What changed in this filing

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Item 2. Management’s Discussion and Analysis

2020-08-06 compared with 2020-05-07 · 361 added, 328 removed, 562 unchanged (55% of the section changed)

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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, we had master policies with 1,501 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, we had $101.0 billion of total insurance-in-force (IIF), including primary IIF of $98.5 billion, and gross RIF of $25.3 billion, including primary RIF of $25.2 billion.

As of June 30, 2020, we had master policies with 1,534 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 June 30, 2020, we had $101.2 billion of total insurance-in-force (IIF), including primary IIF of $98.9 billion, and $25.3 billion of gross RIF, including primary RIF of $25.2 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.

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Our common stock trades on the NASDAQ under the symbol "NMIH." Our headquarters is located in Emeryville, California.

As of March 31, 2020, we had 327 full- and part-time employees.

As of June 30, 2020, we had 269 employees.

Our corporate website is located at www.nationalmi.com .

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COVID-19 Developments

On January 30, 2020, the 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.

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 have also sought to broadly assess the potential 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 and financial position.

On January 30, 2020, the WHO declared the outbreak of the COVID-19 virus to be 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 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.

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 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).

The market may be further constrained as transactions between committed buyers and sellers encounter operational challenges, such as delayed title searches due to 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 wake of the 2008 Financial Crisis, national home price indices declined by approximately 30% from their pre-crisis peaks and remained severely dislocated for several years, causing significant stress for homeowners, lenders, mortgage insurers and the broader economy.

We observe several 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 in the aftermath of the COVID-19 outbreak, including:

housing market is demonstrating notable resiliency amidst the broader economic dislocation caused by the outbreak of COVID-19.

Low interest rates are helping to support housing affordability, and medical concerns and lifestyle preferences are driving people to move from densely populated urban areas to suburban communities where social distancing is more easily achieved, and shelter-in-place directives are reinforcing the value of homeownership – all of which are contributing to an influx of new home buyers, record levels of purchase demand, and generally stable to rising house prices nationally.

While the possibility remains that the housing market will soften, we believe the general strength of the market coming into the COVID-19 crisis will help to mitigate the risk of a severe pullback.

We observe several favorable differences in the current environment compared to the period leading up to and through the 2008 Financial Crisis – the last period of significant economic volatility in the 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 mortgages being originated and outstanding in the current market;

(ii) the lower concentration of higher risk loan structures, such as negative amortizing, interest-only or short-termed option 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;

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(v) the broader and equally immediate application of a massive amount of fiscal and monetary stimulus by the federal government under the CARES Act and across a range of other programs designed to assist unemployed individuals and distressed businesses, as well as support the smooth functioning of various capital and risk 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 also perceive the house price environment in the period leading up to the 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 home prices were driven to unsustainable heights (a 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 housing price dislocation experienced going forward.

Notwithstanding the relative differences we observe 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 purchase mortgage origination volume will be lower in the aftermath of the COVID-19 outbreak than it otherwise would have been as buyers and sellers postpone or more broadly reassess current and future transactions, while we expect refinancing origination volume will increase significantly as declining mortgage rates create refinancing opportunities for existing borrowers.

Historically, U.S.

mortgage insurance industry penetration of the purchase origination market has been meaningfully higher than the 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.

In recent periods, however, mortgage insurance industry penetration of the refinancing market has increased significantly and the composition of industry new insurance written (NIW) volume between purchase and refinancing loans has shifted.

Refinancing originations accounted for approximately 30% of total mortgage insurance industry NIW volume for the quarter-ended December 31, 2019, compared to approximately 6% for the quarter-ended December 31, 2018.

We 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 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 impact of declining purchase origination volume partially offset by a dramatic increase in, and increasing mortgage insurance penetration of, refinancing origination volume.

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 contribute to housing market stability through the COVID-19 pandemic.

We anticipate that total purchase mortgage origination volume will grow compared to what it otherwise would have been as house prices remain stable (and potentially continue to increase) and purchase transaction volume expands with COVID-19 spurring increased demand for homeownership.

We also expect total refinancing origination volume will increase significantly as declining mortgage rates create continued refinancing opportunities for existing borrowers.

Growth in total mortgage origination volume increases the addressable market for the U.S.

mortgage insurance industry, while accelerated refinancing activity increases prepayment speed on outstanding insured mortgages.

In this context, we anticipate

mortgage insurance industry new insurance written (NIW) volume will increase, potentially to record levels, while we expect the persistency of existing in-force insured risk across the industry will decline precipitously.

While we currently observe broad resiliency in the housing and high-LTV mortgage markets and, for the reasons discussed above, expect this trend to continue in the near term, the ultimate impact of COVID-19 remains highly uncertain.

See Item 1A, " Risk Factors - The COVID-19 outbreak could materially adversely affect our business, results of operations and financial condition ."

Potential Impact on NMI's Business Performance and Financial Position

We had 327 employees at March 31, 2020, including 173 who typically work at our corporate headquarters in Emeryville, CA and 154 who typically work from home in locations across the country.

W e had 269 employees at June 30, 2020, including 125 who typically work at our corporate headquarters in Emeryville, CA and 144 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 125 Emeryville-based staff.

We have transitioned our operations seamlessly and continue to positively engage with customers on a remote basis.

We have transitioned our operations seamlessly and continue to positively engage with customers on a re mote 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.

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New Business Production

We expect that the volume, composition, credit profile and pricing of our new business production will change due 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.

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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 will decline in the near-term along with the broader decline we anticipate in total U.S.

mortgage insurance industry NIW volume.

Notwithstanding the recent gains and the customer success we have achieved, we initially expected that the onset of COVID-19 would cause our total NIW volume (and total U.S.

mortgage insurance industry volume) to decline.

Our initial expectations have not borne out – the broad resiliency of the housing market and increased demand for homeownership now being observed are driving record volume for us and the broader U.S.

mortgage insurance industry.

We wrote $13.1 billion of NIW during the three months ended June 30, 2020, up 16% compared to the three months ended March 31, 2020.

We now expect our NIW volume and total U.S.

mortgage insurance industry production will continue to grow in 2020, with the potential for total market production and our NIW volume to reach record levels.

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 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 the credit risk profile of our new business production.

At June 30, 2020, the weighted average FICO score of our IIF was 752 and we had a 4% mix of below 680 FICO score risk.

Similarly, at June 30, 2020, the weighted average LTV ratio (at origination) of our insured portfolio was 91.8% and we had a 9% mix of 97% LTV risk.

In the weeks following the outbreak of COVID-19, we adopted changes to our underwriting guidelines, including changes to our loan documentation requirements, asset reserve requirements, employment verification process and income continuance determinations, which we expect will further strengthen the credit risk profile of our new business production.

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.

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Delinquency Trends and Claims Expense

We had 1,449 NODs in our primary insured portfolio as of March 31, 2020, which represented a 0.38% delinquency rate against our 376,852 total policies in-force.

Given the recency 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 as borrowers face challenges related to COVID-19 and access the forbearance program for federally backed loans codified under the CARES Act or other programs made available by private lenders.

As of April 30, 2020, our default population had increased to 1,610 , which represented a 0.43% delinquency rate.

