What changed in this filing

/stocks — the workspaceLOADING

Item 1. Financial Statements

2021-08-04 compared with 2021-05-05 · 186 added, 155 removed, 555 unchanged (38% of the section changed)

1 unchanged sentence

INDEX TO FINANCIAL STATEMENTS

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

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

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

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

Condensed Consolidated Balance Sheets as of June 30, 2021 (Unaudited) and December 31, 2020 6

Condensed Consolidated Statements of Operations and Comprehensive Income for the three and six months ended June 30, 2021 and 2020 (Unaudited) 7

Condensed Consolidated Statements of Changes in Shareholders' Equity for the three months ended June 30, 2021 and 2020 (Unaudited) 8

Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2021 and 2020 (Unaudited) 10

Notes to Condensed Consolidated Financial Statements (Unaudited) 11

1 unchanged sentence

CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)

March 31, 2021 December 31, 2020

June 30, 2021 December 31, 2020

Assets (In Thousands, except for share data)

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

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

Fixed maturities, available-for-sale, at fair value (amortized cost of $1,954,187 and $1,730,835 as of June 30, 2021 and December 31, 2020, respectively) $ 1,994,280 $ 1,804,286

Cash and cash equivalents (including restricted cash of $4,159 and $5,555 as of June 30, 2021 and December 31, 2020, respectively) 68,080 126,937

Premiums receivable 55,939 49,779

20 unchanged sentences

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

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

85,703,487 and 85,163,039 shares issued and outstanding as of June 30, 2021 and December 31, 2020, respectively (250,000,000 shares authorized) 857 852

Additional paid-in capital 944,121 937,872

6 unchanged sentences

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

For the three months ended March 31,

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

2021 2020 2021 2020

Revenues (In Thousands, except for per share data)

1 unchanged sentence

Net investment income 9,382 7,070 18,196 15,174

Net realized investment losses — ( 72 )

Net realized investment gains 12 711 12 639

Other revenues 483 1,223 984 2,123

4 unchanged sentences

Interest expense 7,922 5,941 15,837 8,685

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

(Gain) loss from change in fair value of warrant liability ( 658 ) 1,236 ( 453 ) ( 4,723 )

Total expenses 47,110 72,971 94,848 108,464

9 unchanged sentences

Net income $ 57,522 $ 26,848 $ 110,414 $ 85,119

Other comprehensive loss, net of tax:

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

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

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

Other comprehensive income (loss), net of tax:

Unrealized gains (losses) in accumulated other comprehensive gain (loss), net of tax expense (benefit) of $4,995 and $8,978 for the three months ended June 30, 2021 and 2020, and $(7,003) and $5,162 for the six months ended June 30, 2021 and 2020, respectively 18,790 33,773 ( 26,343 ) 19,418

Reclassification adjustment for realized (gains) losses included in net income, net of tax expense (benefit) of $3 and $149 for the three months ended June 30, 2021 and 2020, and $3 and ($258) for the six months ended June 30, 2021 and 2020, respectively ( 10 ) ( 562 ) ( 10 ) 969

Other comprehensive income (loss), net of tax 18,780 33,211 ( 26,353 ) 20,387

Comprehensive income $ 76,302 $ 60,059 $ 84,061 $ 105,506

15 unchanged sentences

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

Common stock:

class A shares issued related to warrants 8 * 197 — — 197

Common stock:

class A shares issued under stock plans, net of shares withheld for employee taxes 95 1 ( 286 ) — — ( 285 )

Share-based compensation expense — — 3,383 — — 3,383

Change in unrealized investment gains/losses, net of tax expense of $4,992 — — — 18,780 — 18,780

Net income — — — — 57,522 57,522

Balances, June 30, 2021 85,703 $ 857 $ 944,121 $ 27,503 $ 487,424 $ 1,459,905

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

During the three months ended June 30, 2021, we issued 8,096 common shares with a par value of $ 0.01 in connection with the exercise of warrants, which is not identifiable in this schedule due to rounding.

NMI HOLDINGS, INC.

