What changed in this filing

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Item 2. Management’s Discussion and Analysis

2020-11-05 compared with 2020-08-06 · 220 added, 226 removed, 697 unchanged (39% 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 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.

As of September 30, 2020, we had master policies with 1,551 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 September 30, 2020, we had $106.6 billion of total insurance-in-force (IIF), including primary IIF of $104.5 billion, and $26.7 billion of gross RIF, including primary RIF of $26.6 billion.

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

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

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

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

As of September 30, 2020, we had 261 employees.

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

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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.

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.

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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.

Low interest rates are helping to support housing affordability, 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.

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

(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.

(v) the broader and equally immediate application of significant 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 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 believe the 2008 Financial Crisis was directly precipitated by irresponsible behavior in the housing market that drove home prices 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 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.

Purchase mortgage origination volume has increased significantly as factors related to the COVID-19 crisis have spurred significant incremental demand for homeownership.

Refinancing origination volume has also grown dramatically as declining mortgage rates have created refinancing opportunities for a large number of 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.

In this context, we anticipate total U.S.

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.

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Potential Impact on NMI's Business Performance and Financial Position

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.

We had 261 employees at September 30, 2020, including 113 who typically work at our corporate headquarters in Emeryville, CA and 148 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 113 Emeryville-based staff.

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New Business Production

Our NIW has expanded significantly in past periods, driven by growth in the overall mortgage insurance market and the success we have had further developing our customer franchise.

During the three-year period between January 1, 2017 and December 31, 2019, we activate d 340 new lenders, growing our franchise by over 45% , and successfully deepened our engagement with many existing customers.

In the same period, total U.S.

mortgage insurance NIW volume increased by 19% annually - peaking at $384 billion for the year-ended December 31, 2019.

Notwithstanding 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.

Our NIW volume increased significantly following the onset of the COVID-19 pandemic driven by the broad resiliency of the housing market, growth in total mortgage origination volume and increasing size of the U.S.

mortgage insurance market, as well as the continued expansion of our customer franchise.

We wrote $18.5 billion of NIW during the three months ended September 30, 2020, up 41% compared to the three months ended June 30, 2020 and 31% compared to the three months ended September 30, 2019.

We expect our NIW volume and total mortgage insurance industry production will remain elevated through the remainder of 2020, with the potential for total market production and our NIW volume to reach record levels.

While we currently expect our new business production will remain elevated, the potential onset of a second viral wave, reintroduction of broad-based shelter-in-place directives, increased unemployment or other potential outcomes related to COVID-19 could drive a moderation or decline in our volume going forward.

We have broadly defined underwriting standards and loan-level eligibility criteria that are designed to limit our exposure to higher risk loans, and have used Rate GPS to actively shape the mix of our new business production and insured portfolio by, among other risk factors, borrower FICO score, debt-to-income (DTI) ratio and LTV ratio.

At 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.

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, that have further strengthened the credit risk profile of our NIW volume and IIF.

At September 30, 2020, the weighted average FICO score of our RIF was 754 and we had a 3% mix of below 680 FICO score risk.

Similarly, at September 30, 2020, the weighted average LTV ratio (at origination) of our insured portfolio was 92.4% and we had a 9% mix of 97% LTV risk.

We set our premium rates based on a broad range of individual and market variables, including property type, type of loan product, borrower credit characteristics, and lender profile.

Given the significant economic dislocation caused thus far by the COVID-19 outbreak, and the uncertain duration and ultimate global impact of this crisis, we have taken action to increase the premium rates we charge on all new business production, in accordance with our filed rates and applicable rating rules.

We expect the pricing changes we have instituted will increase the rate received on NIW volume in future periods and further enhance the credit mix of our new business production.

Given the significant economic dislocation caused thus far by the COVID-19 outbreak, the uncertain duration and ultimate global impact of this crisis, and the continued potential that it will have a deleterious effect on the residential housing market, we have taken action to increase the premium rates we charge on all new business production, in accordance with our filed rates and applicable rating rules.

Delinquency Trends and 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 had 13,765 defaulted loans in our primary insured portfolio at September 30, 2020, which represented a 3.60% default rate against our 381,899 total policies in-force.

Our default population has increased significantly since the outbreak of the pandemic as borrowers have faced increasing challenges related to COVID-19 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.

