What changed in this filing

/stocks — the workspaceLOADING

Item 2. Management’s Discussion and Analysis

2021-05-05 compared with 2020-11-05 · 349 added, 321 removed, 596 unchanged (53% 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 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.

As of March 31, 2021, we had master policies with 1,609 customers, including national and regional mortgage banks, money center banks, credit unions, community banks, builder-owned mortgage lenders, internet-sourced lenders and other non-bank lenders.

As of March 31, 2021, we had $125.4 billion of total insurance-in-force (IIF), including primary IIF of $123.8 billion, and $31.3 billion of gross RIF, including primary RIF of $31.2 billion.

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

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

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

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

As of March 31, 2021, we had 250 employees.

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

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COVID-19 Developments

On January 30, 2020, the WHO declared the outbreak of the COVID-19 virus to be a global health emergency and characterized the outbreak as a global pandemic on March 11, 2020.

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

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

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

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

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

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

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

In an effort to stem contagion and control the COVID-19 pandemic, the population at large 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.

housing market demonstrated notable resiliency in the face of COVID stress, with significant purchase demand, record levels of mortgage origination activity and nationwide house price appreciation emerging shortly after the onset of the pandemic.

More recently, the development of new vaccines and accelerating pace of the inoculation effort across the U.S.

has allowed for the broad resumption of personal and business activity nationwide, and provided hope for a sharp economic rebound in 2021.

While there is increased optimism that the acute health risk posed by and economic impact of COVID-19 has begun to 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.

Potential Impact on the U.S.

Housing Market and Mortgage Insurance Industry

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, 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.

housing market has demonstrated significant resiliency amidst the broader economic dislocation caused by the outbreak of COVID-19.

Low interest rates have helped to support housing affordability, medical concerns and lifestyle preferences have driven people to move from densely populated urban areas to suburban communities where social distancing is more easily achieved, and shelter-in-place directives have reinforced the value of homeownership – all of which contributed to an influx of new home buyers, record levels of purchase demand, and nationwide house price appreciation.

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

We observe several favorable differences in the current environment compared to the period leading up to and through the 2008 Financial Crisis – the last period of significant economic volatility in the U.S.

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

(iv) the availability and immediate application by politicians, 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 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.

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

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

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.

Refinancing origination volume has also grown dramatically as historically low mortgage rates, though rising in recent months, 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 total U.S.

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 meaningfully.

In this context, total U.S.

mortgage insurance industry new insurance written (NIW) volume increased to record levels following the onset of the COVID pandemic and the persistency of existing in-force insured risk across the industry declined meaningfully.

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

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

See Item 1A of our 2020 10K , "Risk Factors - The COVID-19 outbreak may continue to materially adversely affect our business, results of operations and financial condition ."

Potential Impact on NMI's Business Performance and Financial Position

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.

We had 250 employees at March 31, 2021, including 112 who typically work at our corporate headquarters in Emeryville, CA and 138 who typically work from home in locations across the country.

In response to the COVID-19 outbreak, we activated our business continuity program and instituted additional work-from-home practices for our 112 Emeryville-based staff.

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

Our IT environment, underwriting capabilities, policy servicing platform and risk architecture have continued without interruption, and our internal control environment and internal controls over financial reporting are unchanged.

We have achieved this transition without incurring additional capital expenditures or operating expenses and we believe our current operating platform can continue to support our newly distributed needs for an extended period without further investment beyond that planned in the ordinary course.

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

Our IT environment, underwriting capabilities, policy servicing platform and risk architecture have continued without interruption, and our internal control environment are unchanged.

We achieved this transition without incurring additional capital expenditures or operating expenses and we believe our current operating platform can continue to support our newly distributed needs for an extended period without further investment beyond that planned in the ordinary course.

While the broad COVID vaccination effort and relaxation of local restrictions on indoor business operation may allow for a general resumption of in-office activity for our headquarters-based employees, the success of our remote work experience through the pandemic may cause us to offer increased flexibility for employees who prefer a full-time or part-time distributed engagement in the future.

If we offer such flexibility and a large enough number of employees elect such an approach, our office and real estate needs could evolve.

New Business Production

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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 wrote $26.4 billion of NIW during the three months ended March 31, 2021, up 134% compared to the three months ended March 31, 2020.

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

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.

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

At March 31, 2021, the weighted average FICO score of our RIF was 754 and we had a 3% mix of below 680 FICO score risk.

Similarly, at March 31, 2021, the weighted average LTV ratio (at origination) of our insured portfolio was 92.4% and we had a 10% mix of 97% LTV risk.

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

Given the significant economic dislocation caused thus far by the COVID-19 outbreak, 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.

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

Delinquency Trends and Claims Expense

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.

At March 31, 2021, we had 11,090 defaulted loans in our primary insured portfolio, which represented a 2.5% default rate against our 436,652 total policies in-force, and identified 14,805 loans that were enrolled in a forbearance program, including 9,988 of those in default status.

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

After this significant initial spike our default experience has steadily improved as an increasing number of impacted borrowers have cured their delinquencies, and fewer new defaults have emerged.

Our total population of defaulted loans peaked in August 2020 and has since declined every month with consistency.

As of April 30, 2021, our default population was 10,060, representing a 2.24% default rate.

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

Default and Forbearance Activity as of

3/31/2020 6/30/2020 9/30/2020 12/31/2020 3/31/21

Number of loans in default 1,449 10,816 13,765 12,209 11,090

Default rate (1)

0.38% 2.90% 3.60% 3.06% 2.54%

Number of loans in forbearance 3,122 28,555 24,809 19,464 14,805

Forbearance rate (2)

0.83% 7.66% 6.50% 4.87% 3.39%

(1) Default rate is calculated as the number of loans in default divided by total polices in force

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

While we are encouraged by the decline in our forbearance and default populations and optimistic that we will see continued improvement as the stress of the COVID crisis recedes, a future viral wave could cause further social and economic dislocation and 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.