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

Common Stock - Class A Additional

11 unchanged sentences

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

Common stock:

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

Common stock:

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

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

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

Net income — — — — 26,848 26,848

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

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

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

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

1 unchanged sentence

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

For the three months ended March 31,

For the six months ended June 30,

Cash flows from operating activities (In Thousands)

1 unchanged sentence

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

Net realized investment losses — 72

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

Net realized investment gains ( 12 ) ( 639 )

Gain (loss) from change in fair value of warrant liability ( 453 ) ( 4,723 )

Depreciation and amortization 5,344 4,914

12 unchanged sentences

Reinsurance recoverable ( 2,118 ) ( 9,368 )

( 1,078 ) ( 1,253 )

Reinsurance balances, net 9 2,658

7 unchanged sentences

Software and equipment ( 6,050 ) ( 4,638 )

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

Net cash (used in) investing activities ( 240,679 ) ( 114,306 )

Cash flows from financing activities

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

Proceeds from issuance of common stock related to employee equity plans 4,043 3,391

1 unchanged sentence

Taxes paid related to net share settlement of equity awards ( 4,948 ) ( 7,462 )

Proceeds from senior secured notes — 400,000

Repayments of term loan — ( 147,750 )

Payments of debt issuance/modification costs — ( 7,151 )

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

Net cash (used in) provided by financing activities ( 722 ) 461,312

Net (decrease) increase in cash, cash equivalents and restricted cash ( 58,857 ) 474,361

4 unchanged sentences

Income taxes refunded $ 457 $ 76

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

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

26 unchanged sentences

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

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

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

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 of the increased level of macroeconomic volatility.

While there is increased optimism that the acute 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.

The path and pace of global economic recovery will depend, in large part, on the course of the virus (including the newly emergent Delta variant), which itself remains unknown and subject to risk.

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

Significant Accounting Principles

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

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

Variable Interest Entities

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

Oaktown Re V Ltd., and Oaktown Re VI Ltd.

(special purpose reinsurance entities collectively referred to as the Oaktown Re Vehicles) effective May 2, 2017, July 25, 2018, July 30, 2019, July 30, 2020, October 29, 2020 and April 27, 2021, respectively.

At inception of the respective reinsurance agreements, we determined that each of the Oaktown Re Vehicles were variable interest entities (VIEs), as defined under GAAP Accounting Standards Codification (ASC) 810, because they did not

NMI HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

have sufficient equity at risk to finance their respective activities.

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

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

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

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

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

Recent Accounting Pronouncements - Adopted

1 unchanged sentence

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

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

NMI HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

taxes to members of a consolidated group.

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

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

21 unchanged sentences

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

NMI HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Fair Values and Gross Unrealized Gains and Losses on Investments

Cost Gross Unrealized Fair

As of March 31, 2021 (In Thousands)

As of June 30, 2021 (In Thousands)

Treasury securities and obligations of U.S.

6 unchanged sentences

Total investments $ 1,954,187 $ 49,061 $ ( 8,968 ) $ 1,994,280

NMI HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Cost Gross Unrealized Fair

8 unchanged sentences

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

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

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

March 31, 2021 December 31, 2020

We did not own any mortgage-backed securities in our asset-backed securities portfolio at June 30, 2021 o r December 31, 2020.

The following table presents a breakdown of the fair value of our corporate debt securities by issuer industry group as of June 30, 2021 and December 31, 2020:

June 30, 2021 December 31, 2020

Financial 38 % 37 %

Consumer 22 23

Utilities 11 11

Communications 12 10

Utilities 10 11

Technology 10 10

1 unchanged sentence

Total 100 % 100 %

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

As of June 30, 2021 and December 31, 2020, approximately $ 5.6 million and $ 5.7 million, respectively, of our cash and investments were held in the form of U.S.

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

NMI HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Scheduled Maturities

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

The amortized cost and fair value of available-for-sale securities as of June 30, 2021 and December 31, 2020, by contractual maturity, are shown below.

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

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

As of March 31, 2021 Amortized

As of June 30, 2021 Amortized

(In Thousands)

5 unchanged sentences

Total investments $ 1,954,187 $ 1,994,280

NMI HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

As of December 31, 2020 Amortized

7 unchanged sentences

Aging of Unrealized Losses

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.

