What changed in this filing

/stocks — the workspaceLOADING

Item 7. Management’s Discussion and Analysis

2022-02-16 compared with 2021-02-24 · 292 added, 265 removed, 817 unchanged (41% of the section changed)

2 unchanged sentences

In addition, investors should review the " Cautionary Note Regarding Forward Looking Statements " above.

We provide private MI through our wholly-owned insurance subsidiaries NMIC and Re One.

NMIC and Re One are domiciled in Wisconsin and principally regulated by the Wisconsin OCI.

NMIC is our primary insurance subsidiary and is approved as an MI provider by the GSEs and is licensed to write coverage in all 50 states and D.C.

Re One provides reinsurance to NMIC on insured loans after giving effect to third-party reinsurance.

Our subsidiary, NMIS, provides outsourced loan review services to mortgage loan originators.

We provide private MI through our primary insurance subsidiary, NMIC.

NMIC is wholly-owned, domiciled in Wisconsin and principally regulated by the Wisconsin OCI.

NMIC is approved as an MI provider by the GSEs and is licensed to write coverage in all 50 states and D.C.

Our subsidiary, NMIS, provides outsourced loan review services to mortgage loan originators and our subsidiary, Re One, historically provided reinsurance coverage to NMIC in accordance with certain statutory risk retention requirements.

Such requirements have been repealed and the reinsurance coverage provided by Re One to NMIC has been commuted.

Re One remains a wholly-owned, licensed insurance subsidiary;

however, it does not currently have active insurance exposures.

MI protects lenders and investors from default-related losses on a portion of the unpaid principal balance of a covered mortgage.

4 unchanged sentences

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 December 31, 2020, we had master policies with 1,570 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 December 31, 2020, we had $113.1 billion of total IIF, including primary IIF of $111.3 billion, and $28.3 billion of gross RIF, including primary RIF of $28.2 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, financial strength and profitability.

As of December 31, 2021, we had issued master policies with 1,732 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 December 31, 2021, we had $152.3 billion of primary insurance-in-force (IIF) and $38.7 billion of primary RIF.

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

4 unchanged sentences

COVID-19 Developments

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

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

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

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

The global dislocation caused by COVID-19 is unprecedented and, while there is broad hope that the recent development, distribution and administration of new vaccines may relieve the crisis and provide for a near-term return to normalized activity, it is not known how long the dislocation will persist.

In response to the COVID-19 outbreak and continuing

uncertainties, we activated our disaster continuity program to ensure our employees are 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 the U.S.

housing market has demonstrated significant resiliency since the onset of the pandemic, with record levels of demand, mortgage origination activity and house price appreciation, much uncertainty remains.

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

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

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

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

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

The global dislocation caused by COVID-19 was unprecedented.

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

We pursued a broad series of capital and reinsurance transactions to bolster our balance sheet and expand our ability to serve our customers and their borrowers, and we updated our underwriting guidelines and policy pricing in consideration of 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 broad resumption of personal and business activity nationwide has prompted a sharp economic rebound and provided hope for a sustainable economic recovery.

While 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.

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

Low interest rates helped to support housing affordability, medical concerns and lifestyle preferences drove people to move from densely populated urban areas to suburban communities where social distancing was more easily achieved, and shelter-in-place directives reinforced the value of homeownership, and the broad adoption of remote work practices provides individuals with greater flexibility to move between geographic territories – 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 pandemic 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.

5 unchanged sentences

(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 more recently under the Consolidated Appropriations Act, enacted on December 27, 2020, 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.

(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 enacted on March 11, 2021, 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 pandemic 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.

We see a causal link between the housing market and the 2008 Financial Crisis that we do not see in the COVID-19 pandemic, and we believe this will further contribute to housing market stability in the current period.

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

Refinancing origination volume also grew dramatically as historically low mortgage rates created refinancing opportunities for a large number of existing borrowers.

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

1 unchanged sentence

In this context, total U.S.

mortgage insurance industry NIW volume has increased to record levels, while the persistency of existing in-force insured risk across the industry has declined meaningfully.

mortgage insurance industry new insurance written (NIW) volume increased to record levels following the onset of the COVID-19 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.

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

See Item 1A "Risk Factors - The COVID-19 pandemic 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 247 employees at December 31, 2021 , including 83 who typically work at our corporate headquarters in Emeryville, CA and 164 who typically work from home in locations across the country.

In response to the COVID-19 outbreak, we activated our business continuity program and instituted additional work-from-home practices for our 113 Emeryville-based staff.

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.

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

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 is 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 has caused us to offer increased flexibility for employees who prefer a full-time or part-time distributed engagement.

We intend to continue offering such flexibility following the pandemic and expect that a significant number of our headquarters-based employees will elect to continue to engage on a full-time or part-time distributed basis.

In January 2022, we modified the lease for our corporate headquarters to reflect our new real estate needs.

Under terms of the modified lease, we reduced the square footage of our leased space and secured a reduction in pricing and incremental leasehold improvement concessions.

The modified lease term extends through March 2030.

New Business Production

2 unchanged sentences

We wrote $85.6 billion of NIW during the year ended December 31, 2021, up 36% compared to the year ended December 31, 2020 and 90% compared to the year ended December 31, 2019.

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, 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 December 31, 2020, the weighted average FICO score of our RIF was 755 and we had a 3% mix of below 680 FICO score risk.

While we currently expect our new business production will remain elevated, the onset of a new viral wave could prompt a reintroduction of broad-based shelter in place directives, increased unemployment or other potentially negative economic and societal outcomes that could cause a moderation or decline in our volume going forward.

Further, increasing interest rates and rising house prices, which each trace (in part) to the pandemic, may cause certain prospective homebuyers to defer their purchases and impact mortgage origination activity, total private mortgage insurance industry production and our NIW volume in future periods.

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 December 31, 2021, the weighted average FICO score of our RIF was 753 and we had a 3% mix of below 680 FICO score.

Similarly, at December 31, 2021, the weighted average LTV ratio (at origination) of our insured portfolio was 92.5% and we had a 11% 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.

Delinquency Trends and Claims Expense

We had 12,209 defaulted loans in our primary insured portfolio at December 31, 2020, which represented a 3.06% default rate against our 399,429 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 the GSEs and private lenders.

At December 31, 2020, 19,464 or 4.9% of the loans we insured in our primary portfolio were enrolled in a forbearance program, including 11,232 of the loans in our default population, 1,108 loans that had missed at least one payment, but not progressed into default status and 7,124 additional loans that were fully performing without any missed payments.

As of January 31, 2021, our default population had decreased to 11,905, representing a 2.9% default rate and identified 17,820 loans in forbearance programs.

At December 31, 2021, we had 6,227 defaulted loans in our primary insured portfolio, which represented a 1.22% default rate against our 512,316 total policies in-force, and identified 7,019 loans that were enrolled in a forbearance program, including 4,751 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 declined every month since with consistency.

As of January 31, 2022, our default population was 5,912, representing a 1.14% default rate.

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

9 unchanged sentences

(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 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.

While we are encouraged by the decline in our forbearance and default populations and optimistic that we will see continued improvement as the economic stress of the COVID pandemic recedes, future viral waves 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.

4 unchanged sentences

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

In response to the onset of the COVID-19 outbreak, the GSEs have introduced new repayment and loan modification options to further assist borrowers with their transition out of forbearance and back into performing status.

In response to the onset of the COVID-19 pandemic, the GSEs introduced new repayment and loan modification options to further assist borrowers with their transition out of forbearance and back into performing status.

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

At December 31, 2020, we established lower reserves for defaults that we consider to be connected to the COVID-19 outbreak given our expectation that forbearance, repayment and modification, and other assistance programs will aid affected borrowers and drive higher cure rates on such defaults than we would otherwise expect to experience on similarly situated loans that did not benefit from broad-based assistance programs.

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

Under our Master Policies, a national foreclosure moratorium of the type currently required will not limit the amount of accrued interest (subject to the three-year limit) or advances that may be included in the claim amount.

If the duration of the current foreclosure moratorium mandated by the GSEs is extended beyond March 31, 2021 by a significant 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.

At December 31, 2021, we generally established lower reserves for defaults that we consider to be connected to the COVID-19 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.

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 enacted following the onset of the COVID-19 pandemic will not limit the amount of accrued interest (subject to the three-year limit) or advances that may be included in the claim amoun t.

Given the duration of the foreclosure moratorium mandated by the GSEs, certain loans in our default inventory, including those with defaults unrelated to the COVID-19 pandemic that had not gone through foreclosure at the onset of the pandemic, have remained in pre-foreclosure

default status for a prolonged period of time.

For those loans that do not ultimately cure, the delayed foreclosure cycle and resulting delay in claims submission may increase the severity of claims we ultimately pay.

Regulatory Capital Position

2 unchanged sentences

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 December 31, 2020, we reported $1,751 million available assets against $984 million risk-based required assets for a $766 million "excess" funding position.

At December 31, 2021, we reported $2,041 million available assets against $1,186 million risk-based required assets.

Our "excess" funding position was $855 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.

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 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 and the reporting of non-performing loans by aging category.

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 the Federal Emergency Management Agency (FEMA) to be a Major Disaster zone eligible for Individual Assistance.