At September 30, 2020, 24,809 or 6.5% of the loans we insured in our primary portfolio were enrolled in a forbearance program,

including 12,665 of the loans in our default population, 1,772 loans that had missed at least one payment, but not progressed into default status and 10,372 additional loans that were fully performing without any missed payments.

As of October 31, 2020, our default population had decreased to 13,108, representing a 3.41% default rate and identified 23,727 loans in forbearance programs.

While we are encouraged by the recent decline in our forbearance and default populations, and the rising level of cure activity amongst COVID impacted borrowers, the continued social and economic dislocation caused by the pandemic may contribute to an increase in our forbearance and default counts in future periods.

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.

The size of the reserve we establish for each defaulted loan (and by extension our aggregate reserve and claims expense) reflects our best estimate of the future claim payment to be made under each individual policy.

Our future claims exposure is a function of the number of delinquent loans that progress to claim payment (which we refer to as frequency) and the amount to be paid to settle such claims (which we refer to as severity).

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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.

At September 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.

If the duration of the current foreclosure moratorium mandated by the GSEs is extended beyond December 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 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.

At September 30, 2020, we reported $1,672 million available assets against $991 million risk-based required assets for a $681 million of "excess" funding position.

The capital relief we expect to receive in connection with our 2020-2 ILN Transaction is not included in our PMIERs position as of September 30, 2020, as the transaction was completed after quarter end.

In future periods, the 2020-2 ILN Transaction will bolster our "excess" PMIERs funding position, subject to GSE approvals.

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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.

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.

In June 2020, the GSEs issued guidance (subsequently amended and restated in September 2020) on the risk-based treatment of loans affected by the COVID-19 crisis.

Under the 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).

Under our quota share reinsurance treaties, we receive credit for the PMIERs risk-based required asset amount on

Under our quota share reinsurance treaties, we receive credit for the PMIERs risk-based required asset amount on ceded RIF.

As our gross PMIERs risk-based required asset amount on ceded RIF increases, our PMIERS credit for ceded RIF automatically increases as well (in an unlimited amount).

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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:

The following table provides detail on the level of overcollateralization of each of our ILN Transactions at September 30, 2020:

($ values in thousands) 2017 ILN Transaction

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2019 ILN Transaction

2020-1 ILN Transaction

Ceded RIF $ 2,275,759 $ 2,703,393 $ 3,358,641 $ 6,055,359

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Subordinated Coverage (1)

7.11% 10.43% 10.57% 8.00%

PMIERs Charge on Ceded RIF 5.93% 7.48% 7.79% 6.13%

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Delinquency Trigger (2)

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.

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

(2) For the 2020-1 ILN Transaction, the delinquency trigger is equal to seventy-five percent of subordinated coverage.

At September 30, 2020, we had an aggregate $320 million of overcollateralization available across our 2017, 2018, 2019 and 2020-1 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 of the 2017, 2018 and 2019 ILN Transactions and our underlying RIF continues to run-off at the same rate as it did during the month ended September 30, 2020, we estimate that our total overcollateralization would increase by up to approximately $70 million per quarter.

Our PMIERs funding requirement will go up in future periods based on the volume and risk profile of our new business production, and performance of our in-force insurance portfolio.

We estimate, however, that we will remain in compliance with our PMIERs asset requirements even if the forbearance-driven default 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.

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 $681 million excess available asset position at September 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, 2019 and 2020-1 ILN Transactions and the additional risk protection and PMIERs capacity provided under our recently announced 2020-2 ILN Transaction.

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

Formulations of this minimum capital vary by state, however, the most common measure allows for a maximum ratio of RIF to statutory capital (commonly referred to as "risk-to-capital" or "RTC") of 25:1.

Formulations of this minimum capital vary by state, however, the most common measure allows for a maximum ratio of RIF to statutory capital (commonly referred to as RTC) of 25:1.

The RTC calculation does not assess a different charge or impose a different threshold RTC limit based on the underlying risk characteristics of the insured portfolio.

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

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

As of September 30, 2020, we had $1.9 billion of consolidated cash and investments, including $75 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.

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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 ."

See Item 1, " Financial Statements - Notes to Condensed Consolidated Financial Statements - Note 4, Debt and Note 12, Subsequent Event ."

