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Item 1. Financial Statements

2020-08-06 compared with 2020-05-07 · 308 added, 230 removed, 478 unchanged (53% of the section changed)

1 unchanged sentence

INDEX TO FINANCIAL STATEMENTS

Condensed Consolidated Balance Sheets as of March 31, 2020 (Unaudited) and December 31, 2019 6

Condensed Consolidated Statements of Operations and Comprehensive Income (Loss) for the three months ended March 31, 2020 and 2019 (Unaudited) 7

Condensed Consolidated Statements of Changes in Shareholders' Equity for the three months ended March 31, 2020 and 2019 (Unaudited) 8

Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 2020 and 2019 (Unaudited) 9

Condensed Consolidated Balance Sheets as of June 30, 2020 (Unaudited) and December 31, 2019 6

Condensed Consolidated Statements of Operations and Comprehensive Income for the three and six months ended June 30, 2020 and 2019 (Unaudited) 7

Condensed Consolidated Statements of Changes in Shareholders' Equity for the six months ended June 30, 2020 and 2019 (Unaudited) 8

Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2020 and 2019 (Unaudited) 10

Notes to Condensed Consolidated Financial Statements (Unaudited) 11

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CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)

March 31, 2020 December 31, 2019

June 30, 2020 December 31, 2019

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 $1,286,803 and $1,113,779 as of June 30, 2020 and December 31, 2019, respectively) $ 1,339,771 $ 1,140,940

Cash and cash equivalents (including restricted cash of $2,068 and $2,662 as of June 30, 2020 and December 31, 2019, respectively) 515,450 41,089

Premiums receivable 46,408 46,085

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Prepaid reinsurance premiums 10,263 15,488

Reinsurance recoverable (1)

Other assets (1)

16,049 16,232

Total assets $ 2,046,931 $ 1,364,818

Term loan $ 145,521 $ 145,764

Debt $ 392,773 $ 145,764

Unearned premiums 115,236 136,642

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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

84,804,766 and 68,358,074 shares issued and outstanding as of June 30, 2020 and December 31, 2019, respectively (250,000,000 shares authorized) 848 684

Additional paid-in capital 927,950 707,003

3 unchanged sentences

Total liabilities and shareholders' equity $ 2,046,931 $ 1,364,818

(1) Reinsurance recoverable has been reclassified from "Other assets" in the prior period.

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

NMI HOLDINGS, INC.

C ONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS) (UNAUDITED)

For the three months ended March 31,

C ONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (UNAUDITED)

For the three months ended June 30, For the six months ended June 30,

2020 2019 2020 2019

Revenues (In Thousands, except for per share data)

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Net investment income 7,070 7,629 15,174 15,012

Net realized investment losses ( 72 ) ( 187 )

Net realized investment gains (losses) 711 ( 113 ) 639 ( 300 )

Other revenues 1,223 415 2,123 456

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Service expenses (1)

1,090 353 1,824 402

Interest expense 5,941 3,071 8,685 6,132

(Gain) loss from change in fair value of warrant liability ( 5,959 ) 5,479

Loss (gain) from change in fair value of warrant liability 1,236 1,685 ( 4,723 ) 7,164

Total expenses 72,971 40,222 108,464 82,354

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Net income $ 26,848 $ 39,100 $ 85,119 $ 71,999

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

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

Other comprehensive income, net of tax:

Unrealized gains in accumulated other comprehensive income, net of tax expense of $8,978 and $3,662 for the three months ended June 30, 2020 and 2019, and $5,162 and $7,615 for the six months ended June 30, 2020 and 2019, respectively 33,773 13,779 19,418 28,647

Reclassification adjustment for realized (gains) losses included in net income, net of tax expense (benefit) of $149 and ($24) for the three months ended June 30, 2020 and 2019, and ($258) and ($63) for the six months ended June 30, 2020 and 2019, respectively ( 562 ) 89 969 237

Other comprehensive income, net of tax 33,211 13,868 20,387 28,884

Comprehensive income $ 60,059 $ 52,968 $ 105,506 $ 100,883

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Common Stock - Class A Additional

Paid-in Capital Accumulated Other Comprehensive Income (Loss) Retained Earnings Total

Paid-in Capital Accumulated Other Comprehensive Income Retained Earnings Total

Shares Amount

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Balances, March 31, 2020 68,874 $ 689 $ 706,021 $ 4,464 $ 263,716 $ 974,890

Common stock:

class A shares issued related to public offering 15,870 159 219,528 — — 219,687

Common stock:

class A shares issued under stock plans, net of shares withheld for employee taxes 61 * ( 321 ) — — ( 321 )

Share-based compensation expense — — 2,722 — — 2,722

Change in unrealized investment gains, net of tax expense of $8,829 — — — 33,211 — 33,211

Net income — — — — 26,848 26,848

Balances, June 30, 2020 84,805 $ 848 $ 927,950 $ 37,675 $ 290,564 $ 1,257,037

* During the three months ended March 31, 2020, we issued 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.

During three months ended June 30, 2020, we issued 61,226 common shares, with a par value of $ 0.01 in connection with shares issued under stock plan, which is not identifiable in this schedule due to rounding.

NMI HOLDINGS, INC.