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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 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.

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

Our Master Policies require insureds to file a claim no later than 60-days after completion of a foreclosure, and in connection with the claim, the insured is generally entitled to include in the claim amount (i) up to three years of missed interest payments and (ii) certain advances, each as incurred through the date the claim is filed.

Under our Master Policies, a national foreclosure moratorium of the type currently required will 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 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.

In February, the GSEs extended their moratorium on the foreclosure of enterprise-backed single-family residential mortgages through June 30, 2021.

If the duration of the current foreclosure moratorium mandated by the GSEs is further extended, loans in our default inventory, including those with defaults unrelated to the COVID-19 crisis that had not yet gone through foreclosure, may remain in a pre-foreclosure default status for a prolonged period of time, which would delay our 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 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.

At March 31, 2021, we reported $1,810 million available assets against $1,261 million risk-based required assets.

Our “excess” funding position was $549 million.

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

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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 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.

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

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

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

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

The amortization of reinsurance coverage, distribution of collateral assets and amortization of insurance-linked notes will remain suspended for the duration of the Lock-Out Event for each ILN Transaction, and during such period the overcollateralization within and PMIERs capacity provided by each ILN Transaction will grow as assets are preserved in the applicable reinsurance trust account.

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

The amortization of reinsurance coverage, distribution of collateral assets and amortization of insurance-linked notes will remain suspended for the duration of the Lock-Out Event for each ILN Transaction, and during such period the overcollateralization within and potential PMIERs capacity provided by each ILN Transaction will grow as assets are preserved in the applicable reinsurance trust account.

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

($ values in thousands) 2017 ILN Transaction

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2019 ILN Transaction

2020-1 ILN Transaction

2020-1 ILN Transaction 2020-2 ILN Transaction

Ceded RIF $ 1,635,102 $ 1,865,606 $ 2,252,220 $ 4,235,240 $ 5,335,934

Current First Layer Retained Loss 121,602 123,354 123,072 169,514

Current Reinsurance Coverage 40,226 158,489 231,877 322,076

First Layer Retained Loss 121,376 123,051 122,838 169,514 121,177

Reinsurance Coverage 40,226 158,489 231,877 174,314 218,741

Eligible Coverage $ 161,602 $ 281,540 $ 354,715 $ 343,828 $ 339,918

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Overcollateralization (2) (4)

$ 40,226 $ 133,753 $ 172,206 $ 72,839 $ 49,601

Delinquency Trigger (3)

(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.

For the 2020-2 ILN Transaction, absent a

delinquency, the subordinated coverage is capped at 6.25%.

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

(3) Delinquency triggers for 2017, 2018 and 2019 ILN Transactions are set at a fixed 4.0% and assessed on a discrete monthly basis;

delinquency triggers for the 2020-1 and 2020-2 ILN Transactions are equal to seventy-five percent of the subordinated coverage level and assessed on the basis of a three-month rolling average.

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

At March 31, 2021, we had an aggregate $469 million of overcollateralization available across our 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 three months ended March 31, 2021, we estimate that our total overcollateralization would increase by up to approximately $33.7 million per quarter.

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

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

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 $549 million excess available asset position at March 31, 2021, the nationwide applicability of the 70% haircut on delinquent policies subject to a forbearance program accessed in response to a financial hardship related to the COVID-19 crisis, the increasing PMIERs relief automatically provided under each of our quota share treaties and ILN Transactions.

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

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

Non-performing loans are treated the same as performing loans under the RTC framework.

As such, the PMIERs generally imposes a stricter financial requirement than the state RTC standard, and we expect this to remain the case in the aftermath of the COVID-19 outbreak.

Non-performing loans are generally treated the same as performing loans under the RTC framework.

As such, the PMIERs generally imposes a stricter financial requirement than the state RTC standard, and we expect this to remain the case through the duration of and following the COVID-19 pandemic.

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

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

As of March 31, 2021, we had $1.9 billion of consolidated cash and investments, including $78 million of cash and investments at NMIH.

On June 8, 2020, NMIH completed the sale of 15.9 million shares of common stock, including the exercise of a 15% overallotment option, and raised proceeds of approximately $220 million, net of underwriting discounts, commissions and other direct offering expenses.

See Item 1, " Financial Statements - Notes to Condensed Consolidated Financial Statements - Note 10, Common Stock ." On June 19, 2020, NMIH also completed the sale of its $400 million aggregate principal amount of senior secured notes, raising net proceeds of $244 million after giving effect to offering expenses and the repayment of the principal amount outstanding under our $150 million 2018 Term Loan.

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

On June 19, 2020, NMIH also completed the sale of its $400 million aggregate principal amount of senior secured notes, raising net proceeds of $244 million after giving effect to offering expenses and the repayment of the $150 million principal amount outstanding under our 2018 Term Loan.

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

NMIH also has access to $110 million of undrawn revolving credit capacity under the 2020 Revolving Credit Facility and $16.1 million of aggregate ordinary course dividend capacity available from NMIC and Re One without the prior approval of the Wisconsin OCI.

Amounts drawn under the 2020 Revolving Credit Facility are available as directed for NMIH needs or may be down-streamed to support the requirements of our operating subsidiaries if we so decide.

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

NMIH also has access to $110 million of undrawn revolving credit capacity (through the 2020 Revolving Credit Facility) and $1.6 million of ordinary course dividend capacity available from Re One without the prior approval of the Wisconsin OCI.

Amounts drawn under the 2020 Revolving Credit Facility are available as directed for NMIH needs or may be down-streamed to

support the requirements of our operating subsidiaries if we so decide.

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

NMIH's principal liquidity demands include funds for the payment of (i) certain corporate expenses, (ii) certain reimbursable expenses of our insurance subsidiaries, including NMIC, and (iii) principal and interest as due on our outstanding debt.