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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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 June 30, 2020, NMIC had $1.7 billion of cash and investments, including $433 million of cash and equivalents.

At September 30, 2020, NMIC had $1.8 billion of cash and investments, including $158 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 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.

During the twelve-month period ended September 30, 2020, NMIC generated $268 million of cash flow from operations and received an additional $411 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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NMIC's only use of cash that develops along an unscheduled path is claims payments.

Given the breadth and duration of forbearance programs available to borrowers, separate foreclosure moratoriums that have been enacted at a local, state and federal level, and the general duration of the default to foreclosure to claim cycle, we do not expect NMIC to pay meaningful cash claims in the near-term.

Premiums paid to NMIC on monthly policies are generally collected and remitted by loan servicers.

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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.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.

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 (subsequently amended and restated in September 2020) that, among other items, requires us, and we have agreed, 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 September 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 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;

At September 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 September 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 September 30, 2020, our portfolio was in a $65 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 1.6% .

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.

We did not record any allowance for credit losses in the portfolio during the three months ended September 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 2.3% for the three months ended September 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.

We have since redeployed much of our excess liquidity position.

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 June 30, 2020 were non-refundable under most cancellation scenarios.

Substantially all of our single premium policies in force as of September 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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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.

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.

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 M ae, 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.

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 21% of the risk on eligible policies written from April 1, 2020 through December 31, 2020, in exchange for reimbursement of ceded claims and claim expenses on covered po licies, a 20% ceding commission, and a profit commission of up to 50% that varies directly and inversely with ceded claims.

NMIC may elect to 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.

13 unchanged sentences

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.

Current amounts are presented as of September 30, 2020.

( $ values in thousands)

3 unchanged sentences

2019 ILN Transaction July 30, 2019 6/1/2018 - 6/30/2019 326,905 231,877 123,424 123,072

2020-1 ILN Transaction July 30, 2020 7/1/2019 - 3/31/2020 322,076 322,076 169,514 169,514

(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.

In October 2020, NMIC secured $242.4 million of aggregate excess-of-loss reinsurance coverage at inception for an exi sting portfolio of policies primarily written from April 1, 2020 to September 30, 2020, through a mortgage insurance-linked

notes offering by Oaktown Re V.

The reinsurance coverage amount under the terms of the 2020-2 ILN Transaction decreases from $242.4 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.

For the reinsurance coverage period, NMIC retains the first layer of $121.2 million of aggregate losses and Oaktown Re V then provides second layer coverage up to the outstanding reinsurance coverage amount.

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

3 unchanged sentences

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

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

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

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

September 30, 2020 September 30, 2019 September 30, 2020 September 30, 2019

IIF NIW IIF NIW NIW

5 unchanged sentences

Total $ 106,609 $ 18,499 $ 92,381 $ 14,100 $ 42,920 $ 33,192

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.

For the three and nine months ended September 30, 2020, NIW increased 31% and 29%, respectively, compared to the three and nine months ended September 30, 2019, due to growth in our monthly and single premium policy production tied to growth in the size of the total mortgage insurance market, as well as the increased penetration of existing customer accounts and new customer account activations.

For the three months ended September 30, 2020, monthly premium polices accounted for 89% of our NIW.

As of September 30, 2020, monthly premium policies accounted for 85% of our primary IIF, as compared to 80% at September 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 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.

Total IIF increased 15% as of September 30, 2020 compared to September 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 60% at September 30, 2020 from 82% at September 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 For the six months ended

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

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

September 30, 2020 September 30, 2019 September 30, 2020 September 30, 2019

(In Thousands)

1 unchanged sentence

Net premiums earned 98,802 92,381 296,463 249,499

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.

For the three and nine months ended September 30, 2020, net premiums written increased 15% and 16%, respectively, and net premiums earned increased 7% and 19%, respectively, compared to the three and nine months ended September 30, 2019.

Pool premiums written and earned for the three and nine months ended September 30, 2020 and 2019, were $0.6 million and $2.0 million, and $0.7 million and $2.3 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.

