What changed in this filing

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Item 1. Financial Statements

2021-05-05 compared with 2020-11-05 · 197 added, 316 removed, 513 unchanged (50% of the section changed)

1 unchanged sentence

INDEX TO FINANCIAL STATEMENTS

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

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

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

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

Condensed Consolidated Balance Sheets as of March 31, 2021 (Unaudited) and December 31, 2020 6

Condensed Consolidated Statements of Operations and Comprehensive Income for the three months ended March 31, 2021 and 2020 (Unaudited) 7

Condensed Consolidated Statements of Changes in Shareholders' Equity for the three months ended March 31, 2021 and 2020 (Unaudited) 8

Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 2021 and 2020 (Unaudited) 9

Notes to Condensed Consolidated Financial Statements (Unaudited) 10

1 unchanged sentence

CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)

September 30, 2020 December 31, 2019

March 31, 2021 December 31, 2020

Assets (In Thousands, except for share data)

Fixed maturities, available-for-sale, at fair value (amortized cost of $1,624,970 and $1,113,779 as of September 30, 2020 and December 31, 2019, respectively) $ 1,689,815 $ 1,140,940

Cash and cash equivalents (including restricted cash of $5,555 and $2,662 as of September 30, 2020 and December 31, 2019, respectively) 194,199 41,089

Fixed maturities, available-for-sale, at fair value (amortized cost of $1,815,190 and $1,730,835 as of March 31, 2021 and December 31, 2020, respectively) $ 1,831,511 $ 1,804,286

Cash and cash equivalents (including restricted cash of $4,868 and $5,555 as of March 31, 2021 and December 31, 2020, respectively) 115,517 126,937

Premiums receivable 52,206 49,779

7 unchanged sentences

Other assets 52,349 53,188

15,149 16,232

Total assets $ 2,187,831 $ 2,166,666

11 unchanged sentences

Common stock - class A shares, $0.01 par value;

84,808,516 and 68,358,074 shares issued and outstanding as of September 30, 2020 and December 31, 2019, respectively (250,000,000 shares authorized) 848 684

85,599,908 and 85,163,039 shares issued and outstanding as of March 31, 2021 and December 31, 2020, respectively (250,000,000 shares authorized) 856 852

Additional paid-in capital 940,827 937,872

3 unchanged sentences

Total liabilities and shareholders' equity $ 2,187,831 $ 2,166,666

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

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

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

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

2020 2019 2020 2019

For the three months ended March 31,

Revenues (In Thousands, except for per share data)

1 unchanged sentence

Net investment income 8,814 8,104

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

Net realized investment losses — ( 72 )

Other revenues 501 900

2 unchanged sentences

Underwriting and operating expenses 34,065 32,277

33,969 32,335 96,616 95,325

Service expenses 591 734

557 909 2,381 1,311

Interest expense 7,915 2,744

11 unchanged sentences

Net income $ 52,891 $ 58,271

Other comprehensive income, net of tax:

Unrealized gains in accumulated other comprehensive income, net of tax expense of $2,494 and $1,376 for the three months ended September 30, 2020 and 2019, respectively, and $7,655 and $8,991 for the nine months ended September 30, 2020 and 2019, respectively 9,381 5,177 28,799 33,824

Reclassification adjustment for realized losses (gains) included in net income, net of tax (benefit) expense of ($1) and $17 for the three months ended September 30, 2020 and 2019, respectively, and ($258) and ($46) for the nine months ended September 30, 2020 and 2019, respectively 3 ( 64 ) 972 173

Other comprehensive income, net of tax 9,384 5,113 29,771 33,997

Other comprehensive loss, net of tax:

Unrealized losses in accumulated other comprehensive loss, net of tax benefit of $11,997 and $3,424 for the quarters ended March 31, 2021 and 2020, respectively ( 45,133 ) ( 12,881 )

Reclassification adjustment for realized losses included in net income, net of tax benefit of $15 for the quarter ended March 31, 2020 — 57

Other comprehensive loss, net of tax ( 45,133 ) ( 12,824 )

Comprehensive income $ 7,758 $ 45,447

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

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

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Balances, March 31, 2021 85,600 $ 856 $ 940,827 $ 8,723 $ 429,902 $ 1,380,308

Common stock:

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

Common stock:

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

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

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

Net income — — — — 26,848 26,848

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

Common stock:

class A shares issued under stock plans, net of shares withheld for employee taxes 4 * — — — —

Share-based compensation expense — — 2,956 — — 2,956

Change in unrealized investment gains, net of tax expense of $2,494 — — — 9,384 — 9,384

Net income — — — — 38,179 38,179

Balances, September 30, 2020 84,809 $ 848 $ 930,906 $ 47,059 $ 328,743 $ 1,307,556

* During the three months ended March 31, 2021, we issued 23,750 common shares with a par value of $ 0.01 in connection with the exercise of warrants, which is not identifiable in this schedule due to rounding.

During the three months ended June 30, 2020 and September 30, 2020, we issued 61,226 and 3,750 common shares, respectively, with a par value of $ 0.01 in connection with the exercise of options, and vesting of restricted stock units granted under our stock plans, which are not identifiable in this schedule due to rounding.

NMI HOLDINGS, INC.

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

Common Stock - Class A Additional

8 unchanged sentences

Share-based compensation expense — — 2,552 — — 2,552

Change in unrealized investment gains/losses, net of tax expense of $3,992 — — — 15,016 — 15,016

Change in unrealized investment gains/losses, net of tax benefit of $3,409 — — — ( 12,824 ) — ( 12,824 )

Net income — — — — 58,271 58,271

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

Common stock:

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

Common stock:

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

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

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

Net income — — — — 39,100 39,100

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

Common stock:

class A shares issued related to warrants 82 1 2,176 — — 2,177

Common stock:

class A shares issued under stock plans, net of shares withheld for employee taxes 77 1 655 — — 656

Share-based compensation expense — — 3,399 — — 3,399

Change in unrealized investment gains/losses, net of tax expense of $1,359 — — — 5,113 — 5,113

Net income — — — — 49,763 49,763

Balances, September 30, 2019 67,927 $ 679 $ 698,393 $ 19,165 $ 155,250 $ 873,487

* During the three months ended March 31, 2020, we issued 6,474 common shares with a par value of $ 0.01 in connection with the exercise of warrants, which is not identifiable in this schedule due to rounding.

