What changed in this filing

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Item 8. Financial Statements and Supplementary Data

2022-02-16 compared with 2021-02-24 · 272 added, 268 removed, 1028 unchanged (34% of the section changed)

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INDEX TO FINANCIAL STATEMENTS

Report of Independent Registered Public Accounting Firm 93

Report of Independent Registered Public Accounting Firm ( BDO USA, LLP ;

San Francisco, CA ;

PCAOB ID# 243 )

Consolidated Balance Sheets as of December 31, 2021 and 2020 96

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Report of Independent Registered Public Accounting Firm

To the Shareholders and Board of Directors of NMI Holdings, Inc.

Shareholders and Board of Directors of NMI Holdings, Inc.

NMI Holdings, Inc.

Emeryville, CA

Emeryville, California

Opinion on the Consolidated Financial Statements

We have audited the accompanying consolidated balance sheets of NMI Holdings, Inc.

(the "Company") and subsidiaries as of December 31, 2020 and 2019, the related consolidated statements of operations and comprehensive income, changes in shareholders' equity, and cash flows for each of the three years in the period ended December 31, 2020, and the related notes and financial statement schedules included in the accompanying index (collectively referred to as the "consolidated financial statements").

In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company and subsidiaries at December 31, 2020 and 2019, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2020, in conformity with accounting principles generally accepted in the United States of America.

(the “Company”) as of December 31, 2021 and 2020, the related consolidated statements of operations and comprehensive income, changes in shareholders’ equity, and cash flows for each of the three years in the period ended December 31, 2021, and the related notes and financial statements schedules listed in the accompanying index (collectively referred to as the “consolidated financial statements”).

In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2021 and 2020, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2021 , in conformity with accounting principles generally accepted in the United States of America.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the Company's internal control over financial reporting as of December 31, 2021, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) and our report dated February 15, 2022 expressed an unqualified opinion thereon.

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The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that:

(i) relate to accounts or disclosures that are material to the consolidated financial statements and (ii) involved our especially challenging, subjective, or complex judgments.

The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

(1) relate to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments.

The communication of critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

Reserve for Insurance Claims and Claims Expense

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The reserve is established by estimating:

(i) claim severity which is the amount of the claim payment expected to be paid on each loan in default, and (ii) claim frequency which is the number of loans in default expected to result in a claim payment.

(i) claim severity which is the amount of the claim payment expected to be paid on each loan in default, (ii) claim frequency which is the number of loans in default expected to result in a claim payment, and (iii) the beneficial impact of assistance programs.

The claim frequency is determined based on historical observed experience regarding certain loan factors.

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We identified the Company’s estimation of the reserve for insurance claims and claim expenses as a critical audit matter.

The principal consideration for our determination is the high degree of subjectivity in estimating claim severity and claim frequency.

The principal consideration for our determination is the high degree of subjectivity in estimating claim severity, claim frequency and

the beneficial impact of assistance programs.

Auditing these elements involved especially challenging auditor judgment due to the nature and extent of audit effort required to address these matters, including the extent of specialized skill or knowledge needed.

The primary procedures we performed to address this critical audit matter included:

• Testing the completeness and accuracy of the underlying loans and claims data used in management's reserve calculations which supported claim severity and claim frequency estimates.

• Testing the completeness and accuracy of the underlying loans and claims data used in management’s reserve calculations which supported claim severity, claim frequency estimates and the beneficial impact of assistance programs.

• Utilizing personnel with specialized knowledge and skill in actuarial methods to assist in:

(i) evaluating the appropriateness of the methodology and the assumptions used by management and management's specialist, including assessment of the reasonableness of changes in assumptions and inputs used in developing claim severity and claim frequency, which included comparing to third-party publications of current economic conditions and evaluating the current and historical loan factors, and (ii) performing a retrospective review of the prior year reserve estimate against historical figures and economic trends.

(i) evaluating the appropriateness of the methodology and the assumptions used by management and management’s specialist, including assessment of the reasonableness of changes in assumptions and inputs used in developing claim severity, claim frequency and the beneficial impact of assistance programs, (ii) developing an independent estimate of the reserve for insurance claims and claims expense using company and historical mortgage industry data and comparing this independent estimate to management’s and management’s specialist’s estimated reserve and (iii) performing a retrospective review of the prior year reserve estimate against historical figures.

/s/ BDO USA, LLP

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Fixed maturities, available-for-sale, at fair value (amortized cost of $ 2,078,773 and $ 1,730,835 as of December 31, 2021 and December 31, 2020, respectively)

$ 2,085,931 $ 1,804,286

Cash and cash equivalents (including restricted cash of $ 3,165 and $ 5,555 as of December 31, 2021 and December 31, 2020, respectively)

76,646 126,937

Premiums receivable 60,358 49,779

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Other assets 94,238 53,188

53,188 16,232

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

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

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

See accompanying notes to consolidated financial statements.

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Net income $ 231,130 $ 171,566 $ 171,957

Other comprehensive income (loss), net of tax:

Unrealized gains (losses) in accumulated other comprehensive income, net of tax expense (benefit) of $9,525, $8,548 and ($3,285) for each of the years in the three-year period ended December 31, 2020, respectively 35,829 32,155 ( 12,357 )

Reclassification adjustment for realized losses (gains) included in net income, net of tax (benefit) expense of ($196), $9 and ($27) for each of the years in the three-years ended December 31, 2020, respectively 739 ( 35 ) 102

Other comprehensive income (loss), net of tax 36,568 32,120 ( 12,255 )

Other comprehensive (loss) income, net of tax:

Unrealized (losses) gains in accumulated other comprehensive income, net of tax (benefit) expense of $( 13,768 ), $ 9,525 and $ 8,548 for each of the years in the three-year period ended December 31, 2021, respectively

( 51,795 ) 35,829 32,155

Reclassification adjustment for realized (gains) losses included in net income, net of tax expense (benefit) of $ 153 , $( 196 ) and $ 9 for each of the years in the three-years ended December 31, 2021, respectively

