds 691,357
5,681
(3,723 ) 693,315
Long-term investments - other 353
—
—
353
Short-term investments 22,149
58
—
22,207
Total investments $ 713,859
$ 5,739
$ (3,723 ) $ 715,875

As of September 30, ~~2018~~2019 and December 31, ~~2017,~~2018, approximately ~~$5.3~~$5.5 million and ~~$7.0~~$5.3 million, respectively, of our cash and investments were held in the form of U.S. Treasury securities on deposit with various state insurance departments to satisfy regulatory requirements. ~~See Note 5~~ ~~"Reinsurance" for the information related to restricted cash.~~

NMI HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Scheduled Maturities

The amortized cost and fair values of available-for-sale securities as of September 30, ~~2018~~2019 and December 31, ~~2017,~~2018, by contractual maturity, are shown below. Expected maturities will differ from contractual maturities because issuers may have the right to call or prepay obligations with or without call or prepayment penalties. Because most asset-backed securities provide for periodic payments throughout their lives, they are listed below in a separate category.


As of September 30, 2018	Amortized Cost		Fair Value
As of September 30, 2019					Amortized Cost		Fair Value
	(In Thousands)				(In Thousands)
Due in one year or less	$	63,314	$	63,368	$	102,581	$	102,787
Due after one through five years	335,262		330,603		424,455		434,248
Due after five through ten years	318,357		308,759		313,804		329,061
Due after ten years	3,800		3,767		23,148		23,695
Asset-backed securities	169,061		167,938		179,651		183,385
Total investments	$	889,794	$	874,435	$	1,043,639	$	1,073,176

Aging of Unrealized Losses

As of September 30, ~~2018~~2019, the investment portfolio had gross unrealized losses of ~~$15.9 million, $7.8~~$0.7 million, of which ~~has~~$0.4 million had been in an unrealized loss position for a period of 12 months or greater. We did not consider these securities to be other-than-temporarily impaired as of September 30, ~~2018.~~2019. We based our conclusion that these investments were not other-than-temporarily impaired as of September 30, ~~2018~~2019 on the following facts: (i) the unrealized losses were primarily caused by interest rate movements and market fluctuations in credit spreads since the purchase date; (ii) we do not intend to sell these investments; and (iii) we do not believe that it is more likely than not that we will be required to sell these investments before recovery of our amortized cost basis, which may not occur until maturity. For those securities in an unrealized loss position, the length of time the securities were in such a position is as follows:



	Less Than 12 Months						12 Months or Greater						Total
	# of Securities	Fair Value		Unrealized Losses			# of Securities	Fair Value		Unrealized Losses			# of Securities	Fair Value		Unrealized Losses
As of September 30, 2019		(Dollars in Thousands)
U.S. Treasury securities and obligations of U.S. government agencies	5	$	13,822	$	(40	)	—	$	—	$	—		5	$	13,822	$	(40	)
Municipal debt securities	4	15,720		(102		)	4	4,337		(31		)	8	20,057		(133		)
Corporate debt securities	10	26,812		(122		)	20	30,812		(398		)	30	57,624		(520		)
Asset-backed securities	3	13,451		(20		)	2	3,583		(11		)	5	17,034		(31		)
Short-term investments⁽¹⁾	1	9,999		—			—	—		—			1	9,999		—
Total	23	$	79,804	$	(284	)	26	$	38,732	$	(440	)	49	$	118,536	$	(724	)

NMI HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Net Investment Income

Less Than 12 Months 12 Months or Greater Total
# of Securities Fair Value Unrealized Losses # of Securities Fair Value Unrealized Losses # of Securities Fair Value Unrealized Losses
As of December 31, 2017 (Dollars in Thousands)
U.S. Treasury securities and obligations of U.S. government agencies 16
$ 29,806
$ (394 ) 26
$ 34,882
$ (587 ) 42
$ 64,688
$ (981 )
Municipal debt securities 21
38,628
(264 ) 10
17,945
(395 ) 31
56,573
(659 )
Corporate debt securities 94
128,313
(829 ) 23
48,978
(1,129 ) 117
177,291
(1,958 )
Asset-backed securities 22
27,947
(63 ) 5
12,438
(62 ) 27
40,385
(125 )
Total 153
$ 224,694
$ (1,550 ) 64
$ 114,243
$ (2,173 ) 217
$ 338,937
$ (3,723 )

The following table presents the components of net investment income:



	For the three months ended September 30,						For the nine months ended September 30,
	2019			2018			2019			2018
	(In Thousands)
Investment income	$	8,003		$	6,473		$	23,240		$	17,192
Investment expenses	(121		)	(196		)	(346		)	(606		)
Net investment income	$	7,882		$	6,277		$	22,894		$	16,586

For the three months ended September 30, For the nine months ended September 30,
2018 2017 2018 2017
(In Thousands)
Investment income $ 6,473
$ 4,363
$ 17,192
$ 12,455
Investment expenses (196 ) (193 ) (606 ) (570 )
Net investment income $ 6,277
$ 4,170
$ 16,586
$ 11,885

The following table presents the components of net realized investment ~~gains (losses):~~losses:



	For the three months ended September 30,					For the nine months ended September 30,
	2019		2018			2019			2018
	(In Thousands)
Gross realized investment gains	$	81	$	461		$	297		$	520
Gross realized investment losses	—		(469		)	(516		)	(469		)
Net realized investment gains (losses)	$	81	$	(8	)	$	(219	)	$	51

For the three months ended September 30, For the nine months ended September 30,
2018 2017 2018 2017
(In Thousands)
Gross realized investment gains $ 461
$ 69
$ 520
$ 536
Gross realized investment losses (469 ) —
(469 ) (338 )
Net realized investment gains (losses) $ (8 ) $ 69
$ 51
$ 198

Investment Securities - Other-than-Temporary Impairment (OTTI)

AtAs of September 30, ~~2018,~~2019, we held no other-than-temporarily impaired securities. During the nine months ended September 30, 2019, we recognized a $0.4 million OTTI loss in earnings related to the planned sale of a security in a loss position that was disposed of in April 2019. We did not recognize any OTTI losses for the three months ended September 30, 2019 or the three and nine months ended September 30, ~~2018 and~~2018. There were no credit losses recognized in earnings for which a portion of an OTTI loss was recognized in accumulated other comprehensive income (loss) for the three ~~months ended September 30, 2017, we did not recognize any OTTI losses. During the~~or nine months ended September 30, ~~2017, we recognized $0.1 million of OTTI losses in earnings.~~2019.

~~NMI HOLDINGS, INC.~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)~~

3. Fair Value of Financial Instruments

The following describes the valuation techniques used by us to determine the fair value of our financial instruments:

We established a fair value hierarchy by prioritizing the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). The three levels of the fair value hierarchy under this standard are described below:

Level 1 - Fair value measurements based on quoted prices in active markets that we have the ability to access for identical assets or liabilities. Market price data generally is obtained from exchange or dealer markets. We do not adjust the quoted price for such instruments.

Level 2 - Fair value measurements based on inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly. Level 2 inputs include quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, and inputs other than quoted

NMI HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

prices that are observable for the asset or liability, such as interest rates and yield curves that are observable at commonly quoted intervals.

Level 3 - Fair value measurements based on valuation techniques that use significant inputs that are unobservable. Both observable and unobservable inputs may be used to determine the fair values of positions classified in Level 3. The circumstances for using these measurements include those in which there is little, if any, market activity for the asset or liability. Therefore, we must make certain assumptions, which require significant management judgment or estimation about the inputs a hypothetical market participant would use to value that asset or liability.

In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, the level in the fair value hierarchy is determined based on the lowest level input that is significant to the fair value measurement in its entirety.

Assets classified as Level 1 and Level 2

To determine the fair value of securities available-for-sale in Level 1 and Level 2 of the fair value hierarchy, independent pricing sources have been utilized. One price is provided per security based on observable market data. To ensure securities are appropriately classified in the fair value hierarchy, we review the pricing techniques and methodologies of the independent pricing sources and believe that their policies adequately consider market activity, either based on specific transactions for the issue valued or based on modeling of securities with similar credit quality, duration, yield and structure that were recently traded. A variety of inputs are utilized by the independent pricing sources including benchmark yields, reported trades, non-binding broker/dealer quotes, issuer spreads, two sided markets, benchmark securities, bids, offers and reference data including data published in market research publications. Inputs may be weighted differently for any security, and not all inputs are used for each security evaluation. Market indicators, industry and economic events are also considered. This information is evaluated using a multidimensional pricing model. Quality controls are performed by the independent pricing sources throughout this process, which include reviewing tolerance reports, trading information and data changes, and directional moves compared to market moves. This model combines all inputs to arrive at a value assigned to each security. We have not made any adjustments to the prices obtained from the independent pricing sources.

Liabilities classified as Level 3

We calculate the fair value of outstanding warrants utilizing Level 3 inputs, including a Black-Scholes option-pricing model, in combination with a binomial model, and we value the pricing protection features within the warrants using a Monte-Carlo simulation model. Variables in the model include the risk-free rate of return, dividend yield, expected life and expected volatility of our stock price.

~~NMI HOLDINGS, INC.~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)~~

The following tables present the level within the fair value hierarchy at which our financial instruments were measured:


	Fair Value Measurements Using								Fair Value Measurements Using
	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Fair Value		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Fair Value
As of September 30, 2018	(In Thousands)
As of September 30, 2019									(In Thousands)
U.S. Treasury securities and obligations of U.S. government agencies	$	45,809	$	—	$	—	$	45,809	$	49,253	$	—	$	—	$	49,253
Municipal debt securities	—		92,032		—		92,032		—		105,631		—		105,631
Corporate debt securities	—		526,346		—		526,346		—		685,978		—		685,978
Asset-backed securities	—		167,938		—		167,938		—		183,385		—		183,385
Long-term investment – other	—		—				—
Cash, cash equivalents and short-term investments	60,497						60,497		94,818		—		—		94,818
Total assets	$	106,306	$	786,316	$	—	$	892,622	$	144,071	$	974,994	$	—	$	1,119,065
Warrant liability	—		—		10,930		10,930		—		—		6,364		6,364
Total liabilities	$	—	$	—	$	10,930	$	10,930	$	—	$	—	$	6,364	$	6,364

Fair Value Measurements Using
Quoted Prices in
Active Markets for
Identical Assets
(Level 1) Significant Other
Observable Inputs
(Level 2) Significant
Unobservable
Inputs
(Level 3) Fair Value
As of December 31, 2017 (In Thousands)
U.S. Treasury securities and obligations of U.S. government agencies $ 59,844
$ 4,844
$ —
$ 64,688
Municipal debt securities —
89,848
—
89,848
Corporate debt securities —
437,835
—
437,835
Asset-backed securities —
100,944
—
100,944
Long-term investment - other 353
—
—
353
Cash, cash equivalents and short-term investments 41,403
—
—
41,403
Total assets $ 101,600
$ 633,471
$ —
$ 735,071
Warrant liability —
—
7,472
7,472
Total liabilities $ —
$ —
$ 7,472
$ 7,472

NMI HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)



	Fair Value Measurements Using
	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Fair Value
As of December 31, 2018	(In Thousands)
U.S. Treasury securities and obligations of U.S. government agencies	$	46,830	$	—	$	—	$	46,830
Municipal debt securities	—		91,257		—		91,257
Corporate debt securities	—		543,238		—		543,238
Asset-backed securities	—		171,325		—		171,325
Cash, cash equivalents and short-term investments	84,134		—		—		84,134
Total assets	$	130,964	$	805,820	$	—	$	936,784
Warrant liability	—		—		7,296		7,296
Total liabilities	$	—	$	—	$	7,296	$	7,296

There were no transfers between Level 1 and Level 2, nor any transfers in or out of Level 3, of the fair value hierarchy during the nine months ended September 30, ~~2018~~2019 and the year ended December 31, ~~2017.~~2018.

The following is a roll-forward of Level 3 liabilities measured at fair value:



	For the nine months ended September 30,
Warrant Liability	2019			2018
	(In Thousands)
Balance, January 1	$	7,296		$	7,472
Change in fair value of warrant liability included in earnings	6,025			4,935
Issuance of common stock on warrant exercise	(6,957		)	(1,477		)
Balance, September 30	$	6,364		$	10,930

For the nine months ended September 30,
Warrant Liability 2018 2017
(In Thousands)
Balance, January 1 $ 7,472
$ 3,367
Change in fair value of warrant liability included in earnings 4,935
679
Issuance of common stock on warrant exercise (1,477 ) —
Balance, September 30 $ 10,930
$ 4,046

~~NMI HOLDINGS, INC.~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)~~

The following table outlines the key inputs and assumptions used to calculate the fair value of the warrant liability in the Black-Scholes option-pricing model as of the dates indicated.



	As of September 30,
	2019			2018
Common stock price	$	26.26		$	22.65
Risk free interest rate	1.76		%	2.86 - 2.90%
Expected life	0.92 years			2.50 - 3.56 years
Expected volatility	33.5		%	39.9 - 41.5%
Dividend yield	0		%	0		%

As of September 30,
2018 2017
Common stock price $ 22.65
$ 12.40

Risk free interest rate 2.86 - 2.90%
1.66 %
Expected life 2.50 - 3.56 Years
3.25 years

Expected volatility 39.9 - 41.5%
30.6 %
Dividend yield 0%
0%

The changes in fair value of the warrant liability for the nine months ended September 30, ~~2018~~2019 and ~~2017~~2018 are primarily attributable to changes in the price of our common stock and exercises of outstanding warrants during the respective periods, with additional impact related to changes in ~~the~~other Black-Scholes model ~~inputs and exercises of outstanding warrants.~~inputs.

4. Debt ~~Obligations~~

On May 24, 2018, we entered into a credit agreement (2018 Credit Agreement), which provides for (i) a $150 million ~~five-year~~5-year senior secured term loan facility (2018 Term Loan) that matures on May 24, 2023; and (ii) a $85 million three-year secured revolving credit facility (2018 Revolving Credit Facility) that matures on May 24, 2021. Proceeds from the 2018 Term Loan were used to repay in full the outstanding amount due under our $150 million amended term loan (2015 Term Loan) due on November 10, 2019, ~~(the 2015 Term Loan),~~ and to pay fees and expenses incurred in connection with the 2018 Credit Agreement.

NMI HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

The 2018 Term Loan bears interest at the Eurodollar Rate, as defined in the 2018 Credit Agreement and subject to a 1.00% floor, plus an annual margin rate of 4.75%, representing an all-in rate of ~~6.99%~~6.95% as of September 30, ~~2018,~~2019, payable ~~monthly~~quarterly based on our current interest period election. Quarterly principal payments of $375 thousand are also required. ~~The~~As of September 30, 2019, the outstanding principal balance of the 2018 Term Loan has a prepayment premium of 1% for any refinancing prepayments made on or prior to the date that is six months after the date of the 2018 Credit Agreement, after which there is no prepayment penalty.was $148.1 million.

Interest expense for ~~nine months ended September 30,~~the 2018 Term Loan includes ~~amounts related to our~~ interest ~~payment, one-time financing costs~~ and the amortization of issuance costs, ~~and~~an original issue ~~discounts.~~discount and capitalized modification costs related to the 2015 Term Loan. For the three and nine months ended September 30, ~~2018, we recorded $11.6 million of~~2019, interest expense ~~including $2.2~~was $2.8 million ~~of costs related to the extinguishment of the 2015 Term Loan~~ and ~~issuance of the 2018 Term Loan. Capitalized debt~~$8.4 million, respectively. Remaining unamortized issuance costs ~~totaling $1.8 million~~ and original issue ~~discounts totaling $986 thousand~~discount were $2.1 million as of September 30, 2019 and are being amortized to interest expense using the effective interest method over the contractual life of the 2018 Term Loan. ~~As of September 30, 2018, the remaining unamortized issuance cost and original issue discounts totaled $2.6 million, and the outstanding principal balance of the 2018 Term Loan was $149.6 million.~~

We are subject to certain covenants under the 2018 Term Loan (as defined in the 2018 Credit Agreement), including (but not limited to) a maximum debt-to-total capitalization ratio (as defined in the 2018 Credit Agreement) of 35% under the 2018 Term Loan. We were in compliance with all covenants as of September 30, ~~2018.~~

~~NMI HOLDINGS, INC.~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)~~

Future principal payments due under the 2018 Term Loan as of September 30, ~~2018~~2019 are as follows:



As of September 30, 2019	Principal
	(In thousands)
2019	$	375
2020	1,500
2021	1,500
2022	1,500
2023	143,250
Total	$	148,125

As of September 30, 2018 Principal
(In thousands)
2018 $ 375

2019 1,500

2020 1,500

2021 1,500

2022 1,500

2023 143,250

Total $ 149,625

2018 Revolving Credit Facility

Borrowings under the 2018 Revolving Credit Facility may be used for general corporate purposes and will accrue interest at a variable rate equal to, at our discretion, (i) a base rate (as defined in the 2018 Credit Agreement, subject to a floor of 1.00% per annum) plus a margin of 1.00% to 2.50% per annum, based on the applicable corporate credit rating at the time, or (ii) the Eurodollar Rate (subject to a floor of 0.00% per annum) plus a margin of 2.00% to 3.50% per annum, based on the applicable corporate credit rating at the time. As of September 30, ~~2018, no~~2019, 0 borrowings had been made under the 2018 Revolving Credit Facility.

We are required to pay a quarterly commitment fee on the average daily undrawn amount of the 2018 Revolving Credit Facility, which ranges from 0.30% to 0.60%, based on the applicable corporate credit rating at the time. As of September 30, ~~2018,~~2019, the applicable commitment fee was ~~0.50%~~0.40%. For the three and nine months ended September 30, ~~2018,~~2019, we recorded $0.1 million and ~~$0.2~~$0.3 million of commitment fees in interest expense, respectively.

We incurred issuance costs of $1.5 million in connection with the establishment of the 2018 Revolving Credit Facility, which were deferred and recorded within ~~Other Assets.~~"Other assets". These costs ~~will be~~are being amortized through interest expense over the three-year life of the 2018 Revolving Credit Facility on a ~~straight line~~straight-line basis. For the three and nine months ended September 30, ~~2018,~~2019, we recognized $0.1 million and ~~$0.2~~$0.4 million, respectively, of interest expense from the amortization of deferred issuance costs. At September 30, ~~2018, the~~2019, remaining deferred issuance costs were ~~$1.3~~$0.8 million, net of accumulated amortization.

We are subject to certain covenants under the 2018 Revolving Credit Facility, including (but not limited to) the following: a maximum debt-to-total capitalization ratio of 35%, a minimum liquidity requirement, compliance with the PMIERs financial requirements (subject to any GSE-approved waivers), and minimum consolidated net worth and statutory capital requirements (respectively, as defined therein). We were in compliance with all covenants as of September 30, ~~2018.~~2019.

NMI HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

We enter into third-party reinsurance transactions to actively manage our risk, ensure compliance with PMIERs, ~~compliance~~state regulatory and other applicable capital requirements, and support the growth of our business. The GSEs and the Wisconsin Office of the Commissioner of Insurance (Wisconsin OCI) have approved all such transactions (subject to certain conditions and ongoing review, including levels of approved capital credit).

The effect of our reinsurance agreements on premiums written and earned is as follows:

⁽¹⁾ ~~Net of profit commission~~


⁽¹⁾	Net of profit commission.

Excess-of-loss reinsurance

~~2017 ILN Transaction~~

~~In May 2017,~~ NMIC entered into aexcess-of-loss reinsurance ~~agreement~~agreements with Oaktown Re ~~that~~Ltd., Oaktown Re II Ltd. and Oaktown Re III Ltd. (special purpose reinsurance entities collectively referred to as the Oaktown Re Vehicles) effective May 2, 2017, July 25, 2018 and July 30, 2019, respectively. Each agreement provides ~~for up to $211.3 million of~~NMIC with aggregate excess-of-loss reinsurance coverage ~~at inception for new delinquencies~~ on ~~an existing~~a defined portfolio of mortgage insurance policies written ~~from 2013 through December 31, 2016. For the reinsurance coverage period,~~during a discrete period. Under each agreement, NMIC retains ~~the~~a first layer of ~~$126.8 million of~~ aggregate ~~losses, of which $125.6 million remained at September 30, 2018,~~loss exposure on covered policies and the respective Oaktown Re Vehicle then provides second layer ~~coverage~~loss protection up to ~~the outstanding~~a defined reinsurance coverage amount. NMIC ~~will~~ then ~~retain~~retains losses in excess of the ~~outstanding~~respective reinsurance coverage ~~amount.~~ amounts.

The ~~outstanding~~respective reinsurance coverage ~~amount decreases~~amounts provided by the Oaktown Re Vehicles decrease from ~~$211.3 million at~~the inception of each agreement over a ten-year period as the underlying ~~covered~~insured mortgages are amortized or repaid, and/or the mortgage insurance coverage is ~~canceled and was $144.1 million as of September 30, 2018.~~canceled. The respective outstanding reinsurance coverage ~~amount will~~amounts stop amortizing if certain credit enhancement or delinquency thresholds, as defined in each agreement, are triggered.