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

At March 31, 2021, NMIC had $1.8 billion of cash and investments, including $86 million of cash and equivalents.

NMIC's principal liquidity demands include funds for the payment of (i) reimbursable holding company expenses, (ii) premiums ceded under our reinsurance transactions (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 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.

During the twelve-month period ended March 31, 2021, NMIC generated $283 million of cash flow from operations and received an additional $327 million of cash flow on the maturity, sale and redemption of securities held in its investment portfolio.

NMIC is not a party to any contracts (derivative or otherwise) that require it to post an increasing amount of collateral to any counterparty and NMIC's principal liquidity demands (other than claims payments) generally develop along a scheduled path ( i.e.

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

We have noted the broad discussion about the liquidity challenges loan servicers may themselves face in the event of widespread borrower utilization of forbearance programs.

We do not currently believe that loan servicer liquidity issues will have a material impact on NMIC's premium receipts or liquidity profile.

There was broad discussion at the onset of the COVID pandemic and concerns about potential liquidity challenges that servicers might face in the event of widespread borrower utilization of forbearance programs.

These concerns have not materialized thus far and we do not believe that loan servicer liquidity constraints, should they arise in the future, would have a material impact on NMIC's premium receipts or liquidity profile.

Loan servicers are contractually obligated to advance mortgage insurance premiums in a timely manner, even if the underlying borrowers fail to remit their monthly mortgage payments.

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.

In June 2020, the GSEs issued guidance to the PMIERs (subsequently amended and restated in each of September and December 2020) that, among other items, requires us to notify them of our intent to cancel coverage on policies for which servicers have failed to make timely premium payments so that the GSEs can pay the premiums directly to us and preserve the mortgage insurance coverage.

Through March 31, 2021, we did not see any notable changes in servicer payment practices, with servicers generally continuing to remit monthly premium payments as scheduled, including those for policies covering loans that are in a forbearance program.

Investment portfolio

At September 30, 2020, we had $1.9 billion of cash and invested assets.

At March 31, 2021, 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;

At March 31, 2021, our investment portfolio was comprised of 100% fixed income assets with 100% of our holdings rated investment grade and our portfolio having an average rating of "A+." At March 31, 2021, our portfolio was in a $16 million aggregate unrealized gain position;

it was highly liquid and highly diversified with no Level 3 asset positions and no single issuer concentration greater than 1.5%.

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.

We did not record any allowance for credit losses in the portfolio during the three months ended March 31, 2021, as we expect to recover the amortized cost basis of all securities held.

The pre-tax book yield on our investment portfolio was 2.0% for the three months ended March 31, 2021.

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.

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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.

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

The CARES Act, CAA and American Rescue Plan include, among other items, provisions relating to refundable payroll tax credits, deferment of 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, technical corrections to tax depreciation methods for qualified improvement property, and temporary 100% deduction for business meals.

We continue to monitor the impact that the CARES Act, CAA and American Rescue Plan may have on our business, financial condition and results of operations.

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

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

Substantially all of our single premium policies in force as of March 31, 2021 were non-refundable under most cancellation scenarios.

If non-refundable single premium policies are canceled, we immediately recognize the remaining unearned premium balances as earned premium revenue.

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Substantially all of our policies provide for either single or monthly premiums.

The percentage of IIF that remains on our books after any 12-month period is defined as our persistency rate.

The percentage of IIF that remains on our books after any twelve-month period is defined as our persistency rate.

Because our insurance premiums are earned over the life of a policy, higher persistency rates can have a significant impact on our net premiums earned and profitability.

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Prepayment speeds and the relative mix of business between single and monthly premium policies also impact our profitability.

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

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

Because premiums are paid at origination on single premium policies and our single premium policies are generally non-refundable on cancellation, assuming all other factors remain constant, if single premium loans are prepaid earlier than expected, our profitability on these loans is likely to increase and, if loans are repaid slower than expected, our profitability on these loans is likely to decrease.

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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 2020 QSR Transaction, effective April 1, 2020.

NMIC is a 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.

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.

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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 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 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.

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

NMIC may elect to 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.

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With this termination, ceded premiums written under the 2016 QSR Transaction decreased from 25% to 20.5% on eligible policies.

The termination had no effect on the cession of pool risk under the 2016 QSR Transaction.

The termination had no effect on the cession

of pool risk under the 2016 QSR Transaction.

Excess-of-loss reinsurance

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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)

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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)

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

(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 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.

(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.

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

In April 27, 2021, NMIC secured $367.2 million of aggregate excess-of-loss reinsurance coverage at inception for an exi sting portfolio of policies primarily written from October 1, 2020 to March 31, 2021, through a mortgage insurance-linked notes offering by Oaktown Re VI.

The reinsurance coverage amount under the terms of the 2021-1 ILN Transaction decreases from $367.2 million at inception over a 12.5 year period as the underlying covered mortgages are amortized or repaid, and/or the mortgage insurance coverage is canceled.

The outstanding reinsurance coverage amount will begin amortizing after an initial period in which a target level of credit enhancement is obtained.

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

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

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

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

Portfolio Data

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

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

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

IIF NIW IIF NIW NIW

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

March 31, 2021 March 31, 2020

IIF NIW IIF NIW

(In Millions)

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Total $ 125,419 $ 26,397 $ 100,981 $ 11,297

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 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.

For the three months ended March 31, 2021, NIW increased 134%, compared to the three months ended March 31, 2020, due to growth in our monthly and single premium policy production tied to growth in the size of the total mortgage insurance market, as well as the increased penetration of existing customer accounts and new customer account activations.

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

As of March 31, 2021, monthly premium policies accounted for 86% of our primary IIF, compared to 83% at March 31, 2020.

Total IIF increased 24% at March 31, 2021 compared to March 31, 2020, primarily due to the NIW generated between such measurement dates, partially offset by the run-off of in-force policies.