( 576 ) 739 ( 35 )

Other comprehensive (loss) income, net of tax ( 52,371 ) 36,568 32,120

Comprehensive income $ 178,759 $ 208,134 $ 204,077

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Common Stock - Class A Additional

Paid-in Capital Accumulated Other Comprehensive Income (Loss) Retained Earnings (Accumulated Deficit) Total

Paid-in Capital Accumulated Other Comprehensive Income (Loss) Retained Earnings Total

Shares Amount

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Balances, December 31, 2018 66,319 $ 663 $ 682,181 $ ( 14,832 ) $ 33,488 $ 701,500

Cumulative effect of change in accounting principle — $ — $ — $ 282 $ ( 282 ) $ —

Common stock:

class A shares issued related to public offering 4,255 43 79,122 — — 79,165

Common stock:

class A shares issued related to warrant exercises 289 3 8,309 — — 8,312

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Share-based compensation expense — — 13,031 — — 13,031

Change in unrealized investment gains/losses, net of tax benefit of $3,258 — — — ( 12,255 ) — ( 12,255 )

Change in unrealized investment gains/losses, net of tax expense of $ 8,539

— — — 32,120 — 32,120

Net income — — — — 171,957 171,957

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Common stock:

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

Common stock:

class A shares issued related to warrant exercises 11 * 325 — — 325

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Change in unrealized investment gains/losses, net of tax expense of $ 9,721

— — — 36,568 — 36,568

Net income — — — — 171,566 171,566

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Common stock:

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

Common stock:

class A shares issued related to warrant exercises 86 1 1,982 — — 1,983

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Share-based compensation expense — — 16,678 — — 16,678

Change in unrealized investment gains/losses, net of tax expense of $9,721 — — — 36,568 — 36,568

Change in unrealized investment gains/losses, net of tax benefit of $ 13,921

— — — ( 52,371 ) — ( 52,371 )

Net income — — — — 231,130 231,130

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Deferred policy acquisition costs, net 2,641 ( 2,253 ) ( 13,132 )

Reinsurance recoverable ( 2,712 ) ( 12,669 ) ( 1,939 )

Other assets ( 42,833 ) ( 38,804 ) ( 8,831 )

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Reserve for insurance claims and claim expenses 12,984 66,815 10,941

Reinsurance recoverable (1)

( 12,669 ) ( 1,939 ) ( 1,099 )

Reinsurance balances, net

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Payments of debt issuance costs ( 1,108 ) ( 9,043 ) —

Net cash provided by financing activities 462,804 2,000 80,887

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

Net cash (used in) provided by financing activities ( 1,830 ) 462,804 2,000

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

Cash, cash equivalents and restricted cash, beginning of period 126,937 41,089 25,294

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Interest paid $ 29,500 $ 17,561 $ 10,691

Income taxes (refunded) paid ( 70 ) ( 64 ) 867

(1) Reinsurance recoverable has been reclassified from "Reinsurance balance, net" in prior periods.

Income taxes refunded 457 70 64

See accompanying notes to consolidated financial statements.

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NMIC is licensed to write mortgage insurance in all 50 states and the District of Columbia (D.C.).

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.

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

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Actual results could differ from those estimates.

Certain reclassifications to previously reported financial information have been made to conform to our current period presentation.

COVID-19 Developments

On January 30, 2020, the World Health Organization (WHO) declared the outbreak of coronavirus (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 provide an expanded ability to serve our customers and their borrowers, and we updated our underwriting guidelines and policy pricing in consideration for the increased level 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.

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.

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.

NMI HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2021

Summary of Accounting Principles

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Assumptions and estimates are required to apply these principles where actual measurement is not possible or practical.

NMI HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2020

Insurance Premium Revenue Recognition

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Concentrations

For the years ended December 31, 2020, December 31, 2019 and December 31, 2018 no customer accounted for more than 10% of our consolidated revenues.

For the years ended December 31, 2021, 2020 and 2019 no customer accounted for more than 10% of our consolidated revenues.

At December 31, 2021, December 31, 2020 and December 31, 2019 approximately 10 %, 11 % and 12 % of our total risk-in-force (RIF) was concentrated in California.

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See Note 4, " Fair Value of Financial Instruments " for further discussion.

NMI HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2021

Purchases and sales of investments are recorded on a trade date basis.

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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;

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

NMI HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2020

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.

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

We did not write off any accrued interest receivable during the twelve months ended December 31, 2020, 2019 or 2018.

We did not write off any accrued interest receivable during the years ended December 31, 2021, 2020 or 2019.

We consider items such as commercial paper with original maturities of 90 days or less to be short-term investments.

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We have determined that no premium deficiency reserves were necessary for any of the years in the three-year period ended December 31, 2021.

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

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

NMI HOLDINGS, INC.

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DECEMBER 31, 2021

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

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

NMIC entered into quota share reinsurance treaties effective September 1, 2016 (the 2016 QSR Transaction), January 1, 2018 (the 2018 QSR Transaction), April 1, 2020 (the 2020 QSR Transaction), January 1, 2021 (the 2021 QSR Transaction), October 1, 2021 (the 2022 QSR Transaction), and effective January 1, 2023 (the 2023 QSR Transaction), which we refer to collectively as the QSR Transactions.

We earn profit and ceding commissions in connection with the QSR Transactions (see Note 6, " Reinsurance ").

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

As of December 31, 2020, we did not recognize any allowance for credit loss with respect to our reinsurance recoverables.

The allowance for credit loss established with respect to our reinsurance recoverables was deemed immaterial as of December 31, 2021 and 2020.

We account for income taxes using the liability method in accordance with ASC Topic 740, Income Taxes .

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We calculate the fair value of stock option grants using a Black-Scholes option pricing model, which takes into account various subjective assumptions.

Key assumptions used in the model include the expected volatility of our stock price, dividend yield and the risk-free interest rate, as well as the expected option term, giving consideration to the contractual terms of any award.

RSU grants may contain a service condition, or performance and service conditions.