We are not yet able to forecast the ultimate level of forbearance-driven delinquencies we will receive or the timing in which they will develop.

While early, we have observed a correlation between the risk profile of the underlying borrowers and the incidence of forbearance 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.

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.

We had 10,816 defaulted loans in our primary insured portfolio at June 30, 2020, which represented a 2.90% default rate against our 372,934 total policies in-force.

Our default population has increased significantly as borrowers have faced increasing challenges related to the COVID-19 outbreak and chosen to access the forbearance program for federally backed loans codified under the CARES Act or other similar assistance programs made available by private lenders.

We expect our default population will grow in future periods as additional borrowers who have accessed forbearance programs and paused their monthly mortgage

payments age into default status.

At June 30, 2020, 28,555 or 7.7% of the loans we insured in our primary portfolio were enrolled in a forbearance program, including 9,502 of the loans in our default population , 6,752 loans that had missed at least one payment, but not progressed into default status and 12,301 additional loans that were fully performing without any missed payments.

As of July 31, 2020, our default population had increased to 14,175, representing a 3.8% default rate.

We establish reserves for claims and allocated claim expenses when we are notified that a borrower is in default.

The size of the reserve we establish for each defaulted loan (and by extension our aggregate reserve and claims expense) will reflect 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.

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.

Our reserve setting process in future periods will consider this dynamic along with our expectations for house prices (and current views of general resiliency), interest rates and unemployment rates.

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 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.

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 moratorium mandated by the GSEs is extended beyond August 31, 2020 for an extended period of time, 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 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.

Regulatory Capital Position

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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, we reported $1,070 million available assets against $912 million risk-based required assets for a $157 million of “excess” funding position.

At June 30, 2020, we reported $1,656 million available assets against $1,048 million risk-based required assets for a $609 million of "excess" funding position.

The capital relief we expect to receive in connection with our 2020 ILN Transaction is not included in our PMIERs position as of June 30, 2020, as the transaction was completed after quarter end.

In future periods, the 2020 ILN Transaction will bolster our "excess" PMIERs funding position, subject to GSE approvals.

The risk-based required asset amount under PMIERs is determined at an individual policy-level based on the risk characteristics of each insured loan.

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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 on non-performing loans that enter delinquent status up 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 in response to the COVID-19 pandemic.

As such, the PMIERs risk-based required asset charge for all newly delinquent loans nationwide (including those that go delinquent under a federal or private forbearance program) will be reduced by 70%.

In June 2020, the GSEs issued additional guidance on the risk-based treatment of loans affected by the COVID-19 crisis.

Under the revised guidance, non-performing loans that are subject to a forbearance program granted in response to a financial hardship related to COVID-19 will benefit from a permanent 70% risk-based required asset haircut for the duration of the forbearance period and subsequent repayment plan or trial modification period.

Our PMIERs minimum risk-based required asset amount is also adjusted for our reinsurance transactions (as approved by the GSEs).

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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, the ILN notes stop amortizing and the cash held in trust is secured for our benefit.

In the event of certain credit enhancement or delinquency events, the ILN notes stop amortizing and the cash held in trust is secured for our 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.

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

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 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 Transactions at June 30, 2020:

($ values in thousands) 2017 ILN Transaction

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Delinquency Trigger 4.0%

At March 31, 2020, we had an aggregate $98 million of overcollateralization available across our three ILN transactions to absorb an increase in the PMIERs risk-based required asset amount on ceded RIF.

Assuming the 4% "delinquency lockout trigger" is activated in each deal and our underlying RIF continues to run-off at the same rate as it did during the month ended March 31, 2020, we estimate that our total overcollateralization would increase by up to $70 million per quarter.

At June 30, 2020, we had an aggregate $122 million of overcollateralization available across the 2017, 2018 and 2019 ILN Transactions to absorb an increase in the PMIERs risk-based required asset amount on ceded RIF.

Assuming the Lock-Out Events remain in effect for each transaction and our underlying RIF continues to run-off at the same rate as it did during the month ended June 30, 2020, we estimate that our total overcollateralization would increase by up to approximately $80 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 forbearance-driven default rates on our in-force portfolio materially exceed the current forbearance rates noted by Black Knight McDash for each of the GSEs and FHA/VA, given our $157 million excess available asset position at March 31, 2020, the nationwide applicability of the 70% FEMA-disaster haircut on newly delinquent policies, the increasing PMIERs relief automatically provided under each of our quota share and ILN treaties, and our expectation for declining new business funding requirements (with lower NIW volume coming through at incrementally higher credit quality).

We estimate, however, that we will remain in compliance with our PMIERs asset requirements even if the forbearance-driven default rate on our in-force portfolio materially exceeds its current level, given our $609 million excess available asset position at June 30, 2020, the nationwide applicability of the 70% haircut on delinquent policies affected by the COVID-19 crisis, the increasing PMIERs relief automatically provided under each of our quota share treaties and 2017, 2018, and 2019 ILN Transactions and additional risk protection and PMIERs capacity provided under our newly announced 2020 ILN and QSR Transactions.

NMIC is also subject to state regulatory minimum capital requirements based on its RIF.

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We evaluate our liquidity position at both a holding company (NMIH) and primary operating subsidiary (NMIC) level.

As of March 31, 2020, we had $1.2 billion of consolidated cash and investments, including $44 million of cash and investments at NMIH.

As of June 30, 2020, we had $1.9 billion of consolidated cash and investments, including $76 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.

See Item 1, " Financial Statements - Notes to Condensed Consolidated Financial Statements - Note 10, Common Stock ." 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 principal amount outstanding under our $150 million 2018 Term Loan.

See Item 1, " Financial Statements - Notes to Condensed Consolidated Financial Statements - Note 4, Debt.

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

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 ."

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.

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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 our amended 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.

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 ."

The Wisconsin OCI has refreshed its approval of the debt service agreement providing for the additional reimbursement by NMIC of interest expense due on our newly issued Notes and 2020 Revolving Credit 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, NMIC had $1.1 billion of cash and investments, including $76 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.

At June 30, 2020, NMIC had $1.7 billion of cash and investments, including $433 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 (iii) claims 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, NMIC generated $216 million of cash flow from operations and received an additional $252 million of cash flow on the maturity, sale and redemption of securities held in its investment portfolio.

During the twelve-month period ended June 30, 2020, NMIC generated $237 million of cash flow from operations and received an additional $437 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.

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We do not currently believe that loan servicer liquidity issues will 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 the GSEs are considering options to continue remitting premiums to us (and other mortgage insurers) on delinquent loans in the event a loan servicer fails to fulfill its obligation, including directly advancing such mortgage insurance premiums and/or moving the servicing obligation to a more adequately funded loan servicer with the capacity to continue making premium payments.

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.In June 2020, the GSEs issued guidance to the PMIERs 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 preserve the mortgage insurance coverage.

Through June 30, 2020, 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 forbearance program.

Investment portfolio

At March 31, 2020, we had $1.1 billion of invested assets and $110 million of cash and equivalents.

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, 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, our portfolio 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 in the quarter-ended March 31, 2020, 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% for the three months ended March 31, 2020.

We calculate book yield as annualized net investment income divided by the average amortized cost of the investment portfolio.