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

Common Stock - Class A Additional

Paid-in Capital Accumulated Other Comprehensive Income (Loss) Retained Earnings Total

Paid-in Capital Accumulated Other Comprehensive Income Retained Earnings Total

Shares Amount

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Balances, March 31, 2019 67,502 $ 675 $ 684,635 $ 184 $ 66,387 $ 751,881

Common stock:

class A shares issued related to warrants 128 $ 1 3,835 — — 3,836

Common stock:

class A shares issued under stock plans, net of shares withheld for employee taxes 138 1 218 — — 219

Share-based compensation expense — — 3,475 — — 3,475

Change in unrealized investment gains/losses, net of tax expense of $3,686 — — — 13,868 — 13,868

Net income — — — — 39,100 39,100

Balances, June 30, 2019 67,768 $ 677 $ 692,163 $ 14,052 $ 105,487 $ 812,379

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

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CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

For the three months ended March 31,

For the six months ended June 30,

Cash flows from operating activities (In Thousands)

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Adjustments to reconcile net income to net cash provided by operating activities:

Net realized investment losses 72 187

Net realized investment (gains) losses ( 639 ) 300

(Gain) loss from change in fair value of warrant liability ( 4,723 ) 7,164

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Reserve for insurance claims and claim expenses 46,151 5,621

Reinsurance recoverable ( 9,368 ) ( 774 )

Reinsurance balances, net 2,658 336

7 unchanged sentences

Software and equipment ( 4,638 ) ( 4,491 )

Net cash provided by used in investing activities 25,783 ( 11,977 )

Net cash (used in) investing activities ( 114,306 ) ( 74,969 )

Cash flows from financing activities

Proceeds from issuance of common stock related to public offering, net of issuance costs 220,284 —

Proceeds from issuance of common stock related to employee equity plans 3,391 12,374

Taxes paid related to net share settlement of equity awards ( 7,462 ) ( 13,538 )

Proceeds from senior secured notes 400,000 —

Repayments of term loan ( 147,750 ) ( 750 )

Payments of debt issuance/modification costs ( 778 ) —

Net cash (used in) financing activities ( 4,903 ) ( 1,835 )

Payments of debt issuance costs ( 7,151 ) —

Net cash provided by (used in) financing activities 461,312 ( 1,914 )

Net increase in cash, cash equivalents and restricted cash 474,361 10,441

4 unchanged sentences

Income taxes refunded $ 76 $ 134

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

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

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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.

COVID-19 Developments

On January 30, 2020, the World Health Organization (WHO) declared the outbreak of 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 and a record number of Americans have been furloughed or laid-off.

The global dislocation caused by COVID-19 is unprecedented and, while there is broad hope for medical advances that might relieve the crisis and provide for a near-term return to normalized activity, it is not known how long the dislocation will persist and if or when any such medical advances may be developed or made available.

In response to the COVID-19 outbreak and continuing uncertainties, we activated our business continuity program to ensure our employees are safe and able to continue serving our customers and their borrowers without interruption.

We have also sought to broadly assess the impact that the COVID-19 outbreak has had and may continue to have on the U.S economy and housing market, and the implications for the mortgage insurance market, and our business performance and financial position, including our new business production, default and claims experience, and investment portfolio results.

Given the uncertainty that remains, we cannot fully assess or estimate the ultimate impact of COVID-19.

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

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:

We hold all investments on an available-for-sale basis and evaluate each position quarterly for impairment.

We recognize an impairment on a security through the statement of operations if (i) we intend to sell the impaired security;

or (ii) it is more likely than not that we will be required to sell the impaired security prior to recovery of its amortized cost basis.

NMI HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

For securities in an unrealized loss position where a sale is not intended or likely to be required, we further assess if the decline in fair value below amortized cost is driven by a credit related impairment, considering several items including, but not limited to:

• the severity of the decline in fair value;

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

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

• 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.

• recent rating downgrades of the applicable security or issuer by one or more nationally recognized statistical ratings organization;

• other adverse conditions related to or impacting the security or issuer.

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, and presented as a "Realized Investment Loss." We recognize an allowance for credit losses for the difference between the amortized cost and present value of future expected cash flows, limited by the amount the fair value of the security is below its amortized cost.

Subsequent changes (favorable and unfavorable) in credit losses are recognized through the statement of operations as a provision for or a reversal of credit loss expense, and presented as a "Realized Investment Gain or Loss." The portion of a security impairment attributed to other non-credit related factors is recognized in other comprehensive income, net of taxes.

We have elected to present accrued interest receivable separately from available for sale securities on our consolidated balance sheet.

Accrued interest receivable was $ 7.9 million as of June 30, 2020 and is included in " Accrued Investment Income.

" We have elected not to measure an allowance for credit losses for accrued interest receivable on available for sale securities.

Accrued interest for available for sale securities is written off against interest income when the receivable has aged 90 days past due.

We did not write off any accrued interest receivable during the three or six months ended June 30, 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.

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 and the short-term duration of the related receivables an allowance for credit loss was not required at March 31, 2020.

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.

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 June 30, 2020.

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 have established a reserve for premium write-offs based on historical experience;

such reserve was deemed to be immaterial at June 30, 2020.

We account for premiums, claims and claim expenses that are ceded to reinsurers on a basis consistent with that which we use to account for the original policies we issue and pursuant to the terms of our reinsurance contracts.