RSU grants are valued at our stock price on the date of grant less the present value of anticipated dividends.

We account for stock option and RSU forfeitures as they occur.

Key assumptions used in the model include the expected volatility of our stock price, dividend yield and the risk-free interest rate, as well as the expected option term, giving consideration

NMI HOLDINGS, INC.

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DECEMBER 31, 2021

to the contractual terms of any award.

RSU grants may contain a service condition, or performance and service conditions.

RSU grants are valued at our stock price on the date of grant less the present value of anticipated dividends.

We account for stock option and RSU forfeitures as they occur.

Earnings per Share (EPS)

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We estimate a discount rate for each lease based on our estimated incremental borrowing rate at the commencement date of the relevant lease.

Estimated lease terms includes optional renewal periods and early termination payments when it is reasonably certain we will exercise those rights.

ROU assets are measured as the associated lease liability plus any direct costs incurred in connection with the initial establishment of the lease, less any lease incentives received.

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In accordance with ASC 350, Intangibles - Goodwill and Other , we test goodwill for impairment during the third quarter each year, or more frequently if we believe indicators of impairment exist.

We have not identified any impairments of goodwill through December 31, 2020.

We have no t identified any impairments of goodwill through December 31, 2021.

Our intangible assets consist of state licenses and Fannie Mae and Freddie Mac (collectively, the GSEs) applications which have indefinite lives.

We test indefinite-lived intangible assets for impairment during the fourth quarter of each year or more frequently if we believe indicators of impairment exist.

We have not identified any impairments of indefinite-lived intangible assets through December 31, 2020.

We have no t identified any impairments of indefinite-lived intangible assets through December 31, 2021.

Premiums Receivable

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

Due to the nature of our insurance policies (a necessary precondition for access to mortgage credit for covered borrowers) and the short duration of the related receivables, we do not typically experience credit losses against our premium receivables and did not establish an allowance for credit loss at December 31, 2020.

Due to the nature of our insurance policies (a necessary precondition for access to mortgage credit for covered borrowers) and the short duration of the related receivables, we do not typically experience credit losses against our premium receivables and the allowance for credit loss established on premium receivables was deemed immaterial at December 31, 2021 or 2020.

NMI HOLDINGS, INC.

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

such reserve was deemed to be immaterial at December 31, 2020 and December 31, 2019.

such reserve was $ 2.3 million and $ 1.6 million at December 31, 2021 and 2020, respectively.

Variable Interest Entities

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

and Oaktown Re V Ltd.

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

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

(special purpose reinsurance entities collectively referred to as the Oaktown Re Vehicles) effective May 2, 2017, July 25, 2018, July 30, 2019, July 30, 2020, October 29, 2020, April 27, 2021, and October 26, 2021, respectively.

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

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Recent Accounting Pronouncements - Adopted

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

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

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

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

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

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

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

We adopted these updates on January 1, 2020.

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

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

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

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

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

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

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

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

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

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

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

Recent Accounting Pronouncements - Not Yet Adopted

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

NMI HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2020

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

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

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

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

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

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

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

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

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

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

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

This update with updates subsequently issued in January 2021 in ASU 2021-01.

These updates provide optional guidance to ease the potential burden in accounting for reference rate reform on financial reporting.

Reference rate reform refers to the global transition away from referencing the London Interbank Offered Rate (LIBOR) in financial contracts, which is expected to be discontinued in 2021.The ASU includes optional expedients and exceptions for applying GAAP to contracts, hedging relationships and other transactions affected by reference rate reform if certain criteria are met.

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

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

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

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

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

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

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

NMI HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2021

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

This update simplifies the accounting for convertible instruments and contracts on an entity's own equity, including warrants, eliminating certain triggers for derivative accounting.

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

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

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

The update simplifies the accounting for convertible instruments and contracts on an entity's own equity, including warrants, eliminating certain triggers for derivative accounting.

We adopted this ASU on January 1, 2022 and determined it did not have a material impact on our consolidated financial statements, including our warrant liability.

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

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

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

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

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

NMI HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2020

Fair Values and Gross Unrealized Gains and Losses on Investments

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

NMI HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2021

December 31, 2021 December 31, 2020

3 unchanged sentences

Utilities 10 11

Industrial 9 8

Technology 9 10

Industrial 8 9

Total 100 % 100 %

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

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2020

As of December 31, 2021 Amortized

14 unchanged sentences

Total investments $ 1,730,835 $ 1,804,286

NMI HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2021

Aging of Unrealized Losses

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

As of December 31, 2019, the investment portfolio had gross unrealized losses of $ 1.4 million, of which $ 84 thousand had been in an unrealized loss position for a period of twelve months or longer.

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.

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

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As of December 31, 2020 (Dollars in Thousands)

Treasury securities and obligations of U.S.

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

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

2 unchanged sentences

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

NMI HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2020

Allowance for credit losses

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

Based on current facts and circumstances, we believe the unrealized losses as of December 31, 2020 are not indicative of the ultimate collectability of the current amortized cost of the securities.

During the year ended December 31, 2019, we recognized $ 0.4 million other-than-temporarily impaired (OTTI) losses in earnings.

For the year ended December 31, 2018, we did no t recognize any OTTI losses.

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.

The increase in the number of securities in and 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.

We evaluated the securities in an unrealized loss position as of December 31, 2021 and assessed the credit ratings and any ratings changes as well as any adverse conditions specifically related to the security.

Based on our estimate of the amount and timing of cash flows to be collected, 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.

Net Investment Income

6 unchanged sentences

Net investment income $ 38,072 $ 31,897 $ 30,856

NMI HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2021

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

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In such cases, the level in the fair value hierarchy is determined based on the lowest level input that is significant to the fair value measurement in its entirety.

