What changed in this filing

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Item 1. Financial Statements

2022-11-02 compared with 2022-08-03 · 180 added, 152 removed, 651 unchanged (34% of the section changed)

1 unchanged sentence

INDEX TO FINANCIAL STATEMENTS

Condensed Consolidated Balance Sheets as of June 30, 2022 (Unaudited) and December 31, 2021 6

Condensed Consolidated Statements of Operations and Comprehensive Income (Loss) for the three and six months ended June 30, 2022 and 2021 (Unaudited) 7

Condensed Consolidated Statements of Changes in Shareholders' Equity for the three months ended June 30, 2022 and 2021 (Unaudited) 8

Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2022 and 2021 (Unaudited) 10

Condensed Consolidated Balance Sheets as of September 30, 2022 (Unaudited) and December 31, 2021

Condensed Consolidated Statements of Operations and Comprehensive Income (Loss) for the three and nine months ended September 30, 2022 and 2021 (Unaudited)

Condensed Consolidated Statements of Changes in Shareholders' Equity for the three and nine months ended September 30, 2022 and 2021 (Unaudited)

Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2022 and 2021 (Unaudited)

Notes to Condensed Consolidated Financial Statements (Unaudited) 11

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CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)

June 30, 2022 December 31, 2021

September 30, 2022 December 31, 2021

Assets (In Thousands, except for share data)

Fixed maturities, available-for-sale, at fair value (amortized cost of $ 2,218,344 and $ 2,078,773 as of June 30, 2022 and December 31, 2021, respectively)

Fixed maturities, available-for-sale, at fair value (amortized cost of $ 2,248,737 and $ 2,078,773 as of September 30, 2022 and December 31, 2021, respectively)

$ 1,973,931 $ 2,085,931

Cash and cash equivalents (including restricted cash of $ 2,152 and $ 3,165 as of June 30, 2022 and December 31, 2021, respectively)

Cash and cash equivalents (including restricted cash of $ 2,159 and $ 3,165 as of September 30, 2022 and December 31, 2021, respectively)

125,812 76,646

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Total liabilities 877,977 884,795

Commitments and contingencies

Commitments and contingencies (see Note 11)

Shareholders' equity

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

86,375,154 shares issued and 84,701,092 shares outstanding as of June 30, 2022 and 85,792,849 shares issued and outstanding as of December 31, 2021 ( 250,000,000 shares authorized)

86,463,874 shares issued and 83,796,313 shares outstanding as of September 30, 2022 and 85,792,849 shares issued and outstanding as of December 31, 2021 ( 250,000,000 shares authorized)

Additional paid-in capital 969,359 955,302

Treasury Stock, at cost:

1,674,062 and 0 common shares as of June 30, 2022 and December 31, 2021, respectively

2,667,561 and 0 common shares as of September 30, 2022 and December 31, 2021, respectively

Accumulated other comprehensive (loss) income, net of tax ( 221,266 ) 1,485

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

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

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

2022 2021 2022 2021

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Net income $ 76,838 $ 60,193 $ 219,962 $ 170,606

Other comprehensive (loss) income, net of tax:

Unrealized (losses) gains in accumulated other comprehensive income (loss), net of tax (benefit) expense of $( 17,004 ) and $ 4,995 for the three months ended June 30, 2022 and 2021, and $( 43,180 ) and $( 7,003 ) for the six month ended June 30, 2022 and 2021, respectively

Other comprehensive loss, net of tax:

Unrealized losses in accumulated other comprehensive income (loss), net of tax benefit of $ 15,932 and $ 2,165 for the three months ended September 30, 2022 and 2021, and $ 59,112 and $ 9,168 for the nine month ended September 30, 2022 and 2021, respectively

( 59,936 ) ( 8,144 ) ( 222,374 ) ( 34,487 )

Reclassification adjustment for realized gains included in net income, net of tax expense of $ 11 and $ 3 for the three months ended June 30, 2022 and 2021, and $ 97 and $ 3 for the six months ended June 30, 2022 and 2021, respectively

Reclassification adjustment for realized gains included in net income, net of tax expense of $ 3 and $ 1 for the three months ended September 30, 2022 and 2021, and $ 100 and $ 3 for the nine months ended September 30, 2022 and 2021, respectively

( 10 ) ( 2 ) ( 377 ) ( 12 )

Other comprehensive (loss) income, net of tax ( 64,011 ) 18,780 ( 162,805 ) ( 26,353 )

Other comprehensive loss, net of tax ( 59,946 ) ( 8,146 ) ( 222,751 ) ( 34,499 )

Comprehensive income (loss) $ 16,892 $ 52,047 $ ( 2,789 ) $ 136,107

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Balances, June 30, 2022 84,701 $ 864 $ 964,654 $ ( 30,371 ) $ ( 161,320 ) $ 751,265 $ 1,525,092

Common stock:

class A shares issued under stock plans, net of shares withheld for employee taxes 89 1 823 — — — 824

Repurchase of common stock ( 994 ) — — ( 20,824 ) — — ( 20,824 )

Share-based compensation expense — — 3,882 — — — 3,882

Change in unrealized investment gains/losses, net of tax benefit of $ 15,935

— — — — ( 59,946 ) — ( 59,946 )

Net income — — — — — 76,838 76,838

Balances, September 30, 2022 83,796 $ 865 $ 969,359 $ ( 51,195 ) $ ( 221,266 ) $ 828,103 $ 1,525,866

* During the three months ended June 30, 2022, we issued 32,659 common shares with a par value of $ 0.01 in connection with the exercise of warrants, which is not identifiable in this schedule due to rounding.