Our persistency rate decreased to 52% at March 31, 2021 from 72% at March 31, 2020, reflecting the impact of increased refinancing activity tied to record low interest rates.

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

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

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

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

March 31, 2021 March 31, 2020

(In Thousands)

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Net premiums earned 105,879 98,717

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.

The increases in net premiums written and earned are primarily due to the growth of our IIF and increased monthly policy production, partially offset by increased cessions under the QSR and ILN Transactions.

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.

For the three months ended March 31, 2021, net premiums written increased 27%, and net premiums earned increased 7%, compared to the three months ended March 31, 2020.

The growth in net premiums written and earned were primarily due to the growth of our IIF and increased monthly policy production, partially offset by increased cessions under the QSR and ILN Transactions.

The accelerated rate of growth in net premiums written over growth in net premiums earned is due to increase in single policy production and increase in earnings on cancellations during the three months ended March 31, 2021.

Pool premiums written and earned for the three months ended March 31, 2021 and 2020, were $0.5 million and $0.7 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 our ceded pool premiums written and earned are recouped through profit commission.

Portfolio Statistics

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Primary portfolio trends As of and for the three months ended

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

March 31, 2021 December 31, 2020 September 30, 2020 June 30, 2020 March 31, 2020

($ Values In Millions, except as noted below)

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(3) Calculated as net premiums earned divided by average primary IIF for the p eriod, annualized.

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

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

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

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

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

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

Primary IIF For the three months ended

March 31, 2021 March 31, 2020

(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 September 30, 2020 As of September 30, 2019

Primary IIF and RIF As of March 31, 2021 As of March 31, 2020

IIF RIF IIF RIF

(In Millions)

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

March 31, 2021 $ 26,296 $ 6,508 $ — $ —

2020 53,650 13,397 11,236 2,882

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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 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 nine months ended

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

Primary NIW by FICO For the three months ended

March 31, 2021 March 31, 2020

(In Millions)

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Weighted average FICO 755 757

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

Primary NIW by LTV For the three months ended

March 31, 2021 March 31, 2020

(In Millions)

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Weighted average LTV 91.0 % 91.3 %

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

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

March 31, 2021 March 31, 2020

(In Millions)

Purchase $ 17,909 $ 7,991

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

Total $ 26,397 $ 11,297

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Primary IIF by FICO As of

September 30, 2020 September 30, 2019

March 31, 2021 March 31, 2020

($ Values In Millions)

7 unchanged sentences

Primary RIF by FICO As of

September 30, 2020 September 30, 2019

March 31, 2021 March 31, 2020

($ Values In Millions)

7 unchanged sentences

Primary IIF by LTV As of

September 30, 2020 September 30, 2019

March 31, 2021 March 31, 2020

($ Values In Millions)

5 unchanged sentences

Primary RIF by LTV As of

September 30, 2020 September 30, 2019

March 31, 2021 March 31, 2020

($ Values In Millions)

5 unchanged sentences

Primary RIF by Loan Type As of

September 30, 2020 September 30, 2019

March 31, 2021 March 31, 2020

Fixed 99 % 98 %

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Total 100 % 100 %

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

As of September 30, 2020

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

As of March 31, 2021

Book Year Original Insurance Written Remaining Insurance in Force % Remaining of Original Insurance Policies Ever in Force Number of Policies in Force Number of Loans in Default # of Claims Paid Incurred Loss Ratio (Inception to Date) (1)

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2020 62,702 53,650 86 % 186,174 163,626 1,247 — 8.3 % 0.7 % 0.8 %

2021 26,397 26,296 100 % 82,232 81,975 3 — — % — % — %

Total $ 220,339 $ 123,777 758,384 436,652 11,090 441

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The following table shows the distribution by state of our primary RIF as of the periods indicated.

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.

The distribution of our primary RIF as of March 31, 2021 is not necessarily representative of the geographic distribution we expect in the future.

Top 10 primary RIF by state As of

September 30, 2020 September 30, 2019

March 31, 2021 March 31, 2020

California 10.8 % 11.5 %

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Colorado 4.1 3.6

Illinois 4.0 3.8

Maryland 3.8 3.4

Illinois 3.7 3.8

Washington 3.5 3.3

Georgia 3.3 2.7

Pennsylvania 3.3 3.7

Massachusetts 3.5 3.1

Total 54.9 % 51.4 %

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

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

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

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

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

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.

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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 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.

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

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

For the three months ended For the 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)

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Current year (2)

18,682 3,547 61,198 10,948

Prior years (3)

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Prior years (3)

1,100 1,033 4,309 2,401

Reinsurance terminations (4)

Total claims and claim expenses paid 504 1,224

1 unchanged sentence

Add reinsurance recoverables (1)

17,180 4,309 17,180 4,309

Ending balance $ 96,103 $ 29,479

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

Amounts are presented net of reinsurance.

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

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

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

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

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

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

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

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

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

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

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

Beginning default inventory 12,209 1,448

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Ending default inventory 11,090 1,449

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 increase in the ending default inventory at March 31, 2021 compared to March 31, 2020, 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 March 31, 2021, 9,988 of our 11,090 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 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)

2 unchanged sentences

Average amount paid per claim

$ 39 $ 34 $ 46 $ 30

67 % 70 % 80 % 70 %

(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.

(1) Count include s one claim settled without payment in each of the three months ended March 31, 2021 and 2020.

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

The number of claims paid for the three 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 number of claims paid for the three months ended March 31, 2021 decreased compared to the three months ended March 31, 2020, despite the growth and seasoning of our insured portfolio, and significant increase in our default population, primarily as a result of the forbearance program and foreclosure moratorium implemented by the GSEs in response to the COVID outbreak and codified under the CARES Act.