In June 2020, the GSEs issued guidance (subsequently amended and restated in each of September 2020, December 2020 and June 2021) on the risk-based treatment of loans affected by the COVID-19 pandemic 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.

5 unchanged sentences

To the extent our PMIERs risk-based required asset amount on RIF ceded under the ILN transactions grows, we receive increased PMIERs credit under the treaties.

The increasing PMIERs credit we receive under the ILN treaties is further enhanced by their delinquency lockout triggers.

The increasing PMIERs credit we receive under the ILN treaties is further enhanced by their lockout triggers.

In the event of certain credit enhancement or delinquency events, the ILN notes stop amortizing and the cash held in trust is secured for our benefit (a Lock-Out Event).

As the underlying RIF continues to run-off, this has the effect of increasing the overcollateralization within, and excess PMIERs capacity provided by, each ILN structure.

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.

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 for the 2021-1 and 2021-2 ILN Transactions (related to the initial build of their target credit enhancement levels), and the amortization of reinsurance coverage, and distribution of collateral assets and amortization of insurance-linked notes was suspended for each such 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 such ILN Transaction, and during such period the overcollateralization within and potential PMIERs capacity provided by each such ILN Transaction will grow as assets are preserved in the applicable reinsurance trust account.

Effective November 30, 2021, the Lock-Out Event for the 2017 ILN Transaction was deemed to have cleared and amortization of the associated reinsurance coverage, and distribution of collateral assets and amortization of the associated insurance-linked notes resumed.

At December 31, 2021, we had an aggregate $560 million of overcollateralization available across our ILN Transactions to absorb an increase in the PMIERs risk-based required asset amount on ceded RIF.

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

1 unchanged sentence

2019 ILN Transaction

2020-1 ILN Transaction 2020-2 ILN Transaction

2020-1 ILN Transaction 2020-2 ILN Transaction 2021-1 ILN Transaction 2021-2 ILN Transaction

Ceded RIF $ 1,083,899 $ 1,165,012 $ 1,315,183 $ 2,830,192 $ 4,337,381 $ 8,025,754 $ 7,692,023

8 unchanged sentences

Delinquency Trigger (4)

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

(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.

4.0% 4.0% 4.0% 6.0% 4.7% 5.0% 5.0%

(1) Absent a delinquency trigger, the subordinated coverage is capped at 8.00%, 6.25%, 6.75% and 7.45% for the 2020-1, 2020-2, 2021-1 and 2021-2 ILN Transactions, respectively.

(2) Overcollateralization for each of the 2017, 2018, 2019 and 2020-1 ILN Transactions is equal to their current reinsurance coverage as the PMIERs required asset amount on RIF ceded under each transaction is currently below its remaining first layer retained loss.

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

(4) 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, 2020-2, 2021-1 and 2021-2 ILN Transactions are equal to seventy-five percent of the subordinated coverage level and assessed on the basis of a three-month rolling average.

At December 31, 2020, we had an aggregate $428 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 December 31, 2020, we estimate that our total overcollateralization would increase by up to approximately $45 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 $766 million excess available asset position at December 31, 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 ILN Transactions.

We estimate, however, that we will remain in compliance with our PMIERs asset requirements even if the forbearance-driven default rate on our in-force portfolio materially exceeds its current level, given our $855 million excess available asset position at December 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 pandemic, and 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.

2 unchanged sentences

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 in the aftermath of the COVID-19 outbreak.

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.

1 unchanged sentence

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 8, " Financial Statements and Supplementary Data - Notes to Consolidated Financial Statements - Note 15, Common Stock ." On June 19, 2020, NMIH also completed the sale of $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 existing $150 million term loan.

See Item 8, " Financial Statements and Supplementary Data - Notes to Consolidated Financial Statements - Note 5, Debt.

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

NMIH also has access to $110 million of undrawn revolving credit capacity (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.

See Item 8, "Financial Statements and Supplementary Data - Notes to Consolidated Financial Statements - Note 15, Common Stock." On June 19, 2020, NMIH also completed the sale of $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.

See Item 8, "Financial Statements and Supplementary Data - Notes to Consolidated Financial Statements - Note 5, Debt." NMIH contributed approximately $445 million of capital to NMIC following completion of its respective Notes and common stock offerings.

On November 29, 2021, we amended our $110 million senior secured revolving credit facility (the 2020 Revolving Credit Facility and as amended, the 2021 Revolving Credit Facility), increasing the revolving capacity to $250 million and extending the maturity from February 22, 2023 to November 29, 2025, or if any existing senior secured notes remain outstanding on February 28, 2025, then on such date.

The 2021 Revolving Credit Facility is undrawn and fully available to NMIH.

Amounts drawn under the 2021 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 8, " Financial Statements and Supplementary Data - Notes to Consolidated Financial Statements - Note 5, Debt ."

See Item 8, " Financial Statements and Supplementary Data - Notes to Consolidated Financial Statements - Note 5, Debt ." NMIH also has access to $34.9 million of ordinary course dividend capacity available from NMIC without the prior approval of the Wisconsin OCI.

On February 10, 2022, the Board of Directors has approved a $125 million share repurchase program through December 31, 2023, that enables the company to repurchase its common stock.

The authorization provides NMI the flexibility to repurchase shares from time to time in the open market or in privately negotiated transactions, based on market and business conditions, stock price and other factors.

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.

NMIH generates cash interest income on its investment portfolio and benefits from tax, expense-sharing and debt service agreements with its subsidiaries.

NMIH generates cash interest income on its investment portfolio, receives cash proceeds upon the exercise of outstanding stock options, and benefits from tax, expense-sharing and debt service agreements with its subsidiaries.

Such agreements have been approved by the Wisconsin OCI and provide for the reimbursement of substantially all of NMIH's annual cash expenditures.

While such agreements are subject to revocation by the Wisconsin OCI, we do not expect such action to be taken at this time.

The Wisconsin OCI has refreshed its approval of the debt service agreement providing for the additional reimbursement by NMIC of interest expense due on our newly issued Notes and 2020 Revolving Credit Facility.

The Wisconsin OCI refreshed its approval of the debt service agreement and provided for the additional reimbursement by NMIC of interest expense due on our Notes and 2021 Revolving Credit Facility at the time each transaction was completed.

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.

2 unchanged sentences

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

During the twelve-month period ended December 31, 2020, NMIC generated $250 million of cash flow from operations and received an additional $406 million of cash flow on the maturity, sale and redemption of securities held in its investment portfolio.

During the twelve-month period ended December 31, 2021, NMIC generated $307 million of cash flow from operations and received an additional $117 million of cash flow from 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.

3 unchanged sentences

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-19 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 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.

In June 2020, the GSEs issued guidance to the PMIERs (subsequently amended and restated in each of September 2020, December 2020 and June 2021) that, among other items, required us to notify them of our intent to cancel coverage on policies for which servicers failed to make timely premium payments so that the GSEs could pay the premiums directly to us and preserve the mortgage insurance coverage.

Through December 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.

3 unchanged sentences

At December 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 December 31, 2021, our portfolio was in a $7.2 million aggregate unrealized gain position;

it was highly liquid and highly diversified with no Level 3 asset positions and no single issuer concentration greater than 1.6% .

it was highly liquid

and highly diversified with no Level 3 asset positions and no single issuer concentration greater than 1.3%.

We did not record any allowance for credit losses in the portfolio during the year ended December 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 2.2% for the year ended December 31, 2020.

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

We believe such action was prudent in light of the heightened market volatility and general uncertainty developing in the early stages of the COVID-19 pandemic.

We have since redeployed much of our excess liquidity position.

The CARES Act and 2021 Appropriations Act, among other things, include 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 and the 2021 Appropriations 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.

Other Conditions and Trends Impacting Our Business

5 unchanged sentences

We also continued to expand our business with existing customers, deepening our existing relationships and capturing what we believe to be an increasing portion of their annual MI volume.

At December 31, 2020, we had 1,570 Master Policies and 1,195 active customer relationships, compared to 1,476 and 1,095, respectively, as of December 31, 2019 and 1,374 and 1,005, respectively, as of December 31, 2018.

At December 31, 2021, we had issued 1,732 Master Policies and established 1,316 active customer relationships, compared to 1,570 and 1,195, respectively, as of December 31, 2020 and 1,476 and 1,095, respectively, as of December 31, 2019.

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

36 unchanged sentences

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

By contrast, if monthly premium loans are repaid earlier than anticipated, we do not earn any more premium

with respect to those loans and, unless we replace the repaid monthly premium loan with a new loan at the same premium rate or higher, our revenue is likely to decline.

By contrast, if monthly premium loans are repaid earlier than anticipated, we do not earn any more premium with respect to those loans and, unless we replace the repaid monthly premium loan with a new loan at the same premium rate or higher, our revenue is likely to decline.

Effect of reinsurance on our results

8 unchanged sentences

Quota share reinsurance

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

NMIC is a party to five active quota share reinsurance treaties – the 2016 QSR Transaction, effective September 1, 2016, the 2018 QSR Transaction, effective January 1, 2018 and the 2020 QSR Transaction, effective April 1, 2020, the 2021 QSR Transaction, effective January 1, 2021 and the 2022 QSR Transaction, effective October 1, 2021 – which we refer to collectively as the QSR Transactions.