NMI HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2020

Assets classified as Level 1 and Level 2

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

NMI HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2021

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

17 unchanged sentences

Total liabilities $ — $ — $ 2,363 $ 2,363

NMI HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2020

Fair Value Measurements Using

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

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

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

For the year ended December 31,

5 unchanged sentences

Balance, December 31 $ 2,363 $ 4,409 $ 7,641

NMI HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2021

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

6 unchanged sentences

Dividend yield — % — % — %

The changes in fair value of the warrant liability for the years ended December 31, 2020, 2019, and 2018 are primarily attributable to changes in the price of our common stock during the respective periods, with additional impact related to changes in other Black-Scholes model inputs and the exercise of outstanding warrants.

The changes in fair value of the warrant liability for the years ended December 31, 2021, 2020, and 2019 were driven by the exercise of outstanding warrants, as well as changes in the price of our common stock and other Black-Scholes model inputs during the respective periods.

Financial Instruments not Measured at Fair Value

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At December 31, 2021, the Notes were carried at a cost of $ 394.6 million, net of unamortized debt issuance costs of $ 5.4 million, and had a fair value of $ 454.6 million as assessed under our Level 2 hierarchy.

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

NMI HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2020

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

Senior Secured Notes

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At any time, or from time to time, prior to March 1, 2025, we may elect to redeem the Notes in whole or in part at a price based on 100 % of the aggregate principal amount of any Notes redeemed plus the "Applicable Premium," plus accrued and unpaid interest thereon.

Applicable Premium is defined as the greater of (1) 1.0 % of the principal amount of the Notes, or (2) the principal value of the Notes plus the present value of all future interest payments.

Applicable Premium is defined as the greater of (1) 1.0 % of the principal amount of the Notes, or (2) the excess of the present value of the principal value of the Notes plus all future interest payments over the principal amount.

At any time on or after March 1, 2025, we may elect to redeem the Notes in whole or in part at a price equal to 100 % of the aggregate principal amount of the Notes to be redeemed plus accrued and unpaid interest thereon.

3 unchanged sentences

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

At December 31, 2020, $ 6.7 million of unamortized debt issuance costs remained.

At December 31, 2021 and 2020, approximately $ 5.4 million and $ 6.7 million, respectively, of unamortized debt issuance costs remained.

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

At December 31, 2020, $ 2.5 million of accrued and unpaid interest on the Notes is included in "Accounts Payable and Accrued Expenses" on the Consolidated Balance Sheet.

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

NMI HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2021

2021 Revolving Credit Facility

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

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

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

All other terms remained unchanged.

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

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), expanding the lender group, increasing the revolving capacity to $ 250 million, and extending the maturity from February 22, 2023 to the earlier of (x) November 29, 2025, or (y) if any existing senior secured notes remain outstanding on such date, February 28, 2025.

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, and accrue 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.

As of December 31, 2021 and 2020, no amounts were drawn under the 2021 or 2020 Revolving Credit Facilities, respectively.

Under the 2021 Revolving Credit Facility, we are required to pay a quarterly commitment fee on the average daily undrawn amount of 0.175 % to 0.525 %, based on the applicable corporate credit rating at the time.

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

For the year ended December 31, 2020, we recorded $ 0.4 million of commitment fees in interest expense, respectively.

For the year ended December 31, 2021, we recorded $ 0.4 million of commitment fees in interest expense.

We incurred debt issuance costs of $ 1.1 million in connection with the 2021 Revolving Credit Facility, and had $ 0.6 million of unamortized debt issuance costs associated with the 2020 Revolving Credit Facility remaining at the time of its amendment and replacement.

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We are subject to certain covenants under the 2021 Revolving Credit Facility, including, but not limited to, the following:

a maximum debt-to-total capitalization ratio of 35 %, a minimum liquidity requirement, compliance with the private mortgage insurer eligibility requirements (PMIERs) financial requirements (subject to any GSE approved waivers), and minimum

NMI HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2020

consolidated net worth and statutory capital requirements (respectively, as defined therein).

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

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

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Excess-of-loss reinsurance

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

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

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

NMIC 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

NMI HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2021

aggregate loss exposure on covered policies and the respective Oaktown Re Vehicle then provides second layer loss protection up to a defined reinsurance coverage amount.

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

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

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

and Oaktown Re V Ltd.).

NMIC ceded aggregate premiums to the Oaktown Re Vehicles of $ 41.3 million, $ 22.8 million and $ 14.6 million during the years ended December 31, 2021, 2020 and 2019, respectively.

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

and Oaktown Re V Ltd.

in 2020 and Oaktown Re VI Ltd.

and Oaktown VII Ltd.

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

NMIC did not cede any incurred losses on covered policies to the Oaktown Re Vehicles during the years ended December 31, 2020, 2019 and 2018, respectively, as the aggregate first layer risk retention was not exhausted for each applicable agreement during such periods.

NMIC did not cede any incurred losses on covered policies to the Oaktown Re Vehicles during the years ended December 31, 2021, 2020 and 2019, as the aggregate first layer risk retention for each applicable agreement was not exhausted during such periods.

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

2 unchanged sentences

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

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

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

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

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

As the reinsurance coverage decreases, a prescribed amount of collateral held in trust by the Oaktown Re

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2020

Vehicles is distributed to ILN Transaction noteholders as amortization of the outstanding insurance-linked note principal balances.

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

and Oaktown Re VII Ltd., which have a 12.5 year maturity).

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

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

and Oaktown Re VII Ltd., which decreases over a 12.5 year period).

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

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

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

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

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 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 assets will be preserved in the applicable reinsurance trust account to collateralize the excess-of-loss reinsurance coverage provided to NMIC.

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.

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.

8 unchanged sentences

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

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

NMI HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2021

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

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

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

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

(4) 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.

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

1 unchanged sentence

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

"Cash and cash equivalents" on our consolidated balance sheet includes restricted amounts of $ 5.6 million as of December 31, 2020.

"Cash and cash equivalents" on our consolidated balance sheet includes restricted amounts of $ 3.2 million and $ 5.6 million as of December 31, 2021 and 2020, respectively.

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

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2020

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.

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

Under the terms of the 2021 QSR Transaction, NMIC cedes premiums earned related to 22.5 % of the risk on eligible policies written in 2021, subject to an aggregate risk written limit which was exhausted on October 30, 2021.