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

NMI HOLDINGS, INC.

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Common Stock - Class A Additional

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

Paid-in Capital Accumulated Other Comprehensive Income Retained Earnings Total

Shares Amount

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

* During the months ended March 31, 2021 and June 30, 2021, we issued 23,750 and 8,096 common shares, respectively, with a par value of $ 0.01 in connection with the exercise of warrants, which is not identifiable in this schedule due to rounding.

Common stock:

class A shares issued related to warrants 28 * 603 — — 603

Common stock:

class A shares issued under stock plans, net of shares withheld for employee taxes 12 * ( 45 ) — — ( 45 )

Share-based compensation expense — — 3,716 — — 3,716

Change in unrealized investment gains/losses, net of tax benefit of $ 2,166

— — — ( 8,146 ) — ( 8,146 )

Net income — — — — 60,193 60,193

Balances, September 30, 2021 85,743 $ 857 $ 948,395 $ 19,357 $ 547,617 $ 1,516,226

* During the three months ended March 31, 2021 and June 30, 2021, we issued 23,750 and 8,096 common shares, respectively, with a par value of $ 0.01 in connection with the exercise of warrants, which are not identifiable in this schedule due to rounding.

During the three months ended September 30, 2021, we issued 27,715 common shares with a par value of $ 0.01 in connection with the exercise of warrants, and 12,436 common shares with a par value of $ 0.01 in connection with the exercise of options and vesting of restricted stock units granted under our stock plans, which are not identifiable in this schedule due to rounding.

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

NMI HOLDINGS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

For the six months ended June 30,

For the nine months ended September 30,

Cash flows from operating activities (In Thousands)

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Net cash used in financing activities ( 50,326 ) ( 538 )

Net decrease in cash, cash equivalents and restricted cash ( 4,248 ) ( 58,857 )

Net increase (decrease) in cash, cash equivalents and restricted cash 49,166 ( 29,677 )

Cash, cash equivalents and restricted cash, beginning of period 76,646 126,937

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COVID-19 Developments

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

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 spread of the virus, 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.

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

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

We have evaluated the impact of the adoption of this guidance and have determined it will not have a material impact on our consolidated financial statements.

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

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Cost Gross Unrealized Fair

As of June 30, 2022 (In Thousands)

As of September 30, 2022 (In Thousands)

Treasury securities and obligations of U.S.

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Total investments $ 2,078,773 $ 30,353 $ ( 23,195 ) $ 2,085,931

We did not own any mortgage-backed securities in our asset-backed securities portfolio at June 30, 2022 or December 31, 2021.

The following table presents a breakdown of the fair value of our corporate debt securities by issuer industry group as of June 30, 2022 and December 31, 2021:

June 30, 2022 December 31, 2021

We did not own any mortgage-backed securities in our asset-backed securities portfolio at September 30, 2022 or December 31, 2021.

The following table presents a breakdown of the fair value of our corporate debt securities by issuer industry group as of September 30, 2022 and December 31, 2021:

September 30, 2022 December 31, 2021

Financial 37 % 38 %

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Total 100 % 100 %

As of June 30, 2022 and December 31, 2021, approximately $ 5.4 million and $ 5.6 million, respectively, of our cash and investments were held in the form of U.S.

As of September 30, 2022 and December 31, 2021, approximately $ 5.4 million and $ 5.6 million, respectively, of our cash and investments were held in the form of U.S.

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

2 unchanged sentences

Scheduled Maturities

The amortized cost and fair value of available-for-sale securities as of June 30, 2022 and December 31, 2021, by contractual maturity, are shown below.

The amortized cost and fair value of available-for-sale securities as of September 30, 2022 and December 31, 2021, by contractual maturity, are shown below.

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

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

As of June 30, 2022 Amortized

As of September 30, 2022 Amortized

(In Thousands)

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Aging of Unrealized Losses

As of June 30, 2022, the investment portfolio had gross unrealized losses of $ 199.4 million, of which $ 41.7 million were associated with securities that had been in an unrealized loss position for a period of twelve-months or longer.

As of September 30, 2022, the investment portfolio had gross unrealized losses of $ 275.2 million, of which $ 173.4 million were associated with securities that 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 were associated with securities that had been in an unrealized loss position for a period of twelve months or longer.

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

As of June 30, 2022 (Dollars in Thousands)

As of September 30, 2022 ($ In Thousands)

Treasury securities and obligations of U.S.

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

As of December 31, 2021 (Dollars in Thousands)

As of December 31, 2021 ($ In Thousands)

Municipal debt securities 151 $ 314,823 $ ( 4,959 ) 2 $ 8,138 $ ( 445 ) 153 $ 322,961 $ ( 5,404 )

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Allowance for credit losses

As of June 30, 2022 and December 31, 2021, we did not recognize an allowance for credit loss for any security in the investment portfolio and we did not record any provision for credit loss for investment securities during the three or six month periods ended June 30, 2022 or June 30, 2021.

The increase in the number of securities in and the aggregate size of the unrealized loss position as of June 30, 2022, 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 June 30, 2022, assessing their credit ratings as well as any adverse conditions specifically related to the security.

Based upon our estimate of the amount and timing of cash flows to be collected over the remaining life of each instrument, we believe the unrealized losses as of June 30, 2022 are not indicative of the ultimate collectability of the current amortized cost of the securities.

