UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

☒

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended

March 31, ~~2020~~2021


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

Commission file number 001-36174


NMI Holdings, Inc.
(Exact name of registrant as specified in its charter)

Delaware

45-4914248

(State or other jurisdiction of incorporation or organization)

(I.R.S. Employer Identification No.)

2100 Powell Street

Emeryville

94608

(Address of principal executive offices)

(Zip Code)

(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 ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 such files).

Yes ☒ 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," and "emerging growth company" in Rule 12b-2 of the Exchange Act.

Large accelerated filer

☒

Accelerated filer

☐

Non-accelerated filer

☐

Smaller reporting company

☐

Emerging growth company

☐

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. ☐

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

Yes ☐ No ☒

The number of shares of common stock, $0.01 par value per share, of the registrant outstanding on ~~May 4, 2020~~April 30, 2021 was ~~68,874,476~~85,599,908 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," "perceive," "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:

•uncertainty relating to the coronavirus (COVID-19) pandemic and the measures taken by governmental authorities and other third parties to combat it, including their impact on the global economy, the U.S. housing, real estate, housing finance and mortgage insurance markets, and our business, operations and personnel;

•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 generally, or with first time homebuyers or on very high loan-to-value mortgages;

•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 other private mortgage insurers and government mortgage insurers ~~like~~such as the Federal Housing Administration (FHA), the U.S. Department of Agriculture's Rural Housing Service (USDA) and the U.S. Department of Veterans Affairs (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, including ~~any action by~~ the ~~Consumer Financial Protection Bureau to address~~timing and eventual implementation of the ~~planned~~final rules concerning "Qualified Mortgage" and "Qualified Residential Mortgage" definitions and the 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 natural disasters, including, with respect to 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;

•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 II, Item 1A of this Report and in Part I, Item 1A, of our Annual Report on Form 10-K for the year ended December 31, ~~2019 (2019~~2020 (2020 10-K), 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 March 31, ~~2020~~2021 (Unaudited) and December 31, ~~2019~~2020			6
Condensed Consolidated Statements of Operations and Comprehensive Income ~~(Loss)~~ for the three months ended March 31, ~~2020~~2021 and ~~2019~~2020 (Unaudited)			7
Condensed Consolidated Statements of Changes in Shareholders' Equity for the three months ended March 31, ~~2020~~2021 and ~~2019~~2020 (Unaudited)			8
Condensed Consolidated Statements of Cash Flows for the three months ended March 31, ~~2020~~2021 and ~~2019~~2020 (Unaudited)			9
Notes to Condensed Consolidated Financial Statements (Unaudited)			10

NMI HOLDINGS, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)


		March 31, 2020		December 31, 2019			March 31, 2021			December 31, 2020
Assets	Assets	(In Thousands, except for share data)							Assets	(In Thousands, except for share data)
Fixed maturities, available-for-sale, at fair value (amortized cost of $1,059,143 and $1,113,779 as of March 31, 2020 and December 31, 2019, respectively)		$	1,070,072	$	1,140,940
Cash and cash equivalents (including restricted cash of $2,505 and $2,662 as of March 31, 2020 and December 31, 2019, respectively)		109,821		41,089
Fixed maturities, available-for-sale, at fair value (amortized cost of $1,815,190 and $1,730,835 as of March 31, 2021 and December 31, 2020, respectively)						Fixed maturities, available-for-sale, at fair value (amortized cost of $1,815,190 and $1,730,835 as of March 31, 2021 and December 31, 2020, respectively)	$	1,831,511		$	1,804,286
Cash and cash equivalents (including restricted cash of $4,868 and $5,555 as of March 31, 2021 and December 31, 2020, respectively)						Cash and cash equivalents (including restricted cash of $4,868 and $5,555 as of March 31, 2021 and December 31, 2020, respectively)	115,517			126,937
Premiums receivable	Premiums receivable	46,872		46,085		Premiums receivable	52,206			49,779
Accrued investment income	Accrued investment income	7,192		6,831		Accrued investment income	10,495			9,862
Prepaid expenses	Prepaid expenses	4,750		3,512		Prepaid expenses	4,999			3,292
Deferred policy acquisition costs, net	Deferred policy acquisition costs, net	62,634		59,972		Deferred policy acquisition costs, net	62,294			62,225
Software and equipment, net	Software and equipment, net	25,667		26,096		Software and equipment, net	31,298			29,665
Intangible assets and goodwill	Intangible assets and goodwill	3,634		3,634		Intangible assets and goodwill	3,634			3,634
Prepaid reinsurance premiums	Prepaid reinsurance premiums	13,100		15,488		Prepaid reinsurance premiums	4,842			6,190

Reinsurance recoverable						Reinsurance recoverable	18,686			17,608
Other assets	Other assets	44,085		21,171		Other assets	52,349			53,188
Total assets	Total assets	$	1,387,827	$	1,364,818	Total assets	$	2,187,831		$	2,166,666

Liabilities	Liabilities					Liabilities
Term loan		$	145,521	$	145,764
Debt						Debt	$	393,622		$	393,301

Unearned premiums	Unearned premiums	126,908		136,642		Unearned premiums	127,407			118,817
Accounts payable and accrued expenses	Accounts payable and accrued expenses	20,745		39,904		Accounts payable and accrued expenses	57,139			61,716
Reserve for insurance claims and claim expenses	Reserve for insurance claims and claim expenses	29,479		23,752		Reserve for insurance claims and claim expenses	96,103			90,567
Reinsurance funds withheld	Reinsurance funds withheld	12,735		14,310		Reinsurance funds withheld	7,569			8,653
Warrant liability, at fair value	Warrant liability, at fair value	1,461		7,641		Warrant liability, at fair value	4,239			4,409

Deferred tax liability, net	Deferred tax liability, net	66,831		56,360		Deferred tax liability, net	115,150			112,586
Other liabilities	Other liabilities	9,257		10,025		Other liabilities	6,294			7,026
Total liabilities	Total liabilities	412,937		434,398		Total liabilities	807,523			797,075
Commitments and contingencies	Commitments and contingencies					Commitments and contingencies	0			0

Shareholders' equity	Shareholders' equity					Shareholders' equity
Common stock - class A shares, $0.01 par value; 68,873,540 and 68,358,074 shares issued and outstanding as of March 31, 2020 and December 31, 2019, respectively (250,000,000 shares authorized)		689		684
Common stock - class A shares, $0.01 par value; 85,599,908 and 85,163,039 shares issued and outstanding as of March 31, 2021 and December 31, 2020, respectively (250,000,000 shares authorized)						Common stock - class A shares, $0.01 par value; 85,599,908 and 85,163,039 shares issued and outstanding as of March 31, 2021 and December 31, 2020, respectively (250,000,000 shares authorized)	856			852
Additional paid-in capital	Additional paid-in capital	706,021		707,003		Additional paid-in capital	940,827			937,872
Accumulated other comprehensive income, net of tax	Accumulated other comprehensive income, net of tax	4,464		17,288		Accumulated other comprehensive income, net of tax	8,723			53,856
Retained earnings	Retained earnings	263,716		205,445		Retained earnings	429,902			377,011
Total shareholders' equity	Total shareholders' equity	974,890		930,420		Total shareholders' equity	1,380,308			1,369,591
Total liabilities and shareholders' equity	Total liabilities and shareholders' equity	$	1,387,827	$	1,364,818	Total liabilities and shareholders' equity	$	2,187,831		$	2,166,666

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

NMI HOLDINGS, INC.

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


		For the three months ended March 31,								For the three months ended March 31,
		2020		2019			2021			2020
Revenues	Revenues	(In Thousands, except for per share data)							Revenues	(In Thousands, except for per share data)

Net premiums earned	Net premiums earned	$	98,717	$	73,868	Net premiums earned	$	105,879		$	98,717
Net investment income	Net investment income	8,104		7,383		Net investment income	8,814			8,104
Net realized investment losses	Net realized investment losses	(72)		(187)		Net realized investment losses	0			(72)
Other revenues	Other revenues	900		42		Other revenues	501			900
Total revenues	Total revenues	107,649		81,106		Total revenues	115,194			107,649
Expenses	Expenses					Expenses
Insurance claims and claim expenses	Insurance claims and claim expenses	5,697		2,743		Insurance claims and claim expenses	4,962			5,697
Underwriting and operating expenses⁽¹⁾	Underwriting and operating expenses⁽¹⁾	32,277		30,800		Underwriting and operating expenses⁽¹⁾	34,065			32,277
Service expenses⁽¹⁾	Service expenses⁽¹⁾	734		49		Service expenses⁽¹⁾	591			734
Interest expense	Interest expense	2,744		3,061		Interest expense	7,915			2,744
(Gain) loss from change in fair value of warrant liability		(5,959)		5,479
Loss (gain) from change in fair value of warrant liability						Loss (gain) from change in fair value of warrant liability	205			(5,959)
Total expenses	Total expenses	35,493		42,132		Total expenses	47,738			35,493

Income before income taxes	Income before income taxes	72,156		38,974		Income before income taxes	67,456			72,156
Income tax expense	Income tax expense	13,885		6,075		Income tax expense	14,565			13,885
Net income	Net income	$	58,271	$	32,899	Net income	$	52,891		$	58,271

Earnings per share	Earnings per share					Earnings per share
Basic	Basic	$	0.85	$	0.49	Basic	$	0.62		$	0.85
Diluted	Diluted	$	0.74	$	0.48	Diluted	$	0.61		$	0.74

Weighted average common shares outstanding	Weighted average common shares outstanding					Weighted average common shares outstanding
Basic	Basic	68,563		66,692		Basic	85,317			68,563
Diluted	Diluted	70,401		68,996		Diluted	86,487			70,401

Net income	Net income	$	58,271	$	32,899	Net income	$	52,891		$	58,271
Other comprehensive (loss) income, net of tax:
Unrealized (losses) gains in accumulated other comprehensive income, net of tax (benefit) expense of ($3,424) and $3,953 for the quarters ended March 31, 2020 and 2019, respectively		(12,881)		14,868
Other comprehensive loss, net of tax:						Other comprehensive loss, net of tax:
Unrealized losses in accumulated other comprehensive loss, net of tax benefit of $11,997 and $3,424 for the quarters ended March 31, 2021 and 2020, respectively						Unrealized losses in accumulated other comprehensive loss, net of tax benefit of $11,997 and $3,424 for the quarters ended March 31, 2021 and 2020, respectively	(45,133)			(12,881)

Reclassification adjustment for realized losses included in net income, net of tax (benefit) of ($15) and ($39) for the quarters ended March 31, 2020 and 2019, respectively		57		148
Other comprehensive (loss) income, net of tax		(12,824)		15,016
Reclassification adjustment for realized losses included in net income, net of tax benefit of $15 for the quarter ended March 31, 2020						Reclassification adjustment for realized losses included in net income, net of tax benefit of $15 for the quarter ended March 31, 2020	0			57
Other comprehensive loss, net of tax						Other comprehensive loss, net of tax	(45,133)			(12,824)
Comprehensive income	Comprehensive income	$	45,447	$	47,915	Comprehensive income	$	7,758		$	45,447

⁽¹⁾~~Certain~~ ~~"Underwriting and operating expenses" have been reclassified as "Service expenses" in prior periods.~~

See accompanying notes to condensed consolidated financial 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)		Retained Earnings		Total
		Shares	Amount
		(In Thousands)
Balances, December 31, 2019		68,358	$	684	$	707,003							$	17,288		$	205,445		$	930,420

															Common Stock - Class A						Additional Paid-in Capital		Accumulated Other Comprehensive Income		Retained Earnings		Total
															Shares			Amount
															(In Thousands)

Balances, December 31, 2020													Balances, December 31, 2020		85,163			$	852		$	937,872	$	53,856	$	377,011	$	1,369,591

Common stock: class A shares issued related to warrant exercises	Common stock: class A shares issued related to warrant exercises	6	*		221		—		—		221		Common stock: class A shares issued related to warrant exercises		24			*			557		—		—		557
Common stock: class A shares issued under stock plans, net of shares withheld for employee taxes	Common stock: class A shares issued under stock plans, net of shares withheld for employee taxes	510	5		(3,755)		—		—		(3,750)		Common stock: class A shares issued under stock plans, net of shares withheld for employee taxes		413			4			(624)		—		—		(620)
Share-based compensation expense	Share-based compensation expense	—	—		2,552		—		—		2,552		Share-based compensation expense		—			—			3,022		—		—		3,022
Change in unrealized investment gains/losses, net of tax benefit of $3,409		—	—		—		(12,824)		—		(12,824)
Change in unrealized investment gains/losses, net of tax benefit of $11,997													Change in unrealized investment gains/losses, net of tax benefit of $11,997		—			—			—		(45,133)		—		(45,133)
Net income	Net income	—	—		—		—		58,271		58,271		Net income		—			—			—		—		52,891		52,891
Balances, March 31, 2020		68,874	$	689	$	706,021	$	4,464	$	263,716	$	974,890
Balances, March 31, 2021													Balances, March 31, 2021		85,600			$	856		$	940,827	$	8,723	$	429,902	$	1,380,308

* During the three months ended March 31, ~~2020,~~2021, we issued ~~6,474~~23,750 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.


		Common Stock - Class A					Additional Paid-in Capital		Accumulated Other Comprehensive Income (Loss)		Retained Earnings			Total			Common Stock - Class A				Additional Paid-in Capital		Accumulated Other Comprehensive Income		Retained Earnings		Total
		Shares	Amount													Accumulated Other Comprehensive Income		Retained Earnings		Total
		(In Thousands)																							(In Thousands)
Balances, December 31, 2018		66,319	$	663	$	682,181							$	(14,832)	$							33,488	$	701,500
Balances, December 31, 2019														Balances, December 31, 2019	68,358		$	684	$	707,003	$	17,288	$	205,445	$	930,420

Common stock: class A shares issued related to warrant exercises	Common stock: class A shares issued related to warrant exercises	39	*		944		—		—		944			Common stock: class A shares issued related to warrant exercises	6		*		221		—		—		221
Common stock: class A shares issued under stock plans, net of shares withheld for employee taxes	Common stock: class A shares issued under stock plans, net of shares withheld for employee taxes	1,144	12		(1,471)		—		—		(1,459)			Common stock: class A shares issued under stock plans, net of shares withheld for employee taxes	510		5		(3,755)		—		—		(3,750)
Share-based compensation expense	Share-based compensation expense	—	—		2,981		—		—		2,981			Share-based compensation expense	—		—		2,552		—		—		2,552
Change in unrealized investment gains/losses, net of tax expense of $3,992		—	—		—		15,016		—		15,016
Change in unrealized investment gains/losses, net of tax benefit of $3,409														Change in unrealized investment gains/losses, net of tax benefit of $3,409	—		—		—		(12,824)		—		(12,824)
Net income	Net income	—	—		—		—		32,899		32,899			Net income	—		—		—		—		58,271		58,271
Balances, March 31, 2019		67,502	$	675	$	684,635	$	184	$	66,387	$	751,881
Balances, March 31, 2020														Balances, March 31, 2020	68,874		$	689	$	706,021	$	4,464	$	263,716	$	974,890

* During the three months ended March 31, ~~2019,~~2020, we issued ~~39,195~~6,474 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.

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

NMI HOLDINGS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)


		For the three months ended March 31,								For the three months ended March 31,
		2020		2019			2021			2020
Cash flows from operating activities	Cash flows from operating activities	(In Thousands)							Cash flows from operating activities	(In Thousands)
Net income	Net income	$	58,271	$	32,899	Net income	$	52,891		$	58,271
Adjustments to reconcile net income to net cash provided by operating activities:	Adjustments to reconcile net income to net cash provided by operating activities:					Adjustments to reconcile net income to net cash provided by operating activities:
Net realized investment losses	Net realized investment losses	72		187		Net realized investment losses	0			72

(Gain) loss from change in fair value of warrant liability		(5,959)		5,479
Loss (gain) from change in fair value of warrant liability						Loss (gain) from change in fair value of warrant liability	205			(5,959)
Depreciation and amortization	Depreciation and amortization	2,441		2,103		Depreciation and amortization	2,675			2,441
Net amortization of premium on investment securities	Net amortization of premium on investment securities	318		314		Net amortization of premium on investment securities	1,636			318
Amortization of debt discount and debt issuance costs	Amortization of debt discount and debt issuance costs	258		248		Amortization of debt discount and debt issuance costs	443			258

Deferred income taxes	Deferred income taxes	13,880		6,038		Deferred income taxes	14,561			13,880
Share-based compensation expense	Share-based compensation expense	2,552		2,981		Share-based compensation expense	3,022			2,552
Changes in operating assets and liabilities:	Changes in operating assets and liabilities:					Changes in operating assets and liabilities:
Premiums receivable	Premiums receivable	(787)		(2,472)		Premiums receivable	(2,427)			(787)
Accrued investment income	Accrued investment income	(361)		(859)		Accrued investment income	(633)			(361)
Prepaid expenses	Prepaid expenses	(1,238)		(1,407)		Prepaid expenses	(1,707)			(1,238)
Deferred policy acquisition costs, net	Deferred policy acquisition costs, net	(2,662)		(1,980)		Deferred policy acquisition costs, net	(69)			(2,662)
Other assets	Other assets	(157)		191		Other assets	148			(157)
Unearned premiums	Unearned premiums	(9,734)		(4,568)		Unearned premiums	8,590			(9,734)
Reserve for insurance claims and claim expenses	Reserve for insurance claims and claim expenses	5,727		2,726		Reserve for insurance claims and claim expenses	5,536			5,727
Reinsurance balances, net		(691)		(148)
Reinsurance recoverable (1)						Reinsurance recoverable (1)	(1,078)			(1,253)
Reinsurance balances, net (1)						Reinsurance balances, net (1)	101			562
Accounts payable and accrued expenses	Accounts payable and accrued expenses	(14,078)		(13,453)		Accounts payable and accrued expenses	1,570			(14,078)

Net cash provided by operating activities	Net cash provided by operating activities	47,852		28,279		Net cash provided by operating activities	85,464			47,852
Cash flows from investing activities	Cash flows from investing activities					Cash flows from investing activities
Purchase of short-term investments	Purchase of short-term investments	(41,872)		(47,994)		Purchase of short-term investments	0			(41,872)
Purchase of fixed-maturity investments, available-for-sale	Purchase of fixed-maturity investments, available-for-sale	(58,427)		(72,586)		Purchase of fixed-maturity investments, available-for-sale	(109,933)			(58,427)
Proceeds from maturity of short-term investments	Proceeds from maturity of short-term investments	81,207		81,311		Proceeds from maturity of short-term investments	0			81,207
Proceeds from redemptions, maturities and sale of fixed-maturity investments, available-for-sale	Proceeds from redemptions, maturities and sale of fixed-maturity investments, available-for-sale	46,368		29,043		Proceeds from redemptions, maturities and sale of fixed-maturity investments, available-for-sale	15,942			46,368
Software and equipment	Software and equipment	(1,493)		(1,751)		Software and equipment	(2,456)			(1,493)
Net cash provided by used in investing activities		25,783		(11,977)
Net cash (used in) provided by investing activities						Net cash (used in) provided by investing activities	(96,447)			25,783
Cash flows from financing activities	Cash flows from financing activities					Cash flows from financing activities

Proceeds from issuance of common stock related to employee equity plans	Proceeds from issuance of common stock related to employee equity plans	3,367		11,017		Proceeds from issuance of common stock related to employee equity plans	3,886			3,367
Proceeds from issuance of common stock related to warrants						Proceeds from issuance of common stock related to warrants	182			0
Taxes paid related to net share settlement of equity awards						Taxes paid related to net share settlement of equity awards	(4,505)			(7,117)

Taxes paid related to net share settlement of equity awards		(7,117)		(12,477)

Repayments of term loan	Repayments of term loan	(375)		(375)		Repayments of term loan	0			(375)
Payments of debt issuance/modification costs	Payments of debt issuance/modification costs	(778)		—		Payments of debt issuance/modification costs	0			(778)
Net cash (used in) financing activities	Net cash (used in) financing activities	(4,903)		(1,835)		Net cash (used in) financing activities	(437)			(4,903)

Net increase in cash, cash equivalents and restricted cash		68,732		14,467
Net (decrease) increase in cash, cash equivalents and restricted cash						Net (decrease) increase in cash, cash equivalents and restricted cash	(11,420)			68,732
Cash, cash equivalents and restricted cash, beginning of period	Cash, cash equivalents and restricted cash, beginning of period	41,089		25,294		Cash, cash equivalents and restricted cash, beginning of period	126,937			41,089
Cash, cash equivalents and restricted cash, end of period	Cash, cash equivalents and restricted cash, end of period	$	109,821	$	39,761	Cash, cash equivalents and restricted cash, end of period	$	115,517		$	109,821

Supplemental disclosures of cash flow information	Supplemental disclosures of cash flow information					Supplemental disclosures of cash flow information
Interest paid	Interest paid	$	2,403	$	2,617	Interest paid	$	0		$	2,403
Income taxes refunded	Income taxes refunded	$	—	$	209	Income taxes refunded	$	206		$	0

(1) Reinsurance recoverable have been reclassified from "Reinsurance balance, net" in the prior period.

See accompanying notes to condensed consolidated financial 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). Our common stock is listed on the NASDAQ exchange under the ticker symbol "NMIH."

~~In April 2013,~~ NMIC, our primary insurance subsidiary, issued its first mortgage insurance ~~policy.~~policy in April 2013. NMIC is licensed to write mortgage insurance in all 50 states and ~~D.C.~~DC. 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, ~~2019,~~2020, included in our ~~2019~~2020 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 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, ~~2020.~~2021.

COVID-19 Developments

On January 30, 2020, the World Health Organization (WHO) declared the outbreak of COVID-19 a global health emergency and subsequently characterized the outbreak as a global pandemic on March 11, 2020. In an effort to stem contagion and control the COVID-19 pandemic, the population at large severely curtailed day-to-day activity and local, state and federal regulators imposed a broad set of restrictions on personal and business conduct nationwide. The COVID-19 pandemic, along with the widespread public and regulatory response, caused a dramatic slowdown in U.S. and global economic activity and a record number of Americans were furloughed or laid-off in the ensuing downturn.

The global dislocation caused by COVID-19 was unprecedented. In response to the COVID-19 outbreak and uncertainty that it introduced, we activated our disaster continuity program to ensure our employees were safe and able to manage our business without interruption. We pursued a broad series of capital and reinsurance transactions to bolster our balance sheet and expand our ability to serve our customers and their borrowers, and we updated our underwriting guidelines and policy pricing in consideration for the increased level of macroeconomic volatility.

While there is increased optimism that the acute health risk posed by and economic impact of COVID-19 has begun to recede, the pandemic continues to affect communities across the U.S. and poses significant risk globally. The path and pace of global economic recovery will depend, in large part, on the course of the virus, which itself remains unknown and subject to risk. Given this uncertainty, we are not able to fully assess or estimate the ultimate impact COVID-19 will have on the mortgage insurance market, our business performance or our financial position including our new business production, default and claims experience, and investment portfolio results at this time.

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 ~~2019~~2020 10-K, ~~other than~~except as noted in "~~Investments," "Premium Receivables," "Reinsurance" and~~ "Recent Accounting Pronouncements - Adopted" below.

~~Investments~~

We evaluate our investments each quarter to determine whether declines in fair value are below amortized cost. For any impaired debt security we evaluate if we either intend to sell the security or it is more likely than not that we will be required to sell the security before recovery. If our intent is to sell a security and its fair value is below amortized cost, the securities amortized cost basis is written down to fair value and a loss is recognized in earnings.

For available for sale debt securities that do not meet the aforementioned criteria, we evaluate whether the decline in fair value has resulted from credit losses or other factors. In making this assessment, we consider several factors including, but not limited to:

•~~the severity of the decline in fair value;~~

•~~the financial condition of the issuer;~~

•~~the failure of the issuer to make scheduled interest or principal payments;~~

•~~recent credit downgrades of the applicable security or the issuer; and~~

•~~adverse conditions specifically related to the security, an industry, or a geographic area.~~

If this assessment indicates that a credit loss exists, the present value of cash flows expected to be collected from the security are compared to the amortized cost basis of the security. If the present value of the cash flows expected to be collected is less than the amortized cost basis, a credit loss exists and an allowance for credit losses is recorded for the credit loss, limited by the amount that the fair value is less than the amortized cost basis. Any impairment that has not been recorded through the allowance for credit losses is recognized in other comprehensive income.

Changes in allowance for credit losses are recorded as provision for (or reversal of) credit loss expense. Losses are charged against the allowance for credit losses when management believes the uncollectibility of a security is met.

~~NMI HOLDINGS, INC.~~

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

~~We have elected to present accrued interest receivable separately from available for sale securities on the consolidated balance sheet in "Accrued Investment Income.~~"Accrued interest receivable was $7.2 million as of March 31, 2020 relating almost entirely to available for sale debt securities. We have also elected not to measure an allowance for credit losses for accrued interest receivable on available for sale securities. For all classes of available for sale securities, the accrual of interest is discontinued when the contractual payment of principal or interest has become 90 days past due and write-off of accrued interest receivable is recognized by reversing interest income. We did not write off any accrued interest receivable during the three months ended March 31, 2020.

~~Premiums Receivable~~

Premiums receivable consists of premiums due on our mortgage insurance policies. If a mortgage insurance premium is unpaid for more than 120 days, the receivable is written off against earned premium and the related insurance policy is canceled. We recognize an allowance for credit losses for premiums receivable based on credit losses expected to arise over the life of the receivable. Due to the nature of our insurance policies and the short-term duration of the related receivables an allowance for credit loss was not required at March 31, 2020.

~~Reinsurance~~

NMIC has entered into quota share reinsurance treaties effective September 1, 2016 (the 2016 QSR Transaction) and January 1, 2018 (the 2018 QSR Transaction), which we refer to collectively as the QSR Transactions. Under the QSR Transactions, we cede a portion of claims and claim expense reserves to our reinsurers, and account for such ceded reserves as reinsurance recoverables in "Other Assets" on the consolidated balance sheets and as reductions to claims expenses on the consolidated statements of operations. The company actively manages and monitors its credit risk associated with its reinsurance recoverables and recognizes an allowance for credit losses based on losses expected to arise over the life of the asset.

As it relates to its QSR transactions, each of the third-party reinsurance providers has an insurer financial strength rating of A- or better by Standard & Poor's Rating Service (S&P), A.M. Best Company, Inc. (A.M.Best) or both. 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. 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 balances are further supported by trust accounts established and maintained by each reinsurer in accordance with the private mortgage insurer eligibility requirements (PMIERs) funding requirements for risk ceded to non-affiliates. The reinsurance recoverable on loss reserves related to our QSR Transactions was $6.2 million as of March 31, 2020 and an allowance for credit losses was not required.

Recent Accounting Pronouncements - Adopted

In ~~June 2016,~~December 2019, the Financial Accounting ~~Standard~~Standards Board ~~(FASB) issued Accounting Standards Update (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 815)~~, ~~Derivatives and Hedging, and Topic 825,~~ ~~Financial Instruments, ASU 2019-05,~~ ~~Financial Instruments-Credit Losses: Targeted Transition Relief, and ASU 2019-11, Codification Improvements to Topic 326, Financial Instruments-Credit Losses~~. These updates will require companies to measure and establish reserves for lifetime expected credit losses on many financial assets held at a given reporting date. Under the guidance, the methodology for measuring lifetime credit losses shifts 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 are recorded through an allowance for credit losses, rather than a write-down of the asset as was 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 loss determination. We adopted these updates on January 1, 2020. Adoption of the updated standards did not have a material impact on our consolidated financial statements, and had no impact on our accounting for insurance claims and claim expenses as these items are not in scope of the guidance.

~~In August 2018, the FASB issued ASU 2018-13,~~ ~~Fair Value Measurement (Topic 820)~~. This update modifies the fair value measurement disclosure requirements of ASC 820. We adopted this ASU on January 1, 2020 and determined it did not have a material impact on our consolidated financial statements.

~~In August 2018, the FASB issued ASU 2018-15,~~ ~~Intangibles - Goodwill and Other - Internal-Use Software (Subtopic 350-40). This update applies to cloud computing arrangements structured as service contracts, and provides companies with~~

~~NMI HOLDINGS, INC.~~

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

guidance on the criteria for capitalizing implementation, set-up and other up-front costs incurred in association with these arrangements. We adopted this ASU on January 1, 2020 and applied it on a prospective basis for eligible costs incurred after the effective date. The adoption of this ASU did not have a material impact on our consolidated financial statements.

~~Recent Accounting Pronouncements - Not Yet Adopted~~

~~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 FASB subsequently issued ASU 2019-09 in November 2019, which amended the effective date for this standard. The standard will now take effect for public business entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2021. We are currently evaluating the impact the adoption of this ASU will have, if any, on our consolidated financial statements.