Such forbearance and foreclosure programs have extended, and may ultimately interrupt, the timeline over which loans would otherwise progress through the default cycle to a paid claim.

Our claims severity for the three months ended March 31, 2021 was 61%, compared to 83% for the three months ended March 31, 2020.

Claims severity for the three months ended March 31, 2021 benefited from the resiliency of the housing market and broad national house price appreciation.

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

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

Average reserve per default:

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

As of March 31, 2021 As of March 31, 2020

(In Thousands)

2 unchanged sentences

(2) Amount includes claims adjustment expenses.

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.

The average reserve per default at March 31, 2021 decreased from March 31, 2020, primarily due to new COVID-19 related defaults.

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

While we established lower reserves per defaulted loan at March 31, 2021, our total reserve position increased substantially due to the increase in 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.

September 30, 2020 September 30, 2019

March 31, 2021 March 31, 2020

(In Thousands)

1 unchanged sentence

Risk-based required assets 1,261,015 912,321

Available assets were $1,672 million at September 30, 2020, compared to $956 million at September 30, 2019.

Available assets were $1.8 billion at March 31, 2021, compared to $1.1 billion at March 31, 2020.

In June 2020, NMIH completed the sale of 15.9 million shares of common stock raising net proceeds of approximately $220 million and the sale of the $400 million aggregate principal amount of senior secured notes.

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

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.

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 including the inception of the 2020-1 ILN Transaction.

The $740 million increase in NMIC's available assets between the dates presented was driven by the NMIH capital contribution and NMIC's positive cash flow from operations during the intervening period.

The increase in the risk-based required asset amount between the dates presented was primarily due to the growth of our gross RIF, and increase in our default inventory related to the onset of the COVID-19 pandemic, p artially offset by the increased cession of risk under our third-party reinsurance agreements.

See " - COVID-19 Developments, " above.

LIBOR Transition

In July 2017, the U.K.

Financial Conduct Authority announced that it intends to stop persuading or compelling banks to submit LIBOR rates after 2021, which is expected to render these widely used reference rates unavailable or unreliable.

We have exposure to LIBOR-based financial instruments, such as LIBOR-based securities held in our investment portfolio.

The 2020 Revolving Credit Facility and premiums paid on our ILN Transactions are also LIBOR-based.

We are in the process of reviewing our LIBOR-based contracts that extend beyond 2021 and transitioning to a set of alternative reference rates.

We will continue to monitor, assess and plan for the phase out of LIBOR;

however, we currently do not know the impact it will have on our operations or financial results.

Capital Position of Our Insurance Subsidiaries and Financial Strength Ratings

In addition to GSE-imposed asset requirements, NMIC is subject to state regulatory minimum capital requirements based on its RIF.

While formulations of this minimum capital may vary by jurisdiction, the most common measure allows for a maximum permitted RTC ratio of 25:1.

As of 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 $1.6 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.

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

The outlook for Moody's ratings is stable .

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

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

Information Technology

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

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

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

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

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

The MI industry is highly competitive and currently consists of six private mortgage insurers, including NMIC, as well as government MIs such as the FHA, USDA or VA.

Private MI companies compete based on service, customer relationships, underwriting and other factors, including price, credit risk tolerance and information technology capabilities.

Private MI companies compete based on service, customer relationships, underwriting and other factors, including price, credit risk tolerance and IT capabilities.

We expect the private MI market to remain competitive, with pressure for industry participants to maintain or grow their market share.

The private MI industry overall competes more broadly with government MIs who significantly increased their share in the MI market following the 2008 Financial Crisis.

Although there has been broad policy consensus toward the need for increasing private capital participation and decreasing government exposure to credit risk in the U.S.

Although there has been broad policy consensus toward the need for

increasing private capital participation and decreasing government exposure to credit risk in the U.S.

housing finance system, it remains difficult to predict whether the combined market share of government MIs will recede to pre-2008 levels.

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

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

LIBOR Transition

On March 5, 2021, ICE Benchmark Administration Limited (“IBA”), the administrator for LIBOR, confirmed it would permanently cease the publication of overnight, one-month, three-month, six-month and twelve-month USD LIBOR settings in their current form after June 30, 2023.

Financial Conduct Authority ("FCA"), the regulator of IBA, announced on the same day that it intends to stop requiring panel banks to continue to submit to LIBOR and all USD LIBOR settings in their current form will either cease to be provided by any administrator or no longer be representative after June 30, 2023.

We have exposure to USD LIBOR-based financial instruments, such as LIBOR-based securities held in our investment portfolio, and our 2020 Revolving Credit Facility and certain ILN Transactions that require LIBOR-based payments.

We are in the process of reviewing our LIBOR-based contracts and transitioning, as necessary and applicable, to a set of alternative reference rates.

We will continue to monitor, assess and plan for the phase out of LIBOR;

however, we cannot currently estimate the impact such transition will have on our operations or financial results.

Consolidated Results of Operations

Consolidated statements of operations Three months ended Nine months ended

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

Consolidated statements of operations Three months ended

March 31, 2021 March 31, 2020

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

7 unchanged sentences

Loss ratio (1)

15.9 % 2.8 % 18.8 % 3.3 %

Expense ratio (2)

1 unchanged sentence

Combined ratio 36.9 % 38.5 %

50.2 % 37.8 % 51.4 % 41.5 %

Three months ended Nine months ended

Three months ended

Non-GAAP financial measures (3)

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

March 31, 2021 March 31, 2020

($ in thousands, except for per share data)

2 unchanged sentences

Adjusted diluted EPS 0.62 0.75

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

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

(1) Loss ratio is calculated by dividing insurance claims and claim expenses by net premiums earned.

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

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

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

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.

Net premiums earned were $105.9 million for the three months ended March 31, 2021 compared to $98.7 million for the three months ended March 31, 2020.