As of September 30, 2022 and December 31, 2021, we did not recognize an allowance for credit loss for any security in the investment portfolio and we did not record any provision for credit loss for investment securities during the three or nine-month periods ended September 30, 2022 or September 30, 2021.

The increase in the number of securities in and the aggregate size of the unrealized loss position as of September 30, 2022, was driven by fluctuations in interest rates and, to a lesser extent, movements in credit spreads following the purchase date of certain securities.

We evaluated the securities in an unrealized loss position as of September 30, 2022, assessing their credit ratings as well as any adverse conditions specifically related to the security.

Based upon our estimate of the amount and timing of cash flows to be collected over the remaining life of each instrument, we believe the unrealized losses as of September 30, 2022 are not indicative of the ultimate collectability of the current amortized cost of the securities.

Net Investment Income

The following table presents the components of net investment income:

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

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

2022 2021 2022 2021

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

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

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

2022 2021 2022 2021

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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.

All outstanding and unexercised warrants expired in April 2022 and there was no warrant liability remaining as of June 30, 2022.

All outstanding and unexercised warrants expired in April 2022 and there was no warrant liability remaining as of September 30, 2022.

NMI HOLDINGS, INC.

9 unchanged sentences

(Level 3) Fair Value

As of June 30, 2022 (In Thousands)

As of September 30, 2022 (In Thousands)

Treasury securities and obligations of U.S.

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

There were no transfers between Level 2 and Level 3 of the fair value hierarchy during the six months ended June 30, 2022, or the year ended December 31, 2021.

There were no transfers between Level 2 and Level 3 of the fair value hierarchy during the nine months ended September 30, 2022, or the year ended December 31, 2021.

NMI HOLDINGS, INC.

1 unchanged sentence

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

For the six months ended June 30,

For the nine months ended September 30,

Warrant Liability 2022 2021

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Issuance of common stock on warrant exercise ( 1,250 ) ( 945 )

Balance, June 30 $ — $ 3,385

All outstanding and unexercised warrants expired in April 2022 and there was no warrant liability remaining as of June 30, 2022.

For more information on the expiration of warrants, see Note 8, "Warrants" .

Balance, September 30 $ — $ 3,010

All outstanding and unexercised warrants expired in April 2022 and there was no warrant liability remaining as of September 30, 2022.

For more information on the expiration of warrants and changes in the fair value of the warrant liability during the nine months ended September 30, 2022 and 2021, see Note 8, "Warrants" .

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 date indicated:

As of June 30, 2021

As of September 30, 2021

Common stock price $ 22.61

3 unchanged sentences

Dividend yield 0 %

The change in fair value of the warrant liability for the six months ended June 30, 2022 was primarily driven by the exercise of certain outstanding warrants and the unexercised expiration of all remaining warrants at their contractual maturity in April 2022.

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

Financial Instruments not Measured at Fair Value

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

At June 30, 2022, the Notes were carried at a cost of $ 395.3 million, net of unamortized debt issuance costs of $ 4.7 million, and had a fair value of $ 397.2 million as assessed under our Level 2 hierarchy.

At September 30, 2022, the Notes were carried at a cost of $ 395.7 million, net of unamortized debt issuance costs of $ 4.3 million, and had a fair value of $ 388.4 million as assessed under our Level 2 hierarchy.

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.

Senior Secured Notes

At June 30, 2022, we had a $ 400.0 million aggregate principal amount of senior secured notes outstanding.

At September 30, 2022, we had a $ 400.0 million aggregate principal amount of senior secured notes outstanding.

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

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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.

NMI HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Interest expense for the Notes includes interest and the amortization of capitalized debt issuance costs.

1 unchanged sentence

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

At June 30, 2022 and December 31, 2021, approximately $ 4.7 million and $ 5.4 million, respectively, of unamortized debt issuance costs remained.

At June 30, 2022 and December 31, 2021, $ 2.5 million of accrued and unpaid interest on the Notes was included in "Accounts Payable and Accrued Expenses" on the consolidated balance sheet.

At September 30, 2022 and December 31, 2021, approximately $ 4.3 million and $ 5.4 million, respectively, of unamortized debt issuance costs remained.

At September 30, 2022 and December 31, 2021, $ 9.8 million and $ 2.5 million of accrued and unpaid interest on the Notes was included in "Accounts Payable and Accrued Expenses" on the consolidated balance sheet.

NMI HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

2021 Revolving Credit Facility

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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 Secured Overnight Financing 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 June 30, 2022 and December 31, 2021, no amount was drawn under the 2021 Revolving Credit Facility.

As of September 30, 2022 and December 31, 2021, no amount was drawn under the 2021 Revolving Credit Facility.

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 June 30, 2022, the applicable commitment fee was 0.35 %.

For the three and six months ended June 30, 2022, we recorded $ 0.2 million and $ 0.4 million of commitment fees in interest expense, respectively.

On July 21, 2022, Moody's upgraded its financial strength rating of NMIC from "Baa2" to "Baa1" and its rating of NMIH's Notes from "Ba2" to "Ba1".

As a result of the upgrade, the commitment fee due under the 2021 Revolving Credit Facility will be reduced to 0.30 %.

As of September 30, 2022, the applicable commitment fee was 0.30 %.

For the three and nine months ended September 30, 2022, we recorded $ 0.2 million and $ 0.6 million of commitment fees in interest expense, respectively.

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.

Combined unamortized debt issuance will be amortized through interest expense on a straight-line basis over the contractual life of the 2021 Revolving Credit Facility.

At June 30, 2022, remaining unamortized deferred debt issuance costs were $ 1.4 million.