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

Each of the third-party reinsurance providers has an insurer financial strength rating of A- or better by S&P, A.M.

Each of the third-party reinsurance providers has an insurer financial strength rating of A- or better by Standard & Poor's Rating Service (S&P), A.M.

Best Company, Inc.

Best) or both.

2 unchanged sentences

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 (subject to an aggregate risk written limit which was exhausted on October 30, 2021), in exchange for reimbursement of ceded claims and claim expenses on covered policies, a 20% ceding commission, and a profit commission of up to 57.5% that varies directly and inversely with ceded claims.

Under the terms of the 2022 QSR Transaction, NMIC cedes premiums earned related to 20% of the risk on eligible policies written between October 30, 2021 and December 31, 2022, in exchange for reimbursement of ceded claims and claims expenses on covered policies, a 20% ceding commission, and a profit commission of up to 62% that varies directly and inversely with ceded claims.

In connection with the 2022 QSR Transaction, NMIC entered into an additional back-to-back quota share agreement that is scheduled to incept on January 1, 2023 (the 2023 QSR Transaction).

Under the terms of the 2023 QSR Transactions, NMIC will cede premiums earned related to 20% of the risk on eligible policies written in 2023, in exchange for reimbursement of ceded claims and claims expenses on covered policies, a 20% ceding commission, and a profit commission of up to 62% 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.

5 unchanged sentences

Excess-of-loss reinsurance

NMIC has secured aggregate excess-of-loss reinsurance coverage on defined portfolios of mortgage insurance policies written during discrete periods through a series of mortgage insurance-linked note offerings by the Oaktown Re Vehicles.

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.

3 unchanged sentences

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

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 and 2021-2 ILN Transactions (related to the initial build of their target credit enhancement levels), and the amortization of reinsurance coverage, and distribution of collateral assets and amortization of insurance-linked notes was suspended for each ILN Transaction.

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

November 30, 2021, the Lock-Out Event for the 2017 ILN Transaction was deemed to have cleared and amortization of the associated reinsurance coverage, and distribution of collateral assets and amortization of the associated insurance-linked notes resumed.

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

6 unchanged sentences

2020-1 ILN Transaction July 30, 2020 7/1/2019 - 3/31/2020 322,076 49,879 169,514 169,488

322,076 250,685 169,514 169,514

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

242,351 155,129 121,777 121,177

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

2021-1 ILN Transaction (5)

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

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

2021-2 ILN Transaction (5)

October 26, 2021 4/1/2021 - 9/30/2021 (4)

363,596 363,596 146,229 146,229

(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) 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) Approximately 2% of the production covered by the 2021-2 ILN Transaction has coverage reporting dates between July 1, 2019 and March 31, 2021.

(5) As of December 31, 2021, the current reinsurance coverage amount on the 2021-1 ILN and 2021-2 ILN Transactions is equal to the initial reinsurance coverage amount, as the reinsurance coverage provided by the associated Oaktown Re vehicles will not decrease until a target credit enhancement level is met.

See Item 8, " Financial Statements and Supplementary Data - Notes to Consolidated Financial Statements - Note 6, Reinsurance " for further discussion of these third-party reinsurance arrangements.

11 unchanged sentences

Total $ 153,572 $ 85,574 $ 113,107 $ 62,702 $ 97,324 $ 45,141

For the year ended December 31, 2020, primary NIW increased 39% compared to the year ended December 31, 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 year ended December 31, 2019, primary NIW increased 65% compared to the year ended December 31, 2018, due to growth in our monthly and single premium policy production.

For the year ended December 31, 2020, monthly premium polices accounted for 90% of our NIW, compared to 92% and 88% for the years ended December 31, 2019 and 2018, respectively.

As of December 31, 2020, monthly premium policies accounted for 86% of our primary IIF, compared to 81% at December 31, 2019 and 75% at December 31, 2018.

Total IIF grew 16% at December 31, 2020 compared to December 31, 2019, which in turn grew 36% compared to December 31, 2018, 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 56% at December 31, 2020 from 77% at December 31, 2019 and 87% at December 31, 2018, reflecting the impact of increased refinancing activity during the year ended December 31, 2020 tied to record low interest rates.

For the year ended December 31, 2021, primary NIW increased 36% compared to the year ended December 31, 2020, driven by growth in our customer franchise and market presence tied to the increased penetration of existing customer accounts and new customer account activations.

For the year ended December 31, 2020, primary NIW increased 39% compared to the year ended December 31, 2019, driven by growth in our monthly and single premium policy production tied to an increase in the size of the total mortgage insurance market, as well as the growth of our customer franchise and market presence.

Total IIF increased 36% at December 31, 2021 compared to December 31, 2020, which in turn grew 16% compared to December 31, 2019, primarily due to the NIW generated between such measurement dates, partially offset by the run-off of in-force policies.

Our persistency rate improved to 64% at December 31, 2021 from 56% at December 31, 2020, as the pace of refinancing activity slowed and an increasing amount of business written on loans with historically low mortgage note rates since the beginning of the pandemic began to factor in the persistency calculation.

Our persistency rate decreased to 56% at December 31, 2020 from 77% at December 31, 2019, reflecting the impact of increased refinancing activity during the year-ended December 31, 2020.

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

4 unchanged sentences

Net premiums earned 444,294 397,172 345,015

For the year ended December 31, 2020, net premiums written and earned grew 17% and 15%, respectively, compared to the year ended December 31, 2019.

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

Net premiums earned for the year ended December 31, 2020 were larger than net premiums written during the period primarily due to the cancellation of single premium policies and the accelerated recognition of associated unearned premium reserves.

For the year ended December 31, 2019, net premiums written and earned grew 30% and 37%, respectively, compared to the year ended December 31, 2018.

For the year ended December 31, 2021, net premiums written and earned increased 21% and 12%, respectively, compared to the year ended December 31, 2020.

For the year ended December 2020, net premiums written and earned increased 17% and 15%, respectively, compared to the year ended December 31, 2019.

The successive year-on-year growth in net premiums written and earned was primarily driven by the growth of our IIF and increased monthly policy production, partially offset by increased cessions under the QSR and ILN Transactions.

Net premiums earned for the year ended December 31, 2020 also benefited from an increase in single premium policy cancellations tied to the increased pace of refinancing activity and policy turnover triggered by the record low interest rate environment that developed following the onset of the COVID-19 pandemic.

Pool premiums written and earned for the years ended December 31, 2021, 2020 and 2019, were $1.6 million, $2.5 million and $3.0 million, respectively, before giving effect to the 2016 QSR Transaction, under which all of our written and earned pool premiums are ceded.

70 unchanged sentences

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.

84 unchanged sentences

2020 62,702 43,795 70 % 186,174 138,203 1,070 1 6.0 % 0.6 % 0.8 %

2021 85,574 81,226 95 % 257,972 247,567 473 — 2.0 % 0.2 % 0.2 %

Total $ 279,516 $ 152,343 934,124 512,316 6,227 507

4 unchanged sentences

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

As of December 31, 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 December 31, 2021 is not necessarily representative of the geographic distribution we expect in the future.

6 unchanged sentences

Colorado 3.8 4.1 3.4

Illinois 3.8 3.8 3.4

Georgia 3.8 3.1 2.7

Maryland 3.7 3.7 3.4

Washington 3.7 3.5 3.3

Illinois 3.6 3.8 3.8

Pennsylvania 3.3 3.4 3.6

Massachusetts 3.3 3.3 2.3

Total 55.3 % 54.0 % 51.2 %

7 unchanged sentences

• LTV ratios, with higher average LTV ratios tending to increase the probability of claims;

• the percentage of coverage on insured loans, with higher percentages of insurance coverage tending to result in higher incurred claim amounts than lower percentages of insurance coverage;

• the size of loans insured, with higher loan amounts tending to result in higher incurred claim amounts than smaller loan amounts;

• the percentage of coverage on insured loans, with higher percentages of insurance coverage tending to result in higher incurred claim amounts than lower percentages of insurance coverage;

• other borrower, property-type and loan level risk characteristics, such as cash-out refinancings, second homes or investment properties;

17 unchanged sentences

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

The effectiveness of forbearance programs is enhanced by the availability of various repayment and loan

modification options which allow borrowers to amortize or, in certain instances, outright defer payments otherwise due during the forbearance period over an extended length of time.

In response to the COVID-19 outbreak, politicians, regulators, lenders, loan servicers and others have offered extraordinary assistance to dislocated borrowers through, among other programs, the forbearance, foreclosure moratorium and other assistance programs codified under the CARES Act.

The effectiveness of forbearance programs is enhanced by the availability of various repayment and loan modification

options which allow borrowers to amortize or, in certain instances, outright defer payments otherwise due during the forbearance period over an extended length of time.

In response to the COVID-19 pandemic, politicians, regulators, lenders, loan servicers and others have offered extraordinary assistance to dislocated borrowers through, among other programs, the forbearance, foreclosure moratorium and other assistance programs codified under the CARES Act.