2 unchanged sentences

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

For the nine months ended September 30,

For the three months ended March 31,

Cash flows from operating activities (In Thousands)

1 unchanged sentence

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

Net realized investment (gains) losses ( 635 ) 219

(Gain) loss from change in fair value of warrant liability ( 4,286 ) 6,025

Net realized investment losses — 72

Loss (gain) from change in fair value of warrant liability 205 ( 5,959 )

Depreciation and amortization 2,675 2,441

12 unchanged sentences

Reinsurance recoverable (1)

( 1,078 ) ( 1,253 )

Reinsurance balances, net (1)

7 unchanged sentences

Software and equipment ( 2,456 ) ( 1,493 )

Net cash (used in) investing activities ( 520,878 ) ( 117,263 )

Net cash (used in) provided by investing activities ( 96,447 ) 25,783

Cash flows from financing activities

Proceeds from issuance of common stock related to public offering, net of issuance costs 219,687 —

Proceeds from issuance of common stock related to employee equity plans 3,886 3,367

Proceeds from issuance of common stock related to warrants 182 —

Taxes paid related to net share settlement of equity awards ( 4,505 ) ( 7,117 )

Proceeds from senior secured notes 400,000 —

Repayments of term loan — ( 375 )

Payments of debt issuance costs ( 8,868 ) —

Net cash provided by (used in) financing activities 459,011 ( 1,709 )

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

Payments of debt issuance/modification costs — ( 778 )

Net cash (used in) financing activities ( 437 ) ( 4,903 )

Net (decrease) increase in cash, cash equivalents and restricted cash ( 11,420 ) 68,732

Cash, cash equivalents and restricted cash, beginning of period 126,937 41,089

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Our common stock is listed on the NASDAQ exchange under the ticker symbol "NMIH."

In April 2013, NMIC, our primary insurance subsidiary, issued its first mortgage insurance policy.

NMIC is licensed to write mortgage insurance in all 50 states and D.C.

NMIC, our primary insurance subsidiary, issued its first mortgage insurance policy in April 2013.

NMIC is licensed to write mortgage insurance in all 50 states and DC.

In August 2015, NMIH capitalized a wholly-owned subsidiary, NMI Services, Inc.

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COVID-19 Developments

On January 30, 2020, the World Health Organization (WHO) declared the outbreak of COVID-19 a global health emergency and characterized the outbreak as a global pandemic on March 11, 2020.

In an effort to stem contagion and control the COVID-19 pandemic, the population at large has severely curtailed day-to-day activity and local, state and federal regulators have imposed a broad set of restrictions on personal and business conduct nationwide.

The COVID-19 pandemic, along with the widespread public and regulatory response, has caused a dramatic slowdown in U.S.

and global economic activity and a record number of Americans have been furloughed or laid-off.

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

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

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

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

On January 30, 2020, the World Health Organization (WHO) declared the outbreak of COVID-19 a global health emergency and subsequently characterized the outbreak as a global pandemic on March 11, 2020.

In an effort to stem contagion and control the COVID-19 pandemic, the population at large severely curtailed day-to-day activity and local, state and federal regulators imposed a broad set of restrictions on personal and business conduct nationwide.

The COVID-19 pandemic, along with the widespread public and regulatory response, caused a dramatic slowdown in U.S.

and global economic activity and a record number of Americans were furloughed or laid-off in the ensuing downturn.

The global dislocation caused by COVID-19 was unprecedented.

In response to the COVID-19 outbreak and uncertainty that it introduced, we activated our disaster continuity program to ensure our employees were safe and able to manage our business without interruption.

We pursued a broad series of capital and reinsurance transactions to bolster our balance sheet and expand our ability to serve our customers and their borrowers, and we updated our underwriting guidelines and policy pricing in consideration for the increased level of macroeconomic volatility.

While there is increased optimism that the acute health risk posed by and economic impact of COVID-19 has begun to recede, the pandemic continues to affect communities across the U.S.

and poses significant risk globally.

The path and pace of global economic recovery will depend, in large part, on the course of the virus, which itself remains unknown and subject to risk.

Given this uncertainty, we are not able to fully assess or estimate the ultimate impact COVID-19 will have on the mortgage insurance market, our business performance or our financial position including our new business production, default and claims experience, and investment portfolio results at this time.

Significant Accounting Principles

There have been no changes to our significant accounting principles as described in Item 8, " Financial Statements and Supplementary Data - Notes to Consolidated Financial Statements - Note 2 - Summary of Accounting Principles " of our 2019 10-K, other than as noted in " Investments, " " Premium Receivables, " " Reinsurance " and " Recent Accounting Pronouncements - Adopted " below.

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

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

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

NMI HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

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

• the severity of the decline in fair value;

• the financial condition of the issuer;

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

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

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

To the extent we determine that a security impairment is credit-related, an impairment loss is recognized through the statement of operations as a provision for credit loss expense, and presented as a "Realized Investment Loss." We recognize an allowance for credit losses for the difference between the amortized cost and present value of future expected cash flows, limited by the amount the fair value of the security is below its amortized cost.

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

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

Accrued interest receivable was $ 9.8 million as of September 30, 2020 and is included in " Accrued Investment Income.

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

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

We did not write off any accrued interest receivable during the three or nine months ended September 30, 2020.

Premiums Receivable

Premiums receivable consists of premiums due on our mortgage insurance policies.

If a mortgage insurance premium is unpaid for more than 120 days, the associated receivable is written off against earned premium and the related insurance policy is canceled.

We recognize an allowance for credit losses for premiums receivable based on credit losses expected to arise over the life of the receivable.

Due to the nature of our insurance policies (a necessary precondition for access to mortgage credit for covered borrowers) and the short duration of the related receivables, we do not typically experience credit losses against our premium receivables and did not establish an allowance for credit loss at September 30, 2020.

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

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

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

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

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

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

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

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

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

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

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

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

There have been no changes to our significant accounting principles as described in Item 8, " Financial Statements and Supplementary Data - Notes to Consolidated Financial Statements - Note 2 - Summary of Accounting Principles " of our 2020 10-K, except as noted in " Recent Accounting Pronouncements - Adopted " below.

Recent Accounting Pronouncements - Adopted

In December 2019, the Financial Accounting Standards Board (the FASB) issued ASU 2019-12, Simplifying the Accounting for Income Taxes (Topic 740).

The update eliminates certain exceptions for recognizing deferred taxes for investments, performing intra-period allocations and calculating income taxes in interim periods.

The ASU also includes guidance to reduce complexity in certain income tax areas, including recognizing deferred taxes for tax goodwill and allocating

NMI HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Under the QSR Transactions, we cede a portion of claims and claim expense reserves to our reinsurers, and account for such ceded reserves as " Reinsurance Recoverables " on the consolidated balance sheets and such ceded claims as reductions to claims expenses on the consolidated statements of operations.

As of September 30, 2020, we had $ 17.2 million of reinsurance recoverables under the QSR Transaction s.

We remain directly liable for all claim payments if we are unable to collect the recoverables due from our reinsurers and, as such, we actively monitor and manage our counterparty credit exposure to our reinsurance providers.

We establish an allowance for expected credit loss against our reinsurance recoverables if we do not expect to recover amounts due from one or more of our reinsurance counterparties, and report our reinsurance recoverables net of such allowance, if any.