~~In November 2019, the FASB~~(the FASB) issued ASU 2019-12, Simplifying the Accounting for Income Taxes (Topic 740). ~~. This~~The update eliminates certain exceptions for recognizing deferred taxes for investments, performing intra-period allocations and calculating income taxes in interim periods. The ASU also includes guidance to reduce complexity in certain income tax areas, including recognizing deferred taxes for tax goodwill and allocating

NMI HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

taxes to members of a consolidated group. We adopted this ASU on January 1, 2021 and determined it did not have a material impact on our consolidated financial statements.

Recent Accounting Pronouncements - Not Yet Adopted

In August 2018, the FASB issued ASU 2018-12, Targeted Improvements to the Accounting for Long-Duration Contracts (Topic 944). The update provides guidance to the existing recognition, measurement, presentation and disclosure requirements for long-duration contracts issued by an insurance entity. The FASB subsequently issued ASU 2019-09 in November 2019 and ASU 2020-11 in November 2020, which amended the effective date for this standard and provided transition relief to facilitate early application for long duration contracts. These standards will now take effect for public business entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, ~~2020.~~2022. We are currently evaluating the impact the adoption of ~~this ASU~~these ASUs will have, if any, on our consolidated financial statements.

In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform ~~(Topic~~(Topic 848). ~~This~~The update provides optional guidance to ease the potential burden in accounting for reference rate reform on financial reporting. Reference rate reform refers to the global transition away from referencing the London Interbank Offered Rate (LIBOR) in financial contracts, which is expected to be discontinued beginning in ~~2021.~~2021 through 2023. The ASU includes optional expedients and exceptions for applying GAAP to contracts, hedging relationships and other transactions affected by reference rate reform if certain criteria are met. ~~The~~This standard ~~is effective immediately~~may be elected and applied prospectively over time from March 12, 2020 through December 31, 2022 as reference rate reform activities occur. The adoption of, and future elections under, this ASU are not expected to have a material impact on our consolidated financial statements as the ASU will ease, if warranted, the requirements for ~~all entities that have contracts, hedging relationships, and other transactions that reference~~accounting for the future effects of the rate reform. We continue to monitor the impact the discontinuance of LIBOR or another reference rate ~~expected to be discontinued because of reference rate reform.~~will have on our contracts and other transactions.

In August 2020, the FASB issued ASU 2020-06, Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging— Contracts in Entity's Own Equity (Subtopic 815-40). This update simplifies the accounting for convertible instruments and contracts on an entity's own equity, including warrants, eliminating certain triggers for derivative accounting. The standard will take effect for public business entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2021. We ~~are currently evaluating~~have evaluated the impact the adoption of this ASU ~~would~~and we do not expect it to have ~~if any, to~~a material impact on our ~~contract modifications that are affected by the discontinuation of LIBOR.~~consolidated financial statements, including our warrant liability.

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, andhold all investments on an ~~accumulated~~available-for-sale basis ~~in shareholders' equity. Net realized investment gains~~ and ~~losses are reported in earnings based~~evaluate each position quarterly for impairment. We recognize an impairment on ~~specific identification of securities sold or any impairment that has been recorded~~a security through the ~~allowance for credit losses. If our intent is~~statement of operations if (i) we intend to sell athe impaired security; or (ii) it is more likely than not that we will be required to sell the impaired security ~~and~~prior to recovery of its ~~fair value is below~~ amortized cost basis. If a sale is intended or likely to be required, we write down the ~~security's~~ amortized cost basis ~~is written down~~of the security to fair value and recognize the full amount of the impairment through the statement of operations as a "Net Realized Investment Loss." To the extent we determine that a security impairment is credit-related, an impairment loss is recognized through the statement of operations as a provision for credit loss expense. The portion of a security impairment attributed to other non-credit related factors is recognized in ~~earnings.~~other comprehensive income, net of taxes.

Fair Values and Gross Unrealized Gains and Losses on Investments


		Amortized Cost		Gross Unrealized										Fair Value	Amortized Cost				Gross Unrealized								Fair Value
						Gains			Losses								Gains				Losses
As of March 31, 2020		(In Thousands)
As of March 31, 2021												As of March 31, 2021	(In Thousands)
U.S. Treasury securities and obligations of U.S. government agencies	U.S. Treasury securities and obligations of U.S. government agencies	$	48,207	$	3,519		$	—		$	51,726	U.S. Treasury securities and obligations of U.S. government agencies	$	29,419			$	1,570			$	0			$	30,989
Municipal debt securities	Municipal debt securities	196,750		3,853			(668)			199,935		Municipal debt securities	470,470		7,148				(6,508)				471,110
Corporate debt securities	Corporate debt securities	628,834		18,272			(6,658)			640,448		Corporate debt securities	1,184,374		31,181				(18,843)				1,196,712
Asset-backed securities	Asset-backed securities	180,514		404			(7,811)			173,107		Asset-backed securities	130,557		1,922				(149)				132,330
Total bonds	Total bonds	1,054,305		26,048			(15,137)			1,065,216		Total bonds	1,814,820		41,821				(25,500)				1,831,141

Short-term investments	Short-term investments	4,838		18			—			4,856		Short-term investments	370		0				0				370
Total investments	Total investments	$	1,059,143	$	26,066		$	(15,137)		$	1,070,072	Total investments	$	1,815,190	$	41,821			$	(25,500)			$	1,831,511

1211

NMI HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)


		Amortized Cost		Gross Unrealized										Fair Value	Amortized Cost				Gross Unrealized								Fair Value
						Gains			Losses								Gains				Losses
As of December 31, 2019		(In Thousands)
As of December 31, 2020												As of December 31, 2020	(In Thousands)
U.S. Treasury securities and obligations of U.S. government agencies	U.S. Treasury securities and obligations of U.S. government agencies	$	48,203	$	784		$	(58)		$	48,929	U.S. Treasury securities and obligations of U.S. government agencies	$	29,412			$	2,186			$	0			$	31,598
Municipal debt securities	Municipal debt securities	189,530		1,721			(1,035)			190,216		Municipal debt securities	407,323		14,027				(2)				421,348
Corporate debt securities	Corporate debt securities	661,719		23,373			(211)			684,881		Corporate debt securities	1,165,260		55,014				(483)				1,219,791
Asset-backed securities	Asset-backed securities	170,153		2,603			(114)			172,642		Asset-backed securities	128,471		2,736				(27)				131,180
Total bonds	Total bonds	1,069,605		28,481			(1,418)			1,096,668		Total bonds	1,730,466		73,963				(512)				1,803,917

Short-term investments	Short-term investments	44,174		98			—			44,272		Short-term investments	369		0				0				369
Total investments	Total investments	$	1,113,779	$	28,579		$	(1,418)		$	1,140,940	Total investments	$	1,730,835	$	73,963			$	(512)			$	1,804,286

We did not own any mortgage-backed securities in our asset-backed securities portfolio at March 31, ~~2020~~2021 or December 31, ~~2019.~~2020.

The following table presents a breakdown of the fair value of our corporate debt securities by issuer industry group as of March 31, ~~2020~~2021 and December 31, ~~2019:~~2020:


		March 31, 2020		December 31, 2019			March 31, 2021		December 31, 2020
Financial	Financial	40	%	38	%	Financial	36	%	37	%
Consumer	Consumer	23		26		Consumer	24		23
Utilities						Utilities	11		11
Communications	Communications	11		10		Communications	11		10
Utilities		10		9
Technology						Technology	10		10
Industrial	Industrial	9		8		Industrial	8		9
Technology		7		7
Energy		—		2

Total	Total	100	%	100	%	Total	100	%	100	%

As of March 31, ~~2020~~2021 and December 31, ~~2019,~~2020, approximately $5.7 million ~~and $5.5 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.

Scheduled Maturities

The amortized cost and fair ~~values~~value of available-for-sale securities as of March 31, ~~2020~~2021 and December 31, ~~2019,~~2020, 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 March 31, 2020		Amortized Cost		Fair Value
As of March 31, 2021						As of March 31, 2021	Amortized Cost		Fair Value
		(In Thousands)							(In Thousands)
Due in one year or less	Due in one year or less	$	83,740	$	83,736	Due in one year or less	$	60,399	$	60,995
Due after one through five years	Due after one through five years	408,063		415,419		Due after one through five years	541,790		564,386
Due after five through ten years	Due after five through ten years	373,220		383,838		Due after five through ten years	1,031,646		1,024,333
Due after ten years	Due after ten years	13,606		13,972		Due after ten years	50,798		49,467
Asset-backed securities	Asset-backed securities	180,514		173,107		Asset-backed securities	130,557		132,330
Total investments	Total investments	$	1,059,143	$	1,070,072	Total investments	$	1,815,190	$	1,831,511

NMI HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)


As of December 31, 2020	Amortized Cost		Fair Value
	(In Thousands)
Due in one year or less	$	57,429	$	57,949
Due after one through five years	507,444		536,520
Due after five through ten years	1,016,230		1,056,098
Due after ten years	21,261		22,539
Asset-backed securities	128,471		131,180
Total investments	$	1,730,835	$	1,804,286

Aging of Unrealized Losses

As of March 31, 2021, the investment portfolio had gross unrealized losses of $25.5 million, NaN of which had been in an unrealized loss position for a period of twelve months or longer. As of December 31, 2020, the investment portfolio had gross unrealized losses of $0.5 million, of which $8 thousand had been in an unrealized loss position for a period of twelve months or longer. 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 March 31, 2021		(Dollars in Thousands)

Municipal debt securities	132	$	259,994	$	(6,508)	0	$	0	$	0	132	$	259,994	$	(6,508)
Corporate debt securities	98	591,836		(18,843)		0	0		0		98	591,836		(18,843)
Asset-backed securities	4	7,988		(149)		0	0		0		4	7,988		(149)

Total	234	$	859,818	$	(25,500)	0	$	0	$	0	234	$	859,818	$	(25,500)


	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, 2020		(Dollars in Thousands)

Municipal debt securities	4	3,548		(2)		0	0		0		4	3,548		(2)
Corporate debt securities	9	40,081		(483)		1	33		0		10	40,114		(483)
Asset-backed securities	2	5,191		(19)		1	2,495		(8)		3	7,686		(27)
Total	15	$	48,820	$	(504)	2	$	2,528	$	(8)	17	$	51,348	$	(512)

Allowance for credit losses

As of March 31, 2021, we did not recognize an allowance for credit loss for any security in the investment portfolio and we did not record any provision for credit loss for investment securities during the three months ended March 31, 2021, and March 31, 2020.

The increase in the number of securities in and the aggregate size of the unrealized loss position as of March 31, 2021, was primarily driven by interest rate movements following the purchase date of certain securities. Based on current facts and circumstances, we believe the unrealized losses as of March 31, 2021 are not indicative of the ultimate collectability of the current amortized cost of the securities.

NMI HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

As of December 31, 2019 Amortized
Cost Fair
Value
(In Thousands)
Due in one year or less $ 138,776 $ 139,113
Due after one through five years 406,986 417,208
Due after five through ten years 380,737 394,180
Due after ten years 17,127 17,797
Asset-backed securities 170,153 172,642
Total investments $ 1,113,779 $ 1,140,940

~~Aging of Unrealized Losses~~

We evaluate our investments each quarter to determine whether declines in fair value are below amortized costs. As of March 31, 2020, the investment portfolio had gross unrealized losses of $15.1 million, of which $0.1 million had been in an unrealized loss position for a period of 12 months or greater. For any impaired security we evaluate if we either intend to sell the security or it is more likely than not that we will be required to sell the security before recovery of its amortized cost. If either of the criteria regarding intent or requirement to sell is met, the security's amortized cost basis is written down to fair value through earnings. For securities that do not meet the aforementioned criteria, we evaluate whether the decline in fair value has resulted from credit losses or other factors. In making this assessment, we consider the extent to which fair value is less than amortized cost, any changes to the rating of the securities by a rating agency, and any adverse condition specifically related to the security, among other factors. If this assessment indicates that a credit loss exists, and an allowance for credit losses is recorded. Any impairment that has not been recorded through an allowance for credit loss is recognized in other comprehensive income. The following table summarizes the investment portfolio in an unrealized loss position for which an allowance is not recorded, aggregated by major security type and length of time in a continuous unrealized loss position:

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 March 31, 2020 (Dollars in Thousands)
U.S. Treasury securities and obligations of U.S. government agencies — $ — $ — — $ — $ — — $ — $ —
Municipal debt securities 14 46,936 (668) — — — 14 46,936 (668)
Corporate debt securities 87 178,776 (6,630) 5 3,294 (28) 92 182,070 (6,658)
Asset-backed securities 60 133,997 (7,745) 1 2,934 (66) 61 136,931 (7,811)
Total 161 $ 359,709 $ (15,043) 6 $ 6,228 $ (94) 167 $ 365,937 $ (15,137)

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, 2019 (Dollars in Thousands)
U.S. Treasury securities and obligations of U.S. government agencies 4 $ 12,001 $ (58) — $ — $ — 4 $ 12,001 $ (58)
Municipal debt securities 26 92,844 (1,034) 1 999 (1) 27 93,843 (1,035)
Corporate debt securities 10 30,481 (140) 14 23,976 (71) 24 54,457 (211)
Asset-backed securities 9 19,236 (102) 1 2,988 (12) 10 22,224 (114)
Total 49 $ 154,562 $ (1,334) 16 $ 27,963 $ (84) 65 $ 182,525 $ (1,418)

~~NMI HOLDINGS, INC.~~

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

~~Allowance of credit losses~~

As of March 31, 2020, we did not recognize an allowance of credit losses on our investment portfolio. The increase in securities in an unrealized loss position as of March 31, 2020 can be attributed to a widening of credit spreads and surging demand for liquidity across the broader debt markets, partially offset by interest rate movements since the purchase date. We evaluated the securities in an unrealized loss position as of March 31, 2020 and assessed the credit ratings and any ratings changes as well as any adverse conditions specifically related to the security. Based on our estimate of the amount and timing of cash flows to be collected we expect to recover the amortized cost basis of these securities.

For the three months ended March 31, 2019, we recognized a $0.4 million other than temporarily impaired (OTTI) loss in earnings related to the planned sale of a security in a loss position in April 2019. 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 March 31, 2019.

Net Investment Income

The following table presents the components of net investment income:


		For the three months ended March 31,							For the three months ended March 31,
		2020		2019			2021		2020
		(In Thousands)							(In Thousands)
Investment income	Investment income	$	8,349	$	7,496	Investment income	$	9,225	$	8,349
Investment expenses	Investment expenses	(245)		(113)		Investment expenses	(411)		(245)
Net investment income	Net investment income	$	8,104	$	7,383	Net investment income	$	8,814	$	8,104

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


		For the three months ended March 31,							For the three months ended March 31,
		2020		2019			2021		2020
		(In Thousands)							(In Thousands)
Gross realized investment gains	Gross realized investment gains	$	540	$	195	Gross realized investment gains	$	0	$	540
Gross realized investment losses	Gross realized investment losses	(612)		(382)		Gross realized investment losses	0		(612)
Net realized investment (losses)		$	(72)	$	(187)
Net realized investment losses						Net realized investment losses	$	0	$	(72)

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 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.

~~NMI HOLDINGS, INC.~~

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

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.

NMI HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

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.

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 March 31, 2020		(In Thousands)
As of March 31, 2021										As of March 31, 2021	(In Thousands)
U.S. Treasury securities and obligations of U.S. government agencies	U.S. Treasury securities and obligations of U.S. government agencies	$	51,726	$	—	$	—	$	51,726	U.S. Treasury securities and obligations of U.S. government agencies	$	30,989	$	0	$	0	$	30,989
Municipal debt securities	Municipal debt securities	—		199,935		—		199,935		Municipal debt securities	0		471,110		0		471,110
Corporate debt securities	Corporate debt securities	—		640,448		—		640,448		Corporate debt securities	0		1,196,712		0		1,196,712
Asset-backed securities	Asset-backed securities	—		173,107		—		173,107		Asset-backed securities	0		132,330		0		132,330

Cash, cash equivalents and short-term investments	Cash, cash equivalents and short-term investments	114,677		—		—		114,677		Cash, cash equivalents and short-term investments	115,887		0		0		115,887
Total assets	Total assets	$	166,403	$	1,013,490	$	—	$	1,179,893	Total assets	$	146,876	$	1,800,152	$	0	$	1,947,028
Warrant liability	Warrant liability	—		—		1,461		1,461		Warrant liability	0		0		4,239		4,239
Total liabilities	Total liabilities	$	—	$	—	$	1,461	$	1,461	Total liabilities	$	0	$	0	$	4,239	$	4,239

~~NMI HOLDINGS, INC.~~


	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, 2020	(In Thousands)
U.S. Treasury securities and obligations of U.S. government agencies	$	31,598	$	0	$	0	$	31,598
Municipal debt securities	0		421,348		0		421,348
Corporate debt securities	0		1,219,791		0		1,219,791
Asset-backed securities	0		131,180		0		131,180

Cash, cash equivalents and short-term investments	127,306		0		0		127,306
Total assets	$	158,904	$	1,772,319	$	0	$	1,931,223
Warrant liability	0		0		4,409		4,409
Total liabilities	$	0	$	0	$	4,409	$	4,409

~~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, 2019 (In Thousands)
U.S. Treasury securities and obligations of U.S. government agencies $ 48,929 $ — $ — $ 48,929
Municipal debt securities — 190,216 — 190,216
Corporate debt securities — 684,881 — 684,881
Asset-backed securities — 172,642 — 172,642
Cash, cash equivalents and short-term investments 85,361 — — 85,361
Total assets $ 134,290 $ 1,047,739 $ — $ 1,182,029
Warrant liability — — 7,641 7,641
Total liabilities $ — $ — $ 7,641 $ 7,641

There were no transfers between Level 2 and Level 3 of the fair value hierarchy during the three months ended March 31, ~~2020,~~2021, or the year ended December 31, ~~2019.~~2020.

NMI HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

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


		For the three months ended March 31,							For the three months ended March 31,
Warrant Liability	Warrant Liability	2020		2019		Warrant Liability	2021		2020
		(In Thousands)							(In Thousands)
Balance, January 1	Balance, January 1	$	7,641	$	7,296	Balance, January 1	$	4,409	$	7,641
Change in fair value of warrant liability included in earnings	Change in fair value of warrant liability included in earnings	(5,959)		5,479		Change in fair value of warrant liability included in earnings	205		(5,959)

Issuance of common stock on warrant exercise	Issuance of common stock on warrant exercise	(221)		(944)		Issuance of common stock on warrant exercise	(375)		(221)
Balance, March 31	Balance, March 31	$	1,461	$	11,831	Balance, March 31	$	4,239	$	1,461

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 March 31,										As of March 31,
		2020			2019				2021			2020
Common stock price	Common stock price	$	11.61		$	25.87		Common stock price	$	23.64		$	11.61
Risk free interest rate	Risk free interest rate	0.23		%	2.21 - 2.31%			Risk free interest rate	0.08		%	0.23		%
Expected life	Expected life	2.06 years			1.67 - 3.06 years			Expected life	1.06 years			2.06 years
Expected volatility	Expected volatility	61.4		%	42.3 - 45.7%			Expected volatility	89.4		%	61.4		%
Dividend yield	Dividend yield	0		%	0		%	Dividend yield	0		%	0		%

The changes in fair value of the warrant liability for the three months ended March 31, 2021 and 2020 ~~and 2019 are primarily attributable to~~were driven by changes in the price of our common stock, ~~and exercises~~exercise of outstanding warrants ~~during the respective periods, with additional impact related to~~and changes in other Black-Scholes model ~~inputs.~~inputs during the respective periods.

Financial Instruments not Measured at Fair Value

~~4. Debt~~

On ~~May 24, 2018,~~June 19, 2020, we ~~entered into a credit agreement (2018 Credit Agreement), which provides for (i) a $150~~issued $400.0 million ~~five-year~~aggregate principal amount of senior secured ~~term loan facility (2018 Term Loan)~~notes that ~~matures~~mature on ~~May 24, 2023;~~June 1, 2025 (the Notes) and ~~(ii)~~used a ~~$85 million~~ ~~three-year secured revolving credit facility (2018 Revolving Credit Facility) that, prior to amendment as discussed below, would have matured on May 24, 2021. Proceeds~~portion of the proceeds from the ~~2018 Term Loan were used~~Notes offering to repay ~~in full~~ the outstanding amount due under our $150 million ~~amended~~ term loan ~~(2015~~(2018 Term Loan). At March 31, 2021, the Notes were carried at a cost of $393.6 million, net of unamortized debt issuance costs of $6.4 million, and had a fair value of $461.7 million as assessed under our Level 2 hierarchy. At December 31, 2020, the Notes were carried at a cost of $393.3 million, net of unamortized debt issuance costs of $6.7 million, and had a fair value of $447.1 million.

4. Debt

Senior Secured Notes

At March 31, 2021, we had $400.0 million aggregate principal amount of senior secured notes outstanding. The Notes were issued pursuant to an indenture dated June 19, 2020 (the Indenture) and bear interest at a rate of 7.375%, payable semi-annually on June 1 and December 1. $244.4 million of proceeds from the Notes offering were contributed to our lead operating subsidiary, NMIC and remaining proceeds were used to repay the outstanding amount due under the 2018 Term Loan due on ~~November 10, 2019,~~May 24, 2023 and to pay underwriting fees ~~and expenses~~ incurred in connection with the ~~2018~~offering.

The Notes mature on June 1, 2025. At any time, or from time to time, prior to March 1, 2025, we may elect to redeem the Notes in whole or in part at a price based on 100% of the aggregate principal amount of any Notes redeemed plus the "Applicable Premium," plus accrued and unpaid interest thereon. Applicable Premium is defined as the greater of (1) 1.0% of the principal amount of the Notes, or (2) the principal value of the Notes plus the present value of all future interest payments. At any time on or after March 1, 2025, we may elect to redeem the Notes in whole or in part at a price equal to 100% of the aggregate principal amount of the Notes to be redeemed plus accrued and unpaid interest thereon. From time to time prior to June 1, 2022, we may also elect to use proceeds raised from one or more equity offerings to redeem up to 40% of the aggregate principal amount of the Notes at a price equal to 107.375% of the aggregate principal amount thereof plus accrued and unpaid interest thereon, subject to certain exceptions.

NMI HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Interest expense for the Notes includes interest and the amortization of capitalized debt issuance costs. In connection with the Notes offering, we recorded capitalized debt issuance costs of $7.4 million. Such amounts will be amortized over the contractual life of the Notes using the effective interest method. At March 31, 2021, $6.4 million of unamortized debt issuance costs remained.

At March 31, 2021 and December 31, 2020, $9.8 million and $2.5 million, respectively, of accrued and unpaid interest on the Notes was included in "Accounts Payable and Accrued Expenses" on our condensed consolidated balance sheet.

2020 Revolving Credit ~~Agreement.~~ Facility

On March 20, 2020, we amended ~~the~~our $85 million three-year secured revolving credit facility (the 2018 ~~Revolving Credit Facility (2020~~ Revolving Credit Facility), increasing ~~the~~ borrowing capacity under the facility to $100 million, extending ~~the~~its maturity date from May 24, 2021 to February 22, 2023, and reducing the interest cost related to both undrawn commitments and drawn borrowings

~~NMI HOLDINGS, INC.~~

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

under the ~~facility.~~

~~2018 Term Loan~~

~~The 2018 Term Loan bears interest at~~facility (as amended, the LIBOR, 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 5.75% as of March 31, 2020, payable monthly based on our current interest period election. Quarterly principal payments of $0.4 million are also required. As of March 31, 2020, the outstanding principal balance of the 2018 Term Loan was $147.4 million.

Interest expense for the 2018 Term Loan includes interest and the amortization of issuance costs, an original issue discount and capitalized modification costs related to the 2015 Term Loan. For the three months ended March 31, 2020, we recorded $2.5 million of interest expense. Remaining unamortized issuance costs and original issue discount were $1.9 million as of March 31, 2020 and are being amortized to interest expense using the effective interest method over the contractual life of the 2018 Term Loan.

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 March 31, 2020.

~~Future principal payments due under the 2018 Term Loan as of March 31, 2020 are as follows:~~

As of March 31, 2020 Principal
(In thousands)
2020 1,125
2021 1,500
2022 1,500
2023 143,250
Total $ 147,375

2020 Revolving Credit ~~Facility~~

Facility). Borrowings under the 2020 Revolving Credit Facility may be used for general corporate purposes, including to support the growth of our new business production and operations, and accrue interest at a variable rate equal to, at our discretion, ~~based on the applicable corporate credit rating at the time,~~ (i) a base rate (as defined in ~~the 2018~~our existing credit agreement (the Credit ~~Agreement,~~Agreement), subject to a floor of 1.00% per annum) plus a margin of 0.375% to 1.875% per annum ~~which is reduced from a margin of 1.00% to 2.50% prior to the amendment,~~ or (ii) the Eurodollar Rate ~~(subject to a floor of 0.00% per annum)~~ plus a margin of 1.375% to 2.875% per annum, ~~which is reduced from~~based on the applicable corporate credit rating at the time.

On October 30, 2020, we entered into a ~~margin of 2.00% to 3.50% prior~~Joinder Agreement to the ~~amendment.~~Credit Agreement, increasing the aggregate principal amount of commitments under the 2020 Revolving Credit Facility from $100 million to $110 million. All other terms remained unchanged. As of March 31, ~~2020,~~2021, 0 ~~borrowings had been made~~amounts were drawn under the 2020 Revolving Credit Facility.

Under the 2020 Revolving Credit Facility, we are required to pay a quarterly commitment fee on the average daily undrawn amount ~~which ranges from~~of 0.175% to 0.525%, ~~reduced from ranges of 0.30% to 0.60% prior to the amendment,~~ based on the applicable corporate credit rating at the time. As of March 31, ~~2020,~~2021, the applicable commitment fee was 0.35%. For the three months ended March 31, ~~2020,~~2021, we recorded $0.1 million of commitment fees in interest expense.

We incurred debt issuance costs of $0.8 million in connection with the 2020 Revolving Credit Facility ~~which together~~and had $0.6 million of unamortized debt issuance costs associated with the 2018 Revolving Credit Facility remaining at the time of its amendment and replacement. Combined unamortized debt issuance ~~cost of $0.6 million prior to the amendment, are~~will be amortized through interest expense on a straight-line basis over the ~~extent~~ contractual life of the 2020 Revolving Credit ~~Facility, on a straight-line basis. For the three months ended March 31, 2020, we recognized $0.1 million of interest expense from the amortization of deferred issuance costs.~~Facility. At March 31, ~~2020,~~2021, remaining unamortized deferred debt issuance costs were ~~$1.4 million, net of accumulated amortization.~~$0.9 million.

We are subject to certain covenants under the 2020 Revolving Credit Facility, including, ~~(but~~but not limited ~~to)~~to, the following: a maximum debt-to-total capitalization ratio of 35%, a minimum liquidity requirement, compliance with the ~~PMIERs~~PMIERs' financial requirements (subject to any ~~Fannie Mae and Freddie Mac (collectively, the GSEs)~~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~~at March 31, ~~2020.~~2021.

~~NMI HOLDINGS, INC.~~

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

5. Reinsurance

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

NMI HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

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


		For the three months ended							For the three months ended
		March 31, 2020		March 31, 2019			March 31, 2021		March 31, 2020
		(In Thousands)							(In Thousands)
Net premiums written	Net premiums written					Net premiums written
Direct	Direct	$	103,453	$	81,730	Direct	$	136,232	$	103,453
Ceded ⁽¹⁾	Ceded ⁽¹⁾	(12,082)		(9,807)		Ceded (1)	(20,417)		(12,082)
Net premiums written	Net premiums written	$	91,371	$	71,923	Net premiums written	$	115,815	$	91,371

Net premiums earned	Net premiums earned					Net premiums earned
Direct	Direct	$	113,187	$	86,298	Direct	$	127,643	$	113,187
Ceded ⁽¹⁾	Ceded ⁽¹⁾	(14,470)		(12,430)		Ceded (1)	(21,764)		(14,470)
Net premiums earned	Net premiums earned	$	98,717	$	73,868	Net premiums earned	$	105,879	$	98,717

⁽¹⁾ Net of profit commission.

Excess-of-loss reinsurance

NMIC ~~entered into~~is party to excess-of-loss reinsurance agreements with Oaktown Re Ltd., Oaktown Re II Ltd., Oaktown Re III Ltd., Oaktown Re IV Ltd. and Oaktown Re ~~III~~V 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 NMIC with aggregate excess-of-loss reinsurance coverage on a defined portfolio of mortgage insurance policies written during a discrete period. 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. NMIC then retains losses in excess of the respective reinsurance coverage amounts.