As of June 30, 2021, the investment portfolio had gross unrealized losses of $ 9.0 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 $ 512 thousand, of which $ 8 thousand had been in an unrealized loss position for a period of twelve months or longer.

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

1 unchanged sentence

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

As of March 31, 2021 (Dollars in Thousands)

As of June 30, 2021 (Dollars in Thousands)

Municipal debt securities 99 $ 169,463 $ ( 1,600 ) — $ — 99 $ 169,463 $ ( 1,600 )

1 unchanged sentence

Asset-backed securities 2 5,136 ( 52 ) — — 2 5,136 ( 52 )

Short-term investments 2 5,994 ( 1 ) — — — 2 5,994 ( 1 )

Total 173 $ 644,999 $ ( 8,968 ) — $ — $ — 173 $ 644,999 $ ( 8,968 )

6 unchanged sentences

Total 15 $ 48,820 $ ( 504 ) 2 $ 2,528 $ ( 8 ) 17 $ 51,348 $ ( 512 )

Allowance for credit losses

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

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

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

NMI HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Allowance for credit losses

As of June 30, 2021 and December 31, 2020, we did not recognize an allowance for credit loss for any security in the investment portfolio and we did not record any provision for credit loss for investment securities during the three or six month periods ended June 30, 2021 or June 30, 2020.

The increase in the number of securities in and the aggregate size of the unrealized loss position as of June 30, 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 June 30, 2021 are not indicative of the ultimate collectability of the current amortized cost of the securities.

Net Investment Income

The following table presents the components of net investment income:

For the three months ended March 31,

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

2021 2020 2021 2020

(In Thousands)

3 unchanged sentences

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

For the three months ended March 31,

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

2021 2020 2021 2020

(In Thousands)

1 unchanged sentence

Gross realized investment losses — ( 3,875 ) — ( 4,487 )

Net realized investment losses $ — $ ( 72 )

Net realized investment gains $ 12 $ 711 $ 12 $ 639

Fair Value of Financial Instruments

10 unchanged sentences

Both observable and unobservable inputs may be used to determine the fair values of positions classified in Level 3.

The circumstances for using these measurements include those in which there is little, if any, market activity for the asset or liability.

The circumstances for using these measurements include those in which there is little, if any, market activity for the asset or

NMI HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Therefore, we must make certain assumptions, which require significant management judgment or estimation about the inputs a hypothetical market participant would use to value that asset or liability.

5 unchanged sentences

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

NMI HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

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

8 unchanged sentences

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

NMI HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

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

7 unchanged sentences

(Level 3) Fair Value

As of March 31, 2021 (In Thousands)

As of June 30, 2021 (In Thousands)

Treasury securities and obligations of U.S.

25 unchanged sentences

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

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

There were no transfers between Level 2 and Level 3 of the fair value hierarchy during the six months ended June 30, 2021, or the year ended December 31, 2020.

NMI HOLDINGS, INC.

1 unchanged sentence

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

For the three months ended March 31,

For the six months ended June 30,

Warrant Liability 2021 2020

3 unchanged sentences

Issuance of common stock on warrant exercise ( 571 ) ( 220 )

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

Balance, June 30 $ 3,385 $ 2,698

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

As of March 31,

As of June 30,

Common stock price $ 22.48 $ 16.08

3 unchanged sentences

Dividend yield 0 % 0 %

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

The changes in fair value of the warrant liability for the six months ended June 30, 2021 and 2020 were driven by the exercise of outstanding warrants, as well as changes in the price of our common stock and other Black-Scholes model inputs during the respective periods.

Financial Instruments not Measured at Fair Value

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

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

At June 30, 2021, the Notes were carried at a cost of $ 393.9 million, net of unamortized debt issuance costs of $ 6.1 million, and had a fair value of $ 459.3 million as assessed under our Level 2 hierarchy.

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

Senior Secured Notes

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

At June 30, 2021, we had $ 400.0 million aggregate principal amount of senior secured notes outstanding.