We account for premiums ceded or otherwise paid to reinsurers as a reduction to premium revenue.

NMIC has entered into quota share reinsurance treaties effective September 1, 2016 (the 2016 QSR Transaction) , January 1, 2018 (the 2018 QSR Transaction) and April 1, 2020 (the 2020 QSR Transaction) , which we refer to collectively as the QSR Transactions.

W e earn profit and ceding commissions in connection with the QSR Transactions.

Profit commissions represent a percentage of the profits recognized by reinsurers that are returned to us, based on the level of claims and claim expenses that we cede.

We recognize any profit commissions we earn as increases to premium revenue.

Ceding commissions are calculated as a percentage of ceded written premiums under the 2016 QSR Transaction and as a percentage of ceded earned premiums under the 2018 and 2020 QSR Transactions, and are intended to cover our costs of acquiring and servicing direct policies.

We recognize any ceding commissions we earn in a manner consistent with our recognition of earnings on the underlying insurance policies, over the terms of the policies reinsured.

We account for ceding commissions earned as a reduction to underwriting and operating expenses.

NMI HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

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 " on the consolidated balance sheets and such ceded claims as reductions to claims expenses on the consolidated statements of operations.

As of June 30, 2020, we had $ 14.3 million of reinsurance recoverables under the QSR Transaction s.

We remain directly liable for all claim payments if we are unable to collect the 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 June 30, 2020, we did not recognize any allowance for credit loss with respect to our reinsurance recoverables.

Recent Accounting Pronouncements - Adopted

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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.

This update applies to cloud computing arrangements structured as service contracts, and provides companies with guidance on the criteria for capitalizing implementation, set-up and other up-front costs incurred in association with these arrangements.

We adopted this ASU on January 1, 2020 and applied it on a prospective basis for eligible costs incurred after the effective date.

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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 standard is effective immediately through December 31, 2022 for all entities that have contracts, hedging relationships, and other transactions that reference LIBOR or another reference rate expected to be discontinued because of reference rate reform.

The standard is effective

NMI HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

immediately through December 31, 2022 for all entities that have contracts, hedging relationships, and other transactions that reference LIBOR or another reference rate expected to be discontinued because of reference rate reform.

We are currently evaluating the impact the adoption of this ASU would have, if any, to our contract modifications that are affected by the discontinuation of LIBOR.

We have designated our investment portfolio as available-for-sale and report it at fair value.

The related unrealized gains and losses are, after considering the related tax expense or benefit, recognized through comprehensive income and loss, and on an accumulated basis in shareholders' equity.

Net realized investment gains and losses are reported in earnings based on specific identification of securities sold or any impairment that has been recorded through the allowance for credit losses.

If our intent is to sell a security and its fair value is below amortized cost, the security's amortized cost basis is written down to fair value and a loss is recognized in earnings.

We hold all investments on an available-for-sale basis and evaluate each position quarterly for impairment.

We recognize an impairment on a security through the statement of operations if (i) we intend to sell the impaired security;

or (ii) it is more likely than not that we will be required to sell the impaired security prior to recovery of its amortized cost basis.

If a sale is intended or likely to be required, we write down the amortized cost basis of the security to fair value and recognize the full amount of the impairment through the statement of operations as a " 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 other comprehensive income, net of taxes.

Fair Values and Gross Unrealized Gains and Losses on Investments

Cost Gross Unrealized Fair

As of March 31, 2020 (In Thousands)

As of June 30, 2020 (In Thousands)

Treasury securities and obligations of U.S.

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Total investments $ 1,286,803 $ 54,262 $ ( 1,294 ) $ 1,339,771

NMI HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Cost Gross Unrealized Fair

8 unchanged sentences

Total investments $ 1,113,779 $ 28,579 $ ( 1,418 ) $ 1,140,940

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

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

March 31, 2020 December 31, 2019

We did not own any mortgage-backed securities in our asset-backed securities portfolio at June 30, 2020 o r December 31, 2019.

We periodically recognize unsettled trades payable or receivable in connection with our investing activity.

Unsettled trades payable represent funds due for investments purchased at period end.

Unsettled trades receivable represent funds due for investments sold at period end.

Included in "Accounts Payable and Accrued Expenses" are $ 68.9 million and $ 5.6 million of unsettled trade payables from the purchase of investment securities at June 30, 2020 and December 31, 2019, respectively.

The following table presents a breakdown of the fair value of our corporate debt securities by issuer industry group as of June 30, 2020 and December 31, 2019:

NMI HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

June 30, 2020 December 31, 2019

Financial 37 % 38 %

Consumer 23 26

Communications 11 10

Utilities 13 9

Industrial 9 8

Communications 10 10

Technology 10 7

Industrial 7 8

Total 100 % 100 %

As of March 31, 2020 and December 31, 2019, approximately $ 5.7 million and $ 5.5 million, respectively, of our cash and investments were held in the form of U.S.

As of June 30, 2020 and December 31, 2019, 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 of available-for-sale securities as of March 31, 2020 and December 31, 2019, by contractual maturity, are shown below.