At September 30, 2022, remaining unamortized deferred debt issuance costs were $ 1.3 million.

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 %, 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 June 30, 2022.

We were in compliance with all covenants at September 30, 2022.

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

The Wisconsin Office of the Commissioner of Insurance (Wisconsin OCI) has approved and the GSEs have indicated their non-objection to all such transactions (subject to certain conditions and ongoing review, including levels of approved capital credit).

NMI HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

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

For the three months ended For the six months ended

June 30, 2022 June 30, 2021 June 30, 2022 June 30, 2021

For the three months ended For the nine months ended

September 30, 2022 September 30, 2021 September 30, 2022 September 30, 2021

(In Thousands)

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(1) Net of profit commission.

NMI HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Excess-of-loss reinsurance

Insurance-linked note excess-of-loss reinsurance transactions

Insurance-linked notes

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.

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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 $ 250 thousand per year, except with respect to Oaktown Re Ltd., for which the cap is $ 300 thousand per year).

NMIC ceded aggregate premiums to the Oaktown Re Vehicles of $ 10.1 million and $ 21.1 million during the three and six months ended June 30, 2022, respectively, and $ 10.2 million and $ 19.6 million during the three and six months ended June 30, 2021, respectively.

NMIC ceded aggregate premiums to the Oaktown Re Vehicles of $ 10.7 million and $ 31.8 million during the three and nine months ended September 30, 2022, respectively, and $ 10.4 million and $ 30.0 million during the three and nine months ended September 30, 2021, respectively.

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

NMIC did not cede any incurred losses on covered policies to the Oaktown Re Vehicles during the three and six months ended June 30, 2022 and 2021, as the aggregate first layer risk retention for each applicable agreement was not exhausted during such periods.

NMIC did not cede any incurred losses on covered policies to the Oaktown Re Vehicles during the three and nine months ended September 30, 2022 and 2021, 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.

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

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

NMI HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

triggered (each, a Lock-Out Event).

As of June 30, 2022, the 2018 and 2019 ILN Transactions were deemed to be in Lock Out due to the default experience of the underlying reference pools for each respective transaction and the 2021-2 ILN Transaction was deemed to be in Lock Out in connection with the initial build of its target credit enhancement level.

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

As of September 30, 2022, the 2018 ILN Transaction was deemed to be in Lock Out due to the default experience of its underlying reference pool and the 2021-2 ILN Transaction was deemed to be in Lock Out in connection with the initial build of its target credit enhancement level.

As such, the amortization of reinsurance coverage, and distribution of collateral assets and amortization of insurance-linked notes was suspended for both ILN Transactions.

The amortization of reinsurance coverage, distribution of collateral assets and amortization of insurance-linked notes issued in connection with the 2018 and 2021-2 ILN Transactions will remain suspended for the duration of the Lock-Out Event for each respective 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 August 31, 2022, a Lock-Out Event for the 2019 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.

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.

In addition, there are certain events that trigger mandatory termination of an agreement, including NMIC's failure to pay premiums or consent to reductions in a trust account to make principal payments to note-holders, among others.

NMI HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Effective March 25, 2022 and April 25, 2022, NMIC exercised its optional clean-up call to terminate the 2017 and 2020-1 ILN Transactions, respectively.

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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 outstanding ILN Transaction.

Current amounts are presented as of June 30, 2022.

Current amounts are presented as of September 30, 2022.

( $ values in thousands)

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(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 June 30, 2022, the current reinsurance coverage amount on the 2021-2 ILN Transactions is equal to the initial reinsurance coverage amount, as the reinsurance coverage provided by Oaktown Re VII Ltd.

will not begin to amortize until a target credit enhancement level is reached.

(5) As of September 30, 2022, the current reinsurance coverage amount on the 2021-2 ILN Transactions is equal to the initial reinsurance coverage amount, as the reinsurance coverage provided by Oaktown Re VII Ltd.

will not begin to amortize until its target credit enhancement level is reached.

Under the terms of our 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 $ 2.2 million and $ 3.2 million as of June 30, 2022 and December 31, 2021, respectively.

"Cash and cash equivalents" on our consolidated balance sheet includes restricted amounts of $ 2.2 million and $ 3.2 million as of September 30, 2022 and December 31, 2021, respectively.

The restricted balances required under these transactions will decline over time as the outstanding principal balance of the respective insurance-linked notes are amortized.

Traditional excess-of-loss reinsurance transaction

Effective April 1, 2022, NMIC entered into a reinsurance agreement with a broad panel of third-party reinsurers that provides for aggregate excess-of-loss reinsurance coverage on a defined portfolio of mortgage insurance policies primarily written between October 1, 2021, and March 31, 2022 (the 2022-1 XOL Transaction).

Under the agreement, NMIC retains $ 133.4 million first layer aggregate loss exposure on covered policies and the reinsurers then provide second layer loss protection up to a defined reinsurance coverage amount.

The reinsurance coverage amount is set to approximate the PMIERs minimum required assets of the reference pool and decreases from the inception of the agreement over a ten-year period in the event the PMIERs minimum required assets of the pool decline.

The outstanding reinsurance coverage amount under the 2022-1 XOL Transaction was $ 286.6 million as of June 30, 2022.

Traditional reinsurance

NMIC is a party to two excess-of-loss reinsurance agreements with broad panels of third-party reinsurers – the 2022-1 XOL Transaction, effective April 1, 2022, and the 2022-2 XOL Transaction, effective July 1, 2022 – which we refer to collectively as the XOL Transactions.