Oaktown Re financed the coverage by issuing mortgage insurance-linked notes in an aggregate amount of $211.3 million to unaffiliated investors (the 2017 Notes). The 2017 Notes mature on April 26, 2027. All of the proceeds paid to Oaktown Re from the sale of the 2017 Notes were deposited into a reinsurance trust to collateralize and fund the obligations of Oaktown Re to NMIC under the reinsurance agreement. Funds in the reinsurance trust account are required to be invested in high credit quality money market funds at all times. We refer collectively to NMIC's reinsurance agreement with Oaktown Re and the issuance of the 2017 Notes by Oaktown Re as the 2017 ILN Transaction. Under the terms of the 2017 ILN Transaction,

NMIC makes risk premium payments to the Oaktown Re Vehicles for the applicable outstanding reinsurance coverage amount and pays ~~Oaktown Re~~an additional premium amount for anticipated operating expenses (capped at $300 thousand per ~~year)~~year to Oaktown Re Ltd. and $250 thousand per year to Oaktown Re II, Ltd. and Oaktown Re III, Ltd.). ~~For~~NMIC ceded aggregate premiums to the Oaktown Re Vehicles of $4.4 million and $10.3 million during the three and nine months ended September 30, ~~2018, NMIC ceded risk premiums of $1.5~~2019, respectively, and $3.1 million and ~~$4.8~~$6.4 million ~~respectively. For~~during the three and nine months ended September 30, ~~2017,~~ 2018.

NMIC ~~ceded risk premiums of $1.9 million and $3.3 million, respectively.~~applies claims paid on covered policies against its first layer aggregate retained loss exposure under each excess-of-loss agreement. NMIC did not cede any incurred losses on covered policies to the Oaktown Re Vehicles during the three and nine ~~month periods~~months ended September 30, ~~2017~~2019 and ~~2018.~~2018, as the aggregate first layer risk retention was not exhausted for each agreement during such periods.

Under the terms of each excess-of-loss reinsurance agreement, the Oaktown Re Vehicles are required to fully collateralize their outstanding reinsurance coverage amount to NMIC with funds deposited into segregated reinsurance trusts. Such trust funds are required to be invested in short-term U.S. Treasury money market funds at all times. Each Oaktown Re Vehicle financed its respective collateral requirement through the issuance of mortgage insurance-linked notes to unaffiliated investors. Such insurance-linked notes mature ten years from the inception date of each reinsurance agreement. We refer to NMIC's reinsurance agreements with and the insurance-linked note issuances by Oaktown Re Ltd., Oaktown Re II, Ltd. and Oaktown Re III, Ltd. individually as the 2017 ILN Transaction, 2018 ILN Transaction and 2019 ILN Transaction, and collectively as the ILN Transactions.

NMI HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

The following table presents the inception date, covered production period, initial and current reinsurance coverage amount, and initial and current first layer retained aggregate loss under each of the ILN Transactions.



($ values in thousands)	Inception Date	Covered Production	Initial Reinsurance Coverage		Current Reinsurance Coverage		Initial First Layer Retained Loss		Current First Layer Retained Loss
2017 ILN Transaction	May 2, 2017	1/1/2013 - 12/31/2016	$	211,320	$	75,639	$	126,793	$	124,074
2018 ILN Transaction	July 25, 2018	1/1/2017 - 5/31/2018	264,545		231,604		125,312		125,025
2019 ILN Transaction	July 30, 2019	6/1/2018 - 6/30/2019	326,905		326,905		123,424		123,424

NMIC holds an optional termination ~~right if~~rights under each ILN Transaction in the event of certain ~~events occur,~~occurrences, including, among others, an optional call feature which provides NMIC the discretion to terminate the transaction on or after a prescribed date, and a clean-up call if the outstanding reinsurance coverage amount amortizes to 10% or less of the reinsurance coverage amount at inception or if NMIC reasonably determines that changes to GSE or rating agency asset requirements would cause a material and adverse effect on the capital treatment afforded to NMIC under ~~the~~a given agreement. In addition, there are certain events that ~~will result in~~trigger mandatory termination of ~~the~~an agreement, including NMIC's failure to pay premiums or consent to reductions in ~~the trust account to make principal payments to noteholders, among others.~~

~~NMI HOLDINGS, INC.~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)~~

~~2018 ILN Transaction~~

~~In July 2018, NMIC entered into~~ a reinsurance agreement with Oaktown Re II that provides for up to $264.5 million of aggregate excess-of-loss reinsurance coverage at inception for new delinquencies on an existing portfolio of mortgage insurance policies written between January 1, 2017 and May 31, 2018. For the reinsurance coverage period, NMIC retains the first layer of $125.3 million of aggregate losses, of which all remained at September 30, 2018, and Oaktown Re II then provides second layer coverage up to the outstanding reinsurance coverage amount. NMIC retains losses in excess of the outstanding reinsurance coverage amount. The outstanding reinsurance coverage amount decreases from $264.5 million at inception over a ten-year period as the underlying covered mortgages are amortized or repaid, and/or the mortgage insurance coverage is canceled, and was $264.5 million as of September 30, 2018. The outstanding reinsurance coverage amount will begin amortizing after an initial period in which a target level of credit enhancement is obtained and will stop amortizing if certain credit enhancement or delinquency thresholds are triggered.

Oaktown Re II financed the coverage by issuing mortgage insurance-linked notes in an aggregate amount of $264.5 million to unaffiliated investors (the 2018 Notes). The 2018 Notes mature on July 25, 2028. All of the proceeds paid to Oaktown Re II from the sale of the 2018 Notes were deposited into a reinsurance trust to collateralize and fund the obligations of Oaktown Re II to NMIC under the reinsurance agreement. Funds in the reinsurance trust account are required to be invested in high credit quality money market funds at all times. We refer collectively to NMIC's reinsurance agreement with Oaktown Re II and the issuance of the 2018 Notes by Oaktown Re II as the 2018 ILN Transaction, and the 2017 ILN Transaction and 2018 ILN Transaction as the ILN Transactions. Under the terms of the 2018 ILN Transaction, NMIC makes risk premium payments for the applicable outstanding reinsurance coverage amount and pays Oaktown Re II for anticipated operating expenses (capped at $250 thousand per year). For the three and nine months ended September 30, 2018, NMIC ceded risk premiums of $1.6 million. NMIC did not cede any losses to Oaktown Re II.

Under the reinsurance agreement, NMIC holds an optional termination right if certain events occur, including, among others, a clean-up call if the outstanding reinsurance coverage amount amortizes to 10% or less of the reinsurance coverage amount at inception or if NMIC reasonably determines that changes to GSE or rating agency asset requirements would cause a material and adverse effect on the capital treatment afforded to NMIC under the agreement. In addition, there are certain events that will result in mandatory termination of the agreement, including NMIC's failure to pay premiums or consent to reductions in the trust account to make principal payments to noteholders, among others.

Under the terms of the 2018 ILN Transaction and the 2019 ILN Transaction, we are required to maintain a certain level of restricted funds in a premium deposit ~~account~~accounts with Bank of New York Mellon until the ~~2018 Notes~~respective notes have been redeemed in full. "Cash and cash equivalents" on our condensed consolidated balance sheet includes restricted ~~cash~~amounts of ~~$1.4~~$2.9 million as of September 30, ~~2018.~~2019. We are not required to deposit additional funds into the premium deposit ~~account~~accounts in the future and the restricted ~~balance~~balances will decrease over time as the outstanding principal ~~balance~~balances of the respective insurance-linked notes decline.

The amount of reinsurance premiums ceded under each ILN Transaction fluctuates based on changes in one-month LIBOR and changes in the earned rate on the money market funds in which the assets of the reinsurance trusts are invested. As the reinsurance premiums will vary based on changes in these rates, we have concluded that the ILN Transactions each contain an embedded derivative that must be treated separately as a freestanding derivative. The total fair value of such derivatives at September 30, 2019 and December 31, 2018, ~~Notes declines.~~and the change in fair value of the derivatives during the three and nine months ended September 30, 2019 and 2018, were not material to our condensed consolidated financial statements.

Quota share reinsurance

~~2016 QSR Transaction~~

~~Effective~~NMIC entered into quota share reinsurance treaties effective September 1, 2016 ~~NMIC entered into the~~(the 2016 QSR ~~Transaction with~~Transaction) and January 1, 2018 (the 2018 QSR Transaction), which we refer to collectively as the QSR Transactions. Under each of the QSR Transactions, NMIC cedes a ~~panel~~proportional share of its risk on eligible policies written during a discrete period to panels of third-party ~~reinsurers.~~reinsurance providers. Each of the third-party ~~reinsurers~~reinsurance providers has an insurer financial strength rating of A- or better by Standard ~~and~~& Poor’s Rating ~~Services~~Service (S&P), A.M. Best Company, Inc. (A.M.Best) or both.

Under the 2016 QSR Transaction, NMIC ~~ceded~~cedes premiums written related ~~to:~~

•to 25% of ~~existing~~the risk ~~written~~ on eligible primary policies ~~as of August~~written for all periods through December 31, ~~2016;~~

2017 and 100% of ~~existing~~the risk under our pool agreement with Fannie ~~Mae; and~~

~~25% of risk on eligible policies written from September 1, 2016 through December 31, 2017.~~

Mae. The 2016 QSR Transaction is scheduled to terminate on December 31, 2027, except with respect to the ceded pool risk, which is scheduled to terminate on August 31, 2023. ~~However,~~ NMIC has the option, based on certain conditions and subject to a termination fee, to terminate the agreement as of December 31, 2020, or at the end of any calendar quarter thereafter, which would result in NMIC reassuming the related risk.

~~2018 QSR Transaction~~

~~Effective January 1, 2018, NMIC entered into~~Under the 2018 QSR ~~Transaction with a panel of third-party reinsurers. Each of the third-party reinsurers has an insurer financial strength rating of A- or better by S&P, A.M. Best or both. Under the 2018 QSR~~

~~NMI HOLDINGS, INC.~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)~~

Transaction, NMIC cedes premiums earned related to 25% of the risk on eligible policies written in 2018 and 20% ~~to 30% (such amount to be determined by NMIC at its sole election by December 1, 2018)~~of the risk on eligible policies written in 2019.

The 2018 QSR Transaction is scheduled to terminate on December 31, 2029. ~~However,~~ NMIC has the option, based on certain conditions and subject to a termination fee, to terminate the agreement as of December 31, 2022, or at the end of any calendar quarter thereafter, which would result in NMIC reassuming the related risk.

NMIC may terminate either or both of the QSR Transactions without penalty if, due to a change in PMIERs requirements, it is no longer able to take full PMIERs asset credit for the risk-in-force (RIF) ceded under the respective agreements. Additionally, under the terms of the QSR Transactions, NMIC may elect to selectively terminate its engagement with individual reinsurers on a run-off basis (i.e., reinsurers continue providing coverage on all risk ceded prior to the termination date, with no new cessions going forward) or cut-off basis (i.e., the reinsurance arrangement is completely terminated with NMIC recapturing all previously ceded risk) under certain circumstances. Such selective termination rights arise when, among other reasons, a reinsurer experiences a deterioration in its capital position below a prescribed threshold and/or a reinsurer breaches (and fails to cure) its collateral posting obligations under the relevant agreement.

NMI HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Effective April 1, 2019, NMIC elected to terminate its engagement with one reinsurer under the 2016 QSR Transaction on a cut-off basis. In connection with the termination, NMIC recaptured approximately $500 million of previously ceded primary RIF and stopped ceding new premiums earned or written with respect to the recaptured risk. With the termination, ceded premiums written under the 2016 QSR Transaction decreased from 25% to 20.5% on eligible policies. The termination has no effect on the cession of pool risk under the 2016 QSR Transaction.

The following table shows the amounts related to the QSR Transactions:



	For the three months ended						For the nine months ended
	September 30, 2019			September 30, 2018			September 30, 2019			September 30, 2018
	(In Thousands)
Ceded risk-in-force	$	4,901,809		$	3,960,461		$	4,901,809		$	3,960,461
Ceded premiums earned	(23,151		)	(19,286		)	(65,538		)	(53,581		)
Ceded claims and claim expenses	766			337			2,435			1,053
Ceding commission earned	4,584			3,814			12,961			10,501
Profit commission	13,254			11,272			37,199			31,180

For the three months ended For the nine months ended
September 30, 2018 September 30, 2017 September 30, 2018 September 30, 2017
(In Thousands)
Ceded risk-in-force 3,960,461
2,682,982
3,960,461
2,682,982
Ceded premiums written (16,546 ) (14,389 ) (46,389 ) (36,715 )
Ceded premiums earned (19,286 ) (13,393 ) (53,581 ) (34,721 )
Ceded claims and claims expenses 337
277
1,053
887
Ceding commission written 3,320
2,878
9,289
7,343
Ceding commission earned 3,814
2,581
10,501
6,921
Profit commission 11,272
7,758
31,180
19,945

Ceded premiums written under the 2016 QSR Transaction are recorded on the balance sheet as prepaid reinsurance premiums and amortized to ceded premiums earned in a manner consistent with the recognition of revenue on direct premiums. Under the 2018 QSR Transaction, premiums are ceded on an earned basis as defined in the agreement. NMIC receives a 20% ceding commission for premiums ceded under the QSR Transactions. NMIC also receives a profit commission under each of the QSR Transactions, provided that the loss ~~ratio~~ratios on ~~the~~ loans covered under the 2016 QSR Transaction and 2018 QSR Transaction generally ~~remains~~remain below 60% and 61%, respectively, as measured annually. Ceded claims and claim expenses under each of the QSR Transactions reduce ~~NMIC's~~the respective profit commission received by NMIC on a dollar-for-dollar basis.

In accordance with the terms of the 2016 QSR Transaction, rather than making a cash payment or transferring investments for ceded premiums written, NMIC established a funds withheld liability, which also includes amounts due to NMIC for ceding and profit commissions. Any loss recoveries and any potential profit commission to NMIC will be realized from this account until exhausted. NMIC's reinsurance recoverable balance is further supported by trust accounts established and maintained by each reinsurer in accordance with the PMIERs funding requirements for risk ceded to non-affiliates. The reinsurance recoverable on loss reserves related to our 2016 QSR Transaction was ~~$2.5~~$2.6 million as of September 30, ~~2018.~~2019.

In accordance with the terms of the 2018 QSR Transaction, cash payments for ceded premiums earned are settled on a quarterly basis, offset by amounts due to NMIC for ceding and profit commissions. Any loss recoveries and any potential profit commission to NMIC are also settled quarterly. NMIC's reinsurance recoverable balance is supported by trust accounts established and maintained by each reinsurer in accordance with the PMIERs funding requirements for risk ceded to non-affiliates. The reinsurance recoverable on loss reserves related to our 2018 QSR Transaction was ~~$64 thousand~~$1.7 million as of September 30, ~~2018.~~2019.

6. Reserves for Insurance Claims and Claim Expenses

We establish reserves to recognize the estimated liability for insurance claims and claim expenses related to defaults on insured mortgage loans. Consistent with industry practice, we establish reserves for loans that have been reported to us by servicers as having been in default for at least 60 days, referred to as case reserves, and additional loans that we estimate (based on actuarial review) have been in default for at least 60 days that have not yet been reported to us by servicers, referred to as incurred but not reported (IBNR) reserves. We also establish ~~claims~~claim expense reserves, which represent the estimated cost of the claim administration process, including legal and other fees, as well as other general expenses of administering the claims settlement process. As of September 30, ~~2018,~~2019, we had reserves for insurance claims and ~~claims~~claim expenses of ~~$10.9~~$20.5 million for ~~746~~1,230 primary loans in default. During the ~~first~~ nine months ~~of 2018,~~ended September 30, 2019, we paid 5998 claims totaling ~~$2.2~~$3.0 million, including 4291 claims covered under the QSR Transactions representing ~~$438 thousand~~$0.6 million of ceded claims and ~~claims~~claim expenses.

In 2013, we entered into a pool insurance transaction with Fannie Mae. The pool transaction includes a deductible, which represents the amount of claims to be absorbed by Fannie Mae before we are obligated to pay any claims. We only establish reserves for pool risk if we expect claims to exceed this deductible. At September 30, ~~2018, 53~~2019, 49 loans in the pool were past due by 60 days or

~~NMI HOLDINGS, INC.~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)~~

more. These 5349 loans ~~represent~~represented approximately ~~$3.2~~$3.4 million of ~~risk-in-force (RIF).~~RIF. Due to the size of the remaining deductible, the low level of notices of default (NODs) reported on loans in the pool through September 30, ~~2018~~2019 and the expected severity (all loans in the pool have loan-to-value ratios (LTV) ratios under 80%), we did not ~~have~~establish any case or IBNR reserves for pool ~~risks~~risk at September 30, ~~2018~~2019. In connection with the settlement of pool claims, we applied ~~$0.6~~$0.8 million to the pool deductible through September 30, ~~2018.~~2019. At September 30, ~~2018,~~2019, the remaining pool deductible was ~~$9.8~~$9.6 million. We have not paid any pool claims to date. 100% of our pool RIF is reinsured under the 2016 QSR Transaction.

NMI HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

The following table provides a reconciliation of the beginning and ending reserve balances for primary insurance claims and claim expenses:



	For the nine months ended September 30,
	2019			2018
	(In Thousands)
Beginning balance	$	12,811		$	8,761
Less reinsurance recoverables ⁽¹⁾	(3,001		)	(1,902		)
Beginning balance, net of reinsurance recoverables	9,810			6,859

Add claims incurred:
Claims and claim expenses incurred:
Current year ⁽²⁾	10,948			5,090
Prior years⁽³⁾	(2,710		)	(1,779		)
Total claims and claim expenses incurred	8,238			3,311

Less claims paid:
Claims and claim expenses paid:
Current year ⁽²⁾	—			37
Prior years ⁽³⁾	2,401			1,742
Reinsurance terminations ⁽⁴⁾	(549		)	—
Total claims and claim expenses paid	1,852			1,779

Reserve at end of period, net of reinsurance recoverables	16,196			8,391
Add reinsurance recoverables ⁽¹⁾	4,309			2,517
Ending balance	$	20,505		$	10,908

For the nine months ended September 30,
2018 2017
(In Thousands)
Beginning balance $ 8,761
$ 3,001
Less reinsurance recoverables ⁽¹⁾
(1,902 ) (297 )
Beginning balance, net of reinsurance recoverables 6,859
2,704

Add claims incurred:
Claims and claim expenses incurred:
Current year ⁽²⁾
5,090
3,546
Prior years⁽³⁾
(1,779 ) (581 )
Total claims and claims expenses incurred 3,311
2,965

Less claims paid:
Claims and claim expenses paid:
Current year ⁽²⁾
37
—
Prior years ⁽³⁾
1,742
720
Total claims and claim expenses paid 1,779
720

Reserve at end of period, net of reinsurance recoverables 8,391
4,949
Add reinsurance recoverables ⁽¹⁾
2,517
1,174
Ending balance $ 10,908
$ 6,123

⁽¹⁾ ~~Related to ceded losses recoverable on the QSR Transactions, included in "Other Assets" on the Condensed Consolidated Balance Sheets. See Note 5,~~ ~~"Reinsurance"~~ ~~for additional information.~~

⁽²⁾ Related to insured loans with their most recent defaults occurring in the current year. For example, if a loan had defaulted in a prior year and subsequently cured and later re-defaulted in the current year, that default would be included in the current year.

⁽³⁾ ~~Related to insured loans with defaults occurring in prior years, which have been continuously in default since that time.~~


⁽¹⁾	Related to ceded losses recoverable under the QSR Transactions, included in "Other assets" on the condensed consolidated balance sheets. See Note 5, "Reinsurance" for additional information.


⁽²⁾	Related to insured loans with their most recent defaults occurring in the current year. For example, if a loan had defaulted in a prior year and subsequently cured and later re-defaulted in the current year, that default would be included in the current year. Amounts are presented net of reinsurance.


⁽³⁾	Related to insured loans with defaults occurring in prior years, which have been continuously in default before the start of the current year. Amounts are presented net of reinsurance.


⁽⁴⁾	Represents the settlement of reinsurance recoverables in conjunction with the termination of one reinsurer under the 2016 QSR Transaction on a cut-off basis. See Note 5, "Reinsurance" for additional information.

The "claims incurred" section of the table above shows claims and claim expenses incurred on NODs for current and prior years, including IBNR ~~reserves.~~reserves and is presented net of reinsurance. The amount of claims incurred relating to current year NODs represents the estimated amount of claims and ~~claims~~claim expenses to be ultimately paid on such loans in default. We recognized ~~$1.8~~$2.7 million and ~~$0.6~~$1.8 million of favorable prior year development during the nine months ended September 30, ~~2018~~2019 and ~~2017,~~2018, respectively, due to NOD cures and ongoing analysis of recent loss development trends. We may increase or decrease our original estimates as we learn additional information about individual defaults and claims and continue to observe and analyze loss development trends in our portfolio. Gross reserves of ~~$3.7~~$6.6 million related to prior year defaults remained as of September 30, ~~2018.~~2019.