The increase from period-to-period was primarily due to the growth of our IIF, a rise in our monthly policy production and higher single premium policy cancellations, partially offset by increased cessions under our QSR and ILN Transactions.

Net investment income was $8.8 million for the three months ended March 31, 2021 compared to $8.1 million for the three months ended March 31, 2020.

The increase was driven by growth 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.

Other revenues were $0.5 million for the three months ended March 31, 2021, compared to $0.9 million for the three months ended March 31, 2020.

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.

The decline in other revenues relates to a decrease in NMIS' outsourced loan review volume.

Amounts recognized in other revenues generally correspond with amounts incurred as service expenses for outsourced loan review activities in the same periods.

1 unchanged sentence

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

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 .

Insurance claims and claim expenses were $5.0 million for the three months ended March 31, 2021, compared to $5.7 million for the three months ended March 31, 2020.

Insurance claims and claim expenses decreased period-to-period despite an increase in the number of new defaults reported during the three months ended March 31, 2021, primarily because we established lower reserves per default for loans that we consider to be impaired in connection with the COVID pandemic given our expectation that forbearance, repayment and modification, and other assistance programs will aid affected borrowers and drive higher cure rates on such defaults than we would otherwise expect to experience on similarly situated loans that did not benefit from broad-based assistance programs.

Insurance claims and claim expenses during the three months ended March 31, 2021 also benefited from cure activity and a release of reserves previously held against certain loans that defaulted prior to the onset of the COVID pandemic.

Underwriting and operating expenses were $34.1 million for the three months ended March 31, 2021, compared to $32.3 million for the three months ended March 31, 2020.

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

Underwriting and operating expenses included capital market reinsurance transaction costs of $0.4 million and $0.5 million, for the three months ended March 31, 2021 and 2020, respectively.

Service expenses were $0.6 million for the three months ended March 31, 2021, compared to $0.7 million for the three months ended March 31, 2020.

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

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 $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.

The decline in service expenses was driven by a decrease in NMIS' outsourced loan review volume.

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

Interest expense was $7.9 million for the three months ended March 31, 2021 compared to $2.7 million for the three months ended March 31, 2020.

Interest expense increased due to the increased amount and cost of our outstanding debt following the issuance of the $400 million Notes and retirement of the $150 million 2018 Term Loan in June 2020.

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

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 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 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.

Income tax expense was $14.6 million for the three months ended March 31, 2021 compared to $13.9 million for the three months ended March 31, 2020.

The increase in income tax expense was primarily driven by an increase in our effective tax rate.

taxpayer, we are subject to a U.S.

federal corporate income tax rate of 21%.

Our provision for income taxes for interim periods is established based on our estimated annual effective tax rate for a given year, and reflects the impact of discrete tax effects in the period in which they occur.

Our effective tax rate on 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.

The increase in our effective tax rate period-to-period reflects a decrease in the discrete tax benefits realized during the three months ended March 31, 2021 from the change in the fair value of our warrant liability, and excess share-based compensation realized upon the vesting of RSUs and exercise of stock options.

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

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.

Net income was $52.9 million for the three months ended March 31, 2021 compared to $58.3 million for the three months ended March 31, 2020.

Adjusted net income was $53.4 million for the three months ended March 31, 2021 compared to $52.7 million for the three months ended March 31, 2020.

The decreases in net income from period-to-period was primarily driven by a shift in the impact of the change in the fair value of our warrant liability from a gain during the three months ended March 31, 2020 to a loss during the three months ended March 31, 2021.

Our adjusted net income, which excludes the gain or

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

Diluted EPS was $0.61 for the three months ended March 31, 2021, compared to $0.74 for the three months ended March 31, 2020.

Adjusted diluted EPS was $0.62 for the three months ended March 31, 2021, compared to $0.75 for the three months ended March 31, 2020.

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 September 30, For the nine months ended September 30,

2020 2019 2020 2019

Non-GAAP Financial Measure Reconciliations For the three months ended March 31,

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

2 unchanged sentences

Net income $ 52,891 $ 58,271

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

Net realized investment losses — 72

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

35 unchanged sentences

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 September 30, 2020 December 31, 2019

Consolidated balance sheets March 31, 2021 December 31, 2020

(In Thousands)

7 unchanged sentences

Other assets 71,477 69,976

33,128 30,209

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

10 unchanged sentences

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

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

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.

Total cash and investments were $1.9 billion as of March 31, 2021 and December 31, 2020.

Cash and investments at March 31, 2021 included $78.2 million held by NMIH.

The increase in total cash and investments between the respective measurement dates reflects cash generated from operations, partially offset by a decrease in the unrealized gain position of our fixed income portfolio caused by a rise in interest rates.

Net deferred policy acquisition costs were $62.3 million as of March 31, 2021, compared to $62.2 million as of December 31, 2020.

The increase was primarily driven by growth in the number of policies written during the period and the deferral of certain costs associated with the origination of those policies, partially offset by the amortization of previously deferred acquisition costs.

Prepaid reinsurance premiums were $8.0 million as of September 30, 2020, compared to $15.5 million as of December 31, 2019.

Prepaid reinsurance premiums were $4.8 million as of March 31, 2021, compared to $6.2 million as of December 31, 2020.

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.

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.

Reinsurance recoverable was $18.7 million as of March 31, 2021, compared to $17.6 million as of December 31, 2020.

The increase was driven by an increase in ceded losses recoverable associated with our QSR Transactions.

Other assets increased to $71.5 million as of March 31, 2021, compared to $70.0 million as of December 31, 2020, primarily driven by a $1.6 million increase in software and equipment.

Included in other assets are $46.4 million of tax and loss bonds held by the Company at both March 31, 2021 and December 31, 2020.

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

Unearned premiums were $127.4 million as of March 31, 2021, compared to $118.8 million as of December 31, 2020.