The FHFA and GSEs have offered further assistance by introducing new repayment and loan modification options to assist borrowers with their transition out of forbearance programs and default status.

At December 31, 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 December 31, 2021 and 2020, we generally established lower reserves for defaults that we consider to be connected to the COVID-19 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.

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

27 unchanged sentences

(2) Related to insured loans with their most recent defaults occurring in the current year.

For example, if a loan 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.

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 $18.1 million attributed to net case reserves and $4.7 million attributed to net IBNR reserves for the year ended December 31, 2021, $60.8 million attributed to net case reserves and $5.0 million attributed to net IBNR reserves for year ended December 31, 2020, and $13.2 million attributed to net case reserves and $1.3 million attributed to net IBNR reserves for year ended December 31, 2019.

(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.

Amounts are presented net of reinsurance and included $6.3 million attributed to net case reserves and $5.0 million attributed to net IBNR reserves for the year ended December 31, 2021, $6.2 million attributed to net case reserves and $1.3 million attributed to net IBNR reserves for the year ended December 31, 2020, and $1.5 million attributed to net case reserves and $0.7 million attributed to net IBNR reserves for year ended December 31, 2019.

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

1 unchanged sentence

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.

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 $74.4 million related to prior year defaults remained as of December 31, 2021.

8 unchanged sentences

Ending default inventory 6,227 12,209 1,448

The increase in the ending default inventory at December 31, 2020 compared to December 31, 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 December 31, 2020, 10,803 of our 12,209 ending default inventory were in a COVID-related forbearance program.

The increase in the ending default inventory at December 31, 2019 compared to December 31, 2018, primarily relates to an increase in new defaults tied to the growth in the number of policies in force and the aging of our earlier book years.

The increase in new defaults was partially offset by cure activity on our beginning default population.

The ratio of cures to new defaults decreased during the year ended December 31, 2019 compared to the year ended December 31, 2018 due to the elevated level of defaults on insured loans in areas declared by FEMA to be individual disaster zones following Hurricanes Harvey and Irma, and the California wildfires in 2017, and the subsequent curing of the majority of such defaults in 2018.

While we insure mortgages for homes in areas that are impacted by natural disasters, we do not provide coverage for property or casualty claims related to physical damage of a home underpinning an insured mortgage.

As such, the cure rate on defaults that emerge following natural disasters tends to be meaningfully higher than the cure rate on similarly situated defaulted loans in unaffected areas.

Ending default inventory declined from December 31, 2020 to December 31, 2021 as an increased number of borrowers initially impacted by the COVID-19 pandemic cured their delinquencies, and fewer new defaults emerged as the acute economic stress of the pandemic crisis began to recede.

While our default population declined from December 31, 2020 to December 31, 2021, our default inventory remains elevated compared to historical experience due to the continued challenges certain borrowers are facing related to the COVID-19 pandemic and their decision to access the forbearance program for federally backed loans codified under the CARES Act or similar programs made available by private lenders.

As of December 31, 2021, 4,751 of our 6,227 defaulted loans were in a COVID-related forbearance program.

Ending default inventory increased from December 31, 2019 to December 31, 2020 primarily due to the outbreak of the COVID-19 pandemic.

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.

6 unchanged sentences

59 % 80 % 74 %

(1) Count includes nine, 19 and eight claims settled without payment for the years ended December 31, 2020, 2019 and 2018, respectively.

(1) Count includes 15, 9 and 19 claims settled without payment for the years ended December 31, 2021, 2020 and 2019, respectively.

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

The number of claims paid for the year ended December 31, 2020 decreased compared to the year ended December 31, 2019 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.

The Company paid 82, 143 and 152 claims for the year ended December 31, 2021, 2020 and 2019, respectively.

The number of claims paid during the years ended December 31, 2020 and 2021 was modest relative to the size of our insured portfolio and number of defaulted loans we reported in each period, primarily due to the forbearance program and foreclosure moratorium implemented by the GSEs in response to the COVID pandemic 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 paid experience for the years ended December 31, 2020 and 2021, further 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 defaulted borrowers with alternative paths and incentives to cure their loan prior to the development of a claim.

Our claims severity for the year ended December 31, 2021 was 59% compared to 80% and 74% for the years ended December 31, 2020 and 2019, respectively.

The increase in claims severity for the year ended December 31, 2020 relates to an increase in the portion of claims settled using the percent option instead of through third-party sales during the first half of the year as third-party marketing and sales activity was broadly constrained in the period immediately following the outbreak of the COVID-19 pandemic.

Claims severity moderated in the second half of the year, benefiting 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 s everity of our settled claims.

Claims severity for the year ended December 31, 2021 benefited from the same resiliency of the housing market and broad national house price appreciation as our claims paid.

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.

Our claims severity increased for the year ended December 31, 2020, notwithstanding the resiliency of the housing market and broad national house price appreciation observed during the period, as we settled an increased portion of claims using the percent option instead of through third-party sales during the first half of the year.

Third-party marketing and sales activity was broadly constrained immediately following the outbreak of the COVID-19 pandemic;

claims severity moderated in the second half of 2020 as we were once again able to pursue alternative settlement options.

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.

6 unchanged sentences

(2) Amount includes claims adjustment expenses.

The average reserve per default at December 31, 2020 decreased from December 31, 2019, primarily due to new COVID-19 related defaults.

At December 31, 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 December 31, 2020, our total reserve position and claims and claims expenses increased substantially as of and during the year ended December 31, 2020 due to the increase in the size of our default population.

The average reserve per default at December 31, 2019 increased from December 31, 2018, primarily due to the aging of our default population and to a lesser extent cure activity on defaults outstanding at December 31, 2018 for loans in areas impacted by natural disasters, which carried lower average reserves per defaulted loan.

The average reserve per default increased from December 31, 2020 to December 31, 2021 primarily due to the “aging” of early COVID-related defaults.

While we have generally established lower reserves for defaults that we consider to be connected to the COVID-19 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, we have increased such reserves over time as individual defaults remain outstanding or “age.” The growth in our average reserve per default from December 31, 2020 to December 31, 2021, far exceeded the growth in our aggregate gross reserve position in the intervening period as the impact of the increase in our average reserve per default was largely offset by the decline in our total default inventory.

The average reserve per default decreased from December 31, 2019 to December 31, 2020, primarily due to new COVID-19 related defaults.

At December 31, 2020, we generally established lower reserves for defaults that we consider to be connected to the COVID-19 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.

Historically, our business has been subject to modest seasonality in both NIW production and default experience.

1 unchanged sentence

The COVID-19 pandemic interrupted this typical seasonal pattern.

The COVID outbreak and resulting shelter-in-place directives spurred record purchase origination activity and mortgage insurance industry volume during the year ended December 31, 2020.

Our purchase origination NIW increased consistently through the year and peaked in the fourth quarter, and our refinancing origination volume grew similarly through the year as mortgage rates declined precipitously in connection with COVID-related fiscal and monetary stimulus policies.

Refinancing volume does not follow a set seasonal trend and is instead primarily influenced by available note rates.

As rates declined consistently through the year, our refinancing origination volume accelerated.

The COVID pandemic and resulting shelter-in-place directives spurred record NIW production during the years ended December 31, 2021 and 2020.

Our purchase origination NIW remained elevated throughout the pandemic given the consistently high demand for home ownership.

Normal seasonal purchase origination and NIW patterns may emerge again following the pandemic.

Refinancing volume does not follow a set seasonal trend and is instead primarily influenced by prevailing mortgage note rates.

Our refinancing origination volume declined as rates increased during the year ended December 31, 2021.

GSE Oversight

2 unchanged sentences

The PMIERs financial requirements prescribe a risk-based methodology whereby the amount of assets required to be held against each insured loan is determined based on certain loan-level risk characteristics, such as FICO, vintage (year of origination), performing vs.

non-performing ( i.e.

, current vs.

non-performing ( i.e., current vs.

delinquent), LTV ratio and other risk features.

In general, higher quality loans carry lower asset charges.

Under the PMIERs, approved insurers must maintain available assets that equal or exceed minimum required assets , which is an amount equal to the greater of (i) $400 million or (ii) a total risk-based required asset amount .

Under the PMIERs, approved insurers must maintain available assets that equal or exceed minimum required assets ,

which is an amount equal to the greater of (i) $400 million or (ii) a total risk-based required asset amount .

The risk-based required asset amount is a function of the risk profile of an approved insurer's RIF, assessed on a loan-by-loan basis and considered against certain risk-based factors derived from tables set out in the PMIERs, which is then adjusted on an aggregate basis for reinsurance transactions approved by the GSEs, such as with respect to our ILN Transactions and QSR Transactions.

9 unchanged sentences

Risk-based required asset amount 1,186,272 984,372 773,474

Available assets were $1.8 billion at December 31, 2020, compared to $1.0 billion at December 31, 2019 and $734 million at December 31, 2018.

Available assets were $2.0 billion at December 31, 2021, compared to $1.8 billion at December 31, 2020 and $1.0 billion at December 31, 2019.

The $291 million increase in available assets in 2021 was primarily driven by NMIC's positive cash flow from operations during the year.

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.

