What changed in this filing

/stocks — the workspaceLOADING

Item 2. Management’s Discussion and Analysis

2022-11-02 compared with 2022-08-03 · 190 added, 180 removed, 643 unchanged (37% of the section changed)

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

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

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

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

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Since formation, we have sought to establish customer relationships with a broad group of mortgage lenders and build a diversified, high-quality insured portfolio.

As of June 30, 2022, we had issued master policies with 1,812 customers, including national and regional mortgage banks, money center banks, credit unions, community banks, builder-owned mortgage lenders, internet-sourced lenders and other non-bank lenders.

As of June 30, 2022, we had $168.6 billion of primary insurance-in-force (IIF) and $43.3 billion of primary risk-in-force (RIF).

As of September 30, 2022, we had issued master policies with 1,843 customers, including national and regional mortgage banks, money center banks, credit unions, community banks, builder-owned mortgage lenders, internet-sourced lenders and other non-bank lenders.

As of September 30, 2022, we had $179.2 billion of primary insurance-in-force (IIF) and $46.3 billion of primary risk-in-force (RIF).

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

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

profitability.

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

As of June 30, 2022, we had 246 emp loyees.

As of September 30, 2022, we had 246 employees.

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

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COVID-19 and Other Developments

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.

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

In an effort to stem contagion and control the 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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Given this uncertainty, we are not able to fully assess or estimate the impact the pandemic may have on the mortgage insurance market, our business performance or our financial position at this time, and it remains possible COVID-19 could again trigger more severe and adverse outcomes in future periods.

It is also possible that emerging macroeconomic factors, including persistent inflation, flagging consumer confidence and increasing jobless claims could have a pronounced impact on the housing market, the mortgage insurance industry and our business in future periods.

It is also possible that emerging macroeconomic factors, including persistent inflation, increasing interest rates, flagging consumer confidence and increasing jobless claims could have a pronounced impact on the housing market, the mortgage insurance industry and our business in future periods.

Key Factors Affecting Our Results

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We introduced Rate GPS in June 2018 to replace our previous rate card pricing system.

While most of our new business is priced through Rate GPS, we also

continue to offer a rate card pricing option to a limited number of lender customers who require a rate card for operational reasons.

While most of our new business is priced through Rate GPS, we also continue to offer a rate card pricing option to a limited number of lender customers who require a rate card for operational reasons.

We believe the introduction and utilization of Rate GPS provides us with a more granular and analytical approach to evaluating and pricing risk, and that this approach enhances our ability to continue building a high-quality mortgage insurance portfolio and delivering attractive risk-adjusted returns.

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For single premiums, we receive a single premium payment at origination, which is earned over the estimated life of the policy.

Substantially all of our single premium policies in force as of June 30, 2022 were non-refundable under most cancellation scenarios.

Substantially all of our single premium policies in force as of September 30, 2022 were non-refundable under most cancellation scenarios.

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

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

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

Because premiums are paid at origination on single premium policies and our single premium policies are generally non-refundable on

cancellation, assuming all other factors remain constant, if single premium loans are prepaid earlier than expected, our profitability on these loans is likely to increase and, if loans are repaid slower than expected, our profitability on these loans is likely to decrease.

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

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We expect to continue to evaluate reinsurance opportunities in the normal course of business.

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 Standard & Poor's Rating Service (S&P), A.M.

Best Company, Inc.

Best) or both.

Under the terms of the 2016 QSR Transaction, NMIC cedes premiums written related to 25% of the risk on eligible primary policies written for all periods through December 31, 2017 and 100% of the risk under our pool agreement with Fannie M ae, in exchange for reimbursement of ceded claims and claim expenses on covered policies, a 20% ceding commission, and a profit commission of up to 60% that varies directly and inversely with ceded claims.

Under the terms of the 2018 QSR Transaction, NMIC cedes premiums earned related to 25% of the risk on eligible policies written in 2018 and 20% of the risk on eligible policies written in 2019, in exchange for reimbursement of ceded claims and claim expenses on covered policies, a 20% ceding commission, and a profit commission of up to 61% that varies directly and inversely with ceded claims.