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

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

Under the terms of the 2022 QSR Transaction, NMIC cedes premiums earned related to 20 % of the risk on eligible policies written primarily between October 30, 2021 and December 31, 2022.

The 2022 QSR Transaction is scheduled to

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DECEMBER 31, 2021

terminate on December 31, 2032.

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

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.

The 2023 QSR Transaction is scheduled to terminate on December 31, 2033.

NMIC has the option, based on certain conditions and subject to a termination fee, to terminate the agreement as of December 31, 2025 or semi-annually thereafter, which would result in NMIC recapturing the related risk.

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

17 unchanged sentences

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

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

Under all other QSR Transactions, premiums are ceded on an earned basis as defined in the agreement.

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

NMIC also receives a profit commission under each of the QSR Transactions, provided that the loss ratios on loans covered under the 2016 QSR

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2020

Transaction, 2018 QSR Transaction and 2020 QSR Transaction, generally remain below 60 %, 61 % and 50 %, respectively, as measured annually.

NMIC also receives a profit commission under each of the QSR Transactions, provided that the loss ratios on loans covered under the 2016, 2018, 2020, 2021 and 2022 QSR Transactions, generally remain below 60 %, 61 %, 50 %, 57.5 % and 62 %, respectively, as measured annually.

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

6 unchanged sentences

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

The reinsurance recoverable on loss reserves related to the 2018 QSR Transaction was $ 12.6 million as of December 31, 2020.

The reinsurance recoverable on loss reserves related to the 2020 QSR Transaction was $ 0.5 million as of December 31, 2020.

The aggregate reinsurance recoverable on loss reserves related to the 2018, 2020, 2021 and 2022 QSR Transactions was $ 15.7 million as of December 31, 2021.

NMI HOLDINGS, INC.

13 unchanged sentences

These 96 loans represented approximately $ 7.3 million of RIF.

Due to the size of the remaining deductible, our expectation that a limited number of loans in default will progress to a claim and the expected severity on such claim submissions (all loans in the pool have LTV ratios under 80 %), we did not establish any case or IBNR reserves for pool risk at December 31, 2020.

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

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

4 unchanged sentences

We had 12,209 loans in default in our primary insured portfolio as of December 31, 2020, which represented a 3.06 % default rate against 399,429 total policies in-force.

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

Although our default count declined from December 31, 2020 to December 31, 2021, the population remains elevated compared to our 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 Coronavirus Aid, Relief and Economic Security Act (CARES Act) or similar programs made available by private lenders.

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

3 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, outright defer payments otherwise due during the forbearance period over an extended length of time.

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

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

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

At 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.

While we established lower reserves per defaulted loan at December 31, 2020, our total reserve position and claims and claim expenses increased as of and during the year ended December 31, 2020 due to the growth in the size of our default population.

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.

NMI HOLDINGS, INC.

31 unchanged sentences

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

Amounts are presented net of reinsurance .

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

We recognized $ 7.7 million, $ 2.2 million, and $ 2.4 million of favorable prior year development during the years ended December 31, 2020, 2019 and 2018, respectively, primarily due to the curing of previously reported defaults.

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

16 unchanged sentences

2020 65,769 56,154 4,112 2,547

2021 22,847 362 3,393

Total $ 95,859 $ 4,731 6,227

11 unchanged sentences

2019 69 2,368 3,212

2020 586 1,320

Total $ 14,743

13 unchanged sentences

Average annual percentage payout of incurred claims and allocated claims adjustment expenses by age, net of reinsurance

Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7

Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8

Claims duration disclosure 2 % 32 % 82 % 93 % 96 % 99 % 100 % 100 %

1 unchanged sentence

Basic EPS is based on the weighted average number of shares of common stock outstanding.

Diluted EPS is based on the weighted average number of shares of common stock outstanding and common stock equivalents that would be issuable upon the vesting of service based and performance and service based RSUs, and the exercise of vested and unvested stock options and outstanding warrants.

Diluted EPS is based on the weighted average number of shares of common stock outstanding and common stock equivalents that would be issuable upon the vesting of service based and performance and service-based restricted stock units (RSUs), and the exercise of vested and unvested stock options and outstanding warrants.

The number of shares issuable for RSUs subject to performance and service based vesting requirements are only included in diluted shares if the relevant performance measurement period has commenced and results during such period meet the necessary performance criteria.

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DECEMBER 31, 2021

Changes in fair value of $ 0.1 million, $ 4.1 million, and $ 0.4 million was recognized for warrants exercised during the years ended December 31, 2020, 2019 and 2018, respectively.

Changes in fair value of $ 0.1 million, $ 0.1 million, and $ 4.1 million were recognized for warrants exercised during the years ended December 31, 2021, 2020 and 2019, respectively.

Share-Based Compensation

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The 2014 Plan was originally approved by our stockholders at our annual meeting on May 8, 2014 and authorized 4.0 million shares of common stock to be reserved for issuance.

On May 11, 2017, our stockholders approved amendments to the 2014 Plan at our annual stockholder meeting, authorizing an additional 2.0 million shares of common stock for issuance, increasing the total shares of common stock reserved for issuance under the plan to 6.0 million.

These shares may be either authorized but unissued shares or treasury shares.

For the years ended December 31, 2021, 2020 and 2019, we incurred $ 16.7 million, $ 11.1 million and $ 13.0 million, respectively, of expenses related to awards granted under our Stock Plans.

We recognized related income tax benefits of $ 2.3 million, $ 2.7 million and $ 2.6 million for the years ended December 31, 2020, 2019 and 2018, respectively.

We recognized gross income tax benefits of $ 3.5 million, $ 2.3 million and $ 2.7 million for the years ended December 31, 2021, 2020 and 2019, respectively.

A summary of option activity during the years ended December 31, 2021, 2020 and 2019, is as follows:

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Options outstanding at December 31, 2019 1,928 $ 4.84 $ 13.04

As of December 31, 2020, there were approximately 1.3 million fully vested and exercisable options.