7. Earnings per Share (EPS)

Basic earnings per share is based on the weighted average number of shares of common stock ~~outstanding, while diluted~~outstanding. Diluted earnings per share is based on the weighted average number of shares of common stock outstanding and common stock equivalents that would be issuable upon the vesting of service based ~~RSUs,~~ and performance and service based restricted stock units (RSUs), and the exercise of vested and unvested stock options and outstanding

~~NMI HOLDINGS, INC.~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)~~

warrants. The number of shares issuable for RSUs subject to performance and service based vesting requirements are only included in diluted shares if the relevant performance measurement period has commenced and results during such period meet the necessary performance criteria. The following table reconciles the net income and the weighted average shares of common stock outstanding used in the computations of basic and diluted earnings per share of common ~~stock:~~stock.

NMI HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

For the three months ended September 30, For the nine months ended September 30,
2018 2017 2018 2017

(In Thousands, except for per share data)
Net income $ 24,811
$ 12,312
$ 72,407
$ 23,816
Basic weighted average shares outstanding 65,948
59,884
64,584
59,680
Basic earnings per share $ 0.38
$ 0.21
$ 1.12
$ 0.40

Net income $ 24,811
$ 12,312
$ 72,407
$ 23,816
Warrant gain, net of tax —
—
—
—
Diluted net income $ 24,811
$ 12,312
$ 72,407
$ 23,816

Basic weighted average shares outstanding 65,948
59,884
64,584
59,680
Dilutive effect of issuable shares 2,896
3,205
2,928
3,093
Diluted weighted average shares outstanding 68,844
63,089
67,512
62,773

Diluted earnings per share $ 0.36
$ 0.20
$ 1.07
$ 0.38

Anti-dilutive shares —
830
252
832



	For the three months ended September 30,					For the nine months ended September 30,
	2019			2018		2019		2018
	(In Thousands, except for per share data)
Net income	$	49,763		$	24,811	$	121,762	$	72,407
Basic weighted average shares outstanding	67,849			65,948		67,381		64,584
Basic earnings per share	$	0.73		$	0.38	$	1.81	$	1.12

Net income	$	49,763		$	24,811	$	121,762	$	72,407
Gain from change in fair value of warrant liability	(1,139		)	—		—		—
Diluted net income	$	48,624		$	24,811	$	121,762	$	72,407

Basic weighted average shares outstanding	67,849			65,948		67,381		64,584
Dilutive effect of issuable shares	2,288			2,896		2,139		2,928
Diluted weighted average shares outstanding	70,137			68,844		69,520		67,512

Diluted earnings per share	$	0.69		$	0.36	$	1.75	$	1.07

Anti-dilutive shares	6			—		642		252

8. Warrants

We issued 992 thousand warrants in connection with ~~the Private Placement.~~a private placement of our common stock in April 2012. Each warrant gives the holder thereof the right to purchase ~~one~~1 share of common stock at an exercise price equal to $10.00. The warrants were issued with an aggregate fair value of $5.1 million.

During the three months ended September 30, 2019, 130 thousand warrants were exercised resulting in the issuance of 82 thousand shares of common stock. Upon exercise, we reclassified approximately $2.2 million of warrant fair value from warrant liability to additional paid-in capital, of which $0.9 million related to changes in fair value during the three months ended September 30, 2019. During the nine months ended September 30, 2019, 390 thousand warrants were exercised resulting in the issuance of 249 thousand shares of common stock. Upon exercise, we reclassified approximately $7.0 million of warrant fair value from warrant liability to additional paid-in capital, of which $3.2 million related to changes in fair value during the nine months ended September 30, 2019.

During the three months ended September 30, 2018, 79 thousand warrants were exercised resulting in the issuance of 57 thousand shares of common stock. Upon exercise, we reclassified approximately $0.9 million of warrant fair value from warrant liability to additional paid-in capital, of which $0.3 million related to changes in fair value during the three months ended September 30, 2018. During the nine months ended September 30, 2018, 142 thousand warrants were exercised resulting in the issuance of 87 thousand shares of common ~~shares issued. No warrants were exercised~~stock. Upon exercise, we reclassified approximately $1.5 million of warrant fair value from warrant liability to additional paid-in capital, of which $0.3 million related to changes in fair value during the nine months ended September 30, ~~2017. Upon exercise, we reclassified the fair value of the warrants from warrant liability to additional paid-in capital and recognized a loss of approximately $333 thousand.~~2018.

We account for these warrants to purchase our common shares in accordance with ASC 470-20, Debt with Conversion and Other Options and ASC 815-40, Derivatives and Hedging - Contracts in Entity's Own Equity.

9. Income Taxes

We are a U.S. taxpayer and are subject to a statutory U.S. federal corporate income tax rate of 21% for the current and all future years following the enactment of the TCJA on December 22, 2017. We were subject to a statutory U.S. federal corporate income tax rate of 35% for all prior years through December 31, 2017.. NMIH files a consolidated U.S. federal and various state income tax returns on behalf of itself and its subsidiaries. Our effective tax rate on our pre-tax income was 22.2% and 20.9% for the three and nine months ended September 30, 2019, respectively, compared to 22.1% and 20.2% for the three and nine months ended September 30, 2018, respectively. Our provision for income taxes for interim reporting periods is established based on our estimated annual effective tax ~~rates~~rate for a given year. Our effective tax rate on our pre-tax income was 22.1% and 20.2% for the three and nine months ended September 30, 2018, respectively, compared to 36.9% and 33.3% for the three and nine months ended September 30, 2017, respectively. The decrease in the effective tax rates for the three and nine months ended September 30, 2018 compared to the three and nine months ended September 30, 2017 is attributable to the decrease in the statutory U.S. federal corporate income tax rate. We currently pay no federal income tax primarilymay fluctuate between interim periods due to the ~~forecasted utilization~~impact of discrete items not included in our ~~federal net operating loss carryforwards, which were $93.9 million as of December 31, 2017. As a result, the interim provision for income taxes represents changes to deferred tax assets.~~

~~Provisional amounts~~

~~The TCJA reduced the statutory U.S. federal corporate income~~estimated annual effective tax rate, ~~from 35% to 21% and changed the tax deductibility of certain expenses for tax years beginning after December 31, 2017. We have not completed our full assessment of~~including the tax effects associated with the vesting of RSUs and exercise of options, and the ~~enactment~~change in fair value of our warrant liability. Such items are treated on a discrete basis in the ~~TCJA on our deferred tax balances as of September 30, 2018 and December 31, 2017; however,~~reporting period in ~~certain~~which they occur.

NMI HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

~~cases, as described below,~~As a mortgage guaranty insurance company, we ~~have made reasonable estimates of the effects on~~are eligible to claim a tax deduction for our deferred tax balances. We recognized a $13.6 million income tax expense in the year ended December 31, 2017 for the items we could reasonably estimate. We are still analyzing the TCJA and refining our calculations, which could impact the measurement of our existing deferred tax assets including those related to share-based compensation. For tax years beginning after December 31, 2017, the TCJA expanded the number of individuals whose compensation isstatutory contingency reserve balance, subject to ~~a $1 million cap on~~certain limitations outlined under IRC Section 832(e), and only to the extent we acquire tax ~~deductibility~~ and ~~includes performance-based compensation~~loss bonds in an amount equal to the ~~calculation.~~tax benefit derived from the claimed deduction, which is our intent. As a result, our interim provision for income taxes for the three and nine months ended September 30, 2019 represents a change in our net deferred tax liability. During the three and nine months ended September 30, 2019, we ~~recorded a provisional amount to reduce the future~~had net purchases of $7.6 million of tax ~~benefit related to share-based compensation. We will continue to make~~ and refine our calculations as additional analysis is completed. In addition, our estimates may also be affected as we incorporate additional guidance that may be issued by the U.S. Treasury Department, the IRS, or other standard-setting bodies.

~~In February 2018, the FASB issued ASU 2018-02,~~ ~~Reclassification of~~ Ce~~rtain Tax Effects from Accumulated Other Comprehensive Income~~ (Topic 220). This update permits a company to reclassify the disproportionate income tax effects as a result of the TCJA on items within AOCI to retained earnings. We adopted this update on January 1, 2018loss bonds, and, ~~adjusted the disproportionate income tax effects, or "stranded tax effects," resulting in a $0.3 million reduction to our beginning retained earnings~~ as of ~~January 1, 2018. The disproportionate~~September 30, 2019, we held $7.6 million of tax ~~effects that remain~~and loss bonds in ~~AOCI of $4.2 million were not related to the TCJA and will remain~~"Other assets" in ~~AOCI until certain events occur. Our elected accounting policy for available-for-sale debt securities is the "aggregate portfolio" approach.~~our condensed consolidated balance sheet.

10. ~~Common Stock Offerings~~Leases

~~In March 2018,~~We have 2 operating lease agreements related to our corporate headquarters and a data center facility for which we ~~completed the sale~~recognized operating ROU assets and lease liabilities of ~~3.7~~$6.9 million ~~shares of common stock~~ and ~~granted the underwriters~~$7.9 million, which are included in "Other assets" and "Other liabilities" on the ~~transaction~~condensed consolidated balance sheet, respectively, as of September 30, 2019. As of September 30, 2019, we did not have any finance leases.

We recognize ROU assets and lease liabilities in connection with the adoption of ASU 2016-02, Leases (Topic 842). ROU assets and lease liabilities are established based on the estimated present value of lease payments over the relevant lease term. We estimate a ~~15% overallotment~~discount rate for each lease based on our estimated incremental borrowing rate at the commencement date of the relevant lease.

ROU assets obtained in exchange for new operating lease liabilities for the nine months ended September 30, 2019 were $8.1 million. The following table provides a summary of our ROU asset and lease liability assumptions as of September 30, 2019:



Weighted-average remaining lease term	3.5 years
Weighted-average discount rate	6.21	%

Cash paid on our operating lease liabilities for the three and nine months ended September 30, 2019 was $0.6 million and $1.8 million, respectively. Lease expenses recognized on our operating lease liabilities for the three and nine months ended September 30, 2019 were $0.6 million and $1.7 million, respectively. Future payments due under our existing operating leases as of September 30, 2019 are as follows:



As of September 30, 2019	(In Thousands)
2019	$	625
2020	2,537
2021	2,609
2022	2,574
2023	462
Total undiscounted lease payments	8,807
Less effects of discounting	(900		)
Present value of lease payments	$	7,907

Lease expense is recorded in underwriting and operating expenses on the consolidated statements of operations. Our existing operating leases have terms that range from three to five years. The lease for our corporate headquarters includes an option to ~~purchase~~renew for an additional ~~shares. The overallotment~~five years at prevailing market rates at time of renewal. We have not included this renewal option ~~was exercised~~ in ~~full, resulting in a total~~our calculation of ~~4.3 million shares~~minimum lease payments as it is not reasonably certain to be exercised.

NMI HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

As of ~~common stock issued. The common stock offering generated total proceeds~~December 31, 2018, the future minimum lease payments as accounted for prior to our adoption of ~~approximately $79.2 million, net of underwriting discounts, commissions and other direct offering expenses.~~ASU 2016-02, Leases (Topic 842) are as follows:



Year ending December 31, 2018
	(In Thousands)
2019	$	2,346
2020	2,417
2021	2,489
2022	2,564
2023	463
Totals	$	10,279

11. Regulatory Information

Statutory Requirements

Our insurance subsidiaries, NMIC and Re One, file financial statements in conformity with statutory accounting principles (SAP) prescribed or permitted by the Wisconsin OCI, NMIC's principal regulator. Prescribed SAP includes state laws, regulations and general administrative rules, as well as a variety of publications of the National Association of Insurance Commissioners. The Wisconsin OCI recognizes only statutory accounting practices prescribed or permitted by the state of Wisconsin for determining and reporting the financial condition and results of operations of an insurance company and for determining its solvency under Wisconsin insurance laws.

NMIC and Re One's combined statutory net income (loss) was as follows:

For the three months ended September 30, For the nine months ended September 30,
2018 2017 2018 2017
(In Thousands)
Statutory net (loss) $ (17,274 ) $ (7,688 ) $ (22,022 ) $ (29,394 )



	For the three months ended September 30,					For the nine months ended September 30,
	2019		2018			2019		2018
	(In Thousands)
Statutory net income (loss)	$	8,055	$	(17,274	)	$	13,594	$	(22,022	)

NMIC and Re One's combined statutory surplus, contingency reserve and risk-to-capital (RTC) ~~ratios~~ratio were as follows:



	September 30, 2019		December 31, 2018
	(Dollars In Thousands)
Statutory surplus	$	447,304	$	430,785
Contingency reserve	476,756		332,702
RTC ratio	14.3:1		13.1:1

September 30, 2018 December 31, 2017
(Dollars In Thousands)
Statutory surplus $ 440,697
$ 371,084
Contingency reserve 292,030
186,641
RTC Ratio 13.3:1
13.2:1

NMIH is not subject to any limitations on its ability to pay dividends except those generally applicable to corporations that are incorporated in Delaware. Delaware corporate law provides that dividends are only payable out of a corporation's capital surplus or, subject to certain limitations, recent net profits. NMIC and Re One's ability to pay dividends to NMIH is subject to Wisconsin OCI notice or approval. Certain other states in which NMIC is licensed also have statutes or regulations that restrict its ability to pay dividends. Since inception, NMIC and Re One have not paid any dividends to NMIH.

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

The following analysis should be read in conjunction with our unaudited condensed consolidated financial statements and the notes thereto included in this report and our audited financial statements, notes thereto and "Management's Discussion and Analysis of Financial Condition and Results of Operations" included in our ~~2017~~2018 10-K, for a more complete understanding of our financial position and results of operations. In addition, investors should review the "Cautionary Note Regarding Forward-Looking Statements" above and the "Risk Factors" detailed in Part II, Item 1A of this report and in Part I, Item 1A of our ~~2017~~2018 10-K, ~~and Part II, Item 1A of our First Quarter 10-Q,~~ as subsequently updated in other reports we file with the SEC, for a discussion of those risks and uncertainties that have the potential to affect our business, financial condition, results of operations, cash flows or prospects in a material and adverse manner. Our results of operations for interim periods are not necessarily indicative of results to be expected for a full fiscal year or for any other period.

Overview

We provide private MI through our wholly owned insurance subsidiaries NMIC and Re One. NMIC and Re One are domiciled in Wisconsin and principally regulated by the Wisconsin OCI. NMIC is our primary insurance subsidiary and is approved as an MI provider by the GSEs and is licensed to write coverage in all 50 states and D.C. Re One provides ~~statutorily required~~ reinsurance to NMIC on insured loans ~~with coverage levels in excess of 25%~~ after giving effect to third-party reinsurance. Our subsidiary, NMIS, provides outsourced loan review services to mortgage loan originators.

MI protects lenders and investors from default-related losses on a portion of the unpaid principal balance of a covered mortgage. MI plays a critical role in the U.S. housing market by mitigating mortgage credit risk and facilitating the secondary market sale of high-LTV (i.e.,above 80%) residential loans to the GSEs, who are otherwise restricted by their charters from purchasing or guaranteeing high-LTV mortgages that are not covered by certain credit protections. Such credit protection and secondary market sales allow lenders to increase their capacity for mortgage commitments and expand financing access to existing and prospective homeowners.

NMIH, a Delaware corporation, was incorporated in May 2011, and we began start-up operations in 2012 and wrote our first MI policy in 2013. Since formation, we have sought to establish customer relationships with a broad group of mortgage lenders and build a diversified, high-quality insured portfolio. As of September 30, ~~2018,~~2019, we had master ~~policy relationships~~policies with ~~1,340~~1,450 customers, including national and regional mortgage banks, money center banks, credit unions, community banks, builder-owned mortgage lenders, internet-sourced lenders and other ~~non bank~~non-bank lenders. As of September 30, ~~2018,~~2019, we had ~~$66.5~~$92.4 billion of total insurance-in-force (IIF), including primary IIF of ~~$63.5~~$89.7 billion, and ~~$15.8~~$22.9 billion of gross RIF, including primary RIF of ~~$15.7~~$22.8 billion.

We believe that our success in acquiring a large and diverse group of lender customers and growing a portfolio of high-quality IIF traces to our founding principles, whereby we aim to help qualified individuals achieve ~~the dream of~~their homeownership goals, ensure that we remain a strong and credible counter-party, deliver a unique customer service experience, establish a differentiated risk management approach that emphasizes the individual underwriting review or validation of the vast majority of the loans we insure, utilizing our proprietary Rate GPS^SM pricing platform to dynamically evaluate risk and price our policies, and foster a culture of collaboration and excellence that helps us attract and retain experienced industry leaders. ~~As of September 30, 2018, we had 300 full-time employees.~~

Our strategy is to continue to build on our position in the private MI market, expand our customer base and grow our insured portfolio of high-quality residential loans by focusing on long-term customer relationships, disciplined and proactive risk selection and pricing, fair and transparent ~~claims~~claim payment practices, responsive customer service, financial strength and profitability.

Our common stock trades on the NASDAQ under the symbol "NMIH." Our headquarters is located in Emeryville, California. As of September 30, 2019, we had 318 full time employees. Our website is www.nationalmi.com. Our website and the information contained on or accessible through our website are not incorporated by reference into this report.

We discuss below our results of operations for the periods presented, as well as the conditions and trends that have impacted or are expected to impact our business, including new insurance writings, the composition of our insurance portfolio and other factors that we expect to impact our results. ~~Our headquarters are located in Emeryville, California and our website is~~ ~~www.nationalmi.com. Our website and the information contained on or accessible through our website are not incorporated by reference into this report.~~

New Insurance Written, ~~Insurance In Force~~Insurance-In-Force and ~~Risk In Force~~Risk-In-Force

New insurance written (NIW) is the aggregate unpaid principal balance of mortgages underpinning new policies written during a given period. Our NIW is affected by the overall size of the mortgage origination market and the volume of high-LTV mortgage ~~originations, which tend to be generated to a greater extent in purchase originations as compared to refinancings.~~originations. Our NIW is also affected by the percentage of such high-LTV originations covered by private versus ~~public~~government MI or other alternative credit enhancement structures and our share of the private MI market. NIW, together with persistency, drives our IIF. IIF is the aggregate unpaid principal balance of the mortgages we insure, as reported to us by servicers

at a given date, and represents the sum total of

NIW from all prior periods less principal payments on insured mortgages and policy cancellations (including for prepayment, nonpayment of premiums, coverage rescission and claim payments). RIF is related to IIF and represents the aggregate amount of coverage we provide on all outstanding policies at a given date. RIF is calculated as the sum total of the coverage percentage of each individual policy in our portfolio applied to the unpaid principal balance of such insured mortgage. RIF is affected by IIF and the LTV profile of our insured mortgages, with lower LTV loans generally having a lower coverage percentage and higher LTV loans having a higher coverage percentage. Gross RIF represents RIF before consideration of reinsurance. Net RIF is gross RIF net of ceded reinsurance.

Net Premiums Written and Net Premiums Earned

We set our premium rates on individual policies based on the risk characteristics of the underlying mortgage loans and borrowers, and in accordance with our filed rates and applicable rating rules. ~~Effective~~On June 4, 2018, we ~~implemented our~~introduced a proprietary risk-based pricing platform, which we refer to as Rate GPS^SM. Rate GPS considers upa broad range of individual variables, including property type, type of loan product, borrower credit characteristics, and lender and market factors, and provides us with the ability to ~~30 individual~~set and charge premium rates commensurate with the underlying risk ~~variables to assist in our underwriting selection process and determine policy pricing on an individual~~of each loan ~~basis.~~that we insure. We introduced Rate GPS ~~evaluates a broader and more granular spectrum of risk attributes than~~in June 2018 to replace our previous rate card pricing ~~system and, we believe, provides us with an increased ability to align~~system. While most of our ~~premium rates with the risks of each individual loan. Although we expect most~~ new business ~~to be~~is priced through Rate GPS, we ~~will~~also continue to offer a rate card pricing option to a limited number of lender customers who require a rate card for operational reasons. We believe the introduction and utilization of Rate GPS ~~will enhance~~provides us with a more granular and analytical approach to evaluating and pricing risk, and that this approach enhances our ability to continue building a high-quality mortgage insurance portfolio and ~~allow us to achieve~~delivering attractive risk-adjusted ~~returns in line with our pricing expectations.~~returns.

Premiums are generally fixed ~~over~~for the ~~estimated life~~duration of our coverage of the underlying loans. Net premiums written are equal to gross premiums written minus ceded premiums written under our reinsurance arrangements, ~~and~~ less premium refunds. As a result, net premiums written are generally influenced by:

NIW;

premium rates and the mix of premium payment type, which are either single, monthly or annual premiums, as described below;

cancellation rates of our insurance policies, which are impacted by payments or prepayments on mortgages, refinancings (which are affected by prevailing mortgage interest rates as compared to interest rates on loans underpinning our in force policies), levels of ~~claims~~claim payments and home prices; and

cession of premiums under third-party reinsurance arrangements.