Under the terms of the 2020 QSR Transaction, NMIC cedes premiums earned related to 21% of the risk on eligible policies written from April 1, 2020 through December 31, 2020, in exchange for reimbursement of ceded claims and claim expenses on covered po licies, a 20% ceding commission, and a profit commission of up to 50% that varies directly and inversely with ceded claims.

Under the terms of the 2021 QSR Transaction, NMIC cedes premiums earned related to 22.5% of the risk on eligible policies written in 2021 (subject to an aggregate risk written limit which was exhausted on October 30, 2021), in exchange for reimbursement of ceded claims and claim expenses on covered policies, a 20% ceding commission, and a profit commission of up to 57.5% that varies directly and inversely with ceded claims.

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

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

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

NMIC may elect to terminate its engagement with individual reinsurers on a run-off basis ( i.e., reinsurers continue providing coverage on all risk ceded prior to the termination date, with no new cessions going forward) or cut-off basis ( i.e., the reinsurance arrangement is completely terminated with NMIC recapturing all previously ceded risk) under certain circumstances.

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 obligations under the relevant agreement.

Effective April 1, 2019, NMIC elected to terminate its engagement with one reinsurer under the 2016 QSR Transaction on a cut-off basis.

In connection with the termination, NMIC recaptured approximately $500 million of previously ceded primary RIF and stopped ceding new premiums written with respect to the recaptured risk.

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

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

Excess-of-loss reinsurance

Insurance-linked note excess-of-loss reinsurance transactions

Insurance-linked notes

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.

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

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.

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 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.

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The following table presents the inception date, covered production p eriod, current reinsurance coverage amount, current first layer retained aggregate loss and detail on the level of overcollateralization 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) 2018 ILN Transaction 2019 ILN Transaction 2020-2 ILN Transaction 2021-1 ILN Transaction 2021-2 ILN Transaction

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

Traditional excess-of-loss reinsurance transaction

Effective April 1, 2022, NMIC secured $289.7 million of aggregate excess-of-loss reinsurance coverage at inception on a defined portfolio of mortgage insurance policies primarily written between October 1, 2021, and March 31, 2022 from a broad panel of highly rated reinsurers (the 2022-1 XOL Transaction).

Under the agreement, NMIC retains $133.4 million of first layer aggregate loss exposure on covered policies, of which all remained as of June 30, 2022, and the reinsurers then provide second layer loss protection up to a defined reinsurance coverage amount.

The reinsurance coverage amount decreases from $289.7 million at inception over a ten-year period as the PMIERs minimum required assets of the underlying covered mortgages declines and 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.

NMIC holds optional termination rights under the 2022-1 XOL Transaction, including, among others, an option to terminate the transaction on or after April 1, 2027 at its discretion.

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.

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.

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 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 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.

Quota share reinsurance

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 Standard & Poor's Rating Service (S&P), A.M.

Best Company, Inc.

Best) or both.

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 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 in exchange for reimbursement of ceded claims and claim expenses on covered policies, a 35% ceding commission, and a profit commission of up to 55% that varies directly and inversely with ceded claims.

NMIC may elect to terminate its engagement with individual reinsurers on a run-off basis (i.e., reinsurers continue providing coverage on all risk ceded prior to the termination date, with no new cessions going forward) or cut-off basis (i.e., the reinsurance arrangement is completely terminated with NMIC recapturing all previously ceded risk) under certain circumstances.

Effective April 1, 2019, NMIC elected to terminate its engagement with one reinsurer under the 2016 QSR Transaction on a cut-off basis.

In connection with the termination, NMIC recaptured approximately $500 million of previously ceded primary RIF and stopped ceding new premiums written with respect to the recaptured risk.

With this termination, ceded premiums written

under the 2016 QSR Transaction decreased from 25% to 20.5% on eligible policies.

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

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

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

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

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

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

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

IIF NIW IIF NIW NIW

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Total $ 180,251 $ 17,239 $ 144,957 $ 18,084 $ 48,015 $ 67,232

NIW for the three and six months ended June 30, 2022 was $16.6 billion and $30.8 billion compared to $22.8 billion and $49.1 billion for the three and six months ended June 30, 2021.