The respective reinsurance coverage amounts provided by the Oaktown Re Vehicles decrease from the inception of each agreement over a 10 year period as the underlying insured mortgages are amortized or repaid, and/or the mortgage insurance coverage is canceled. The respective outstanding reinsurance coverage amounts stop amortizing if certain credit enhancement or delinquency thresholds, as defined in each agreement, are triggered.

NMIC makes risk premium payments to the Oaktown Re Vehicles for the applicable outstanding reinsurance coverage amount and pays an additional amount for anticipated operating expenses (capped at $300 thousand per year to Oaktown Re Ltd. and $250 thousand per year to Oaktown Re II Ltd., Oaktown Re III Ltd., Oaktown Re IV Ltd. and Oaktown Re ~~III,~~V Ltd.). NMIC ceded aggregate premiums to the Oaktown Re Vehicles of ~~$3.9~~$9.4 million and ~~$3.0~~$3.9 million during the three months ended March 31, ~~2020~~2021 and ~~three months ended~~ March 31, ~~2019,~~2020, respectively. The increase in premiums ceded is due to the inception of the excess-of-loss reinsurance agreements that NMIC entered in with Oaktown Re IV Ltd. and Oaktown Re V Ltd.

NMIC 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 months ended March 31, ~~2020~~2021 and ~~2019,~~2020, as the aggregate first layer risk retention ~~was not exhausted~~ for each applicable agreement was not exhausted 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 10ten 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., Oaktown Re III Ltd., Oaktown Re IV Ltd. and Oaktown Re V Ltd., individually as the 2017 ILN Transaction, 2018 ILN Transaction, 2019 ILN Transaction, 2020-1 ILN Transaction and 2020-2 ILN Transaction, and collectively as the ILN Transactions.

The respective reinsurance coverage amounts provided by the Oaktown Re Vehicles decrease from the inception of each agreement over a ten-year period as the underlying insured mortgages are amortized or repaid, and/or the mortgage insurance coverage is canceled. As the reinsurance coverage decreases, a prescribed amount of collateral held in trust by the Oaktown Re Vehicles is distributed to ILN Transaction noteholders as amortization of the outstanding insurance-linked note principal balances. The outstanding reinsurance coverage amounts stop amortizing, and the collateral distribution to ILN Transaction noteholders and amortization of insurance-linked note principal is suspended if certain credit enhancement or delinquency thresholds, as defined in each agreement, are triggered (each, a Lock-Out Event). Effective June 25, 2020, a Lock-Out Event was deemed to have occurred for each of the 2017, 2018 and 2019 ILN Transactions and the amortization of reinsurance coverage, and distribution of collateral assets and amortization of insurance-linked notes was suspended for each ILN Transaction. The amortization of reinsurance coverage, distribution of collateral assets and amortization of insurance-linked notes will remain

1918

NMI HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

~~Oaktown Re III, Ltd. individually as~~suspended for the ~~2017 ILN Transaction, 2018~~duration of the Lock-Out Event for each ILN Transaction, and ~~2019 ILN Transaction, and collectively as~~during such period assets will be preserved in the ~~ILN Transactions.~~applicable reinsurance trust account to collateralize the excess-of-loss reinsurance coverage provided to NMIC.

The following table presents the inception date, covered production ~~period,~~period, initial and current reinsurance coverage amount, and initial and current first layer retained aggregate loss under each of the ILN Transactions. Current amounts are presented as of March 31, 2021.


($ values in thousands)	($ values in thousands)	Inception Date	Covered Production	Initial Reinsurance Coverage		Current Reinsurance Coverage		Initial First Layer Retained Loss		Current First Layer Retained Loss		($ values in thousands)	Inception Date	Covered Production	Initial Reinsurance Coverage		Current Reinsurance Coverage		Initial First Layer Retained Loss		Current First Layer Retained Loss (1)
2017 ILN Transaction	2017 ILN Transaction	May 2, 2017	1/1/2013 - 12/31/2016	$	211,320	$	46,990	$	126,793	$	122,810	2017 ILN Transaction	May 2, 2017	1/1/2013 - 12/31/2016	$	211,320	$	40,226	$	126,793	$	121,376
2018 ILN Transaction	2018 ILN Transaction	July 25, 2018	1/1/2017 - 5/31/2018	264,545		174,340		125,312		124,311		2018 ILN Transaction	July 25, 2018	1/1/2017 - 5/31/2018	264,545		158,489		125,312		123,051
2019 ILN Transaction	2019 ILN Transaction	July 30, 2019	6/1/2018 - 6/30/2019	326,905		259,047		123,424		123,424		2019 ILN Transaction	July 30, 2019	6/1/2018 - 6/30/2019	326,905		231,877		123,424		122,838
2020-1 ILN Transaction												2020-1 ILN Transaction	July 30, 2020	7/1/2019 - 3/31/2020	322,076		174,314		169,514		169,514
2020-2 ILN Transaction												2020-2 ILN Transaction	October 29, 2020	4/1/2020 - 9/30/2020 (2)	242,351		218,741		121,777		121,177

(1) NMIC applies claims paid on covered policies against its first layer aggregate retained loss exposure and cedes reserves for incurred claims and claims expenses to each applicable ILN Transaction and recognizes a reinsurance recoverable if such incurred claims and claims expenses exceed its current first layer retained loss.

(2) Less than 1% of the production covered by the 2020-2 ILN Transaction has coverage reporting dates between July 1, 2019 and March 31, 2020.

NMIC holds optional termination rights under each ILN Transaction, 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 a given agreement. In addition, there are certain events that trigger mandatory termination of an agreement, including NMIC's failure to pay premiums or consent to reductions in a trust account to make principal payments to noteholders, among others.

Under the terms of the 2018, 2019, 2020-1 and 2020-2 ILN ~~Transaction and the 2019 ILN Transaction,~~Transactions, we are required to maintain a certain level of restricted funds in premium deposit accounts with Bank of New York Mellon until the respective notes have been redeemed in full. "Cash and cash equivalents" on our condensed consolidated balance sheet includes restricted amounts of ~~$2.5~~$4.9 million as of March 31, ~~2020.~~2021. We are not required to deposit additional funds into the premium deposit accounts in the future and the restricted balances required under these transactions will ~~decrease~~decline over time as the outstanding principal ~~balances~~balance of the respective insurance-linked notes ~~decline.~~are amortized.

NMI HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Quota share reinsurance

NMIC is party to four outstanding quota share reinsurance treaties - the 2016 QSR Transaction, effective September 1, 2016, the 2018 QSR Transaction, effective January 1, 2018, the 2020 QSR Transaction, effective April 1, 2020, and the 2021 QSR Transaction, effective January 1, 2021 - which we refer to collectively as the QSR Transactions. Under each of the QSR Transactions, NMIC cedes a proportional share of its risk on eligible policies written during a discrete period to panels of third-party reinsurance providers. Each of the third-party reinsurance providers has an insurer financial strength rating of A- or better by ~~S&P, A.M.Best~~Standard & Poor's Rating Service (S&P), A.M. Best Company, Inc. (A.M. Best) or both.

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. 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. 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~~recapturing the related risk.

Under the terms of the 2018 QSR Transaction, NMIC cedes premiums earned related to 25% of the risk on eligible policies written in 2018 and 20% of the risk on eligible policies written in 2019. The 2018 QSR Transaction is scheduled to terminate on December 31, 2029. 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~~recapturing the related risk.

Under the terms of the 2020 QSR Transaction, NMIC cedes premiums earned related to 21% of the risk on eligible policies written from April 1, 2020 to December 31, 2020. The 2020 QSR Transaction is scheduled to terminate on December 31, 2030. NMIC has the option, based on certain conditions and subject to a termination fee, to terminate the agreement as of December 31, 2023, or at the end of any calendar quarter thereafter, which would result in NMIC recapturing the related risk.

Under the terms of the 2021 QSR Transaction, NMIC cedes premiums earned related to 22.5% of the risk on eligible policies written in 2021. The 2021 QSR Transaction is scheduled to terminate on December 31, 2031. NMIC has the option, based on certain conditions and subject to a termination fee, to terminate the agreement as of December 31, 2024, or at the end of any calendar quarter thereafter, which would result in NMIC recapturing the related risk.

NMIC may terminate ~~either~~any or ~~both~~all 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.

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 amounts related to the QSR Transactions:


	For the three months ended
	March 31, 2021		March 31, 2020
	(In Thousands)
Ceded risk-in-force	$	6,330,409	$	4,843,715

Ceded premiums earned	(25,747)		(23,011)
Ceded claims and claim expenses	1,180		1,532

Ceding commission earned	5,162		4,513
Profit commission	13,380		12,413

NMI HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

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

For the three months ended
March 31, 2020 March 31, 2019
(In Thousands)
Ceded risk-in-force $ 4,843,715 $ 4,534,353
Ceded premiums earned (23,011) (21,468)
Ceded claims and claim expenses 1,532 899
Ceding commission earned 4,513 4,206
Profit commission 12,413 12,061

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, 2020 and 2021 QSR ~~Transaction,~~Transactions, 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 ratios on loans covered under the 2016 QSR Transaction, 2018 QSR Transaction, 2020 QSR Transaction and ~~2018~~2021 QSR Transaction, generally remain below 60%, 61%, 50% and ~~61%~~57.5%, respectively, as measured annually. Ceded claims and claim expenses under each of the QSR Transactions reduce 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~~the 2016 QSR Transaction was ~~$3.1~~$4.5 million as of March 31, ~~2020.~~2021.

In accordance with the terms of the 2018, 2020 and 2021 QSR ~~Transaction,~~Transactions, 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~~recognized 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~~Reinsurance recoverables on loss reserves related to ~~our~~the 2018 QSR Transaction ~~was $3.1~~and 2020 QSR Transaction were $13.4 million and $0.8 million, respectively, as of March 31, ~~2020.~~2021.

We remain directly liable for all claim payments if we are unable to collect reinsurance recoverables due from our reinsurers and, as such, we actively monitor and manage our counterparty credit exposure to our reinsurance providers. We establish an allowance for expected credit loss against our reinsurance recoverables if we do not expect to recover amounts due from one or more of our reinsurance counterparties, and report our reinsurance recoverables net of such allowance, if any. We actively monitor the counterparty credit profiles of our reinsurers and each is required to partially collateralize its obligations under the terms of our QSR Transactions. As of March 31, 2021, we did not recognize any allowance for credit loss with respect to our reinsurance recoverables.

6. Reserves for Insurance Claims and Claim Expenses

We ~~establish~~hold gross reserves in an amount equal to ~~recognize~~ the estimated liability for insurance claims and claim expenses related to defaults on insured mortgage loans. ~~Consistent with industry practice, we~~A loan is considered to be in "default" as of the payment date at which a borrower has missed the preceding two or more consecutive monthly payments. We establish reserves for loans that have been reported to us ~~by servicers as having been~~ in default ~~for at least 60 days,~~by servicers, referred to as case reserves, and additional loans that we estimate (based on actuarial ~~review) have been~~review and other factors) to be 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 reserves for claim ~~expense reserves,~~expenses, 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~~claim settlement process. As of March 31, ~~2020,~~2021, we had 11,090 primary loans in default and held gross reserves for insurance claims and claim expenses of ~~$29.5 million for 1,449 primary loans in default.~~$96.1 million. During the three months ended March 31, ~~2020,~~2021, we paid 3416 claims totaling ~~$1.5~~$0.6 million, ~~of claims and claims expense,~~ including 3115 claims covered under the QSR Transactions representing ~~$0.3~~$0.1 million of ceded claims and 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 March 31, ~~2020, 46~~2021, 198 loans in the pool were ~~past due by 60 days or more.~~in default. These 46198 loans represented approximately ~~$3.0~~$16.3 million of RIF. Due to the size of the remaining deductible, ~~the low level~~our expectation that a limited number of ~~notices of defaults (NODs) reported on~~ loans in ~~the pool through March 31, 2020~~default will progress to a claim and the expected severity on such claim submissions (all loans in the pool ~~have~~had loan-to-value (LTV) ratios under 80%) at origination), we did not establish any case or IBNR reserves for pool risk at March 31, ~~2020.~~2021. In connection with the settlement of pool claims, we applied ~~$0.9~~$1.0 million to the pool deductible through March 31, ~~2020.~~2021. At March 31, ~~2020,~~2021, the remaining pool deductible was ~~$9.5~~$9.4 million. We have not paid any pool claims to date. 100% of our pool RIF is reinsured under the 2016 QSR Transaction.

We had 11,090loans in default in our primary insured portfolio as of March 31, 2021, which represented a 2.54% default rate against 436,652 total policies in-force. We had 1,449 loans in default in our primary insured portfolio as of March 31, 2020, which represented a 0.38% default rate against 376,852 total policies in-force. The increase in our default population is primarily due to challenges borrowers have faced related to the COVID-19 outbreak and their decision to access the forbearance program for federally backed loans codified under the Coronavirus Aid, Relief, and Economic Security (CARES) Act or similar programs

NMI HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

made available by private lenders.

The size of the reserve we establish for each defaulted loan (and by extension our aggregate reserve for claims and claim expenses) reflects our best estimate of the future claim payment to be made for each individual loan in default. Our future claims exposure is a function of the number of defaulted loans that progress to claim payment (which we refer to as frequency) and the amount to be paid to settle such claims (which we refer to as severity). Our estimates of claims frequency and severity are not formulaic, rather they are broadly synthesized based on historical observed experience for similarly situated loans and assumptions about future macroeconomic factors. We generally observe that forbearance programs are an effective tool to bridge dislocated borrowers from a time of acute stress to a future date when they can resume timely payment of their mortgage obligations. The effectiveness of forbearance programs is enhanced by the availability of various repayment and loan modification options which allow borrowers to amortize or, in certain instances, outright defer payments otherwise due during the forbearance period over an extended length of time. In response to the COVID-19 outbreak, the Federal Housing Financing Agency (FHFA) and GSEs introduced new repayment and loan modification options to further assist borrowers with their transition out of forbearance programs and default status.

Our reserve setting process considers the beneficial impact of forbearance, foreclosure moratorium and other assistance programs available to defaulted borrowers. At March 31, 2021, we established lower reserves for defaults that we consider to be connected to the COVID-19 outbreak given our expectation that forbearance, repayment and modification, and other assistance programs will aid affected borrowers and drive higher cure rates on such defaults than we would otherwise expect to experience on similarly situated loans that did not benefit from broad-based assistance programs. While we established lower reserves per defaulted loan at March 31, 2021 compared to March 31, 2020, our total reserve position increased due to the growth in the size of our default population.

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


		For the three months ended March 31,							For the three months ended March 31,
		2020		2019			2021		2020
		(In Thousands)							(In Thousands)
Beginning balance	Beginning balance	$	23,752	$	12,811	Beginning balance	$	90,567	$	23,752
Less reinsurance recoverables ⁽¹⁾	Less reinsurance recoverables ⁽¹⁾	(4,939)		(3,001)		Less reinsurance recoverables (1)	(17,608)		(4,939)
Beginning balance, net of reinsurance recoverables	Beginning balance, net of reinsurance recoverables	18,813		9,810		Beginning balance, net of reinsurance recoverables	72,959		18,813

Add claims incurred:	Add claims incurred:					Add claims incurred:
Claims and claim expenses incurred:	Claims and claim expenses incurred:					Claims and claim expenses incurred:
Current year ⁽²⁾	Current year ⁽²⁾	7,558		3,909		Current year (2)	10,557		7,558
Prior years⁽³⁾	Prior years⁽³⁾	(1,861)		(1,166)		Prior years (3)	(5,595)		(1,861)
Total claims and claim expenses incurred	Total claims and claim expenses incurred	5,697		2,743		Total claims and claim expenses incurred	4,962		5,697

Less claims paid:	Less claims paid:					Less claims paid:
Claims and claim expenses paid:	Claims and claim expenses paid:					Claims and claim expenses paid:
Current year ⁽²⁾	Current year ⁽²⁾	—		—		Current year (2)	12		0
Prior years ⁽³⁾	Prior years ⁽³⁾	1,224		694		Prior years (3)	492		1,224

Total claims and claim expenses paid	Total claims and claim expenses paid	1,224		694		Total claims and claim expenses paid	504		1,224

Reserve at end of period, net of reinsurance recoverables	Reserve at end of period, net of reinsurance recoverables	23,286		11,859		Reserve at end of period, net of reinsurance recoverables	77,417		23,286
Add reinsurance recoverables ⁽¹⁾	Add reinsurance recoverables ⁽¹⁾	6,193		3,678		Add reinsurance recoverables (1)	18,686		6,193
Ending balance	Ending balance	$	29,479	$	15,537	Ending balance	$	96,103	$	29,479

⁽¹⁾Related to ceded losses recoverable under the QSR ~~Transactions, included in "Other assets" on the Condensed Consolidated Balance Sheets.~~Transactions. 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 defaulted in a prior year and subsequently cured and later re-defaulted in the current year, the default would be included in the current year. Amounts are presented net of ~~reinsurance.~~reinsurance and included $5.3 million attributed to net case reserves and $5.3 million attributed to net IBNR reserves for the three months ended March 31, 2021 and $6.0 million attributed to net case reserves and $1.6 million attributed to net IBNR reserves for the three months ended March 31, 2020.

ended March 31, 2021 and $0.6 million attributed to net case reserves and $1.3 million attributed to net IBNR reserves for the three months ended March 31, 2020.

NMI HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

The "claims incurred" section of the table above shows claims and claim expenses incurred on ~~NODs for~~defaults occurring in current and prior years, including IBNR reserves and is presented net of reinsurance. The amount of claims incurred relating to current year NODs represents the estimated amount of claims and claim expenses to be ultimately paid on such loans in default. We recognized $1.9 million and $1.2 million of favorable prior year development during the three months ended March 31, 2020 and 2019, respectively, due to NOD cures and ongoing analysis of recent loss development trends. We may increase or decrease our ~~original~~claim estimates and reserves as we learn additional information about individual ~~defaults and claims~~defaulted loans, and continue to observe and analyze loss development trends in our portfolio. Gross reserves of ~~$19.9~~$83.0 million related to prior year defaults remained as of March 31, ~~2020.~~2021.

7. Earnings per Share (EPS)

Basic EPS is based on the weighted average number of shares of common stock outstanding. Diluted EPS 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 and performance and ~~service based~~service-based restricted stock units (RSUs), and the exercise of vested and unvested stock options and outstanding 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 EPS of common stock.

~~NMI HOLDINGS, INC.~~

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


		For the three months ended March 31,							For the three months ended March 31,
		2020		2019			2021		2020
		(In Thousands, except for per share data)							(In Thousands, except for per share data)
Net income	Net income	$	58,271	$	32,899	Net income	$	52,891	$	58,271
Basic weighted average shares outstanding	Basic weighted average shares outstanding	68,563		66,692		Basic weighted average shares outstanding	85,317		68,563
Basic earnings per share	Basic earnings per share	$	0.85	$	0.49	Basic earnings per share	$	0.62	$	0.85

Net income	Net income	$	58,271	$	32,899	Net income	$	52,891	$	58,271
Gain from change in fair value of warrant liability	Gain from change in fair value of warrant liability	(5,959)		—		Gain from change in fair value of warrant liability	0		(5,959)
Diluted net income	Diluted net income	$	52,312	$	32,899	Diluted net income	$	52,891	$	52,312

Basic weighted average shares outstanding	Basic weighted average shares outstanding	68,563		66,692		Basic weighted average shares outstanding	85,317		68,563
Dilutive effect of issuable shares	Dilutive effect of issuable shares	1,838		2,304		Dilutive effect of issuable shares	1,170		1,838
Diluted weighted average shares outstanding	Diluted weighted average shares outstanding	70,401		68,996		Diluted weighted average shares outstanding	86,487		70,401

Diluted earnings per share	Diluted earnings per share	$	0.74	$	0.48	Diluted earnings per share	$	0.61	$	0.74

Anti-dilutive shares	Anti-dilutive shares	15		754		Anti-dilutive shares	314		15

8. Warrants

We issued 992 thousand warrants in connection with a private placement of our common stock in April ~~2012.~~2012, of which 285 thousand remained outstanding available for exercise at March 31, 2021. Each warrant gives the holder thereof the right to purchase 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 March 31, ~~2020, 9~~2021, 27 thousand warrants were exercised resulting in the issuance of 624 thousand shares of common stock. Upon exercise, we reclassified approximately $0.4 million of warrant fair value from warrant liability to additional paid-in capital. During the three months ended March 31, 2020, 9000 warrants were exercised resulting in the issuance of 6000 shares of common stock. Upon exercise, we reclassified approximately $0.2 million of warrant fair value from warrant liability to additional paid-in ~~capital, of which $8 thousand related to changes in fair value during the three months ended March 31, 2020.~~

During the three months ended March 31, 2019, 67 thousand warrants were exercised resulting in the issuance of 39 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 March 31, 2019.

capital.

9. Income Taxes

We are a U.S. taxpayer and are subject to a statutory U.S. federal corporate income tax rate of 21%. 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

NMI HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

pre-tax income was 21.6% for the three months ended March 31, 2021, compared to 19.2% for the three months ended March 31, ~~2020 compared to 15.6% for the three months ended March 31, 2019.~~2020. Our provision for income taxes for interim reporting periods is established based on our estimated annual effective tax rate for a given year. Our effective tax rate may fluctuate between interim periods due to the impact of discrete items not included in our estimated annual effective tax rate, including the tax effects associated with the vesting of RSUs and exercise of options, and the change in fair value of our warrant liability. Such items are treated on a discrete basis in the reporting period in which they occur.

As a mortgage guaranty insurance company, we are eligible to claim a tax deduction for our statutory contingency reserve balance, subject to certain limitations outlined under IRC Section 832(e), and only to the extent we acquire tax and loss bonds in an amount equal to the tax benefit derived from the claimed deduction, which is our intent. As a result, our interim provision for income taxes for the three months ended March 31, ~~2020~~2021 represents a change in our net deferred tax liability. As of March 31, 2021 and December 31, 2020, we held ~~$7.6~~$46.4 million of tax and loss bonds in "Other assets" inon our condensed consolidated balance sheet.

10. Premium Receivable

23Premiums receivable consists of premiums due on our mortgage insurance policies. If a mortgage insurance premium is unpaid for more than 120 days, the associated receivable is written off against earned premium and the related insurance policy is canceled. We recognize an allowance for credit losses for premiums receivable based on credit losses expected to arise over the life of the receivable. Due to the nature of our insurance policies (a necessary precondition for access to mortgage credit for covered borrowers) and the short duration of the related receivables, we do not typically experience credit losses against our premium receivables and did not establish an allowance for credit loss at March 31, 2021.

Premiums receivable may be written off prior to 120 days in the ordinary course of business for non-credit events including, but not limited to, the modification or refinancing of an underlying insured loan.

We establish a reserve for the write-off of premiums receivable based on historical experience. Our premium write-off reserve was not material at March 31, 2021 or December 31, 2020.

~~NMI HOLDINGS, INC.~~

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

~~10.~~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.~~Commissioners (NAIC). 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.

NMI HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

NMIC and Re One's combined statutory net income ~~(loss)~~ was ~~as follows:~~$6.4 million and $7.7 million for the three months ended March 31, 2021 and 2020, respectively.

For the three months ended March 31,
2020 2019
(In Thousands)
Statutory net gain (loss) $ 7,691 $ (927)
The Wisconsin OCI has imposed a prescribed accounting practice for the treatment of statutory contingency reserves that differs from the treatment promulgated by the NAIC. Under Wisconsin OCI's prescribed practice mortgage guaranty insurers are required to reflect changes in their contingency reserves through statutory income. Such approach contrasts with the NAIC's treatment, which records changes to contingency reserves directly to unassigned funds. As a Wisconsin-domiciled insurer, NMIC's statutory net income reflects an expense associated with the change in its contingency reserve. While such treatment impacts NMIC's statutory net income, it does not have an effect on NMIC's statutory capital position.

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


		March 31, 2020		December 31, 2019
		(In Thousands)							March 31, 2021		December 31, 2020
							(In Thousands)
Statutory surplus	Statutory surplus	$	457,790	$	449,602	Statutory surplus	$	899,412	$	894,331
Contingency reserve	Contingency reserve	588,418		531,825		Contingency reserve	832,145		768,324
RTC ratio		17.2:1		15.8:1
Statutory capital (1)						Statutory capital (1)	$	1,731,557	$	1,662,655

Risk-to-capital						Risk-to-capital	13.2:1		11.7:1

(1) Represents the total of the statutory surplus and contingency reserve.

NMIH is not subject to any limitations on its ability to pay dividends except those generally applicable to corporations that are incorporated in the State of 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 are subject to certain ~~capital and dividend~~ rules and regulations prescribed by jurisdictions in which they are authorized to operate and the ~~GSEs. NMIC and Re One have never paid~~GSEs that may restrict their ability to pay dividends to NMIH. ~~NMIC and~~ Re One has the capacity to pay $1.6 million of aggregate ordinary dividends to NMIH during the twelve-month period ending December 31, 2021. NMIC reported a statutory net loss for the year ended December 31, 2020 and does not have the capacity to pay ~~aggregate ordinary~~ dividends ~~of $16.1 million~~ to NMIH during the ~~12-month~~twelve-month period ~~ending~~ended December 31, ~~2020.~~2021 without prior approval from the Wisconsin OCI. Neither Re One nor NMIC have ever paid dividends to NMIH.

As an

~~11. COVID-19 Developments and Coronavirus Aid, Relief, and Economic Security (CARES) Act~~

~~COVID-19 Developments~~

~~On January 30, 2020,~~approved insurer under PMIERs, NMIC would generally be subject to prior GSE approval of its ability to pay dividends to NMIH if it failed to meet the World Health Organization (WHO) declared the outbreak of a novel coronavirus strain (COVID-19) a global health emergency and characterized the outbreak as a global pandemic on March 11, 2020. In an effort to stem contagion and control the COVID-19 pandemic the population at large has severely curtailed day-to-day activity and local, state and federal regulators have imposed a broad set of restrictions on personal and business conduct nationwide. The COVID-19 pandemic, along with the widespread public and regulatory response, has caused a dramatic slowdown in U.S. and global economic activity. In the weeks following the outbreak, non-essential businesses across the U.S. have been shuttered and capital markets have experienced a significant spike in volatility and sell-off in valuations. A record number of Americans have been furloughed or laid-off, and unemployment claims have increased dramatically.

~~The global dislocation caused~~financial requirements prescribed by COVID-19 is unprecedented and, while there is broad hope for a medical advance that relieves the crisis and provides for a quick return to normalized activity, it is not known how long the dislocation will persist.PMIERs. In response to the ~~COVID-19 outbreak and continuing uncertainties, we activated our business continuity program~~COVID pandemic, the GSEs issued temporary PMIERs guidance, effective for the period from June 30, 2020 to ~~ensure our employees were safe and able~~June 30, 2021, that requires approved insurers to ~~continue serving our customers and their borrowers without interruption.~~secure approval from the GSEs prior to paying any dividends, even if the approved insurer otherwise satisfies the financial requirements prescribed by PMIERs. We expect the COVID-19 outbreak will have a direct effect on the U.S. housing market, with existing homeowners facing challenges related to COVID-19, and the volume and timing of future housing transactions negatively impacted as potential sellers re-evaluate or postpone planned sales (housing supply) and potential buyers reassess their ability and willingness to purchase homes (demand). We are currently assessing the potential impact the COVID-19 outbreak will have on the U.S economy and housing market, the mortgage insurance market, and our business performance and financial position, including our new business production, defaults and claims experience and investment portfolio returns, of which the ultimate outcome cannot be ~~estimated at this time.~~

~~NMI HOLDINGS, INC.~~

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

~~CARES Act~~

On March 27, 2020, the President signed into law the CARES Act. The CARES Act, among other things, includes provisions relating to refundable payroll tax credits, deferment of employer side social security payments, net operating loss carryback periods, alternative minimum tax credit refunds, modifications to the net interest deduction limitations, increased limitations on qualified charitable contributions, and technical corrections to tax depreciation methods for qualified improvement property. We currently are eligible but have not taken advantage of the payroll protection program, emergency grants and business loans under the CARES Act. We will continue to monitor the impactcertain that the ~~CARES Act may have on our business, financial condition and results~~GSEs will not amend the terms, or extend the duration, of ~~operations.~~

this prior approval requirement beyond its current expiration of June 30, 2021.

12. Subsequent Event

On April 27, 2021, NMIC entered into a reinsurance agreement with Oaktown Re VI Ltd. (Oaktown Re VI), a Bermuda domiciled special purpose reinsurer, that provides for up to $367.2 million of aggregate excess-of-loss reinsurance coverage at inception for new delinquencies on an existing portfolio of mortgage insurance policies primarily written between October 1, 2020 and March 2~~0, 2020, we amended~~31, 2021. For the ~~2018 Revolving Credit Facility (2020 Revolving Credit Facility), increasing its size from $85~~reinsurance coverage period, NMIC will retain the first layer of $163.7 million of aggregate losses and Oaktown Re VI will then provide second layer coverage up to the outstanding reinsurance coverage amount. NMIC will then retain losses in excess of the outstanding reinsurance coverage amount.