3 unchanged sentences

Primary portfolio trends As of and for the three months ended

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

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

($ Values In Millions, except as noted below)

17 unchanged sentences

13,765 10,816 1,449 1,448 1,230

Percentage of loans in default (1)

Default rate (1)

3.60 % 2.90 % 0.38 % 0.40 % 0.35 %

1 unchanged sentence

$ 1,008 $ 799 $ 84 $ 84 $ 70

Average premium yield (3)

Net premium yield (3)

0.39 % 0.40 % 0.41 % 0.41 % 0.43 %

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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 For the six months ended

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

Primary IIF For the three months ended For the nine months ended

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

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

IIF RIF IIF RIF

(In Millions)

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

September 30, 2020 $ 40,969 $ 10,255 $ — $ —

2019 29,865 7,791 31,844 8,283

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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.

In response to 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, that have further strengthened the credit risk profile of our NIW volume and IIF.

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 For the six months ended

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

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

September 30, 2020 September 30, 2019 September 30, 2020 September 30, 2019

(In Millions)

7 unchanged sentences

Weighted average FICO 764 754 761 752

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

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

September 30, 2020 September 30, 2019 September 30, 2020 September 30, 2019

(In Millions)

5 unchanged sentences

Weighted average LTV 90.7 % 91.7 % 90.8 % 91.9 %

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

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

September 30, 2020 September 30, 2019 September 30, 2020 September 30, 2019

(In Millions)

Purchase $ 12,764 $ 11,284 $ 28,531 $ 28,364

Refinance (1)

5,735 2,816 14,389 4,828

2 unchanged sentences

Primary IIF by FICO As of

June 30, 2020 June 30, 2019

September 30, 2020 September 30, 2019

($ Values In Millions)

7 unchanged sentences

Primary RIF by FICO As of

June 30, 2020 June 30, 2019

September 30, 2020 September 30, 2019

($ Values In Millions)

4 unchanged sentences

680-699 1,730 6 1,665 7

<=679 805 3 929 4

Total $ 26,568 100 % $ 22,810 100 %

Primary IIF by LTV As of

June 30, 2020 June 30, 2019

September 30, 2020 September 30, 2019

($ Values In Millions)

5 unchanged sentences

Primary RIF by LTV As of

June 30, 2020 June 30, 2019

September 30, 2020 September 30, 2019

($ Values In Millions)

5 unchanged sentences

Primary RIF by Loan Type As of

June 30, 2020 June 30, 2019

September 30, 2020 September 30, 2019

Fixed 99 % 98 %

3 unchanged sentences

Total 100 % 100 %

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

As of June 30, 2020

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

As of September 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 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.

As of September 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 September 30, 2020 is not necessarily representative of the geographic distribution we expect in the future.

Top 10 primary RIF by state As of

June 30, 2020 June 30, 2019

September 30, 2020 September 30, 2019

California 11.3 % 11.9 %

2 unchanged sentences

Virginia 5.4 5.3

Illinois 4.0 3.6

Colorado 4.0 3.4

Pennsylvania 3.6 3.6

Illinois 4.0 3.8

Maryland 3.6 3.3

Washington 3.5 3.2

Pennsylvania 3.5 3.6

Massachusetts 3.5 3.1

3 unchanged sentences

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.

Reserves for claims and claim expenses are established for mortgage loans that are in default.

A loan is considered to be in default as of the payment date at which a borrower has missed the preceding two or more consecutive monthly payments.

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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.

At September 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

For the three months ended For the nine months ended

September 30, 2020 September 30, 2019 September 30, 2020 September 30, 2019

(In Thousands)

16 unchanged sentences

Reinsurance terminations (4)

— (549) — (549)

Total claims and claim expenses paid 1,213 1,033 4,461 1,852

16 unchanged sentences

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.

Gross reserves of $11.4 million related to prior year defaults remained as of September 30, 2020.

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

For the three months ended For the six months ended

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

For the three months ended For the nine months ended

September 30, 2020 September 30, 2019 September 30, 2020 September 30, 2019

Beginning default inventory 10,816 1,028 1,448 877

4 unchanged sentences

Ending default inventory 13,765 1,230 13,765 1,230

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 increase in the ending default inventory at September 30, 2020 compared to September 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 September 30, 2020, 12,238 of our 13,765 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

For the three months ended For the nine months ended

September 30, 2020 September 30, 2019 September 30, 2020 September 30, 2019

($ In Thousands)

4 unchanged sentences

67 % 70 % 80 % 70 %

(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.