Given the current interest rate environment and our focus on high-grade assets, the yield we are capturing on new investments is below that of the total portfolio.

We expect our total portfolio yield will migrate down over time if this dynamic holds.

At June 30, 2020, we had $1.9 billion of cash and 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 June 30, 2020, 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 June 30, 2020, our portfolio was in a $53 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 1.3%.

We did not record any allowance for credit losses in the portfolio during the three months ended June 30, 2020, as we expect to recover the amortized cost basis of all securities held.

The pre-tax book yield on our investment portfolio was 2.4% for the three months ended June 30, 2020.

At the onset of the COVID-19 crisis, we decided to prioritize liquidity and increased our cash and equivalent holdings as a percentage of our total portfolio.

We 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;

however, it contributed to a decline in our pre-tax book yield during the quarter.

We have since redeployed much of our excess liquidity position and expect net investment income to rebound in the future.

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.

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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 were non-refundable under most cancellation scenarios.

Substantially all of our single premium policies in force as of June 30, 2020 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.

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Our premium rates include certain assumptions regarding repayment or prepayment speeds of the mortgages underlying our policies.

on these loans is likely to increase and, if loans are repaid slower than expected, our profitability on these loans is likely to decrease.

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 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.

3 unchanged sentences

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 us 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 acquisition and underwriting expenses.

Such a quota share arrangement reduces premiums written and earned and also reduces RIF, providing capital relief to the ceding insurance company and reducing incurred claims in accordance with the terms of the reinsurance agreement.

In addition, reinsurers typically pay ceding commissions as part of quota share transactions, which offset the ceding company's acquisition and underwriting expenses.

Certain quota share agreements include profit commissions that are earned based on loss performance and serve to reduce ceded premiums.

Under an excess-of-loss agreement, 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.

Under an excess-of-loss agreement, the ceding insurer is typically responsible for losses up to an agreed-upon threshold and the reinsurer then provides coverage in excess of such threshold up to a maximum agreed-upon limit.

We expect to continue to evaluate reinsurance opportunities in the normal course of business.

Quota share reinsurance

Effective September 1, 2016, NMIC entered into the 2016 QSR Transaction with a syndicate of third-party reinsurers.

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 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 terms of the 2016 QSR Transaction, NMIC cedes premiums written related to 25% of the risk on eligible primary policies written for all periods through December 31, 2017 and 100% of the risk under our pool agreement with Fannie Mae, in exchange for reimbursement of ceded claims and claim expenses on covered policies, a 20% ceding commission, and a profit commission of up to 60% that varies directly and inversely with ceded claims.

Effective January 1, 2018, NMIC entered into the 2018 QSR Transaction with a syndicate of third-party reinsurers.

Under the 2018 QSR Transaction, NMIC 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 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.

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, 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 Transaction, NMIC cedes premiums earned related to Eligible Policies written from April 1, 2020 through December 31, 2020, in exchange for reimbursement of ceded claims and claim expenses on covered po licies, a 20% ceding commission, and a profit commission of up to 50% that varies directly and inversely with ceded claims.

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.

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.

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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 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, referred to as a lock-out feature.

a lock-out trigger is breached, the respective ILN notes stop amortizing and the assets held in trust are frozen for our benefit while the underlying risk continues to run-off.

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 note-holders as amortization of the outstanding insurance-linked note principal balances occurs.

The 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 (each, a Lock-Out Event).

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)

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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 expense s exceed its current first layer retained loss.

In July 2020, NMIC secured $322.1 million of aggregate excess-of-loss reinsurance coverage at inception for an exi sting portfolio of policies written from July 1, 2019 and March 31, 2020, through a mortgage insurance-linked notes offering by Oaktown Re IV.

The reinsurance coverage amount under the terms of the 2020 ILN Transaction decreases from $322.1 million at inception over a ten-year period as the underlying covered mortgages are amortized or repaid, and/or the mortgage insurance coverage is canceled.

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 $169.5 million of aggregate losses and Oaktown Re IV then provides second layer coverage up to the outstanding reinsurance coverage amount.

NMIC then retains losses in excess of the outstanding reinsurance coverage amount.

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

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Unless otherwise noted, the tables below do not include the effects of our third-party reinsurance arrangements described above.

Primary and pool IIF and NIW As of and for the three months ended

March 31, 2020 March 31, 2019

IIF NIW IIF NIW

Primary and pool IIF and NIW As of and for the three months ended For the six months ended

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

IIF NIW IIF NIW NIW

(In Millions)

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Total $ 101,245 $ 13,124 $ 84,466 $ 12,179 $ 24,421 $ 19,092

For the three months ended March 31, 2020, primary NIW increased 63% compared to the three months ended March 31, 2019, primarily due to growth in our monthly policy production tied to increased penetration of existing customer accounts, new customer account activations and a larger mortgage insurance market.

The increase also contributed to the growth in single premium policy production.

For the three months ended March 31, 2020, monthly primary NIW increased 68% compared to the three months ended March 31, 2019.

For the three months ended March 31, 2020, monthly premium polices accounted for 93% of our NIW.

As of March 31, 2020, monthly premium policies accounted for 83% of our primary IIF, as compared to 76% at March 31, 2019.

For the three and six months ended June 30, 2020, NIW increased 8% and 28%, respectively, compared to the three and six months ended June 30, 2019, primarily due to growth in our monthly and single premium policy production tied to increased penetration of existing customer accounts and new customer account activations, as well as growth in the size of the total mortgage insurance market NIW volume.

For the three months ended June 30, 2020, monthly premium polices accounted for 91% of our NIW.

As of June 30, 2020, monthly premium policies accounted for 84% of our primary IIF, as compared to 78% at June 30, 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.

Total IIF increased 33% as of March 31, 2020 compared to March 31, 2019, 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% at March 31, 2020 from 87.2% at March 31, 2019, reflecting the impact of increased refinancing activity tied to record low interest rates.

Total IIF increased 20% as of June 30, 2020 compared to June 30, 2019, 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 64% at June 30, 2020 from 86% at June 30, 2019, reflecting the impact of increased refinancing activity tied to record low interest rates.

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

Primary and pool premiums written and earned For the three months ended

March 31, 2020 March 31, 2019

Primary and pool premiums written and earned For the three months ended For the six months ended

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

(In Thousands)

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Net premiums earned 98,944 83,249 197,661 157,118

For the three months ended March 31, 2020, net premiums written and earned increased 27% and 34%, respectively, compared to the three months ended March 31, 2019.

The increases in net premiums written and earned are 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 growth of our direct premium volume and the inception of the 2019 ILN Transaction.

Net premiums earned grew at an accelerated pace compared to net premiums written due to the amortization of unearned premiums and earnings on single premium policy cancellations, partially offset by new single premium policy originations.

Pool premiums written and earned for the three months ended March 31, 2020 and 2019, were $0.7 million and $0.8 million before giving effect to the 2016 QSR Transaction, under which all of our written and earned pool premiums have been ceded.

A portion of our ceded pool premiums earned are recouped through profit commission under the 2016 QSR Transaction.

For the three and six months ended June 30, 2020, net premiums written increased 9% and 17%, respectively, and net premiums earned increased 19% and 26%, respectively, compared to the three and six months ended June 30, 2019.