NIW for the three and nine months ended September 30, 2022 was $17.2 billion and $48.0 billion compared to $18.1 billion and $67.2 billion for the three and nine months ended September 30, 2021.

NIW decreased year-on-year primar ily due to a decline in the size of the total mortgage insurance market.

Total IIF increased 23% at June 30, 2022 compared to June 30, 2021, primarily due to the NIW generated between such measurement dates, partially offset by the run-off of in-force policies.

Our persistency rate improved to 76.0% at June 30, 2022 from 53.9% at June 30, 2021, reflecting a slowdown in the pace of refinancing activity during the intervening twelve month period driven by an increase in interest and mortgage note rates.

Total IIF increased 24% at September 30, 2022 compared to September 30, 2021, primarily due to the NIW generated between such measurement dates, partially offset by the run-off of in-force policies.

Our persistency rate improved to 80.1% at September 30, 2022 from 58.1% at September 30, 2021, reflecting a slowdown in the pace of refinancing activity during the intervening twelve-month period driven by an increase in interest and mortgage note rates.

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

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

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

Primary and pool premiums written and earned 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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Net premiums earned 118,317 113,594 355,682 330,361

For the three and six months ended June 30, 2022, net premium written decreased 6% and 3%, respectively, while net premiums earned increased 9% and 10% , respectively, compared to the three and six months ended June 30, 2021.

The decreases in net premium written were primarily driven by a decrease in single premium policy production from period to period, partially offset by growth in our monthly IIF and monthly pay policy premium receipts.

The increases in the net premium earned were primarily due to the growth of our IIF, partially offset by a decrease in the contribution from single premium policy cancellations and an increase in total premiums ceded under our reinsurance transactions.

Pool premiums written and earned for the three and six months ended June 30, 2022 and 2021, were $0.3 million and $0.6 million , and $0.4 million and $0.9 million, respectively, before giving effect to the 2016 QSR Transaction, under which all of our written and earned pool premiums are ceded.

Net premiums written increased 1% during the three months ended September 30, 2022 compared to the three months ended September 30, 2021 and decreased 2% during the nine months ended September 30, 2022 compared to the nine months ended September 30, 2021.

The year-on-year development in net premiums written reflects growth in our monthly IIF and monthly pay policy premium receipts during the three and nine months ended September 30, 2022, balanced by a decrease in single premium policy production during the periods.

Net premiums earned during the three and nine months ended September 30, 2022 increased 4% and 8%, respectively, compared to the three and nine months ended September 30, 2021.

The increases in the net premiums earned were primarily due to the growth of our IIF, partially offset by a decrease in the contribution from single premium policy cancellations and an increase in total premiums ceded under our reinsurance transactions.

Pool premiums written and earned for the three and nine months ended September 30, 2022 and 2021, were $0.3 million and $0.9 million , and $0.4 million and $1.3 million, respectively, before giving effect to the 2016 QSR Transaction, under which all of our written and earned pool premiums are ceded.

A portion of our ceded pool premiums written and earned are recouped through profit commission.

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Primary portfolio trends As of and for the three months ended

June 30, 2022 March 31, 2022 December 31, 2021 September 30, 2021 June 30, 2021

September 30, 2022 June 30, 2022 March 31, 2022 December 31, 2021 September 30, 2021

($ Values In Millions, except as noted below)

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

Primary IIF 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

Primary IIF 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 Millions)

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The table below presents a summary of our primary IIF and RIF by book year as of the dates indicated.

Primary IIF and RIF As of June 30, 2022 As of June 30, 2021

Primary IIF and RIF As of September 30, 2022 As of September 30, 2021

IIF RIF IIF RIF

(In Millions)

June 30, 2022 $ 30,249 $ 7,972 $ — $ —

September 30, 2022 $ 46,695 $ 12,385 $ — $ —

2021 74,507 19,025 64,885 16,274

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We calculate the LTV of a loan as the percentage of the original loan amount to the original purchase value of the property securing the loan.