Premiums are paid either by the borrower (BPMI) or the lender (LPMI) in a single payment at origination (single premium), on a monthly installment basis (monthly premium) or on an annual installment basis (annual premium). Our net premiums written will differ from our net premiums earned due to policy payment type. For single premiums, we receive a single premium payment at origination, which is ~~initially recorded as unearned premium and~~ earned over the estimated life of the policy. ~~A majority~~Substantially all of our single premium policies in force as of September 30, ~~2018~~2019 were non-refundable under most cancellation scenarios. If non-refundable single premium policies are canceled, we immediately recognize the remaining unearned premium balances as earned premium revenue. Monthly premiums are recognized in the month billed and when the coverage is effective. Annual premiums are earned on a straight-line basis over the year of coverage. Substantially all of our policies provide for either single or monthly premiums.

The percentage of IIF that remains on our books after any 12-month period is defined as our persistency rate. Because our insurance premiums are earned over the life of a policy, higher persistency rates can have a significant impact on our net premiums earned and profitability. Generally, faster speeds of mortgage prepayment lead to lower persistency. Prepayment speeds and the relative mix of business between single and monthly premium policies also impact our profitability. Our premium rates include certain assumptions regarding repayment or prepayment speeds of the mortgages underlying our policies. Because premiums are paid at origination on single premium policies and ~~substantially all of~~ our single premium policies are generally non-refundable on cancellation, assuming all other factors remain constant, if single premium loans are prepaid earlier than expected, our profitability on these loans is likely to increase and, if loans are repaid slower than expected, our profitability on these loans is likely to decrease. By contrast, if monthly premium loans are repaid earlier than anticipated, we do not earn any more premium with respect to those loans and, unless we replace the repaid monthly premium loan with a new loan at the same ~~or greater~~ premium rate or higher, our ~~profitability~~revenue is likely to decline.

Effect of reinsurance on our results

We utilize third-party reinsurance to actively manage our risk, ensure compliance with PMIERs, ~~compliance~~state regulatory and other applicable capital requirements, and support the growth of our business. We currently have both quota share and excess-of-loss reinsurance agreements in place, which impact our results of operations and regulatory capital and PMIERs asset positions. Under

a quota share reinsurance agreement, the reinsurer receives a

premium in exchange for covering an agreed-upon portion of incurred losses. Such a quota share arrangement reduces ~~net~~ premiums written and earned and also reduces ~~net~~ RIF, providing capital relief to the ceding insurance company and reducing incurred claims in accordance with the terms of the reinsurance agreement. In addition, reinsurers typically pay ceding commissions as part of quota share transactions, which offset the ceding company's acquisition and underwriting expenses. Certain quota share agreements include profit commissions that are earned based on loss performance and serve to reduce ceded premiums. Under an excess-of-loss agreement, the ceding insurer is typically responsible for losses up to an agreed-upon threshold and the reinsurer then provides coverage in excess of such threshold up to a maximum agreed-upon limit. ~~In general, there are no ceding commissions under excess-of-loss reinsurance agreements.~~ We expect to continue to evaluate reinsurance opportunities in the normal course of business.

Quota share reinsurance

~~The 2018~~Effective September 1, 2016, NMIC entered into the 2016 QSR Transaction ~~took effect on January 1, 2018.~~with a syndicate of third-party reinsurers. Under the terms of the 2016 QSR Transaction, NMIC cedes premiums written related to 25% of the risk on eligible primary policies written for all periods through December 31, 2017 and 100% of the risk under our pool agreement with Fannie Mae, in exchange for reimbursement of ceded claims and claim expenses on covered policies, a 20% ceding commission, and a profit commission of up to 60% that varies directly and inversely with ceded claims.

Effective January 1, 2018, NMIC entered into the 2018 QSR Transaction with a syndicate of third-party reinsurers. Under the 2018 QSR Transaction, NMIC ~~has ceded or will cede~~cedes premiums earned related to 25% of ~~its~~the risk on eligible policies written in 2018 and 20% ~~to 30% (such amount to be determined by NMIC at its sole election by December 1, 2018)~~ of the risk on eligible policies written in 2019, in exchange for reimbursement of ceded claims and ~~claims~~claim expenses on covered policies, a 20% ceding commission, and a profit commission of up to 61% that varies directly and inversely with ceded claims.

~~NMIC entered into the 2016 QSR Transaction in September 2016.~~ Under the terms of the QSR Transactions, NMIC may elect to selectively terminate its engagement with individual reinsurers on a run-off basis (i.e., reinsurers continue providing coverage on all risk ceded prior to the termination date, with no new cessions going forward) or cut-off basis (i.e., the reinsurance arrangement is completely terminated with NMIC recapturing all previously ceded risk) under certain circumstances. Such selective termination rights arise when, among other reasons, a reinsurer experiences a deterioration in its capital position below a prescribed threshold and/or a reinsurer breaches (and fails to cure) its collateral posting obligations under the relevant agreement.

Effective April 1, 2019, NMIC elected to terminate its engagement with one reinsurer under the 2016 QSR Transaction on a cut-off basis. In connection with the termination, NMIC ~~(1)~~recaptured approximately $500 million of previously ceded ~~100% of~~primary RIF and stopped ceding new premiums written with respect to the ~~risk relating~~recaptured risk. With this termination, ceded premiums written under the 2016 QSR Transaction decreased from 25% to ~~our pool agreement with Fannie Mae, (2) ceded 25% of existing risk written~~20.5% on eligible ~~policies as~~policies. The termination had no effect on the cession of ~~August 31,~~pool risk under the 2016 and (3) ceded 25% of the risk relating to eligible primary insurance policies written between September 1, 2016 and December 31, 2017, in exchange for reimbursement of ceded claims and claims expenses on covered policies, a 20% ceding commission, and a profit commission of up to 60% that varies directly and inversely with ceded claims.QSR Transaction.

Excess-of-loss reinsurance

~~In July 2018,~~ NMIC has secured ~~$264.5 million of~~ aggregate excess-of-loss reinsurance coverage ~~at inception for an existing portfolio~~on defined portfolios of MImortgage insurance policies written ~~from January 1, 2017 through May 31, 2018,~~during discrete periods through a series of mortgage insurance-linked ~~notes offering~~note offerings by the Oaktown Re ~~II. The~~Vehicles. Under each agreement, NMIC retains a first layer of aggregate loss exposure on covered policies and the respective Oaktown Re Vehicle then provides second layer loss protection up to a defined reinsurance coverage ~~amount under the terms~~amount. NMIC then retains losses in excess of the ~~2018 ILN Transaction decreases~~respective reinsurance coverage amounts.

NMIC applies claims paid on covered policies against its first layer aggregate retained loss exposure under each excess-of-loss agreement. The respective reinsurance coverage amounts provided by the Oaktown Re Vehicles decrease from ~~$264.5 million at~~the inception of each agreement over a ten-year period as the underlying ~~covered~~insured mortgages are amortized or repaid, and/or the mortgage insurance coverage is canceled.

The ~~outstanding~~following table presents the inception date, covered production period, initial and current reinsurance coverage amount, ~~will begin amortizing after an~~and initial ~~period in which a target level of credit enhancement is obtained~~ and ~~was $264.5 million as of September 30, 2018. For the reinsurance coverage period, NMIC retains the~~current first layer ~~of $125.3 million of~~retained aggregate ~~losses, of which all remained at September 30, 2018, and Oaktown Re II then provides a second layer coverage up to the outstanding reinsurance coverage amount. NMIC retains losses in excess~~loss under each of the ~~outstanding reinsurance coverage amount.~~ILN Transactions.

In May 2017, NMIC secured $211.3 million of aggregate excess-of-loss reinsurance coverage at inception for an existing portfolio of MI policies written from 2013 through December 31, 2016, through a mortgage insurance-linked notes offering by Oaktown Re. The reinsurance coverage amount under the terms of the 2017 ILN Transaction decreases from $211.3 million at inception over a ten-year period as the underlying covered mortgages are amortized or repaid, and/or the mortgage insurance coverage is canceled and was $144.1 million as of September 30, 2018. For the reinsurance coverage period, NMIC retains the first layer of $126.8 million of aggregate losses, of which $125.6 million remained as of September 30, 2018, and Oaktown Re then provides second layer of coverage up to the outstanding reinsurance coverage amount. NMIC retains losses in excess of the outstanding reinsurance coverage amount.



($ values in thousands)	Inception Date	Covered Production	Initial Reinsurance Coverage		Current Reinsurance Coverage		Initial First Layer Retained Loss		Current First Layer Retained Loss
2017 ILN Transaction	May 2, 2017	1/1/2013 - 12/31/2016	$	211,320	$	75,639	$	126,793	$	124,074
2018 ILN Transaction	July 25, 2018	1/1/2017 - 5/31/2018	264,545		231,604		125,312		125,025
2019 ILN Transaction	July 30, 2019	6/1/2018 - 6/30/2019	326,905		326,905		123,424		123,424

See Item 1, "Financial Statements - Notes to Condensed Consolidated Financial Statements - Note 5, Reinsurance" for further discussion of these third-party reinsurance arrangements.

Portfolio Data

The following table presents primary and pool NIW and IIF as of the dates and for the periods indicated. Unless otherwise noted, the tables below do not include the effects of our third-party reinsurance arrangements described above.


Primary and pool IIF and NIW	As of and for the three months ended								For the nine months ended				As of and for the three months ended								For the nine months ended
	September 30, 2018				September 30, 2017				September 30, 2018		September 30, 2017		September 30, 2019				September 30, 2018				September 30, 2019		September 30, 2018
	IIF		NIW		IIF		NIW		NIW				IIF		NIW		IIF		NIW		NIW
			(In Millions)										(In Millions)
Monthly	$	46,967	$	6,675	$	28,707	$	4,833	$	17,827	$	11,824	$	71,814	$	12,994	$	46,967	$	6,675	$	30,272	$	17,827
Single	16,560		686		14,552		1,282		2,507		2,887		17,899		1,106		16,560		686		2,920		2,507
Primary	63,527		7,361		43,259		6,115		20,334		14,711		89,713		14,100		63,527		7,361		33,192		20,334

Pool	2,974		—		3,330		$	—	—		—		2,668		—		2,974		—		—		—
Total	$	66,501	$	7,361	$	46,589	$	6,115	$	20,334	$	14,711	$	92,381	$	14,100	$	66,501	$	7,361	$	33,192	$	20,334

For the three and nine months ended September 30, ~~2018,~~2019, NIW increased ~~20%~~92% and ~~38%~~63%, respectively, compared to the three and nine months ended September 30, ~~2017,~~2018, primarily ~~because of the~~due to growth in our monthly premium policy volume tied to increased penetration of existing customer accounts and new customer account ~~activations, partially offset by a reduction in our single policy production.~~activations. For the three and nine months ended September 30, ~~2018,~~2019, monthly premium NIW increased ~~38%~~95% and ~~51%~~70%, respectively, compared to the ~~same periods a year ago.~~three and nine months ended September 30, 2018.

For the three months ended September 30, ~~2018,~~2019, monthly premium polices accounted for ~~91%~~92% of our NIW. As of September 30, ~~2018,~~2019, monthly premium policies accounted for ~~74%~~80% of our primary IIF, as compared to ~~66%~~74% at September 30, ~~2017.~~2018. We expect the break-down of monthly premium policies and single premium policies (which we refer to as "mix") in our primary IIF to continue to trend toward ~~our current NIW~~an increased monthly mix over ~~time.~~ time given the composition of our NIW.

Our primary IIF increased ~~47%~~41% as of September 30, ~~2018~~2019 compared to September 30, ~~2017,~~2018, primarily ~~because of~~due to the NIW generated between such measurement dates, ~~and~~partially offset by the ~~high persistency~~run-off of our ~~policies in force.~~in-force policies. Our persistency rate decreased to 82.4% at September 30, 2019 from 86.1% at September 30, 2018, reflecting the impact of increased refinancing activity tied to record low interest rates.

The following table presents net premiums written and earned for the periods indicated.

Primary and pool premiums written and earned For the three months ended For the nine months ended
September 30, 2018 September 30, 2017 September 30, 2018 September 30, 2017
(In Thousands)
Net premiums written ⁽¹⁾
$ 65,381
$ 47,716
$ 188,854
$ 122,105
Net premiums earned ⁽¹⁾
65,407
44,519
181,936
115,661

⁽¹⁾~~Net premiums written and earned are reported net of reinsurance and premium refunds.~~



Primary and pool premiums written and earned	For the three months ended				For the nine months ended
	September 30, 2019		September 30, 2018		September 30, 2019		September 30, 2018
	(In Thousands)
Net premiums written	$	88,679	$	65,381	$	243,211	$	188,854
Net premiums earned	92,381		65,407		249,499		181,936

For the three and nine months ended September 30, ~~2018,~~2019, net premiums written increased ~~37%~~36% and ~~55%~~29%, respectively, and net premiums earned increased ~~47%~~41% and ~~57%~~37%, respectively, compared to the ~~same periods in 2017.~~three and nine months ended September 30, 2018. The increases in net premiums written and earned are due to the growth of our IIF and increased monthly policy production, partially offset by increased cessions under the QSR Transactions tied to the growth of our direct premium volume and the inception ~~dates~~ of the 2018 and 2019 ILN Transactions. ~~The growth of our net premiums written and~~Single premium policy cancellations also contributed to the increases in net premiums earned was also impacted by the QSR Transactions. Under the 2016 QSR Transaction, premiums on singles policies are ceded on a written basis, with unearned premium reserves ceded and recognized on balance sheet as prepaid reinsurance premiums, and subsequently amortized to earnings in a manner consistent with the recognition of earnings on direct premiums written. Under the 2018 QSR Transaction, premiums on singles policies are ceded on an earned basis. The reinsurance coverage period for the ~~2016 QSR Transaction ended for new policies written after December 31, 2017,~~three and ~~we did not cede any unearned premium reserves on singles policies under the 2016 QSR Transaction during the three or~~ nine months ended September 30, 2018. We did, however, continue to recognize earnings from the amortization of prepaid reinsurance premiums on policies previously ceded under the 2016 QSR Transaction. This contributed to accelerated growth in net premiums earned2019 compared to ~~net premiums written for~~ the same periods ~~presented.~~in 2018.

Pool premiums written and earned for the three and nine months ended September 30, ~~2018,~~2019, were ~~$0.9~~$0.7 million and ~~$2.6~~$2.3 million, respectively, before ~~the effects of~~giving effect to the 2016 QSR Transaction, under which all of our written and earned pool premiums have been ceded. A portion of our ceded pool premiums written and earned are recouped through profit commission under the 2016 QSR Transaction.

Portfolio Statistics

Unless otherwise noted, the portfolio statistics tables presented below do not include the effects of our third-party reinsurance arrangements described above. The table below highlights trends in our primary portfolio as of the ~~date~~dates and for the periods indicated.


Primary portfolio trends	As of and for the three months ended															As of and for the three months ended
	September 30, 2018			June 30, 2018			March 31, 2018			December 31, 2017			September 30, 2017			September 30, 2019			June 30, 2019			March 31, 2019			December 31, 2018			September 30, 2018
	($ Values In Millions)															($ Values In Millions)
New insurance written	$	7,361		$	6,513		$	6,460		$	6,876		$	6,115		$	14,100		$	12,179		$	6,913		$	6,962		$	7,361
Percentage of monthly premium	91		%	88		%	84		%	83		%	79		%	92		%	91		%	90		%	90		%	91		%
Percentage of single premium	9		%	12		%	16		%	17		%	21		%	8		%	9		%	10		%	10		%	9		%
New risk written	$	1,883		$	1,647		$	1,580		$	1,665		$	1,496		$	3,651		$	3,183		$	1,799		$	1,799		$	1,883
Insurance in force(IIF) ⁽¹⁾	63,527			58,089			53,434			48,465			43,259
Insurance-in-force⁽¹⁾																89,713			81,708			73,234			68,551			63,527
Percentage of monthly premium	74		%	72		%	70		%	69		%	66		%	80		%	78		%	76		%	75		%	74		%
Percentage of single premium	26		%	28		%	30		%	31		%	34		%	20		%	22		%	24		%	25		%	26		%
Risk in force⁽¹⁾	$	15,744		$	14,308		$	13,085		$	11,843		$	10,572
Risk-in-force⁽¹⁾																$	22,810		$	20,661		$	18,373		$	17,091		$	15,744
Policies in force (count)⁽¹⁾	262,485			241,993			223,263			202,351			180,089			350,395			324,876			297,232			280,825			262,485
Average loan size ⁽¹⁾	$	0.242		$	0.240		$	0.239		$	0.240		$	0.240		$	0.256		$	0.252		$	0.246		$	0.244		$	0.242
Average coverage ⁽²⁾	24.8		%	24.6		%	24.5		%	24.4		%	24.4		%
Coverage percentage ⁽²⁾																25.4		%	25.3		%	25.1		%	24.9		%	24.8		%
Loans in default (count)(1)	746			768			1,000			928			350			1,230			1,028			940			877			746
Percentage of loans in default(1)	0.3		%	0.3		%	0.5		%	0.5		%	0.2		%	0.35		%	0.32		%	0.32		%	0.31		%	0.28		%
Risk in force on defaulted loans	$	42		$	43		$	57		$	53		$	19
Risk-in-force on defaulted loans ⁽¹⁾																$	70		$	58		$	53		$	48		$	42
Average premium yield ⁽³⁾	0.43		%	0.44		%	0.43		%	0.44		%	0.43		%	0.43		%	0.43		%	0.42		%	0.42		%	0.43		%
Earnings from cancellations	$	2.6		$	3.1		$	2.8		$	4.2		$	4.3		$	7.4		$	4.5		$	2.3		$	2.1		$	2.6
Annual persistency⁽⁴⁾	86.1		%	85.5		%	85.7		%	86.1		%	85.1		%	82.4		%	86.0		%	87.2		%	87.1		%	86.1		%
Quarterly run-off⁽⁵⁾	3.3		%	3.5		%	3.1		%	3.9		%	3.8		%	7.5		%	5.1		%	3.3		%	3.1		%	3.3		%


⁽¹⁾	Reported as of the end of the period.


⁽²⁾	Calculated as end of period RIF divided by end of period IIF.


⁽³⁾	Calculated as net ~~primary and pool~~ premiums earned ~~net of reinsurance,~~ divided by average ~~gross~~ primary IIF for the period, annualized.


⁽⁴⁾	Defined as the percentage of IIF that remains on our books after ~~any~~a given 12-month period.


⁽⁵⁾	Defined as the percentage of IIF that is no longer on our books after ~~any 3-month~~a given three month period.

The table below presents a summary of the change in total primary IIF ~~during~~for the dates and periods indicated.


Primary IIF	For the three months ended						For the nine months ended						For the three months ended						For the nine months ended
	September 30, 2018			September 30, 2017			September 30, 2018			September 30, 2017			September 30, 2019			September 30, 2018			September 30, 2019			September 30, 2018
	(In Millions)												(In Millions)
IIF, beginning of period	$	58,089		$	38,629		$	48,465		$	32,168		$	81,708		$	58,089		$	68,551		$	48,465
NIW	7,361			6,115			20,334			14,711			14,100			7,361			33,192			20,334
Cancellations and other reductions	(1,923		)	(1,485		)	(5,272		)	(3,620		)
Cancellations, principal repayments and other reductions													(6,095		)	(1,923		)	(12,030		)	(5,272		)
IIF, end of period	$	63,527		$	43,259		$	63,527		$	43,259		$	89,713		$	63,527		$	89,713		$	63,527

We consider a "book" to be a collective pool of policies insured during a particular period, normally a calendar year. In general, the majority of underwriting profit, calculated as earned premium revenue minus claims and underwriting and operating expenses, generated by a particular book year emerges in the years immediately following origination. This pattern generally occurs because relatively few of the claims that a book will ultimately experience typically occur in the first few years following origination, when premium revenue is highest, while subsequent years are affected by declining premium revenues, as the number of insured loans decreases (primarily due to loan prepayments), and by increasing losses.

The table below presents a summary of our primary IIF and RIF by book year as of the dates indicated.


Primary IIF and RIF	As of September 30, 2018				As of September 30, 2017				As of September 30, 2019				As of September 30, 2018
	IIF		RIF		IIF		RIF		IIF		RIF		IIF		RIF
	(In Millions)								(In Millions)
September 30, 2018	$	19,804	$	4,980	$	—	$	—
September 30, 2019									$	31,844	$	8,283	$	—	$	—
2018									21,932		5,571		19,804		4,980
2017	19,317		4,731		14,315		3,508		16,283		4,028		19,317		4,731
2016	16,086		3,948		18,684		4,520		12,944		3,231		16,086		3,948
2015	7,144		1,790		8,742		2,167		5,792		1,464		7,144		1,790
2014	1,145		288		1,479		368
2013	31		7		39		9
2014 and before									918		233		1,176		295
Total	$	63,527	$	15,744	$	43,259	$	10,572	$	89,713	$	22,810	$	63,527	$	15,744

We utilize certain risk principles that form the basis of how we underwrite and originate ~~primary~~ NIW. We ~~manage our portfolio credit risk by using several loan~~have established prudential underwriting standards and loan-level eligibility matrices which prescribe the maximum LTV, minimum borrower ~~credit~~FICO score, maximum borrower debt-to-income (DTI) ratio, maximum loan size, property type, loan type, loan term and occupancy status of loans that we will ~~insure. Our loan~~insure and memorialized these standards and eligibility matrices ~~as well as all of our detailed underwriting guidelines, are contained~~ in our Underwriting Guideline Manual that is publicly available on our website. Our underwriting standards and eligibility criteria ~~and underwriting guidelines~~ are designed to ~~mitigate~~limit the ~~layered~~layering of risk ~~inherent~~ in a single insurance policy. "Layered risk" refers to the accumulation of borrower, loan and property risk. For example, we have higher credit score and lower maximum allowed LTV requirements for investor-owned properties, compared to owner-occupied properties. We monitor the concentrations of various risk attributes in our insurance portfolio, which may change over time, in part, as a result of regional conditions or public policy shifts.