1 unchanged sentence

The $734 million increase in NMIC's available assets in 2020 was driven by the NMIH capital contribution and NMIC's positive cash flow from operations during the year.

The $283 million increase in NMIC's available assets in 2019, was primarily driven by NMIC's positive cash flow from operations during the year, with additional benefit realized on the adoption of revised PMIERs guidance effective March 31, 2019, which among other changes, allowed for the inclusion of premium receivables in available assets.

The increase in the risk-based required asset amount between the dates presented was primarily due to the growth of our gross RIF, partially offset by the increased cession of risk under our third-party reinsurance agreements.

The risk-based required asset amount further increased in 2020 as a result of the growth in our our default population related to the onset of the COVID-19 pandemic.

See " - COVID-19 Developments, " above.

The increase in the risk-based required asset amount between the dates presented was primarily driven by growth of our gross RIF, an increase in the risk ceded under our third-party reinsurance agreements and development of our default population.

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.

See Item 1, " Business - Overview of Residential Mortgage Finance and the Role of the Private MI Industry in the Current Operating Environment - Competition, " above.

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.

7 unchanged sentences

We periodically engage third parties to evaluate and test the adequacy of such security measures, controls and procedures.

In addition, we have a business continuity plan that is designed to allow us to continue to operate in the midst of certain disruptive events, including disruptions to our IT systems, and we have an incident response plan that is designed to address information security incidents, including any breaches of our IT systems.

In addition, we have a business continuity plan that is designed to allow us to continue to operate in the midst of certain disruptive events, including disruptions to our IT systems, and

we have an incident response plan that is designed to address information security incidents, including any breaches of our IT systems.

Despite these safeguards, disruptions to and breaches of our IT systems are possible and may negatively impact our business.

1 unchanged sentence

This policy provides coverage for (i) claims related to, among other things, unauthorized network or computer access, unintentional disclosure or misuse of personally identifiable information in our possession, and unintentional failure to disclose a breach, and (ii) certain costs related to privacy notification, crisis management, cyber extortion, data recovery, business interruption and reputational harm.

Information Technology

Effective March 31, 2020, we entered into an IT services agreement with 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.

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, and our 2020 Revolving Credit Facility and ILN Transactions require LIBOR-based payments.

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

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 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.

however, we do not expect the impact of such transition to be material to our operations or financial results.

CEO Transition

On September 9, 2021, we announced that Adam Pollitzer, then the company’s Executive Vice President and Chief Financial Officer, was appointed as the company's President and Chief Executive Officer, effective January 1, 2022.

Pollitzer also joined the company’s Board of Directors upon assuming his new role.

He succeeded Claudia Merkle, who stepped down as Chief Executive Officer and as a member of the Board, effective December 31, 2021.

We recorded $ 3.8 million of severance, restricted stock modification and other expenses related to this transition during the year ended December 31, 2021.

Consolidated Results of Operations

29 unchanged sentences

Adjusted diluted EPS 2.73 2.19 2.62

(1) 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.

2 unchanged sentences

Net premiums earned were $444.3 million, $397.2 million and $345.0 million for the years ended December 31, 2021, 2020 and 2019, respectively.

The sequential increase in net premiums earned during each successive year was primarily driven by the growth of our IIF, a rise in monthly policy production and higher single premium policy cancellations, partially offset by increased cessions under the relevant QSR and ILN Transactions.

The sequential increase in net premiums earned during each successive year was primarily driven by the growth of our IIF, partially offset by an increase in cessions made under our QSR and ILN Transactions.

Net investment income was $38.1 million, $31.9 million and $30.9 million for the years ended December 31, 2021, 2020 and 2019, respectively.

The increase in net investment income during the year ended December 31, 2020 was 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.

The increase in net investment income for the year ended December 31, 2019 was driven by growth in the size of our investment portfolio and an improvement in book yield during the period .

The sequential increase in net investment income during each successive year was primarily 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 $2.0 million, $3.3 million and $2.9 million for the years ended December 31, 2021, 2020 and 2019, respectively.

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

The sequential growth in other revenues in 2019 and 2020 relates to increases in NMIS' outsourced loan review volume.

The year-on-year changes in other revenues reflect fluctuations 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.

2 unchanged sentences

Insurance claims and claim expenses were $12.3 million, $59.2 million and $12.5 million for the years ended December 31, 2021, 2020 and 2019, respectively.

Insurance claims and claim expenses increased $46.7 million during the year ended December 31, 2020, primarily due to the outbreak of the COVID pandemic and resulting increase in our default population, partially offset by the release of certain prior period reserves upon the cure of their related defaults.

Insurance claims and claim expenses increased $7.1 million during the year ended December 31, 2019, primarily due to an increase in our default population tied to the growth in the number of policies in force and aging of our earlier book years.

Insurance claims and claim expenses decreased $46.9 million for the year ended December 31, 2021 compared to the year ended December 31, 2020, primarily reflecting a significant decrease in the number of new defaults emerging on loans impacted by the COVID-19 pandemic.

Insurance claims and claim expenses for the year ended December 31, 2021 also benefited from cure activity and a release of a portion of the reserves we established for anticipated claims payments in prior periods.

Insurance claims and claim expenses increased $46.7 million for the year ended December 31, 2020 compared to the year ended December 31, 2019, primarily due to the outbreak of the COVID-19 pandemic and resulting increase in our default population.

Underwriting and operating expenses were $142.3 million, $131.6 million and $126.6 million for the years ended December 31, 2021, 2020 and 2019, respectively.

The increase for the year ended December 31, 2020 primarily relates to the recognition of previously deferred policy acquisition costs (DAC) 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 travel and entertainment, and office administration expenses as a result of the COVID-19 outbreak.

The increase for the year ended December 31, 2019 was primarily driven by increases in certain employee compensation and technology costs to support the growth of our business, and an increase in variable expenses, such as premium taxes, tied to the growth in our NIW and IIF, partially offset by increased ceding commissions under the 2016 and 2018 QSR Transactions.

Issuance costs incurred in connection with our ILN Transactions are included in underwriting and operating expenses and were $4.6 million, $2.4 million and $2.7 million in 2020, 2019 and 2018, respectively.

Underwriting and operating expenses increased $10.7 million for the year ended December 31, 2021 compared to the year ended December 31, 2020, primarily due to an increase in certain payroll costs incurred in connection with the CEO transition we announced on September 9, 2021, as well as incremental depreciation and amortization incurred in connection with the completion and on-lining of certain development initiatives, an increase in the recognition of previously deferred policy acquisition costs (DAC) taken in connection with in-force portfolio run-off, and growth in other (non-CEO transition) payroll and related amounts.

Underwriting and operating expenses increased $5.0 million for the year ended December 31, 2020 compared to the year ended December 31, 2019, primarily due to an increase in 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 travel and entertainment, and office administration expenses as a result of the COVID-19 pandemic.

Underwriting and operating expenses included capital market reinsurance transaction costs of $4.0 million, $4.6 million and $2.4 million for the years ended December 31, 2021, 2020 and 2019, respectively.

Underwriting and operating expenses for the year ended December 31 2021 also included $3.8 million of CEO-transition related expenses.

Service expenses were $2.5 million, $2.8 million and $2.2 million for the years ended December 31, 2021, 2020 and 2019, respectively.

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

The sequential growth in service expenses in 2019 and 2020 relates to increases in NMIS' outsourced loan review volume.

The year-on-year changes in service expenses reflect fluctuations 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 $31.8 million, $24.4 million and $12.1 million for the years ended December 31, 2021, 2020 and 2019, respectively.

Interest expense increased for the year ended December 31, 2020 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 year ended December 31, 2020 includes $2.6 million of costs related to the extinguishment of the 2018 Term Loan.

Interest expense for the year ended December 31, 2019 benefited from a lower interest rate environment on borrowings under the 2018 Term Loan.

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

Interest expense for the year ended December 31, 2021 reflects a full year of carrying costs on the Notes.

Interest expense for the year ended December 31, 2020 reflects a partial year of carrying cost on the Notes and $2.6 million of costs related to the extinguishment of the 2018 Term Loan.

See Item 8, "Financial Statements and Supplementary Data - Notes to Consolidated Financial Statements - Note 5, Debt."

Income tax expense was $65.6 million, $46.5 million and $44.7 million for the years ended December 31, 2021, 2020 and 2019.

Income tax expense increased sequentially in each period shown primarily due to the growth in our pre-tax income.

Income tax expense increased for the year ended December 31, 2021 compared to the year ended December 31, 2020, primarily due to the growth in our pre-tax income, as well as an increase in our effective income tax rate.

Income tax expense increased for the year ended December 31, 2020 compared to the year ended December 31, 2019, primarily due to an increase in our effective income tax rate.

taxpayer, we were subject to a U.S.

federal corporate income tax rate of 21%.

Our effective income tax rate on our pre-tax income was 21.3% for the year ended December 31, 2020 and 20.6% for each of the years ended December 31, 2019 and 2018.

The increase in our effective tax rate for the year ended December 31, 2020 compared to the years ended December 31, 2019 and 2018 was primarily driven by the decrease in tax benefits from excess share-based compensation for vested restricted stock units (RSUs) and exercised stock options.