The increase was driven by single premium policy originations during the three months ended March 31, 2021, partially offset by the cancellation of other single premium policies and the amortization of existing unearned premiums through earnings in accordance with the expiration of risk on related single premium policies.

Accounts payable and accrued expenses were $57.1 million as of March 31, 2021, compared to $61.7 million as of December 31, 2020.

The decrease was primarily driven by the payment of an unsettled trade payable related to the purchase of

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

Reserve for insurance claims and claim expenses was $96.1 million as of March 31, 2021, compared to $90.6 million as of December 31, 2020.

Reserve for insurance claims and claim expenses increased at March 31, 2021 despite a decline in the total size of our default population because of an increase in the average case reserve held against previously defaulted loans and the establishment of initial reserves newly defaulted loans during the period.

While we have generally established lower reserves per default for loans that we consider to be impaired in connection with the COVID pandemic, we have increased the initial reserves held for such loans as they have aged in default status.

The increase in the reserves for insurance claims and claim expenses at March 31, 2021 was partially offset by the release of prior year reserves tied to the curing of certain loans that had defaulted prior to the onset of the COVID pandemic.

See " - Insurance Claims and Claim Expenses ," above for further details.

Reinsurance funds withheld was $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.

Reinsurance funds withheld, which represents our ceded reinsurance premiums written, less our profit and ceding commission receivables related to the 2016 QSR Transaction was $7.6 million as of March 31, 2021, compared to $8.7 million as of December 31, 2020.

The decrease 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 $3.1 million at September 30, 2020, primarily due to a decrease in our stock price.

Warrant liability was $4.2 million at March 31, 2021, compared to $4.4 million at December 31, 2020.

The decrease was primarily driven by the exercise of outstanding warrants during the three months ended March 31, 2021, partially offset by the change in Black-Scholes pricing model inputs between the respective measurement dates.

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

Net deferred tax liability increased from $56.4 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.

Net deferred tax liability was $115.2 million at March 31, 2021 compared to $112.6 million at December 31, 2020.

The increase was primarily due to an increase in the claimed deductibility of our statutory contingency reserve, offset by the change in unrealized gains recorded in other comprehensive income.

For further information regarding income taxes and their impact on our results of operations and financial position, see Item 1, " Financial Statements - Notes to Condensed Consolidated Financial Statements - Note 9, Income Taxes.

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

Consolidated cash flows For the nine months ended September 30,

Consolidated cash flows For the three months ended March 31,

Net cash provided by (used in):

4 unchanged sentences

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

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 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

Net cash provided by operating activities was $85.5 million for the three months ended March 31, 2021, compared to $47.9 million for the three months ended March 31, 2020.

The increase in cash generated from operating activities was primarily driven by growth in premiums written, with further increase tied to a decline in claims and cash interest paid from period-to-period.

Cash used in investing activities for the three months ended March 31, 2021 was driven by the purchase of fixed and short-term maturities, with cash provided by operating activities, and the reinvestment of coupon payments, maturities and sale proceeds within our investment portfolio.

Cash provided by investing activities for the three months ended March 31, 2020 represent the net cash proceeds from maturities of fixed maturity investments and the sales of short-term investments, partially offset by purchases.

We paused reinvestment activities at the onset of the COVID-19 pandemic in the first quarter of 2020 to bolster liquidity within our investment portfolio.

Cash used in financing activities was $0.4 million for the three months ended March 31, 2021, compared to cash used in financing activities of $4.9 million for the three months ended March 31, 2020.

The cash used in financing activities primarily relates to taxes paid on the net share settlement of equity awards for certain employees.

The cash used in financing activities for the three months ended March 31, 2020 also includes cash paid for debt issuance costs in connection with the 2020 Revolving Credit Facility.

Liquidity and Capital Resources

NMIH serves as the holding company for our insurance subsidiaries and does not have any significant operations of its own.

NMIH's principal liquidity demands include funds for:

(i) payment of certain corporate expenses;

NMIH's principal liquidity demands include funds for (i) payment of certain corporate expenses;

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

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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 September 30, 2020, NMIH had $75.1 million of cash and investments.

As of March 31, 2021, NMIH had $78.2 million of cash and investments.

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

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 $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 $445.4 million of capital to NMIC following completion of the equity and Notes offerings.

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 4, Debt.

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

In the future, NMIH may benefit from ordinary course dividend capacity available from NMIC as well.

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

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

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

The 2020 Revolving Credit Facility matures on February 22, 2023 and accrues interest at a variable rate equal to, at our discretion, (i) a base rate (as defined in the Credit Agreement, subject to a floor of 1.00% per annum) plus a margin of 0.375% to 1.875% per annum or (ii) the Eurodollar Rate (subject to a floor of 0.00% per annum) plus a margin of 1.375% to 2.875% per annum, in each case based on the applicable corporate credit rating at the time.

Borrowings under the 2020 Revolving Credit Facility may be used for general corporate purposes, including to support the growth of our new business production and operations.

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

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

We are subject to certain covenants under the Notes and the 2020 Revolving Credit Facility (as defined in the Credit Agreement).

Under the Notes (as defined in the Indenture), we are subject to a maximum debt-to-total capitalization ratio of 35%.

Under the 2020 Revolving Credit Facility (as defined in the Credit Agreement), we are subject to a maximum debt-to-total capitalization ratio of 35%, a minimum liquidity requirement, a requirement to maintain compliance with the PMIERs financial requirements (subject to any GSE-approved waivers), and minimum consolidated net worth and statutory capital requirements (respectively, as defined therein).

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

NMIC and Re One are subject to certain capital and dividend rules and regulations prescribed by jurisdictions in which they are authorized to operate and the GSEs.

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Dividends in larger amounts, or "extraordinary" dividends, are subject to the Wisconsin OCI's prior approval.