Oaktown Re VI financed the coverage by issuing mortgage insurance-linked notes in an aggregate principal amount of $367.2 million to ~~$100 million, expanding our lender group, extending its maturity~~unaffiliated investors. The notes issued by Oaktown Re VI mature on October 25, 2033; all proceeds raised were deposited into a reinsurance trust to ~~February 2023~~collateralize and ~~reducing its cost. Subsequent~~fund the obligations of Oaktown Re VI to NMIC under the ~~close~~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 to NMIC's reinsurance agreement with and the insurance-linked notes issued by Oaktown Re VI as the 2021-1 ILN Transaction. Under the terms of the ~~quarter, we secured a further amendment to our 2020 Revolving Credit Facility to permit us to issue up to $400 million of senior debt alongside~~2021-1 ILN Transaction, NMIC makes risk premium payments for the ~~facility,~~applicable outstanding reinsurance coverage amount and ~~we secured expanded approval from the Wisconsin OCI to allocate incremental holding company interest~~pays Oaktown Re VI for anticipated operating expenses ~~to NMIC should we choose to pursue additional debt financing opportunities and downstream proceeds to support our operating businesses.~~(capped at $250,000 per year).

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 ~~2019~~2020 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 ~~2019~~2020 10-K, 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 reinsurance to NMIC on insured loans 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 March 31, ~~2020,~~2021, we had master policies with ~~1,501~~1,609 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 lenders. As of March 31, ~~2020,~~2021, we had ~~$101.0~~$125.4 billion of total insurance-in-force (IIF), including primary IIF of ~~$98.5~~$123.8 billion, and $31.3 billion of gross RIF, ~~of $25.3 billion,~~ including primary RIF of ~~$25.2~~$31.2 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 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.

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 claim payment practices, responsive customer service, and financial strength and profitability.

Our common stock trades on the NASDAQ under the symbol "NMIH." Our headquarters is located in Emeryville, California. As of March 31, ~~2020,~~2021, we had ~~327 full- and part-time~~ 250 employees. Our corporate website is located at 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.

COVID-19 Developments

On January 30, 2020, the WHO declared the outbreak of COVID-19 a global health emergency and subsequently characterized the outbreak as a global pandemic on March 11, 2020. In an effort to stem contagion and control the COVID-19 pandemic, the

population at large ~~has~~ severely curtailed day-to-day activity and local, state and federal regulators ~~have~~ imposed a broad set

of restrictions on personal and business conduct nationwide. The COVID-19 pandemic, along with the widespread public and regulatory response, ~~has~~ caused a dramatic slowdown in U.S. and global economic ~~activity. In the weeks following the outbreak, non-essential businesses across the U.S. have been shuttered~~activity and ~~capital markets have experienced~~ a ~~significant spike in volatility and sell-off in valuations. A~~ record number of Americans ~~have been~~were furloughed or laid-off ~~and unemployment claims have increased dramatically.~~in the ensuing downturn.

The global dislocation caused by COVID-19 is unprecedented and, while there is broad hope for a medical advance that relieves the crisis and provides for a quick return to normalized activity, it is not known how long the dislocation will persist.was unprecedented. In response to the COVID-19 outbreak and ~~continuing uncertainties,~~uncertainty that it introduced, we activated our ~~business~~disaster continuity program to ensure our employees were safe and able to ~~continue serving~~manage our business without interruption. We pursued a broad series of capital and reinsurance transactions to bolster our balance sheet and expand our ability to serve our customers and their borrowers, ~~without interruption. We have also sought~~and we updated our underwriting guidelines and policy pricing in consideration for the increased level of macroeconomic volatility.

The U.S. housing market demonstrated notable resiliency in the face of COVID stress, with significant purchase demand, record levels of mortgage origination activity and nationwide house price appreciation emerging shortly after the onset of the pandemic. More recently, the development of new vaccines and accelerating pace of the inoculation effort across the U.S. has allowed for the broad resumption of personal and business activity nationwide, and provided hope for a sharp economic rebound in 2021.

While there is increased optimism that the acute health risk posed by and economic impact of COVID-19 has begun to ~~broadly~~recede, the pandemic continues to affect communities across the U.S. and poses significant risk globally. The path and pace of global economic recovery will depend, in large part, on the course of the virus, which itself remains unknown and subject to risk. Given this uncertainty, we are not able to fully assess or estimate the ~~potential~~ultimate impact ~~the~~ COVID-19 ~~outbreak~~ will have on the ~~U.S. economy and housing market, and the implications for the~~ mortgage insurance market, ~~and~~ our business performance or our financial position including our new business production, default and ~~financial position.~~claims experience, and investment portfolio results at this time.

Potential Impact on the U.S. Housing Market and Mortgage Insurance Industry

~~We expect the COVID-19 outbreak will have a direct effect on the~~The U.S. housing market ~~with existing homeowners facing challenges related~~has demonstrated significant resiliency amidst the broader economic dislocation caused by the outbreak of COVID-19. Low interest rates have helped to ~~COVID-19,~~support housing affordability, medical concerns and lifestyle preferences have driven people to move from densely populated urban areas to suburban communities where social distancing is more easily achieved, and shelter-in-place directives have reinforced the ~~volume~~value of homeownership – all of which contributed to an influx of new home buyers, record levels of purchase demand, and ~~timing of future~~nationwide house price appreciation.

While the possibility remains that the housing ~~transactions negatively impacted as potential sellers re-evaluate or postpone planned sales (housing supply) and potential buyers reassess their ability and willingness to purchase homes (demand). The~~ market ~~may be further constrained as transactions between committed buyers and sellers encounter operational challenges, such as delayed title searches due to~~will soften, we believe the ~~closure of local government offices.~~

As a market (like all others) where valuation is driven by supply/demand dynamics, this dislocation has the potential to impact housing prices. While it is too early for us to estimate the magnitude of any potential housing price decline (either nationally or in local markets), we have looked to the 2008 Financial Crisis as a point of comparison. In the wakegeneral strength of the ~~2008 Financial Crisis, national home price indices declined by approximately 30% from their pre-crisis peaks~~market coming into the COVID-19 crisis and ~~remained severely dislocated for several years, causing significant stress for homeowners, lenders, mortgage insurers and~~demonstrated resiliency thus far through the ~~broader economy.~~pandemic will help to mitigate the risk of a severe pullback. We observe several favorable differences in the current environment as compared to ~~that in~~ the period leading up to and through the 2008 Financial Crisis ~~that we believe may lessen~~– the ~~relative housing price dislocation experienced~~last period of significant economic volatility in the ~~aftermath of the COVID-19 outbreak, including:~~U.S. and one noted for its significant housing market dislocation. Such differences include:

(i) the generally higher quality borrower base (as measured by weighted average FICO scores and LTV ratios) and tighter underwriting standards (with, among other items, full-documentation required to verify borrower income and asset positions) that prevail in the current market;

(ii) the lower concentration of higher risk loan structures, such as negative amortizing, interest-only or short-termed option ~~adjusted-rate~~adjustable-rate mortgages being originated and outstanding in the current market;

(iii) the meaningfully higher proportion of loans used for lower risk purposes, such as the purchase of a primary residence or rate-term refinancing in the current market, as opposed to cash-out refinancings, investment properties or second home purchases, which prevailed to a far greater degree in the lead up to the 2008 Financial Crisis;

(iv) the availability and immediate application by ~~politicians,~~the government, regulators, lenders, loan servicers and others of a broad toolkit of resources designed to aid distressed borrowers, including forbearance, foreclosure moratoriums and other assistance programs codified under the CARES Act enacted on March 27, 2020; and

(v) the broader and equally immediate application of ~~a massive amount of~~significant fiscal and monetary stimulus by the federal government under the CARES Act, and subsequently under the Consolidated Appropriations Act enacted on December 27, 2020 (the CAA) and the American Rescue Plan Act enacted on March 11, 2021 (the American Rescue Plan), as well as across a range of other programs designed to assist unemployed individuals and distressed businesses, ~~as well as~~and support the smooth functioning of various capital and risk ~~markets.~~markets

We also perceive the house price environment in the period leading up to the ~~current~~ COVID-crisis to be anchored by more balanced market fundamentals than that in the period leading up to the 2008 Financial Crisis. We believe the 2008 Financial Crisis was directly precipitated by irresponsible behavior in the housing market ~~in which~~that drove home prices ~~were driven~~ to unsustainable heights (a ~~so called “bubble”~~so-called "bubble"). We see a causal link between the housing market and the 2008 Financial Crisis that we do not see in the COVID-19 outbreak, and we believe this will further ~~lessen the relative~~contribute to housing ~~price dislocation experienced going forward.~~

~~Notwithstanding the relative differences we observe~~market stability in the current environment as compared to the 2008 Financial Crisis, we do expect that housing prices will be impacted by the COVID-19 outbreak. We also expect the mix of purchase and refinancing mortgage originations will shift in the near-term due to the current pandemic. We anticipate that purchaseperiod.

Purchase mortgage origination volume ~~will be lower in the aftermath of~~has increased significantly as factors related to the COVID-19 ~~outbreak than it otherwise would~~crisis have ~~been as buyers and sellers postpone or more broadly reassess current and future transactions, while we expect refinancing~~spurred significant incremental demand for homeownership. Refinancing origination volume ~~will increase significantly~~has also grown dramatically as ~~declining~~historically low mortgage rates, ~~create~~though rising in recent months, have created refinancing opportunities for a large number of existing borrowers.

~~Historically,~~Growth in total mortgage origination volume increases the addressable market for the U.S. mortgage insurance industry, ~~penetration of the purchase origination market has been meaningfully higher than the~~while accelerated refinancing origination market, as new home buyers have generally required a greater degree of down payment support, while refinancing borrowers have typically benefited from increasing equity in their existing homes.activity increases prepayment speed on outstanding insured mortgages. In ~~recent periods, however,~~this context, total U.S. mortgage insurance ~~industry penetration of the refinancing market has increased significantly and the composition of~~ industry new insurance written (NIW) volume ~~between purchase~~increased to record levels following the onset of the COVID pandemic and ~~refinancing loans has shifted. Refinancing originations accounted for approximately 30%~~the persistency of ~~total~~existing in-force insured risk across the industry declined meaningfully.

While we currently observe broad resiliency in the housing and high-LTV mortgage ~~insurance industry NIW volume~~markets and, for the ~~quarter-ended December 31, 2019, compared to approximately 6% for the quarter-ended December 31, 2018. We~~reasons discussed above, expect this trend to continue in the ~~near-term as purchase origination volume slows and refinancing origination volume increases, particularly as those borrowers who capitalize on~~near term, the emerging refinancing opportunity may not have significant equity in their homes (either because they are refinancing so soon after closing on a new home purchase or because of a decline in the appraised value of their property) and may need to rely on mortgage insurance support to complete their transactions.

~~In this context, we expect to see a decline in total U.S. mortgage insurance industry NIW volume in the near-term, with the~~ultimate impact of ~~declining purchase origination volume partially offset by a dramatic increase in,~~COVID-19 remains highly uncertain. See Item 1A of our 2020 10K, "Risk Factors - The COVID-19 outbreak may continue to materially adversely affect our business, results of operations and ~~increasing mortgage insurance penetration of, refinancing origination volume.~~financial condition."

Potential Impact on NMI's Business Performance and Financial Position

Operations

We had ~~327~~250 employees at March 31, ~~2020,~~2021, including ~~173~~112 who typically work at our corporate headquarters in Emeryville, CA and ~~154~~138 who typically work from home in locations across the country. In response to the COVID-19 outbreak, we activated our business continuity program and instituted additional work-from-home practices for our ~~173~~112 Emeryville-based staff. We ~~have~~ transitioned our operations seamlessly and ~~continue~~have continued to positively engage with customers on a remote basis. Our IT environment, underwriting capabilities, policy servicing platform and risk architecture have continued without interruption, and our internal control environment ~~and internal controls over financial reporting~~ are unchanged. We ~~have~~ achieved this transition without incurring additional capital expenditures or operating expenses and we believe our current operating platform can continue to support our newly distributed needs for an extended period without further investment beyond that planned in the ordinary course.

While the broad COVID vaccination effort and relaxation of local restrictions on indoor business operation may allow for a general resumption of in-office activity for our headquarters-based employees, the success of our remote work experience through the pandemic may cause us to offer increased flexibility for employees who prefer a full-time or part-time distributed engagement in the future. If we offer such flexibility and a large enough number of employees elect such an approach, our office and real estate needs could evolve.

New Business Production

Our NIW volume increased significantly following the onset of the COVID-19 pandemic driven by the broad resiliency of the housing market, growth in total mortgage origination volume and increasing size of the U.S. mortgage insurance market, as well as the continued expansion of our customer franchise. We ~~expect that~~wrote $26.4 billion of NIW during the ~~volume, composition, credit profile and pricing of~~three months ended March 31, 2021, up 134% compared to the three months ended March 31, 2020.

While we currently expect our new business production will ~~change due~~remain elevated, the potential onset of a new viral wave and rising case counts, reintroduction of broad-based shelter in place directives, increased unemployment or other potential outcomes related to ~~the~~ COVID-19 ~~crisis.~~

Our NIW has expanded significantly in past periods, driven by growth in the overall mortgage insurance market and the success we have had further developing our customer franchise. During the three-year period between January 1, 2017 and December 31, 2019, we activate~~d 340 new lenders, growing our franchise by over 45%~~, and successfully deepened our engagement with many existing customers. In the same period, total U.S. mortgage insurance NIW volume increased by 19% annually - peaking at $384 billion for the year-ended December 31, 2019. Notwithstanding our recent gains and the customer success we have achieved, we expect that our new business volume willcould drive a moderation or decline in ~~the near-term along with the broader decline we anticipate in total U.S. mortgage insurance industry NIW volume.~~our volume going forward.

We have broadly defined underwriting standards and loan-level eligibility criteria that are designed to limit our exposure to higher risk loans, and have used Rate GPS to actively shape the mix of our new business production and insured portfolio by, among other risk factors, borrower FICO score, debt-to-income (DTI) ratio and LTV ratio. At March 31, 2020, the weighted average FICO score of our IIF was 751 and we had a 4% mix of below 680 FICO score risk. Similarly, at March 31, 2020, the weighted average LTV ratio (at origination) of our insured portfolio was 91.9% and we had a ~~10% mix of~~ ~~97% LTV risk.~~ In the weeks ~~since~~following the outbreak of COVID-19, we ~~have~~ adopted changes to our underwriting guidelines, including changes to our loan documentation requirements, ~~our~~ asset reserve requirements, ~~our~~ employment verification process and ~~our~~ income continuance determinations, that ~~we expect will~~ further ~~strengthen~~strengthened the credit risk profile of our ~~new business production.~~NIW volume and IIF. At March 31, 2021, the weighted average FICO score of our RIF was 754 and we had a 3% mix of below 680 FICO score risk. Similarly, at March 31, 2021, the weighted average LTV ratio (at origination) of our insured portfolio was 92.4% and we had a 10% mix of 97% LTV risk.

We set our premium rates based on a broad range of individual and market variables, including property type, type of loan product, borrower credit characteristics, and lender profile. Given the significant economic dislocation caused ~~thus far~~ by the COVID-19 outbreak, and the uncertain duration and ultimate global impact of this crisis, we ~~have taken~~took action to increase the premium rates we charge on all new business production, in accordance with our filed rates and applicable rating ~~rules. We expect~~rules, following the ~~pricing changes we have instituted will increase~~onset of the ~~rate received on NIW volume in future periods and further enhance the credit mix of our new business production.~~pandemic.

Delinquency Trends and Claims Expense

WeAt March 31, 2021, we had ~~1,449 NODs~~11,090 defaulted loans in our primary insured portfolio, ~~as of March 31, 2020,~~ which represented a ~~0.38% delinquency~~2.5% default rate against our ~~376,852~~436,652 total policies ~~in-force. Given~~in-force, and identified 14,805 loans that were enrolled in a forbearance program, including 9,988 of those in default status.

Our default population increased significantly following the ~~recency~~outbreak of the ~~COVID-19 outbreak, most borrowers (even those immediately impacted by the crisis) have not defaulted on their mortgages (i.e., missed two or more payments as due). We expect that we will see a significant increase in our default population going forward~~pandemic as borrowers ~~face~~faced increased challenges related to COVID-19 and chose to access the forbearance program for federally backed loans codified under the CARES Act or other similar assistance programs made available by private lenders. After this significant initial spike our default experience has steadily improved as an increasing number of impacted borrowers have cured their delinquencies, and fewer new defaults have emerged.

Our total population of defaulted loans peaked in August 2020 and has since declined every month with consistency. As of April 30, ~~2020,~~2021, our default population ~~had increased to 1,610~~was 10,060, representing a 2.24% default rate.

The table below highlights default and forbearance activity in our primary portfolio as of the dates indicated


	Default and Forbearance Activity as of
	3/31/2020	6/30/2020	9/30/2020	12/31/2020	3/31/21
Number of loans in default	1,449	10,816	13,765	12,209	11,090
Default rate (1)	0.38%	2.90%	3.60%	3.06%	2.54%

Number of loans in forbearance	3,122	28,555	24,809	19,464	14,805
Forbearance rate (2)	0.83%	7.66%	6.50%	4.87%	3.39%

(1) ~~, which represented a 0.43% delinquency rate. We~~Default rate is calculated as the number of loans in default divided by total polices in force

(2) Forbearance rate is calculated as the number of loans in forbearance divided by total polices in force.

While we are ~~not~~ ~~yet able to forecast~~encouraged by the ~~ultimate level of forbearance-driven delinquencies~~decline in our forbearance and default populations and optimistic that we will ~~receive or~~see continued improvement as the ~~timing in which they will develop. While early, we have observed a correlation between the risk profile~~stress of the ~~underlying borrowers~~COVID crisis recedes, a future viral wave could cause further social and ~~the incidence of~~economic dislocation and contribute to an increase in our forbearance and default counts in the data received through April 30, 2020. Borrowers with weaker credit profiles appear to be accessing forbearance programs with notably higher frequency. This trend is further supported by the forbearance data being reported by Black Knight McDash, which indicates that a meaningfully higher concentration of mortgages insured by the FHA and VA are in forbearance status compared to the loans purchased by the GSEs. Mortgages insured by the FHA and VA are generally of meaningfully lower credit quality than those purchased by the GSEs. We are monitoring this trend with particular focus given the high-quality credit profile of our insured portfolio.future periods.

We establish reserves for claims and allocated claim expenses when we are notified that a borrower is in ~~default (i.e., has missed two or more mortgage payments). As our default population grows in future periods, we expect to establish increasing reserves and incur additional claims expense.~~default. The size of the reserve we establish for each defaulted loan (and by extension our aggregate reserve and claims expense) ~~will reflect~~reflects our best estimate of the future claim payment to be made under each individual policy. Our future claims exposure is a function of the number of delinquent loans that progress to claim payment (which we refer to as frequency) and the amount to be paid to settle such claims (which we refer to as severity). Our estimates of claims frequency and severity are not formulaic, rather they are broadly synthesized based on historical observed experience for similarly situated loans and assumptions about future macroeconomic ~~factors.~~ factors.

We generally observe that forbearance programs are an effective tool to bridge dislocated borrowers from a time of acute stress to a future date when they can resume timely payment of their mortgage obligations. The effectiveness of forbearance programs is enhanced by the availability of various repayment and loan modification options, which allow borrowers to amortize, or in certain instances fully defer the payments otherwise due during the forbearance period, over an extended length of time. In response to the onset of the COVID-19 outbreak, the GSEs have introduced new repayment and loan modification options to further assist borrowers with their transition out of forbearance and back into performing status. Our reserve setting process considers the beneficial impact of forbearance, foreclosure moratorium and other assistance programs available to defaulted borrowers. At March 31, 2021, we established lower reserves for defaults that we consider to be connected to the COVID-19 outbreak given our expectation that forbearance, repayment and modification, and other assistance programs will aid affected borrowers and drive higher cure rates on such defaults than we would otherwise expect to experience on similarly situated loans that did not benefit from broad-based assistance programs.

Our Master Policies require insureds to file a claim no later than 60-days after completion of a foreclosure, and in ~~future periods~~connection with the claim, the insured is generally entitled to include in the claim amount (i) up to three years of missed interest payments and (ii) certain advances, each as incurred through the date the claim is filed. Under our Master Policies, a national foreclosure moratorium of the type currently required will ~~consider this dynamic along~~not limit the amount of accrued interest (subject to the three-year limit) or advances that may be included in the claim amount. In February, the GSEs extended their moratorium on the foreclosure of enterprise-backed single-family residential mortgages through June 30, 2021. If the duration of the current foreclosure moratorium mandated by the GSEs is further extended, loans in our default inventory, including those with defaults unrelated to the COVID-19 crisis that had not yet gone through foreclosure, may remain in a pre-foreclosure default status for a prolonged period of time, which would delay our ~~expectations~~receipt of certain claims for ~~house prices (and current views~~loans that do not cure and could increase the severity of ~~general resiliency), interest rates and unemployment rates.~~claims we may ultimately be required to pay after the moratorium is lifted.

Regulatory Capital Position

As an approved mortgage insurer and Wisconsin-domiciled carrier, we are required to satisfy financial and/or capitalization requirements stipulated by each of the GSEs and the Wisconsin OCI.

The financial requirements stipulated by the GSEs are outlined in the PMIERs. Under the PMIERs, we must maintain available assets that are equal to or exceed a minimum risk-based required asset amount, subject to a minimum floor of $400 million. At March 31, ~~2020,~~2021, we reported ~~$1,070~~$1,810 million available assets against ~~$912~~$1,261 million risk-based required ~~assets for a $157 million of~~assets. Our “excess” funding ~~position.~~position was $549 million.

The risk-based required asset amount under PMIERs is determined at an individual policy-level based on the risk characteristics of each insured loan. Loans with higher risk factors, such as higher LTVs or lower borrower FICO scores, are assessed a higher charge. Non-performing loans that have missed two or more payments are generally assessed a significantly higher charge than performing loans, regardless of the underlying borrower or loan risk profile; however, special consideration is given under PMIERs to loans that are delinquent on homes located in an area declared by the Federal Emergency Management Agency (FEMA) to be a Major Disaster zone. ~~The PMIERs charge~~In June 2020, the GSEs issued guidance (subsequently amended and restated in each of September and December 2020) on the risk-based treatment of loans affected by the COVID-19 crisis and the reporting of non-performing loans by aging category. Under the guidance, non-performing loans that ~~enter delinquent status up~~are subject to ~~30 days prior and 90 days after~~ a ~~FEMA-declared Major Disaster is adjusted by a 30% multiplier (inversely, a 70% haircut). FEMA has made a Major Disaster Declaration in all 50 states~~forbearance program granted in response to ~~the~~a financial hardship related to COVID-19 ~~pandemic. As such, the PMIERs~~will benefit from a permanent 70% risk-based required asset ~~charge~~haircut for ~~all newly delinquent loans nationwide (including those that go delinquent under a federal~~the duration of the forbearance period and subsequent repayment plan or ~~private forbearance program) will be reduced by 70%.~~trial modification period.

Our PMIERs minimum risk-based required asset amount is also adjusted for our reinsurance transactions (as approved by the GSEs). Under our quota share reinsurance treaties, we receive credit for the PMIERs risk-based required asset amount on

ceded RIF. As our gross PMIERs risk-based required asset amount on ceded RIF increases, our PMIERS credit for ceded RIF automatically increases as well (in an unlimited amount). Under our ILN transactions, we generally receive credit for the PMIERs risk-based required asset amount on ceded RIF to the extent such requirement is within the subordinated coverage (excess of loss detachment threshold) afforded by the transaction. We have structured our ILN transactions to be overcollateralized, such that there are more ILN notes outstanding and cash held in trust than we currently receive credit for under the PMIERs. To the extent our PMIERs risk-based required asset amount on RIF ceded under the ILN transactions grows, we receive increased PMIERs credit under the treaties. The increasing PMIERs credit we receive under the ILN treaties is further enhanced by their delinquency lockout triggers. In the event ~~delinquencies exceed 4%~~ of ~~ceded RIF,~~certain credit enhancement or delinquency events, the ILN notes stop amortizing and the cash held in trust is secured for our ~~benefit.~~benefit (a Lock-Out Event). As the underlying RIF continues to run-off, this has the effect of increasing the overcollateralization within, and excess PMIERs capacity provided by, each ILN structure.

Effective June 25, 2020, a Lock-Out Event was deemed to have occurred for each of the 2017, 2018 and 2019 ILN Transactions and the amortization of reinsurance coverage, and distribution of collateral assets and amortization of insurance-linked notes was suspended for each ILN Transaction. The amortization of reinsurance coverage, distribution of collateral assets and amortization of insurance-linked notes will remain suspended for the duration of the Lock-Out Event for each ILN Transaction, and during such period the overcollateralization within and potential PMIERs capacity provided by each ILN Transaction will grow as assets are preserved in the applicable reinsurance trust account.

The following table provides detail on the level of overcollateralization of each of our ILN ~~structures~~Transactions at March 31, ~~2020:~~2021:

($ values in thousands) 2017 ILN Transaction 2018 ILN Transaction 2019 ILN Transaction
Ceded RIF $ 3,087,267 $ 3,853,559 $ 5,044,194
Current First Layer Retained Loss 122,810 124,311 123,424
Current Reinsurance Coverage 46,990 174,340 259,047
Eligible Coverage $ 169,800 $ 298,651 $ 382,471
Subordinated Coverage 5.50% 7.75% 7.50%
PMIERs Charge on Ceded RIF 5.20% 6.63% 6.89%
Overcollateralization $ 19,522 $ 43,192 $ 35,138
Delinquency Trigger 4.0% 4.0% 4.0%


($ values in thousands)	2017 ILN Transaction		2018 ILN Transaction		2019 ILN Transaction		2020-1 ILN Transaction		2020-2 ILN Transaction
Ceded RIF	$	1,635,102	$	1,865,606	$	2,252,220	$	4,235,240	$	5,335,934

First Layer Retained Loss	121,376		123,051		122,838		169,514		121,177
Reinsurance Coverage	40,226		158,489		231,877		174,314		218,741
Eligible Coverage	$	161,602	$	281,540	$	354,715	$	343,828	$	339,918
Subordinated Coverage (1)	9.88%		15.09%		15.75%		8.00%		6.25%

PMIERs Charge on Ceded RIF	6.23%		7.92%		8.10%		6.40%		5.44%
Overcollateralization (2) (4)	$	40,226	$	133,753	$	172,206	$	72,839	$	49,601

Delinquency Trigger (3)	4.0%		4.0%		4.0%		6.0%		4.7%

(1) For the 2020-1 ILN Transaction, absent a delinquency trigger, the subordinated coverage is capped at 8%. For the 2020-2 ILN Transaction, absent a

delinquency, the subordinated coverage is capped at 6.25%.

(2) Overcollateralization of the 2017 ILN Transaction is equal to its current reinsurance coverage as the PMIERs required asset amount on RIF ceded under the transaction is currently below the remaining first layer retained loss.

(3) Delinquency triggers for 2017, 2018 and 2019 ILN Transactions are set at a fixed 4.0% and assessed on a discrete monthly basis; delinquency triggers for the 2020-1 and 2020-2 ILN Transactions are equal to seventy-five percent of the subordinated coverage level and assessed on the basis of a three-month rolling average.

(4) May not be replicated based on the rounded figures presented in the table.

At March 31, ~~2020,~~2021, we had an aggregate ~~$98~~$469 million of overcollateralization available across our ~~three~~ ILN ~~transactions~~Transactions to absorb an increase in the PMIERs risk-based required asset amount on ceded RIF. Assuming the ~~4% "delinquency lockout trigger" is activated~~Lock-Out Events remain in effect for each ~~deal~~of the 2017, 2018 and 2019 ILN Transactions and our underlying RIF continues to run-off at the same rate as it did during the ~~month~~three months ended March 31, ~~2020,~~2021, we estimate that our total overcollateralization would increase by up to ~~$70~~approximately $33.7 million per quarter.

Our PMIERs funding requirement will go up in future periods based on the volume and risk profile of our new business production, and performance of our in-force insurance portfolio. We estimate, however, that we will remain in compliance with our PMIERs asset requirements even if the forbearance-driven default ~~rates~~rate on our in-force portfolio materially ~~exceed the~~exceeds its current ~~forbearance rates noted by Black Knight McDash for each of the GSEs and FHA/VA,~~level, given our ~~$157~~$549 million excess available asset position at March 31, ~~2020,~~2021, the nationwide applicability of the 70% ~~FEMA-disaster~~ haircut on ~~newly~~ delinquent policies subject to a forbearance program accessed in response to a financial hardship related to the COVID-19 crisis, the increasing PMIERs relief automatically provided under each of our quota share treaties and ILN ~~treaties, and our expectation for declining new business funding requirements (with lower NIW volume coming through at incrementally higher credit quality).~~Transactions.