The amortized cost and fair value of available-for-sale securities as of June 30, 2020 and December 31, 2019, 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

As of June 30, 2020 Amortized

(In Thousands)

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Total investments $ 1,286,803 $ 1,339,771

NMI HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

As of December 31, 2019 Amortized

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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:

As of June 30, 2020, the investment portfolio had gross unrealized losses of $ 1.3 million, of which $ 0.1 million had been in an unrealized loss position for a period of 12 months or longer.

For those securities in an unrealized loss position, the length of time the length of time the securities were in such a position is as follows:

NMI HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

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)

Treasury securities and obligations of U.S.

government agencies — $ — $ — — $ — $ — — $ — $ —

Municipal debt securities 14 46,936 ( 668 ) — — — 14 46,936 ( 668 )

As of June 30, 2020 (Dollars in Thousands)

Corporate debt securities 39 194,885 ( 982 ) 2 553 ( 2 ) 41 195,438 ( 984 )

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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.

Allowance for credit losses

As of June 30, 2020, we did not recognize an allowance for credit loss for any security in the investment portfolio and we did record any provision for credit loss for investment securities during the three or six months ended June 30, 2020.

Based on current facts and circumstances, we believe the unrealized losses as of June 30, 2020 are not indicative of the ultimate collectability of the current amortized cost of the securities.

We believe the gross unrealized losses are primarily attributable to widening credit spreads as a result of uncertainties arising from the COVID-19 pandemic.

During the six months ended June 30, 2019, we recognized $ 0.4 million other-than-temporarily impaired (OTTI) losses in connection with the planned sale of a security that was disposed of in April 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 June 30, For the six months ended June 30,

2020 2019 2020 2019

(In Thousands)

3 unchanged sentences

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

For the three months ended March 31,

For the three months ended June 30, For the six months ended June 30,

2020 2019 2020 2019

(In Thousands)

1 unchanged sentence

Gross realized investment losses ( 3,875 ) ( 135 ) ( 4,487 ) ( 517 )

Net realized investment (losses) $ ( 72 ) $ ( 187 )

Net realized investment gains (losses) $ 711 $ ( 113 ) $ 639 $ ( 300 )

NMI HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Fair Value of Financial Instruments

12 unchanged sentences

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.

14 unchanged sentences

Variables in the model include the risk-free rate of return, dividend yield, expected life and expected volatility of our stock price.

NMI HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

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

7 unchanged sentences

(Level 3) Fair Value

As of March 31, 2020 (In Thousands)

As of June 30, 2020 (In Thousands)

Treasury securities and obligations of U.S.

7 unchanged sentences

Total liabilities $ — $ — $ 2,698 $ 2,698

NMI HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Fair Value Measurements Using

16 unchanged sentences

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, or the year ended December 31, 2019.

There were no transfers between Level 2 and Level 3 of the fair value hierarchy during the six months ended June 30, 2020, or the year ended December 31, 2019.

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

For the three months ended March 31,

For the six months ended June 30,

Warrant Liability 2020 2019

3 unchanged sentences

Issuance of common stock on warrant exercise ( 220 ) ( 4,781 )

Balance, March 31 $ 1,461 $ 11,831

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,

Balance, June 30 $ 2,698 $ 9,679

NMI HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

T he 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 June 30,

Common stock price $ 16.08 $ 28.39

3 unchanged sentences

Dividend yield 0 % 0 %

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

On May 24, 2018, we entered into a credit agreement (2018 Credit Agreement), which provides for (i) a $ 150 million five -year senior secured term loan facility (2018 Term Loan) that matures on May 24, 2023;

and (ii) a $ 85 million three -year secured revolving credit facility (2018 Revolving Credit Facility) that, prior to amendment as discussed below, would have matured on May 24, 2021.

Proceeds from the 2018 Term Loan were used to repay in full the outstanding amount due under our $ 150 million amended term loan (2015 Term Loan) due on November 10, 2019, and to pay fees and expenses incurred in connection with the 2018 Credit Agreement.

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

The changes in fair value of the warrant liability for the six months ended June 30, 2020 and 2019 are primarily attributable to changes in the price of our common stock during the respective periods, with additional impact related to changes in other Black-Scholes model inputs.

The change in fair value of the warrant liability for the six months ended June 30, 2019 also reflects the impact of the exercises of outstanding warrants.

Financial Instruments not Measured at Fair Value

On June 19, 2020, we issued $ 400 million aggregate principal amount of senior secured notes that mature on June 1, 2025 (the Notes).

At June 30, 2020, the Notes were carried at a cost of $ 392.8 million, net of unamortized debt issuance costs of $ 7.2 million, and had a fair value of $ 418.4 million as assessed under our Level 2 hierarchy.

At December 31, 2019, our 2018 Term Loan was carried at a cost of $ 145.8 million, net of unamortized debt issuance costs of $ 2.0 million, and had a fair value of $ 147.8 million.

Senior Secured Notes

At June 30, 2020, we had $ 400 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.

A portion of the proceeds from the Notes offering were used to repay the outstanding amount due under our $ 150 million term loan (2018 Term Loan) and to pay underwriting fees incurred in connection with the offering.

Remaining proceeds of $ 244.4 million are available for general corporate purposes, including to support the growth of our new business production and operations.

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 Note, or (2) the principal value of the Note 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.

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 June 30, 2020, $ 7.2 million of unamortized debt issuance costs remained.