The tables below present our primary NIW by FICO, LTV and purchase/refinance mix for the periods indicated. We calculate the LTV of a loan as the percentage of the original loan amount to the original purchase value of the property securing the loan.

The tables below present our total primary IIF and RIF by FICO and LTV and total primary RIF by loan type as of the dates indicated.

The table below ~~shows~~presents selected primary portfolio statistics, by book year, as of September 30, ~~2018.~~2019.

Incurred Loss Ratio (Inception to Date) ⁽¹⁾

Cumulative default rate ⁽²⁾

Incurred Loss Ratio (Inception to Date) ⁽¹⁾

Cumulative Default Rate ⁽²⁾

Current Default Rate ⁽³⁾

Geographic Dispersion

The following table shows the distribution by state of our primary RIF as of the periods indicated. As of September 30, ~~2018,~~2019, our RIF continues to be relatively more concentrated in California, primarily as a result of the size of the California mortgage market relative to the rest of the country and the location and timing of our acquisition of new customers. The distribution of ~~risk~~our primary RIF as of September 30, ~~2018~~2019 is not necessarily representative of the geographic distribution we expect in the future.

Insurance Claims and Claim Expenses

Insurance claims and claim expenses incurred represent estimated future payments on newly defaulted insured loans and any change in our claim estimates for previously existing defaults. Claims incurred is generally affected by a variety of factors, including the ~~state of the economy,~~macroeconomic environment, national and regional unemployment trends, changes in housing values, ~~loan~~borrower risk characteristics, LTV ratios and ~~borrower~~other loan level risk ~~characteristics,~~attributes, the size and type of loans insured, and the percentage of coverage on insured loans.

Reserves for claims and allocated claim expenses are established for reported mortgage loan defaults, which we refer to as case reserves, when we are notified that a borrower has missed two or more mortgage payments (i.e., an NOD). We also make estimates of IBNR defaults, which are defaults that have been incurred but have not been reported by loan servicers, based on historical reporting trends, and establish IBNR reserves for those ~~estimates.~~defaults. We also establish reserves for unallocated ~~claims~~claim expenses not associated with a specific claim. ~~The claims~~Claim expenses consist of the estimated cost of the claim administration process, including legal and other fees as well as other general expenses of administering the ~~claims~~claim settlement process.

Reserves are established by estimating the number of loans in default that will result in a claim payment, which is referred to as claim frequency, and the amount of the claim payment expected to be paid on each such loan in default, which is referred to as claim severity. Claim frequency and severity estimates are established based on historical observed experience regarding certain loan factors, such as age of the default, cure rates, size of the loan and estimated change in property ~~valuation.~~value. Reserves are released the month in which a loan in default is brought current by the borrower, which is referred to as a cure. Adjustments to reserve estimates are reflected in the period in which the adjustment is made. Reserves are also ceded to reinsurers under the QSR Transactions. We will not cede ~~reserves to reinsurers~~claims under the ILN Transactions unless losses exceed the respective retained coverage layers. Reserves are not established for future claims on insured loans which are not currently in default.

Based on our experience and industry data, we believe that claims incidence for mortgage insurance is generally highest in the third through sixth years after loan origination. Although the claims experience on new primary insurance written by us to date has been favorable, we expect incurred claims to increase as a greater amount of our existing insured portfolio reaches its anticipated period of highest claim frequency. We estimate that the loss ratio over the life of our existing primary insured portfolio will be between 20% and 25% of earned premiums, and we price to that expectation. Additionally, our Our pool insurance agreement with Fannie Mae contains a claim deductible through which Fannie Mae absorbs specified losses before we are obligated to pay any claims. We have not established any ~~pool~~claims or claim expense reserves for ~~claims or IBNR~~pool exposure to date.

Based on our experience and industry data, we believe that claims incidence for mortgage insurance is generally highest in the third through sixth years after loan origination. As of September 30, 2019, approximately 82% of our primary IIF related to business written since September 30, 2016. Although the claims experience on our IIF to date has been modest, we expect incurred claims to increase as a greater amount of our existing insured portfolio reaches its anticipated period of highest claim frequency.

The actual claims we incur as our portfolio matures are difficult to predict and depend on the specific characteristics of our current in-force book (including the credit score and DTI of the borrower, the LTV ratio of the mortgage and geographic concentrations, among others), as well as the risk profile of new business we write in the future. In addition, claims experience will be affected by future macroeconomic factors such as housing prices, interest rates, ~~and employment~~unemployment rates and other events, such as natural disasters. To date, our claims experience is developing at a slower pace than historical trends indicate, as a result of high quality underwriting,

macroeconomic environment and a favorable housing market. For additional discussion of our reserves, see Item 1, "Financial Statements - Notes to Condensed Consolidated Financial Statements - Note 6, Reserves for Insurance Claims and ~~Claims~~Claim Expenses."

We insure mortgages for homes in areas that ~~have been~~are impacted by recent natural disasters. We do not provide coverage for property or casualty claims related to physical damage of a home underpinning an insured mortgage. We experienced an increase in NODs on insured loans in areas impacted by such disasters in the fourth quarter of 2017 and the first quarter of 2018. In the second and third quarters of 2018, we experienced an increase in cure activity on this NOD population. Our ultimate claims exposure for loans in areas impacted by natural ~~catastrophes~~disasters will depend on the number of NODs received, proximate cause of each default, cure rate of the NOD population, and potential repair cost curtailment for appropriate claims on damaged properties as permitted byunder our Master Policy. ~~In the event of~~Cure rates on loan defaults following natural disasters ~~cure rates~~ are influenced by the adequacy of homeowners and other hazard insurance carried on a related property, GSE-sponsored forbearance and other assistance programs, and a borrower's access to aid from government entities and private organizations, in ad~~dition~~addition to other factors which generally impact cure rates in unaffected areas.

The following table provides a reconciliation of the beginning and ending reserve balances for primary insurance claims and ~~claims~~claim expenses.

Current year ⁽²⁾

Prior years ⁽³⁾

Related to ceded losses recoverable under the QSR Transactions, included in "Other assets" on the condensed consolidated balance sheets. See Item 1, "Financial Statements - Notes to Condensed Consolidated Financial Statements - Note 5, Reinsurance" for additional information.

Represents the settlement of reinsurance recoverables in conjunction with the termination of one reinsurer under the 2016 QSR Transaction on a cut-off basis. See Item 1, "Financial Statements - Notes to Condensed Consolidated Financial Statements - Note 5, Reinsurance" for additional information.

⁽¹⁾ ~~Related to ceded losses recoverable under the QSR Transactions, included in "Other Assets" on the Condensed Consolidated Balance Sheets. See Item 1, "Financial Statements - Notes to Consolidated Financial Statements - Note 5, Reinsurance"~~ ~~for additional information.~~

⁽³⁾ ~~Related to insured loans with defaults occurring in prior years, which have been continuously in default since that time. Amounts are net of reinsurance.~~

The "claims incurred" section of the table above shows claims and claim expenses incurred on NODs for current and prior years, including IBNR reserves and is presented net of reinsurance. The amount of claims incurred for current year NODs represents the estimated amount to be ultimately paid on such loans in default. The decreases during the periods presented in reserves held for prior year defaults represent favorable development and are generally the result of NOD cures and ongoing analysis of recent loss development trends. We may increase or decrease our original estimates as we ~~learn~~gather additional information about individual defaults

and claims and continue to observe and analyze loss development trends in our portfolio. Gross reserves of ~~$3.7~~$6.6 million related to prior year defaults remained as of September 30, ~~2018.~~2019.

The following table provides a reconciliation of the beginning and ending count of loans in ~~default for the periods indicated.~~default.

The increase in the ending default inventory at September 30, ~~2018~~2019 compared to September 30, ~~2017 was~~2018, primarily ~~due~~relates to ~~the aging of earlier book years and~~ an increase in new defaults tied to the ~~overall~~growth in the number of policies in force and the aging of our ~~portfolio which, historically drives a general increase~~earlier book years, partially offset by cure activity on our beginning NOD population. The ratio of cures to new defaults decreased during the three and nine months ended September 30, 2019 compared to the same periods in ~~defaults, as well as~~the prior year due to the elevated level of defaults on insured loans in areas ~~impacted~~declared by ~~natural disasters that occurred~~FEMA to be individual disaster zones following Hurricanes Harvey and Irma, and the California wildfires in ~~late 2017.~~2017, and the subsequent curing of the majority of such defaults in 2018.

The following table provides details of our claims paid, before giving effect to claims ceded under the ~~2016~~ QSR ~~Transaction,~~Transactions, for ~~the periods indicated. No claims paid were ceded under the 2018 QSR Transaction during~~ the periods indicated.

Number of claims paid ⁽¹⁾

Average amount paid per claim⁽²⁾

Severity⁽³⁾⁽²⁾

⁽¹⁾ ~~Count includes claims settled without payment.~~

⁽²⁾~~Calculation is net of claims settled without payment.~~

⁽³⁾~~Severity represents the total amount of claims paid including claims expenses divided by the related RIF on the loan at the time the claim is perfected.~~

The increase in the number of claims paid for the three and nine months ended September 30, ~~2018,~~2019, compared to the ~~same periods~~three and nine months ended September 30, ~~2017,~~2018, is due to an increase in our default inventory and the continued growth and seasoning of our insured portfolio.

Our claims severity for each of the three and nine months ended September 30, 2019 was 70%, compared to 80% and 76% for the three and nine months ended September 30, 2018. Claims ~~settled without payment are included~~severity in ~~claim counts, but excluded~~each period benefitted from ~~averages.~~home price appreciation. Increasing values of the homes underlying the loans we insure generally causes a decline in the severity of claims that we pay. Over time, we expect the severity of claims paid to be between 85% and 95% of the coverage amount. ~~We believe our severity for the period ended September 30, 2018 is below long-term expectations due to home price appreciation in recent periods.~~

The following table ~~shows~~provides detail on our average reserve per default, before giving effect to reserves ceded under the QSR Transactions, as of the ~~periods~~dates indicated.

⁽¹⁾~~Defined as the gross reserve per insured loan in default.~~


⁽¹⁾	Defined as the gross reserve per insured loan in default.


⁽²⁾	Amount includes claims adjustment expenses.

The average reserve per default at September 30, ~~2018 decreased~~2019 increased from September 30, ~~2017,~~2018, primarily due to cure activity on defaults ~~on insured~~outstanding at September 30, 2018 for loans in areas impacted by natural ~~disasters. As~~disasters and the aging of September 30, 2018, 91 of the 746 loans in default relate to homes in areas declared by FEMA to be disaster zones following natural catastrophes. We expect that this population of loans in default will cure at a higher rate than the estimated rate we apply to non-disaster related loans in default, due to our historical and observed industry

experience, and current economic indicators and relief programs. As such, we have established lower reserves for this population of NODs than we otherwise would for a similarly situated set of NODs in non-disaster zones. Over time, we anticipate that our average reserve per default will increase as the NODs in these zones cure and our NOD population ~~continues to age.~~from non-disaster zones.

GSE Oversight

As an~~Approved Insurer~~ approved insurer, NMIC is subject to ongoing compliance with the ~~PMIERs.~~PMIERs established by each of the GSEs (~~Italicized~~italicized terms have the same meaning that such terms have in the PMIERs, as described ~~below.)~~below). The PMIERs establish operational, business, remedial and financial requirements applicable to~~Approved Insurers~~ approved insurers. The PMIERs financial requirements prescribe a risk-based methodology whereby the amount of assets required to be held against each insured loan is determined based on certain loan-level risk characteristics, such as FICO, vintage (year of origination), performing vs. non-performing (i.e., current vs. delinquent), LTV ratio and other risk features. ~~An asset charge is calculated for each insured loan based on its risk profile.~~ In general, higher quality loans carry lower asset charges.

Under the PMIERs, ~~financial requirements,~~ ~~Approved Insurers~~ approved insurers must maintainavailable assets that equal or exceedminimum required assets, which is an amount equal to the greater of (i) $400 million or (ii) a total risk-based required asset amount. Therisk-based required asset amount is a function of the risk profile of an~~Approved Insurer's~~ ~~net~~ approved insurer's RIF, ~~calculated by applying~~assessed on a loan-by-loan basis and considered against certain risk-based factors derived from tables set out in the PMIERs ~~to the net RIF, and other transactional adjustments~~, which is then adjusted on an aggregate basis for reinsurance transactions approved by the GSEs, such as with respect to our ILN Transactions and QSR Transactions. Therisk-based required asset amountfor performing, primary insurance is subject to a floor of 5.6% of ~~total,~~ performing primary adjusted RIF, and the risk-based required asset amountfor pool insurance considers both ~~the~~ factors in the PMIERs tables and thenet remaining stop lossfor each pool insurance policy. ~~The PMIERs financial requirements also increase the amount of~~ ~~available assets~~ ~~that must be held by an~~ ~~Approved Insurer~~ ~~for LPMI policies originated on or after January 1, 2016.~~

By April 15th of each year, NMIC must certify it met all PMIERs requirements as of December 31st of the prior year. We certified to the GSEs by April 15, ~~2018~~2019 that NMIC was in full compliance with the PMIERs as of December 31, ~~2017.~~2018. NMIC also has an ongoing obligation to immediately notify the GSEs in writing upon discovery of a ~~material~~ failure to meet one or more of the PMIERs requirements. We continuously monitor ~~our~~NMIC's compliance with the PMIERs.

~~The following table provides a comparison of the PMIERs financial requirements as reported by NMIC as of the dates indicated.~~

As of
September 30, 2018 September 30, 2017
(In Thousands)
Available assets $ 702,020
$ 495,182
Risk-based required assets 398,975
356,207

~~The increase in~~ ~~available assets~~ of $207 million as of September 30, 2018 compared to September 30, 2017 is driven by our positive cash flow from operations and a $70 million capital contribution from NMIH to NMIC during the second quarter of 2018, partially offset by an increase in our unearned premium reserve. The increase in the ~~risk-based required asset amount~~ ~~of $43 million is due to the growth of our gross RIF and, to a lesser extent, an increase in our NOD population, which has a higher~~ ~~risk-based required asset amount~~ ~~charge, partially offset by the cession of risk relating to our third-party reinsurance agreements.~~

On September 27, 2018, the GSEs published revised PMIERs that ~~will take~~took effect and ~~become~~became applicable to NMIC on March 31, 2019. ~~We expect that~~The following table provides a comparison of the PMIERs available assets and risk-based required asset amount as reported by NMIC ~~will remain~~as of the dates indicated as calculated under the applicable PMIERs requirement.



	As of
	September 30, 2019		September 30, 2018
	(In Thousands)
Available assets	$	955,554	$	702,020
Risk-based required assets	637,914		398,975

Available assets were $956 million at September 30, 2019, compared to $702 million at September 30, 2018. The increase in ~~full compliance with~~available assets of $254 million was driven by our positive cash flow from operations and the ~~existing and~~impact of adopting the revised PMIERs ~~as applicable, prior to and after~~guidance effective March 31, 2019. The increase in the risk-based required asset amount was primarily due to the growth of our gross RIF and the termination of our engagement with and recapture of previously ceded primary RIF from one reinsurer under the 2016 QSR Transaction, partially offset by the cession of risk generally under our third-party reinsurance agreements.

Capital Position of Our Insurance Subsidiaries and Financial Strength Ratings

In addition to GSE-imposed asset requirements, NMIC is ~~also~~ subject to state regulatory minimum capital requirements based on its RIF. While formulations of this minimum capital may vary by jurisdiction, the most common measure allows for a maximum permitted RTC ratio of 25:1.

As of September 30, ~~2018,~~2019, NMIC's performing primary RIF, net of reinsurance, was approximately ~~$9.7~~$13.2 billion. NMIC ceded 100% of its pool RIF pursuant to the 2016 QSR Transaction. Based on NMIC's total statutory ~~surplus~~capital of ~~$698.0~~$888 million (including contingency reserves) as of September 30, ~~2018,~~2019, NMIC's RTC ratio was ~~13.9:~~14.8:1. Re One had total statutory capital of ~~$34.7~~$36 million as of September 30, ~~2018, with~~2019, and a RTC ratio of ~~1.0:~~1.2:1. We continuously monitor our compliance with state capital requirements.

In ~~May 2018,~~October 2019, Moody's Investors Service (Moody's) upgraded its financial strength rating of NMIC from ~~"Ba1"~~"Baa3" to ~~"Baa3" for NMIC~~"Baa2" and ~~issued a "Ba3"~~upgraded its rating ~~for~~of NMIH's $150 million senior secured 2018 Term Loan ~~compared~~and 2018 Revolving Credit Facility from "Ba3" to ~~its previous "B1" rating on the 2015 Term Loan.~~"Ba2". The outlook for ~~both~~Moody's ratings is stable. In ~~July 2018,~~June 2019, S&P ~~affirmed~~upgraded its ~~"BBB-"~~ financial strength and long-term counter-party credit ratings onof NMIC from "BBB-" to "BBB" and upgraded its ~~"BB-"~~ long-term counter-party credit rating ~~on NMIH.~~of NMIH from "BB-" to "BB". The outlook ~~on both~~for S&P's ratings is positive.

Competition

The MI industry is highly competitive and currently consists of six private mortgage insurers, including NMIC, as well as ~~public~~government MIs ~~like~~such as the FHA, ~~and the~~USDA or VA. Private MI companies compete based on service, customer relationships, underwriting and other factors, including ~~price.~~price, credit risk tolerance and information technology capabilities. We expect the private MI market to remain competitive, with pressure for industry participants to ~~grow~~maintain or ~~maintain~~grow their market share.

The private MI industry overall competes more broadly with ~~public~~government MIs who significantly increased their presence in the MI market following the financial crisis. Although there has been broad policy consensus toward the need for increasing private capital ~~to play a larger role~~participation and decreasing government exposure to credit risk ~~to be reduced~~ in the U.S. housing finance system, it remains difficult to predict whether the combined market share of ~~public~~government MIs will recede to historical levels. A range of factors influence a lender's and borrower's decision to choose private over ~~public~~government MI, including among others, premium rates and other charges, loan eligibility requirements, cancelability, loan size limits and the relative ease of use of private MI products compared to ~~public~~government MI alternatives.

Consolidated Results of Operations


Consolidated statements of operations	Three months ended						Nine months ended						Three months ended						Nine months ended
	September 30, 2018			September 30, 2017			September 30, 2018			September 30, 2017			September 30, 2019			September 30, 2018			September 30, 2019			September 30, 2018
Revenues	(In Thousands)												(In Thousands)
Net premiums earned	$	65,407		$	44,519		$	181,936		$	115,661		$	92,381		$	65,407		$	249,499		$	181,936
Net investment income	6,277			4,170			16,586			11,885			7,882			6,277			22,894			16,586
Net realized investment (losses) gains	(8		)	69			51			198
Net realized investment gains (losses)													81			(8		)	(219		)	51
Other revenues	85			195			193			461			1,244			85			1,700			193
Total revenues	71,761			48,953			198,766			128,205			101,588			71,761			273,874			198,766
Expenses
Insurance claims and claim expenses	1,099			957			3,311			2,965			2,572			1,099			8,238			3,311
Underwriting and operating expenses	30,379			24,645			87,852			78,682			33,244			30,379			96,636			87,852
Total expenses	31,478			25,602			91,163			81,647			35,816			31,478			104,874			91,163
Other expense
Loss from change in fair value of warrant liability	(5,464		)	(502		)	(4,935		)	(679		)
Gain (loss) from change in fair value of warrant liability													1,139			(5,464		)	(6,025		)	(4,935		)
Interest expense	(2,972		)	(3,352		)	(11,951		)	(10,146		)	(2,979		)	(2,972		)	(9,111		)	(11,951		)
Income before income taxes	31,847			19,497			90,717			35,733			63,932			31,847			153,864			90,717
Income tax expense	7,036			7,185			18,310			11,917			14,169			7,036			32,102			18,310
Net income	$	24,811		$	12,312		$	72,407		$	23,816		$	49,763		$	24,811		$	121,762		$	72,407

Earnings per share - Basic													$	0.73		$	0.38		$	1.81		$	1.12
Earnings per share - Diluted													$	0.69		$	0.36		$	1.75		$	1.07

Loss ratio⁽¹⁾	1.7		%	2.1		%	1.8		%	2.6		%	2.8		%	1.7		%	3.3		%	1.8		%
Expense ratio⁽²⁾	46.4		%	55.4		%	48.3		%	68.0		%	36.0		%	46.4		%	38.7		%	48.3		%
Combined ratio	48.1		%	57.5		%	50.1		%	70.6		%	38.8		%	48.1		%	42.0		%	50.1		%


⁽¹⁾	Loss ratio is calculated by dividing the provision for insurance claims and claim expenses by net premiums earned.