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

10 unchanged sentences

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

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

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

At June 30, 2021 and December 31, 2020, approximately $ 6.1 million and $ 6.7 million, respectively, of unamortized debt issuance costs remained.

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

At June 30, 2021 and December 31, 2020, $ 2.5 million of accrued and unpaid interest on the Notes was included in "Accounts Payable and Accrued Expenses" on our condensed consolidated balance sheet.

2020 Revolving Credit Facility

3 unchanged sentences

All other terms remained unchanged.

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

As of June 30, 2021, no amounts were drawn under the 2020 Revolving Credit Facility.

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

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

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

As of June 30, 2021, the applicable commitment fee was 0.35 %.

For the three and six months ended June 30, 2021, we recorded $ 0.1 million and $ 0.2 million of commitment fees in interest expense, respectively.

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

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

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

At June 30, 2021, remaining unamortized deferred debt issuance costs were $ 0.8 million.

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

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

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

We were in compliance with all covenants at June 30, 2021.

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

3 unchanged sentences

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

For the three months ended

March 31, 2021 March 31, 2020

For the three months ended For the six months ended

June 30, 2021 June 30, 2020 June 30, 2021 June 30, 2020

(In Thousands)

9 unchanged sentences

Excess-of-loss reinsurance

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

and Oaktown Re V Ltd.

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

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

NMIC is party to reinsurance agreements with the Oaktown Re Vehicles that provide it with aggregate excess-of-loss reinsurance coverage on defined portfolios of mortgage insurance policies.

Under each agreement, NMIC retains a first layer of aggregate loss exposure on covered policies and the respective Oaktown Re Vehicle then provides second layer loss protection up to a defined reinsurance coverage amount.

NMIC then retains losses in excess of the respective reinsurance coverage amounts.

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

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

and Oaktown Re V Ltd.).

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

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

and Oaktown Re V Ltd.

NMIC ceded aggregate premiums to the Oaktown Re Vehicles of $ 10.2 million and $ 19.6 million during the three and six months ended June 30, 2021, respectively, and $ 3.3 million and $ 7.1 million during the three and six months ended June 30, 2020, respectively.

The increase in premiums ceded during the respective periods year-on-year is due to the inception of the excess-of-loss reinsurance agreements that NMIC entered in with Oaktown Re IV Ltd., Oaktown Re V Ltd.

and Oaktown Re VI Ltd.

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

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

NMIC did not cede any incurred losses on covered policies to the Oaktown Re Vehicles during the three and six months ended June 30, 2021 and 2020, as the aggregate first layer risk retention for each applicable agreement was not exhausted during such periods.

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

2 unchanged sentences

Each Oaktown Re Vehicle financed its respective collateral requirement through the issuance of mortgage insurance-linked notes to unaffiliated investors.

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

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

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

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

Such insurance-linked notes mature ten years from the inception date of each reinsurance agreement (except the notes issued by Oaktown Re VI Ltd.

which have a 12.5 year maturity).

We refer to NMIC's reinsurance agreements with and the insurance-linked note issuances by the Oaktown Re Vehicles individually as the 2017 ILN Transaction, 2018 ILN Transaction, 2019 ILN Transaction, 2020-1 ILN Transaction, 2020-2 ILN Transaction and 2021-1 ILN Transaction, and collectively as the ILN Transactions.

The respective reinsurance coverage amounts provided by the Oaktown Re Vehicles decrease over a ten-year period as the underlying insured mortgages are amortized or repaid, and/or the mortgage insurance coverage is canceled (except the coverage provided by Oaktown Re VI Ltd., which decreases over a 12.5 year period).

As the reinsurance coverage decreases, a prescribed amount of collateral held in trust by the Oaktown Re Vehicles is distributed to ILN Transaction noteholders as amortization of the outstanding insurance-linked note principal balances.

The outstanding reinsurance coverage amounts stop amortizing, and the collateral distribution to ILN Transaction noteholders and amortization of insurance-linked note principal is suspended if certain credit enhancement or delinquency thresholds, as defined in each agreement, are triggered (each, a Lock-Out Event).