Each XOL Transaction provides NMIC with aggregate excess-of-loss reinsurance coverage on a defined portfolio of mortgage insurance policies.

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

The reinsurance coverage amount of each XOL Transaction is set to approximate the PMIERs minimum required assets of its reference pool and decreases from the inception of each respective agreement over a ten-year period in the event the PMIERs minimum required assets of the pool declines.

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

As of September 30, 2022, NMIC’s first layer aggregate retained loss exposure under the 2022-1 and 2022-2 XOL Transactions, was $ 133.4 million and $ 78.9 million, respectively, and the outstanding reinsurance coverage amount provided under each agreement was $ 284.0 million and $ 152.3 million, respectively.

Under the terms of the XOL Transactions, NMIC makes risk premium payments to its third-party reinsurance providers for the outstanding reinsurance coverage amount and ceded aggregate premiums of $ 4.8 million and $ 7.7 million during the three and nine months ended September 30, 2022, respectively.

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

NMIC did not cede any incurred losses on covered policies under the XOL Transactions during the three and nine months ended September 30, 2022, as the aggregate first layer risk retention for each agreement was not exhausted during such periods.

NMIC holds optional termination rights which provide it the discretion to terminate each XOL Transaction on or after a specified date.

NMIC may also elect to terminate the XOL Transactions at any point if the outstanding reinsurance coverage amount amortizes to 10% or less of the reinsurance coverage amount provided at inception, or if it determines that it will no longer be able to take full PMIERs asset credit for the coverage.

Additionally, under the terms of the treaties, NMIC may

NMI HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Under the terms of the treaty, NMIC makes risk premium payments to the reinsurers for the outstanding reinsurance coverage amount, and ceded aggregate premiums of $ 2.9 million during the three and six months ended June 30, 2022.

NMIC applies claims paid on covered policies against its first layer aggregate retained loss exposure under the 2022-1 XOL Transaction.

NMIC did not cede any incurred losses on covered policies under the treaty during the three and six months ended June 30, 2022, as its aggregate first layer risk retention was not exhausted during such periods.

The 2022-1 XOL Transaction is scheduled to terminate on March 31, 2032.

NMIC holds an optional termination right which provides it the discretion to terminate the transaction on or after April 1, 2027.

NMIC may also elect to terminate the transaction at any point if the outstanding reinsurance coverage amount amortizes to 10 % or less of the reinsurance coverage amount provided at inception, or if it determines that it will no longer be able to take full PMIERs asset credit for the coverage.

Additionally, under the terms of the treaty, NMIC may selectively terminate its engagement with individual reinsurers under certain circumstances.

selectively terminate its engagement with individual reinsurers under certain circumstances.

Such selective termination rights arise when, among other reasons, a reinsurer experiences a deterioration in its capital position below a prescribed threshold, and/or a reinsurer breaches (and fails to cure) its collateral posting obligation.

Each of the third-party reinsurance providers that is party to the 2022-1 XOL Transaction has an insurer financial strength rating of A- or better by Standard & Poor’s Rating Service (S&P), A.M.

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

Best Company Inc.

Best) or both.

We actively monitor the counterparty credit profiles of our reinsurers and each is required to partially collateralize its obligations under the 2022-1 XOL Transaction.

Quota share reinsurance

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, the 2020 QSR Transaction, effective April 1, 2020, the 2021 QSR Transaction, effective January 1, 2021, and the 2022 QSR Transaction, effective October 1, 2021 – which we refer to collectively as the QSR Transactions.

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

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

NMIC is a party to six quota share reinsurance treaties – the 2016 QSR Transaction, effective September 1, 2016, the 2018 QSR Transaction, effective January 1, 2018, the 2020 QSR Transaction, effective April 1, 2020, the 2021 QSR Transaction, effective January 1, 2021, the 2022 QSR Transaction, effective October 1, 2021 and the 2022 Seasoned QSR Transaction, effective July 1, 2022 – 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 to panels of third-party reinsurance providers.

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

Best or both.

16 unchanged sentences

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.

Under the terms of the 2022 Seasoned QSR Transaction, NMIC cedes premiums earned related to 95 % of the net risk on eligible policies primarily for a seasoned pool of mortgage insurance policies that had previously been covered under the now retired 2017 and 2020-1 ILN Transactions, after the consideration of coverage provided by other QSR Transactions.

The 2022 Seasoned QSR Transaction is scheduled to terminate on June 30, 2032.

NMIC has the option, based on certain conditions, to terminate the agreement as of June 30, 2025 or quarterly thereafter through December 31, 2027 with the payment of a termination fee, and as of March 31, 2028 or quarterly thereafter without the payment of a termination fee.

Such termination would result in NMIC recapturing the related risk.

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

Additionally, under the terms of the QSR Transactions, NMIC may elect to selectively terminate its engagement with individual reinsurers on a

NMI HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Additionally, under the terms of the QSR Transactions, NMIC may elect to selectively terminate its engagement with individual reinsurers on a run-off basis ( i.e.

run-off basis ( i.e.

, reinsurers continue providing coverage on all risk ceded prior to the termination date, with no new cessions going forward) or cut-off basis ( i.e.