⁽²⁾	Expense ratio is calculated by dividing underwriting and operating expenses by net premiums earned.

⁽¹⁾ ~~Loss ratio is calculated by dividing the provision for insurance claims and claims expenses by net premiums earned.~~

⁽²⁾~~Expense ratio is calculated by dividing other underwriting and operating expenses by net premiums earned.~~

Revenues

For the three and nine months ended September 30, ~~2018,~~2019, net premiums earned increased ~~$20.9~~$27.0 million or ~~47%~~41% and ~~$66.3~~$67.6 million or ~~57%~~37%, respectively, compared to the three and nine months ended September 30, ~~2017.~~2018. The increase ~~in both periods~~ is primarily due to the growth of our IIF and increased monthly policy production, as well as an increase in earnings from single premium policy cancellations, partially offset by ~~increases to~~increased cessions under the QSR Transactions tied to the growth of our direct premium volume and the inception ~~dates~~ of the 2018 and 2019 ILN Transactions.

For the three and nine months ended September 30, ~~2018,~~2019, net investment income increased ~~$2.1~~$1.6 million and ~~$4.7~~$6.3 million, respectively, compared to the three and nine months ended September 30, ~~2017~~2018, due to an increase in the size and yield of ~~and improved yields on~~ our ~~total~~ investment portfolio.

For the three and nine months ended September 30, 2019, other revenues increased $1.2 million and $1.5 million, respectively, compared to the three and nine months ended September 30, 2018. Other revenues represents underwriting fee revenue from our subsidiary, NMIS, which provides outsourced loan review services to mortgage loan originators. The increase in the period presented is due to an increase in NMIS' outsourced loan review volume. Amounts recognized in other revenue generally correspond with amounts incurred in underwriting and operating expenses for outsourced loan review services (in the same periods).

Expenses

We recognize insurance claims and claim expenses in connection with the loss experience of our insured portfolio and incur other underwriting and operating expenses, including employee compensation and benefits, policy acquisition costs, and technology, professional services and facilities expenses, in connection with the development and operation of our business.

Insurance claims and claim expenses increased ~~$0.1~~$1.5 million ~~or 15%~~ and ~~$0.3~~$4.9 million or 12% for the three months and nine months ended September 30, 2018, respectively, compared to the three months and nine months ended September 30, 2017, primarily due to an increase in new NODs and aging of existing NODs, partially offset by the release of reserves related to prior year defaults.

~~Underwriting and operating expenses increased $5.7 million or 23% and $9.2 million or 12%,~~ for the three and nine months ended September 30, ~~2018,~~2019, respectively, compared to the three and nine months ended September 30, ~~2017. Employee compensation accounts~~2018, primarily due to an increase in NODs tied to the growth in the number of policies in force and the aging of our earlier book years, and an increase in our average reserve per default tied to the aging of our NOD population from non-disaster zones and composition of our default inventory between loans in disaster and non-disaster impacted areas. The growth in insurance claims and claim expenses for the ~~majority~~three and nine months ended September 30, 2018 was partially offset by the release of ~~our~~prior year reserves tied to NOD cures and ongoing analysis of recent loss development trends.

Underwriting and operating expenses ~~which~~ increased $2.9 million or 9% and $8.8 million or 10% for the three and nine months ended September 30, 2019, respectively, compared to the three and nine months ended September 30, 2018. The increase relates to an increase in underwriting expenses associated with the growth in our policy volume, as well as certain employee compensation and technology costs incurred to support the growth of our business, ~~particularly~~and an increase in ~~our operating functions.~~NMIS’ outsourced loan review expenses incurred in connection with the growth in outsourced loan review volume. We incurred ~~$2.6~~$2.4 million of underwriting and operating expenses during the nine months ended September 30, ~~2018~~2019 in connection with the ~~2018~~2019 ILN Transaction completed in July ~~2018.~~2019. Underwriting and operating expenses for the nine months ended September 30, ~~2017~~2018 included ~~$4.8~~$2.6 million related to the ~~2017~~2018 ILN Transaction ~~and an amendment of the 2015 Credit Agreement.~~completed in July 2018.

Interest expense was $3.0 million and $9.1 million for the three and nine months ended September 30, 2019, respectively, compared to $3.0 million and $12.0 million, for the three and nine months ended September 30, 2018, ~~respectively, compared to $3.4 million and $10.1 million, respectively, for the three and nine months ended September 30, 2017.~~respectively. Interest expense for the nine months ended September 30, 2018 included $2.2 million of costs related to the extinguishment of the 2015 Term Loan and issuance of the 2018 Term Loan completed in May 2018. Interest expense for the ~~three~~nine months ended September 30, ~~2018 declined compared to the three months ended September 30, 2017 due to the reduction in the~~2019 further benefited from a lower interest spread payable on ~~our~~ borrowings under the 2018 Term Loan as compared to the 2015 Term ~~Loan.~~Loan, partially offset by commitment fees recognized in interest for the 2018 Revolving Credit Facility. See Item 1, "Financial Statements - Notes to Condensed Consolidated Financial Statements - Note 4, ~~Debt Obligations.~~Debt."

Income tax expense ~~increased~~was $14.2 million and $32.1 million for the three and nine months ended September 30, 2019, respectively, compared to $7.0 million and $18.3 million for the three and nine months ended September 30, 2018, ~~from $11.9 million for the nine months ended September 30, 2017 because of~~respectively. Income tax expense increased due to the growth in our pre-tax income, partially offset by a decrease in our effective tax rate. Our effective tax rate on our pre-tax income decreased to 20.2% for the nine months ended September 30, 2018 from 33.3% for the nine months ended September 30, 2017, primarily because the TCJA reduced the statutory U.S. federal corporate income tax rate to 21% for the current and all future years from 35% for all prior years through December 31, 2017.income. Our provision for income taxes for interim periods is established based on our estimated annual effective tax rate for a given year. ~~We expect our annual~~Our effective tax rate on our pre-tax income was 22.2% and 20.9% for the ~~year ending December 31,~~three and nine months ended September 30, 2019, respectively, compared to 22.1% and 20.2% for the three and nine months ended September 30, 2018, ~~will approximate the current~~respectively. We are subject to a 21% statutory U.S. federal corporate income tax rate. Our effective tax rate for the three and nine months interim periods ended September 30, 2019 and 2018 reflect the discrete tax effects of the vesting of RSUs and exercise of options, and the change in fair value of our warrant liability in each period. See Item 1, "Financial Statements - Notes to Condensed Consolidated Financial Statements - Note 9, Income Taxes."

Net Income

Net income was $49.8 million and $121.8 million for the three and nine months ended September 30, 2019, respectively, compared to $24.8 million and $72.4 million for the three and nine months ended September 30, 2018, respectively. The increase in net income primarily relates to growth in total revenues, partially offset by an increase in total expenses and an increase in tax expense.

Diluted EPS was $0.69 and $1.75 for the three and nine months ended September 30, 2019, respectively, compared to $0.36 and $1.07 for the three and nine months ended September 30, 2018, respectively. Diluted EPS increased due to growth in net income, partially offset by an increase in weighted average diluted shares outstanding.


Consolidated balance sheets	September 30, 2018		December 31, 2017		September 30, 2019		December 31, 2018
	(In Thousands)				(In Thousands)
Total investment portfolio	$	874,435	$	715,875	$	1,073,176	$	911,490
Cash and cash equivalents	18,187		19,196		45,889		25,294
Premiums receivable	34,675		25,179		45,730		36,007
Deferred policy acquisition costs, net	44,437		37,925		56,642		46,840
Software and equipment, net	22,887		22,802		26,303		24,765
Prepaid reinsurance premiums	33,058		40,250		17,917		30,370
Deferred tax asset, net	6,880		19,929
Other assets	17,922		13,692		35,805		17,277
Total assets	$	1,052,481	$	894,848	$	1,301,462	$	1,092,043
Term loan	$	147,009	$	143,882	$	146,007	$	146,757
Unearned premiums	162,893		163,166		145,146		158,893
Accounts payable and accrued expenses	27,134		23,364		39,296		31,141
Reserve for insurance claims and claims expenses	10,908		8,761
Reserve for insurance claims and claim expenses					20,505		12,811
Reinsurance funds withheld	28,953		34,102		16,072		27,114
Deferred ceding commission	4,161		5,024
Warrant liability	10,930		7,472		6,364		7,296
Deferred tax liability, net					43,769		2,740
Other liabilities					10,816		3,791
Total liabilities	391,988		385,771		427,975		390,543
Total shareholders' equity	660,493		509,077		873,487		701,500
Total liabilities and shareholders' equity	$	1,052,481	$	894,848	$	1,301,462	$	1,092,043

As of September 30, ~~2018,~~2019, we had ~~approximately $892.6 million~~$1.1 billion in cash and investments, including ~~$50.8~~$43.3 million held by NMIH. The increase in cash and ~~cash equivalents and~~ investments from December 31, ~~2017 primarily~~2018 relates to cash generated from ~~operations and net proceeds of approximately $79.2 million from the common stock offering completed in March 2018.~~

Premiums receivable was ~~$34.7~~$45.7 million as of September 30, ~~2018,~~2019, compared to ~~$25.2~~$36.0 million as of December 31, ~~2017.~~2018. The increase was primarily driven by the increase in our monthly premium policies in force, where premiums are generally paid one month in arrears.

Net deferred policy acquisition costs were ~~$44.4~~$56.6 million as of September 30, ~~2018,~~2019, compared to ~~$37.9~~$46.8 million atas of December 31, ~~2017.~~2018. The increase was primarily driven by growth in the number of policies written during the period ~~ended September 30, 2018~~ and the deferral of certain costs associated with the origination of those policies, partially offset by the amortization of previously deferred acquisition costs.

Prepaid reinsurance premiums were ~~$33.1~~$17.9 million as of September 30, ~~2018,~~2019, compared to ~~$40.3~~$30.4 million as of December 31, ~~2017. The prepaid~~2018. Prepaid reinsurance premiums, ~~balance represents~~which represent the unearned premiums ~~reserve~~ on single premium policies ceded under the 2016 QSR ~~Transaction. The reinsurance coverage period~~Transaction, decreased due to the termination of our engagement with one reinsurer under the 2016 QSR Transaction ~~ended for new premiums written after December 31, 2017,~~ and ~~under~~ the 2018 QSR Transaction we cede premiums on singles policies on an earned basis. Consequently, we did not cede any unearned premium reserves on singles policies with coverage effective dates on or after January 1, 2018. The decrease in prepaid reinsurance premiums reflects thecontinued amortization of ~~the unearned premiums, reserve on singles policies~~ previously ceded ~~under the 2016 QSR Transaction.~~unearned premiums.

~~Net deferred tax~~Other assets ~~decreased~~increased to ~~$6.9~~$35.8 million as of September 30, 2019 from $17.3 million as of December 31, 2018. Other assets as of September 30, 2019 includes $7.6 million of tax and loss bonds and $6.9 million of operating lease right-of-use assets, which we recognized following the adoption of ASU 2016-02, Leases (Topic 842). See Item 1, "Financial Statements - Notes to Condensed Consolidated Financial Statements - Note 9, Income Taxes." and "Financial Statements - Notes to Condensed Consolidated Financial Statements - Note 10, Leases."

Unearned premiums decreased from $158.9 million as of December 31, 2018 to $145.1 million as of September 30, 2019, primarily due to the amortization of existing unearned premiums through earnings in accordance with the expiration of risk on related single premium policies and the cancellation of other single premium policies, partially offset by single premium policy originations during the nine months ended September 30, 2019.

Accounts payable and accrued expenses increased from ~~$19.9~~$31.1 million as of December 31, 2018 to $39.3 million as of September 30, 2019, primarily due to unsettled payments from the purchase of certain securities and an increase in reinsurance premiums payable, partially offset by the payment of previously accrued compensation.

Reserve for insurance claims and claim expenses increased from $12.8 million as of December 31, 2018 to $20.5 million as of September 30, 2019, primarily due to an increase in NODs tied to the growth in the number of policies in force and the aging of our earlier book years, and an increase in our average reserve per default tied to the aging of our NOD population from non-disaster zones and composition of our default inventory between loans in disaster and non-disaster impacted areas, partially offset by the release of prior year reserves tied to NOD cures and ongoing analysis of recent loss development trends. See "- Insurance Claims and Claim Expenses," abovefor further details.

Reinsurance funds withheld was $16.1 million as of September 30, 2019, representing the net of our ceded reinsurance premiums written, less our profit and ceding commission receivables related to the 2016 QSR Transaction. The decrease in reinsurance funds withheld of $11.0 million from December 31, 2018, relates to the termination of our engagement with one reinsurer under the 2016 QSR Transaction and the continued decline in ceded premiums written on single premium policies, due to the end of the reinsurance coverage period for new business under the 2016 QSR Transaction at December 31, 2017. See Item 1, "Financial Statements - Notes to Condensed Consolidated Financial Statements - Note 5, Reinsurance."

Warrant liability decreased from $7.3 million at December 31, ~~2017,~~2018 to $6.4 million at September 30, 2019, primarily due to the ~~utilization~~reclassification of ~~net operating loss carryforwards~~warrant liability to additional paid-in capital following the exercise of warrants during the ~~period.~~nine months ended September 30, 2019, partially offset by an increase in our stock price. For further information regarding the valuation of our warrant liability and its impact on our results of operations and financial position, see Item 1, "Financial Statements - Notes to Condensed Consolidated Financial Statements - Note 3, Fair Value of Financial Instruments."

Net deferred tax liability increased from $2.7 million as of December 31, 2018 to $43.8 million as of September 30, 2019, primarily due to the forecasted deductibility of our statutory contingency reserve in fiscal year 2019. For further information regarding income taxes and their impact on our results of operations and financial position, see Item 1, "Financial Statements - Notes to Condensed Consolidated Financial Statements - Note 9, Income Taxes."

Other ~~assets increased to $17.9 million~~liabilities as of September 30, ~~2018 from $13.7~~2019 include $7.9 million as of ~~December 31, 2017, driven by an increase in accrued investment income and prepaid expenses for various contracts renewals, as well as~~operating lease liabilities, which we recognized following the ~~capitalization~~adoption of ~~$1.3 million deferred debt issuance costs in connection with the establishment of the 2018 Revolving Credit Facility.~~

Unearned premiums decreased $0.3 million to $162.9 million as of September 30, 2018, primarily due to the amortization through earnings of existing unearned premiums in accordance with the expiration of risk on the related policies and the cancellation of other single premium policies, partially offset by single premium policy origination during the period.

Accounts payable and accrued expense increased to $27.1 million as of September 30, 2018, from $23.4 million at December 31, 2017, primarily due to an increase in personnel expense and deferred rent accruals, reinsurance premiums payable and unsettled payments from the purchase of certain securities at September 30, 2018.

Reserve for insurance claims and claim expenses increased $2.1 million to $10.9 million at September 30, 2018, primarily due to an increase in the number of new defaults and the aging of existing defaults in our general loan population, offset by the release of reserves on cured defaults. See "~~- Insurance Claims and Claims Expenses," abovefor further details.~~

Reinsurance funds withheld was $29.0 million as of September 30, 2018, representing ceded premiums written, less our profit and ceding commission receivables under the 2016 QSR Transaction. The decrease in reinsurance funds withheld of $5.1 million from December 31, 2017, was a result of a decline in ceded premiums written on single premium policies, due to the end of the effective reinsurance coverage period of the 2016 QSR Transaction at December 31, 2017.ASU 2016-02, Leases (Topic 842). See Item 1, "Financial Statements - Notes to Condensed Consolidated Financial Statements - Note ~~5, Reinsurance~~.10, Leases."

Warrant liability increased to $10.9 million at September 30, 2018, compared to $7.5 million at December 31, 2017, primarily due to the increase in our common stock price during the period, with additional impact related to changes in the Black-Scholes model inputs and exercises of outstanding warrants. For further information regarding valuation of our warrant liability and their impact on our results of operations and financial position, see Item 1, "~~Financial Statements - Notes to Condensed Consolidated Financial Statements - Note 3, Fair Value of Financial Instruments.~~"

The following table summarizes our consolidated cash flows from operating, investing and financing activities.

Net cash provided by operating activities was $139.6 million for the nine months ended September 30, 2019, compared to $99.3 million for the nine months ended September 30, ~~2018, compared to $41.8 million for the nine months ended September 30, 2017.~~2018. The increase in cash generated from operating activities was primarily driven by growth in premiums written and investment income, partially offset by ~~increases in~~increased operating expenses ~~as well as higher claims paid due to an increase in our default inventory.~~and the purchase of tax and loss bonds.

Cash used in investing activities for the periods presented ~~was driven by~~reflects the purchase of fixed and short-term maturities ~~during those periods.~~with cash provided by operating and financing activities, and the reinvestment of coupon payments, maturities and sale proceeds within our investment portfolio. Cash used in investing activities for the nine months ended September 30, 2018 reflects, in part, the investment of net cash proceeds ~~from the~~raised in a common stock offering we completed in March 2018.

Cash used in financing activities was $1.7 million for the nine months ended September 30, 2019, compared to cash provided by financing activities ~~was~~of $80.6 million for the nine months ended September 30, ~~2018, compared to cash used in~~2018. Cash provided by financing activities ~~of $2.3 million~~ for the nine months ended September 30, ~~2017. The increase was primarily driven by the~~2018 reflects $79.2 million of net cash proceeds raised ~~through the~~in a common stock offering we completed in March 2018, partially offset by the net cash used in connection with the extinguishment of the 2015 Term Loan, and establishment of the 2018 Term Loan and 2018 Revolving Credit Facility, as well as an increase in taxes paid on the net share settlement of equity awards.2018.

Holding Company Liquidity and Capital Resources

NMIH serves as the holding company for our insurance subsidiaries and does not have any significant operations of its own. NMIH's principal liquidity demands include funds for: (i) payment of certain corporate expenses; (ii) payment of certain reimbursable expenses of its insurance subsidiaries; (iii) payment of principal ~~interest~~ and ~~other fees~~interest related to the 2018 Term Loan and 2018

Revolving Credit ~~Agreement;~~Facility; (iv) tax payments to the Internal Revenue Service; (v) capital support for its subsidiaries; and (vi) payment of dividends, if any, on its common stock. NMIH is not subject to any limitations on its ability to pay dividends except those generally applicable to corporations ~~such as NMIH,~~ that are incorporated in Delaware. Delaware ~~corporation~~ law provides that dividends are only payable out of a corporation's surplus or recent net profits (subject to certain limitations).

As of September 30, ~~2018,~~2019, NMIH had ~~$50.8~~$43.3 million of cash and investments. NMIH's principal source of net ~~operating~~ cash is investment income. NMIH also has access to ~~the~~ $85 million of undrawn revolving credit capacity under the 2018 Revolving Credit Facility and in$2.7 million of ordinary course dividend capacity from Re One. In the future, NMIH could benefit from ~~dividends~~dividend capacity from NMIC, ~~and Re One, if~~as available and permitted under law and by the GSEs.

In March 2018, NMIH completed the sale of 4.3 million shares of common stock, including the exercise of a 15% overallotment option to purchase additional shares, and raised proceeds of approximately $79.2 million, net of underwriting discounts, commissions and other direct offering expenses. In April, 2018, NMIH made a capital contribution of $70 million to NMIC.

NMIH has entered into tax and expense-sharing agreements with its subsidiaries which have been approved by the Wisconsin OCI, but such approval may be changed or revoked at any time. With the Wisconsin OCI's approval, NMIH began allocating the interest expense on ~~its~~the 2015 Term Loan to NMIC in the first quarter of 2017, consistent with the benefits NMIC received when NMIH ~~down-streamed~~contributed the loan proceeds to NMIC. NMIH received similar approval from the Wisconsin OCI to allocate interest expense to NMIC on the 2018 Term Loan and 2018 Revolving Credit Facility.

~~Our insurance subsidiaries'~~NMIC and Re One's ability to pay dividends to NMIH is subject to insurance department notice or approval. Under Wisconsin law, ~~insurance companies~~NMIC and Re One may pay dividends up to specified levels (i.e., "ordinary" dividends) with 30 days' prior notice to the Wisconsin OCI. Dividends in larger amounts, or "extraordinary" dividends, are subject to the Wisconsin OCI's prior approval. Under Wisconsin insurance laws, an extraordinary dividend is defined as any payment or distribution that together with other dividends and distributions made within the preceding 12 months exceeds the lesser of (i) 10% of the insurer's statutory policyholders' surplus as of the preceding December 31 or (ii) adjusted statutory net income for the 12-month period ending the preceding December 31.