For further information regarding income taxes and their impact on our results of operations and financial position, see Item 8, " Financial Statements and Supplementary Data - Notes to Consolidated Financial Statements - Note 11, Income Taxes.

Our effective income tax rate on pre-tax income was 22.1%, 21.3% and 20.6% for the years ended December 31, 2021, 2020 and 2019, respectively.

Our effective tax rate increased during each successive year primarily due to a decline in the tax benefit realized from excess share-based compensation for vested restricted stock units (RSUs) and exercised stock options.

information regarding income taxes and their impact on our results of operations and financial position, see Item 8, " Financial Statements and Supplementary Data - Notes to Consolidated Financial Statements - Note 11, Income Taxes.

Net income was $231.1 million, $171.6 million and $172.0 million for the years ended December 31, 2021, 2020 and 2019, respectively.

Adjusted net income was $236.8 million, $173.6 million and $182.4 million, for the same periods, respectively.

Net income and adjusted net income in 2020 benefited from an increase in total revenues, which was largely offset by an increase in insurance claims and claim expenses due to significant COVID-related default experience, and furt her offset by

an increase in effective tax rate and income tax expense.

Net income and adjusted net income grew in 2019 due to an increase in total revenue, partially offset by an increase in total expenses.

The increase in net income and adjusted net income for the year ended December 31, 2021 compared to the year ended December 31, 2020 was primarily driven by growth in our total revenues and a decline in insurance claims and claim expenses, partially offset by an increase in our interest expenses, underwriting and operating expenses, and income tax expenses.

Net income and adjusted net income declined for the year ended December 31, 2020 compared to the year ended December 31, 2019 primarily due to an increase in insurance claims and claim expenses incurred in connection with significant COVID-related default experience, partially offset by an increase in total revenues.

Diluted earnings per share (EPS) was $2.65, $2.13 and $2.47 for the years ended December 31, 2021, 2020 and 2019, respectively.

Adjusted diluted EPS was $2.73, $2.19 and $2.62 for the same periods, respectively.

Diluted and adjusted EPS decreased in 2020, primarily due to an increase in weighted average diluted shares outstanding in connection with the issuance of 15.9 million shares of common stock in June 2020, as well as a decrease in net income and adjusted net income during the year.

Diluted and adjusted diluted EPS growth in 2019 was driven by growth in net income and adjusted net income, respectively, partially offset by an increase in weighted average diluted shares outstanding

Diluted and adjusted diluted EPS increased for the year ended December 31, 2021 compared to the year ended December 31, 2020 due to growth in net income and adjusted net income, respectively, partially offset by an increase in weighted average diluted shares outstanding.

Diluted and adjusted EPS decreased for the year ended December 31, 2020 compared to the year ended December 31, 2019, primarily due to an increase in weighted average diluted shares outstanding, as well as a decline in net income and adjusted net income.

Weighted average diluted shares outstanding increased in connection with the issuance of 15.9 million shares of common stock we completed in June 2020.

Weighted average diluted shares outstanding for the years ended December 31, 2021 and 2020, reflect the inclusion of a full and partial year weighting for the offering, respectively.

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.

7 unchanged sentences

Capital market transaction costs 3,979 7,237 2,353

Other infrequent, unusual or non-operating items (1)

Adjusted income before tax 303,238 221,506 227,618

Income tax expense on adjustments (2)

806 1,324 485

Adjusted net income $ 236,837 $ 173,642 $ 182,437

3 unchanged sentences

Adjusted diluted EPS $ 2.73 $ 2.19 $ 2.62

(1) Represents severance, restricted stock modification and other expenses incurred in connection with the CEO transition announced on September 9, 2021.

See "CEO Transition" above.

(2) Marginal tax impact of non-GAAP adjustments is calculated based on our statutory U.S.

federal corporate income tax rate of 21%, except for those items that are not eligible for an income tax deduction.

Such non-deductible items include gains or losses from the change in the fair value of our warrant liability and certain costs incurred in connection with the CEO transition, which are limited under Section 162(m) of the Internal Revenue Code.

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

5 unchanged sentences

their measures may not be comparable to those we calculate and present.

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

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

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

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

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

Adjusted diluted EPS is defined as adjusted net income divided by adjusted weighted average diluted shares outstanding.

Adjusted weighted average diluted shares outstanding is defined as weighted average diluted shares outstanding,

adjusted for changes in the dilutive effect of non-vested shares that would otherwise have occurred had GAAP net income been calculated in accordance with adjusted net income.

Adjusted weighted average diluted shares outstanding is defined as weighted average diluted shares outstanding, adjusted for changes in the dilutive effect of non-vested shares that would otherwise have occurred had GAAP net income been calculated in accordance with adjusted net income.

There will be no adjustment to weighted average diluted shares outstanding in the years that non-vested shares are anti-dilutive under GAAP.

11 unchanged sentences

The recognition of the net realized investment gains or losses can vary significantly across periods as the timing is highly discretionary and is influenced by factors such as market opportunities, tax and capital profile, and overall market cycles that do not reflect our current period operating results.

• Infrequent or unusual non-operating items .

Items that are the result of unforeseen or uncommon events, which occur separately from operating earnings and are not expected to recur in the future.

• Other infrequent, unusual or non-operating items .

Items that are the result of unforeseen or uncommon events, and are not expected to recur with frequency in the future.

Identification and exclusion of these items provides clarity about the impact special or rare occurrences may have on our current financial performance.

Infrequent, unusual or non-operating adjustments for the year ended 2021, include severance, restricted stock modification and other expenses incurred in connection with the CEO transition we announced on September 9, 2021.

Past adjustments under this category include the effects of the release of the valuation allowance recorded against our net federal and certain state net deferred tax assets in 2016 and the re-measurement of our net deferred tax assets in connection with tax reform in 2017.

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.

We believe such items are infrequent or non-recurring in nature, and are not indicative of the performance of, or ongoing trends in, our primary operating activities or business.

Consolidated balance sheets December 31, 2021 December 31, 2020

8 unchanged sentences

Other assets 113,302 69,976

69,976 30,209

Total assets $ 2,450,581 $ 2,166,666

10 unchanged sentences

Total liabilities and shareholders' equity $ 2,450,581 $ 2,166,666

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

As of December 31, 2020, we had $1.9 billion in cash and investments, compared to $1.2 billion as of December 31, 2019.

Cash and cash equivalents held by NMIH were $72.0 million at December 31, 2020.

The increase in cash and investments related to net proceeds raised of approximately $220 million from the issuance of common stock and approximately $245 million 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 (DAC) were $62.2 million as of December 31, 2020, compared to $60.0 million as of December 31, 2019.

The increase was primarily driven by growth in the number of policies written during the year ended December 31, 2020 and the deferral of certain costs associated with the origination of those policies, partially offset by the amortization of previously deferred acquisition costs.

Total cash and investments were $2.2 billion as of December 31, 2021, compared to $1.9 billion as of December 31, 2020.

Cash and investments at December 31, 2021 included $106.0 million held by NMIH.

The increase in total cash and investments reflects cash generated from operations, partially offset by a decrease in the unrealized gain position of our fixed income portfolio tied to the prevailing interest rate and credit spread environment.

Premium receivable was $60.4 million as of December 31, 2021, compared to $49.8 million as of December 31, 2020.

The increase was primarily driven by growth in our monthly premium policies in force, where premiums are generally paid one month in arrears.

Net deferred policy acquisition costs were $59.6 million as of December 31, 2021, compared to $62.2 million as of December 31, 2020.

The decrease was primarily driven by the recognition of previously deferred policy acquisition costs taken in connection with in-force portfolio run-off, and was largely offset by the deferral of certain costs associated with the origination of new policies between the respective balance sheet dates.

Prepaid reinsurance premiums were $2.4 million as of December 31, 2021, compared to $6.2 million as of December 31, 2020.

1 unchanged sentence

Reinsurance recoverable was $20.3 million as of December 31, 2021, compared to $17.6 million as of December 31, 2020.

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.

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

Other assets were $113.3 million as of December 31, 2021, compared to $70.0 million as of December 31, 2020.

The increase was primarily driven by the purchase of additional tax and loss bonds during the year ended December 31, 2020.

The increase was primarily driven by the purchase of $42.9 million of tax and loss bonds during the year ended December 31, 2021.

At December 31, 2021, we held $89.2 million of tax and loss bonds, compared to $46.4 million as of December 31, 2020 .

See Item 8, " Financial Statements and Supplementary Data - Notes to Consolidated Financial Statements - Note 11, Income Taxes.

Debt was $393.3 million as of December 31, 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 December 31, 2020, represented the carrying value of the Notes issued in June 2020.

Unearned premiums were $139.2 million as of December 31, 2021, compared to $118.8 million as of December 31, 2020.

The decrease was 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 year ended December 31, 2020.

The increase was driven by single premium policy originations during the year ended December 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 $72.0 million as of December 31, 2021, compared to $61.7 million as of December 31, 2020.

The increase primarily relates to an increase in reinsurance premiums payable, accrued interest due and payable semi-annually on the Notes, and unsettled payments due on the purchase of certain securities.

The increase was primarily driven by an increase in reinsurance premiums payable, and accrued payroll and bonuses, and the timing of other contractual payments due, partially offset by the settlement of trade payables in our investment portfolio.