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The following table shows amounts related to the QSR Transactions:

As of and for the three months ended As of and for the six months ended

June 30, 2022 June 30, 2021 June 30, 2022 June 30, 2021

As of and for the three months ended As of and for the nine months ended

September 30, 2022 September 30, 2021 September 30, 2022 September 30, 2021

(In Thousands)

1 unchanged sentence

Ceded premiums earned ( 42,265 ) ( 28,366 ) ( 101,501 ) ( 81,650 )

Ceded claims and claim (benefits) expenses ( 403 ) 1,194 ( 562 ) 2,374

Ceded claims and claim expenses (benefits) 248 840 ( 314 ) 3,214

Ceding commission earned 10,193 6,142 22,225 17,265

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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, 2018, 2020, 2021 and 2022 QSR Transactions, generally remain below 60 %, 61 %, 50 % and 57.5 % and 62 %, respectively, as measured annually.

NMIC receives a 20 % ceding commission for premiums ceded under the QSR Transactions, except with respect to the 2022 Seasoned QSR Transaction under which it receives a 35 % ceding commission.

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, 2022 QSR and 2022 Seasoned QSR Transactions, generally remain below 60 %, 61 %, 50 %, 57.5 %, 62 %, and 55 % respectively, as measured annually.

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

2 unchanged sentences

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

The reinsurance recoverable on loss reserves related to the 2016 QSR Transaction was $ 4.1 million as of June 30, 2022.

In accordance with the terms of the 2018, 2020, 2021 and 2022 QSR Transactions, cash payments for ceded premiums earned are settled on a quarterly basis, offset by amounts due to NMIC for ceding and profit commissions.

The reinsurance recoverable on loss reserves related to the 2016 QSR Transaction was $ 3.5 million as of September 30, 2022.

In accordance with the terms of the 2018, 2020, 2021, 2022 QSR and 2022 Seasoned QSR Transactions, cash payments for ceded premiums earned are settled on a quarterly basis, offset by amounts due to NMIC for ceding and profit commissions.

Any loss recoveries and any potential profit commission to NMIC are also recognized quarterly.

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 aggregate reinsurance recoverable on loss reserves related to the 2018, 2020, 2021 and 2022 QSR Transactions was $ 15.5 million as of June 30, 2022.

The aggregate reinsurance recoverable on loss reserves related to the 2018, 2020, 2021, 2022 QSR and 2022 Seasoned QSR Transactions was $ 16.3 million as of September 30, 2022.

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

1 unchanged sentence

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.

The allowance for credit loss established on our reinsurance recoverable was deemed immaterial at June 30, 2022 and December 31, 2021.

The allowance for credit loss established on our reinsurance recoverable was deemed immaterial at September 30, 2022 and December 31, 2021.

NMI HOLDINGS, INC.

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

As of June 30, 2022, we had 4,271 primary loans in default and held gross reserves for insurance claims and claim expenses of $ 98.5 million.

During the six months ended June 30, 2022, we paid 43 claims totaling $ 0.9 million, including 41 claims covered under the QSR Transactions representing $ 0.2 million of ceded claims and claim expenses.

As of September 30, 2022, we had 4,096 primary loans in default and held gross reserves for insurance claims and claim expenses of $ 94.9 million.

During the nine months ended September 30, 2022, we paid 59 claims totaling $ 1.2 million, including 56 claims covered under the QSR Transactions representing $ 0.3 million of ceded claims and claim expenses.

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

1 unchanged sentence

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

At June 30, 2022, 57 loans in the pool were in default.

At September 30, 2022, 47 loans in the pool were in default.

These 47 loans represented approximately $ 3.6 million of RIF.

Due to the size of the remaining deductible, our expectation that a limited number of loans in default will progress to a claim and the expected severity on such claim submissions (all loans in the pool had loan-to-value (LTV) ratios under 80 % at origination), we did not establish any case or IBNR reserves for pool risk at June 30, 2022.

In connection with the settlement of pool claims, we applied $ 1.0 million to the pool deductible through June 30, 2022.

At June 30, 2022, the remaining pool deductible was $ 9.4 million.

In connection with the settlement of pool claims, we applied $ 1.0 million to the pool deductible through September 30, 2022.

At September 30, 2022, the remaining pool deductible was $ 9.4 million.

We have not paid any pool claims to date.

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

We had 4,271 loans in default in our primary insured portfolio as of June 30, 2022, which represented a 0.77 % default rate against 551,543 to tal policies in-force.

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

Although our default count declined from June 30, 2021 to June 30, 2022, 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 (CARES) Act or similar programs made available by private lenders.

We had 4,096 loans in default in our primary insured portfolio as of September 30, 2022, which represented a 0.71 % default rate against 580,525 to tal policies in-force.

We had 7,670 loans in default in our primary insured portfolio as of September 30, 2021, which represented a 1.56 % default rate against 490,714 total policies in-force.

Although our default count declined from September 30, 2021 to September 30, 2022, 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 (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.

9 unchanged sentences

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

For the six months ended June 30,

For the nine months ended September 30,

(In Thousands)

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

Amounts are presented net of reinsurance and included $ 14.0 million attributed to net case reserves and $ 4.5 million attributed to net IBNR reserves for the six months ended June 30, 2022 and $ 9.8 million attributed to net case reserves and $ 5.6 million attributed to net IBNR reserves for the six months ended June 30, 2021.

Amounts are presented net of reinsurance and included $ 23.3 million attributed to net case reserves and $ 4.2 million attributed to net IBNR reserves for the nine months ended September 30, 2022 and $ 14.0 million attributed to net case reserves and $ 4.8 million attributed to net IBNR reserves for the nine months ended September 30, 2021.