Primary NIW by FICO For the three months ended For the six months ended

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

Primary NIW by FICO For the three months ended For the nine months ended

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

(In Millions)

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Weighted average FICO 748 749 749 753

Primary NIW by LTV For the three months ended For the six months ended

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

Primary NIW by LTV For the three months ended For the nine months ended

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

(In Millions)

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Weighted average LTV 92.6 % 91.8 % 92.3 % 91.3 %

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

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

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

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

(In Millions)

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Primary IIF by FICO As of

June 30, 2022 June 30, 2021

September 30, 2022 September 30, 2021

($ Values In Millions)

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Primary RIF by FICO As of

June 30, 2022 June 30, 2021

September 30, 2022 September 30, 2021

($ Values In Millions)

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Primary IIF by LTV As of

June 30, 2022 June 30, 2021

September 30, 2022 September 30, 2021

($ Values In Millions)

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Primary RIF by LTV As of

June 30, 2022 June 30, 2021

September 30, 2022 September 30, 2021

($ Values In Millions)

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Primary RIF by Loan Type As of

June 30, 2022 June 30, 2021

September 30, 2022 September 30, 2021

Fixed 99 % 99 %

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Total 100 % 100 %

The table below presents selected primary portfolio statistics, by book year, as of June 30, 2022.

As of June 30, 2022

The table below presents selected primary portfolio statistics, by book year, as of September 30, 2022.

As of September 30, 2022

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

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

The distribution of our primary RIF as of June 30, 2022 is not necessarily representative of the geographic distribution we expect in the future.

The distribution of our primary RIF as of September 30, 2022 is not necessarily representative of the geographic distribution we expect in the future.

Top 10 primary RIF by state As of

June 30, 2022 June 30, 2021

September 30, 2022 September 30, 2021

California 10.7 % 10.2 %

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

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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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.

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

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

Beginning default inventory 4,271 8,764 6,227 12,209

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Ending default inventory 4,096 7,670 4,096 7,670

Ending default inventory declined from June 30, 2021 to June 30, 2022 as an increased number of borrowers initially impacted by the COVID-19 pandemic cured their delinquencies, and fewer new defaults emerged as the acute economic stress of the pandemic crisis continued to recede.

While our default population declined from June 30, 2021 to June 30, 2022, our default inventory remains elevated compared to historical experience due to the continued challenges certain borrowers are facing related to the COVID-19 pandemic and their decision to access the forbearance program for federally backed loans codified under the CARES Act or similar programs made available by private lenders.

As of June 30, 2022, 2,400 of our 4,271 defaulted loans were in a COVID-19 related forbearance program.

Ending default inventory declined from September 30, 2021 to September 30, 2022 as borrowers initially impacted by the COVID-19 pandemic continued to cure their delinquencies, and fewer new defaults emerged as the acute economic stress of the pandemic crisis continued to recede.

While our default population declined from September 30, 2021 to September 30, 2022, our default inventory remains elevated compared to historical experience due to the continued challenges certain borrowers are facing related to the COVID-19 pandemic and their decision to access the forbearance program for federally backed loans codified under the CARES Act or similar programs made available by private lenders.

As of September 30, 2022, 2,145 of our 4,096 defaulted loans were in a COVID-19 related forbearance program.

The following table provides details of our claims paid, before giving effect to claims ceded under the QSR Transactions and ILN Transactions, for the periods indicated:

For the three months ended For the 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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55 % 55 % 46 % 60 %

(1) Count include s 10 and 16 claims settled without payment during the three and six months ended June 30, 2022, respectively, and three and four claims settled without payment during the three and six months ended June 30, 2021 , respectively.

(1) Count include s three and 19 claims settled without payment during the three and nine months ended September 30, 2022, respectively, and six and ten claims settled without payment during the three and nine months ended September 30, 2021 , respectively.

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

We paid 24 and 43 claims during the three and six months ended June 30, 2022, respectively, and 19 and 35 claims during the three and six months ended June 30, 2021, respectively.