Reserve for insurance claims and claim expenses was $103.6 million as of December 31, 2021, compared to $90.6 million as of December 31, 2020.

The increase was 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.

Reserve for insurance claims and claim expenses increased at December 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 on newly defaulted loans during the year.

While we have generally established lower reserves per default for loans that we consider to be impaired in connection with the COVID-19 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 December 31, 2021 was partially offset by cure activity and a release of a portion of the reserves we established for anticipated claims payments in prior periods.

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

R einsurance funds withheld, which represents our ceded reinsurance premiums written, less our profit and ceding commission receivables related to the 2016 QSR Transaction, was $8.7 million as of December 31, 2020, compared to $14.3 million at December 31, 2019.

R einsurance funds withheld, which represents our ceded reinsurance premiums written, less our profit and ceding commission receivables related to the 2016 QSR Transaction was $5.6 million as of December 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.

1 unchanged sentence

Warrant liability was $2.4 million at December 31, 2021, compared to $4.4 million at December 31, 2020.

The decrease was primarily due to a decline in our stock price between the respective measurement dates.

The decrease was driven by the exercise of outstanding warrants, and changes in the price of our common stock and other Black-Scholes 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 8, " Financial Statements and Supplementary Data - Notes to Consolidated Financial Statements - Note 4, Fair Value of Financial Instruments.

Net deferred tax liability was $164.2 million at December 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 and the change in unrealized gains recorded in other comprehensive income.

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

2 unchanged sentences

2021 2020 2019

Net cash provided by (used in):

Net cash provided by (used in) provided by:

(In Thousands)

2 unchanged sentences

Financing activities (1,830) 462,804 2,000

Net increase in cash and cash equivalents $ 85,848 $ 15,795 $ 6,098

Net cash provided by operating activities was $252.6 million for the year ended December 31, 2020, compared to $208.2 million for the year ended December 31, 2019 and $145.9 million for the year ended December 31, 2018 .

The increase in cash generated by operating activities in each successive year was primarily driven by growth in premiums written, partially offset by an increase in claims paid and an increase in the purchase of tax and loss bonds during respective periods.

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

Cash used in investing activities as of December 31, 2020, reflects, in part, the investment of net cash proceeds from the common stock and Notes offerings we completed in June 2020.

Cash used in investing activities for the year ended December 31, 2018 reflects, in part, the investment of net cash proceeds raised in the common stock offering we completed in March 2018.

Cash provided by financing activities was $462.8 million for the year ended December 31, 2020, compared to $2.0 million for the year ended December 31, 2019 and $80.9 million for the year ended December 31, 2018.

Cash provided by financing activities for the year ended December 31, 2020 primarily reflects $219.7 million of net cash proceeds raised in the

common stock offering and $244.4 million of net cash proceeds raised in the Notes offering we completed in June 2020.

Net (decrease) increase in cash and cash equivalents $ (50,291) $ 85,848 $ 15,795

Net cash provided by operating activities was $325.7 million, $252.6 million and $208.2 million for the years ended December 31, 2021, 2020 and 2019, respectively.

The sequential increase in cash provided by operating activities during each successive year was primarily driven by growth in premiums written, partially offset by an increase in cash interest expenses and the purchase of tax and loss bonds from year-to-year.

Net cash provided by operating activities for the year ended December 31, 2021 further benefited from a decline in claims paid.

Cash used in investing activities for the years ended December 31, 2021, 2020 and 2019 reflects the purchase of fixed and short-term maturities with cash provided by operating activities 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 year ended December 31, 2020, reflects, in part, the investment of net cash proceeds from the common stock and Notes offerings we completed in June 2020.

Cash used in financing activities was $1.8 million for the year ended December 31, 2021, while cash provided by financing activities was $462.8 million and $2.0 million for the years ended December 31, 2020 and 2019, respectively.

Cash used in financing activities during the year ended December 31, 2021 primarily relates to debt issuance costs paid in connection with the 2021 Revolving Credit Facility and taxes paid on the net share settlement of equity awards for certain employees.

Cash provided by financing activities for the year ended December 31, 2020 primarily reflects $219.7 million net cash proceeds raised in connection with our 2020 equity offering and $244.4 million net cash proceeds raised in connection with our 2020 Notes offering.

Cash provided by financing activities for the year ended December 31, 2019 primarily relates to proceeds from the issuance of common stock generated in connection with the exercise of employee stock options.

Cash provided by financing activities for the year ended December 31, 2018 primarily reflects $79.2 million of net cash proceeds raised in the common stock offering we completed in March 2018.

Liquidity and Capital Resources

10 unchanged sentences

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.

NMIH also has access to $250 million of undrawn revolving credit capacity under 2021 Revolving Credit Facility.

See Item 8, "Financial Statements and Supplementary Data - Notes to Consolidated Financial Statements - Note 5, 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.

In June 2020, NMIH completed the sale of (i) 15.9 million shares of common stock, including the exercise of a 15% overallotment option, raising proceeds of approximately $220 million, net of underwriting discounts, commissions and other direct offering expenses, and (ii) $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 8, " Financial Statements and Supplementary Data - Notes to Consolidated Financial Statements - Note 15, Common Stock " and " Financial Statements and Supplementary Data - Notes to Consolidated Financial Statements - Note 5, Debt .

" Following completion of th e deals, NMIH contributed approximately $445 million of the net proceeds raised in the common stock and Notes offerings as capital to NMIC.

NMIC also has the capacity, under Wisconsin law, to pay $34.9 million of aggregate ordinary course dividends to NMIH during the twelve-month period ending December 31, 2022.

On February 10, 2022, the Board of Directors has approved a $125 million share repurchase program through December 31, 2023, that enables the company to repurchase its common stock.

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 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.

Among such agreements, the Wisconsin OCI has approved the allocation of interest expense on the Notes and the 2021 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 June 1, 2025 and bear interest at a rate of 7.375%, payable semi-annually on June 1 and December 1.

The 2021 Revolving Credit Facility matures on the earlier of (x) November 29, 2025 or (y) if any existing senior secured notes remain outstanding on such date, February 28, 2025, and accrues interest at a variable rate equal to, at our discretion, (i) a Base Rate (as defined in the 2021 Revolving Credit Facility, subject to a floor of 1.00% per annum) plus a margin of 0.375% to 1.875% per annum or (ii) the Adjusted Term SOFR Rate (as defined in the 2021 Revolving Credit Facility) plus a margin of 1.375% to 2.875% per annum, with the margin in each of (i) or (ii) based on our applicable corporate credit rating at the time.

Borrowings under the 2021 Revolving Credit Facility may be used for general corporate purposes, including to support the growth of our new business production and operations.

1 unchanged sentence

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

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

Under the 2020 Revolving Credit Facility (and as defined in the Credit Agreement), NMIH may not permit (i) our debt to total capitalization ratio to exceed 35% as of the last day of any fiscal quarter, (ii) the aggregate amount of our unrestricted cash and cash equivalents to be less than $10 million at any time when NMIH does not have an investment-grade credit rating from both S&P and Moody's, (iii) the statutory capital of NMIC to be less than $414,424,624 as of the last day of any fiscal quarter, or (iv) our consolidated net worth to be, as of the last day of any fiscal quarter, less than the sum of (A) $461,607,905, plus (B) 50% of our cumulative consolidated net income for each fiscal quarter for which such consolidated net income is positive, plus (C) 50% of any increase in our consolidated net worth after March 31, 2018 resulting from certain issuances of equity by or capital contributions to NMIH or our subsidiaries.

In addition, NMIC must remain at all times in compliance with all applicable "financial requirements" imposed

pursuant to the PMIERs, subject to any allowed transition period or forbearance thereunder.

The Credit Agreement also prohibits, restricts or limits, among other things, NMIH's and its subsidiaries' ability to (i) incur additional indebtedness, (ii) incur liens on their property, (iii) pay dividends or make other distributions, (iv) sell their assets, (v) make certain loans or investments, (vi) merge or consolidate and (vii) enter into transactions with affiliates, in each case subject to certain limitations, exceptions and qualifications as set forth in the Credit Agreement.

We were in compliance with all covenants as of December 31, 2020.

We are subject to certain covenants under the 2021 Revolving Credit Facility.

Under the 2021 Revolving Credit Facility, NMIH may not permit (i) our debt to total capitalization ratio to exceed 35% as of the last day of any fiscal quarter, (ii) the statutory capital of NMIC to be less than $1,290,314,825 as of the last day of any fiscal quarter, or (iii) our consolidated net worth to be, as of the last day of any fiscal quarter, less than the sum of (A) $1,047,808,462, plus (B) 50% of our cumulative consolidated net income for each fiscal quarter for which such consolidated net income is positive, plus (C) 50% of any increase in our consolidated net worth after September 30, 2021 resulting from certain issuances of equity by or capital contributions to NMIH or our subsidiaries.

In addition, NMIC must remain at all times in compliance with all applicable "financial requirements" imposed pursuant to the PMIERs, subject to any allowed transition period or forbearance thereunder.