(1) Count include s six and eight claims settled without payment for the three and nine months ended September 30, 2020, respectively, and eight and fourteen claims settled without payment for the three and nine months ended September 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 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 number of claims paid for the three and nine months ended September 30, 2020 increased compared to the three and nine months ended September 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 and implemented by the GSEs through at least December 31, 2020, which may extend the timeline over which loans would otherwise progress through the default cycle to a paid claim.

Our claims severity for the three and nine months ended September 30, 2020 was 67% and 80%, respectively, compared to 70% for each of the three and nine month periods ended September 30, 2019.

Claims severity for the three months ended September 30, 2020 benefited from the resiliency of the housing market and broad national house price appreciation.

An increase in the value of the homes collateralizing the mortgages we insure provides additional equity support to our risk exposure by increasing the possibility of a third-party sale of the foreclosed property, which can mitigate the severity of our settled claims.

The increase in claims severity for the nine months ended September 30, 2020 relates to an increase in the portion of claims settled using the percent option instead of through third-party sales during the six months ended June 30, 2020 as third-party marketing and sales activity was broadly constrained in the period immediately following the outbreak of the COVID-19 pandemic.

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 June 30, 2020 As of June 30, 2019

As of September 30, 2020 As of September 30, 2019

(In Thousands)

2 unchanged sentences

(2) Amount includes claims adjustment expenses.

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.

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

At September 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 September 30, 2020, our total reserve position and claims and claims expenses increased substantially as of and during the period ended September 30, 2020 due to the increase in the size of our default population.

GSE Oversight

13 unchanged sentences

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.

June 30, 2020 June 30, 2019

September 30, 2020 September 30, 2019

(In Thousands)

1 unchanged sentence

Risk-based required assets 990,678 637,914

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

Available assets were $1,672 million at September 30, 2020, compared to $956 million at September 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.

The $716 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.

See " - COVID-19 Developments, " above.

10 unchanged sentences

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.

As of September 30, 2020, NMIC's performing primary RIF, net of reinsurance, was approximately $19.9 billion.

NMIC ceded 100% of its pool RIF pursuant to the 2016 QSR Transaction.

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.

Based on NMIC's total statutory capital of $1.6 billion (including contingency reserves) as of September 30, 2020, NMIC's RTC ratio was 12.8:1.

Re One had total statutory capital of $37 million as of September 30, 2020, and a RTC ratio of 1.2:1.

We continuously monitor our compliance with state capital requirements.

17 unchanged sentences

Consolidated Results of Operations

Consolidated statements of operations Three months ended Six months ended

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

Consolidated statements of operations Three months ended Nine months ended

September 30, 2020 September 30, 2019 September 30, 2020 September 30, 2019

Revenues ($ in thousands, except for per share data)

1 unchanged sentence

Net investment income 8,337 7,882 23,511 22,894

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

Net realized investment (losses) gains (4) 81 635 (219)

Other revenues 648 1,244 2,771 1,700

19 unchanged sentences

50.2 % 37.8 % 51.4 % 41.5 %

Three months ended Six months ended

Three months ended Nine months ended

Non-GAAP financial measures (6)

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

September 30, 2020 September 30, 2019 September 30, 2020 September 30, 2019

($ in thousands, except for per share data)

Adjusted income before tax $ 52,052 $ 64,401 $ 157,087 $ 162,461

2 unchanged sentences

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

(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.

(2) Diluted net income for the three months ended September 30, 2019 and the nine months ended September 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 unchanged sentences

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

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 and six months ended relates to an increase in NMIS' outsourced loan review volume.

For the three and nine months ended September 30, 2020, net premiums earned increased $6.4 million or 7% and $47.0 million or 19%, respectively, compared to the three and nine months ended September 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 QSR and ILN Transactions.

For the three and nine months ended September 30, 2020, net investment income increased $0.5 million and $0.6 million, respectively, compared to the three and nine months ended September 30, 2019.

The increases were driven by an increase in the size of our total investment portfolio, partially offset by a decline in book yield tied to the prevailing interest rate and credit spread environment.

For the three months ended September 30, 2020, other revenues decreased $0.6 million compared to the three months ended September 30, 2019.

For the nine months ended September 30, 2020, other revenues increased $1.1 million, compared to nine months ended September 30, 2019.