NMIC is also subject to state regulatory minimum capital requirements based on its RIF. Formulations of this minimum capital vary by state, however, the most common measure allows for a maximum ratio of RIF to statutory capital (commonly referred to as ~~“risk-to-capital” or “RTC”)~~RTC) of 25:1. The RTC calculation does not assess a different charge or impose a different threshold RTC limit based on the underlying risk characteristics of the insured portfolio. Non-performing loans are generally treated the same as performing loans under the RTC framework. As such, the PMIERs generally imposes a stricter financial requirement than the state RTC standard, and we expect this to remain the case inthrough the ~~aftermath~~duration of and following the COVID-19 ~~outbreak.~~pandemic.

Liquidity

We evaluate our liquidity position at both a holding company (NMIH) and primary operating subsidiary (NMIC) level. As of March 31, ~~2020,~~2021, we had ~~$1.2~~$1.9 billion of consolidated cash and investments, including ~~$44~~$78 million of cash and investments at NMIH.

On June 8, 2020, NMIH completed the sale of 15.9 million shares of common stock, including the exercise of a 15% overallotment option, and raised proceeds of approximately $220 million, net of underwriting discounts, commissions and other direct offering expenses. On June 19, 2020, NMIH also completed the sale of its $400 million aggregate principal amount of senior secured notes, raising net proceeds of $244 million after giving effect to offering expenses and the repayment of the $150 million principal amount outstanding under our 2018 Term Loan. NMIH contributed approximately $445 million of capital to NMIC following completion of its respective Notes and common stock offerings.

NMIH also has access to $110 million of undrawn revolving credit capacity (through the 2020 Revolving Credit Facility) and $1.6 million of ordinary course dividend capacity available from Re One without the prior approval of the Wisconsin OCI. Amounts drawn under the 2020 Revolving Credit Facility are available as directed for NMIH needs or may be down-streamed to

support the requirements of our operating subsidiaries if we so decide. Item 1, "Financial Statements - Notes to Condensed Consolidated Financial Statements - Note 4, Debt.

NMIH's principal liquidity demands include funds for the payment of (i) certain corporate expenses, (ii) certain reimbursable expenses of our insurance subsidiaries, including NMIC, and (iii) principal and interest as due on our outstanding debt. NMIH generates cash interest income on its investment portfolio and benefits from tax, expense-sharing and debt service agreements with its subsidiaries. Such agreements have been approved by the Wisconsin OCI and provide for the reimbursement of substantially all of NMIH's annual cash expenditures. While such agreements are subject to revocation by the Wisconsin OCI, we do not expect such action to be taken at this time. The Wisconsin OCI has refreshed its approval of the debt service agreement providing for the additional reimbursement by NMIC of interest expense due ~~under~~on our ~~amended~~newly issued Notes and ~~upsized 2020 Revolving~~

~~Credit Facility. The Wisconsin OCI has also provided for the allocation of incremental holding company interest expenses to NMIC should we choose to pursue additional debt financing opportunities.~~

~~NMIH also has access to $100 million of undrawn revolving credit capacity under the~~ 2020 Revolving Credit Facility and $16.1 million of aggregate ordinary course dividend capacity available from NMIC and Re One without the prior approval of the Wisconsin OCI. Amounts drawn under the 2020 Revolving Credit Facility are available as directed for NMIH needs or may be down-streamed to support the requirements of our operating subsidiaries if we so decide. See Item 1, "~~Financial Statements - Notes to Condensed Consolidated Financial Statements - Note 4, Debt~~."Facility.

NMIC's principal sources of liquidity include (i) premium receipts on its insured portfolio and new business production, (ii) interest income on its investment portfolio and principal repayments on maturities therein, and (iii) existing cash and cash equivalent holdings. At March 31, ~~2020,~~2021, NMIC had ~~$1.1~~$1.8 billion of cash and investments, including ~~$76~~$86 million of cash and equivalents. NMIC's principal liquidity demands include funds for the payment of (i) reimbursable holding company expenses, (ii) premiums ceded under our reinsurance transactions ~~and~~ (iii) claims ~~payments.~~payments, and (iv) taxes as due or otherwise deferred through the purchase of tax and loss bonds. NMIC's cash inflow is generally significantly in excess of its cash outflow in any given period. During the twelve-month period ended March 31, ~~2020,~~2021, NMIC generated ~~$216~~$283 million of cash flow from operations and received an additional ~~$252~~$327 million of cash flow on the maturity, sale and redemption of securities held in its investment portfolio. NMIC is not a party to any contracts (derivative or otherwise) that require it to post an increasing amount of collateral to any counterparty and NMIC's principal liquidity demands (other than claims payments) generally develop along a scheduled path (i.e., are of a contractually predetermined amount and due at a contractually predetermined date). NMIC's only use of cash that develops along an unscheduled path is claims payments. Given the breadth and duration of forbearance programs available to borrowers, separate foreclosure moratoriums that have been enacted at a local, state and federal level, and the general duration of the default to foreclosure to claim cycle, we do not expect NMIC to ~~pay~~use a meaningful amount of cash to settle claims in the near-term.

Premiums paid to NMIC on monthly policies are generally collected and remitted by loan servicers. ~~We have noted the~~There was broad discussion at the onset of the COVID pandemic and concerns about ~~the~~potential liquidity challenges ~~loan~~that servicers ~~may themselves~~might face in the event of widespread borrower utilization of forbearance programs. WeThese concerns have not materialized thus far and we do not ~~currently~~ believe that loan servicer liquidity ~~issues will~~constraints, should they arise in the future, would have a material impact on NMIC's premium receipts or liquidity profile. Loan servicers are contractually obligated to advance mortgage insurance premiums in a timely manner, even if the underlying borrowers fail to remit their monthly mortgage payments. ~~We believe~~In June 2020, the GSEs ~~are considering options~~issued guidance to ~~continue remitting~~the PMIERs (subsequently amended and restated in each of September and December 2020) that, among other items, requires us to notify them of our intent to cancel coverage on policies for which servicers have failed to make timely premium payments so that the GSEs can pay the premiums directly to us ~~(and other mortgage insurers) on delinquent loans in~~and preserve the ~~event a loan servicer fails to fulfill its obligation, including directly advancing such~~ mortgage insurance ~~premiums and/or moving the servicing obligation~~coverage. Through March 31, 2021, we did not see any notable changes in servicer payment practices, with servicers generally continuing to remit monthly premium payments as scheduled, including those for policies covering loans that are in a ~~more adequately funded loan servicer with the capacity to continue making premium payments.~~forbearance program.

Investment portfolio

At March 31, ~~2020,~~2021, we had ~~$1.1~~$1.9 billion ~~of invested assets and $110 million~~ of cash and ~~equivalents.~~invested assets. Our investment strategy equally prioritizes capital preservation alongside income generation, and we have a long-established investment policy that sets conservative limits for asset types, industry sectors, single issuers and instrument credit ratings. At March 31, ~~2020,~~2021, our investment portfolio was comprised of 100% fixed income assets with 100% of our holdings rated investment grade and our portfolio having an average rating of "A+." At March 31, ~~2020,~~2021, our portfolio was in a $16 million aggregate unrealized gain position; it was highly liquid and highly diversified with no Level 3 asset positions and no single issuer concentration greater than 1.5%. ~~Despite the severe sell-off generally seen across the capital markets, our investment portfolio was in a $11 million aggregate unrealized gain position at quarter end.~~ We ~~may experience future fluctuation in the value of our investment holdings, but~~ did not record any allowance for credit losses in the portfolio induring the ~~quarter-ended~~three months ended March 31, ~~2020,~~2021, as we expect to recover the amortized cost basis of all securities held.

The pre-tax book yield on our investment portfolio was ~~3.0%~~2.0% for the three months ended March 31, ~~2020. We calculate book yield as annualized net investment income divided by~~2021. At the ~~average amortized cost~~onset of the ~~investment portfolio. Given the current interest rate environment~~COVID-19 crisis, we decided to prioritize liquidity and increased our ~~focus on high-grade assets, the yield we are capturing on new investments is below that~~cash and equivalent holdings as a percentage of ~~the~~our total portfolio. We ~~expect~~believe such action was prudent in light of the heightened market volatility and general uncertainty developing in the early stages of the COVID-19 pandemic. We have since redeployed much of our ~~total portfolio yield will migrate down over time if this dynamic holds.~~excess liquidity position.

Taxes

The CARES Act, CAA and American Rescue Plan include, among other ~~things, includes~~items, provisions relating to refundable payroll tax credits, deferment of ~~employer side~~ social security payments, net operating loss carryback periods, alternative minimum tax credit refunds,

modifications to the net interest deduction limitations, increased limitations on qualified charitable contributions, ~~and~~ technical corrections to tax depreciation methods for qualified improvement ~~property.~~property, and temporary 100% deduction for business meals. We continue to monitor the impact that the CARES Act, CAA and American Rescue Plan may have on our business, financial condition and results of operations.

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

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. Our NIW is also affected by the percentage of such high-LTV originations covered by private versus 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. On June 4, 2018, we introduced a proprietary risk-based pricing platform, which we refer to as Rate GPS. Rate GPS considers a 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 set and charge premium rates commensurate with the underlying risk of each loan that we insure. We introduced Rate GPS in June 2018 to replace our previous rate card pricing system. While most of our new business is priced through Rate GPS, we 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 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 delivering attractive risk-adjusted returns.

Premiums are generally fixed for the 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, less premium refunds and premium write-offs. 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 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 earned over the estimated life of the policy. Substantially all of our single premium policies in force as of March 31, ~~2020~~2021 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~~twelve-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 our single premium policies are generally non-refundable on cancellation, assuming all other factors remain constant, if single premium loans are ~~repaid~~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 premium rate or higher, our 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, 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 premiums written and earned and also reduces RIF, providing capital relief usto the ceding insurance company and reducing ~~our~~ 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 ~~our~~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 ~~we are~~ 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. We expect to continue to evaluate reinsurance opportunities in the normal course of business.

Quota share reinsurance

~~Effective September 1, 2016,~~ NMIC ~~entered into~~is a party to four outstanding quota share reinsurance treaties – the 2016 QSR Transaction, ~~with~~effective September 1, 2016, the 2018 QSR Transaction, effective January 1, 2018, the 2020 QSR Transaction, effective April 1, 2020 and the 2021 QSR Transaction, effective January 1, 2021. Under each of the QSR Transactions, NMIC cedes a ~~syndicate~~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 reinsurance providers has an insurer financial strength rating of A- or better by S&P, A.M. Best or both.

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,~~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~~Under the ~~2018 QSR Transaction with a syndicate~~terms of ~~third-party reinsurers. Under~~ the 2018 QSR Transaction, NMIC cedes premiums earned related to 25% of the risk on eligible policies written in 2018 and 20% of the risk on eligible policies written in 2019, in exchange for reimbursement of ceded claims and 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.

Under the terms of the 2020 QSR ~~Transactions,~~ Transaction, NMIC cedes premiums earned related to 21% of the risk on eligible policies written from April 1, 2020 through December 31, 2020, in exchange for reimbursement of ceded claims and claim expenses on covered policies, a 20% ceding commission, and a profit commission of up to 50% that varies directly and inversely with ceded claims.

Under the terms of the 2021 QSR Transaction, NMIC cedes premiums earned related to 22.5% of the risk on eligible policies written in 2021, in exchange for reimbursement of ceded claims and claim expenses on covered policies, a 20% ceding commission, and a profit commission of up to 57.5% that varies directly and inversely with ceded claims.

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 recaptured approximately $500 million of previously ceded primary RIF and stopped ceding new premiums written with respect to the recaptured risk. With this termination, ceded premiums written under the 2016 QSR Transaction decreased from 25% to 20.5% on eligible policies. The termination had no effect on the cession

of pool risk under the 2016 QSR Transaction.

Excess-of-loss reinsurance

NMIC has secured aggregate excess-of-loss reinsurance coverage on defined portfolios of mortgage insurance policies written during discrete periods through a series of mortgage insurance-linked note offerings by the Oaktown Re 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. NMIC then retains losses in excess of the 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 ~~generally~~ decrease from the inception of each agreement over a ~~10-year~~ten-year period as the underlying insured mortgages are amortized or repaid, and/or the mortgage insurance coverage is canceled. As the reinsurance coverage decreases, a prescribed amount of collateral held in trust by the Oaktown Re Vehicles is distributed to ILN Transaction note-holders as amortization of the outstanding insurance-linked note principal balances occurs. The ~~respective~~ outstanding reinsurance coverage amounts stop amortizing, and the collateral distribution to ILN Transaction note-holders and amortization of insurance-linked note principal is suspended if certain credit enhancement or delinquency thresholds, as defined in each agreement, are triggered ~~referred~~(each, a Lock-Out Event). Effective June 25, 2020, a Lock-Out Event was deemed to ~~as a lock-out feature. When~~

~~a lock-out trigger is breached,~~have occurred for each of the ~~respective~~2017, 2018 and 2019 ILN ~~notes stop amortizing~~Transactions and the amortization of reinsurance coverage, and distribution of collateral assets ~~held~~and amortization of insurance-linked notes was suspended for each ILN Transaction. The amortization of reinsurance coverage, distribution of collateral assets and amortization of insurance-linked notes will remain suspended for the duration of the Lock-Out Event for each ILN Transaction, and during such period assets will be preserved in the applicable reinsurance trust ~~are frozen for our benefit while~~account to collateralize the ~~underlying risk continues~~excess-of-loss reinsurance coverage provided to ~~run-off.~~NMIC.


($ values in thousands)	($ values in thousands)	Inception Date	Covered Production	Initial Reinsurance Coverage		Current Reinsurance Coverage		Initial First Layer Retained Loss		Current First Layer Retained Loss		($ values in thousands)	Inception Date	Covered Production	Initial Reinsurance Coverage		Current Reinsurance Coverage		Initial First Layer Retained Loss		Current First Layer Retained Loss (1)
2017 ILN Transaction	2017 ILN Transaction	May 2, 2017	1/1/2013 - 12/31/2016	$	211,320	$	46,990	$	126,793	$	122,810	2017 ILN Transaction	May 2, 2017	1/1/2013 - 12/31/2016	$	211,320	$	40,226	$	126,793	$	121,376
2018 ILN Transaction	2018 ILN Transaction	July 25, 2018	1/1/2017 - 5/31/2018	264,545		174,340		125,312		124,311		2018 ILN Transaction	July 25, 2018	1/1/2017 - 5/31/2018	264,545		158,489		125,312		123,051
2019 ILN Transaction	2019 ILN Transaction	July 30, 2019	6/1/2018 - 6/30/2019	326,905		259,047		123,424		123,424		2019 ILN Transaction	July 30, 2019	6/1/2018 - 6/30/2019	326,905		231,877		123,424		122,838
2020-1 ILN Transaction												2020-1 ILN Transaction	July 30, 2020	7/1/2019 - 3/31/2020	322,076		174,314		169,514		169,514
2020-2 ILN Transaction												2020-2 ILN Transaction	October 29, 2020	4/1/2020 - 9/30/2020 (2)	242,351		218,741		121,777		121,777

(1) NMICapplies claims paid on covered policies against its first layer aggregate retained loss exposure, and cedes reserves for incurred claims and claims expenses to each applicable ILN Transaction and recognizes a reinsurance recoverable if such incurred claims and claims expenses exceed its current first layer retained loss.

(2) Less than1% of the production covered by the 2020-2 ILN Transaction has coverage reporting dates between July 1, 2019 and March 31, 2020.

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

In April 27, 2021, NMIC secured $367.2 million of aggregate excess-of-loss reinsurance coverage at inception for an existing portfolio of policies primarily written from October 1, 2020 to March 31, 2021, through a mortgage insurance-linked notes offering by Oaktown Re VI. The reinsurance coverage amount under the terms of the 2021-1 ILN Transaction decreases from $367.2 million at inception over a 12.5 year period as the underlying covered mortgages are amortized or repaid, and/or the mortgage insurance coverage is canceled. The outstanding reinsurance coverage amount will begin amortizing after an initial period in which a target level of credit enhancement is obtained. For the reinsurance coverage period, NMIC retains the first layer of $163.7 million of aggregate losses and Oaktown Re VI then provides second layer coverage up to the outstanding reinsurance coverage amount. NMIC then retains losses in excess of the outstanding reinsurance coverage amount.

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	Primary and pool IIF and NIW	As of and for the three months ended															Primary and pool IIF and NIW	As of and for the three months ended
		March 31, 2020						March 31, 2019							March 31, 2021					March 31, 2020
		IIF		NIW		IIF		NIW			IIF		NIW		IIF			NIW
		(In Millions)																(In Millions)
Monthly	Monthly	$	81,347	$	10,461	$	55,995	$	6,211	Monthly	$	106,920	$	23,764	$	81,347		$	10,461
Single	Single	17,147		836		17,239		702		Single	16,857		2,633		17,147			836
Primary	Primary	98,494		11,297		73,234		6,913		Primary	123,777		26,397		98,494			11,297

Pool	Pool	2,487		—		2,838		—		Pool	1,642		—		2,487			—
Total	Total	$	100,981	$	11,297	$	76,072	$	6,913	Total	$	125,419	$	26,397	$	100,981		$	11,297

For the three months ended March 31, ~~2020, primary~~2021, NIW increased ~~63%~~134%, compared to the three months ended March 31, ~~2019, primarily~~2020, due to growth in our monthly and single premium policy production tied to growth in the size of the total mortgage insurance market, as well as the increased penetration of existing customer accounts and new customer account ~~activations and a larger mortgage insurance market. The increase also contributed to the growth in single premium policy production.~~ activations.

For the three months ended March 31, ~~2020,~~2021, monthly ~~primary~~premium polices accounted for 90% of our NIW, ~~increased 68%~~ compared to 93% for the three months ended March 31, ~~2019.~~

~~For the three months ended March 31, 2020, monthly premium polices accounted for 93% of our NIW.~~2020. As of March 31, ~~2020,~~2021, monthly premium policies accounted for ~~83%~~86% of our primary IIF, as compared to ~~76%~~83% at March 31, 2019. We expect the break-down of monthly premium policies and single premium policies (which we refer to as "mix") in our primary IIF will continue to trend toward an increased monthly mix over time given the composition of our NIW.2020.

Total IIF increased ~~33% as of~~24% at March 31, ~~2020~~2021 compared to March 31, ~~2019,~~2020, primarily due to the NIW generated between such measurement dates, partially offset by the run-off of ~~our~~ in-force policies. Our persistency rate decreased to ~~71.7%~~52% at March 31, ~~2020~~2021 from ~~87.2%~~72% at March 31, ~~2019,~~2020, 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	Primary and pool premiums written and earned	For the three months ended							Primary and pool premiums written and earned	For the three months ended
		March 31, 2020		March 31, 2019			March 31, 2021			March 31, 2020
		(In Thousands)								(In Thousands)
Net premiums written	Net premiums written	$	91,371	$	71,923	Net premiums written	$	115,815		$	91,371
Net premiums earned	Net premiums earned	98,717		73,868		Net premiums earned	105,879			98,717

For the three months ended March 31, ~~2020,~~2021, net premiums written increased 27%, and net premiums earned increased ~~27% and 34%~~7%, ~~respectively,~~ compared to the three months ended March 31, ~~2019.~~2020. The ~~increases~~growth in net premiums written and earned ~~are~~were primarily due to the growth of our IIF and increased monthly policy production, partially offset by increased cessions under the QSR ~~Transactions tied to the~~and ILN Transactions. The accelerated rate of growth ~~of our direct premium volume and the inception of the 2019 ILN Transaction. Net premiums earned grew at an accelerated pace compared to~~in net premiums written over growth in net premiums earned is due to ~~the amortization of unearned premiums~~increase in single policy production and increase in earnings on ~~single premium policy~~ cancellations ~~partially offset by new single premium policy originations.~~during the three months ended March 31, 2021.

Pool premiums written and earned for the three months ended March 31, 2021 and 2020, were $0.5 million and ~~2019, were~~ $0.7 million, ~~and $0.8 million~~respectively, before giving effect to the 2016 QSR Transaction, under which all of our written and earned pool premiums ~~have been~~are ceded. A portion of our ceded pool premiums written and earned are recouped through profit ~~commission under the 2016 QSR Transaction.~~commission.

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 dates and for the periods indicated.


Primary portfolio trends	Primary portfolio trends	As of and for the three months ended																												Primary portfolio trends	As of and for the three months ended
		March 31, 2020			December 31, 2019			September 30, 2019			June 30, 2019			March 31, 2019				March 31, 2021			December 31, 2020			September 30, 2020			June 30, 2020				March 31, 2020
		($ Values In Millions)																													($ Values In Millions, except as noted below)
New insurance written	New insurance written	$	11,297		$	11,949		$	14,100		$	12,179		$	6,913		New insurance written	$	26,397		$	19,782		$	18,499		$	13,124			$	11,297
Percentage of monthly premium	Percentage of monthly premium	93		%	93		%	92		%	91		%	90		%	Percentage of monthly premium	90		%	90		%	89		%	91		%		93		%
Percentage of single premium	Percentage of single premium	7		%	7		%	8		%	9		%	10		%	Percentage of single premium	10		%	10		%	11		%	9		%		7		%
New risk written	New risk written	$	2,897		$	3,082		$	3,651		$	3,183		$	1,799		New risk written	$	6,531		$	4,868		$	4,577		$	3,260			$	2,897
Insurance-in-force⁽¹⁾	Insurance-in-force⁽¹⁾	98,494			94,754			89,713			81,708			73,234			Insurance-in-force (1)	123,777			111,252			104,494			98,905				98,494
Percentage of monthly premium	Percentage of monthly premium	83		%	81		%	80		%	78		%	76		%	Percentage of monthly premium	86		%	86		%	85		%	84		%		83		%
Percentage of single premium	Percentage of single premium	17		%	19		%	20		%	22		%	24		%	Percentage of single premium	14		%	14		%	15		%	16		%		17		%
Risk-in-force⁽¹⁾	Risk-in-force⁽¹⁾	$	25,192		$	24,173		$	22,810		$	20,661		$	18,373		Risk-in-force (1)	$	31,206		$	28,164		$	26,568		$	25,238			$	25,192
Policies in force (count)⁽¹⁾	Policies in force (count)⁽¹⁾	376,852			366,039			350,395			324,876			297,232			Policies in force (count) (1)	436,652			399,429			381,899			372,934				376,852
Average loan size ⁽¹⁾		$	0.261		$	0.259		$	0.256		$	0.252		$	0.246
Average loan size ($ value in thousands) (1)																	Average loan size ($ value in thousands) (1)	$	283		$	279		$	274		$	265			$	261
Coverage percentage ⁽²⁾	Coverage percentage ⁽²⁾	25.6		%	25.5		%	25.4		%	25.3		%	25.1		%	Coverage percentage (2)	25.2		%	25.3		%	25.4		%	25.5		%		25.6		%
Loans in default (count) ⁽¹⁾	Loans in default (count) ⁽¹⁾	1,449			1,448			1,230			1,028			940			Loans in default (count) (1)	11,090			12,209			13,765			10,816				1,449
Percentage of loans in default ⁽¹⁾		0.38		%	0.40		%	0.35		%	0.32		%	0.32		%
Default rate (1)																	Default rate (1)	2.54		%	3.06		%	3.60		%	2.90		%		0.38		%
Risk-in-force on defaulted loans ⁽¹⁾	Risk-in-force on defaulted loans ⁽¹⁾	$	84		$	84		$	70		$	58		$	53		Risk-in-force on defaulted loans (1)	$	785		$	874		$	1,008		$	799			$	84
Average premium yield ⁽³⁾		0.41		%	0.41		%	0.43		%	0.43		%	0.42		%
Net premium yield (3)																	Net premium yield (3)	0.36		%	0.37		%	0.39		%	0.40		%		0.41		%
Earnings from cancellations	Earnings from cancellations	$	8.6		$	8.0		$	7.4		$	4.5		$	2.3		Earnings from cancellations	$	9.9		$	11.7		$	12.6		$	15.5			$	8.6
Annual persistency⁽⁴⁾	Annual persistency⁽⁴⁾	71.7		%	76.8		%	82.4		%	86.0		%	87.2		%	Annual persistency (4)	51.9		%	55.9		%	60.0		%	64.1		%		71.7		%
Quarterly run-off⁽⁵⁾	Quarterly run-off⁽⁵⁾	8.0		%	7.7		%	7.5		%	5.1		%	3.3		%	Quarterly run-off (5)	12.5		%	12.5		%	13.1		%	12.9		%		8.0		%

⁽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 premiums earned divided by average primary IIF for the period, annualized.

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

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

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


Primary IIF	Primary IIF	For the three months ended							Primary IIF	For the three months ended
		March 31, 2020		March 31, 2019			March 31, 2021			March 31, 2020
		(In Millions)								(In Millions)
IIF, beginning of period	IIF, beginning of period	$	94,754	$	68,551	IIF, beginning of period	$	111,252		$	94,754
NIW	NIW	11,297		6,913		NIW	26,397			11,297
Cancellations, principal repayments and other reductions	Cancellations, principal repayments and other reductions	(7,557)		(2,230)		Cancellations, principal repayments and other reductions	(13,872)			(7,557)
IIF, end of period	IIF, end of period	$	98,494	$	73,234	IIF, end of period	$	123,777		$	98,494

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	Primary IIF and RIF	As of March 31, 2020						As of March 31, 2019							Primary IIF and RIF	As of March 31, 2021				As of March 31, 2020
		IIF		RIF		IIF		RIF			IIF		RIF			IIF		RIF
		(In Millions)																(In Millions)
March 31, 2020		$	11,236	$	2,882	$	—	$	—
March 31, 2021										March 31, 2021	$	26,296	$	6,508		$	—	$	—
2020										2020	53,650		13,397			11,236		2,882
2019	2019	39,485		10,259		6,872		1,789		2019	20,402		5,342			39,485		10,259
2018	2018	17,545		4,464		25,609		6,492		2018	8,074		2,057			17,545		4,464
2017	2017	13,656		3,398		18,353		4,514		2017	6,700		1,678			13,656		3,398
2016		10,962		2,763		14,750		3,652
2015 and before		5,610		1,426		7,650		1,926
2016 and before										2016 and before	8,655		2,224			16,572		4,189

Total	Total	$	98,494	$	25,192	$	73,234	$	18,373	Total	$	123,777	$	31,206		$	98,494	$	25,192

We utilize certain risk principles that form the basis of how we underwrite and originate NIW. We have established prudential underwriting standards and loan-level eligibility matrices which prescribe the maximum LTV, minimum borrower FICO score, maximum borrower ~~debt-to-income (DTI)~~DTI ratio, maximum loan size, property type, loan type, loan term and occupancy status of loans that we will insure and memorialized these standards and eligibility matrices in our Underwriting Guideline Manual that is publicly available on our website. Our underwriting standards and eligibility criteria are designed to limit the layering of risk 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.


Primary NIW by FICO	Primary NIW by FICO	For the three months ended							Primary NIW by FICO	For the three months ended
		March 31, 2020		March 31, 2019			March 31, 2021			March 31, 2020
		(In Millions)								(In Millions)
>= 760	>= 760	$	6,290	$	3,057	>= 760	$	12,914		$	6,290
740-759	740-759	1,615		1,224		740-759	5,312			1,615
720-739	720-739	1,579		1,044		720-739	3,963			1,579
700-719	700-719	1,038		792		700-719	2,358			1,038
680-699	680-699	565		553		680-699	1,360			565
<=679	<=679	210		243		<=679	490			210
Total	Total	$	11,297	$	6,913	Total	$	26,397		$	11,297
Weighted average FICO	Weighted average FICO	757		749		Weighted average FICO	755			757

Primary NIW by LTV For the three months ended
March 31, 2020 March 31, 2019
(In Millions)
95.01% and above $ 721 $ 569
90.01% to 95.00% 5,009 3,424
85.01% to 90.00% 4,082 2,241
85.00% and below 1,485 679
Total $ 11,297 $ 6,913
Weighted average LTV 91.3 % 92.2 %

Primary NIW by purchase/refinance mix For the three months ended
March 31, 2020 March 31, 2019
(In Millions)
Purchase $ 7,991 $ 6,383
Refinance⁽¹⁾
3,306 530
Total $ 11,297 $ 6,913

⁽¹⁾ ~~The amount of cash-out refinance loans insured in our portfolio was de minimis for the periods presented~~

3738


Primary NIW by LTV	For the three months ended
	March 31, 2021			March 31, 2020
	(In Millions)
95.01% and above	$	2,451		$	721
90.01% to 95.00%	11,051			5,009
85.01% to 90.00%	7,848			4,082
85.00% and below	5,047			1,485
Total	$	26,397		$	11,297
Weighted average LTV	91.0		%	91.3		%


Primary NIW by purchase/refinance mix	For the three months ended
	March 31, 2021		March 31, 2020
	(In Millions)
Purchase	$	17,909	$	7,991
Refinance	8,488		3,306
Total	$	26,397	$	11,297

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.