We actively monitor the counterparty credit profiles of our reinsurers and each is required to partially collateralize its obligations under the terms of our QSR Transactions.

As of September 30, 2020, we did not recognize any allowance for credit loss with respect to our reinsurance recoverables.

Variable Interest Entities

NMIC is a party to reinsurance agreements with Oaktown Re Ltd., Oaktown Re II Ltd., Oaktown Re III Ltd.

and Oaktown Re IV Ltd.

(special purpose reinsurance entities collectively referred to as the Oaktown Re Vehicles) effective May 2, 2017, July 25, 2018, July 30, 2019 and July 30, 2020, respectively.

At inception of the respective reinsurance agreements, we determined that each of the Oaktown Re Vehicles were variable interest entities (VIEs), as defined under GAAP Accounting Standards Codification (ASC) 810, because they did not have sufficient equity at risk to finance their respective activities.

We evaluated the VIEs at inception to determine whether NMIC was the primary beneficiary under each deal and, if so, whether we were required to consolidate the assets and liabilities of each VIE.

The primary beneficiary of a VIE is an enterprise that (1) has the power to direct the activities of the VIE, which most significantly impact its economic performance and (2) has significant economic exposure to the VIE, i.e.

, the obligation to absorb losses or receive benefits that could potentially be significant.

The determination of whether an entity is the primary beneficiary of a VIE is complex and requires management judgment regarding determinative factors, including the expected results of the VIE and how those results are absorbed by beneficial interest holders, as well as which party has the power to direct activities that most significantly impact the performance of the VIE.

We concluded that we are not the primary beneficiary of each VIE and as such, we do not consolidate them in our consolidated financial statements.

Recent Accounting Pronouncements - Adopted

In June 2016, the Financial Accounting Standard Board (FASB) issued Accounting Standards Update (ASU) 2016-13, Financial Instruments-Credit Losses (Topic 326) and subsequently issued amendments to the initial guidance:

ASU 2019-04, Codification Improvements to Topic 326 , Financial Instruments-Credit Losses (Topic 815) , Derivatives and Hedging , and Topic 825, Financial Instruments , ASU 2019-05, Financial Instruments-Credit Losses:

Targeted Transition Relief , and ASU 2019-11, C odification Improvements to Topic 326, Financial Instruments-Credit Losses .

These updates will require companies to measure and establish reserves for lifetime expected credit losses on many financial assets held at a given reporting date.

Under the guidance, the methodology for measuring lifetime credit losses shifts from an incurred loss model, whereby losses are only recognized once probable and estimable, to a current expected credit loss (CECL) model, whereby losses are recognized upfront based on a future economic forecast.

Credit losses relating to available-for-sale fixed maturity securities are recorded through an allowance for credit losses, rather than a write-down of the asset as was required, with the amount of the allowance limited to the amount by which fair value is less than amortized cost.

The length of time an available-for sale fixed maturity security has been held in an unrealized loss position will no longer impact its credit loss determination.

We adopted these updates on January 1, 2020.

Adoption of the updated standards did not have a material impact on our consolidated financial statements, and had no impact on our accounting for insurance claims and claim expenses as these items are not in scope of the guidance.

In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820) .

This update modifies the fair value measurement disclosure requirements of ASC 820.

taxes to members of a consolidated group.

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

In August 2018, the FASB issued ASU 2018-15, Intangibles - Goodwill and Other - Internal-Use Software (Subtopic 350-40) .

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

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

The adoption of this ASU did not have a material impact on our consolidated financial statements.

Recent Accounting Pronouncements - Not Yet Adopted

In August 2018, the FASB issued ASU 2018-12, Targeted Improvements to the Accounting for Long-Duration Contracts .

This update provides guidance to the existing recognition, measurement, presentation and disclosure requirements for

NMI HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

long-duration contracts issued by an insurance entity.

The FASB subsequently issued ASU 2019-09 in November 2019, which amended the effective date for this standard.

The standard will now take effect for public business entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2021.

We are currently evaluating the impact the adoption of this ASU will have, if any, on our consolidated financial statements.

In December 2019, the FASB issued ASU 2019-12, Simplifying the Accounting for Income Taxes (Topic 740) .

This update eliminates certain exceptions for recognizing deferred taxes for investments, performing intra-period allocations and calculating income taxes in interim periods.

The ASU also includes guidance to reduce complexity in certain income tax areas, including recognizing deferred taxes for tax goodwill and allocating taxes to members of a consolidated group.

The standard will take effect for public business entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020.

We will adopt these updates on January 1, 2021 and do not expect them to have material impacts on our consolidated financial statements.

In August 2018, the FASB issued ASU 2018-12, Targeted Improvements to the Accounting for Long-Duration Contracts (Topic 944) .

The update provides guidance to the existing recognition, measurement, presentation and disclosure requirements for long-duration contracts issued by an insurance entity.

The FASB subsequently issued ASU 2019-09 in November 2019 and ASU 2020-11 in November 2020, which amended the effective date for this standard and provided transition relief to facilitate early application for long duration contracts.

These standards will now take effect for public business entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2022.

We are currently evaluating the impact the adoption of these ASUs will have, if any, on our consolidated financial statements.

In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848).

This update provides optional guidance to ease the potential burden in accounting for reference rate reform on financial reporting.

Reference rate reform refers to the global transition away from referencing the London Interbank Offered Rate (LIBOR) in financial contracts, which is expected to be discontinued in 2021.

The update provides optional guidance to ease the potential burden in accounting for reference rate reform on financial reporting.

Reference rate reform refers to the global transition away from referencing the London Interbank Offered Rate (LIBOR) in financial contracts, which is expected to be discontinued beginning in 2021 through 2023.

The ASU includes optional expedients and exceptions for applying GAAP to contracts, hedging relationships and other transactions affected by reference rate reform if certain criteria are met.

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

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

This standard may be elected and applied prospectively over time from March 12, 2020 through December 31, 2022 as reference rate reform activities occur.

The adoption of, and future elections under, this ASU are not expected to have a material impact on our consolidated financial statements as the ASU will ease, if warranted, the requirements for accounting for the future effects of the rate reform.

We continue to monitor the impact the discontinuance of LIBOR or another reference rate will have on our contracts and other transactions.

In August 2020, the FASB issued ASU 2020-06, Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging— Contracts in Entity's Own Equity (Subtopic 815-40 ).

1 unchanged sentence

The standard will take effect for public business entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2021.

Early adoption is permitted, but no earlier than fiscal years beginning after December 15, 2020.

We are currently evaluating the impact the adoption of this ASU will have, if any, on our consolidated financial statements, including our warrant liability .

We have evaluated the impact the adoption of this ASU and we do not expect it to have a material impact on our consolidated financial statements, including our warrant liability.