There were 0.4 million exercises during the year with an aggregate intrinsic value of $ 6.0 million.

The weighted average exercise price for the fully vested and exercisable options was $ 12.39 .

The remaining weighted average contractual life of fully vested and exercisable options as of December 31, 2020 was 4.85 years.

The aggregate grant date intrinsic value of fully vested and exercisable options was $ 12.9 million as of December 31, 2020.

As of December 31, 2020, there was $ 0.2 million of total unrecognized compensation cost related to non-vested stock options.

The weighted-average period over which total remaining compensation costs related to non-vested stock options will be recognized is 0.86 years.

No stock options were granted during the year ended December 31, 2020.

The estimated grant date fair values of the stock options granted during the years ended December 31, 2019 and 2018 were calculated using the Black-Scholes valuation model based on the following assumptions.

For the years ended December 31,

Expected life 6 years 6 years

As of December 31, 2021, there were 1.3 million fully vested and exercisable options.

During the year ended December 31, 2021, 0.1 million options were exercised with an aggregate intrinsic value of $ 1.5 million.

The weighted average exercise price for fully vested and exercisable options outstanding as of December 31, 2021 was $ 13.51 and the weighted average remaining contractual life of such options was 3.95 years as of December 31, 2021.

The aggregate intrinsic value of such fully vested and exercisable options was $ 11.1 million as of December 31, 2021.

As of December 31, 2021, there was $ 14 thousand of total unrecognized compensation cost related to non-vested stock options.

The weighted-average period over which total remaining unrecognized compensation costs related to non-vested stock options will be recognized is 0.12 years.

No stock options were granted during the years ended December 31, 2021 and 2020.

The estimated grant date fair value of stock options granted during the year ended December 31, 2019 was calculated using the Black-Scholes valuation model based on the following assumptions:

For the year ended December 31, 2019

Expected life 6 years

Risk free interest rate 2.57 %

37 unchanged sentences

The remaining weighted average contractual life of non-vested RSUs was 1.24 years.

As of December 31, 2020, there was $ 8.8 million of total unrecognized compensation costs related to non-vested RSUs, compared to $ 7.2 million as of December 31, 2019.

The weighted-average period over which total remaining compensation costs related to non-vested RSUs will be recognized is 1.49 years.

As of December 31, 2021 and 2020, there were $ 8.8 million of total unrecognized compensation costs related to non-vested RSUs.

The weighted-average period over which total remaining unrecognized compensation costs related to non-vested RSUs outstanding at December 31, 2021 will be recognized is 1.25 years.

Non-vested RSUs subject to service condition vesting requirements vest over a period ranging from one to five years .

Non-vested RSUs subject to performance and service condition vesting requirements vest over a three year period, with the number of shares issued upon vesting based on a compound annual book value per share growth target.

The fair value of non-vested RSUs is measured as the closing price of our common stock on the date of grant less the present value of anticipated dividends to be paid during the vesting period.

Non-vested RSUs subject to performance and service condition vesting requirements vest over a three-year period, with the number of shares issued upon vesting based on the actual achievement of compound annual book value per share growth compared to a target established at the time of grant.

The grant date fair value of non-vested RSUs is measured as the closing price of our common stock on the date of grant less the present value of anticipated dividends to be paid during the vesting period.

401(k) Savings Plan

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During the years ended December 31, 2021, 2020 and 2019, we incurred approximately $ 2.0 million, $ 2.2 million and $ 2.5 million of expense related to our matching 401(k) Plan contributions, respectively.

NMI HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2020

We are a U.S.

10 unchanged sentences

Total income tax expense $ 65,595 $ 46,540 $ 44,696

For the years ended December 31, 2020, 2019 and 2018, we had income tax expenses of $ 46.5 million, $ 44.7 million, and $ 28.0 million, respectively, including amounts related to current state income taxes and changes to our federal and state net deferred tax liability.

For the years ended December 31, 2021, 2020 and 2019, we had income tax expenses of $ 65.6 million, $ 46.5 million,

NMI HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2021

and $ 44.7 million, respectively, including amounts related to current state income taxes and changes to our federal and state net deferred tax liability.

The following table presents a reconciliation between the federal statutory income tax rate and our effective income tax rate:

7 unchanged sentences

Effective income tax rate 22.1 % 21.3 % 20.6 %

NMI HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2020

The components of our net deferred tax asset are summarized as follows:

5 unchanged sentences

Accrued expenses 2,852 3,198

Other 1,067 1,592

Total gross deferred tax asset 24,646 22,639

4 unchanged sentences

Deferred acquisition costs ( 12,797 ) ( 13,381 )

Unrealized gain on investments ( 15,432 ) ( 7,634 )

Capitalized software ( 7,286 ) ( 5,569 )

( 1,804 ) ( 2,057 )

Unrealized gain on investments ( 1,503 ) ( 15,432 )

Other ( 734 ) ( 1,804 )

Total deferred tax liability ( 180,239 ) ( 127,615 )

Net deferred income tax (liability) $ ( 164,175 ) $ ( 112,586 )

(1) Prior periods have been reclassified for consistency and presentation purposes.

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

During the years ended December 31, 2020 and 2019, we purchased $ 38.8 million and $ 7.6 million of tax and loss bonds, respectively.

During the years ended December 31, 2021, 2020 and 2019, we purchased $ 42.9 million, $ 38.8 million and $ 7.6 million, of tax and loss bonds, respectively.

As a result, we had no current federal income tax provision for the years ended December 31, 2021, 2020 and 2019.

As of December 31, 2021 and 2020, we held $ 89.2 million and $ 46.4 million of tax and loss bonds, respectively, in "Other assets" in our consolidated balance sheet.

In February 2018, the FASB issued ASU 2018-02, Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income (Topic 220).

This update permits the reclassification of the disproportionate income tax effects, commonly referred to as "stranded tax," that result from the TCJA on items within AOCI to retained earnings.