We paid 16 and 59 claims during the three and nine months ended September 30, 2022, respectively, and 24 and 59 claims during the three and nine months ended September 30, 2021, respectively.

The number of claims paid was modest relative to the size of our insured portfolio and number of defaulted loans we reported in each period, primarily due to the forbearance program and foreclosure moratorium implemented by the GSEs in response to the COVID-19 pandemic and codified under the CARES Act.

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

Our claims paid experience for the three and six months ended June 30, 2022 and 2021, further benefited from the resiliency of the housing market and broad national house price appreciation.

Our claims paid experience for the three and nine months ended September 30, 2022 and 2021, further benefited from broad national house price appreciation.

An increase in the value of the homes collateralizing the mortgages we i nsure provides defaulted borrowers with alternative paths and incentives to cure their loan prior to the development of a claim.

Our claims severity for the three and six months ended June 30, 2022 was 46% and 43%, respectively, compared to 66% and 64% for the three and six months ended June 30, 2021, respectively.

Claims severity for the three and six months ended June 30, 2022 and 2021 benefited from the same resiliency of the housing market and broad national house price appreciation as

our claims paid.

Our claims severity for the three and nine months ended September 30, 2022 was 55% and 46%, respectively, compared to 55% and 60% for the three and nine months ended September 30, 2021, respectively.

Claims severity for the three and nine months ended September 30, 2022 and 2021 remained low compared to historical industry experience, primarily because of the same broad national house price appreciation that our claims paid benefit from.

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

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Average reserve per default:

As of June 30, 2022 As of June 30, 2021

As of September 30, 2022 As of September 30, 2021

(In Thousands)

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(2) Amount includes claims adjustment expenses.

Average reserve per default increased from June 30, 2021 to June 30, 2022 primarily due to the “aging” of early COVID-related defaults.

While we have generally established lower reserves for defaults that we consider to be connected to the COVID-19 pandemic given our expectation that forbearance, repayment and modification, and other assistance programs will aid affected borrowers and drive higher cure rates on such defaults than we would otherwise expect to experience on similarly situated loans that did not benefit from broad-based assistance programs, we have increased such reserves over time as individual defaults remain outstanding or “age.” Our average reserve per default at June 30, 2022 also reflects an incrementally conservative set of assumptions about future macroeconomic and housing market conditions compared to those assumed at June 30, 2021.

While average reserve per default increased from June 30, 2021 to June 30, 2022, our aggregate gross reserve position declined in the intervening period due to the significant decline in our total default inventory.

Average reserve per default increased from September 30, 2021 to September 30, 2022 primarily due to the “aging” of early COVID-related defaults.

While we have generally established lower reserves for defaults that we consider to be connected to the COVID-19 pandemic given our expectation that forbearance, repayment and modification, and other assistance programs will aid affected borrowers and drive higher cure rates on such defaults than we would otherwise expect to experience on similarly situated loans that did not benefit from broad-based assistance programs, we have increased such reserves over time as individual defaults remain outstanding or “age.” The increased average reserve per default at September 30, 2022 also reflects an incrementally conservative set of assumptions about future macroeconomic and housing market conditions compared to those assumed at September 30, 2021.

While average reserve per default increased from September 30, 2021 to September 30, 2022, our aggregate gross reserve position declined in the intervening period due to the significant decline in our total default inventory.

GSE Oversight

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The following table provides a comparison of the PMIERs available assets and risk-based required asset amount as reported by NMIC as of the dates indicated:

June 30, 2022 June 30, 2021

September 30, 2022 September 30, 2021

(In Thousands)

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Risk-based required assets 1,172,581 1,365,656

Available assets were $2.2 billion at June 30, 2022, compared to $1.9 billion at June 30, 2021.

The $282 million increase in available assets between the dates presented was primarily driven by NMIC's positive cash flow from operations during the intervening period, partially offset by the ordinary course dividend paid by NMIC to NMIH in April 2022 and the extraordinary dividend paid by Re One to NMIH following the termination and commutation of the reinsurance agreement between NMIC and Re One in December 2021.