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

1 unchanged sentence

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

If a sale is intended or likely to be required, we write down the amortized cost basis of the security to fair value and recognize the full amount of the impairment through the statement of operations as a " Realized Investment Loss ." To the extent we determine that a security impairment is credit-related, an impairment loss is recognized through the statement of operations as a provision for credit loss expense.

If a sale is intended or likely to be required, we write down the amortized cost basis of the security to fair value and recognize the full amount of the impairment through the statement of operations as a "Net Realized Investment Loss." To the extent we determine that a security impairment is credit-related, an impairment loss is recognized through the statement of operations as a provision for credit loss expense.

The portion of a security impairment attributed to other non-credit related factors is recognized in other comprehensive income, net of taxes.

1 unchanged sentence

Cost Gross Unrealized Fair

As of September 30, 2020 (In Thousands)

As of March 31, 2021 (In Thousands)

Treasury securities and obligations of U.S.

18 unchanged sentences

Total investments $ 1,730,835 $ 73,963 $ ( 512 ) $ 1,804,286

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

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

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

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

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

September 30, 2020 December 31, 2019

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

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

March 31, 2021 December 31, 2020

Financial 36 % 37 %

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Total 100 % 100 %

As of September 30, 2020 and December 31, 2019, approximately $ 5.7 million and $ 5.5 million, respectively, of our cash and investments were held in the form of U.S.

As of March 31, 2021 and December 31, 2020, approximately $ 5.7 million of our cash and investments were held in the form of U.S.

Treasury securities on deposit with various state insurance departments to satisfy regulatory requirements.

Scheduled Maturities

The amortized cost and fair value of available-for-sale securities as of September 30, 2020 and December 31, 2019, by contractual maturity, are shown below.

The amortized cost and fair value of available-for-sale securities as of March 31, 2021 and December 31, 2020, by contractual maturity, are shown below.

Expected maturities will differ from contractual maturities because issuers may have the right to call or prepay obligations with or without call or prepayment penalties.

Because most asset-backed securities provide for periodic payments throughout their lives, they are listed below in a separate category.

As of September 30, 2020 Amortized

As of March 31, 2021 Amortized

(In Thousands)

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Aging of Unrealized Losses

As of September 30, 2020, the investment portfolio had gross unrealized losses of $ 0.8 million, of which $ 28 thousand had been in an unrealized loss position for a period of 12 months or longer.

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

As of March 31, 2021, the investment portfolio had gross unrealized losses of $ 25.5 million, none of which had been in an unrealized loss position for a period of twelve months or longer.

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

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

Less Than 12 Months 12 Months or Greater Total

# of Securities Fair Value Unrealized Losses # of Securities Fair Value Unrealized Losses # of Securities Fair Value Unrealized Losses

As of September 30, 2020 (Dollars in Thousands)

As of March 31, 2021 (Dollars in Thousands)

Municipal debt securities 132 $ 259,994 $ ( 6,508 ) — $ — $ — 132 $ 259,994 $ ( 6,508 )

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As of December 31, 2020 (Dollars in Thousands)

Treasury securities and obligations of U.S.

government agencies 4 $ 12,001 $ ( 58 ) — $ — $ — 4 $ 12,001 $ ( 58 )

Municipal debt securities 4 3,548 ( 2 ) — — — 4 3,548 ( 2 )

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Allowance for credit losses

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

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

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

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

The increase in the number of securities in and the aggregate size of the unrealized loss position as of March 31, 2021, was primarily driven by interest rate movements following the purchase date of certain securities.

Based on current facts and circumstances, we believe the unrealized losses as of March 31, 2021 are not indicative of the ultimate collectability of the current amortized cost of the securities.

NMI HOLDINGS, INC.

2 unchanged sentences

The following table presents the components of net investment income:

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

2020 2019 2020 2019

For the three months ended March 31,

(In Thousands)

2 unchanged sentences

Net investment income $ 8,814 $ 8,104

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

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

2020 2019 2020 2019

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

For the three months ended March 31,

(In Thousands)

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Gross realized investment losses — ( 612 )

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

Net realized investment losses $ — $ ( 72 )

Fair Value of Financial Instruments

18 unchanged sentences

To ensure securities are appropriately classified in the fair value hierarchy, we review the pricing techniques and methodologies of the independent pricing sources and believe that their policies adequately consider market activity, either based on specific transactions for the issue valued or based on modeling of securities with similar credit quality, duration, yield and structure that were recently traded.

A variety of inputs are utilized by the independent pricing sources including benchmark yields, reported trades, non-binding broker/dealer quotes, issuer spreads, two sided markets, benchmark securities, bids, offers and reference data including data

NMI HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

published in market research publications.

Inputs may be weighted differently for any security, and not all inputs are used for each security evaluation.

16 unchanged sentences

(Level 3) Fair Value

As of September 30, 2020 (In Thousands)

As of March 31, 2021 (In Thousands)

Treasury securities and obligations of U.S.

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Total liabilities $ — $ — $ 4,409 $ 4,409

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

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

NMI HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

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

For the nine months ended September 30,

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

For the three months ended March 31,

Warrant Liability 2021 2020

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Issuance of common stock on warrant exercise ( 375 ) ( 221 )

Balance, September 30 $ 3,135 $ 6,364

Balance, March 31 $ 4,239 $ 1,461

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

As of September 30,

As of March 31,

Common stock price $ 23.64 $ 11.61

3 unchanged sentences

Dividend yield 0 % 0 %

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

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

The changes in fair value of the warrant liability for the three months ended March 31, 2021 and 2020 were driven by changes in the price of our common stock, exercise of outstanding warrants and changes in other Black-Scholes model inputs during the respective periods.

Financial Instruments not Measured at Fair Value

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

At September 30, 2020, the Notes were carried at a cost of $ 393.0 million, net of unamortized debt issuance costs of $ 7.0 million, and had a fair value of $ 427.5 million as assessed under our Level 2 hierarchy.

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

On June 19, 2020, we issued $ 400.0 million aggregate principal amount of senior secured notes that mature on June 1, 2025 (the Notes) and used a portion of the proceeds from the Notes offering to repay the outstanding amount due under our $ 150 million term loan (2018 Term Loan).

At March 31, 2021, the Notes were carried at a cost of $ 393.6 million, net of unamortized debt issuance costs of $ 6.4 million, and had a fair value of $ 461.7 million as assessed under our Level 2 hierarchy.

At December 31, 2020, the Notes were carried at a cost of $ 393.3 million, net of unamortized debt issuance costs of $ 6.7 million, and had a fair value of $ 447.1 million.

Senior Secured Notes

At September 30, 2020, we had $ 400 million aggregate principal amount of senior secured notes outstanding.

At March 31, 2021, we had $ 400.0 million aggregate principal amount of senior secured notes outstanding.

The Notes were issued pursuant to an indenture dated June 19, 2020 (the Indenture) and bear interest at a rate of 7.375 %, payable semi-annually on June 1 and December 1.