Primary IIF by FICO	Primary IIF by FICO	As of															Primary IIF by FICO	As of
		March 31, 2020						March 31, 2019							March 31, 2021					March 31, 2020
		($ Values In Millions)																($ Values In Millions)
>= 760	>= 760	$	47,340	48	%	$	33,902	46	%	>= 760	$	63,919	52	%	$	47,340		48	%
740-759	740-759	16,060		16		12,160		17		740-759	20,537		16		16,060			16
720-739	720-739	14,002		14		10,096		14		720-739	17,167		14		14,002			14
700-719	700-719	10,518		11		8,122		11		700-719	11,536		9		10,518			11
680-699	680-699	6,879		7		5,435		7		680-699	7,329		6		6,879			7
<=679	<=679	3,695		4		3,519		5		<=679	3,289		3		3,695			4
Total	Total	$	98,494	100	%	$	73,234	100	%	Total	$	123,777	100	%	$	98,494		100	%
Weighted average FICO		751				749

Primary RIF by FICO As of
March 31, 2020 March 31, 2019
($ Values In Millions)
>= 760 $ 12,076 48 % $ 8,506 46 %
740-759 4,121 16 3,076 17
720-739 3,626 14 2,550 14
700-719 2,696 11 2,036 11
680-699 1,760 7 1,357 7
<=679 ⁽¹⁾
913 4 848 5
Total $ 25,192 100 % $ 18,373 100 %
Weighted average FICO 751 749

⁽¹⁾ ~~There were no loans with a FICO <=620 insured in our portfolio for the periods presented.~~

Primary IIF by LTV As of
March 31, 2020 March 31, 2019
($ Values In Millions)
95.01% and above $ 8,838 9 % $ 7,204 10 %
90.01% to 95.00% 46,318 47 34,024 46
85.01% to 90.00% 31,729 32 22,208 30
85.00% and below 11,609 12 9,798 14
Total $ 98,494 100 % $ 73,234 100 %
Weighted average LTV 91.9 % 91.9 %


Primary RIF by FICO	As of
	March 31, 2021				March 31, 2020
	($ Values In Millions)
>= 760	$	15,920	51	%	$	12,076	48	%
740-759	5,214		17		4,121		16
720-739	4,378		14		3,626		14
700-719	2,981		9		2,696		11
680-699	1,896		6		1,760		7
<=679	817		3		913		4
Total	$	31,206	100	%	$	25,192	100	%

3839


Primary RIF by LTV		As of
Primary IIF by LTV												Primary IIF by LTV	As of
		March 31, 2020								March 31, 2019							March 31, 2021				March 31, 2020
		($ Values In Millions)																	($ Values In Millions)
95.01% and above	95.01% and above	$	2,478		10	%	$	1,928		10	%	95.01% and above	$	10,616	9	%	$	8,838	9	%
90.01% to 95.00%	90.01% to 95.00%	13,587			54		9,923			54		90.01% to 95.00%	54,832		44		46,318		47
85.01% to 90.00%	85.01% to 90.00%	7,767			31		5,384			30		85.01% to 90.00%	40,057		32		31,729		32
85.00% and below	85.00% and below	1,360			5		1,138			6		85.00% and below	18,272		15		11,609		12
Total	Total	$	25,192		100	%	$	18,373		100	%	Total	$	123,777	100	%	$	98,494	100	%
Weighted average LTV		92.7		%			92.7		%

Primary RIF by Loan Type As of
March 31, 2020 March 31, 2019
Fixed 98 % 98 %
Adjustable rate mortgages
Less than five years — —
Five years and longer 2 2
Total ⁽¹⁾
100 % 100 %


Primary RIF by LTV	As of
	March 31, 2021				March 31, 2020
	($ Values In Millions)
95.01% and above	$	3,106	10	%	$	2,478	10	%
90.01% to 95.00%	16,139		52		13,587		54
85.01% to 90.00%	9,818		31		7,767		31
85.00% and below	2,143		7		1,360		5
Total	$	31,206	100	%	$	25,192	100	%

⁽¹⁾ ~~There were no interest-only mortgages insured in our portfolio for the periods presented.~~


Primary RIF by Loan Type	As of
	March 31, 2021		March 31, 2020

Fixed	99	%	98	%
Adjustable rate mortgages
Less than five years	—		—
Five years and longer	1		2
Total	100	%	100	%

The table below presents selected primary portfolio statistics, by book year, as of March 31, ~~2020.~~2021.


		As of March 31, 2020																													As of March 31, 2021
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⁾		Current Default Rate ⁽³⁾
Book Year																		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)		Current Default Rate (3)
		($ Values in Millions)																															($ Values in Millions)
2013	2013	$	162	$	20	12	%	655	115	—	1	0.2	%	0.2	%	—	%	2013	$	162	$	10	6	%	655	66	2	1	0.4	%	0.5	%	3.0	%
2014	2014	3,451		747		22	%	14,786	4,081	40	44	4.1	%	0.6	%	1.0	%	2014	3,451		414		12	%	14,786	2,452	114	48	4.2	%	1.1	%	4.6	%
2015	2015	12,422		4,843		39	%	52,548	23,277	158	97	3.0	%	0.5	%	0.7	%	2015	12,422		2,529		20	%	52,548	13,334	541	113	3.2	%	1.2	%	4.1	%
2016	2016	21,187		10,962		52	%	83,626	47,687	254	97	2.4	%	0.4	%	0.5	%	2016	21,187		5,702		27	%	83,626	27,332	1,256	122	2.8	%	1.6	%	4.6	%
2017	2017	21,582		13,656		63	%	85,897	59,356	441	53	3.4	%	0.6	%	0.7	%	2017	21,582		6,700		31	%	85,897	32,499	1,972	84	4.4	%	2.4	%	6.1	%
2018	2018	27,295		17,545		64	%	104,043	73,620	429	24	4.6	%	0.4	%	0.6	%	2018	27,295		8,074		30	%	104,043	38,090	2,679	64	8.5	%	2.6	%	7.0	%
2019	2019	45,141		39,485		87	%	148,423	133,291	127	—	2.3	%	0.1	%	0.1	%	2019	45,141		20,402		45	%	148,423	77,278	3,276	9	14.1	%	2.2	%	4.2	%
2020	2020	11,297		11,236		99	%	35,581	35,425	—	—	—	%	—	%	—	%	2020	62,702		53,650		86	%	186,174	163,626	1,247	—	8.3	%	0.7	%	0.8	%
2021																		2021	26,397		26,296		100	%	82,232	81,975	3	—	—	%	—	%	—	%
Total	Total	$	142,537	$	98,494			525,559	376,852	1,449	316							Total	$	220,339	$	123,777			758,384	436,652	11,090	441

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

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

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

3940

Geographic Dispersion

The following table shows the distribution by state of our primary RIF as of the periods indicated. As of March 31, 2020, our RIF continues, although declining, 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 our primary RIF as of March 31, ~~2020~~2021 is not necessarily representative of the geographic distribution we expect in the future.


Top 10 primary RIF by state	Top 10 primary RIF by state	As of							Top 10 primary RIF by state	As of
		March 31, 2020		March 31, 2019			March 31, 2021			March 31, 2020
California	California	11.5	%	12.7	%	California	10.8	%		11.5	%
Texas	Texas	8.2		8.3		Texas	9.5			8.2
Florida	Florida	5.9		5.2		Florida	7.9			5.9
Virginia	Virginia	5.3		5.0		Virginia	5.0			5.3
Colorado						Colorado	4.1			3.6
Maryland						Maryland	3.8			3.4
Illinois	Illinois	3.8		3.4		Illinois	3.7			3.8
Arizona		3.7		4.8
Washington						Washington	3.5			3.3
Georgia						Georgia	3.3			2.7
Pennsylvania	Pennsylvania	3.7		3.6		Pennsylvania	3.3			3.7
Colorado		3.6		3.4
Michigan		3.4		3.6
Maryland		3.4		3.2

Total	Total	52.5	%	53.2	%	Total	54.9	%		51.4	%

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 ~~and claim expenses~~incurred are generally affected by a variety of factors, including the macroeconomic environment, national and regional unemployment trends, changes in housing values, borrower risk characteristics, LTV ratios and other loan level risk attributes, the size and type of loans insured, ~~and~~ the percentage of coverage on insured ~~loans.~~loans, and the level of reinsurance coverage maintained against insured exposures.

Reserves for claims and ~~allocated~~ claim expenses are established for mortgage loans that are in default. A loan is considered to be in default as of the payment date at which a borrower has missed the preceding two or more consecutive monthly payments. We establish reserves for loans that have been reported ~~mortgage loan defaults, which we refer~~to us in default by servicers, referred to as case reserves, ~~when~~and additional loans that 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~~estimate (based on actuarial review and other factors) to be in default that have ~~been incurred but have~~ not yet been reported to us by ~~loan~~ servicers, ~~based on historical reporting trends, and establish IBNR reserves for those defaults.~~referred to as IBNR. We also establish reserves for ~~unallocated~~ claim expenses, ~~not associated with a specific claim. Claim expenses consist of~~which represent the estimated cost of the claim administration process, including legal and other fees ~~as well as~~and other general expenses of administering the claim settlement process. Reserves are not established for future claims on insured loans which are not currently reported or which we estimate are not currently in default.

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 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.~~Transactions and ILN Transactions, as applicable under each treaty. We ~~will~~have not ~~cede claims~~yet ceded any reserves under the ILN Transactions ~~unless losses exceed the~~as incurred claims and claims expenses on each respective reference pool remain within our retained coverage ~~layers. Reserves are not established for future claims on insured loans which are not currently in default.~~layer of each transaction. 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 claims or claim expense reserves for 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 March 31, 2020, approximately ~~81% of ou~~r primary IIF related to business written since March 31, 2017. 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 macroeconomic factors such as housing prices, interest rates, unemployment rates and other events, such as natural ~~disasters.~~disasters or global pandemics, and any federal, state or local governmental response thereto.

Our reserve setting process considers the beneficial impact of forbearance, foreclosure moratorium and other assistance programs available to defaulted borrowers. We generally observe that forbearance programs are an effective tool to bridge

dislocated borrowers from a time of acute stress to a future date when they can resume timely payment of their mortgage obligations. The effectiveness of forbearance programs is enhanced by the availability of various repayment and loan modification options which allow borrowers to amortize or, in certain instances, outright defer payments otherwise due during the forbearance period over an extended length of time.

In response to the COVID-19 outbreak, politicians, regulators, lenders, loan servicers and others have offered extraordinary assistance to dislocated borrowers through, among other programs, the forbearance, foreclosure moratorium and other assistance programs codified under the CARES Act. The FHFA and GSEs have offered further assistance by introducing new repayment and loan modification options to assist borrowers with their transition out of forbearance programs and default status. At March 31, 2021, we established lower reserves for defaults that we consider to be connected to the COVID-19 outbreak, given our expectation that forbearance, repayment and modification, and other assistance programs will aid affected borrowers and drive higher cure rates on such defaults than we would otherwise expect to experience on similarly situated loans that did not benefit from broad-based assistance programs.

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


		For the three months ended							For the three months ended
		March 31, 2020		March 31, 2019			March 31, 2021		March 31, 2020
		(In Thousands)							(In Thousands)
Beginning balance	Beginning balance	$	23,752	$	12,811	Beginning balance	$	90,567	$	23,752
Less reinsurance recoverables ⁽¹⁾	Less reinsurance recoverables ⁽¹⁾	(4,939)		(3,001)		Less reinsurance recoverables (1)	(17,608)		(4,939)
Beginning balance, net of reinsurance recoverables	Beginning balance, net of reinsurance recoverables	18,813		9,810		Beginning balance, net of reinsurance recoverables	72,959		18,813

Add claims incurred:	Add claims incurred:					Add claims incurred:
Claims and claim expenses incurred:	Claims and claim expenses incurred:					Claims and claim expenses incurred:
Current year ⁽²⁾	Current year ⁽²⁾	7,558		3,909		Current year (2)	10,557		7,558
Prior years⁽³⁾	Prior years⁽³⁾	(1,861)		(1,166)		Prior years (3)	(5,595)		(1,861)
Total claims and claim expenses incurred	Total claims and claim expenses incurred	5,697		2,743		Total claims and claim expenses incurred	4,962		5,697

Less claims paid:	Less claims paid:					Less claims paid:
Claims and claim expenses paid:	Claims and claim expenses paid:					Claims and claim expenses paid:
Current year ⁽²⁾	Current year ⁽²⁾	—		—		Current year (2)	12		—
Prior years ⁽³⁾	Prior years ⁽³⁾	1,224		694		Prior years (3)	492		1,224

Total claims and claim expenses paid	Total claims and claim expenses paid	1,224		694		Total claims and claim expenses paid	504		1,224

Reserve at end of period, net of reinsurance recoverables	Reserve at end of period, net of reinsurance recoverables	23,286		11,859		Reserve at end of period, net of reinsurance recoverables	77,417		23,286
Add reinsurance recoverables ⁽¹⁾	Add reinsurance recoverables ⁽¹⁾	6,193		3,678		Add reinsurance recoverables (1)	18,686		6,193
Ending balance	Ending balance	$	29,479	$	15,537	Ending balance	$	96,103	$	29,479

⁽¹⁾Related to ceded losses recoverable under the QSR ~~Transactions, included in "Other assets" on the condensed consolidated balance sheets.~~Transactions. See Item 1, "Financial Statements - Notes to Condensed Consolidated Financial Statements - 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.~~reinsurance and included $5.3 million attributed to net case reserves and $5.3 million attributed to net IBNR reserves for the three months ended March 31, 2021 and $6.0 million attributed to net case reserves and $1.6 million attributed to net IBNR reserves for the three months ended March 31, 2020.

⁽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.~~reinsurance.and included $0.6 million attributed to net case reserves and $5.0 million attributed to net IBNR reserves for the three months ended March 31, 2021 and $0.6 million attributed to net case reserves and $1.3 million attributed to net IBNR reserves for the three months ended March 31, 2020

The "claims incurred" section of the table above shows claims and claim expenses incurred on ~~NODs for~~defaults occurring in 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. We ~~perform an ongoing analysis of recent loss development trends and~~ may increase or decrease our ~~original~~claim estimates and reserves as we ~~gather~~learn additional information about individual ~~defaults and claims~~defaulted loans, and continue to observe and analyze loss development trends in our ~~portfolio, including factors affected by the recent COVID-19 developments.~~portfolio. Gross reserves of ~~$19.9~~$83.0 million related to prior year defaults remained as of March 31, ~~2020.~~2021.

4143

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


		For the three months ended				For the three months ended
		March 31, 2020	March 31, 2019		March 31, 2021	March 31, 2020
Beginning default inventory	Beginning default inventory	1,448	877	Beginning default inventory	12,209	1,448
Plus: new defaults	Plus: new defaults	512	574	Plus: new defaults	1,767	512
Less: cures	Less: cures	(475)	(474)	Less: cures	(2,868)	(475)
Less: claims paid	Less: claims paid	(34)	(37)	Less: claims paid	(16)	(34)
Less: claims denied	Less: claims denied	(2)	—	Less: claims denied	(2)	(2)
Ending default inventory	Ending default inventory	1,449	940	Ending default inventory	11,090	1,449

The increase in the ending default inventory at March 31, ~~2020~~2021 compared to March 31, ~~2019,~~2020, is primarily ~~relates to an increase in new defaults tied~~attributable to the ~~growth in~~COVID-19 outbreak as borrowers have faced increasing challenges and chosen to access the ~~number of policies in force~~forbearance program for federally backed loans codified under the CARES Act and ~~the aging~~other similar assistance programs made available by private lenders. At March 31, 2021, 9,988 of our ~~earlier book years. Our total policies~~11,090 ending default inventory were in force were 376,852 and 297,232 for the three months ended March 31, 2020 and March 31, 2019, respectively. The increase in new defaults was partially offset by cure activity on our beginning NOD population.a COVID-19 related forbearance program.

The following table provides details of our claims paid, before giving effect to claims ceded under the QSR Transactions and ILN Transactions, for the periods indicated.


		For the three months ended										For the three months ended
		March 31, 2020			March 31, 2019				March 31, 2021			March 31, 2020
		($ In Thousands)										($ In Thousands)
Number of claims paid ⁽¹⁾	Number of claims paid ⁽¹⁾	34			37			Number of claims paid (1)	16			34
Total amount paid for claims	Total amount paid for claims	$	1,503		$	926		Total amount paid for claims	$	606		$	1,503
Average amount paid per claim	Average amount paid per claim	$	44		$	25		Average amount paid per claim	$	38		$	44
Severity ⁽²⁾	Severity ⁽²⁾	83		%	64		%	Severity (2)	61		%	83		%

⁽¹⁾ Count includes one claim settled without payment ~~for~~in each of the three months ended March 31, ~~2020,~~2021 and ~~three claims~~ ~~settled without payment for the three months ended March 31, 2019.~~2020.

⁽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.

The number of claims paid for the three months ended March 31, ~~2020~~2021 decreased compared to the three months ended March 31, ~~2019,~~2020, despite the growth and seasoning of our insured portfolio, and significant increase in our default population, primarily ~~due~~as a result of the forbearance program and foreclosure moratorium implemented by the GSEs in response to the ~~timing of when claims were received~~COVID outbreak and codified under the CARES Act.Such forbearance and foreclosure programs have extended, and may ultimately interrupt, the timeline over which loans would otherwise progress through the default cycle to a paid ~~in respect to respective period end.~~ claim.

Our claims severity for the three months ended March 31, ~~2020~~2021 was ~~83%~~61%, compared to ~~64%~~83% for the three months ended March 31, ~~2019. The increase in claims~~2020. Claims severity for the three months ended March 31, ~~2020~~2021 benefited from the resiliency of the housing market and broad national house price appreciation. An increase in the value of the homes collateralizing the mortgages we insure provides additional equity support to our risk exposure and raises the prospect of a third-party sale of a foreclosed property, which can ~~be attributed to fewer claims~~mitigate the severity of our settled ~~with zero payment compared to the three months ended March 31, 2019.~~claims.

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


Average reserve per default:	Average reserve per default:	As of March 31, 2020		As of March 31, 2019		Average reserve per default:	As of March 31, 2021		As of March 31, 2020
		(In Thousands)							(In Thousands)
Case ⁽¹⁾	Case ⁽¹⁾	$	18	$	15	Case (1)	$	7.9	$	18.6
IBNR⁽²⁾		2		2
IBNR (1)(2)						IBNR (1)(2)	0.8		1.7
Total	Total	$	20	$	17	Total	$	8.7	$	20.3

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

⁽²⁾Amount includes claims adjustment expenses.

The average reserve per default at March 31, ~~2020 increased~~2021 decreased from March 31, ~~2019,~~2020, primarily ~~tied~~due to annew COVID-19 related defaults. At March 31, 2021, we established lower reserves that we consider to be connected to the COVID-19 outbreak given our expectation that forbearance, repayment and modification, and other assistance programs will aid affected borrowers and drive higher cure rates on such defaults than we would otherwise expect to experience on similarly situated loans that did not benefit from broad-based assistance programs. While we established lower reserves per defaulted loan at March 31, 2021, our total reserve position increased substantially due to the increase in ~~claim rates resulting from updates to key assumptions as a result~~the size of ~~COVID-19 and the aging~~ our ~~NOD~~default population.

GSE Oversight

As an approved insurer, NMIC is subject to ongoing compliance with the PMIERs established by each of the GSEs (italicized terms have the same meaning that such terms have in the PMIERs, as described below). The PMIERs establish operational, business, remedial and financial requirements applicable to 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. In general, higher quality loans carry lower asset charges.

Under the PMIERs, approved insurers must maintain available assets that equal or exceed minimum required assets, which is an amount equal to the greater of (i) $400 million or (ii) a total risk-based required asset amount. The risk-based required asset amount is a function of the risk profile of an approved insurer's RIF, assessed on a loan-by-loan basis and considered against certain risk-based factors derived from tables set out in the PMIERs,, 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. The aggregate gross risk-based required asset amount for performing, primary insurance is subject to a floor of 5.6% of performing primary adjusted RIF, and the risk-based required asset amount for pool insurance considers both factors in the PMIERs tables and the net remaining stop loss for each pool insurance policy.

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, ~~2020~~2021 that NMIC was in full compliance with the PMIERs as of December 31, ~~2019.~~2020. NMIC also has an ongoing obligation to immediately notify the GSEs in writing upon discovery of a failure to meet one or more of the PMIERs requirements. We continuously monitor NMIC's compliance with the PMIERs.

The following table provides a comparison of the PMIERs available assets and risk-based required asset amount as reported by NMIC as of the dates indicated.


		As of							As of
		March 31, 2020		March 31, 2019			March 31, 2021		March 31, 2020
		(In Thousands)							(In Thousands)
Available assets	Available assets	$	1,069,695	$	817,758	Available assets	$	1,809,589	$	1,069,695
Risk-based required assets	Risk-based required assets	912,321		607,325		Risk-based required assets	1,261,015		912,321

Available assets were ~~$1,070 million~~$1.8 billion at March 31, ~~2020,~~2021, compared to ~~$818 million~~$1.1 billion at March 31, ~~2019.~~2020. In June 2020, NMIH completed the sale of 15.9 million shares of common stock raising net proceeds of approximately $220 million and the sale of the $400 million aggregate principal amount of senior secured notes. NMIH contributed approximately $445 million of capital to NMIC following completion of the Notes and equity offerings. The $740 million increase in NMIC's ~~Available~~available assets ~~of $252 million~~between the dates presented was ~~primarily~~ driven by ~~our~~the NMIH capital contribution and NMIC's positive cash flow from operations induring the intervening ~~periods.~~period.

The increase in the risk-based required asset amount between the dates presented was primarily due to the growth of our gross RIF, ~~partially~~and increase in our default inventory related to the onset of the COVID-19 pandemic, partially offset by the increased cession of risk under our third-party reinsurance agreements. ~~The~~ ~~risk-based required asset amount~~ further increased in 2020 as a result of the termination of our engagement with and the recapture of previously ceded primary RIF from one reinsurer under the 2016 QSR Transaction effective April 1, 2019.

~~LIBOR Transition~~

In July 2017, the U.K. Financial Conduct Authority announced that it intends to stop persuading or compelling banks to submit LIBOR rates after 2021, which is expected to render these widely used reference rates unavailable or unreliable.We have exposure to LIBOR-based financial instruments, such as LIBOR-based securities held in our investment portfolio. The 2018 Term Loan, 2020 Revolving Credit Facility, and premiums paid on our ILN Transactions are also LIBOR-based. We are in the process of reviewing our LIBOR-based contracts that extend beyond 2021 and transitioning to a set of alternative reference rates.~~We will continue to monitor, assess and plan for the phase out of LIBOR; however, we currently do not know the impact it will have to our operations or financial results.~~

~~Capital Position of Our Insurance Subsidiaries and Financial Strength Ratings~~

In addition to GSE-imposed asset requirements, NMIC is 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 March 31, 2020, NMIC's performing primary RIF, net of reinsurance, was approximately $17.9 billion. NMIC ceded 100% of its pool RIF pursuant to the 2016 QSR Transaction. Based on NMIC's total statutory capital of $1.0 billion (including contingency reserves) as of March 31, 2020, NMIC's RTC ratio was 17.7:1. Re One had total statutory capital of $36 million as of March 31, 2020, and a RTC ratio of 1.3:1. We continuously monitor our compliance with state capital requirements.

In October 2019, Moody's Investors Service (Moody's) upgraded its financial strength rating of NMIC from "Baa3" to "Baa2" and upgraded its rating of NMIH's $150 million senior secured 2018 Term Loan and 2018 Revolving Credit Facility from See "~~Ba3~~- COVID-19 Developments," to "~~Ba2~~". ~~The outlook for Moody's ratings is stable. In June 2019, S&P upgraded its financial strength and long-term counter-party credit ratings of NMIC from~~ "~~BBB-~~" to "~~BBB" and upgraded its long-term counter-party credit rating of NMIH from "BB-" to "BB". In March 2020, the S&P updated its outlook from stable to negative for the mortgage insurance sector, including NMIH.~~

~~Information and Technology Support Function~~

Effective March 31, 2020, we entered into a services agreement to outsource our IT support and expertise functions to Tata Consultancy Services (TCS). The agreement provides for TCS to provide critical IT services over a seven-year period including such functions as application development and support, infrastructure support, information security, transition and transformation. We expect this engagement will allow us to continue our strategy to provide innovative development and IT optimization, as the business and industry continues to evolve, while realizing cost efficiencies by leveraging TCS's resources and operating model. As a result of this agreement, the majority of our IT employees will become employees of TCS during the second quarter of 2020, with guaranteed continued employment for a 12-month period effective from the date of transition. If we were to terminate the services agreement with TCS at any point before that 12-month period has expired, we would be obligated to rehire the affected employees for the remainder of their guaranteed employment period. In addition, the agreement provides that we may terminate it at any time with 120 days' notice, subject to our payment of a termination fee as specified in the agreement.

above.

Competition

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

The private MI industry overall competes more broadly with government MIs who significantly increased their share in the MI market following the 2008 ~~financial crisis.~~Financial Crisis. Although there has been broad policy consensus toward the need for

increasing private capital participation and decreasing government exposure to credit risk in the U.S. housing finance system, it remains difficult to predict whether the combined market share of government MIs will recede to pre-2008 levels. A range of factors influence a lender's and borrower's decision to choose private over government MI, including among others, ~~GSE demand,~~ premium rates and other charges, loan eligibility requirements, the cancelability of private coverage, loan size limits and the relative ease of use of private MI products compared to government MI alternatives.

LIBOR Transition

On March 5, 2021, ICE Benchmark Administration Limited (“IBA”), the administrator for LIBOR, confirmed it would permanently cease the publication of overnight, one-month, three-month, six-month and twelve-month USD LIBOR settings in their current form after June 30, 2023. The U.K. Financial Conduct Authority ("FCA"), the regulator of IBA, announced on the same day that it intends to stop requiring panel banks to continue to submit to LIBOR and all USD LIBOR settings in their current form will either cease to be provided by any administrator or no longer be representative after June 30, 2023. We have exposure to USD LIBOR-based financial instruments, such as LIBOR-based securities held in our investment portfolio, and our 2020 Revolving Credit Facility and certain ILN Transactions that require LIBOR-based payments. We are in the process of reviewing our LIBOR-based contracts and transitioning, as necessary and applicable, to a set of alternative reference rates. We will continue to monitor, assess and plan for the phase out of LIBOR; however, we cannot currently estimate the impact such transition will have on our operations or financial results.