We adopted this update effective January 1, 2018, resulting in a $ 0.3 million reduction to retained earnings as of January 1, 2018.

The remaining $ 4.2 million of stranded tax that remains in AOCI relates to our available-for-sale fixed income holdings.

At December 31, 2021, we had a federal net operating loss carryforward of $ 1.8 million which expires in varying amounts in 2030 and 2031, and state net operating loss carryforward of $ 132.4 million which expire in varying amounts from 2031 to 2042.

Section 382 of the IRC imposes annual limitations on a corporation's ability to utilize its net operating loss carryforwards if it experiences an "ownership change." As a result of the acquisition of our insurance subsidiaries in 2012, $ 7.3 million of federal net operating losses were subject to annual limitations of $ 0.8 million through 2016, and $ 0.3 million, thereafter, through 2028.

Our federal net operating loss carryforward arises from this limitation and the constraint on our ability to utilize the net operating loss carryforward in full during the current period.

At December 31, 2020 and 2019, we recorded valuation allowances of $ 7.6 million and $ 7.9 million, respectively against state net deferred tax assets that may not be realized in future periods.

The valuation allowances for both years primarily relate to state net operating losses generated by NMIH, as NMIH operates at a loss and currently only generates revenue from its investment portfolio.

As of December 31, 2020 and 2019, we had no reserves for unrecognized tax benefits as we have taken no material uncertain tax positions that would have required a reserve to be measured and recognized.

NMI HOLDINGS, INC.

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DECEMBER 31, 2021

thereafter, through 2028.

Our federal net operating loss carryforward arises from this limitation and the constraint on our ability to utilize the net operating loss carryforward in full during the current period.

At December 31, 2021 and 2020, we recorded valuation allowances of $ 8.6 million and $ 7.6 million, respectively, against state net deferred tax assets that may not be realized in future periods.

As of December 31, 2021 and 2020, we had zero reserves for unrecognized tax benefits as we have taken no material uncertain tax positions that would have required a reserve to be measured and recognized.

We file income tax returns with the U.S.

23 unchanged sentences

Total intangible assets and goodwill $ 3,634

We test goodwill and intangible assets for impairment in the third and fourth quarter, respectively, of every year, or more frequently if we believe indicators of impairment exist.

We test goodwill and intangible assets for impairment annually or more frequently if we believe indicators of impairment exist.

No impairments of indefinite-lived intangibles or goodwill were identified during the years ended December 31, 2021, 2020 and 2019.

NMI HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2020

Commitments and Contingencies

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The PMIERs establish operational, business, remedial and financial requirements applicable to approved insurers .

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.

The PMIERs financial requirements

NMI HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2021

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.

3 unchanged sentences

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 net RIF, assessed on a loan-by-loan basis and considered against certain risk-based factors derived from tables set out in the PMIERs to gross RIF, 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.

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 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.

The aggregate gross risk-based required asset amount for performing, primary insurance is subject to a floor of 5.6 % of performing, primary adjusted RIF , and the risk-based required asset amount for pool insurance considers both factors in the PMIERs tables and the net remaining stop loss for each pool insurance policy.

6 unchanged sentences

As of December 31, 2021 and 2020, we did not have any finance leases.

We did not enter any new operating leases or recognize any new ROU assets or lease liabilities during the year ended December 31, 2020.

We did not enter any new operating leases or recognize any new ROU assets or lease liabilities during the years ended December 31, 2021 and 2020.

ROU assets exchanged for new operating lease liabilities for the year ended December 31, 2019 were $ 8.1 million, primarily in connection with our initial adoption of ASU 2016-02, Leases (Topic 842).

8 unchanged sentences

Present value of lease payments $ 2,901

Lease expense is recorded in underwriting and operating expenses on our consolidated statements of operations.

Our existing operating leases have original terms that range from three to five years .

The lease for our corporate headquarters includes

In January 2022 we modified the lease for our corporate headquarters, securing a reduction in pricing and incremental leasehold improvement concessions, reducing the square footage of leased space and extending the remaining term through March 2030.

In connection with these changes we expect to record a net increase of approximately $ 9.0 million to both ROU assets and lease liabilities, in the first quarter of 2022.

Future lease payments due at the time of modification are $ 15.9 million and supersede any future payments otherwise due under the previous lease for our corporate headquarters outstanding as of December 31, 2021.

Lease expense is recorded in underwriting and operating expenses on our consolidated statement of operations.

Our operating leases have original terms that range from three to seven years .

The existing and modified lease for our corporate

NMI HOLDINGS, INC.

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DECEMBER 31, 2021

an option to renew for an additional five years at prevailing market rates at time of renewal.

We have not included this renewal option in our calculation of minimum lease payments as it is not reasonably certain to be exercised.

headquarters both include an option to renew for an additional five years at prevailing market rates at time of renewal.

Such renewal option is not included in the calculation of future lease payments due under the existing lease as presented above.

As of December 31, 2021, we had 85.8 million outstanding shares of Class A common stock.

2 unchanged sentences

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

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

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

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

As of December 31, 2020, we had 85.2 million outstanding shares of Class A common stock.

On June 8, 2020, we completed the sale of 15.9 million shares of common stock which generated proceeds of $ 219.7 million, net of underwriting discounts, commissions and other direct offering expenses.

Regulatory Information

12 unchanged sentences

(In Thousands)

Statutory net (loss) gain $ ( 20,136 ) $ 15,233 $ ( 19,784 )

Statutory net income (loss) $ 37,950 $ ( 20,136 ) $ 15,233

Statutory surplus 899,476 894,331 449,602

4 unchanged sentences

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

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

(2) Excludes Re One as of December 31, 2021 as it had no risk in force remaining following the termination and commutation of the reinsurance agreement with

Under applicable law in Wisconsin and 15 other states, mortgage insurers must maintain minimum amounts of statutory capital relative to RIF to continue writing new business.

While formulations of minimum statutory capital may vary in each state, the most common measure allows for a maximum permitted RTC ratio of 25:1.