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

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

$ 244.4 million of proceeds from the Notes offering were contributed to our lead operating subsidiary, NMIC and remaining proceeds were used to repay the outstanding amount due under the 2018 Term Loan due on May 24, 2023 and to pay underwriting fees incurred connection with the offering.

The Notes mature on June 1, 2025.

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Such amounts will be amortized over the contractual life of the Notes using the effective interest method.

At September 30, 2020, $ 7.0 million of unamortized debt issuance costs remained.

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 and issuance of the Notes.

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

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

At March 31, 2021, $ 6.4 million of unamortized debt issuance costs remained.

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

2020 Revolving Credit Facility

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

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

As of September 30, 2020, no borrowings were drawn under the 2020 Revolving Credit Facility.

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

On October 30, 2020, we entered into a Joinder Agreement to the Credit Agreement, increasing the aggregate principal amount of commitments under the 2020 Revolving Credit Facility from $ 100 million to $ 110 million.

All other terms remained unchanged.

As of March 31, 2021, no amounts were drawn under the 2020 Revolving Credit Facility.

Under the 2020 Revolving Credit Facility, we are required to pay a quarterly commitment fee on the average daily undrawn amount of 0.175 % to 0.525 %, based on the applicable corporate credit rating at the time.

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

For the three and nine months ended September 30, 2020, we recorded $ 0.1 million and $ 0.3 million of commitment fees in interest expense, respectively.

As of March 31, 2021, the applicable commitment fee was 0.35 %.

For the three months ended March 31, 2021, we recorded $ 0.1 million of commitment fees in interest expense.

We incurred debt issuance costs of $ 0.8 million in connection with the 2020 Revolving Credit Facility and had $ 0.6 million of unamortized debt issuance costs associated with the 2018 Revolving Credit Facility remaining at the time of its amendment and replacement.

Combined unamortized debt issuance will be amortized through interest expense on a straight-line basis over the contractual life of the 2020 Revolving Credit Facility.

At September 30, 2020, remaining unamortized deferred debt issuance costs were $ 1.1 million.

At March 31, 2021, remaining unamortized deferred debt issuance costs were $ 0.9 million.

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

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

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

We were in compliance with all covenants at March 31, 2021.

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

3 unchanged sentences

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

For the three months ended For the nine months ended

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

For the three months ended

March 31, 2021 March 31, 2020

(In Thousands)

9 unchanged sentences

Excess-of-loss reinsurance

NMIC entered into excess-of-loss reinsurance agreements with the Oaktown Re Vehicles.

NMIC is party to excess-of-loss reinsurance agreements with Oaktown Re Ltd., Oaktown Re II Ltd., Oaktown Re III Ltd., Oaktown Re IV Ltd.

and Oaktown Re V Ltd.

(special purpose reinsurance entities collectively referred to as the Oaktown Re Vehicles).

Each agreement provides NMIC with aggregate excess-of-loss reinsurance coverage on a defined portfolio of mortgage insurance policies written during a discrete period.

2 unchanged sentences

NMIC makes risk premium payments to the Oaktown Re Vehicles for the applicable outstanding reinsurance coverage amount and pays an additional amount for anticipated operating expenses (capped at $ 300 thousand per year to Oaktown Re Ltd.

and $ 250 thousand per year to Oaktown Re II Ltd., Oaktown Re III Ltd.

and Oaktown IV Ltd.).

NMIC ceded aggregate premiums to the Oaktown Re Vehicles of $ 6.3 million and $ 13.4 million during the three and nine months ended September 30, 2020 and $ 4.4 million and $ 10.3 million during the three and nine months ended September 30, 2019, respectively.

and $ 250 thousand per year to Oaktown Re II Ltd., Oaktown Re III Ltd., Oaktown Re IV Ltd.

and Oaktown Re V Ltd.).

NMIC ceded aggregate premiums to the Oaktown Re Vehicles of $ 9.4 million and $ 3.9 million during the three months ended March 31, 2021 and March 31, 2020, respectively.

The increase in premiums ceded is due to the inception of the excess-of-loss reinsurance agreements that NMIC entered in with Oaktown Re IV Ltd.

and Oaktown Re V Ltd.

NMIC applies claims paid on covered policies against its first layer aggregate retained loss exposure under each excess-of-loss agreement.

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

NMIC did not cede any incurred losses on covered policies to the Oaktown Re Vehicles during the three months ended March 31, 2021 and 2020, as the aggregate first layer risk retention for each applicable agreement was not exhausted during such periods.

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

3 unchanged sentences

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

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

and Oaktown Re IV Ltd., individually as the 2017 ILN Transaction, 2018 ILN Transaction, 2019 ILN Transaction, and 2020-1 ILN Transaction, and collectively as the ILN Transactions.

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

and Oaktown Re V Ltd., individually as the 2017 ILN Transaction, 2018 ILN Transaction, 2019 ILN Transaction, 2020-1 ILN Transaction and 2020-2 ILN Transaction, and collectively as the ILN Transactions.

The respective reinsurance coverage amounts provided by the Oaktown Re Vehicles decrease from the inception of each agreement over a ten -year period as the underlying insured mortgages are amortized or repaid, and/or the mortgage insurance coverage is canceled.

2 unchanged sentences

Effective June 25, 2020, a Lock-Out Event was deemed to have occurred for each of the 2017, 2018 and 2019 ILN Transactions and the amortization of reinsurance coverage, and distribution of collateral assets and amortization of insurance-linked notes was suspended for each ILN Transaction.

The amortization of reinsurance coverage, distribution of collateral assets and amortization of insurance-linked notes will remain suspended for the duration of the Lock-Out Event for each ILN Transaction, and during such period assets will be preserved in the applicable reinsurance trust account to collateralize the excess-of-loss reinsurance coverage provided to NMIC.

The amortization of reinsurance coverage, distribution of collateral assets and amortization of insurance-linked notes will remain

NMI HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

suspended for the duration of the Lock-Out Event for each ILN Transaction, and during such period assets will be preserved in the applicable reinsurance trust account to collateralize the excess-of-loss reinsurance coverage provided to NMIC.

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

Current amounts are presented as of September 30, 2020.

Current amounts are presented as of March 31, 2021.

( $ values in thousands)

4 unchanged sentences

2020-1 ILN Transaction July 30, 2020 7/1/2019 - 3/31/2020 322,076 174,314 169,514 169,514

2020-2 ILN Transaction October 29, 2020 4/1/2020 - 9/30/2020 (2)

242,351 218,741 121,777 121,177

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

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

NMIC holds optional termination rights under each ILN Transaction, including, among others, an optional call feature which provides NMIC the discretion to terminate the transaction on or after a prescribed date, and a clean-up call if the outstanding reinsurance coverage amount amortizes to 10 % or less of the reinsurance coverage amount at inception or if NMIC reasonably determines that changes to GSE or rating agency asset requirements would cause a material and adverse effect on the capital treatment afforded to NMIC under a given agreement.