The increases in net premiums written and earned are primarily due to the growth of our IIF and increased monthly policy production, partially offset by increased cessions under the 2018 QSR Transaction tied to the growth of our direct premium volume and the inception of the 2019 ILN Transaction and 2020 QSR Transaction.

Net premiums earned grew at an accelerated pace compared to net premiums written due to the amortization of unearned premiums and contribution of single premium policy cancellations, partially offset by new single premium policy originations.

Pool premiums written and earned for the three and six months ended June 30, 2020 and 2019, were $0.7 million and $1.4 million, and $0.8 million and $1.6 million, respectively, before giving effect to the 2016 QSR Transaction, under which all of our written and earned pool premiums are ceded.

A portion of ceded pool premiums written and earned are recouped through profit commission.

Portfolio Statistics

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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

($ Values In Millions)

June 30, 2020 March 31, 2020 December 31, 2019 September 30, 2019 June 30, 2019

($ Values In Millions, except as noted below)

New insurance written $ 13,124 $ 11,297 $ 11,949 $ 14,100 $ 12,179

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372,934 376,852 366,039 350,395 324,876

Average loan size (1)

Average loan size ($ value in thousands) (1)

$ 265 $ 261 $ 259 $ 256 $ 252

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

Primary IIF For the three months ended

March 31, 2020 March 31, 2019

Primary IIF For the three months ended For the six months ended

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

(In Millions)

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

Primary IIF and RIF As of March 31, 2020 As of March 31, 2019

Primary IIF and RIF As of June 30, 2020 As of June 30, 2019

IIF RIF IIF RIF

(In Millions)

March 31, 2020 $ 11,236 $ 2,882 $ — $ —

June 30, 2020 $ 23,949 $ 6,039 $ — $ —

2019 34,658 9,017 18,745 4,892

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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) 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.

We have established prudential underwriting standards and loan-level eligibility matrices which prescribe the maximum LTV, minimum borrower FICO score, maximum borrower 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.

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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.

In response to the outbreak of COVID-19, we have adopted changes to our underwriting guidelines, including changes to our loan documentation requirements, asset reserve requirements, employment verification process and income continuance determinations, which we expect will further strengthen the credit risk profile of our new business production.

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 For the three months ended

March 31, 2020 March 31, 2019

Primary NIW by FICO For the three months ended For the six months ended

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

(In Millions)

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Weighted average FICO 762 751 760 751

Primary NIW by LTV For the three months ended

March 31, 2020 March 31, 2019

Primary NIW by LTV For the three months ended For the six months ended

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

(In Millions)

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Weighted average LTV 90.7 % 92.0 % 91.0 % 92.1 %

Primary NIW by purchase/refinance mix For the three months ended

March 31, 2020 March 31, 2019

Primary NIW by purchase/refinance mix For the three months ended For the six months ended

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

(In Millions)

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Refinance (1)

5,348 1,482 8,654 2,012

Total $ 13,124 $ 12,179 $ 24,421 $ 19,092

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

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 As of

March 31, 2020 March 31, 2019

June 30, 2020 June 30, 2019

($ Values In Millions)

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Total $ 98,905 100 % $ 81,708 100 %

Weighted average FICO 751 749

Primary RIF by FICO As of

March 31, 2020 March 31, 2019

June 30, 2020 June 30, 2019

($ Values In Millions)

5 unchanged sentences

Total $ 25,238 100 % $ 20,661 100 %

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

June 30, 2020 June 30, 2019

($ Values In Millions)

4 unchanged sentences

Total $ 98,905 100 % $ 81,708 100 %

Weighted average LTV 91.9 % 91.9 %

Primary RIF by LTV As of

March 31, 2020 March 31, 2019

June 30, 2020 June 30, 2019

($ Values In Millions)

4 unchanged sentences

Total $ 25,238 100 % $ 20,661 100 %

Weighted average LTV 92.7 % 92.7 %

Primary RIF by Loan Type As of

March 31, 2020 March 31, 2019

June 30, 2020 June 30, 2019

Fixed 98 % 98 %

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Five years and longer 2 2

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

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

As of March 31, 2020

Total 100 % 100 %

The table below presents selected primary portfolio statistics, by book year, as of June 30, 2020.

As of June 30, 2020

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)

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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 is not necessarily representative of the geographic distribution we expect in the future.

As of June 30, 2020, our RIF continues to be modestly 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 June 30, 2020 is not necessarily representative of the geographic distribution we expect in the future.

Top 10 primary RIF by state As of

March 31, 2020 March 31, 2019

June 30, 2020 June 30, 2019

California 11.3 % 12.3 %

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Illinois 4.0 3.6

Arizona 3.7 4.8

Pennsylvania 3.7 3.6

Colorado 3.8 3.4

Michigan 3.4 3.6

Pennsylvania 3.6 3.6

Maryland 3.5 3.3

Washington 3.4 3.0

Massachusetts 3.4 % 2.8 %

Total 52.7 % 50.8 %

Insurance Claims and Claim Expenses

Insurance claims and claim expenses represent estimated future payments on newly defaulted insured loans and any change in our claim estimates for previously existing defaults.

Claims and claim expenses 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.

Reserves for claims and allocated claim expenses are established for reported mortgage loan defaults, which we refer to as case reserves, when we are notified that a borrower has missed two or more mortgage payments ( i.e.

We also make estimates of IBNR defaults, which are defaults that have been incurred but have not been reported by loan servicers, based on historical reporting trends, and establish IBNR reserves for those defaults.

We also establish reserves for unallocated claim expenses not associated with a specific claim.

Claim expenses consist of the estimated cost of the claim administration process, including legal and other fees as well as other general expenses of administering the claim settlement process.

Insurance claims and claim expenses incurred represent estimated future payments on newly defaulted insured loans and any change in our claim estimates for previously existing defaults.

Claims incurred 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.

Reserves for claims and allocated claim expenses are established for mortgage loans 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 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 IBNR.

We also establish reserves for claim expenses, which represent the estimated cost of the claim administration process, including legal and other fees 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.

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Adjustments to reserve estimates are reflected in the period in which the adjustment is made.

Reserves are also ceded to reinsurers under the QSR Transactions.

We will not cede claims under the ILN Transactions unless losses exceed the respective retained coverage layers.

Reserves are not established for future claims on insured loans which are not currently in default.

Reserves are also ceded to reinsurers under the QSR Transactions and ILN Transactions, as applicable under each treaty.

We have not yet ceded any reserves under the ILN Transactions as incurred claims and claims expenses on each respective reference pool remain within our retained coverage 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.

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, 2020 March 31, 2019

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 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.

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 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.

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 six months ended

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

(In Thousands)

6 unchanged sentences

Current year (2)

34,958 3,492 42,516 7,401

Prior years (3)

5 unchanged sentences

Prior years (3)

1,985 674 3,209 1,368

Reinsurance terminations (4)

— (549) — (549)

Total claims and claim expenses paid 2,024 125 3,248 819

1 unchanged sentence

Add reinsurance recoverables (1)

14,307 3,775 14,307 3,775

Ending balance $ 69,903 $ 18,432 $ 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 Item 1, " Financial Statements - Notes to Condensed Consolidated Financial Statements - Note 5, Reinsurance " for additional information.