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

Fluctuations in other revenues were driven by the size of 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.

1 unchanged sentence

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

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 .

Insurance claims and claim expenses increased $13.1 million and $47.5 million for the three and nine months ended September 30, 2020, respectively, compared to the three and nine months ended September 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, partially offset by the release of certain reserves related to prior year defaults.

Underwriting and operating expenses increased $1.6 million, and $1.3 million for the three and nine months ended September 30, 2020, respectively, compared to the three and nine months ended September 30, 2019.

The increase primarily relates to the recognition of previously deferred policy acquisition costs taken in connection with in-force portfolio run-off and an increase in issuance expenses incurred in connection with capital market reinsurance transaction activity, partially offset by reductions in payroll, travel and entertainment, and office administrative expenses as a result of the COVID-19 outbreak.

Underwriting and operating expenses included capital market reinsurance transaction costs of $2.3 million and $1.7 million, for the three months ended September 30, 2020 and 2019, respectively, and $2.9 million and $2.4 million, for the nine months ended September 30, 2020 and 2019, respectively.

Service expenses were $0.6 million and $2.4 million for the three and nine months ended September 30, 2020, respectively, compared to $0.9 million and $1.3 million for the three and nine months ended September 30, 2019, respectively .

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

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.

Fluctuations in service expenses for the three and nine months ended September 30, 2020, were driven by the size of 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.

Interest expense was $7.8 million and $16.5 million for the three and nine months ended September 30, 2020, respectively, compared to $3.0 million and $9.1 million for the three and nine months ended September 30, 2019, respectively.

Interest expense increased in connection with the $400 million Notes issuance and retirement of the $150 million 2018 Term Loan completed in June 2020.

Interest expense for the nine months ended September 30, 2020 includes $2.6 million of costs related to the extinguishment of the 2018 Term Loan.

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

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.

Income tax expense was $11.2 million and $33.2 million for the three and nine months ended September 30, 2020, respectively, compared to $14.2 million and $32.1 million for the three and nine months ended September 30, 2019, respectively.

Fluctuations in income tax expense for the three and nine months ended September 30, 2020, reflect fluctuations in pre-tax income during such periods.

We are subject to a 21% statutory U.S.

federal corporate income tax rate.

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 effective tax rate on pre-tax income was 22.6% and 21.2% for the three and nine months ended September 30, 2020, respectively, compared to 22.2% and 20.9% for the three and nine months ended September 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 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.

Our effective tax rates for the three and nine months ended September 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 $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.

Net income was $38.2 million and $123.3 million for the three and nine months ended September 30, 2020, respectively, compared to $49.8 million and $121.8 million for the three and nine months ended September 30, 2019, respectively.

Adjusted net income was $40.4 million and $122.9 million for the three and nine months ended September 30, 2020, respectively, compared to $49.9 million and $129.8 million for the three and nine months ended September 30, 2019, respectively.

Net income and adjusted net income for the three and nine months ended September 30, 2020, benefited from an increase in total revenues, but were also impacted by defaults caused by the COVID-19 pandemic, which drove an increase in insurance claims and claim expenses.

Diluted EPS was $0.45 and $1.55 for the three and nine months ended September 30, 2020, respectively, compared to $0.69 and $1.75 for the three and nine months ended September 30, 2019, respectively.

Adjusted diluted EPS was $0.47 and $1.60 for the three and nine months ended September 30, 2020, respectively, compared to $0.71 and $1.87 for the three and nine months ended September 30, 2019, respectively.

Diluted and adjusted diluted EPS decreased primarily due to an increase in weighted average diluted shares outstanding in connection with the issuance of 15.9 million shares of common stock we completed in June 2020.

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

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

Non-GAAP Financial Measure Reconciliations For the three months ended September 30, For the nine months ended September 30,

2020 2019 2020 2019

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Net income $ 38,179 $ 49,763 $ 123,298 $ 121,762

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

Net realized investment losses (gains) 4 (81) (635) 219

Loss (gain) from change in fair value warrant liability 437 (1,139) (4,286) 6,025

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

We believe the use of the non-GAAP measures of adjusted income before tax, adjusted net income and adjusted diluted EPS enhance the comparability of our fundamental financial performance between periods, and provides relevant information to investors.