4446

Consolidated Results of Operations


Consolidated statements of operations	Consolidated statements of operations	Three months ended											Consolidated statements of operations	Three months ended
		March 31, 2020				March 31, 2019				March 31, 2021				March 31, 2020
Revenues	Revenues	($ in thousands, except for per share data)											Revenues	($ in thousands, except for per share data)

Net premiums earned	Net premiums earned	$	98,717			$	73,868		Net premiums earned	$	105,879			$	98,717
Net investment income	Net investment income	8,104				7,383			Net investment income	8,814				8,104
Net realized investment losses	Net realized investment losses	(72)				(187)			Net realized investment losses	—				(72)
Other revenues	Other revenues	900				42			Other revenues	501				900
Total revenues	Total revenues	107,649				81,106			Total revenues	115,194				107,649
Expenses	Expenses								Expenses
Insurance claims and claim expenses	Insurance claims and claim expenses	5,697				2,743			Insurance claims and claim expenses	4,962				5,697
Underwriting and operating expenses⁽¹⁾	Underwriting and operating expenses⁽¹⁾	32,277				30,800			Underwriting and operating expenses⁽¹⁾	34,065				32,277
Service expenses⁽¹⁾	Service expenses⁽¹⁾	734				49			Service expenses⁽¹⁾	591				734
Interest expense	Interest expense	2,744				3,061			Interest expense	7,915				2,744
(Gain) loss from change in fair value of warrant liability		(5,959)				5,479
Loss (gain) from change in fair value of warrant liability									Loss (gain) from change in fair value of warrant liability	205				(5,959)
Total expenses	Total expenses	35,493				42,132			Total expenses	47,738				35,493

Income before income taxes	Income before income taxes	72,156				38,974			Income before income taxes	67,456				72,156
Income tax expense	Income tax expense	13,885				6,075			Income tax expense	14,565				13,885
Net income	Net income	$	58,271			$	32,899		Net income	$	52,891			$	58,271

Earnings per share - Basic	Earnings per share - Basic	$	0.85			$	0.49		Earnings per share - Basic	$	0.62			$	0.85
Earnings per share - Diluted	Earnings per share - Diluted	$	0.74		(2)	$	0.48		Earnings per share - Diluted	$	0.61			$	0.74

Loss ratio⁽³⁾⁽¹⁾	Loss ratio⁽³⁾⁽¹⁾	5.8		%		3.7		%	Loss ratio⁽³⁾⁽¹⁾	4.7		%		5.8		%
Expense ratio⁽⁴⁾⁽²⁾	Expense ratio⁽⁴⁾⁽²⁾	32.7		%		41.7		%	Expense ratio⁽⁴⁾⁽²⁾	32.2		%		32.7		%
Combined ratio	Combined ratio	38.5		%		45.4		%	Combined ratio	36.9		%		38.5		%


		The months ended							Three months ended
Non-GAAP financial measures ⁽⁵⁾⁽³⁾	Non-GAAP financial measures ⁽⁵⁾⁽³⁾	March 31, 2020		March 31, 2019		Non-GAAP financial measures ⁽⁵⁾⁽³⁾	March 31, 2021		March 31, 2020
							($ in thousands, except for per share data)
Adjusted income before tax	Adjusted income before tax	$	66,743	$	44,640	Adjusted income before tax	$	68,039	$	66,743
Adjusted net income	Adjusted net income	52,743		38,526		Adjusted net income	53,395		52,743
Adjusted diluted EPS	Adjusted diluted EPS	0.75		0.56		Adjusted diluted EPS	0.62		0.75

(1)

⁽¹⁾ ~~Certain "Underwriting and operating expenses" have been reclassified as "Service expenses" in prior periods.~~

⁽²⁾Diluted net income for the quarter ended March 31, 2020 excludes the impact of the warrant fair value change as it was anti-dilutive. For March 31, 2019, diluted net income equals reported net income as the impact of the warrant fair value change was dilutive.

⁽³⁾Loss ratio is calculated by dividing ~~the provision for~~ insurance claims and claim expenses by net premiums earned.

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

⁽⁵⁾(3) See "Explanation and Reconciliation of Our Use of Non-GAAP Financial Measures,," below.

Revenues

Net premiums earned were ~~$98.7 million and $73.9~~$105.9 million for the three months ended March 31, ~~2020 and March 31, 2019, respectively. Net premiums earned increased $24.8~~2021 compared to $98.7 million ~~or 34%~~for the three months ended March 31, ~~2020~~2020. The increase from period-to-period was primarily due to the growth of our IIF, a rise in our monthly policy production and higher single premium policy cancellations, partially offset by ~~incremental~~increased cessions under ~~the~~our QSR ~~Transactions tied to the growth of our direct premium volume~~ and ~~the inception of the 2019~~ ILN ~~Transaction.~~Transactions.

Net investment income was ~~$8.1 million and $7.4~~$8.8 million for the three months ended March 31, ~~2020 and~~2021 compared to $8.1 million for the three months ended March 31, ~~2019, respectively.~~2020. The increase was driven by ~~an increase~~growth in the size of our total investment ~~portfolio.~~portfolio, partially

offset by a decline in book yield tied to the prevailing interest rate and credit spread environment.

Other revenues were ~~$0.9~~$0.5 million ~~and $42 thousand~~ for the three months ended March 31, ~~2020 and~~2021, compared to $0.9 million for the three months ended March 31, ~~2019, respectively.~~2020. Other revenues represent underwriting fee revenue ~~from~~generated by our subsidiary, NMIS, which provides outsourced loan review services to mortgage loan originators. The ~~growth~~decline in other revenues ~~for the three months ended~~ relates to ~~an increase~~a decrease in NMIS' outsourced loan review volume. Amounts recognized in other revenues generally correspond with amounts incurred as service expenses for outsourced loan review activities 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. We also incur service expenses in connection with NMIS' outsourced loan review activities.

Insurance claims and claim expenses ~~increased $3.0~~were $5.0 million for the three months ended March 31, ~~2020,~~2021, compared to the three months ended March 31, 2019 primarily due to an increase in new defaults 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 primarily due to an increase in claim rates resulting from updates to certain assumptions as a result of COVID-19 and the aging of our NOD population. This was partially offset by cure activity on the beginning NOD population.

~~Underwriting and operating expenses increased $1.5~~$5.7 million ~~or 5%~~ for the three months ended March 31, ~~2020 compared to~~2020. Insurance claims and claim expenses decreased period-to-period despite an increase in the number of new defaults reported during the three months ended March 31, ~~2019. The increase relates~~2021, primarily because we established lower reserves per default for loans that we consider to ~~an increase~~be impaired in ~~underwriting and operating expenses associated~~connection with the ~~growth in policy volume, as well as increased headcount~~COVID pandemic given our expectation that forbearance, repayment and modification, and other assistance programs will aid affected borrowers and drive higher cure rates on such defaults than we would otherwise expect to ~~support the growth of our business. We incurred $0.5 million of underwriting~~experience on similarly situated loans that did not benefit from broad-based assistance programs. Insurance claims and ~~operating~~claim expenses during the three months ended March 31, ~~2020 related~~2021 also benefited from cure activity and a release of reserves previously held against certain loans that defaulted prior to ~~capital market transaction costs~~the onset of the COVID pandemic.

~~Service~~ Underwriting and operating expenses were ~~$0.7~~$34.1 million ~~and $49 thousand~~ for the three months ended March 31, ~~2020 and~~2021, compared to $32.3 million for the three months ended March 31, ~~2019,~~2020. The increase primarily relates to the recognition of previously deferred policy acquisition costs taken in connection with in-force portfolio run-off, partially offset by reductions in payroll, travel and entertainment, and office administrative expenses as a result of the COVID-19 outbreak. Underwriting and operating expenses included capital market reinsurance transaction costs of $0.4 million and $0.5 million, for the three months ended March 31, 2021 and 2020, respectively.

Service expenses were $0.6 million for the three months ended March 31, 2021, compared to $0.7 million for the three months ended March 31, 2020. Service expenses represent third-party costs incurred by NMIS in connection with the services it provides. The ~~growth~~decline in service expenses ~~for the quarter ended March 31, 2020 relates to an increase~~was driven by a decrease in NMIS' outsourced loan review volume. Amounts incurred as service expenses generally correspond with amounts recognized in other revenues in the same periods.

Interest expense was $7.9 million for the three months ended March 31, 2021 compared to $2.7 million for the three months ended March 31, ~~2020 compared to $3.1 million for the three months ended March 31, 2019.~~2020. Interest expense ~~for the three months ended March 31, 2020 benefited from a lower LIBOR indexed~~increased due to the increased amount and cost of our outstanding debt following the issuance of the $400 million Notes and retirement of the $150 million 2018 ~~term loan compared to the three months ended March 31, 2019.~~Term Loan in June 2020. See Item 1, "Financial Statements - Notes to Condensed Consolidated Financial Statements - Note 4, Debt."

Income tax expense was $14.6 million for the three months ended March 31, 2021 compared to $13.9 million for the three months ended March 31, ~~2020 compared to $6.1 million for the three months ended March 31, 2019. Income~~2020. The increase in income tax expense ~~increased due to the growth~~was primarily driven by an increase in our ~~pre-tax income. We~~effective tax rate. As a U.S. taxpayer, we are subject to a ~~21% statutory~~ U.S. federal corporate income tax ~~rate. Our effective tax~~ rate ~~on our pre-tax income was 19.2% for the three months ended March 31, 2020 compared to 15.6% for the three months ended March 31, 2019.~~of 21%. Our provision for income taxes for interim periods is established based on our estimated annual effective tax rate for a given ~~year.~~year, and reflects the impact of discrete tax effects in the period in which they occur. Our effective tax ~~rates~~rate on pre-tax income was 21.6% for the three months ended March 31, ~~2020 and 2019 reflect~~2021, compared to 19.2% for the three months ended March 31, 2020. The increase in our effective tax rate period-to-period reflects a decrease in the discrete tax ~~effects~~benefits realized during the three months ended March 31, 2021 from the change in the fair value of our warrant liability, and excess share-based compensation realized upon the vesting of RSUs and exercise of ~~options, and the change in fair value of our warrant liability in each period.~~stock options. See Item 1, "Financial Statements - Notes to Condensed Consolidated Financial Statements - Note 9, Income Taxes."

Net Income

Net income was $52.9 million for the three months ended March 31, 2021 compared to $58.3 million for the three months ended March 31, ~~2020 compared to $32.9~~2020. Adjusted net income was $53.4 million for the three months ended March 31, ~~2019. The increase in net income can be attributed by an increase in revenues and gain from change in fair value of warrant liability for the three months ended March 31, 2020,~~2021 compared to a loss from change in fair value of warrant liability for the three months ended March 31, 2019. This was partially offset by increased underwriting expenses and insurance claims and claim expenses. Adjusted net income was $52.7 million for the three months ended March 31, 2020. The decreases in net income from period-to-period was primarily driven by a shift in the impact of the change in the fair value of our warrant liability from a gain during the three months ended March 31, 2020 ~~compared~~ to ~~$38.5 million~~a loss during the three months ended March 31, 2021. Our adjusted net income, which excludes the gain or

loss associated with the change in the fair value of the warrant liability, increased during the three months ended March 31, 2021, driven by an increase in total revenues and decline in insurance claim and claim expenses, partially offset by an increase in our interest expense and effective tax rate.

Diluted EPS was $0.61 for the three months ended March 31, 2019. The increase in adjusted net income for the three months ended March 31, 2020 was driven by growth in total revenues, partially offset by increased underwriting expenses and insurance claims and claim expenses. The gain/loss from change in fair value of warrant liability was excluded from adjusted net income in both periods presented.

~~Diluted EPS was~~2021, compared to $0.74 for the three months ended March 31, ~~2020 compared to $0.48~~2020. Adjusted diluted EPS was $0.62 for the three months ended March 31, ~~2019. Adjusted diluted EPS was~~2021, compared to $0.75 for the three months ended March 31, ~~2020, compared to $0.56 for the three months ended March 31, 2019. The increases in diluted EPS~~2020. Diluted and adjusted diluted EPS ~~for the three months ended March 31, 2020, were driven by growth in net income and adjusted net income, partially offset by~~decreased primarily due to an increase in weighted average diluted shares ~~outstanding.~~outstanding in connection with the issuance of 15.9 million shares of common stock we completed in June 2020.

The non-GAAP financial measures adjusted income before tax, adjusted net income and adjusted diluted EPS are presented to enhance the comparability of financial results between periods.


Non-GAAP Financial Measure Reconciliations	Non-GAAP Financial Measure Reconciliations	For the three months ended March 31,							Non-GAAP Financial Measure Reconciliations	For the three months ended March 31,
		2020		2019			2021			2020
As reported	As reported	($ in thousands, except for per share data)							As reported	($ in thousands, except for per share data)
Income before income taxes	Income before income taxes	$	72,156	$	38,974	Income before income taxes	$	67,456		$	72,156
Income tax expense	Income tax expense	13,885		6,075		Income tax expense	14,565			13,885
Net income	Net income	$	58,271	$	32,899	Net income	$	52,891		$	58,271

Adjustments	Adjustments					Adjustments
Net realized investment losses	Net realized investment losses	72		187		Net realized investment losses	—			72
(Gain) loss from change in fair value warrant liability		(5,959)		5,479
Loss (gain) from change in fair value warrant liability						Loss (gain) from change in fair value warrant liability	205			(5,959)
Capital market transaction costs	Capital market transaction costs	474		—		Capital market transaction costs	378			474
Adjusted income before tax	Adjusted income before tax	66,743		44,640		Adjusted income before tax	68,039			66,743

Income tax expense on adjustments	Income tax expense on adjustments	115		39		Income tax expense on adjustments	79			115

Adjusted net income	Adjusted net income	$	52,743	$	38,526	Adjusted net income	$	53,395		$	52,743

Weighted average diluted shares outstanding	Weighted average diluted shares outstanding	70,401		68,996		Weighted average diluted shares outstanding	86,487			70,401

Adjusted diluted EPS	Adjusted diluted EPS	$	0.75	$	0.56	Adjusted diluted EPS	$	0.62		$	0.75

Explanation and Reconciliation of Our Use of Non-GAAP Financial Measures

We believe the use of the non-GAAP measures of adjusted income before tax, adjusted net income and adjusted diluted EPS ~~enhance~~enhances the comparability of our fundamental financial performance between periods, and provides relevant information to investors. These non-GAAP financial measures align with the way the company's business performance is evaluated by management. These measures are not prepared in accordance with GAAP and should not be viewed as alternatives to GAAP measures of performance. These measures have been presented to increase transparency and enhance the comparability of our fundamental operating trends across periods. Other companies may calculate these measures differently; their measures may not be comparable to those we calculate and present.

Adjusted income before tax is defined as GAAP income before tax, excluding the pre-tax effects of the gain or loss related to the change in fair value of our warrant liability, periodic costs incurred in connection with capital markets transactions, net realized gains or losses from our investment portfolio, and discrete, non-recurring and non-operating items in the periods in which such items are incurred.

Adjusted net income is defined as GAAP net income, excluding the after-tax effects of the gain or loss related to the change in fair value of our warrant liability, periodic costs incurred in connection with capital markets transactions, net realized gains or losses from our investment portfolio, and discrete, non-recurring and non-operating items in the periods in which such items are incurred. Adjustments to components of pre-tax income are tax effected using the applicable federal statutory tax rate for the respective periods.

Adjusted diluted EPS is defined as adjusted net income divided by adjusted weighted average diluted shares outstanding. Adjusted weighted average diluted shares outstanding is defined as weighted average diluted shares outstanding, adjusted for changes in the dilutive effect of non-vested shares that would otherwise have occurred had GAAP net income been calculated in accordance with adjusted net income. There will be no adjustment to weighted average diluted shares outstanding in the years that non-vested shares are anti-dilutive under GAAP.

Although adjusted income before tax, adjusted net income and adjusted diluted EPS exclude certain items that have occurred in the past and are expected to occur in the future, the excluded items: (1) are not viewed as part of the operating performance of our primary activities; or (2) are impacted by market, economic or regulatory factors and are not necessarily indicative of operating trends, or both. These adjustments, and the reasons for their treatment, are described below.

•Change in fair value of warrant liability. Outstanding warrants at the end of each reporting period are revalued, and any change in fair value is reported in the statement of operations in the period in which the change occurred. The change in fair value of our warrant liability can vary significantly across periods and is influenced principally by equity market and general economic factors that do not impact or reflect our current period operating results. We believe trends in our operating performance can be more clearly identified by excluding fluctuations related to the change in fair value of our warrant liability.

•Capital markets transaction costs. Capital markets transaction costs result from activities that are undertaken to improve our debt profile or enhance our capital position through activities such as debt refinancing and capital markets reinsurance transactions that may vary in their size and timing due to factors such as market opportunities, tax and capital profile, and overall market cycles.

•Net realized investment gains and losses. The recognition of the net realized investment gains or losses can vary significantly across periods as the timing is highly discretionary and is influenced by factors such as market opportunities, tax and capital profile, and overall market cycles that do not reflect our current period operating results.

•Infrequent or unusual non-operating items. Items that are the result of unforeseen or uncommon events, which occur separately from operating earnings and are not expected to recur in the future. Identification and exclusion of these items provides clarity about the impact special or rare occurrences may have on our current financial performance. Past adjustments under this category include the effects of the release of the valuation allowance recorded against our net federal and certain state net deferred tax assets in 2016 and the re-measurement of our net deferred tax assets in connection with tax reform in 2017. We believe such items are non-recurring in nature, are not part of our primary operating activities and do not reflect our current period operating results.

4850


Consolidated balance sheets	Consolidated balance sheets	March 31, 2020		December 31, 2019		Consolidated balance sheets	March 31, 2021		December 31, 2020
		(In Thousands)							(In Thousands)
Total investment portfolio	Total investment portfolio	$	1,070,072	$	1,140,940	Total investment portfolio	$	1,831,511	$	1,804,286
Cash and cash equivalents	Cash and cash equivalents	109,821		41,089		Cash and cash equivalents	115,517		126,937
Premiums receivable	Premiums receivable	46,872		46,085		Premiums receivable	52,206		49,779
Deferred policy acquisition costs, net	Deferred policy acquisition costs, net	62,634		59,972		Deferred policy acquisition costs, net	62,294		62,225
Software and equipment, net	Software and equipment, net	25,667		26,096		Software and equipment, net	31,298		29,665
Prepaid reinsurance premiums	Prepaid reinsurance premiums	13,100		15,488		Prepaid reinsurance premiums	4,842		6,190

Reinsurance recoverable						Reinsurance recoverable	18,686		17,608
Other assets	Other assets	59,661		35,148		Other assets	71,477		69,976
Total assets	Total assets	$	1,387,827	$	1,364,818	Total assets	$	2,187,831	$	2,166,666
Term loan		$	145,521	$	145,764
Debt						Debt	$	393,622	$	393,301

Unearned premiums	Unearned premiums	126,908		136,642		Unearned premiums	127,407		118,817
Accounts payable and accrued expenses	Accounts payable and accrued expenses	20,745		39,904		Accounts payable and accrued expenses	57,139		61,716
Reserve for insurance claims and claim expenses	Reserve for insurance claims and claim expenses	29,479		23,752		Reserve for insurance claims and claim expenses	96,103		90,567
Reinsurance funds withheld	Reinsurance funds withheld	12,735		14,310		Reinsurance funds withheld	7,569		8,653
Warrant liability	Warrant liability	1,461		7,641		Warrant liability	4,239		4,409
Deferred tax liability, net	Deferred tax liability, net	66,831		56,360		Deferred tax liability, net	115,150		112,586
Other liabilities	Other liabilities	9,257		10,025		Other liabilities	6,294		7,026
Total liabilities	Total liabilities	412,937		434,398		Total liabilities	807,523		797,075
Total shareholders' equity	Total shareholders' equity	974,890		930,420		Total shareholders' equity	1,380,308		1,369,591
Total liabilities and shareholders' equity	Total liabilities and shareholders' equity	$	1,387,827	$	1,364,818	Total liabilities and shareholders' equity	$	2,187,831	$	2,166,666

Total cash and investments were $1.9 billion as of March 31, ~~2020, we had $1.2 billion in cash~~2021 and December 31, 2020. Cash and investments ~~including $43.7~~at March 31, 2021 included $78.2 million held by NMIH. The decrease in investments from December 31, 2019 is attributed to increases in our unrealized loss positions caused by market-wide widening of credit spreads as a result of the COVID-19 pandemic and a temporary pause on reinvestment activities. The increase in total cash ~~from December 31, 2019 was due increased~~and investments between the respective measurement dates reflects cash generated from operations, ~~and~~partially offset by a ~~pause on reinvestment activities.~~decrease in the unrealized gain position of our fixed income portfolio caused by a rise in interest rates.

Net deferred policy acquisition costs were ~~$62.6~~$62.3 million as of March 31, ~~2020,~~2021, compared to ~~$60.0~~$62.2 million as of December 31, ~~2019.~~2020. The increase was primarily driven by growth in the number of policies written during the period 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 ~~$13.1~~$4.8 million as of March 31, ~~2020,~~2021, compared to ~~$15.5~~$6.2 million as of December 31, ~~2019.~~2020. Prepaid reinsurance premiums, which represent the unearned premiums on single premium policies ceded under the 2016 QSR Transaction, decreased due to the ~~termination of our engagement with one reinsurer under the 2016 QSR Transaction and the~~ continued amortization of previously ceded unearned premiums.

~~Other assets increased to $59.7~~Reinsurance recoverable was $18.7 million as of March 31, ~~2020 from $35.1~~2021, compared to $17.6 million as of December 31, ~~2019.~~ 2020. The increase was driven by an increase in ceded losses recoverable associated with our QSR Transactions.

Other assets increased to $71.5 million as of March 31, 2020 includes unsettled trade receivables of $21.4 million from sales of certain investment securities, as well as the capitalization of $0.8 million of deferred debt issuance costs incurred in connection with the 2020 Revolving Credit Facility.

~~Unearned premiums decreased from $136.6~~2021, compared to $70.0 million as of December 31, ~~2019~~2020, primarily driven by a $1.6 million increase in software and equipment. Included in other assets are $46.4 million of tax and loss bonds held by the Company at both March 31, 2021 and December 31, 2020. see Item 1, "Financial Statements - Notes to ~~$126.9~~Condensed Consolidated Financial Statements - Note 9, Income Taxes."

Unearned premiums were $127.4 million as of March 31, ~~2020, primarily due~~2021, compared to $118.8 million as of December 31, 2020. The increase was driven by single premium policy originations during the three months ended March 31, 2021, partially offset by the cancellation of other single premium policies and 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 three months ended March 31, 2020.~~policies.

Accounts payable and accrued expenses ~~decreased from $39.9~~were $57.1 million as of March 31, 2021, compared to $61.7 million as of December 31, ~~2019 to $20.7 million as of March 31, 2020,~~2020. The decrease was primarily ~~due to~~driven by the payment of an unsettled trade payable related to the purchase of

investment securities at ~~year end 2019~~year-end 2020 and the settlement of previously accrued compensation during the three months ended March 31, ~~2020.~~2021, partially offset by an increase in accrued and unpaid interest on the Notes.

Reserve for insurance claims and claim expenses was $96.1 million as of March 31, 2021, compared to $90.6 million as of December 31, 2020. Reserve for insurance claims and claim expenses increased ~~from $23.8 million as of December 31, 2019 to $29.5 million as of~~at March 31, ~~2020, primarily due to~~2021 despite a decline in the total size of our default population because of an increase in ~~NODs tied~~the average case reserve held against previously defaulted loans and the establishment of initial reserves newly defaulted loans during the period. While we have generally established lower reserves per default for loans that we consider to be impaired in connection with the ~~growth~~COVID pandemic, we have increased the initial reserves held for such loans as they have aged in default status. The increase in the ~~number of policies in force~~reserves for insurance claims and ~~the aging of our earlier book years, and an increase in our average reserve per default tied to an increase an increase~~ claim ~~rates due~~

~~to updates to certain assumptions as a result of COVID-19 and the aging of our NOD population. This~~expenses at March 31, 2021 was partially offset by the release of prior year reserves ~~primarily~~ tied to ~~NOD cures.~~the curing of certain loans that had defaulted prior to the onset of the COVID pandemic. See "- Insurance Claims and Claim Expenses," above for further details.

Reinsurance funds withheld, ~~was $12.7 million as of March 31, 2020, representing the net of~~which represents our ceded reinsurance premiums written, less our profit and ceding commission receivables related to the 2016 QSR ~~Transaction.~~Transaction was $7.6 million as of March 31, 2021, compared to $8.7 million as of December 31, 2020. The decrease ~~in reinsurance funds withheld of $1.6 million from December 31, 2019,~~ 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 $7.6~~was $4.2 million at March 31, 2021, compared to $4.4 million at December 31, ~~2019 to $1.5 million at~~2020. The decrease was primarily driven by the exercise of outstanding warrants during the three months ended March 31, ~~2020, primarily due to a decrease~~2021, partially offset by the change in ~~our stock price.~~Black-Scholes pricing model inputs between the respective measurement dates. 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 $56.4~~was $115.2 million ~~as of~~at March 31, 2021 compared to $112.6 million at December 31, ~~2019 to $66.8 million as of March 31, 2020,~~2020. The increase was primarily due to an increase in the claimed deductibility of our statutory contingency ~~reserve.~~reserve, offset by the change in unrealized gains recorded in other comprehensive income. 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."

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


Consolidated cash flows	Consolidated cash flows	For the three months ended March 31,							Consolidated cash flows	For the three months ended March 31,
		2020		2019			2021			2020
Net cash provided by (used in):	Net cash provided by (used in):	(In Thousands)							Net cash provided by (used in):	(In Thousands)
Operating activities	Operating activities	$	47,852	$	28,279	Operating activities	$	85,464		$	47,852
Investing activities	Investing activities	25,783		(11,977)		Investing activities	(96,447)			25,783
Financing activities	Financing activities	(4,903)		(1,835)		Financing activities	(437)			(4,903)
Net increase in cash and cash equivalents	Net increase in cash and cash equivalents	$	68,732	$	14,467	Net increase in cash and cash equivalents	$	(11,420)		$	68,732

Net cash provided by operating activities was $85.5 million for the three months ended March 31, 2021, compared to $47.9 million for the three months ended March 31, ~~2020, compared to $28.3 million for the three months ended March 31, 2019.~~2020. The ~~increases~~increase in cash generated from operating activities was primarily driven by growth in premiums written, with further increase tied to a decline in claims and cash interest paid from period-to-period.

Cash used in investing activities for the three months ended March 31, ~~2020,~~2021 was ~~primarily~~ driven by ~~growth in premiums written~~the purchase of fixed and short-term maturities, with cash provided by operating activities, and the reinvestment of coupon payments, maturities and sale proceeds within our investment ~~income, partially offset by increased operating expenses and growth in claims paid tied to the growth and aging of our insured~~ portfolio.

Cash provided by investing activities for the three months ended March 31, 2020 represent the net cash proceeds from maturities of fixed ~~maturities~~maturity investments and the sales of short-term investments, partially offset by purchases. ~~As a result~~We paused reinvestment activities at the onset of the COVID-19 pandemic ~~we paused reinvestment activities~~in the first quarter of 2020 to bolster ~~liquidity.~~ liquidity within our investment portfolio.

Cash used in ~~investment~~financing activities was $0.4 million for the three months ended March 31, ~~2019 was driven by the purchase of fixed and short-term maturities during those periods.~~

~~Cash~~2021, compared to cash used in financing activities ~~was~~of $4.9 million for the three months ended March 31, ~~2020, compared to cash used in activities of $1.8 million for the three months ended March 31, 2019.~~2020. The cash used in financing activities primarily relates to taxes paid on the net share settlement of equity awards for certain employees. The cash used in financing activities for the three months ended March 31, 2020 also includes cash paid for debt issuance costs in connection with the 2020 Revolving Credit Facility.

5052

~~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:~~for (i) payment of certain corporate expenses; (ii) payment of certain reimbursable expenses of its insurance subsidiaries; (iii) payment of ~~principal and~~the interest related to the ~~2018 Term Loan~~Notes and 2020 Revolving Credit 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 that are incorporated in Delaware. Delaware law provides that dividends are only payable out of a corporation's surplus or recent net profits (subject to certain limitations).

As of March 31, ~~2020,~~2021, NMIH had ~~$43.7~~$78.2 million of cash and investments. NMIH's principal source of net cash is investment income. NMIH also has access to ~~$100~~$110 million of undrawn revolving credit capacity under the 2020 Revolving Credit Facility. See Item 1, "~~NMIC and~~ Financial Statements - Notes to Condensed Consolidated Financial Statements - Note 4, Debt. Re One ~~have~~also has the capacity, under Wisconsin law, to pay $1.6 million of aggregate ordinary dividends ~~of $16.1 million~~ to NMIH during the ~~12-month~~twelve-month period ending December 31, ~~2020.~~2021. In the future, NMIH may benefit from ordinary course dividend capacity available from NMIC as well.

NMIH has entered into tax and expense-sharing agreements with its subsidiaries which have been approved by the Wisconsin ~~OCI. With~~OCI, with such approvals subject to change or revocation at any time. Among such agreements, the Wisconsin ~~OCI's approval, NMIH began allocating~~OCI has approved the allocation of interest expense on the ~~2015 Term Loan to NMIC in~~Notes and the first quarter of 2017, consistent with the benefits NMIC received when NMIH 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 2020 Revolving Credit ~~Facility. Such approvals~~Facility to NMIC to the extent proceeds from such offering and facility are distributed to NMIC or used to repay, redeem or otherwise defease amounts raised by NMIC under prior credit arrangements that have previously been distributed to NMIC.

The Notes mature on June 19, 2025 and bear interest at a rate of 7.375%, payable semi-annually on June 1 and December 1. The 2020 Revolving Credit Facility matures on February 22, 2023 and accrues interest at a variable rate equal to, at our discretion, (i) a base rate (as defined in the Credit Agreement, subject to a floor of 1.00% per annum) plus a margin of 0.375% to 1.875% per annum or (ii) the Eurodollar Rate (subject to a floor of 0.00% per annum) plus a margin of 1.375% to 2.875% per annum, in each case based on the applicable corporate credit rating at the time. Borrowings under the 2020 Revolving Credit Facility may be ~~changed or revoked~~used for general corporate purposes, including to support the growth of our new business production and operations.

Under the 2020 Revolving Credit Facility, NMIH is required to pay a quarterly commitment fee on the average daily undrawn amount of 0.175% to 0.525%, based on the applicable corporate credit rating at the time. As of March 31, 2021, the applicable commitment fee was 0.35%.