4 unchanged sentences

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 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 estimates as we gather additional information about individual defaults and claims and continue to observe and analyze loss development trends in our portfolio, including factors affected by the recent COVID-19 developments.

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

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

See Item 1, " Financial Statements - Notes to Condensed Consolidated Financial Statements - Note 5, Reinsurance " for additional information.

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 for current year defaults represents the estimated amount of claims and claim expenses to be ultimately be paid on such loans.

The decreases during the periods presented in reserves held for prior year defaults represent favorable development and are generally the result of 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.

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

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

Beginning default inventory 1,449 940 1,448 877

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Ending default inventory 10,816 1,028 10,816 1,028

The increase in the ending default inventory at March 31, 2020 compared to March 31, 2019, primarily relates 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.

Our total policies 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.

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

For the three months ended

March 31, 2020 March 31, 2019

The increase in the ending default inventory at June 30, 2020 compared to June 30, 2019, is primarily attributable to the COVID-19 outbreak as borrowers have faced increasing challenges and chosen to access the forbearance program for federally backed loans codified under the CARES Act and other similar assistance programs made available by private lenders.

At June 30, 2020, 9,724 of our 10,816 ending default inventory were in 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 six months ended

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

($ In Thousands)

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Average amount paid per claim

(1) Count include s one claim settled without payment for the three months ended March 31, 2020, and three claims settled without payment for the three months ended March 31, 2019.

$ 53 $ 32 $ 49 $ 28

89 % 77 % 87 % 69 %

(1) Count include s one and two claims settled without payment for the three and six months ended June 30, 2020, respectively, and four and seven claims settled without payment for the three and six months ended June 30, 2019, respectively.

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

The number of claims paid for the three months ended March 31, 2020 decreased compared to the three months ended March 31, 2019, primarily due to the timing of when claims were received and paid in respect to respective period end.

Our claims severity for the three months ended March 31, 2020 was 83%, compared to 64% for the three months ended March 31, 2019.

The increase in claims severity for the three months ended March 31, 2020 can be attributed to fewer claims settled with zero payment compared to the three months ended March 31, 2019.

The number of claims paid for the three and six months ended June 30, 2020 increased compared to the three and six months ended June 30, 2019, primarily due to an increase in our default inventory and the continued growth and seasoning of our insured portfolio.

The timing and magnitude of future claims paid may be impacted by, among other factors, the forbearance program and foreclosure moratorium codified under the CARES Act, which may extend the timeline over which loans would otherwise progress through the default cycle to claim payment status.

Our claims severity for the three and six months ended June 30, 2020 was 89% and 87%, respectively, compared to 77% and 69% for the three and six months ended June 30, 2019, respectively.

The increase in claims severity for the three and six months ended June 30, 2020 can be attributed to an increase in claims settled using the percent option instead of through third-party sales.

Third-party marketing and sales of foreclosed properties, which were curtailed in the first half of 2020 due to COVID-19, often mitigate the severity of the claim payment we ultimately pay.

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:

As of March 31, 2020 As of March 31, 2019

As of June 30, 2020 As of June 30, 2019

(In Thousands)

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(2) Amount includes claims adjustment expenses.

The average reserve per default at March 31, 2020 increased from March 31, 2019, primarily tied to an increase in claim rates resulting from updates to key assumptions as a result of COVID-19 and the aging our NOD population.

The average reserve per default at June 30, 2020 decreased from June 30, 2019, primarily due to new COVID-19 related defaults.

At June 30, 2020, 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 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.

GSE Oversight

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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.

March 31, 2020 March 31, 2019

June 30, 2020 June 30, 2019

(In Thousands)

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Risk-based required assets 1,047,619 782,460

Available assets were $1,070 million at March 31, 2020, compared to $818 million at March 31, 2019.

The increase in Available assets of $252 million was primarily driven by our positive cash flow from operations in the intervening periods.

The increase in the risk-based required asset amount was due to the growth of our gross RIF, 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.

Available assets were $1,656 million at June 30, 2020, compared to $879 million at June 30, 2019.

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.

N MIH contributed approximately $445 million of capital to NMIC following completion of the Notes and equity offerings.

The $778 million increase in NMIC's available assets between the

periods presented was driven by the NMIH capital contribution and NMIC's positive cash flow from operations during the intervening periods.

The increase in the risk-based required asset amount between the periods presented was primarily due to the growth of our gross RIF, 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.

See " - COVID-19 Developments, " above.

LIBOR Transition

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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.

The 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.

however, we currently do not know the impact it will have on 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.

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 June 30, 2020, NMIC's performing primary RIF, net of reinsurance, was approximately $20.0 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.

Based on NMIC's total statutory capital of $1.5 billion (including contingency reserves) as of June 30, 2020, NMIC's RTC ratio was 13.3:1.

Re One had total statutory capital of $37 million as of June 30, 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 " Ba3 " to " Ba2 ".

In June 2020, Moody's Investors Service (Moody's) affirmed its "Baa2" financial strength rating of NMIC and its "Ba2" rating of NMIH's 2020 Revolving Credit Facility, and assigned a "Ba2" rating to the Notes.

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.

In March 2020, S&P updated its outlook from stable to negative for the mortgage insurance sector, including NMIH and NMIC's financial strength and long-term counter-party credit ratings.

In June 3, 2020, S&P assigned a "BB" rating to NMIH's senior secured Notes.

Information Technology

Effective March 31, 2020, we entered into an IT services agreement with Tata Consultancy Services (TCS).

Under the agreement, TCS is providing IT services over a seven-year period across such functions as application development and support, infrastructure support, (service desk, end user computing and engineering services), and information security.

We expect the engagement with TCS will further our ability to provide innovative IT solutions for our internal and external constituents, while realizing cost efficiencies by leveraging TCS's global platform.

In connection with the agreement, a majority of our IT employees transitioned to TCS.

We have the ability to terminate the agreement at any time with 120 days' prior notice, subject to the payment of a termination fee and other obligations as specified in the agreement.

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.

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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, cancelability, loan size limits and the relative ease of use of private MI products compared to government MI alternatives.

A range of factors influence a lender's and borrower's decision to choose private over government MI, including among others, premium rates and other charges, loan eligibility requirements, cancelability, loan size limits and the relative ease of use of private MI products compared to government MI alternatives.

Consolidated Results of Operations

Consolidated statements of operations Three months ended

March 31, 2020 March 31, 2019

Consolidated statements of operations Three months ended Six months ended

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

4 unchanged sentences

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

5 unchanged sentences

Loss ratio (3)

34.7 % 3.5 % 20.3 % 3.6 %

Expense ratio (4)

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Combined ratio (5)

The months ended

65.4 % 42.2 % 51.9 % 43.7 %

Three months ended Six months ended

Non-GAAP financial measures (6)

March 31, 2020 March 31, 2019

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

Adjusted income before tax $ 38,292 $ 53,420 $ 105,035 $ 98,060

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(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.

(2) Diluted net income for the six months ended June 30, 2020 excludes the impact of the warrant fair value change as it was anti-dilutive.

For all other periods presented in the table, 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 insurance claims and claim expenses by net premiums earned..