1 unchanged sentence

Under the terms of the 2018, 2019, 2020-1 and 2020-2 ILN Transactions, we are required to maintain a certain level of restricted funds in premium deposit accounts with Bank of New York Mellon until the respective notes have been redeemed in full.

"Cash and cash equivalents" on our condensed consolidated balance sheet includes restricted amounts of $ 5.6 million as of September 30, 2020.

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

"Cash and cash equivalents" on our condensed consolidated balance sheet includes restricted amounts of $ 4.9 million as of March 31, 2021.

We are not required to deposit additional funds into the premium deposit accounts in the future and the restricted balances required under these transactions will decline over time as the outstanding principal balance of the respective insurance-linked notes are amortized.

NMI HOLDINGS, INC.

1 unchanged sentence

Quota share reinsurance

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

NMIC is party to four outstanding quota share reinsurance treaties - the 2016 QSR Transaction, effective September 1, 2016, the 2018 QSR Transaction, effective January 1, 2018, the 2020 QSR Transaction, effective April 1, 2020, and the 2021 QSR Transaction, effective January 1, 2021 - which we refer to collectively as the QSR Transactions.

Under each of the QSR Transactions, NMIC cedes a proportional share of its risk on eligible policies written during a discrete period to panels of third-party reinsurance providers.

4 unchanged sentences

The 2016 QSR Transaction is scheduled to terminate on December 31, 2027, except with respect to the ceded pool risk, which is scheduled to terminate on August 31, 2023.

NMIC has the option, based on certain conditions and subject to a termination fee, to terminate the agreement as of December 31, 2020, or at the end of any calendar quarter thereafter, which would result in NMIC re-assuming the related risk.

Under the terms of the 2018 QSR Transaction, NMIC cedes premiums earned related to 25 % of the risk on eligible policies written in 2018 and 20 % of the risk on eligible policies written in 2019.

The 2018 QSR Transaction is scheduled to terminate on December 31, 2029.

NMIC has the option, based on certain conditions and subject to a termination fee, to terminate the agreement as of December 31, 2022, or at the end of any calendar quarter thereafter, which would result in NMIC re-assuming the related risk.

Under the terms of the 2020 QSR Transaction, NMIC cedes premiums earned related to 21 % of the risk on eligible policies written from April 1, 2020 to December 31, 2020.

The 2020 QSR Transaction is scheduled to terminate on December 31, 2030.

NMIC has the option, based on certain conditions and subject to a termination fee, to terminate the agreement as of December 31, 2023, or at the end of any calendar quarter thereafter, which would result in NMIC re-assuming the related risk.

Under the terms of the 2021 QSR Transaction, NMIC cedes premiums earned related to 22.5 % of the risk on eligible policies written in 2021.

The 2021 QSR Transaction is scheduled to terminate on December 31, 2031.

NMIC has the option, based on certain conditions and subject to a termination fee, to terminate the agreement as of December 31, 2024, or at the end of any calendar quarter thereafter, which would result in NMIC recapturing the related risk.

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

8 unchanged sentences

The following table shows amounts related to the QSR Transactions:

For the three months ended For the nine months ended

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

For the three months ended

March 31, 2021 March 31, 2020

(In Thousands)

7 unchanged sentences

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

Under the 2018 QSR Transaction and 2020 QSR Transactions, premiums are ceded on an earned basis as defined in the agreement.

Under the 2018, 2020 and 2021 QSR Transactions, premiums are ceded on an earned basis as defined in the agreement.

NMIC receives a 20 % ceding commission for premiums ceded under the QSR Transactions.

NMIC also receives a profit commission under each of the QSR Transactions, provided that the loss ratios on loans covered under the 2016 QSR Transaction, 2018 QSR Transaction and 2020 QSR Transaction, generally remain below 60 %, 61 % and 50 %, respectively, as measured annually.

NMIC also receives a profit commission under each of the QSR Transactions, provided that the loss ratios on loans covered under the 2016 QSR Transaction, 2018 QSR Transaction, 2020 QSR Transaction and 2021 QSR Transaction, generally remain below 60 %, 61 %, 50 % and 57.5 %, respectively, as measured annually.

Ceded claims and claim expenses under each of the QSR Transactions reduce the respective profit commission received by NMIC on a dollar-for-dollar basis.

2 unchanged sentences

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

The reinsurance recoverable on loss reserves related to the 2016 QSR Transaction was $ 4.8 million as of September 30, 2020.

The reinsurance recoverable on loss reserves related to the 2016 QSR Transaction was $ 4.5 million as of March 31, 2021.

In accordance with the terms of the 2018, 2020 and 2021 QSR Transactions, cash payments for ceded premiums earned are settled on a quarterly basis, offset by amounts due to NMIC for ceding and profit commissions.

1 unchanged sentence

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

The reinsurance recoverable on loss reserves related to the 2018 QSR Transaction was $ 12.2 million as of September 30, 2020.

The reinsurance recoverable on loss reserves related to the 2020 QSR Transaction was $ 0.2 million as of September 30, 2020.

Reinsurance recoverables on loss reserves related to the 2018 QSR Transaction and 2020 QSR Transaction were $ 13.4 million and $ 0.8 million, respectively, as of March 31, 2021.

We remain directly liable for all claim payments if we are unable to collect reinsurance recoverables due from our reinsurers and, as such, we actively monitor and manage our counterparty credit exposure to our reinsurance providers.

We actively monitor the counterparty credit profiles of our reinsurers and each is required to partially collateralize its obligations under the terms of our QSR Transactions.

As of March 31, 2021, we did not recognize any allowance for credit loss with respect to our reinsurance recoverables.

Reserves for Insurance Claims and Claim Expenses

3 unchanged sentences

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

As of September 30, 2020, we had 13,765 primary loans in default and held gross reserves for insurance claims and claim expenses of $ 87.2 million.

During the nine months ended September 30, 2020, we paid 123 claims totaling $ 5.6 million, including 117 claims covered under the QSR Transactions representing $ 1.2 million of ceded claims and claim expenses.

As of March 31, 2021, we had 11,090 primary loans in default and held gross reserves for insurance claims and claim expenses of $ 96.1 million.

During the three months ended March 31, 2021, we paid 16 claims totaling $ 0.6 million, including 15 claims covered under the QSR Transactions representing $ 0.1 million of ceded claims and claim expenses.

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

1 unchanged sentence

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

At September 30, 2020, 277 loans in the pool were in default.

At March 31, 2021, 198 loans in the pool were in default.

These 198 loans represented approximately $ 16.3 million of RIF.

Due to the size of the remaining deductible, our expectation that a limited number of loans in default will progress to a claim and the expected severity on such claim submissions (all loans in the pool have loan-to-value (LTV) ratios under 80 %), we did not establish any case or IBNR reserves for pool risk at September 30, 2020.