NMIC has never paid any dividends to NMIH. NMIC reported a statutory net loss for the ~~12 months~~year ended December 31, ~~2017~~2018 and cannot pay any dividends to NMIH through December 31, ~~2018~~2019 without the prior approval of the Wisconsin OCI. Re One has never paid dividends to NMIH. Re One ~~currently~~ has ~~the~~ capacity to pay ordinary dividends of ~~$505 thousand~~up to ~~NMIH.~~$2.7 million to NMIH through December 31, 2019. Certain other states in which NMIC and Re One are licensed also have statutes or regulations that may restrict their ability to pay dividends.

As an approved insurer under PMIERs, NMIC would be subject to additional restrictions on its ability to pay dividends to NMIH if it failed to meet the financial requirements prescribed by PMIERs. Approved insurers that fail to meet the PMIERs financial requirements are not permitted to pay dividends without prior approval of the GSEs.

NMIC's capital needs depend on many factors including its ability to successfully write new business, establish premium rates at levels sufficient to cover claims and operating costs and meet minimum required asset thresholds under the PMIERs and minimum state capital requirements. NMIC's capital needs also depend on its decision to access the reinsurance markets. NMIH may require liquidity to fund the capital needs of its insurance subsidiaries.

OnIn May ~~24,~~ 2018, NMIH entered into the 2018 Credit Agreement covering the 2018 Term Loan and 2018 Revolving Credit Facility. The 2018 Term Loan bears interest at the Eurodollar Rate, as defined in the 2018 Credit Agreement and subject to a 1.00% floor, plus an annual margin rate of 4.75%, payable monthly based on our current interest period election. Borrowings under the 2018 Revolving Credit Facility will accrue interest at a variable rate equal to, at our discretion, (i) a base rate (as defined in the 2018 Credit Agreement, subject to a floor of 1.00% per annum) plus a margin of 1.00% to 2.50% per annum, based on the applicable corporate credit rating at the time, or (ii) the Eurodollar Rate (subject to a floor of 0.00% per annum) plus a margin of 2.00% to 3.50% per annum, based on the applicable corporate credit rating at the time. The 2018 Revolving Credit ~~Agreement~~Facility also requires a quarterly commitment fee on the average daily undrawn amount ranging from 0.30% to 0.60%, based on the applicable corporate credit rating at the time.

~~The 2018 Credit Agreement contains~~We are subject to certain covenants ~~for~~under the 2018 Term Loan ~~including (but not limited to)~~and 2018 Revolving Credit Facility. Under the ~~financial covenant of~~2018 Term Loan (and as defined in the 2018 Credit Agreement), we are subject a maximum debt-to-total capitalization ratio of 35%~~, and certain covenants for~~. Under the 2018 Revolving Credit Facility ~~including (but not limited to)~~(and as defined in the ~~following financial covenants:~~2018 Credit Agreement), we are subject to a maximum debt-to-total capitalization ratio of 35%, a minimum liquidity requirement, compliance with the PMIERs financial requirements (subject to any GSE-approved waivers), and minimum consolidated net worth and statutory capital requirements. We were in compliance with all covenants as of September 30, ~~2018.~~2019.

Consolidated Investment Portfolio

Our primary objectives with respect to our investment portfolio are to preserve capital and generate investment income, while maintaining sufficient liquidity to cover our operating needs. We aim to achieve diversification by type, quality, maturity, and industry. We have adopted an investment policy that defines, among other things, eligible and ineligible investments, concentration limits for asset types, industry sectors, single issuers, and certain credit ratings, and benchmarks for asset duration.

~~Substantially all of our~~Our investment portfolio is ~~held in~~entirely comprised of fixed maturity instruments. As of September 30, ~~2018,~~2019, the fair value of our investment portfolio was ~~$874.4 million.~~$1.1 billion. We also had an additional ~~$18.2~~$45.9 million of cash and equivalents as of September 30, ~~2018.~~2019. Pre-tax book yield on the investment portfolio for the nine months ended September 30, ~~2018~~2019 was ~~2.8%~~3.1%. The book yield is calculated as period-to-date net investment income divided by ~~the~~ average amortized cost of the investment portfolio. Yield on the investment portfolio is likely to change over time based on movements in interest rates, credit spreads, the duration or mix of our investment portfolio and other factors.

The following tables present a breakdown of our investment portfolio and cash and cash equivalents by investment type and credit ~~rating.~~rating:


Percentage of portfolio's fair value	September 30, 2018		December 31, 2017		September 30, 2019		December 31, 2018
Corporate debt securities	59	%	59	%	61	%	58	%
Asset-backed securities	19		14		16		18
Municipal debt securities					10		10
Cash, cash equivalents, and short-term investments	7		6		9		9
Municipal debt securities	10		12
U.S. treasury securities and obligations of U.S. government agencies	5		9		4		5
Total	100	%	100	%	100	%	100	%


Investment portfolio ratings at fair value ⁽¹⁾	September 30, 2018		December 31, 2017		September 30, 2019		December 31, 2018
AAA	22	%	21	%	19	%	22	%
AA⁽²⁾	17		19		15		18
A⁽²⁾	43		46		51		42
BBB⁽²⁾	18		14		15		18
BB⁽³⁾					—		—
Total	100	%	100	%	100	%	100	%

⁽¹⁾ ~~Excluded certain operating cash accounts.~~

⁽²⁾ ~~Includes +/– ratings.~~


⁽¹⁾	Excluding certain operating cash accounts.


⁽²⁾	Includes +/– ratings.


⁽³⁾	We held one security with a BB rating at December 31, 2018, which is not identifiable in the table due to rounding.

Our investments are rated by one or more nationally recognized statistical rating organizations. If multiple ratings are available, we assign the middle rating for classification purposes, otherwise we assign the lowest rating.

Investment Securities - Other-than-Temporary Impairment (OTTI)

As of September 30, 2019, we held no other-than-temporarily impaired securities. During the nine months ended September 30, 2019, we recognized a $0.4 million OTTI loss in earnings related to the planned sale of a security in a loss position that was disposed of in April 2019. We did not recognize any OTTI losses for the three months ended September 30, 2019 or the three and nine months ended September 30, 2018. There were no credit losses recognized in earnings for which a portion of an OTTI loss was recognized in accumulated other comprehensive income (loss) for the three or nine months ended September 30, 2018.

Other Items

Off-Balance Sheet Arrangements and Contractual Obligations

We had no material off-balance sheet arrangements as of September 30, ~~2018.~~2019. In connection with the ILN Transactions, we have certain future contractual commitments to the Oaktown Re ~~and Oaktown Re II,~~Vehicles, special purpose VIEs that are not consolidated in our financial results. See Item 1, "Financial Statements - Notes to Condensed Consolidated Financial Statements - ~~"Note 5, Reinsurance.~~Note 1. Organization, Basis of Presentation and Summary of Accounting Principles."

Critical Accounting Estimates

We use accounting principles and methods that conform to GAAP. ~~Where GAAP specifically excludes mortgage insurance we follow general industry practices.~~ We are required to apply significant judgment and make material estimates in the preparation of our financial statements and with regard to various accounting, reporting and disclosure matters. Assumptions and estimates are required to apply these principles where actual measurement is not possible or practical. On an ongoing basis, we evaluate our estimates and assumptions. Our actual results may differ from these estimates under different assumptions or conditions.

We believe that the assumptions and estimates associated with revenue recognition, fair value measurements, our investment portfolio, deferred policy acquisition costs, premium deficiency reserves, income taxes and reserves for insurance claims and ~~claims~~claim expenses ~~warrants and share-based compensation~~ have the greatest potential impact on our consolidated financial statements. Therefore, we consider these to be our critical accounting estimates. There have been no material changes to our critical accounting policies and estimates as compared to the critical accounting policies and estimates described in our ~~2017~~2018 10-K.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

We own and manage a large portfolio of various holdings, types and maturities. NMIH's principal source of operating cash is investment income. The assets within the investment portfolio are exposed to the same factors that affect overall financial market performance.

We manage market risk via a defined investment policy implemented by our treasury function with oversight from our Board of Director's Risk Committee. Important drivers of our market risk exposure monitored and managed by us include but are not limited to:

~~Changes to the level of interest rates~~. Increasing interest rates may reduce the value of certain fixed-rate bonds held in the investment portfolio. Higher rates may cause variable rate assets to generate additional income. Decreasing rates will have the reverse impact. Significant changes in interest rates can also affect persistency and claim rates of our insurance portfolio, and as a result we may determine that our investment portfolio needs to be restructured to better align it with future liabilities and claim payments. Such restructuring may cause investments to be liquidated when market conditions are adverse. Additionally, the changes in Eurodollar based interest rates affect the interest expense related to our debt.

~~Changes to the term structure of interest rates. Rising or falling rates typically change by different amounts along the yield curve. These changes may have unforeseen impacts on the value of certain assets.~~

~~Market volatility/changes in the real or perceived credit quality of investments. Deterioration in the quality of investments, identified through changes to our own or third party (e.g., rating agency) assessments, will reduce the value and potentially the liquidity of investments.~~

~~Concentration Risk~~. If the investment portfolio is highly concentrated in one asset, or in multiple assets whose values are highly correlated, the value of the total portfolio may be greatly affected by the change in value of just one asset or a group of highly correlated assets.

~~Prepayment Risk. Bonds may have call provisions that permit debtors to repay prior to maturity when it is to their advantage. This typically occurs when rates fall below the interest rate of the debt.~~

•

Changes to the level of interest rates. Increasing interest rates may reduce the value of certain fixed-rate bonds held in the investment portfolio. Higher rates may cause variable rate assets to generate additional income. Decreasing rates will have the reverse impact. Significant changes in interest rates can also affect persistency and claim rates of our insurance portfolio, and as a result we may determine that our investment portfolio needs to be restructured to better align it with future liabilities and claim payments. Such restructuring may cause investments to be liquidated when market conditions are adverse. Additionally, the changes in Eurodollar based interest rates affect the interest expense related to the Company's debt.


•	Changes to the term structure of interest rates. Rising or falling rates typically change by different amounts along the yield curve. These changes may have unforeseen impacts on the value of certain assets.


•	Market volatility/changes in the real or perceived credit quality of investments. Deterioration in the quality of investments, identified through changes to our own or third party (e.g., rating agency) assessments, will reduce the value and potentially the liquidity of investments.


•	Concentration Risk. If the investment portfolio is highly concentrated in one asset, or in multiple assets whose values are highly correlated, the value of the total portfolio may be greatly affected by the change in value of just one asset or a group of highly correlated assets.


•	Prepayment Risk. Bonds may have call provisions that permit debtors to repay prior to maturity when it is to their advantage. This typically occurs when rates fall below the interest rate of the debt.

The carrying value of our investment portfolio as of September 30, ~~2018~~2019 and December 31, ~~2017~~2018 was ~~$874 million~~$1.1 billion and ~~$716~~$911 million, respectively, of which 100% was invested in fixed maturity securities. The primary market risk to our investment portfolio is interest rate risk associated with investments in fixed maturity securities. We mitigate the market risk associated with our fixed maturity securities portfolio by matching the duration of our fixed maturity securities with the expected duration of the liabilities that those securities are intended to support.

As of September 30, ~~2018,~~2019, the duration of our fixed income portfolio, including cash and cash equivalents, was 3.38 years, which means that an instantaneous parallel shift (movement up or down) in the yield curve of 100 basis points would result in a change of 3.38% in fair value of our fixed income portfolio. Excluding cash, our fixed income portfolio duration was 3.53 years, which means that an instantaneous parallel shift (movement up or down) in the yield curve of 100 basis points would result in a change of 3.53% in fair value of our fixed income portfolio. Excluding cash, our fixed income portfolio duration was 3.67 years, which means that an instantaneous parallel shift (movement up or down) in the yield curve of 100 basis points would result in a change of 3.67% in fair value of our fixed income portfolio.

We are also subject to market risk related to our 2018 Term Loan and the ILN Transactions. As discussed in Item 1, "Financial Statements - Notes to Condensed Consolidated Financial Statements - Note 4, Debt ~~Obligations,~~" the 2018 Term Loan bears interest at a variable rate and, as a result, increases in market interest rates would generally result in increased interest expense on our outstanding principal.

The risk premium amounts under the ILN Transactions are calculated by multiplying the outstanding reinsurance coverage amount at the beginning of any payment period by a coupon rate, which is the sum of 1-month LIBOR and a risk margin, and then subtracting actual investment income earned on the trust balance during that payment period. An increase in 1-month LIBOR rates would generally increase the risk premium payments, while an increase to money market rates, which directly affect investment income earned on the trust balance, would generally decrease them. Although we expect the two rates to move in tandem, to the extent they do not, it could increase or decrease the risk premium payments that otherwise would be due.

Item 4. Controls and Procedures

Disclosure Controls and Procedures

We maintain disclosure controls and procedures designed to ensure that information required to be disclosed in the reports we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC's rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.

Our management, including our Chief Executive Officer and Chief Financial Officer, conducted an evaluation of the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) of the Exchange Act) as of September 30, ~~2018~~2019 pursuant to Rule 13a-15(e) under the Exchange Act. Management applied its judgment in assessing the costs and benefits of such controls and procedures, which by their nature, can provide only reasonable assurance regarding management's control objectives. Management does not expect that our disclosure controls and procedures will prevent or detect all errors and fraud. A control system, irrespective of how well it is designed and operated, can only provide reasonable assurance and cannot guarantee that it will succeed in its stated objectives.

Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that, as of September 30, ~~2018~~2019 our disclosure controls and procedures were effective to provide reasonable assurance that the information required to be disclosed by us in the reports we file or submit under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the SEC's rules and forms.

Internal Control Over Financial Reporting

There was no change in our internal control over financial reporting that occurred during the period covered by this report that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

PART II

Item 1. Legal Proceedings

Certain lawsuits and claims arising in the ordinary course of business may be filed or pending against us or our affiliates from time to time. In accordance with applicable accounting guidance, we establish accruals for all lawsuits, claims and expected settlements when we believe it is probable that a loss has been incurred and the amount of the loss is reasonably estimable. When a loss contingency is not both probable and estimable, we do not establish an accrual. Any such loss estimates are inherently uncertain, based on currently available information and are subject to management’s judgment and various assumptions. Due to the inherent subjectivity of these estimates and unpredictability of outcomes of legal proceedings, any amounts accrued may not represent the ultimate resolution of such matters.

To the extent we believe any potential loss relating to such lawsuits and claims may have a material impact on our liquidity, consolidated financial position, results of operations, and/or our business as a whole and is reasonably possible but not probable, we will disclose information relating to any such potential loss, whether in excess of any established accruals or where there is no established accrual. We will also disclose information relating to any material potential loss that is probable but not reasonably estimable. Where reasonably practicable, we will provide an estimate of loss or range of potential loss. No disclosures are generally made for any loss contingencies that are deemed to be remote.

Based upon information available to us and our review of lawsuits and claims filed or pending against us to date, we have not recognized a material accrual liability for these matters, nor do we currently expect it is reasonably possible that these matters will result in a material liability to the Company. However, the outcome of litigation and other legal and regulatory matters is inherently uncertain, and it is possible that one or more of such matters currently pending or threatened could have an unanticipated material adverse effect on our liquidity, consolidated financial position, results of operations, and/or our business as a whole, in the future.

Item 1A. Risk Factors

Risk factors that affect our business and financial results are discussed in Part I, Item 1A of our ~~2017 10-K, as updated in our First Quarter 10-Q.~~2018 10-K. As of the date of this report, we are not aware of any material changes in our risk factors from the risk factors disclosed in our ~~2017 10-K, as updated in our First Quarter 10-Q.~~2018 10-K. You should carefully consider the risks and uncertainties described herein and in our ~~2017~~2018 10-K, ~~and First Quarter 10-Q,~~ which have the potential to affect our business, financial condition, results of operations, cash flows or prospects in a material and adverse manner. The risks described herein and in our ~~2017~~2018 10-K ~~and First Quarter 10-Q~~ are not the only risks we face, as there are additional risks and uncertainties not currently known to us or that we currently deem to be immaterial which may in the future adversely affect our business, financial condition and/or operating results.

Item 6. Exhibits



Exhibit Number		Description

2.1		Stock Purchase Agreement, dated November 30, 2011, between NMI Holdings, Inc. and MAC Financial Ltd. (incorporated herein by reference to Exhibit 2.1 to our Form S-1 Registration Statement (Registration No. 333-191635), filed on October 9, 2013)
2.2		Amendment to Stock Purchase Agreement, dated April 6, 2012, between NMI Holdings, Inc. and MAC Financial Ltd. (incorporated herein by reference to Exhibit 2.2 to our Form S-1 Registration Statement (Registration No. 333-191635), filed on October 9, 2013)
3.1		Second Amended and Restated Certificate of Incorporation (incorporated herein by reference to Exhibit 3.1 to our Form S-1 Registration Statement (Registration No. 333-191635), filed on October 9, 2013)
3.2		Third Amended and Restated By-Laws (incorporated herein by reference to Exhibit 3.1 to our Form 8-K, filed on December 9, 2014)
4.1		Specimen Class A common stock certificate (incorporated herein by reference to Exhibit 4.1 to our Form S-1 Registration Statement (Registration No. 333-191635), filed on October 9, 2013)
4.2		Registration Rights Agreement between NMI Holdings, Inc. and FBR Capital Markets & Co., dated April 24, 2012 (incorporated herein by reference to Exhibit 4.2 to our Form S-1 Registration Statement (Registration No. 333-191635), filed on October 9, 2013)
4.3		Registration Rights Agreement by and between MAC Financial Ltd. and NMI Holdings, Inc., dated April 24, 2012 (incorporated herein by reference to Exhibit 4.3 to our Form S-1 Registration Statement (Registration No. 333-191635), filed on October 9, 2013)
4.4		Registration Rights Agreement between FBR & Co., FBR Capital Markets LT, Inc., FBR Capital Markets & Co., FBR Capital Markets PT, Inc. and NMI Holdings, Inc., dated April 24, 2012 (incorporated herein by reference to Exhibit 4.4 to our Form S-1 Registration Statement (Registration No. 333-191635), filed on October 9, 2013)
4.5		Warrant No. 1 to Purchase Common Stock of NMI Holdings, Inc. issued to FBR Capital Markets & Co., dated June 13, 2013 (incorporated herein by reference to Exhibit 4.5 to our Form S-1 Registration Statement (Registration No. 333-191635), filed on October 9, 2013)
4.6		Form of Warrant to Purchase Common Stock of NMI Holdings, Inc. issued to former stockholders of MAC Financial Ltd. (incorporated herein by reference to Exhibit 4.6 to our Form S-1 Registration Statement (Registration No. 333-191635), filed on October 9, 2013)
10.1 ~		NMI Holdings Inc. 2012 Stock Incentive Plan (incorporated herein by reference to Exhibit 10.1 to our Form S-1 Registration Statement (registration No. 333-191635), filed on October 9, 2013)
10.2 ~		~~Form of NMI Holdings, Inc. 2012 Stock Incentive Plan Restricted Stock Unit Award Agreement for Chief Executive Officer and Chief Financial Officer~~ ~~(incorporated herein by reference to Exhibit 10.2 to our Form S-1 Registration Statement (Registration No. 333-191635), filed on October 9, 2013)~~
~~10.3 ~~~		Form of NMI Holdings, Inc. 2012 Stock Incentive Plan Restricted Stock Unit Award Agreement for Management (incorporated herein by reference to Exhibit 10.3 to our Form S-1 Registration Statement (Registration No. 333-191635), filed on October 9, 2013)
~~10.4~~10.3 ~		~~Form of NMI Holdings, Inc. 2012 Stock Incentive Plan Restricted Stock Unit Award Agreement for Directors~~ ~~(incorporated herein by reference to Exhibit 10.4 to our Form S-1 Registration Statement (Registration No. 333-191635), filed on October 9, 2013)~~
~~10.5 ~~~		Form of NMI Holdings, Inc. 2012 Stock Incentive Plan Nonqualified Stock Option Award Agreement for Chief Executive Officer and Chief Financial Officer (incorporated herein by reference to Exhibit 10.5 to our Form S-1 Registration Statement (Registration No. 333-191635), filed on October 9, 2013)
~~10.6~~10.4 ~		Form of NMI Holdings, Inc. 2012 Stock Incentive Plan Nonqualified Stock Option Award Agreement for Management (incorporated herein by reference to Exhibit 10.6 to our Form S-1 Registration Statement (Registration No. 333-191635), filed on October 9, 2013)
~~10.7~~10.5 ~		Form of NMI Holdings, Inc. 2012 Stock Incentive Plan Nonqualified Stock Option Award Agreement for Directors (incorporated herein by reference to Exhibit 10.7 to our Form S-1 Registration Statement (Registration No. 333-191635), filed on October 9, 2013)
~~10.8~~10.6 ~		Form of NMI Holdings, Inc. 2012 Stock Incentive Plan Nonqualified Stock Option Award Agreement for Chief Executive Officer and Chief Financial Officer (incorporated herein by reference to Exhibit 10.8 to our Form 10-K, filed on February 17, 2017)
~~10.9~~10.7 ~		Form of NMI Holdings, Inc. 2012 Stock Incentive Plan Nonqualified Stock Option Award Agreement for Employees (incorporated herein by reference to Exhibit 10.9 to our Form 10-K, filed on February 17, 2017)
~~10.10~~10.8 ~		Amended and Restated Employment Agreement by and between NMI Holdings, Inc. and Bradley M. Shuster, dated December 23, 2015 (incorporated herein by reference to Exhibit 10.1 to our Form 8-K, filed on December 29, 2015)