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

(5) Combined ratio may not foot due to rounding.

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

Net premiums earned were $98.7 million and $73.9 million for the three months ended March 31, 2020 and March 31, 2019, respectively.

Net premiums earned increased $24.8 million or 34% three months ended March 31, 2020 primarily due to the growth of our IIF, a rise in monthly policy production and higher single premium policy cancellations, partially offset by incremental cessions under the QSR Transactions tied to the growth of our direct premium volume and the inception of the 2019 ILN Transaction.

Net investment income was $8.1 million and $7.4 million for the three months ended March 31, 2020 and March 31, 2019, respectively.

The increase was driven by an increase in the size of our total investment portfolio.

Other revenues were $0.9 million and $42 thousand for the three months ended March 31, 2020 and March 31, 2019, respectively.

For the three and six months ended June 30, 2020, net premiums earned increased $15.7 million or 19% and $40.5 million or 26%, respectively, compared to the three and six months ended June 30, 2019.

The increase is primarily due to the growth of our IIF, a rise in monthly policy production and higher single premium policy cancellations, partially offset by increased cessions under the 2018 QSR Transaction tied to the growth of our direct premium volume and the inception of the 2019 ILN Transaction and 2020 QSR Transaction.

For the three and six months ended June 30, 2020, net investment income decreased $0.6 million and $0.2 million, respectively, compared to the three and six months ended June 30, 2019.

The decreases were driven by a decline in book yield partially offset by an increase in the size of our total investment portfolio.

Our book yield declined for the six months ended June 30, 2020 as we prioritized liquidity and increased cash and cash equivalent positions at the onset of the COVID-19 crisis.

For the three and six months ended June 30, 2020, other revenues increased $0.8 million and $1.7 million, respectively, compared to the three and six months ended June 30, 2019.

Other revenues represent underwriting fee revenue from our subsidiary, NMIS, which provides outsourced loan review services to mortgage loan originators.

The growth in other revenues for the three months ended relates to an increase in NMIS' outsourced loan review volume.

The growth in other revenues for the three and six months ended relates to an increase 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.

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We also incur service expenses in connection with NMIS' outsourced loan review activities.

Insurance claims and claim expenses increased $3.0 million for the three months ended March 31, 2020, 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 million or 5% for the three months ended March 31, 2020 compared to the three months ended March 31, 2019.

The increase relates to an increase in underwriting and operating expenses associated with the growth in policy volume, as well as increased headcount to support the growth of our business.

We incurred $0.5 million of underwriting and operating expenses during the three months ended March 31, 2020 related to capital market transaction costs

Service expenses were $0.7 million and $49 thousand for the three months ended March 31, 2020 and March 31, 2019, respectively.

Insurance claims and claim expenses increased $31.4 million and $34.4 million for the three and six months ended June 30, 2020, respectively, compared to the three and six months ended June 30, 2019, as a result of an increase in defaults, driven by new defaults on insured loans impacted by COVID-19 outbreak, and an increase in the overall number of policies in our portfolio and aging of earlier book years, offset partially by the release of certain reserves related to prior year defaults.

Underwriting and operating expenses decreased $1.8 million or 6%, and $0.3 million or 1% for the three and six months ended June 30, 2020, respectively, compared to the three and six months ended June 30, 2019.

The decrease was primarily driv en by reductions in payroll, travel and entertainment, and office administrative expenses as a result of the COVID-19 outbreak.

During the three and six months ended June 30, 2020, we also incurred $0.2 million and $0.6 million of underwriting and operating expenses, respectively, related to the capital market reinsurance transaction.

Service expenses were $1.1 million and $1.8 million for the three and six months ended June 30, 2020, respectively, compared to $0.4 million for the three and six months ended June 30, 2019 .

Service expenses represent third-party costs incurred by NMIS in connection with the services it provides.

The growth in service expenses for the quarter ended March 31, 2020 relates to an increase 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 $2.7 million for the three months ended March 31, 2020 compared to $3.1 million for the three months ended March 31, 2019.

Interest expense for the three months ended March 31, 2020 benefited from a lower LIBOR indexed to the 2018 term loan compared to the three months ended March 31, 2019.

The growth in service expenses for the three and six months ended June 30, 2020 relates to an increase in NMIS' outsourced loan review volume.

Amounts incurred as service expenses generally corre spond with amounts recognized in other revenues in the same periods.

Interest expense was $5.9 million and $8.7 million for the three and six months ended June 30, 2020, respectively, compared to $3.1 million and $6.1 million for the three and six months ended June 30, 2019, respectively.

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.

Interest expense for the three and six months ended June 30, 2020 benefited from a lower LIBOR indexed to the 2018 Term Loan compared to the three and six months ended June 30, 2019.

See Item 1, " Financial Statements - Notes to Condensed Consolidated Financial Statements - Note 4, Debt.

Income tax expense was $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 tax expense increased due to the growth in our pre-tax income.

Income tax expense was $8.1 million and $22.0 million for the three and six months ended June 30, 2020, respectively, compared to $11.9 million and $17.9 million for the three and six months ended June 30, 2019, respectively.

Income tax expense decreased for the three months ended June 30, 2020 compared to the three months ended June 30, 2019 due to the decrease in our pre-tax income.

Income tax expense increased for the six months ended June 30, 2020 compared to the six months ended June 30, 2019 due to the growth in our pre-tax income.

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.

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 periods is established based on our estimated annual effective tax rate for a given year.

Our effective tax rates for the three months ended March 31, 2020 and 2019 reflect the discrete tax effects of the vesting of RSUs and exercise of options, and the change in fair value of our warrant liability in each period.

Our effective tax rates for the three and six months ended June 30, 2020 and 2019 reflect the discrete tax effects of the vesting of RSUs and exercise of options, and the change in fair value of our warrant liability in each period.

See Item 1, " Financial Statements - Notes to Condensed Consolidated Financial Statements - Note 9, Income Taxes.

Net income was $58.3 million for the three months ended March 31, 2020 compared to $32.9 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, 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, compared to $38.5 million 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 $0.74 for the three months ended March 31, 2020 compared to $0.48 for the three months ended March 31, 2019.

Adjusted diluted EPS was $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 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 an increase in weighted average diluted shares outstanding.

Net income was $26.8 million and $85.1 million for the three and six months ended June 30, 2020, respectively, compared to $39.1 million and $72.0 million for the three and six months ended June 30, 2019, respectively.

Adjusted net income was $29.7 million and $82.5 million for the three and six months ended June 30, 2020, respectively, compared to $41.4

million and $79.9 million for the three and six months ended June 30, 2019, respectively.

For the three months ended June 30, 2020, the decrease in net income and adjusted net income can be attributed to an increase in total expense primarily due to increased insurance claims and claims expense resulting from the COVID-19 pandemic, partially offset by an increase in total revenue.

For the six months ended June 30, 2020, the increase in net income and adjusted net income can be attributed by increases in total revenues partially offset by increased insurance claims and claims expense.

Diluted EPS was $0.36 and $1.11 for the three and six months ended June 30, 2020, respectively, compared to $0.56 and $1.04 for the three and six months ended June 30, 2019, respectively.