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

Available assets were $2.3 billion at September 30, 2022, compared to $2.0 billion at September 30, 2021.

The $283 million increase in available assets between the dates presented was primarily driven by NMIC's positive cash flow from operations during the intervening period, partially offset by the payment of an ordinary course dividend by NMIC to NMIH in April 2022 and the extraordinary dividend paid from Re One to NMIH following the termination and commutation of the reinsurance agreement between NMIC and Re One in December 2021.

The decrease in the risk-based required asset amount between the dates presented was primarily due to an increase in the risk ceded under our third-party reinsurance agreements, partially offset by the growth in our gross RIF and aggregate gross-risk based required asset amount.

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

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Consolidated Results of Operations

Consolidated statements of operations Three months ended Six months ended

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

Consolidated statements of operations Three months ended Nine months ended

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

Revenues ($ In Thousands, except for per share data)

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20.1 % 33.3 % 23.5 % 35.2 %

Three months ended Six months ended

Three months ended Nine months ended

Non-GAAP financial measures (4)

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

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

($ In Thousands, except for per share data)

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

Net premiums earned were $120.9 million and $237.4 million for the three and six months ended June 30, 2022, respectively, compared to $110.9 million and $216.8 million for the three and six months ended June 30, 2021, respectively.

Net premiums earned were $118.3 million and $355.7 million for the three and nine months ended September 30, 2022, respectively, compared to $113.6 million and $330.4 million for the three and nine months ended September 30, 2021, respectively.

The year-on-year increase in net premiums earned in each respective period was primarily driven by the growth of our IIF, partially offset by a decline in the contribution from single premium policy cancellations and an increase in total premiums ceded under our reinsurance transactions.

Net investment income was $10.9 million and $21.1 million for the three and six months ended June 30, 2022, respectively, compared to $9.4 million and $18.2 million for the three and six months ended June 30, 2021, respectively.

year-on-year increase in net investment income in each respective period was primarily driven by growth in the size of our total investment portfolio.

Other revenues were $0.4 million and $0.7 million for the three and six months ended June 30, 2022, respectively, compared to $0.5 million and $1.0 million for the three and six months ended June 30, 2021, respectively.

Net investment income was $11.9 million and $33.1 million for the three and nine months ended September 30, 2022, respectively, compared to $9.8 million and $28.0 million for the three and nine months ended September 30, 2021, respectively.

The year-on-year increase in net investment income in each respective period was primarily driven by the growth in the size of our total investment portfolio, excluding unrealized gains and losses and an increase in book yield tied to the prevailing interest rate and credit spread environment.

Other revenues were $0.3 million and $1.0 million for the three and nine months ended September 30, 2022, respectively, compared to $0.6 million and $1.6 million for the three and nine months ended September 30, 2021, respectively.

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

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

Insurance claims and claim expenses were a benefit of $3.0 million and $3.7 million for the three and six months ended June 30, 2022, respectively, compared to insurance claims and claim expenses of $4.6 million and $9.6 million for the three and six months ended June 30, 2021, respectively.

Insurance claims and claim expenses during the three and six months ended June 30, 2022 benefited from cure activity and the associated release of a portion of the reserves we established for anticipated claims payments in prior periods, and a decrease in the number of new defaults emerging on loans impacted by the COVID-19 pandemic.

Underwriting and operating expenses were $30.7 million and $63.6 million for the three and six months ended June 30, 2022, respectively, compared to $34.7 million and $68.8 million for the three and six months ended June 30, 2021, respectively.

The year-on-year decline in underwriting and operating expenses in each respective period was primarily due to a decrease in the amortization of deferred policy acquisition costs tied to the increased persistency of our IIF, a step-down in technology costs related to our agreement with Tata Consultancy Services and a decline in capital markets transaction costs, partially offset by an increase in travel and entertainment expenses tied to the easing of COVID-19 related restrictions, as well as an increase in depreciation and amortization incurred in connection with the completion and implementation of certain software and equipment initiatives.