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

At September 30, 2020, the remaining pool deductible was $ 9.4 million.

Due to the size of the remaining deductible, our expectation that a limited number of loans in default will progress to a claim and the expected severity on such claim submissions (all loans in the pool had loan-to-value (LTV) ratios under 80 % at origination), we did not establish any case or IBNR reserves for pool risk at March 31, 2021.

In connection with the settlement of pool claims, we applied $ 1.0 million to the pool deductible through March 31, 2021.

At March 31, 2021, the remaining pool deductible was $ 9.4 million.

We have not paid any pool claims to date.

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

We had 13,765 loans in default in our primary insured portfolio as of September 30, 2020, which represented a 3.60 % default rate against 381,899 to tal policies in-force.

We had 1,230 loans in default in our primary insured portfolio as of September 30, 2019, which represented a 0.35 % default rate against 350,395 total policies in-force.

The increase in our default population is primarily due to challenges borrowers are facing related to the COVID-19 outbreak and their decision to access the forbearance program for federally backed loans codified under the Coronavirus Aid, Relief, and Economic Security (CARES) Act or similar programs made available by private lenders.

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

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

Our estimates of claims frequency and severity are not formulaic, rather they are broadly synthesized based on historical observed experience for similarly situated loans and

We had 11,090 loans in default in our primary insured portfolio as of March 31, 2021, which represented a 2.54 % default rate against 436,652 to tal policies in-force.

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

The increase in our default population is primarily due to challenges borrowers have faced related to the COVID-19 outbreak and their decision to access the forbearance program for federally backed loans codified under the Coronavirus Aid, Relief, and Economic Security (CARES) Act or similar programs

NMI HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

assumptions about future macroeconomic factors.

made available by private lenders.

Our estimates of claims frequency and severity are not formulaic, rather they are broadly synthesized based on historical observed experience for similarly situated loans and assumptions about future macroeconomic factors.

We generally observe that forbearance programs are an effective tool to bridge dislocated borrowers from a time of acute stress to a future date when they can resume timely payment of their mortgage obligations.

The effectiveness of forbearance programs is enhanced by the availability of various repayment and loan modification options which allow borrowers to amortize or, in certain instances, outright defer payments otherwise due during the forbearance period over an extended length of time.

In response to the COVID-19 outbreak, the Federal Housing Financing Agency (FHFA) and GSEs have introduced new repayment and loan modification options to further assist borrowers with their transition out of forbearance programs and default status.

In response to the COVID-19 outbreak, the Federal Housing Financing Agency (FHFA) and GSEs introduced new repayment and loan modification options to further assist borrowers with their transition out of forbearance programs and default status.

Our reserve setting process considers the beneficial impact of forbearance, foreclosure moratorium and other assistance programs available to defaulted borrowers.

At 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.

While we established lower reserves per defaulted loan at September 30, 2020, our total reserve position and claims and claim expenses increased as of and during the period ended September 30, 2020 due to the growth in the size of our default population.

At March 31, 2021, we established lower reserves for defaults that we consider to be connected to the COVID-19 outbreak given our expectation that forbearance, repayment and modification, and other assistance programs will aid affected borrowers and drive higher cure rates on such defaults than we would otherwise expect to experience on similarly situated loans that did not benefit from broad-based assistance programs.

While we established lower reserves per defaulted loan at March 31, 2021 compared to March 31, 2020, our total reserve position increased due to the growth in the size of our default population.

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

For the nine months ended September 30,

For the three months ended March 31,

(In Thousands)

6 unchanged sentences

Current year (2)

61,198 10,948

Prior years (3)

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Prior years (3)

Reinsurance terminations (4)

Total claims and claim expenses paid 504 1,224

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For example, if a loan defaulted in a prior year and subsequently cured and later re-defaulted in the current year, the default would be included in the current year.

Amounts are presented net of reinsurance.

Amounts are presented net of reinsurance and included $ 5.3 million attributed to net case reserves and $ 5.3 million attributed to net IBNR reserves for the three months ended March 31, 2021 and $ 6.0 million attributed to net case reserves and $ 1.6 million attributed to net IBNR reserves for the three months ended March 31, 2020.

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

Amounts are presented net of reinsurance.

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

See Note 5, "Reinsurance" for additional information.

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

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

We recognized $ 5.5 million and $ 2.7 million of favorable prior year development during the nine months ended September 30, 2020 and 2019, respectively, primarily due to the curing of previously reported defaults.

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

Amounts are presented net of reinsurance and included $ 0.6 million attributed to net case reserves and $ 5.0 million attributed to net IBNR reserves for the three months

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

NMI HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

loss development trends in our portfolio.

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

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 $ 83.0 million related to prior year defaults remained as of March 31, 2021.

Earnings per Share (EPS)

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The following table reconciles the net income and the weighted average shares of common stock outstanding used in the computations of basic and diluted EPS of common stock.

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

2020 2019 2020 2019

For the three months ended March 31,

(In Thousands, except for per share data)

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Anti-dilutive shares 314 15

We issued 992 thousand warrants in connection with a private placement of our common stock in April 2012.

We issued 992 thousand warrants in connection with a private placement of our common stock in April 2012, of which 285 thousand remained outstanding available for exercise at March 31, 2021.

Each warrant gives the holder thereof the right to purchase one share of common stock at an exercise price equal to $ 10.00 .

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

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

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

During the three months ended March 31, 2021, 27 thousand warrants were exercised resulting in the issuance of 24 thousand shares of common stock.

Upon exercise, we reclassified approximately $ 0.4 million of warrant fair value from warrant liability to additional paid-in capital.

During the three months ended September 30, 2019, 130 thousand warrants were exercised resulting in the issuance of 82 thousand shares of common stock.

Upon exercise, we reclassified approximately $ 2.2 million of warrant fair value from warrant liability to additional paid-in capital, of which $ 0.9 million related to changes in fair value during the three months ended September 30, 2019.

During the nine months ended September 30, 2019, 390 thousand warrants were exercised resulting in the issuance of 249 thousand shares of common stock.

Upon exercise, we reclassified approximately $ 7.0 million of warrant fair value from warrant liability to additional paid-in capital, of which $ 3.2 million related to changes in fair value during the nine months ended September 30, 2019.

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

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

We are a U.S.

3 unchanged sentences

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

Our effective tax rate on our pre-tax income was 22.6 % 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

Our effective tax rate on our

NMI HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

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

pre-tax income was 21.6 % for the three months ended March 31, 2021, compared to 19.2 % for the three months ended March 31, 2020.

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

Our effective tax rate may fluctuate between interim periods due to the impact of discrete items not included in our estimated annual effective tax rate, including the tax effects associated with the vesting of RSUs and exercise of options, and the change in fair value of our warrant liability.