Adjusted diluted EPS was $0.40 and $1.14 for the three and six months ended June 30, 2020, respectively, compared to $0.59 and $1.15 for the three and six months ended June 30, 2019, respectively.

Fluctuations in diluted and adjusted diluted EPS for all periods shown were driven by an increase in weighted average diluted shares which is attributed to the common stock offering resulting in the sale of 15.9 million shares of common stock in June of 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 For the three months ended March 31,

Non-GAAP Financial Measure Reconciliations For the three months ended June 30, For the six months ended June 30,

2020 2019 2020 2019

As reported ($ in thousands, except for per share data)

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

Net realized investment losses 72 187

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

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

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

Capital market transaction costs 2,790 664 3,264 664

12 unchanged sentences

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.

items are incurred.

Adjustments to components of pre-tax income are tax effected using the applicable federal statutory tax rate for the respective periods.

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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.

Consolidated balance sheets March 31, 2020 December 31, 2019

Consolidated balance sheets June 30, 2020 December 31, 2019

(In Thousands)

5 unchanged sentences

Prepaid reinsurance premiums 10,263 15,488

Reinsurance recoverable (1)

Other assets (1)

31,008 30,209

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

As of March 31, 2020, we had $1.2 billion in cash and investments, including $43.7 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 cash from December 31, 2019 was due increased cash generated from operations and a pause on reinvestment activities.

Net deferred policy acquisition costs were $62.6 million as of March 31, 2020, compared to $60.0 million as of December 31, 2019.

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

As of June 30, 2020, we had $1.9 billion in cash and investments, including $75.6 million held by NMIH.

The increases in cash and investments from December 31, 2019 was primarily related to net proceeds of approximately $220 million from the common stock offering and net proceeds of approximately $245 million from the issuance of the Notes, both of which were completed in June 2020.

Net deferred policy acquisition costs were $63.6 million as of June 30, 2020, compared to $60.0 million as of December 31, 2019.

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 million as of March 31, 2020, compared to $15.5 million as of December 31, 2019.

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 million as of March 31, 2020 from $35.1 million as of December 31, 2019.

Other assets 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 million as of December 31, 2019 to $126.9 million as of March 31, 2020, primarily due to the amortization of existing unearned premiums through earnings in accordance with the expiration of risk on related single premium policies and the cancellation of other single premium policies, partially offset by single premium policy originations during the three months ended March 31, 2020.

Accounts payable and accrued expenses decreased from $39.9 million as of December 31, 2019 to $20.7 million as of March 31, 2020, primarily due to the payment of an unsettled trade payable related to the purchase of investment securities at year end 2019 and settlement of previously accrued compensation during the three months ended March 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 March 31, 2020, primarily due to an increase in NODs tied to the growth in the number of policies in force and the aging of our earlier book years, and an increase in our average reserve per default tied to 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 was partially offset by the release of prior year reserves primarily tied to NOD cures.

Prepaid reinsurance premiums were $10.3 million as of June 30, 2020, compared to $15.5 million as of December 31, 2019.

Prepaid reinsurance premiums, which represent the unearned premiums on single premium policies ceded under the 2016 QSR Transaction, decreased due to the continued amortization of previously ceded unearned premiums.

Other assets increased to $31.0 million as of June 30, 2020 from $30.2 million as of December 31, 2019.

The increase in other assets was primarily driven by an increase in ceded losses recoverable associated with our QSR transactions due to an increase in defaults and reserves for insurance claims and claims expense resulting from the COVID-19 pandemic, and the capitalization of deferred debt issuance costs incurred in connection with the 2020 Revolving Credit Facility.

Unearned premiums decreased from $136.6 million as of December 31, 2019 to $115.2 million as of June 30, 2020, primarily due to the amortization of existing unearned premiums through earnings in accordance with the expiration of risk on related single premium policies and the cancellation of other single premium policies, partially offset by single premium policy originations during the six months ended June 30, 2020.

Debt was $392.8 million as of June 30, 2020, compared to $145.8 million as of December 31, 2019.

Debt at December 31, 2019, represented the carry value of the $150 million 2018 Term Loan, which was repaid in full during the second quarter of 2020.

Debt at June 30, 2020, represented the carry value of the recently issued the Notes completed in June 2020.

Accounts payable and accrued expenses increased from $39.9 million as of December 31, 2019 to $104.8 million as of June 30, 2020, primarily due to unsettled payments from the purchase of certain investment securities, partially offset by the settlement of previously accrued compensation during the six months ended June 30, 2020.

Reserve for insurance claims and claim expenses increased from $23.8 million as of December 31, 2019 to $69.9 million as of June 30, 2020, primarily due to an increase in defaults, driven by new defaults on insured loans impacted by the COVID-19 outbreak, and an increase in the overall number of policies in our portfolio and aging of earlier book years.

This was partially offset by the release of prior year reserves primarily tied to default cures.

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 our ceded reinsurance premiums written, less our profit and ceding commission receivables related to the 2016 QSR Transaction.

The decrease in reinsurance funds withheld of $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.

Reinsurance funds withheld was $12.2 million as of June 30, 2020, representing the net of our ceded reinsurance premiums written, less our profit and ceding commission receivables related to the 2016 QSR Transaction.

The decrease in reinsurance funds withheld of $2.1 million from December 31, 2019, relates to 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 million at December 31, 2019 to $1.5 million at March 31, 2020, primarily due to a decrease in our stock price.

Warrant liability decreased from $7.6 million at December 31, 2019 to $2.7 million at June 30, 2020, primarily due to a decrease in our stock price.

For further information regarding the valuation of our warrant liability and its impact on our results of operations and financial position, see Item 1, " Financial Statements - Notes to Condensed Consolidated Financial Statements - Note 3, Fair Value of Financial Instruments.

Net deferred tax liability increased from $56.4 million as of December 31, 2019 to $66.8 million as of March 31, 2020, primarily due an increase in the claimed deductibility of our statutory contingency reserve.

Net deferred tax liability increased from $56.4 million as of December 31, 2019 to $83.8 million as of June 30, 2020, primarily due an increase in the claimed deductibility of our statutory contingency reserve.

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 For the three months ended March 31,

Consolidated cash flows For the six months ended June 30,

Net cash provided by (used in):

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

Net cash provided by operating activities was $47.9 million for the three months ended March 31, 2020, compared to $28.3 million for the three months ended March 31, 2019.

The increases in cash generated from operating activities for the three months ended March 31, 2020, was primarily driven by growth in premiums written and 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 and the sales of short-term investments partially offset by purchases.

As a result of the COVID-19 pandemic we paused reinvestment activities to bolster liquidity.

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

Cash used in financing activities was $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.

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.

Net cash provided by operating activities was $127.4 million for the six months ended June 30, 2020, compared to $87.3 million for the six months ended June 30, 2019.

The increase in cash generated from operating activities was primarily driven by growth in premiums written, partially offset by an increase in claims paid.

Cash used in investing activities for the periods presented was driven by the purchase of fixed and short-term maturities with cash provided by operating and, as available, financing activities, and the reinvestment of coupon payments, maturities and sale proceeds within our investment portfolio.

Cash used in investing activities for the six months ended June 30, 2020, reflects, in part, the investment of net cash proceeds from the common stock and Notes offerings we completed in June 2020.