~~10.11~~10.9 ~		Offer Letter by and between NMI Holdings, Inc. and William Leatherberry, dated July 11, 2014 (incorporated herein by reference to Exhibit 10.10 to our Form 10-Q, filed on April 28, 2016)
~~10.12~~10.10 ~		Offer Letter by and between NMI Holdings, Inc. and Adam Pollitzer, dated February 1, 2017 (incorporated herein by reference to Exhibit 10.1 to our Form 8-K, filed on February 3, 2017)


~~10.13~~
10.11 ~		Form of Indemnification Agreement between NMI Holdings, Inc. and its directors and certain executive officers (incorporated herein by reference to Exhibit 10.1 to our Form 8-K, filed on November 25, 2014)
~~10.14~~10.12 +		Commitment Letter dated July 12, 2013 for Bulk Fannie Mae-Paid Loss-on-Sale Mortgage Insurance on the Portfolio of approximately $5.46 billion Purchased by Fannie Mae and Identified by Fannie Mae as Deal No. 2013 MIRT 01 and by the Company as Policy No. P-0001-01 (incorporated herein by reference to Exhibit 10.14 to our Form S-1 Registration Statement (Registration No. 333-191635), filed on October 9, 2013)
~~10.15~~10.13		Credit Agreement, dated November 10, 2015, between NMI Holdings, Inc., the lenders party thereto and JPMorgan Chase Bank, N.A., as administrative agent (incorporated herein by reference to Exhibit 4.1 to our Form 8-K, filed on November 10, 2015)
~~10.16~~10.14		Amendment No. 1, dated February 10, 2017, to the Credit Agreement dated November 10, 2015, between NMI Holdings, Inc., the lender parties thereto and JPMorgan Chase Bank, N.A., as administrative agent (incorporated herein by reference to Exhibit 10.1 to our Form 8-K, filed on February 10, 2017)
~~10.17~~10.15		Amendment No. 2, dated October 25, 2017, to the Credit Agreement dated November 10, 2015, between NMI Holdings, Inc., the lender parties thereto and JPMorgan Chase Bank, N.A., as administrative agent (incorporated herein by reference to Exhibit 10.1 to our Form 8-K, filed on October 26, 2017)
~~10.18~~10.16		Credit Agreement, dated May 24, 2018, between NMI Holdings, Inc., the lender party thereto, and JPMorgan Chase Bank, N.A., as administrative agent (incorporated herein by reference to Exhibit 4.1 to our Form 8-K, filed on May 25, 2018)
~~10.19~~10.17 ~		NMI Holdings, Inc. Amended and Restated 2014 Omnibus Incentive Plan (incorporated herein by reference to Appendix A to our 2017 Annual Proxy Statement, filed on March 30, 2017)
~~10.20~~10.18 ~		Form of NMI Holdings, Inc. Amended and Restated 2014 Omnibus Incentive Plan Restricted Stock Unit Award Agreement for Chief Executive Officer (incorporated herein by reference to Exhibit 10.19 to our Form 10-Q filed on August 1, 2017)
~~10.21~~10.19 ~		Form of NMI Holdings, Inc. Amended and Restated 2014 Omnibus Incentive Plan Restricted Stock Unit Award Agreement for Executive Officers (incorporated herein by reference to Exhibit 10.20 to our Form 10-Q filed on August 1, 2017)
~~10.22~~10.20 ~		Form of NMI Holdings, Inc. Amended and Restated 2014 Omnibus Incentive Plan Restricted Stock Unit Award Agreement for Employees (incorporated herein by reference to Exhibit 10.21 to our Form 10-Q filed on August 1, 2017)
~~10.23~~10.21 ~		Form of NMI Holdings, Inc. Amended and Restated 2014 Omnibus Incentive Plan Restricted Stock Unit Award Agreement for Independent Directors (incorporated herein by reference to Exhibit 10.22 to our Form 10-Q filed on August 1, 2017)
~~10.24~~10.22 ~		Form of NMI Holdings, Inc. Amended and Restated 2014 Omnibus Incentive Plan Nonqualified Stock Option Award Agreement for Chief Executive Officer (incorporated herein by reference to Exhibit 10.23 to our Form 10-Q filed on August 1, 2017)
~~10.25~~10.23 ~		Form of NMI Holdings, Inc. Amended and Restated 2014 Omnibus Incentive Plan Nonqualified Stock Option Award Agreement for Executive Officers and Employees (incorporated herein by reference to Exhibit 10.24 to our Form 10-Q filed on August 1, 2017)
~~10.26 ~~~		~~Form of NMI Holdings, Inc. 2014 Omnibus Incentive Plan Phantom Unit Award Agreement for Independent Directors~~ ~~(incorporated herein by reference to Exhibit 10.21 to our Form 10-Q, filed on August 5, 2015)~~
~~10.27~~10.24 ~		Form of NMI Holdings, Inc. 2014 Omnibus Incentive Plan Performance Based Restricted Stock Unit Award Agreement for Chief Executive Officer (incorporated herein by reference to Exhibit 10.26 to our Form 10-K, filed on February 17, 2017)
~~10.28~~10.25 ~		NMI Holdings, Inc. Severance Benefit Plan (incorporated herein by reference to Exhibit 10.1 to our Form 8-K, filed on February 17, 2016)
~~10.29 ~~~		~~NMI Holdings, Inc. Change in Control Severance Benefit Plan~~ ~~(incorporated herein by reference to Exhibit 10.1 to our Form 8-K, filed on February 23, 2017)~~
~~10.30~~10.26 ~		NMI Holdings, Inc. Amended and Restated Change in Control Severance Benefit Plan (incorporated herein by reference to Exhibit 10.30 to our Form 10-Q, filed on October 30, 2018)
~~10.31~~~10.27 ~		NMI Holdings, Inc. Clawback Policy (incorporated herein by reference to Exhibit 10.2 to our Form 8-K, filed on February 23, 2017)
10.28 ~		Employment Letter by and between NMI Holdings, Inc. and Bradley M. Shuster, effective as of January 1, 2019 (incorporated herein by reference to Exhibit 10.1 to our Form 8-K, filed on December 28, 2018)
10.29 ~		Employment Letter by and between NMI Holdings, Inc. and Claudia J. Merkle, effective as of January 1, 2019 (incorporated herein by reference to Exhibit 10.2 to our Form 8-K, filed on December 28, 2018)
10.30~		Form of NMI Holdings, Inc. 2012 Stock Incentive Plan Restricted Stock Unit Award Agreement for Independent Directors (incorporated herein by reference to Exhibit 10.30 to our Form 10-Q, filed on May 2, 2019)
10.31~		Form of NMI Holdings, Inc. 2012 Stock Incentive Plan Restricted Stock Unit Award Agreement for Employees (incorporated herein by reference to Exhibit 10.31 to our Form 10-Q, filed on May 2, 2019)
10.32~		Form of NMI Holdings, Inc. 2012 Stock Incentive Plan Nonqualified Stock Option Agreement for Employees (incorporated herein by reference to Exhibit 10.32 to our Form 10-Q, filed on May 2, 2019)



10.33~		Form of NMI Holdings, Inc. Amended and Restated 2014 Omnibus Incentive Plan Restricted Stock Unit Award Agreement for Independent Directors (incorporated herein by reference to Exhibit 10.33 to our Form 10-Q, filed on May 2, 2019)
10.34~		Form of NMI Holdings, Inc. Amended and Restated 2014 Omnibus Incentive Plan Restricted Stock Unit Award Agreement for Employees (incorporated herein by reference to Exhibit 10.34 to our Form 10-Q, filed on May 2, 2019)
10.35~		Form of NMI Holdings, Inc. Amended and Restated 2014 Omnibus Incentive Plan Nonqualified Stock Option Agreement for Employees (incorporated herein by reference to Exhibit 10.35 to our Form 10-Q, filed on May 2, 2019)
21.1		Subsidiaries of NMI Holdings, Inc. (incorporated herein by reference to Exhibit 21.1 to our Form 10-Q, filed on October 30, 2015)
31.1		Principal Executive Officer's Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2		Principal Financial Officer's Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002



32.1 #		Certifications of CEO and CFO Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
101		The following financial information from NMI Holdings, Inc.'s Quarterly Report on Form 10-Q for the quarter ended September 30, ~~2018~~2019 formatted in XBRL (eXtensible Business Reporting Language):
		(i) Condensed Consolidated Balance Sheets as of September 30, ~~2018~~2019 and December 31, ~~2017~~ 2018;
		(ii) Condensed Consolidated Statements of Operations and Comprehensive Income (Loss) for the three and nine months ended September 30, ~~2018~~2019 and ~~2017~~ 2018;
		(iii) Condensed Consolidated Statements of Changes in Shareholders' Equity for the nine months ended September 30, ~~2018~~2019 and ~~the year ended December 31, 2017~~ 2018;
		(iv) Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, ~~2018~~2019 and ~~2017,~~2018; and
		(v) Notes to Condensed Consolidated Financial Statements. The instance document does not appear in the Interactive Data File because XBRL tags are embedded within the Inline XBRL document.



~	Indicates a management contract or compensatory plan or contract.
+	Confidential treatment granted as to certain portions, which portions have been filed separately with the SEC.
#	In accordance with Item 601(b)(32)(ii) of Regulation S-K and SEC Release No. 34-47986, the certifications furnished in Exhibit 32 hereto are deemed to accompany this Form 10-Q and will not be deemed "filed" for purposes of Section 18 of the Exchange Act or deemed to be incorporated by reference into any filing under the Exchange Act or the Securities Act except to the extent that the registrant specifically incorporates it by reference.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.



	NMI HOLDINGS, INC.
Date: ~~October 30, 2018~~November 6, 2019

	By: /s/ Adam S. Pollitzer
	Name:Adam S. Pollitzer
	Title:Chief Financial Officer and Duly Authorized Signatory



Cautionary Note Regarding Forward Looking Statements		3
PART I		5
Item 1.	Financial Statements	5
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	26
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	46
Item 4.	Controls and Procedures	47
PART II		48
Item 1.	Legal Proceedings	48
Item 1A.	Risk Factors	48
Item 6.	Exhibits	49
Signatures		52


As of December 31, 2017	Amortized Cost		Fair Value
As of December 31, 2018					Amortized Cost		Fair Value
	(In Thousands)				(In Thousands)
Due in one year or less	$	97,406	$	97,394	$	76,087	$	76,104
Due after one through five years	195,795		195,626		352,282		347,701
Due after five through ten years	305,798		306,930		318,728		310,633
Due after ten years	14,707		14,981		5,900		5,727
Asset-backed securities	100,153		100,944		171,990		171,325
Total investments	$	713,859	$	715,875	$	924,987	$	911,490


⁽¹⁾	Includes securities with unrealized losses of less than 12 months which are not identifiable in the schedule due to rounding.


Primary NIW by FICO	For the three months ended				For the nine months ended				For the three months ended				For the nine months ended
	September 30, 2018		September 30, 2017		September 30, 2018		September 30, 2017		September 30, 2019		September 30, 2018		September 30, 2019		September 30, 2018
	($ In Millions)								($ In Millions)
>= 760	$	3,191	$	2,806	$	8,617	$	6,865	$	6,994	$	3,191	$	15,678	$	8,617
740-759	1,228		934		3,431		2,277		2,288		1,228		5,677		3,431
720-739	1,095		807		2,973		1,889		2,102		1,095		4,931		2,973
700-719	878		697		2,435		1,662		1,450		878		3,579		2,435
680-699	632		456		1,668		1,088		915		632		2,359		1,668
<=679	337		415		1,210		930		351		337		968		1,210
Total	$	7,361	$	6,115	$	20,334	$	14,711	$	14,100	$	7,361	$	33,192	$	20,334
Weighted average FICO	747		747		746		748		754		747		752		746


Primary NIW by LTV	For the three months ended						For the nine months ended						For the three months ended						For the nine months ended
	September 30, 2018			September 30, 2017			September 30, 2018			September 30, 2017			September 30, 2019			September 30, 2018			September 30, 2019			September 30, 2018
	($ In Millions)												($ In Millions)
95.01% and above	$	676		$	722		$	2,644		$	1,470		$	989		$	676		$	2,529		$	2,644
90.01% to 95.00%	3,553			2,714			9,249			6,623			6,592			3,553			15,947			9,249
85.01% to 90.00%	2,373			1,765			6,017			4,372			4,933			2,373			11,259			6,017
85.00% and below	759			914			2,424			2,246			1,586			759			3,457			2,424
Total	$	7,361		$	6,115		$	20,334		$	14,711		$	14,100		$	7,361		$	33,192		$	20,334
Weighted average LTV	92.5		%	92.3		%	92.6		%	92.2		%	91.7		%	92.5		%	91.9		%	92.6		%


Primary NIW by purchase/refinance mix	For the three months ended				For the nine months ended				For the three months ended				For the nine months ended
	September 30, 2018		September 30, 2017		September 30, 2018		September 30, 2017		September 30, 2019		September 30, 2018		September 30, 2019		September 30, 2018
	(In Millions)								(In Millions)
Purchase	$	7,022	$	5,387	$	18,584	$	12,889	$	11,284	$	7,022	$	28,364	$	18,584
Refinance	339		728		1,750		1,822		2,816		339		4,828		1,750
Total	$	7,361	$	6,115	$	20,334	$	14,711	$	14,100	$	7,361	$	33,192	$	20,334


Primary IIF by FICO	As of								As of
	September 30, 2018				September 30, 2017				September 30, 2019				September 30, 2018
	($ In Millions)								($ In Millions)
>= 760	$	29,627	47	%	$	21,329	49	%	$	41,855	47	%	$	29,627	47	%
740-759	10,386		16		6,983		16		15,028		17		10,386		16
720-739	8,566		14		5,547		13		12,666		14		8,566		14
700-719	7,008		11		4,505		10		9,822		11		7,008		11
680-699	4,655		7		2,942		7		6,559		7		4,655		7
<=679	3,285		5		1,953		5		3,783		4		3,285		5
Total	$	63,527	100	%	$	43,259	100	%	$	89,713	100	%	$	63,527	100	%


Primary RIF by FICO	As of								As of
	September 30, 2018				September 30, 2017				September 30, 2019				September 30, 2018
	($ In Millions)								($ In Millions)
>= 760	$	7,361	47	%	$	5,251	50	%	$	10,611	47	%	$	7,361	47	%
740-759	2,592		16		1,713		16		3,847		17		2,592		16
720-739	2,131		14		1,349		13		3,257		14		2,131		14
700-719	1,732		11		1,092		10		2,501		11		1,732		11
680-699	1,145		7		707		7		1,665		7		1,145		7
<=679	783		5		460		4		929		4		783		5
Total	$	15,744	100	%	$	10,572	100	%	$	22,810	100	%	$	15,744	100	%


Primary IIF by LTV	As of								As of
	September 30, 2018				September 30, 2017				September 30, 2019				September 30, 2018
	($ In Millions)								($ In Millions)
95.01% and above	$	6,309	10	%	$	3,038	7	%	$	8,500	10	%	$	6,309	10	%
90.01% to 95.00%	28,879		45		19,562		45		42,255		47		28,879		45
85.01% to 90.00%	19,074		30		13,437		31		28,083		31		19,074		30
85.00% and below	9,265		15		7,222		17		10,875		12		9,265		15
Total	$	63,527	100	%	$	43,259	100	%	$	89,713	100	%	$	63,527	100	%


Primary RIF by LTV	As of								As of
	September 30, 2018				September 30, 2017				September 30, 2019				September 30, 2018
	($ In Millions)								($ In Millions)
95.01% and above	$	1,670	11	%	$	822	8	%	$	2,326	10	%	$	1,670	11	%
90.01% to 95.00%	8,416		53		5,722		54		12,358		54		8,416		53
85.01% to 90.00%	4,590		29		3,205		30		6,854		30		4,590		29
85.00% and below	1,068		7		823		8		1,272		6		1,068		7
Total	$	15,744	100	%	$	10,572	100	%	$	22,810	100	%	$	15,744	100	%


Primary RIF by Loan Type	As of				As of
	September 30, 2018		September 30, 2017		September 30, 2019		September 30, 2018

Fixed	98	%	98	%	98	%	98	%
Adjustable rate mortgages:
Less than five years	—		—		—		—
Five years and longer	2		2		2		2
Total	100	%	100	%	100	%	100	%


	As of September 30, 2018														As of September 30, 2019
Book year	Original Insurance Written		Remaining Insurance in Force		% Remaining of Original Insurance		Policies Ever in Force	Number of Policies in Force	Number of Loans in Default	# of Claims Paid	Incurred Loss Ratio (Inception to Date) ⁽¹⁾		Cumulative default rate ⁽²⁾		Original Insurance Written		Remaining Insurance in Force		% Remaining of Original Insurance		Policies Ever in Force	Number of Policies in Force	Number of Loans in Default	# of Claims Paid	Incurred Loss Ratio (Inception to Date) ⁽¹⁾		Cumulative Default Rate ⁽²⁾		Current Default Rate ⁽³⁾
	($ Values in Millions)														($ Values in Millions)
2013	$	162	$	31	19	%	655	166	—	1	0.2	%	0.2	%	$	162	$	25	15	%	655	138	—	1	0.2	%	0.2	%	—	%
2014	3,451		1,145		33	%	14,786	5,944	53	23	3.6	%	0.5	%	3,451		893		26	%	14,786	4,758	48	35	3.9	%	0.6	%	1.0	%
2015	12,422		7,144		58	%	52,548	33,093	197	47	2.9	%	0.5	%	12,422		5,792		47	%	52,548	27,230	173	82	2.8	%	0.5	%	0.6	%
2016	21,187		16,086		76	%	83,626	66,849	248	25	2.0	%	0.3	%	21,187		12,944		61	%	83,626	55,060	246	74	2.0	%	0.4	%	0.4	%
2017	21,582		19,317		90	%	85,897	79,147	215	2	2.3	%	0.3	%	21,582		16,283		75	%	85,897	68,744	403	28	3.0	%	0.5	%	0.6	%
2018	20,334		19,804		97	%	78,829	77,286	33	—	0.8	%	—	%	27,288		21,932		80	%	104,014	88,130	333	8	3.7	%	0.3	%	0.4	%
2019															33,192		31,844		96	%	109,954	106,335	27	—	0.8	%	—	%	—	%
Total	$	79,138	$	63,527			316,341	262,485	746	98					$	119,284	$	89,713			451,480	350,395	1,230	228


⁽¹⁾	~~The ratio of~~Calculated as total claims incurred (paid and reserved) divided by cumulative premiums earned, net of reinsurance.


⁽²⁾	~~The~~Calculated as the sum of the number of claims paid ever to date and number of loans in default ~~as of the end of the period~~ divided by policies ever in force.


⁽³⁾	Calculated as the number of loans in default divided by number of policies in force.


Top 10 primary RIF by state	As of				As of
	September 30, 2018		September 30, 2017		September 30, 2019		September 30, 2018
California	13.3	%	13.6	%	11.9	%	13.3	%
Texas	8.1		7.6		8.1		8.1
Arizona	5.0		4.4
Florida	4.9		4.3		5.6		4.9
Virginia	4.9		5.6		5.3		4.9
Arizona					4.2		5.0
Illinois					3.8		3.3
Pennsylvania					3.6		3.6
Michigan	3.7		3.7		3.5		3.7
Pennsylvania	3.6		3.6
Colorado	3.4		3.8		3.4		3.4
Illinois	3.3		3.4
Utah	3.2		3.6
Maryland					3.3		3.2
Total	53.4	%	53.6	%	52.7	%	53.4	%


⁽¹⁾	Count includes 8 and 14 claims settled without payment for the three and nine months ended September 30, 2019, respectively, and 1 and 5 claims settled without payment for the three and nine months ended September 30, 2018, respectively.


⁽²⁾	Severity represents the total amount of claims paid including claim expenses divided by the related RIF on the loan at the time the claim is perfected, and is calculated including claims settled without payment.


Average reserve per default:	As of September 30, 2018		As of September 30, 2017		As of September 30, 2019		As of September 30, 2018
	(In Thousands)				(In Thousands)
Case ⁽¹⁾	$	14	$	16	$	15	$	14
IBNR	1		1		2		1
Total(2)	$	15	$	17	$	17	$	15


Consolidated cash flows	For the nine months ended September 30,						For the nine months ended September 30,
	2018			2017			2019			2018
Net cash provided by (used in) :	(In Thousands)
Net cash provided by (used in):							(In Thousands)
Operating activities	$	99,349		$	41,778		$	139,567		$	99,349
Investing activities	(180,928		)	(66,553		)	(117,263		)	(180,928		)
Financing activities	80,570			(2,273		)	(1,709		)	80,570
Net decrease in cash and cash equivalents	$	(1,009	)	$	(27,048	)
Net increase (decrease) in cash and cash equivalents							$	20,595		$	(1,009	)