Interest expense for the three and six months ended June 30, 2020 includes $ 2.6 million of costs related to the extinguishment of the 2018 Term Loan and issuance of the Notes.

We are subject to certain covenants under the Notes (as defined in the Indenture), including, but not limited to, a maximum debt-to-total capitalization ratio of 35 %.

We were in compliance with all Notes covenants as of June 30, 2020.

NMI HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

under the facility.

2018 Term Loan

The 2018 Term Loan bears interest at 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)

Total $ 147,375

2020 Revolving Credit Facility

Borrowings under the 2020 Revolving Credit Facility 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 Credit 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 a margin of 2.00 % to 3.50 % prior to the amendment.

As of March 31, 2020, no borrowings had been made 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 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, the applicable commitment fee was 0.35 %.

For the three months ended March 31, 2020, we recorded $ 0.1 million of commitment fees in interest expense.

We incurred issuance costs of $ 0.8 million in connection with the 2020 Revolving Credit Facility, which together with the remaining issuance cost of $ 0.6 million prior to the amendment, are amortized through interest expense 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.

At March 31, 2020, remaining deferred issuance costs were $ 1.4 million, net of accumulated amortization.

On March 20, 2020, we amended our $ 85 million three-year secured revolving credit facility (the 2018 Revolving Credit Facility), increasing borrowing capacity under the facility to $ 100 million, extending its maturity date from May 24, 2021 to February 22, 2023, and reducing the interest cost related to both undrawn commitments and drawn borrowings under the facility (as amended, the 2020 Revolving Credit 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, (i) a base rate (as defined in our existing credit agreement (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 — % per annum) plus a margin of 1.375 % to 2.875 % per annum, based on the applicable corporate credit rating at the time.

As of June 30, 2020, no borrowings 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 of 0.175 % to 0.525 %, based on the applicable corporate credit rating at the time.

As of June 30, 2020, the applicable commitment fee was 0.35 %.

For the three and six months ended June 30, 2020, we recorded $ 0.1 million and $ 0.2 million of commitment fees in interest expense, respectively.

We incurred debt issuance costs of $ 0.8 million in connection with the 2020 Revolving Credit Facility 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 will be amortized through interest expense on a straight-line basis over the contractual life of the 2020 Revolving Credit Facility.

At June 30, 2020, remaining unamortized deferred debt issuance costs were $ 1.2 million.

We are subject to certain covenants under the 2020 Revolving Credit Facility, including, but not limited to, the following:

a maximum debt-to-total capitalization ratio of 35 %, a minimum liquidity requirement, compliance with the PMIERs financial requirements (subject to any Fannie Mae and Freddie Mac (collectively, the GSEs) 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, 2020.

NMI HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

We enter into third-party reinsurance transactions to actively manage our risk, ensure compliance with PMIERs, state regulatory and other applicable capital requirements, and support the growth of our business.

The GSEs and the Wisconsin Office of the Commissioner of Insurance (Wisconsin OCI) have approved all such transactions (subject to certain conditions and ongoing review, including levels of approved capital credit).

a maximum debt-to-total capitalization ratio of 35 %, a minimum liquidity requirement, compliance with the PMIERs financial requirements (subject to any GSE approved waivers), and minimum consolidated net worth and statutory capital requirements (respectively, as defined therein).

We were in compliance with all covenants at June 30, 2020.

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 Wisconsin Office of the Commissioner of Insurance (Wisconsin OCI) has approved and the GSEs have indicated their non-objection to all such transactions (subject to certain conditions and ongoing review, including levels of approved capital credit).

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

For the three months ended

March 31, 2020 March 31, 2019

For the three months ended For the six months ended

June 30, 2020 June 30, 2019 June 30, 2020 June 30, 2019

(In Thousands)

13 unchanged sentences

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.

Under each agreement, NMIC retains a first

NMI HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

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.

1 unchanged sentence

and Oaktown Re III, Ltd.).

NMIC ceded aggregate premiums to the Oaktown Re Vehicles of $ 3.9 million and $ 3.0 million during the three months ended March 31, 2020 and three months ended March 31, 2019, respectively.

NMIC ceded aggregate premiums to the Oaktown Re Vehicles of $ 3.3 million and $ 7.1 million during the three and six months ended June 30, 2020 and $ 2.9 million and $ 5.9 million during the three and six months ended June 30, 2019, respectively.

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 and 2019, as the aggregate first layer risk retention was not exhausted for each applicable agreement during such periods.

NMIC did not cede any incurred losses on covered policies to the Oaktown Re Vehicles during the three and six months ended June 30, 2020 and 2019, as the aggregate first layer risk retention was not exhausted for each applicable agreement during such periods.

Under the terms of each excess-of-loss reinsurance agreement, the Oaktown Re Vehicles are required to fully collateralize their outstanding reinsurance coverage amount to NMIC with funds deposited into segregated reinsurance trusts.

2 unchanged sentences

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 10 years from the inception date of each reinsurance agreement.

Such insurance-linked notes mature ten years from the inception date of each reinsurance agreement.

We refer to NMIC's reinsurance agreements with and the insurance-linked note issuances by Oaktown Re Ltd., Oaktown Re II, Ltd.