Cash provided by financing activities was $461.3 million for the six months ended June 30, 2020, compared to cash used in financing activities of $1.9 million for the six months ended June 30, 2019.

Cash provided by financing activities for the six months ended June 30, 2020 refle cts $220.3 million net cash proceeds raised in our 2020 common stock offering and $245.9 million net cash proceeds raised in our 2020 Notes offering.

Holding Company Liquidity and Capital Resources

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(ii) payment of certain reimbursable expenses of its insurance subsidiaries;

(iii) payment of principal and interest related to the 2018 Term Loan and 2020 Revolving Credit Facility;

(iii) payment of the interest related to the Notes and 2020 Revolving Credit Facility;

(iv) tax payments to the Internal Revenue Service;

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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, NMIH had $43.7 million of cash and investments.

As of June 30, 2020, NMIH had $75.6 million of cash and investments.

NMIH's principal source of net cash is investment income.

NMIH also has access to $100 million of undrawn revolving credit capacity under the 2020 Revolving Credit Facility.

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.

NMIH has entered into tax and expense-sharing agreements with its subsidiaries which have been approved by the Wisconsin OCI.

With the Wisconsin OCI's approval, NMIH began allocating the interest expense on the 2015 Term Loan to NMIC in 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 may be changed or revoked at any time.

Our insurance operating subsidiaries also have the capacity, under Wisconsin law, to pay $16.1 million of aggregate ordinary dividends to NMIH during the 12-month period ending December 31, 2020.

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 $219.7 million, net of underwriting discounts, commissions and other direct offering expenses.

In June 2020, NMIH also completed the sale of the Notes, raising net proceeds of $244.4 million after giving effect to offering expenses and the repayment of principal amount outstanding under our $150 million 2018 Term Loan.

In June 2020, NMIH contributed approximately $445.4 million of capital to NMIC following completion of the Notes and equity offerings.

NMIH has entered into tax and expense-sharing agreements with its subsidiaries which have been approved by the Wisconsin OCI, with such approvals subject to change or revocation at any time.

Among such agreements, the Wisconsin OCI has approved the allocation of interest expense on the 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.

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.

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Under Wisconsin insurance laws, an extraordinary dividend is defined as any payment or distribution that together with other dividends and distributions made within the preceding 12 months exceeds the lesser of (i) 10% of the insurer's statutory policyholders' surplus as of the preceding December 31 or (ii) adjusted statutory net income for the 12-month period ending the preceding December 31.

NMIC 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.

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

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

As an approved insurer under PMIERs, NMIC would be subject to additional restrictions on its ability to pay dividends to NMIH if it failed to meet the financial requirements prescribed by PMIERs.

Approved insurers that fail to meet the PMIERs financial requirements are not permitted to pay dividends without prior approval from the GSEs.

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

Through March 31, 2021, even if an approved insurer has an available assets surplus, approved insurers must obtain Fannie Mae's prior written approval before taking any of the following actions:

a) 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 b) 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.

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, as defined in the 2018 Credit Agreement and subject to a 1.00% floor, plus an annual margin rate of 4.75%, payable monthly based on our current interest period election.

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, 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.

The 2020 Revolving Credit Facility also requires us 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.

We are subject to certain covenants under the 2018 Term Loan and 2020 Revolving Credit Facility.

Under the 2018 Term Loan (and as defined in the 2018 Credit Agreement), we are subject 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 (subject to any GSE-approved waivers), and minimum consolidated net worth and statutory capital requirements.

We were in compliance

with all covenants as of March 31, 2020.

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.

We periodically review incremental financing opportunities and we may choose to use the flexibility afforded under the amendment in future periods.

The Notes mature on Ju ne 19, 202 5 and bear interest at a rate of 7.375%, payable semi-annually on June 1 and December 1.

Our $100 million 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 used for general corporate purposes, including to support the growth of our new business production and operations.

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%.

We are subject to certain covenants under the Notes and 2020 Revolving Credit Facility.

Under the Notes (and 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, compliance with the PMIERs financial requirements (subject to any GSE-approved waivers), and minimum consolidated net worth and statutory capital requirements (respectively, as defined therein).

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

Consolidated Investment Portfolio

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and benchmarks for asset duration.

Our investment portfolio is entirely comprised of fixed maturity investments.

As of March 31, 2020, the fair value of our investment portfolio was $1.1 billion.

We also had an additional $109.8 million of cash and equivalents as of March 31, 2020.

Pre-tax book yield on the investment portfolio for the three months ended March 31, 2020 was 3.0%.

The book yield is calculated as period-to-date net investment income divided by average amortized cost of the investment portfolio.

Yield on the investment portfolio is likely to change over time based on movements in interest rates, credit spreads, the duration or mix of our investment portfolio and other factors.

Our investment portfolio is comprised entirely of fixed maturity instruments.

As of June 30, 2020, the fair value of our investment portfolio was $1.3 billion.

We also had an additional $515.5 million of cash and equivalents as of June 30, 2020.

Pre-tax book yield on the investment portfolio for the six months ended June 30, 2020 was 2.5%.

The book yield is calculated as period-to-date net investment income divided by the average amortized cost of the investment portfolio.

Yield on the investment portfolio is likely to change over time based on movements in interest rates, credit spreads, the duration or mix of our 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 March 31, 2020 December 31, 2019

Percentage of portfolio's fair value June 30, 2020 December 31, 2019

Corporate debt securities 55 % 58 %

Cash, cash equivalents, and short-term investments 28 7

Municipal debt securities 10 16

Asset-backed securities 5 15

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

treasury securities and obligations of U.S.

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Investment portfolio ratings at fair value (1)

March 31, 2020 December 31, 2019

June 30, 2020 December 31, 2019

AAA 32 % 20 %

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(2) Includes +/– ratings.

Our investments are rated by one or more nationally recognized statistical rating organizations.

If two or more ratings are available, we assign the middle rating for classification purposes, otherwise we assign the lowest rating.

All of our investments are rated by one or more nationally recognized statistical rating organizations.

If 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 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 wide widening of credit spreads and surging demand for liquidity across the broader markets, partially offset by interest rate movements since the purchase date.

We expect to recover 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 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.

As of June 30, 2020, we did not recognize an allowance for credit loss for any security in our investment portfolio.

As of June 30, 2019, we held no other-than-temporarily impaired securities.

During the six months ended June 30, 2019, we recognized a $0.4 million loss in earnings related to the planned sale of a security in a loss position that was disposed of in April 2019.

We did not recognize any OTTI losses for the three months ended June 30, 2019.

Off-Balance Sheet Arrangements and Contractual Obligations

We had no material off-balance sheet arrangements as of March 31, 2020.

We had no material off-balance sheet arrangements as of June 30, 2020.

In connection with the ILN Transactions, we have certain future contractual commitments to the Oaktown Re Vehicles (special purpose variable interest entities that are not consolidated in our financial results).

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Organization, Basis of Presentation and Summary 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.

Effective March 31, 2020, we entered into a seven-year IT services agreement with TCS under which we outsource certain IT support and expertise functions.

See "- Information Technology " above for more information.

Critical Accounting Estimates

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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 2. Management’s Discussion and Analysis