Service expenses were $0.3 million and $0.8 million for the three and six months ended June 30, 2022, respectively, compared to $0.5 million and $1.1 million for the three and six months ended June 30, 2021, respectively.

Insurance claims and claim expenses were a benefit of $3.4 million and $7.0 million for the three and nine months ended September 30, 2022, respectively, compared to insurance claims and claim expenses of $3.2 million and $12.8 million for the three and nine months ended September 30, 2021, respectively.

Insurance claims and claim expenses during the three and nine months ended September 30, 2022 benefited from cure activity and the associated release of a portion of the reserves we established for anticipated claims payments in prior periods.

Underwriting and operating expenses were $27.1 million and $90.8 million for the three and nine months ended September 30, 2022, respectively, compared to $34.7 million and $103.5 million for the three and nine months ended September 30, 2021, respectively.

The year-on-year decline in underwriting and operating expenses in each respective period was driven by a decrease in the amortization of deferred policy acquisition costs tied to the increased persistency of our IIF, a step-down in technology costs related to our agreement with Tata Consultancy Services (TCS) and a decline in capital markets transaction costs, partially offset by an increase in travel and entertainment expenses tied to the easing of COVID-19 related restrictions, as well as an increase in depreciation and amortization incurred in connection with the completion and implementation of certain software and equipment initiatives.

Underwriting and operating expenses during the three and nine months ended September 30, 2022 further benefited from an increase in ceding commissions received upon the introduction of the 2022 Seasoned QSR Transaction effective July 1, 2022.

Service expenses were $0.2 million and $1.0 million for the three and nine months ended September 30, 2022, respectively, compared to $0.8 million and $1.9 million for the three and nine months ended September 30, 2021, respectively.

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

The year-on-year decline in service expenses in each respective period was driven by a decrease in NMIS' outsourced loan review volume.

The year-on-year decline in service expenses in each respective period was primarily driven by a decrease in NMIS' outsourced loan review volume.

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

Interest expense was $8.1 million and $16.1 million for the three and six months ended June 30, 2022, respectively, compared to $7.9 million and $15.8 million for the three and six months ended June 30, 2021, respectively.

Interest expense was $8.0 million and $24.1 million for the three and nine months ended September 30, 2022, respectively, compared to $7.9 million and $23.8 million for the three and nine months ended September 30, 2021, respectively.

Interest expense primarily reflects the carrying costs of the Notes.

1 unchanged sentence

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

Income tax expense was $21.7 million and $40.8 million for the three and six months ended June 30, 2022, respectively, compared to $16.1 million and $30.7 million for the three and six months ended June 30, 2021, respectively.

Income tax expense was $21.8 million and $62.6 million for the three and nine months ended September 30, 2022, respectively, compared to $17.3 million and $48.0 million for the three and nine months ended September 30, 2021, respectively.

The year-on-year increase in income tax expense in each respective period was primarily driven by growth in our pre-tax income.

Our effective tax rate on 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, 2022, respectively.

Our effective tax rate on 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.

taxpayer, we are subject to a statutory U.S.

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

Our effective tax rates for the three and six months ended June 30, 2022 and 2021 reflect the discrete tax effects of the vesting of RSUs and exercise of options, and the change in fair value of our warrant liability in each period.

Our effective tax rates for the three and nine months ended September 30, 2022 and 2021 reflect the discrete tax effects of the vesting of RSUs and exercise of options, and the change in fair value of our warrant liability in each period.

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

Net income was $75.4 million and $143.1 million for the three and six months ended June 30, 2022, respectively, compared to $57.5 million and $110.4 million for the three and six months ended June 30, 2021, respectively.

Adjusted net income was $74.3 million and $141.8 million for the three and six months ended June 30, 2022, respectively, compared to $58.1 million and $111.5 million for the three and six months ended June 30, 2021, respectively.

Net income was $76.8 million and $220.0 million for the three and nine months ended September 30, 2022, respectively, compared to $60.2 million and $170.6 million for the three and nine months ended September 30, 2021, respectively.