NMI HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Oaktown Re III, Ltd.

and Oaktown Re III, Ltd.

individually as the 2017 ILN Transaction, 2018 ILN Transaction and 2019 ILN Transaction, and collectively as the ILN Transactions.

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

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 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 account to collateralize the excess-of-loss reinsurance coverage provided to NMIC.

The following table presents the inception date, covered production p eriod, 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 June 30, 2020.

( $ values in thousands)

3 unchanged sentences

2019 ILN Transaction July 30, 2019 6/1/2018 - 6/30/2019 326,905 231,877 123,424 123,345

(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.

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.

NMI HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Under the terms of the 2018 ILN Transaction and the 2019 ILN Transaction, we are required to maintain a certain level of restricted funds in 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 million as of March 31, 2020.

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 over time as the outstanding principal balances of the respective insurance-linked notes decline.

"Cash and cash equivalents" on our condensed consolidated balance sheet includes restricted amounts of $ 2.1 million as of June 30, 2020.

We are not required to deposit additional funds into the premium deposit accounts in the future and the restricted balances required under these transactions.

Quota share reinsurance

NMIC is a party to three outstanding quota share reinsurance treaties – the 2016 QSR Transaction, effective September 1, 2016, the 2018 QSR Transaction, effective January 1, 2018 and the 2020 QSR Transaction, effective April 1, 2020.

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 or both.

Under 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.

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.

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 the related risk.

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.

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 the related risk.

NMIC may terminate either or both of the QSR Transactions without penalty if, due to a change in PMIERs requirements, it is no longer able to take full PMIERs asset credit for the risk-in-force (RIF) ceded under the respective agreements.

Under the terms of the 2020 QSR Transaction, NMIC cedes premiums earned related to eligible policies written from April 1, 2020 to December 31, 2020 (Eligible Policies).

At the time the 2020 QSR Transaction agreement was executed, NMIC ceded premiums earned related to 10.5 % of the risk on the Eligible Policies, and subsequent to the execution of the agreement, we engaged additional reinsurance counterparties and increased the cession under the 2020 QSR Transaction to 21.0 % of the risk on the Eligible Policies, subject in all respects to the terms of the agreement.

Financial results for the three and six months ended June 30, 2020 , reflect the initial 10.5 % cession rate under the 2020 QSR Transaction.

The 2020 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 re-assuming the related risk.

NMIC may terminate any or 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.

8 unchanged sentences

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

T he following table shows amounts related to the QSR Transactions:

For the three months ended For the six months ended

June 30, 2020 June 30, 2019 June 30, 2020 June 30, 2019

(In Thousands)

5 unchanged sentences

Ceded premiums written under the 2016 QSR Transaction are recorded on the balance sheet as prepaid reinsurance premiums and amortized to ceded premiums earned in a manner consistent with the recognition of revenue on direct premiums.

Under the 2018 QSR Transaction, premiums are ceded on an earned basis as defined in the agreement.

Under the 2018 QSR Transaction and 2020 QSR 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 and 2018 QSR Transaction generally remain below 60 % and 61 %, respectively, as measured annually.

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 and 2020 QSR Transaction, generally remain below 60 %, 61 % and 50 %, 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.

2 unchanged sentences

NMIC's reinsurance recoverable balance is further supported by trust accounts established and maintained by each reinsurer in accordance with the PMIERs funding requirements for risk ceded to non-affiliates.

The reinsurance recoverable on loss reserves related to our 2016 QSR Transaction was $ 3.1 million as of March 31, 2020.

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.

The reinsurance recoverable on loss reserves related to the 2016 QSR Transaction was $ 4.9 million as of June 30, 2020.

In accordance with the terms of the 2018 and 2020 QSR 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 quarterly.

NMIC's reinsurance recoverable balance is supported by trust accounts established and maintained by each reinsurer in accordance with the PMIERs funding requirements for risk ceded to non-affiliates.

The reinsurance recoverable on loss reserves related to our 2018 QSR Transaction was $ 3.1 million as of March 31, 2020.

The reinsurance recoverable on loss reserves related to the 2018 QSR Transaction was $ 9.4 million as of June 30, 2020.

The reinsurance recoverable on loss reserves related to the 2020 QSR Transaction were immaterial as of June 30, 2020.

Reserves for Insurance Claims and Claim Expenses

We establish reserves to recognize the estimated liability for insurance claims and claim expenses related to defaults on insured mortgage loans.

Consistent with industry practice, we establish reserves for loans that have been reported to us by servicers as having been in default for at least 60 days, referred to as case reserves, and additional loans that we estimate (based on actuarial review) have been in default for at least 60 days that have not yet been reported to us by servicers, referred to as incurred but not reported (IBNR) reserves.

We also establish claim expense reserves, which represent the estimated cost of the claim administration process, including legal and other fees, as well as other general expenses of administering the claims settlement process.

As of March 31, 2020, we had reserves for insurance claims and claim expenses of $ 29.5 million for 1,449 primary loans in default.

During the three months ended March 31, 2020, we paid 34 claims totaling $ 1.5 million of claims and claims expense, including 31 claims covered under the QSR Transactions representing $ 0.3 million of ceded claims and claim expenses.

We hold gross reserves in an amount equal to the estimated liability for insurance claims and claim expenses related to defaults on insured mortgage loans.