While formulations of minimum statutory capital may vary in each state,

the most common measure allows for a maximum permitted RTC ratio of 25:1.

Wisconsin and certain other states, including California and Illinois, apply a substantially similar requirement referred to as minimum policyholders' position.

3 unchanged sentences

The NAIC formed a Mortgage Guaranty Insurance Working Group (the Working Group) in 2012 to discuss, develop and recommend changes to the regulatory oversight and solvency standards of the mortgage insurance industry, including changes to the Mortgage Guaranty Insurance Model Act (Model Act).

The Working Group has proposed amendments to the Model Act that include, among other changes, adoption of a risk-based capital model.

If adopted by the NAIC, some or all of the 16 states that currently have minimum statutory capital requirements, and potentially others that do not, are expected to enact a portion or all of the revised Model Act, including the loan-level capital model.

As of December 31, 2020, NMIC's performing primary RIF, net of reinsurance, was approximately $ 19.4 billion and its RTC ratio was 12.0:1, significantly below applicable limits.

The Working Group has proposed amendments to the Model Act that include, among other changes, the introduction of a risk-based capital model.

If adopted by the NAIC, some or all of the 16 states that currently have minimum statutory capital requirements, and potentially others that do not, could enact a portion or all of the revised Model Act, including the loan-level capital model.

Such risk-based capital model, if introduced and enacted at a state level, is not expected to replace maximum permitted RTC ratio or minimum policyholders' position as the determinant driver of mortgage insurer minimum statutory capital requirements;

rather, it is expected that such enactment would introduce new, non-operative statutory disclosure requirements.

As of December 31, 2021, NMIC's performing primary RIF, net of reinsurance, was approximately $ 22.3 billion and its RTC ratio was 11.6:1.

As of December 31, 2020, NMIC's performing primary RIF, net of reinsurance, was approximately $ 19.4 billion and its RTC ratio was 12.0:1.

Prior to January 10, 2019, Ohio regulation limited the amount of risk a mortgage insurer was permitted to retain on a single loan to 25 % of the borrower's indebtedness (after giving effect to third-party reinsurance) and, as a result, the portion of such insurance in excess of 25 % was required to be reinsured.

1 unchanged sentence

Several other states previously imposed similar coverage restrictions and repealed these measures prior to 2018.

To comply with these previous state coverage limits, NMIC and Re One have reinsurance agreements in place under which Re One provides reinsurance to NMIC on certain insured loans with coverage levels in excess of 25 %, after giving effect to third-party reinsurance.

To comply with these previous state coverage limits, NMIC and Re One had a reinsurance agreement in place under which Re One provided reinsurance to NMIC on certain insured loans with coverage levels in excess of 25 %, after giving effect to third-party reinsurance.

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

In connection with the commutation, Re One paid $ 8.4 million of fees to NMIC to settle all outstanding reinsurance obligations.

Following the commutation, NMIC will no longer cede any premiums or loss to Re One, and Re One has no risk in force or further obligation on future claims.

Dividend Restrictions

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

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

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

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

3 unchanged sentences

Under Wisconsin law, 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.

NMIC and Re One have never paid dividends to NMIH.

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

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

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

Following the commutation of the reinsurance agreement between NMIC and Re One, 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 with prior approval of the WI OCI.

The Wisconsin OCI has approved the allocation of interest expense on the $ 400 million Notes and $ 250 million 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.

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

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

NMI HOLDINGS, INC.

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DECEMBER 31, 2021

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

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

NMIC did not pay any dividends during the year ended December 31, 2021.

Quarterly Financial Data (Unaudited)

4 unchanged sentences

Net investment income 8,814 9,382 9,831 10,045 38,072

Net realized investment (losses) gains ( 72 ) 711 ( 4 ) 295 930

Net realized investment gains — 12 3 714 729

Other revenues 501 483 613 380 1,977

Insurance claims and claim expenses 5,697 34,334 15,667 3,549 59,247

Insurance claims and claim expenses (benefit) 4,962 4,640 3,204 ( 500 ) 12,305 (2)

Underwriting and operating expenses 34,065 34,725 34,669 38,843 142,303 (2)

1 unchanged sentence

Interest expense 7,915 7,922 7,930 8,029 31,796

(Gain) loss from change in fair value of warrant liability ( 5,959 ) 1,236 437 1,379 ( 2,907 )

Loss (gain) from change in fair value of warrant liability 205 ( 658 ) — ( 112 ) ( 566 ) (2)

Pre-tax income 67,456 73,655 77,451 78,162 296,725 (2)

8 unchanged sentences

(1) Due to the use of weighted average shares outstanding when calculating EPS, the sum of quarterly per share data may not equal the per share data for the year.

(2) May not foot by summing up the quarterly results due to rounding.

NMI HOLDINGS, INC.

12 unchanged sentences

Interest expense 2,744 5,941 7,796 7,906 24,387

Loss (gain) from change in fair value of warrant liability 5,479 1,685 ( 1,139 ) 2,632 $ 8,657

(Gain) loss from change in fair value of warrant liability ( 5,959 ) 1,236 437 1,379 ( 2,907 )

Pre-tax income 72,156 34,977 49,357 61,616 218,106

8 unchanged sentences

(1) Due to the use of weighted average shares outstanding when calculating EPS, the sum of quarterly per share data may not equal the per share data for the year.

NMI HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2020

Subsequent Event

Quota share reinsurance

Effective January 1, 2021, NMIC entered into its fourth quota share reinsurance treaty with a broad panel of highly rated reinsurers (2021 QSR Transaction).

Under the 2021 QSR Transaction, NMIC will cede premiums earned related to 22.5 % of the risk on eligible policies written from January 1, 2021 through December 31, 2021, in exchange for reimbursement of ceded claims and claims 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.

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

NMIC has the option, based on certain conditions and subject to a termination fee, to terminate the agreement at December 31, 2026, or at the end of any calendar quarter thereafter, which would result in NMIC recapturing the reinsured risk.

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.

Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

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 8. Financial Statements and Supplementary Data