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

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

A Lock-Out Event was deemed to have occurred, effective June 25, 2020 for each of the 2017, 2018 and 2019 ILN Transactions (related to the default experience of the underlying reference pools for each respective transaction) and at inception of the 2021-1 ILN Transaction (related to the initial build of its target credit enhancement), and the amortization of reinsurance

NMI HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

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

coverage, and distribution of collateral assets and amortization of insurance-linked notes was suspended for each ILN Transaction.

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

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

Current amounts are presented as of March 31, 2021.

Current amounts are presented as of June 30, 2021.

( $ values in thousands)

6 unchanged sentences

242,351 205,846 121,777 121,177

2021-1 ILN Transaction (4)

April 27, 2021 10/1/2020 - 3/31/2021 (3)

367,238 367,238 163,708 163,708

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

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

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

(3) Approximately 1 % of the production covered by the 2021-1 ILN Transaction has coverage reporting dates between July 1, 2019 and September 30, 2020.

(4) As of June 30, 2021, the current reinsurance coverage amount on the 2021-1 ILN transaction is equal to the initial reinsurance coverage, as the reinsurance coverage provided by Oaktown Re will not decrease until its target credit enhancement is met.

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

1 unchanged sentence

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

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

"Cash and cash equivalents" on our condensed consolidated balance sheet includes restricted amounts of $ 4.2 million and $ 5.6 million as of June 30, 2021 and December 31, 2020, respectively.

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

16 unchanged sentences

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

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

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 (subject to an aggregate risk written limit).

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

9 unchanged sentences

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

NMI HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

The following table shows amounts related to the QSR Transactions:

For the three months ended

March 31, 2021 March 31, 2020

For the three months ended For the six months ended

June 30, 2021 June 30, 2020 June 30, 2021 June 30, 2020

(In Thousands)

4 unchanged sentences

Profit commission 14,391 5,271 27,771 17,684

NMI HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

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

6 unchanged sentences

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

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

The reinsurance recoverable on loss reserves related to the 2016 QSR Transaction was $ 4.7 million as of June 30, 2021.

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

1 unchanged sentence

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

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

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

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

The aggregate reinsurance recoverable on loss reserves related to the 2018, 2020 and 2021 QSR Transactions was $ 15.0 million as of June 30, 2021.

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

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

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

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

As of June 30, 2021, we did not recognize any allowance for credit loss with respect to our reinsurance recoverable.

Reserves for Insurance Claims and Claim Expenses

3 unchanged sentences

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

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

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

As of June 30, 2021, we had 8,764 primary loans in default and held gross reserves for insurance claims and claim expenses of $ 101.2 million.

During the six months ended June 30, 2021, we paid 35 claims totaling $ 1.3 million, including 34 claims covered under the QSR Transactions representing $ 0.3 million of ceded claims and claim expenses.

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

1 unchanged sentence

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

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

These 198 loans represented approximately $ 16.3 million of RIF.

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

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

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

We have not paid any pool claims to date.

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

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

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

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

At June 30, 2021, 156 loans in the pool were in default.

NMI HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

made available by private lenders.

156 loans represented approximately $ 13.4 million of RIF.

In connection with the settlement of pool claims, we applied $ 1.0 million to the pool deductible through June 30, 2021.

At June 30, 2021, the remaining pool deductible was $ 9.4 million.

We have not paid any pool claims to date.

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

We had 8,764 loans in default in our primary insured portfolio as of June 30, 2021, which represented a 1.86 % default rate against 471,794 to tal policies in-force.

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

Although our default count declined from June 30, 2020 to June 30, 2021, the population remains elevated compared to our historical experience due to the continued challenges certain borrowers are facing related to the COVID-19 outbreak and their decision to access the forbearance program for federally backed loans codified under the Coronavirus Aid, Relief and Economic Security (CARES) Act or similar programs made available by private lenders.

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

5 unchanged sentences

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

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

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

At June 30, 2020 and 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.

NMI HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

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

For the three months ended March 31,

For the six months ended June 30,

(In Thousands)

6 unchanged sentences

Current year (2)

15,626 42,516

Prior years (3)

8 unchanged sentences

Add reinsurance recoverables (1)

19,726 14,307

Ending balance $ 101,235 $ 69,903

3 unchanged sentences

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

Amounts are presented net of reinsurance 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.