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

Amounts are presented net of reinsurance and included $ 17.0 million attributed to net case reserves and $ 4.7 million attributed to net IBNR reserves for the six months ended June 30, 2022 and $ 1.1 million attributed to net case reserves and $ 5.0 million attributed to net IBNR reserves for the six months ended June 30, 2021.

Amounts are presented net of reinsurance and included $ 29.2 million attributed to net case reserves and $ 4.7 million attributed to net IBNR reserves for the nine months ended September 30, 2022 and $ 1.8 million attributed to net case reserves and $ 5.0 million attributed to net IBNR reserves for the nine months ended September 30, 2021.

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

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

Gross reserves of $ 74.9 million related to prior year defaults remained as of June 30, 2022.

Gross reserves of $ 58.9 million related to prior year defaults remained as of September 30, 2022.

Earnings per Share (EPS)

5 unchanged sentences

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

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

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

2022 2021 2022 2021

15 unchanged sentences

On April 24, 2022, 90 thousand warrants expired unexercised, resulting in a gain of approximately $ 0.9 million.

No warrants remained outstanding as of June 30, 2022.

During the three months ended June 30, 2022, 44 thousand warrants were exercised resulting in the issuance of 33 thousand shares of common stock.

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

During the six months ended June 30, 2022, 110 thousand warrants were exercised resulting in the issuance of 84 thousand shares of common stock.

No warrants remained outstanding as of September 30, 2022 and there were no warrant exercises or changes in warrant liability fair value during the three months ended September 30, 2022.

During the nine months ended September 30, 2022, 110 thousand warrants were exercised resulting in the issuance of 84 thousand shares of common stock.

Upon exercise, we reclassified approximately $ 1.3 million of warrant fair value from warrant liability to additional paid-in capital.

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

During the three months ended September 30, 2021, 32 thousand warrants were exercised resulting in the issuance of 28 thousand shares of common stock.

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

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

During the nine months ended September 30, 2021, 73 thousand warrants were exercised resulting in the issuance of 60 thousand shares of common stock.

Upon exercise, we reclassified approximately $ 0.9 million of warrant fair value from warrant liability to additional paid-in capital.

2 unchanged sentences

federal corporate income tax rate of 21%.

NMIH files a consolidated U.S.

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

Our effective tax rate on our pre-tax income was 22.4 % and 22.2 % for the three and six months ended June 30, 2022, respectively, compared to 21.9 % and 21.8 % for the three and six months ended June 30, 2021, respectively.

Taxable income is reported on our consolidated U.S.

federal and various state income tax returns, filed by NMIH on behalf of itself and its subsidiaries.

Our effective tax rate on our pre-tax income was 22.1 % for the three and nine months ended September 30, 2022, respectively, compared to 22.3 % and 21.9 % for the three and nine months ended September 30, 2021, respectively.

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

2 unchanged sentences

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

As a result, our interim provision for income taxes for the three and six months ended June 30, 2022 represents a change in our net deferred tax liability.

As a result, our interim provision for income taxes for the three and nine months ended September 30, 2022 represents a change in our net deferred tax liability.

As of September 30, 2022 and December 31, 2021, we held $ 89.2 million of tax and loss bonds in "Other assets" on our consolidated balance sheet.

NMI HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

As of June 30, 2022 and December 31, 2021, we held $ 89.2 million of tax and loss bonds in "Other assets" on our consolidated balance sheet.

Stockholders' Equity

1 unchanged sentence

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

During the three and six months ended June 30, 2022, we repurchased 1.4 million and 1.7 million shares, respectively, at average prices of $ 17.61 and $ 18.12 per share (excluding associated costs) pursuant to a trading plan under Rule 10b-18 of the Exchange Act.

As of June 30, 2022, $ 94.6 million of repurchase authority remained available under the program.

We have two operating lease agreements related to our corporate headquarters and a data center facility for which we recognized operating right-of-use (ROU) assets and lease liabilities of $ 11.0 million and $ 12.4 million in "Other assets" and "Other liabilities," respectively, on our consolidated balance sheet as of June 30, 2022.

During the three and nine months ended September 30, 2022, we repurchased 1.0 million and 2.7 million shares, respectively, at average prices of $ 20.94 and $ 19.17 per share (excluding associated costs) pursuant to a trading plans under Rule 10b-18 and Rule 10b5-1 of the Exchange Act.

As of September 30, 2022, $ 73.8 million of repurchase authority remained available under the program.

Commitments and Contingencies

We have two operating lease agreements related to our corporate headquarters and a data center facility for which we recognized operating right-of-use (ROU) assets and lease liabilities of $ 10.7 million and $ 12.2 million in "Other assets" and "Other liabilities," respectively, on our consolidated balance sheet as of September 30, 2022.

As of December 31, 2021, we recognized operating ROU assets and lease liabilities of $ 2.6 million and $ 2.9 million, respectively.

As of June 30, 2022 and December 31, 2021, we did no t have any finance leases.

As of September 30, 2022 and December 31, 2021, we did no t have any finance leases.

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.

1 unchanged sentence

Upon the respective modification and extension, the ROU asset and liability associated with each lease was remeasured, using our current estimated incremental borrowing rate, resulting in an aggregate increase to ROU assets and lease liabilities of $ 9.7 million.

The following table provides a summary of our ROU asset and lease liability assumptions as of June 30, 2022:

The following table provides a summary of our ROU asset and lease liability assumptions as of September 30, 2022:

Weighted-average remaining lease term 7.4 years

Weighted-average discount rate 6.50 %

Cash paid on our operating leases for the three and six months ended June 30, 2022 was $ 44 thousand and $ 0.1 million, respectively, compared to $ 0.6 million and $ 1.3 million for the three and six months ended June 30, 2021, respectively.