The credit agreement for 2021 Revolving Credit Facility also prohibits, restricts or limits, among other things, NMIH's and its subsidiaries' ability to (i) incur additional indebtedness, (ii) incur liens on their property, (iii) pay dividends or make other distributions, (iv) sell their assets,

(v) make certain loans or investments, (vi) merge or consolidate and (vii) enter into transactions with affiliates, in each case subject to certain limitations, exceptions and qualifications as set forth in the credit agreement for 2021 Revolving Credit Facility.

We were in compliance with all covenants at December 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.

3 unchanged sentences

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.

NMIC has the capacity to pay $34.9 million of aggregate ordinary course dividends to NMIH during the twelve-month period ending December 31, 2022.

Effective October 1, 2021, the reinsurance agreement between NMIC and Re One was commuted and all risk ceded under the treaty was transferred back to NMIC.

Following the commutation, Re One has no risk in force or further obligation on future claims.

In December 2021, Re One distributed $26.0 million to NMIH in the form of a $1.6 million ordinary dividend and a $24.4 million extraordinary dividend.

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.

1 unchanged sentence

(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.

On June 30, 2021, the GSEs updated the temporary PMIERs guidance to permit approved insurers to pay dividends or undertake other actions described in (i) and (ii) above without securing prior approval if certain prescribed financial requirements are met during the period from July 1, 2021 to December 31, 2021.

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

3 unchanged sentences

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 December 31, 2020, NMIC reported $1,751 million available assets against $984 million risk-based required assets for a $766 million "excess" funding position.

At December 31, 2021, NMIC reported $2,041 million available assets against $1,186 million risk-based required assets for an $855 million "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.

1 unchanged sentence

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 (subsequently amended and restated in September 2020) on the risk-based treatment of loans affected by the COVID-19 crisis.

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 eligible for Individual Assistance.

In June 2020, the GSEs issued guidance (amended and restated in each of September 2020, December 2020 and June 2021) on the risk-based treatment of loans affected by the COVID-19 pandemic.

4 unchanged sentences

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.

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.

4 unchanged sentences

Based on NMIC's total statutory capital of $1.9 billion (including contingency reserves) as of December 31, 2021, NMIC's RTC ratio was 11.6:1.

Re One had total statutory capital of $37 million as of December 31, 2020 and a RTC ratio of 1.4:1.

Re One had no risk in force remaining at December 31, 2021 and, as such, did not report a RTC ratio.

11 unchanged sentences

Moody's ratings outlook is stable.

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

In June 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

20 unchanged sentences

December 31, 2021 December 31, 2020

AAA 12 % 20 %

Total 100 % 100 %

4 unchanged sentences

Investment Securities - Allowance for credit losses

As of December 31, 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 year ended December 31, 2020.

During the year ended December 31, 2019, we recognized a $0.4 million loss in earnings related to an other-than-temporarily impaired (OTTI) holding.

We did not recognize any OTTI loss during the year ended December 31, 2018.

As of December 31, 2021 and 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 years ended December 31, 2021 or 2020.

As of December 31, 2021, the investment portfolio had gross unrealized losses of $23.2 million, of which $6.5 million 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.

The increase in the aggregate size of the unrealized loss position as of December 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 December 31, 2021 are not indicative of the ultimate collectability of the current amortized cost of the securities.

We are a U.S.

3 unchanged sentences

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

Our effective income tax rate on pre-tax income was 21.3% for the year ended December 31, 2020 and 20.6% for each of the years ended December 31, 2019 and 2018.

Our effective income tax rate on pre-tax income was 22.1%, 21.3% and 20.6% for the years ended December 31, 2021, 2020 and 2019, respectively.

Our effective income tax rate may vary from the statutory tax rate in a given period due to the inclusions and exclusions of income and deductions for tax purposes.

5 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 Section 832(e) of the IRC, and only to the extent we acquire tax and loss bonds in an amount equal to the tax benefit derived from the claimed deduction.

As of December 31, 2020, we held $46.4 million of tax and loss bonds, which are reported as prepaid federal income tax and grouped in "Other assets" in our consolidated balance sheet.

As of December 31, 2021, we held $89.2 million of tax and loss bonds, which are reported as prepaid federal income tax and included in "Other assets" in our consolidated balance sheet.

We record a valuation allowance against the state net operating losses generated by NMIH as NMIH operates at a loss, and we do not expect to utilize such net deferred tax assets in the future.

We continue to evaluate the realizability of our state net

deferred tax asset position, and our examination of results through December 31, 2020 and review of future expectations support the continued application of a valuation allowance against such state net deferred tax assets.

We continue to evaluate the realizability of our state net deferred tax asset position, and our examination of results through December 31, 2021 and review of future expectations support the continued application of a valuation allowance against such state net deferred tax assets.

NMIH and its subsidiaries entered into a tax sharing agreement effective August 23, 2012, which was subsequently amended on September 1, 2016.

7 unchanged sentences

Insurance Premium Revenue Recognition

Premiums for primary mortgage insurance policies may be paid in a single, monthly or annual premium, with such election and payment type fixed at policy inception.

Premiums for primary mortgage insurance policies may be paid in a single payment at origination (single premium), on a monthly installment basis (monthly premium) or on an annual installment basis (annual premium), with such election and payment type fixed at policy inception.

Premiums written at origination for single premium policies are initially deferred as unearned premiums and amortized into earnings over the estimated policy life in accordance with the anticipated expiration of risk.

1 unchanged sentence

Annual premiums are initially deferred and earned on a straight-line basis over the year of coverage.

Upon cancellation of a policy, all remaining non-refundable deferred and unearned premium is immediately earned, and any refundable deferred premium is returned to the policyholder and recorded as a reduction to written premium and unearned premium reserve in the period paid.

Upon cancellation of a policy, all remaining non-refundable deferred and unearned premium is immediately earned, and any refundable deferred and unearned premium is returned to the policyholder and recorded as a reduction to written premium and unearned premium reserve in the period paid.

Premiums written on pool transactions are earned over the period that coverage is provided.

1 unchanged sentence

We establish reserves for claims based on our best estimate of the ultimate claim costs for defaulted loans using the general principles contained in ASC 944, Financial Services - Insurance (ASC 944).

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

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

We establish reserves for loans that have been reported to us in default by servicers, referred to as case reserves, and additional loans that we estimate (based on actuarial review and other factors) to be in default that have not yet been reported to us by servicers, referred to as incurred but not reported (IBNR) reserves.

7 unchanged sentences

We consider the appropriateness of such inputs at each fiscal quarter and conduct an actuarial review annually to evaluate and, if necessary, update these assumptions.

At December 31, 2021, we generally established lower reserves for defaults that we consider to be connected to the COVID-19 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.

It is possible that a relatively small change in our estimates for claim frequency or claim severity could have a material impact on our reserve position and our consolidated results of operations, even in a stable macroeconomic environment.

At December 31, 2020, assuming all other estimates remain constant, a $1,000 increase/decrease in our average claim severity factor would cause approximately a +/- $1.1 million change in our reserve position, and a one percentage point increase/decrease in our average claim frequency factor cause approximately a +/- $2.5 million change in our reserve position.

At December 31, 2021, assuming all other estimates remain constant, a one percentage point increase/decrease in our average claim severity factor would cause approximately a +/- $1.1 million change in our reserve position, and a one percentage point increase/decrease in our average claim frequency factor cause approximately a +/- $2.1 million change in our reserve position.

We have designated our investment portfolio as available-for-sale and report our invested assets at fair value.

7 unchanged sentences

Any adjustments required due to changes in effective yields and prepayment assumptions are recognized on a prospective basis.

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

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

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

12 unchanged sentences

DAC is amortized to expense in proportion to estimated gross profits over the life of the associated policies.

We revise the rate of amortization to reflect actual experience and changes to our persistency or loss development assumptions, and may accelerate or slow such rate in future periods as experience and future changes to estimates dictate.

For the year ended December 31, 2020, we recognized an additional $8.6 million of DAC amortization due to the significant increase in mortgage refinancing activity and material decline in persistency on certain prior book years' insurance in-force experienced during the period.

We revise the rate of amortization to reflect actual experience and changes to

our persistency or loss development assumptions, and may accelerate or slow such rate in future periods as experience and future changes to estimates dictate.

During the years ended December 31, 2021 and 2020, we recognized an additional $11.1 million and $8.6 million, respectively, of DAC amortization due to the significant increase in mortgage refinancing activity and material decline in persistency on certain prior book years' insurance in-force experienced during the period.

Premium Deficiency Reserves

1 unchanged sentence

Per ASC 944, a premium deficiency reserve shall be recognized if the sum of expected claim costs and claim adjustment expenses, expected dividends to policyholders, unamortized acquisition costs and maintenance costs exceeds future premiums, existing reserves and anticipated investment income.

The premium deficiency

assessment requires the use of significant judgment and estimates to determine the present value of future premiums, and expected claim costs and expenses.

The premium deficiency assessment requires the use of significant judgment and estimates to determine the present value of future premiums, and expected claim costs and expenses.

The present value of future premiums relies on, among other things, assumptions about persistency and repayment patterns on the underlying insured loans.

4 unchanged sentences

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-K

Item 7. Management’s Discussion and Analysis