Amounts are presented net of reinsurance and included $ 9.8 million attributed to net case reserves and $ 5.6 million attributed to net IBNR reserves for the six months ended June 30, 2021 and $ 34.7 million attributed to net case reserves and $ 7.1 million attributed to net IBNR reserves for the six months ended June 30, 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 and included $ 0.6 million attributed to net case reserves and $ 5.0 million attributed to net IBNR reserves for the three months

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

NMI HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Amounts are presented net of reinsurance and included $ 1.1 million attributed to net case reserves and $ 5.0 million attributed to net IBNR reserves for the six months ended June 30, 2021 and $ 1.1 million attributed to net case reserves and $ 1.3 million attributed to net IBNR reserves for the six months ended June 30, 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.

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

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

Gross reserves of $ 81.8 million related to prior year defaults remained as of June 30, 2021.

Earnings per Share (EPS)

3 unchanged sentences

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

For the three months ended March 31,

NMI HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

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

2021 2020 2021 2020

(In Thousands, except for per share data)

10 unchanged sentences

Anti-dilutive shares 2 609 1 78

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

We issued 992 thousand warrants in connection with a private placement of our common stock in April 2012, of which 271 thousand remained outstanding available for exercise at June 30, 2021.

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

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

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

During the three months ended June 30, 2021, 14 thousand warrants were exercised resulting in the issuance of eight thousand shares of common stock.

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

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

During the six months ended June 30, 2021, 41 thousand warrants were exercised resulting in the issuance of 32 thousand shares of common stock.

Upon exercise, we reclassified approximately $ 0.6 million of warrant fair value from warrant liability to additional paid-in capital.

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

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

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

We are a U.S.

3 unchanged sentences

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

Our effective tax rate on our

NMI HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

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

Our effective tax rate on our pre-tax income was 21.9 % and 21.8 % for the three and six months ended June 30, 2021, respectively, compared to 23.2 % and 20.5 % for the three and six months ended June 30, 2020, respectively.

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

2 unchanged sentences

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

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

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

As a result, our interim provision for income taxes for the three and six months ended June 30, 2021 represents a change in our net deferred tax liability.

As of June 30, 2021 and December 31, 2020, we held $ 46.4 million of tax and loss bonds in "Other assets" on our condensed consolidated balance sheet.

NMI HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Premium Receivable

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

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

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

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

Due to the nature of our insurance policies (a necessary precondition for access to mortgage credit for covered borrowers) and the short duration of the related receivables, we do not typically experience credit losses against our premium receivables and did not establish an allowance for credit loss at March 31, 2021.

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

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

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

Our premium write-off reserve was not material at June 30, 2021 or December 31, 2020.

Regulatory Information

3 unchanged sentences

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

NMI HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

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

NMIC and Re One generated combined statutory net income of $ 8.8 million and $ 15.1 million for the three and six months ended June 30, 2021, respectively, and combined statutory net loss of $ 24.7 million and $ 17.0 million for the three and six months ended June 30, 2020, respectively.

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

4 unchanged sentences

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

March 31, 2021 December 31, 2020

June 30, 2021 December 31, 2020

(In Thousands)

9 unchanged sentences

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

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

NMIC reported a statutory net loss for the year ended December 31, 2020 and does not have the capacity to pay dividends to NMIH during the twelve-month

NMI HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

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

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

1 unchanged sentence

In response to the COVID-19 pandemic, the GSEs issued temporary PMIERs guidance, effective for the period from June 30, 2020 to June 30, 2021, that requires approved insurers to secure approval from the GSEs prior to paying any dividends, even if the approved insurer otherwise satisfies the financial requirements prescribed by PMIERs.

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

Subsequent Event

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

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

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

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

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

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

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

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

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

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

On June 30, 2021, the GSEs updated the temporary PMIERs guidance to permit approved insurers to pay dividends without securing prior approval if certain prescribed financial requirements are met during the period from July 1, 2021 to December 31, 2021.

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

What changed 10-Q

Item 1. Financial Statements