We are subject to certain covenants under the Notes and the 2020 Revolving Credit Facility (as defined in the Credit Agreement). Under the Notes (as defined in the Indenture), we are subject to a maximum debt-to-total capitalization ratio of 35%. Under the 2020 Revolving Credit Facility (as defined in the Credit Agreement), we are subject to a maximum debt-to-total capitalization ratio of 35%, a minimum liquidity requirement, a requirement to maintain compliance with the PMIERs financial requirements (subject to any ~~time.~~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 March 31, 2021.

NMIC and Re One are subject to certain capital and dividend rules and regulations prescribed by jurisdictions in which they are authorized to operate and the GSEs. Under Wisconsin law, 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 12twelve 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~~twelve-month period ending the preceding December 31. ~~NMIC and~~ Re One ~~have never paid~~has the capacity to pay $1.6 million of aggregate ordinary dividends to ~~NMIH.~~NMIH during the twelve-month period ending December 31, 2021. NMIC reported a statutory net loss for the year ended December 31, 2020 and ~~Re One~~does not have the capacity to pay ~~aggregate ordinary~~ dividends ~~of $16.1 million~~ to NMIH during the ~~12-month~~twelve-month period ~~ending~~ended December 31, ~~2020.~~2021 without prior approval from the Wisconsin OCI.Since inception, neither NMIC nor Re One have paid any dividends to NMIH.

As anapproved insurer under PMIERs, NMIC would generally be subject to ~~additional restrictions on~~prior GSE approval of its ability to pay dividends to NMIH if it failed to meet the financial requirements prescribed by PMIERs. In response to the COVID pandemic, the GSEs issued temporary PMIERs guidance, effective for the period from June 30, 2020 to June 30, 2021, that requires approved insurers ~~Approved insurers~~ ~~that fail~~ to ~~meet the PMIERs financial requirements are not permitted to pay dividends without prior~~secure approval from the ~~GSEs.~~GSEs, even if the approved insurer otherwise satisfies the financial requirements prescribed by PMIERs, prior to taking any of the following actions: (i) pay dividends, make payments of principal or increase payments of

interest beyond those commitments made prior to the guidance effective date associated with surplus notes issued by the approved insurer, make any other payments, unless related to expenses incurred in the normal course of business or to commitments made prior to the guidance effective date, or pledge or transfer asset(s) to any affiliate or investor, or (ii) enter into any new arrangements or alter any existing arrangements under tax sharing and intercompany expense-sharing agreements other than renewals and extensions of agreements in effect prior to the guidance effective date. We cannot be certain that the GSEs will not amend the terms, or extend the duration, of this prior approval requirement beyond its current expiration of June 30, 2021.

NMIH may require liquidity to fund the capital needs of its insurance subsidiaries. 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, access the reinsurance markets and meet minimum required asset thresholds under the PMIERs and minimum state capital ~~requirements. NMIH may require liquidity to fund the capital needs of its insurance subsidiaries.~~

~~In May 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,~~requirements (respectively, as defined therein).

As an approved mortgage insurer and Wisconsin-domiciled carrier, NMIC is required to satisfy financial and/or capitalization requirements stipulated by each of the GSEs and the Wisconsin OCI. The financial requirements stipulated by the GSEs are outlined in the ~~2018 Credit Agreement and~~PMIERs. Under the PMIERs, NMIC must maintain available assets that are equal to or exceed a minimum risk-based required asset amount, subject to a ~~1.00%~~minimum floor ~~plus~~of $400 million. At March 31, 2021, we reported $1,810 million available assets against $1,261 million risk-based required assets for a $549 million of "excess" funding position

The risk-based required asset amount under PMIERs is determined at an ~~annual margin rate of 4.75%, payable monthly based on our current interest period election.~~

On March 20, 2020, we amended the 2018 Revolving Credit Facility, increasing the borrowing capacity under the facility to $100 million, extending the maturity date to February 22, 2023, and reducing the interest cost related to both undrawn commitments and drawn borrowings under the facility. Borrowings under the 2020 Revolving Credit Facility accrue interest at a variable rate equal to, at our discretion,individual policy-level based on the ~~applicable corporate credit rating at~~risk characteristics of each insured loan. Loans with higher risk factors, such as higher LTVs or lower borrower FICO scores, are assessed a higher charge. Non-performing loans that have missed two or more payments are generally assessed a significantly higher charge than performing loans, regardless of the ~~time, (i)~~underlying borrower or loan risk profile; however, special consideration is given under PMIERs to loans that are delinquent on homes located in an area declared by FEMA to be a ~~base rate (as defined~~Major Disaster zone. In June 2020, the GSEs issued guidance restated in each of September and December 2020) on the ~~2018 Credit Agreement,~~risk-based treatment of loans affected by the COVID-19 crisis. Under the guidance, non-performing loans that are subject to a ~~floor of 1.00% per annum) plus~~forbearance program granted in response to a ~~margin of 0.375%~~financial hardship related to ~~1.875% per annum, which is reduced~~COVID-19 will benefit from a ~~margin~~permanent 70% risk-based required asset haircut for the duration of ~~1.00% to 2.50% prior~~the forbearance period and subsequent repayment plan or trial modification period.

NMIC's PMIERs minimum risk-based required asset amount is also adjusted for its reinsurance transactions (as approved by the GSEs). Under NMIC's quota share reinsurance treaties, it receives credit for the PMIERs risk-based required asset amount on ceded RIF. As its gross PMIERs risk-based required asset amount on ceded RIF increases, the PMIERS credit for ceded RIF automatically increases as well (in an unlimited amount). Under NMIC's ILN transactions, it generally receives credit for the PMIERs risk-based required asset amount on ceded RIF to the ~~amendment,~~extent such requirement is within the subordinated coverage (excess of loss detachment threshold) afforded by the transaction.

NMIC is also subject to state regulatory minimum capital requirements based on its RIF. Formulations of this minimum capital vary by state, however, the most common measure allows for a maximum ratio of RIF to statutory capital (commonly referred to as RTC) of 25:1. The RTC calculation does not assess a different charge or ~~(ii)~~impose a different threshold RTC limit based on the ~~Eurodollar Rate (subject to~~underlying risk characteristics of the insured portfolio. Non-performing loans are treated the same as performing loans under the RTC framework. As such, the PMIERs generally imposes a ~~floor of 0.00% per annum) plus a margin of 1.375% to 2.875% per annum, which is reduced from a margin of 2.00% to 3.50% prior to~~stricter financial requirement than the ~~amendment.~~ state RTC standard.

As of March 31, ~~2020, no borrowings~~2021, NMIC's performing primary RIF, net of reinsurance, was approximately $22.8 billion. NMIC ceded 100% of its pool RIF pursuant to the 2016 QSR Transaction.Based on NMIC's total statutory capital of $1.7 billion (including contingency reserves) as of March 31, 2021, NMIC's RTC ratio was 13.4:1 Re One had ~~been made~~total statutory capital of $37.3 million as of March 31, 2021 and a RTC ratio of 1.8:1

~~We are subject to certain covenants under the 2018 Term Loan and 2020 Revolving Credit Facility. Under the 2018 Term Loan (and as defined~~securities held in ~~the 2018 Credit Agreement), we are subject~~its investment portfolio. NMIC is not a maximum debt-to-total capitalization ratio of 35%. Under the 2020 Revolving Credit Facility (and as defined in the 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 (subjectparty to any ~~GSE-approved waivers)~~contracts (derivative or otherwise) that require it to post an increasing amount of collateral to any counterparty and NMIC's principal liquidity demands (other than claims payments) generally develop along a scheduled path (i.e., are of a contractually predetermined amount and ~~minimum consolidated net worth~~due at a contractually predetermined date). NMIC's only use of cash that develops along an unscheduled path is claims payments. Given the breadth and ~~statutory capital requirements. We were in compliance~~duration of forbearance programs available to

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~~with all covenants as of March 31, 2020. Subsequent to~~borrowers, separate foreclosure moratoriums that have been enacted at a local, state and federal level, and the ~~close~~general duration of the ~~quarter,~~default to foreclosure to claim cycle, we ~~secured~~do not expect NMIC to use a ~~further amendment~~meaningful amount of cash to ~~our~~settle claims in the near-term.

Debt and Financial Strength Ratings

NMIC's financial strength is rated "Baa2" by Moody's and "BBB" by S&P.In June 2020, Moody's affirmed its financial strength rating of NMIC and its "Ba2" rating of NMIH's 2020 Revolving Credit Facility, and assigned a "Ba2" rating to ~~permit us~~the Notes. Moody's ratings outlook is stable.In June 3, 2020, S&P assigned a "BB" rating to ~~issue up~~NMIH's senior secured Notes. In April 2021, S&P upgraded its outlook from negative to ~~$400 million~~positive for the financial strength rating of ~~senior debt alongside the facility,~~NMIC's and we secured expanded approval from the Wisconsin OCI to allocate incremental holding company interest expenses to NMIC should we choose to pursue additional debt financing opportunities and downstream proceeds to support our operating businesses. We periodically review incremental financing opportunities and we may choose to use the flexibility afforded under the amendment in future periods.

NMIH's long-term counter-party credit profile.

Consolidated Investment Portfolio

The primary objectives of our investment activity 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.

Our investment portfolio is comprised entirely ~~comprised~~ of fixed maturity ~~investments.~~instruments. As of March 31, ~~2020,~~2021, the fair value of our investment portfolio was ~~$1.1 billion. We also had~~$1.8 billion and we held an additional ~~$109.8~~$115.5 million of cash and ~~equivalents as of March 31, 2020.~~equivalents. Pre-tax book yield on the investment portfolio for the three months ended March 31, ~~2020~~2021 was ~~3.0%~~2.0%. ~~The book~~Book yield is calculated as period-to-date net investment income divided by the average amortized cost of the investment portfolio. ~~Yield~~The yield on ~~the~~our investment portfolio is likely to change over time based on movements in interest rates, credit spreads, the duration or mix of our ~~investment portfolio~~holdings and other factors.

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


Percentage of portfolio's fair value	Percentage of portfolio's fair value	March 31, 2020		December 31, 2019		Percentage of portfolio's fair value	March 31, 2021		December 31, 2020
Corporate debt securities	Corporate debt securities	54	%	58	%	Corporate debt securities	61	%	63	%
Municipal debt securities	Municipal debt securities	17		16		Municipal debt securities	24		22
Asset-backed securities	Asset-backed securities	15		15		Asset-backed securities	7		7
Cash, cash equivalents, and short-term investments						Cash, cash equivalents, and short-term investments	6		6

Cash, cash equivalents, and short-term investments		10		7

U.S. treasury securities and obligations of U.S. government agencies	U.S. treasury securities and obligations of U.S. government agencies	4		4		U.S. treasury securities and obligations of U.S. government agencies	2		2
Total	Total	100	%	100	%	Total	100	%	100	%


Investment portfolio ratings at fair value ⁽¹⁾	Investment portfolio ratings at fair value ⁽¹⁾	March 31, 2020		December 31, 2019		Investment portfolio ratings at fair value (1)	March 31, 2021		December 31, 2020
AAA	AAA	23	%	20	%	AAA	11	%	12	%
AA⁽²⁾	AA⁽²⁾	19		19		AA(2)	28		27
A⁽²⁾	A⁽²⁾	46		47		A(2)	42		43
BBB⁽²⁾	BBB⁽²⁾	12		14		BBB(2)	19		18

Total	Total	100	%	100	%	Total	100	%	100	%

⁽¹⁾ Excluding certain operating cash accounts.

⁽²⁾ Includes +/– ratings.

~~Our~~All of our investments are rated by one or more nationally recognized statistical rating organizations. If ~~two~~three or more ratings are available, we assign the middle rating for classification purposes, otherwise we assign the lowest rating.

Investment Securities - Allowance for credit losses

~~As of March 31, 2020, we~~We did not recognize an allowance for credit loss for any security in the investment portfolio as of March 31, 2021 or December 31, 2020, and we did not record any provision for credit loss for investment securities during the three months ended March 31, 2021, and March 31, 2020.

As of March 31, 2021, the investment portfolio had gross unrealized losses ~~on our~~of $25.5 million, none of which had been in an unrealized loss position for a period of twelve months or longer. As of December 31, 2020, the investment ~~portfolio.~~portfolio had gross unrealized losses of $0.5 million, of which $8 thousand had been in an unrealized loss position for a period of twelve months or longer. The increase in the number of securities in anand the aggregate size of the unrealized loss position as of March 31, ~~2020 can be attributed to a wide widening of credit spreads and surging demand for liquidity across the broader markets, partially offset~~2021, was primarily driven by interest rate movements ~~since~~following the purchase ~~date. We expect to recover~~date of certain securities. Based on current facts and circumstances, we believe the ~~amortized cost basis of these securities based on our estimate of the amount and timing of cash flows to be collected.~~

~~For the three months ended March 31, 2019, we recognized a $0.4 million OTTI loss in earnings related to the planned sale of a security in a loss position in April 2019. There were no credit~~unrealized 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 March 31, 2019.~~

~~Off-Balance Sheet Arrangements and Contractual Obligations~~

~~We had no material off-balance sheet arrangements~~ as of March 31, ~~2020. In connection with the ILN Transactions, we have certain future contractual commitments to the Oaktown Re Vehicles (special purpose variable interest entities that~~2021 are not ~~consolidated in our financial results). See Item 1, "Financial Statements - Notes to Condensed Consolidated Financial Statements - Note 1. Organization, Basis~~indicative of ~~Presentation and Summary~~the ultimate collectability of ~~Accounting Principles.~~"

~~We entered into a services agreement to outsource our IT support and expertise functions to TCS, effective March 31, 2020. See "-~~ ~~Information and Technology Support Function," above for more information.~~

the current amortized cost of the securities.

Critical Accounting Estimates

We use accounting principles and methods that conform to GAAP. 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, our investment portfolio, deferred policy acquisition costs, premium deficiency reserves, and reserves for insurance claims and claim expenses have the greatest potential impact on our consolidated financial statements. Therefore, we consider these to be our critical accounting estimates. There have not been any material changes to our critical accounting policies and estimates as compared to the critical accounting policies and estimates described in our ~~2019~~2020 10-K.

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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 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 March 31, ~~2020~~2021 and December 31, ~~2019~~2020 was ~~$1.1~~$1.8 billion, ~~and $1.1 billion, 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 March 31, ~~2020,~~2021, the duration of our fixed income portfolio, including cash and cash equivalents, was ~~3.40~~4.84 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 ~~3.40%~~4.84% in fair value of our fixed income portfolio. Excluding cash, our fixed income portfolio duration was ~~3.71~~4.97 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 ~~3.71%~~4.97% in fair value of our fixed income portfolio.

We are also subject to market risk related to ~~our 2018 Term Loan~~the Notes and the ILN Transactions. As discussed in Item 1, "Financial Statements - Notes to Condensed Consolidated Financial Statements - Note 4, Debt" the ~~2018 Term Loan bears~~Notes bear 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.

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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 March 31, ~~2020~~2021 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 March 31, ~~2020~~2021 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.

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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~~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 ~~2019~~2020 10-K. As of the date of this report, ~~other than as included below,~~ we are not aware of any material changes in our risk factors from the risk factors disclosed in our ~~2019~~2020 10-K. You should carefully consider the risks and uncertainties described herein and in our ~~2019~~2020 10-K, 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 ~~2019~~2020 10-K 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.

~~The recent COVID-19 outbreak could materially adversely affect our business, results of operations and financial condition.~~

Due to the unprecedented and rapidly changing social and economic impacts associated with the COVID-19 pandemic on the U.S. and global economies generally, and in particular on the U.S. housing, real estate, housing finance, and mortgage insurance markets, we are closely monitoring developments related to the COVID-19 pandemic to assess its impact on our business. Currently, COVID-19 is having a major impact on nearly every sector of the U.S. economy, including construction, public and private infrastructures, financial services, hospitality industries, manufacturing, travel, trade, tourism, the healthcare system, food supply, consumption and overall economic output, and on the financial, capital and credit markets.

As a result of the COVID-19 pandemic, the U.S. federal government and certain U.S. states have adopted various social distancing measures and have ordered businesses closed or have placed material restrictions on operations. This has resulted in widespread travel restrictions and many businesses are not currently operating or are operating at significantly reduced levels.

Due to the outbreak of the COVID-19 pandemic, there have been a number of governmental and GSE efforts to implement programs to assist individuals and businesses impacted by the virus. The GSEs, the primary purchasers of mortgages we insure, have adopted certain measures to assist borrowers impacted by COVID-19. On March 18, 2020, the GSEs announced suspension of foreclosures and evictions for at least 60 days. Similarly, earlier in March 2020, the GSEs announced that they would provide payment forbearance to borrowers impacted by COVID-19, allowing for mortgage payments to be suspended for up to 12 months due to hardship caused by COVID-19.

On March 27, 2020, the U.S. Congress enacted the CARES Act. Among many other things, the CARES Act suspends foreclosures and evictions for at least 60 days from March 18, 2020, on mortgages purchased or securitized by the GSEs. In addition, the CARES Act enacts into law a requirement to provide payment forbearance on such mortgages to borrowers experiencing a hardship during the COVID-19 emergency. Forbearance under the CARES Act allows for a mortgage payment to be suspended for up to 360 days due to hardship caused by COVID-19. The CARES Act also provides for enhanced

~~unemployment benefits, direct aid to individuals in the form of refundable tax credit rebates and increased flexibility under retirement plans.~~

Due to the evolving and highly uncertain nature of this crisis, it is too soon to fully assess or predict the ultimate impact COVID-19 will have on the markets in which we operate, but we believe it will be material and could adversely affect our business, operations and financial condition. We are currently unable to estimate precisely the magnitude of the impact that the pandemic will ultimately have on our business, operations and financial condition. We believe there are or will be a range of adverse effects on our markets, customers and new business, revenues, loss development and related impacts to our capital needs, employee health and productivity, investment portfolio performance, and ability to access capital and reinsurance markets if we need to. In turn, these impacts may cause changes, which also cannot be precisely determined at this time, to our estimates of future earnings and other guidance we have provided to the markets.

~~In particular, we believe we will experience the following impacts, among others:~~

•Efforts to mitigate the pandemic, including government-mandated business shutdowns, requests or orders for employees to work remotely, and other social distancing measures could adversely impact our ability to continue to conduct our business. Although we have been able to continue operations under our business continuity program, the spread of COVID-19 could negatively impact a significant number of our employees and the availability of key personnel necessary to conduct our business activities. Such a spread or outbreak could also negatively impact the business and operations of our customers and critical third-party service providers. Further, extreme market volatility may leave us unable to react to market events in a manner consistent with our historical practices in dealing with more orderly markets.

•We expect that the COVID-19 pandemic, including COVID-19-related illnesses and initiatives taken to reduce the transmission of COVID-19, will affect the number of new mortgages available for us to insure. Our NIW volume and future revenues are significantly dependent on the volume of high-LTV loan originations. If there is a significant decline in our NIW, our future revenue could be negatively impacted.

•Mortgage delinquencies are typically affected by a variety of factors, including illness, death, unemployment and other life events, among others. In the current environment, if borrowers take advantage of the wide-spread availability of forbearance programs, we are likely to experience a significant increase in forbearance-related delinquencies on our insured loans. While there are efforts underway to combat the spread and severity of COVID-19 and the related economic impacts, these measures may be ineffective in mitigating the spike in NODs we expect to receive as a direct result of illness or economic hardship that may arise from COVID-19.

•While the forbearance programs currently in place are designed to provide bridge assistance to borrowers experiencing hardship so that they may continue to pay their mortgages in the future, when we receive a NOD on an insured loan, including one arising from a COVID-19 forbearance, we would include such loan in our default population for the purposes of setting loss reserves. In addition, PMIERs generally require us to treat such loans as non-performing, which then increases the capital we are required to hold. Non-performing loans that have missed two or more payments are generally assessed a significantly higher capital charge than performing loans. Although loans under a COVID-19 forbearance may not be reported as delinquent for credit reporting purposes, it is unclear how the GSEs will treat such loans for purposes of satisfying PMIERs financial requirements. If the loans are considered delinquent for the purposes of PMIERs, it is unclear how the GSEs will calculate the additional minimum required assets associated with delinquent mortgages that are subject to COVID-19 forbearances. PMIERs currently provides for a discount factor based on FEMA declared disasters. The GSEs added these provisions in 2018 in response to hurricane disaster experiences; however, PMIERs does not limit its application to hurricane disasters. FEMA has made a Major Disaster Declaration in all 50 states in response to the COVID-19 pandemic. Our application of these PMIERs provisions to loans with COVID-19 forbearances are in part based on our subjective interpretations, which may be different than how the GSEs intend to address asset requirements for loans impacted by COVID-19-related defaults. There is a risk that the GSEs or FHFA may disagree with our interpretation or application of PMIERs financial requirements, which may require material changes to the assets we are required to hold. The impact to our capital needs and incurred losses could be material and adversely impact our NIW opportunity and our business, results of operations and financial condition.

Whether delinquencies ultimately result in claims will depend on a variety of factors, including the number of NODs received as a result of the COVID-19 pandemic, the length of the crisis and ultimate success of forbearance, government stimulus and other initiatives put in place to assist homeowners with curing their delinquencies. Due to the inherent uncertainty and significant judgment involved in our assumptions when we establish loss estimates, they may turn out to be materially inaccurate and we can provide no assurance that actual claims paid by us, if any, with respect to NODs arising from the pandemic will not be substantially more than the reserves we establish for such NODs.

•Our master policies require insureds to file a claim no later than 60-days after completion of a foreclosure, and in connection with the claim, the insured is generally entitled to include in the claim amount (i) interest (capped at three years) and (ii) certain advances, each as incurred through the date the claim is filed. Under our master policies, a national foreclosure moratorium of the type currently required will not limit the amount of accrued interest (subject to the three year limit) or advances that may be included in the claim amount. If the duration of the current foreclosure delay mandated by the GSEs and CARES Act is extended beyond the current 60-day period (from March 18, 2020), loans that were in our default inventory with defaults unrelated to the COVID-19 crisis, which had not yet gone through foreclosure may remain in a pre-foreclosure default status for a prolonged period of time, which would delay our receipt of certain claims for loans that do not cure and could increase the severity of claims we may ultimately be required to pay after the moratorium is lifted.

•Home values could materially decline as a result of a persistent economic downturn arising the COVID-19 pandemic. Depreciation in the values of properties underpinning our insured loans may increase the likelihood of default and negatively impact borrowers’ abilities to sell their properties for amounts sufficient to cover their unpaid mortgages. In turn, the frequency or severity of losses we may incur would be negatively impacted.

•Our servicers could experience liquidity impacts, which could affect their willingness and/or ability to continue to pay premiums to us. Although our master policies do not require payment of premiums after a loan has gone into default, most servicers continue to remit premiums to us to avoid a lapse in coverage if the borrower cures the default; however, in the current environment, it is uncertain whether servicers will continue to do so. If this were to occur, we could experience adverse impacts to our revenues, which could be material.

•Our investment portfolio (and, specifically, the valuations of investment assets we hold) has been, and may continue to be, adversely affected as a result of market deterioration caused by the COVID-19 pandemic and uncertainty regarding its outcome.

•The COVID-19 pandemic has caused significant volatility and disruption to the financial, capital and reinsurance markets, making access to such markets increasingly difficult. To the extent that our current sources of income and capitalization are insufficient to meet GSE and state capital requirements or to fund our future operations, we would need to raise additional funds through future financing activities, including through the issuance of additional debt, equity, or a combination of both, reduce our RIF, including through additional reinsurance, or curtail our growth and reduce our expenses. We can give no assurance that any such efforts to raise capital, obtain additional reinsurance or otherwise reduce our RIF would be successful. If we cannot obtain adequate capital, our business, results of operations and financial condition could be adversely affected.

For the reasons described above, it is uncertain at this time what impact COVID-19 will have on our revenues, losses, expenses, required assets under PMIERs, statutory and GAAP capital, and liquidity, and that impact may be material and adverse. The ultimate significance of COVID-19 on our business will depend on, among other things: the extent and duration of, and severity of illness caused by, the pandemic; the effects on the economy and the time it takes to stabilize; the extent and duration of current and future social-distancing measures implemented by governmental authorities; current and future governmental assistance programs; and the long-term impact on the mortgage origination and mortgage insurance markets. While at this time we cannot estimate the short or long-term impacts of COVID-19 on our business, the above and other factors, including those set forth under the heading "Risk Factors" contained in our 2019 10-K could have a material adverse effect on our business, liquidity, results of operations and financial condition.

5859

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)
4.7						Indenture, dated as of June 19, 2020, among NMI Holdings, Inc., NMI Services, Inc. as the Initial Guarantor, and the Bank of New York Mellon Trust Company, N.A. as Trustee and Notes Collateral Agent (incorporated herein by reference to Exhibit 4.1 to our Form 8-K, filed on June 19, 2020)
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 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)
10.3 ~						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)
10.4 ~						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)
10.5 ~						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)
10.6 ~						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)
10.7 ~						Form of NMI Holdings, Inc. 2012 Stock Incentive Plan Nonqualified Stock Option Award Agreement for Employees~~(incorporated~~ (incorporated herein by reference to Exhibit 10.9 to our Form 10-K, filed on February 17, 2017)
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)
10.9 ~						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)


10.10 ~						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)


10.11 ~						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)
10.12 +						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)
10.13						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)
10.14						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)
10.15						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)
10.16						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)
10.17						Extension Amendment, dated as of March 20, 2020, to the ~~Company’s~~Company's Credit Agreement, dated as of May 24, 2018, by and among the Company, 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 March 20, 2020)
10.18						Joinder Agreement, dated as of March 20, 2020, to the ~~Company’s~~Company's Credit Agreement, dated as of May 24, 2018, by and among the Company, JPMorgan Chase Bank, N.A. as administrative agent, and Citibank, N.A. (incorporated herein by reference to Exhibit 10.2 to our Form 8-K, filed on March 20, 2020)
10.19						Amendment No. 1, dated as of May 6, 2020, to the Company's Credit Agreement, dated as of May 24, 2018, by and among the Company, 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 May 6, 2020)
10.20						Joinder Agreement, dated as of October 29, 2020, to the Company’s Credit Agreement, dated as of May 24, 2018, by and among the Company, JPMorgan Chase Bank, N.A. as administrative agent, and Citibank, N.A.
10.21 ~						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~~10.22 ~						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~~10.23 ~						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~~10.24 ~						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~~10.25 ~						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~~10.26 ~						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~~10.27 ~						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~~10.28 ~						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)
~~10.27~~10.29 ~						NMI Holdings, Inc. Severance Benefit Plan (incorporated herein by reference to Exhibit 10.1 to our Form 8-K, filed on February 17, 2016)
~~10.28~~10.30 ~						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)


~~10.29~~10.31 ~						NMI Holdings, Inc. Clawback Policy (incorporated herein by reference to Exhibit 10.2 to our Form 8-K, filed on February 23, 2017)
~~10.30~~10.32 ~						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)
~~10.31~~10.33 ~						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)
~~10.32~~~10.34 ~						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)


~~10.33~~~10.35 ~						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)
~~10.34~~~10.36 ~						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)
~~10.35~~~10.37 ~						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)
~~10.36~~~10.38 ~						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)
~~10.37~~~10.39 ~						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)
~~10.38~~~10.40 ~						Form of NMI Holdings, Inc. Amended and Restated 2014 Omnibus Incentive Plan Restricted Stock Unit Award Agreement (Performance Based) (incorporated herein by reference to Exhibit 10.38 to our Form 10-Q, filed on May 7, 2020)
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 ~~March 31,~~September 30, 2020 formatted in XBRL (eXtensible Business Reporting Language):
						(i) Condensed Consolidated Balance Sheets as of March 31, ~~2020~~2021 and December 31, ~~2019;~~2020;
						(ii) Condensed Consolidated Statements of Operations and Comprehensive Income (Loss) for the three months ended March 31, ~~2020~~2021 and ~~2019;~~2020;
						(iii) Condensed Consolidated Statements of Changes in Shareholders' Equity for the three months ended March 31, ~~2020~~2021 and ~~2019;~~2020;
						(iv) Condensed Consolidated Statements of Cash Flows for the three months ended March 31, ~~2020~~2021 and ~~2019;~~2020; 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.

6162

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: May ~~6, 2020~~4, 2021

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

6263


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	5457
Item 4.	Controls and Procedures	5558
PART II			5659
Item 1.	Legal Proceedings	5659
Item 1A.	Risk Factors	5659
Item 6.	Exhibits	5960
Signatures			6263


As of March 31, 2020	Principal
	(In thousands)

2020	1,125
2021	1,500
2022	1,500
2023	143,250
Total	$	147,375