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

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

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

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

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

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

a) pay dividends, make payments of principal or increase payments of interest beyond those commitments made prior to the guidance effective date associated with surplus notes issued by the approved insurer, make any other payments, unless related to expenses incurred in the normal course of business or to commitments made prior to the guidance effective date, or pledge or transfer asset(s) to any affiliate or investor, or b) enter into any new arrangements or alter any existing arrangements under tax sharing and intercompany expense-sharing agreements other than renewals and extensions of agreements in effect prior to the guidance effective date.

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

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

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-m onth period ended December 31, 2021 without prior approval from the Wisconsin OCI.

Since inception, neither NMIC nor Re One have paid any 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, even if the approved insurer otherwise satisfies the financial requirements prescribed by PMIERs, prior to taking any of the following actions:

(i) pay dividends, make payments of principal or increase payments of

interest beyond those commitments made prior to the guidance effective date associated with surplus notes issued by the approved insurer , make any other payments, unless related to expenses incurred in the normal course of business or to commitments made prior to the guidance effective date, or pledge or transfer asset(s) to any affiliate or investor, or (ii) enter into any new arrangements or alter any existing arrangements under tax sharing and intercompany expense-sharing agreements other than renewals and extensions of agreements in effect prior to the guidance effective date.

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

NMIH may require liquidity to fund the capital needs of its insurance subsidiaries.

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

Our $100 million 2020 Revolving Credit Facility matures on February 22, 2023 and accrues interest at a variable rate equal to, at our discretion, (i) a base rate (as defined in the Credit Agreement, subject to a floor of 1.00% per annum) plus a margin of 0.375% to 1.875% per annum or (ii) the Eurodollar Rate (subject to a floor of 0.00% per annum) plus a margin of 1.375% to 2.875% per annum, in each case based on the applicable corporate credit rating at the time.

Borrowings under the 2020 Revolving

Credit Facility may be used for general corporate purposes, including to support the growth of our new business production and operations.

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

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

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

Under the Notes (and as defined in the Indenture), we are subject to a maximum debt-to-total capitalization ratio of 35%.

Under the 2020 Revolving Credit Facility (as defined in the Credit Agreement), we are subject to a maximum debt-to-total capitalization ratio of 35%, a minimum liquidity requirement, compliance with the PMIERs financial requirements (subject to any GSE-approved waivers), and minimum consolidated net worth and statutory capital requirements (respectively, as defined therein).

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

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

The financial requirements stipulated by the GSEs are outlined in the PMIERs.

Under the PMIERs, NMIC must maintain available assets that are equal to or exceed a minimum risk-based required asset amount, subject to a minimum floor of $400 million.

At March 31, 2021, we reported $1,810 million available assets against $1,261 million risk-based required assets for a $549 million of "excess" funding position

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

Loans with higher risk factors, such as higher LTVs or lower borrower FICO scores, are assessed a higher charge.

Non-performing loans that have missed two or more payments are generally assessed a significantly higher charge than performing loans, regardless of the underlying borrower or loan risk profile;

however, special consideration is given under PMIERs to loans that are delinquent on homes located in an area declared by FEMA to be a Major Disaster zone.

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

NMIC's PMIERs minimum risk-based required asset amount is also adjusted for its reinsurance transactions (as approved by the GSEs).

Under NMIC's quota share reinsurance treaties, it receives credit for the PMIERs risk-based required asset amount on ceded RIF.

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

Under NMIC's ILN transactions, it generally receives credit for the PMIERs risk-based required asset amount on ceded RIF to the extent such requirement is within the subordinated coverage (excess of loss detachment threshold) afforded by the transaction.

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

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

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

Non-performing loans are treated the same as performing loans under the RTC framework.

As such, the PMIERs generally imposes a stricter financial requirement than the state RTC standard.

As of March 31, 2021, NMIC's performing primary RIF, net of reinsurance, was approximately $22.8 billion.

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

Based on NMIC's total statutory capital of $1.7 billion (including contingency reserves) as of March 31, 2021, NMIC's RTC ratio was 13.4:1 Re One had total statutory capital of $37.3 million as of March 31, 2021 and a RTC ratio of 1.8:1

At March 31, 2021, NMIC had $1.8 billion of cash and investments, including $86 million of cash and equivalents.

NMIC's cash inflow is generally significantly in excess of its cash outflow in any given period.

, are of a contractually predetermined amount and due at a contractually predetermined date).

NMIC's only use of cash that develops along an unscheduled path is claims payments.

Given the breadth and duration of forbearance programs available to

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

Debt and Financial Strength Ratings

NMIC's financial strength is rated "Baa2" by Moody's and "BBB" by S&P.

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

Moody's ratings outlook is stable.

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

In April 2021, S&P upgraded its outlook from negative to positive for the financial strength rating of NMIC's and NMIH's long-term counter-party credit profile.

Consolidated Investment Portfolio

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Our investment portfolio is comprised entirely of fixed maturity instruments.

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.

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

As of March 31, 2021, the fair value of our investment portfolio was $1.8 billion and we held an additional $115.5 million of cash and equivalents.

Pre-tax book yield on the investment portfolio for the three months ended March 31, 2021 was 2.0%.

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

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

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

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

Percentage of portfolio's fair value March 31, 2021 December 31, 2020

Corporate debt securities 61 % 63 %

Municipal debt securities 24 22

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

Asset-backed securities 7 7

Cash, cash equivalents, and short-term investments 6 6

treasury securities and obligations of U.S.

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Investment portfolio ratings at fair value (1)

September 30, 2020 December 31, 2019

March 31, 2021 December 31, 2020

AAA 11 % 12 %

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Investment Securities - Allowance for credit losses

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 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.

Organization, Basis of Presentation and Summary of Accounting Principles.

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

See "- Information Technology " above for more information.

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

As of March 31, 2021, the investment portfolio had gross unrealized losses 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.

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.

Critical Accounting Estimates

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What changed 10-Q

Item 2. Management’s Discussion and Analysis