Lease expenses incurred for the three and six months ended June 30, 2022 were $ 0.5 million and $ 1.0 million, respectively, compared to $ 0.6 million and $ 1.1 million for the three and six months ended June 30, 2021 .

Future payments due under our existing operating leases as of June 30, 2022 are as follows:

Cash paid on our operating leases for the three and nine months ended September 30, 2022 was $ 0.4 million and $ 0.5 million, respectively, compared to $ 0.6 million and $ 1.9 million for the three and nine months ended September 30, 2021, respectively.

Lease expenses incurred for the three and nine months ended September 30, 2022 were $ 0.5 million and $ 1.5 million, respectively, compared to $ 0.6 million and $ 1.7 million for the three and nine months ended September 30, 2021.

Future payments due under our existing operating leases as of September 30, 2022 are as follows:

(In Thousands)

Remaining in 2022 $ 313

2028 and thereafter 5,316

Total undiscounted lease payments 15,781

2 unchanged sentences

Lease expense is recorded in underwriting and operating expenses on the consolidated statements of operations and comprehensive income.

Our existing leases have terms ranging from two to eight years .

Our existing leases have original terms ranging from two to eight years .

The lease for our corporate headquarters includes an option to renew for an additional five years at prevailing market rates at the time of renewal.

This renewal option is

This renewal option is not included in the calculation of future lease payments due under the existing lease as presented above as it is not reasonably certain to be exercised.

NMI HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

not included in the calculation of future lease payments due under the existing lease as presented above as it is not reasonably certain to be exercised.

We record a liability when we believe that it is probable that a loss has been incurred, and the amount can be reasonably estimated.

If we determine that a loss is reasonably possible, we disclose an estimate of the possible loss or range of loss.

If no estimate can be made, we disclose the matter as such.

We evaluate litigation and other legal developments that could affect the amount of liability that may need to be accrued, related reasonably possible losses disclosed and make adjustments as appropriate.

Significant judgment is required to determine both the likelihood and the estimated amount of losses related to such matters.

We are currently monitoring litigation regarding the refund of certain mortgage insurance premiums as it pertains to provisions of the Homeowners Protection Act and have been named as a third-party defendant in one such case.

We are unable to assess the outcome of such litigation at this time or its potential impact on us.

Premium Receivable

2 unchanged sentences

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 the allowance for credit loss established on premium receivable was deemed immaterial at June 30, 2022 and December 31, 2021.

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

We established a $ 1.7 million and $ 2.3 million reserve for premium write-offs at June 30, 2022 and December 31, 2021, respectively.

We established a $ 2.0 million and $ 2.3 million reserve for premium write-offs at September 30, 2022 and December 31, 2021, respectively.

Regulatory Information

3 unchanged sentences

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

NMIC and Re One generated combined statutory net income of $ 25.6 million and $ 44.2 million for the three and six months ended June 30, 2022, respectively, compared to $ 8.8 million and $ 15.1 million for the three and six months ended June 30, 2021, respectively.

NMIC and Re One generated combined statutory net income of $ 23.6 million and $ 67.8 million for the three and nine months ended September 30, 2022, respectively, compared to $ 8.7 million and $ 23.9 million for the three and nine months September 30, 2021, respectively.

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

3 unchanged sentences

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

The following table presents NMIC's statutory surplus, contingency reserve, statutory capital and risk-to-capital (RTC) ratio as of June 30, 2022 and December 31, 2021.

June 30, 2022 December 31, 2021

NMI HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

The following table presents NMIC's statutory surplus, contingency reserve, statutory capital and risk-to-capital (RTC) ratio as of September 30, 2022 and December 31, 2021.

September 30, 2022 December 31, 2021

(In Thousands)

5 unchanged sentences

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

Re One had $ 5.6 million of statutory capital at June 30, 2022 and December 31, 2021.

Re One had $ 5.6 million of statutory capital at September 30, 2022 and December 31, 2021.

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

2 unchanged sentences

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

NMI HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

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

NMIC has the capacity to pay $ 34.9 million of aggregate ordinary dividends to NMIH during the twelve-month period ending December 31, 2022 and on April 1, 2022, NMIC paid a $ 34.9 million ordinary course dividend to NMIH.

Subsequent Event

Effective July 1, 2022, NMIC entered into a quota share reinsurance treaty that provides coverage primarily for a seasoned pool of mortgage insurance policies that had previously been covered under the now retired 2017 and 2020-1 ILN Transactions.

Under the terms of the agreement, NMIC will cede premiums earned related to 95 % of the net risk on eligible policies after the consideration of coverage provided by existing QSR Transactions, in exchange for reimbursement of ceded claims and claims expenses on covered policies, as well as a ceding commission equal to 35 % and profit commission of up to 55 % of ceded premiums.

Subsequent Events

On November 1, 2022, NMIC entered into a reinsurance agreement with a broad panel of highly rated reinsurers that provides for $ 96.8 million of aggregate excess-of-loss reinsurance coverage at inception for new delinquencies on an existing portfolio of mortgage insurance policies primarily written between July 1, 2022, and September 30, 2022 (2022-3 XOL Transaction).

For the reinsurance coverage period, NMIC will retain the first layer of $ 106.3 million of aggregate losses and reinsurers then provide second layer coverage up to $ 96.8 million, subject to retained participation limits.

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

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

What changed 10-Q

Item 1. Financial Statements