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 in default by servicers, referred to as case reserves, and additional loans that we estimate (based on actuarial review and other factors) to be in default 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 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 claim settlement process.

As of June 30, 2020, we had 10,816 primary loans in default and held gross reserves for insurance claims and claim expenses of $ 69.9 million.

During the six months ended June 30, 2020, we paid 83 claims totaling $ 4.1 million, including 78 claims covered under the QSR Transactions representing $ 0.8 million of ceded claims and claim expenses.

In 2013, we entered into a pool insurance transaction with Fannie Mae.

1 unchanged sentence

We only establish reserves for pool risk if we expect claims to exceed this deductible.

At March 31, 2020, 46 loans in the pool were past due by 60 days or more.

At June 30, 2020, 231 loans in the pool were in default.

These 231 loans represented approximately $ 19.6 million of RIF.

Due to the size of the remaining deductible, the low level of notices of defaults (NODs) reported on loans in the pool through March 31, 2020 and the expected severity (all loans in the pool have loan-to-value (LTV) ratios under 80 %), we did not establish any case or IBNR reserves for pool risk at March 31, 2020.

In connection with the settlement of pool claims, we applied $ 0.9 million to the pool deductible through March 31, 2020.

At March 31, 2020, the remaining pool deductible was $ 9.5 million.

Due to the size of the remaining deductible, the low level of defaults reported to us on loans in the pool through June 30, 2020 and the expected severity (all loans in the pool have loan-to-value (LTV) ratios under 80 %), we did not establish any case or IBNR reserves for pool risk at June 30, 2020.

In connection with the settlement of pool claims, we applied $ 0.9 million to the pool deductible through June 30, 2020.

At June 30, 2020, the remaining pool deductible was $ 9.5 million.

We have not paid any pool claims to date.

100 % of our pool RIF is reinsured under the 2016 QSR Transaction.

We had 10,816 loans in default in our primary insured portfolio as of June 30, 2020, which represented a 2.90 % default

NMI HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

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

For the three months ended March 31,

rate against 372,934 to tal policies in-force.

We had 1,028 loans in default in our primary insured portfolio as of June 30, 2019, which represented a 0.32 % default rate against 324,876 total policies in-force.

The increase in our default population is primarily due to challenges borrowers are facing 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 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 FHFA and GSEs have 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 June 30, 2020, 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 June 30, 2020, our total reserve position and claims and claims expenses increased substantially as of and during the period ended June 30, 2020 due to the significant increase in the size of our default population.

NMI HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

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

For the six months ended June 30,

(In Thousands)

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Prior years (3)

Reinsurance terminations (4)

Total claims and claim expenses paid 3,248 819

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Ending balance $ 69,903 $ 18,432

(1) Related to ceded losses recoverable under the QSR Transactions, included in "Other assets" on the Condensed Consolidated Balance Sheets.

(1) Related to ceded losses recoverable under the QSR Transactions.

See Note 5, " Reinsurance " for additional information.

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Amounts are presented net of reinsurance.

The "claims incurred" section of the table above shows claims and claim expenses incurred on NODs for current and prior years, including IBNR reserves and is presented net of reinsurance.

The amount of claims incurred 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 estimates as we learn additional information about individual defaults and claims and continue to observe and analyze loss development trends in our portfolio.

Gross reserves of $ 19.9 million related to prior year defaults remained as of March 31, 2020.

(4) Represents the settlement of reinsurance recoverables in conjunction with the termination of one reinsurer under the 2016 QSR Transaction on a cut-off basis.

See Note 5, "Reinsurance" for additional information.

The "claims incurred" section of the table above shows claims and claim expenses incurred on 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 defaults represents the estimated amount of claims and claim expenses to ultimately be paid on such loans.

We recognized $ 2.5 million and $ 1.7 million of favorable prior year development during the six months ended June 30, 2020 and 2019, respectively, primarily due to the curing of previously reported defaults.

We may increase or decrease our claim estimates and reserves as we learn additional information about individual defaulted loans, and continue to observe and analyze loss development trends in our portfolio.

Gross reserves of $ 16.5 million related to prior year defaults remained as of June 30, 2020.

Earnings per Share (EPS)

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

For the three months ended March 31,

For the three months ended June 30, For the six months ended June 30,

2020 2019 2020 2019

(In Thousands, except for per share data)

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The warrants were issued with an aggregate fair value of $ 5.1 million.

During the three months ended March 31, 2020, nine thousand warrants were exercised resulting in the issuance of six thousand 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.

During the three months ended June 30, 2020, no warrants were exercised.

During the six months ended June 30, 2020, nine thousand warrants were exercised resulting in the issuance of six thousand shares of common stock.

Upon exercise, we reclassified approximately $ 0.2 million of warrant fair value from warrant liability to additional paid-in capital.

During the three months ended June 30, 2019, 193 thousand warrants were exercised resulting in the issuance of 129 thousand shares of common stock.

Upon exercise, we reclassified approximately $ 3.9 million of warrant fair value from warrant liability to additional paid-in capital, of which $ 2.0 million related to changes in fair value during the three months ended June 30, 2019.

During the six months ended June 30, 2019, 260 thousand warrants were exercised resulting in the issuance of 168 thousand shares of common stock.