We believe the use of the non-GAAP measures of adjusted income before tax, adjusted net income and adjusted diluted EPS enhances the comparability of our fundamental financial performance between periods, and provides relevant information to investors.

These non-GAAP financial measures align with the way the company's business performance is evaluated by management.

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

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

items are incurred.

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

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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 June 30, 2020 December 31, 2019

Consolidated balance sheets September 30, 2020 December 31, 2019

(In Thousands)

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(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.

As of September 30, 2020, we had $1.9 billion in cash and investments, including $75.1 million held by NMIH.

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

Net deferred policy acquisition costs were $63.2 million as of September 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 $10.3 million as of June 30, 2020, compared to $15.5 million as of December 31, 2019.

Prepaid reinsurance premiums were $8.0 million as of September 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.

Reinsurance recoverable was $17.2 million as of September 30, 2020, compared to $4.9 million as of December 31, 2019.

The increase in reinsurance recoverable was primarily driven by an increase in ceded losses recoverable associated with our QSR transactions due to an increase in defaults and related reserves for insurance claims and claims expense resulting from the COVID-19 pandemic.

Unearned premiums decreased from $136.6 million as of December 31, 2019 to $116.0 million as of September 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 nine months ended September 30, 2020.

Debt was $393.0 million as of September 30, 2020, compared to $145.8 million as of December 31, 2019.

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

Debt at September 30, 2020, represented the carrying 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 $59.3 million as of September 30, 2020, primarily due to an increase in reinsurance premiums payable, accrued interest due and payable semi-annually on the Notes issued in June 2020, unsettled payments from the purchase of certain investment securities, and timing of other payments due, partially offset by the settlement of previously accrued compensation during the nine months ended September 30, 2020.

Reserve for insurance claims and claim expenses increased from $23.8 million as of December 31, 2019 to $87.2 million as of September 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 $12.2 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.

Reinsurance funds withheld was $10.4 million as of September 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 $3.9 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 $2.7 million at June 30, 2020, primarily due to a decrease in our stock price.

Warrant liability decreased from $7.6 million at December 31, 2019 to $3.1 million at September 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 $83.8 million as of June 30, 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 $97.5 million as of September 30, 2020, primarily due an increase in the tax deduction claimed for 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 six months ended June 30,

Consolidated cash flows For the nine months ended September 30,

Net cash provided by (used in):

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Net increase in cash and cash equivalents $ 153,110 $ 20,595

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.

Net cash provided by operating activities was $215.0 million for the nine months ended September 30, 2020, compared to $139.6 million for the nine months ended September 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.

Cash used in investing activities for the nine months ended September 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 $459.0 million for the nine months ended September 30, 2020, compared to cash used in financing activities of $1.7 million for the nine months ended September 30, 2019.

Cash provided by financing activities for the nine months ended September 30, 2020 refle cts $219.7 million net cash proceeds raised in our 2020 common stock offering and $244.2 million net cash proceeds raised in our 2020 Notes offering.

Holding Company Liquidity and Capital Resources

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

As of September 30, 2020, NMIH had $75.1 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.

NMIH also has access to $110 million of undrawn revolving credit capacity under the 2020 Revolving Credit Facility (See Item 1, " Financial Statements - Notes to Condensed Consolidated Financial Statements - Note 12, Subsequent Event ").

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.

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 $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.

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

Among such agreements, the Wisconsin OCI has approved the allocation of interest expense on the Notes and $100 million of the 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 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%.

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

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

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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.

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

Consolidated Investment Portfolio

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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%.

As of September 30, 2020, the fair value of our investment portfolio was $1.7 billion and we held an additional $194.2 million of cash and equivalents.

Pre-tax book yield on the investment portfolio for the nine months ended September 30, 2020 was 2.3%.

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

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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 June 30, 2020 December 31, 2019

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

Corporate debt securities 63 % 58 %

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

Municipal debt securities 18 16

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

Asset-backed securities 7 15

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Investment portfolio ratings at fair value (1)

June 30, 2020 December 31, 2019

September 30, 2020 December 31, 2019

AAA 16 % 20 %

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Investment Securities - Allowance for credit losses

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.

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

As of September 30, 2019, we held no OTTI securities.

During the nine months ended September 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 September 30, 2019.

Off-Balance Sheet Arrangements and Contractual Obligations

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).

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

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

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

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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