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As a mortgage guaranty insurance company, we are eligible to claim a tax deduction for our statutory contingency reserve balance, subject to certain limitations outlined under IRC Section 832(e), and only to the extent we acquire tax and loss bonds in an amount equal to the tax benefit derived from the claimed deduction, which is our intent.

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

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

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

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

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

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

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

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

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

As a result, our interim provision for income taxes for the three months ended March 31, 2021 represents a change in our net deferred tax liability.

As of March 31, 2021 and December 31, 2020, we held $ 46.4 million of tax and loss bonds in "Other assets" on our condensed consolidated balance sheet.

Premium Receivable

Premiums receivable consists of premiums due on our mortgage insurance policies.

If a mortgage insurance premium is unpaid for more than 120 days, the associated receivable is written off against earned premium and the related insurance policy is canceled.

We recognize an allowance for credit losses for premiums receivable based on credit losses expected to arise over the life of the receivable.

We establish a reserve for the write-off of premiums receivable based on historical experience.

Our premium write-off reserve was not material at March 31, 2021 or December 31, 2020.

Regulatory Information

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The Wisconsin OCI recognizes only statutory accounting practices prescribed or permitted by the state of Wisconsin for determining and reporting the financial condition and results of operations of an insurance company and for determining its solvency under Wisconsin insurance laws.

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

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

2020 2019 2020 2019

(In Thousands)

Statutory net (loss) gain $ ( 5,600 ) $ 8,055 $ ( 22,614 ) $ 13,594

NMI HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

NMIC and Re One's combined statutory net income was $ 6.4 million and $ 7.7 million for the three months ended March 31, 2021 and 2020, respectively.

The Wisconsin OCI has imposed a prescribed accounting practice for the treatment of statutory contingency reserves that differs from the treatment promulgated by the NAIC.

Under Wisconsin OCI's prescribed practice mortgage guaranty insurers are required to reflect changes in their contingency reserves through statutory income.

Such treatment contrasts with the NAIC treatment, which records changes to contingency reserves directly to unassigned funds.

Such approach contrasts with the NAIC's treatment, which records changes to contingency reserves directly to unassigned funds.

As a Wisconsin-domiciled insurer, NMIC's statutory net income reflects an expense associated with the change in its contingency reserve.

While such treatment impacts NMIC's statutory net income, it does not have an effect on the company's statutory capital position.

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

September 30, 2020 December 31, 2019

While such treatment impacts NMIC's statutory net income, it does not have an effect on NMIC's statutory capital position.

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

March 31, 2021 December 31, 2020

(In Thousands)

3 unchanged sentences

$ 1,731,557 $ 1,662,655

RTC ratio 12.5 :1

Risk-to-capital 13.2:1 11.7:1

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

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

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

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

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

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

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

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

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

The Wisconsin OCI has approved the allocation of interest expense on the $ 400 million Notes and $ 100 million 2020 Revolving Credit Facility to NMIC, to the extent proceeds from such offering and facility are distributed to NMIC or used to repay, redeem or otherwise defease amounts raised by NMIC under prior credit arrangements that have previously been distributed to NMIC.

Re One has the capacity to pay $ 1.6 million of aggregate ordinary dividends to NMIH during the twelve-month period ending December 31, 2021.

NMIC reported a statutory net loss for the year ended December 31, 2020 and does not have the capacity to pay dividends to NMIH during the twelve-month period ended December 31, 2021 without prior approval from the Wisconsin OCI.

Neither Re One nor NMIC have ever paid dividends to NMIH.

As an approved insurer under PMIERs, NMIC would generally be subject to prior GSE approval of its ability to pay dividends to NMIH if it failed to meet the financial requirements prescribed by PMIERs.

In response to the COVID pandemic, the GSEs issued temporary PMIERs guidance, effective for the period from June 30, 2020 to June 30, 2021, that requires approved insurers to secure approval from the GSEs prior to paying any dividends, even if the approved insurer otherwise satisfies the financial requirements prescribed by PMIERs.

We cannot be certain that the GSEs will not amend the terms, or extend the duration, of this prior approval requirement beyond its current expiration of June 30, 2021.

Subsequent Event

Excess-of-loss reinsurance

On October 29, 2020, NMIC entered into a reinsurance agreement with Oaktown Re V Ltd.

(Oaktown Re V), a Bermuda domiciled special purpose reinsurer, that provides for up to $ 242.4 million of aggregate excess-of-loss reinsurance coverage at inception for new delinquencies on an existing portfolio of mortgage insurance policies primarily written between April 1, 2020 and September 30, 2020.

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

On April 27, 2021, NMIC entered into a reinsurance agreement with Oaktown Re VI Ltd.

(Oaktown Re VI), a Bermuda domiciled special purpose reinsurer, that provides for up to $ 367.2 million of aggregate excess-of-loss reinsurance coverage at inception for new delinquencies on an existing portfolio of mortgage insurance policies primarily written between October 1, 2020 and March 31, 2021.

For the reinsurance coverage period, NMIC will retain the first layer of $ 163.7 million of aggregate losses and Oaktown Re VI will then provide second layer coverage up to the outstanding reinsurance coverage amount.

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

Oaktown Re V financed the coverage by issuing mortgage insurance-linked notes in an aggregate principal amount of $ 242.4 million to unaffiliated investors.

The notes issued by Oaktown Re V mature on October 25, 2030;

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

Oaktown Re VI financed the coverage by issuing mortgage insurance-linked notes in an aggregate principal amount of $ 367.2 million to unaffiliated investors.

The notes issued by Oaktown Re VI mature on October 25, 2033;

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

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

We refer to NMIC's reinsurance agreement with and the insurance-linked notes issued by Oaktown Re V as the 2020-2 ILN Transaction.

Under the terms of the 2020-2 ILN Transaction, NMIC makes risk premium payments for the applicable outstanding reinsurance coverage amount and pays Oaktown Re V for anticipated operating expenses (capped at $ 250,000 per year).

2020 Revolving Credit Facility

On October 30, 2020, we entered into a Joinder Agreement, among NMIH, NMIS, JPMorgan Chase Bank, N.A., as administrative Agent and Citibank, N.A., as lender, (the "Joinder") to the Company's existing Credit Agreement, increasing the

aggregate principal amount of commitments under the 2020 Revolving Credit Facility from $ 100 million to $ 110 million.

All other terms remained unchanged.

As of the date hereof, no amounts are outstanding under the 2020 Revolving Credit Facility.

We refer to NMIC's reinsurance agreement with and the insurance-linked notes issued by Oaktown Re VI as the 2021-1 ILN Transaction.

Under the terms of the 2021-1 ILN Transaction, NMIC makes risk premium payments for the applicable outstanding reinsurance coverage amount and pays Oaktown Re VI for anticipated operating expenses (capped at $ 250,000 per year).

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

What changed 10-Q

Item 1. Financial Statements