Upon exercise, we reclassified approximately $ 4.8 million of warrant fair value from warrant liability to additional paid-in capital, of which $ 2.3 million related to changes in fair value during the six months ended June 30, 2019.

We are a U.S.

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federal and various state income tax returns on behalf of itself and its subsidiaries.

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.

Our effective tax rate on our pre-tax income was 23.2 % and 20.5 % for the three and six months ended June 30, 2020, respectively, compared to 23.3 % and 19.9 % for the three and six months ended June 30, 2019, respectively.

Our provision for income taxes for interim reporting periods is established based on our estimated annual effective tax rate for a given year.

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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 represents a change in our net deferred tax liability.

As of March 31, 2020, we held $ 7.6 million of tax and loss bonds in "Other assets" in our condensed consolidated balance sheet.

NMI HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

As a result, our interim provision for income taxes for the three and six months ended June 30, 2020 represents a change in our net deferred tax liability.

As of June 30, 2020, we held $ 7.6 million of tax and loss bonds in "Other assets" in our condensed consolidated balance sheet.

As of June 30, 2020, we had 84.8 million outstanding shares of common stock.

Holders of our common stock have no preemptive or conversion rights or other subscription rights, and there are no redemption or sinking fund provisions applicable to the common stock.

Each holder of our common stock is entitled to one vote per share on all matters to be voted upon by stockholders, and there are no cumulative voting rights.

Holders of common stock are entitled to receive dividends ratably if any are declared.

On June 8, 2020, we completed the sale of 13.8 million shares of common stock and granted the underwriters on the transaction a 15 % overallotment option to purchase additional shares.

The overallotment option was exercised in full, resulting in a total of 15.9 million shares of common stock issued.

The common stock offering generated proceeds of $ 219.7 million, net of underwriting discounts, commissions and other direct offering expenses.

Regulatory Information

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

For the three months ended March 31,

For the three months ended June 30, For the six months ended June 30,

2020 2019 2020 2019

(In Thousands)

Statutory net gain (loss) $ 7,691 $ ( 927 )

Statutory net (loss) gain $ ( 24,705 ) $ 6,466 $ ( 17,014 ) $ 5,539

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

March 31, 2020 December 31, 2019

June 30, 2020 December 31, 2019

(In Thousands)

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RTC ratio 13 .0:1

In June 2020, NMIH contributed approximately $ 445 million of capital to NMIC following completion of its respective Notes and common stock offerings.

NMIH is not subject to any limitations on its ability to pay dividends except those generally applicable to corporations that are incorporated in Delaware.

Delaware corporate law provides that dividends are only payable out of a corporation's capital surplus or, subject to certain limitations, recent net profits.

NMIC and Re One 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 dividends to NMIH.

NMIC and Re One have the capacity to pay aggregate ordinary dividends of $ 16.1 million to NMIH during the 12-month period ending December 31, 2020.

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

COVID-19 Developments

On January 30, 2020, 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 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.

In response to the COVID-19 outbreak and continuing uncertainties, we activated our business continuity program to ensure our employees were safe and able to continue serving our customers and their borrowers without interruption.

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)

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 impact that the CARES Act may have on our business, financial condition and results of operations.

NMIC and Re One are subject to certain rules and regulations prescribed by jurisdictions in which they are authorized to operate and the GSEs that may restrict their ability to pay dividends to NMIH.

Since inception, NMIC and Re One have not paid any dividends to NMIH.

NMIC and Re One have the capacity to pay aggregate ordinary dividends as calculated under Wisconsin law of $ 16.1 million to NMIH during the 12-month period ending December 31, 2020.

The Wisconsin OCI has approved the allocation of interest expense on the $ 400 million Notes and $ 100 million 2020 Revolving Credit 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.

Subsequent Event

On March 2 0, 2 020, we amended the 2018 Revolving Credit Facility (2020 Revolving Credit Facility), increasing its size from $ 85 million to $ 100 million, expanding our lender group, extending its maturity to February 2023 and reducing its cost.

Subsequent to the close 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 the facility, 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.

On July 30, 2020, NMIC entered into a reinsurance agreement with Oaktown Re IV Ltd.

(Oaktown Re IV), a Bermuda domiciled special purpose reinsurer, that provides for up to $ 322.1 million of aggregate excess-of-loss reinsurance coverage at inception for new delinquencies on an existing portfolio of mortgage insurance policies written between July 1, 2019 and March

For the reinsurance coverage period, NMIC will retain the first layer of $ 169.5 million of aggregate losses and Oaktown Re IV 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 IV financed the coverage by issuing mortgage insurance-linked notes in an aggregate principal amount of $ 322.1 million to unaffiliated investors.

The notes issued by Oaktown Re IV mature on July 25, 2030;

all proceeds raised were deposited into a reinsurance trust to collateralize and fund the obligations of Oaktown Re IV to NMIC under the reinsurance agreement.

Funds in the reinsurance trust account are required to be invested in high credit quality money market funds at all times.

We refer to NMIC's reinsurance agreement with and the insurance-linked notes issued by Oaktown Re IV as the 2020 ILN Transaction.

Under the terms of the 2020 ILN Transaction, NMIC makes risk premium payments for the applicable outstanding reinsurance coverage amount and pays Oaktown Re IV for anticipated operating expenses (capped at $ 250,000 per year).

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1. Financial Statements