Adjusted net income was $76.8 million and $218.6 million for the three and nine months ended September 30, 2022, respectively, compared to $61.8 million and $173.3 million for the three and nine months ended September 30, 2021, respectively.

The year-on-year increases in net income and adjusted net income in each respective period were primarily driven by growth in our total revenues, as well as declines in our insurance claims and claim expenses and underwriting and operating expenses, partially offset by an increase in our income tax expense.

Diluted EPS was $0.86 and $1.63 for the three and six months ended June 30, 2022, respectively, compared to $0.65 and $1.27 for the three and six months ended June 30, 2021, respectively.

Adjusted diluted EPS was $0.86 and $1.63 for the three and six months ended June 30, 2022, respectively, compared to $0.67 and $1.29 for the three and six months ended June 30, 2021, respectively.

Diluted and adjusted diluted EPS increased primarily due to growth in net income and adjusted net income.

Diluted EPS was $0.90 and $2.53 for the three and nine months ended September 30, 2022, respectively, compared to $0.69 and $1.96 for the three and nine months ended September 30, 2021, respectively.

Adjusted diluted EPS was $0.90 and $2.53 for the three and nine months ended September 30, 2022, respectively, compared to $0.71 and $2.00 for the three and nine months ended September 30, 2021, respectively.

Diluted and adjusted diluted EPS increased primarily due to growth in net income and adjusted net income, as well as a decline in the number of weighted average diluted shares outstanding tied to share repurchase activity.

The non-GAAP financial measures adjusted income before tax, adjusted net income and adjusted diluted EPS are presented to enhance the comparability of financial results between periods.

Non-GAAP Financial Measure Reconciliations For the three months ended June 30, For the six months ended June 30,

Non-GAAP Financial Measure Reconciliations For the three months ended September 30, For the nine months ended September 30,

2022 2021 2022 2021

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Other infrequent, unusual or non-operating items

— 1,289 — 1,289

Adjusted income before tax 98,575 79,218 281,142 221,856

Income tax (benefit) expense on adjustments (1)

(3) 139 (57) 555

Adjusted net income $ 76,827 $ 61,821 $ 218,636 $ 173,345

1 unchanged sentence

Adjusted diluted EPS $ 0.90 $ 0.71 $ 2.53 $ 2.00

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

federal corporate income tax rate of 21%, except for those

items that are not eligible for an income tax deduction.

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

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

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

Consolidated balance sheets June 30, 2022 December 31, 2021

Consolidated balance sheets September 30, 2022 December 31, 2021

(In Thousands)

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Total liabilities and shareholders' equity $ 2,403,843 $ 2,450,581

Total cash and investments were $2.1 billion as of June 30, 2022, compared to $2.2 billion as of December 31, 2021.

Cash and investments at June 30, 2022 included $114.4 million held by NMIH.

The decrease in total cash and investments reflects an increase in the unrealized loss positions of our fixed income portfolio tied to the prevailing interest rate and credit spread environment and share repurchases during the six months ended June 30, 2022, partially offset by cash generated from operations.

Premiums receivable was $63.7 million as of June 30, 2022, compared to $60.4 million as December 31, 2021.

Total cash and investments were $2.1 billion as of September 30, 2022, compared to $2.2 billion as of December 31, 2021.

Cash and investments at September 30, 2022 included $97.4 million held by NMIH.

The decrease in total cash and investments reflects an increase in the unrealized loss positions of our fixed income portfolio tied to the prevailing interest rate and credit spread environment and share repurchases during the nine months ended September 30, 2022, partially offset by cash generated from operations.

Premiums receivable was $67.2 million as of September 30, 2022, compared to $60.4 million as December 31, 2021.

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

Net deferred policy acquisition costs were $59.8 million as of June 30, 2022, compared to $59.6 million as of December 31, 2021.

The increase was primarily driven by the deferral of certain costs associated with the origination of new policies between the respective balance sheet dates, largely offset by the recognition of previously deferred policy acquisition costs.

Prepaid reinsurance premiums were $1.7 million as of June 30, 2022, compared to $2.4 million as of December 31, 2021.

Net deferred policy acquisition costs were $59.5 million as of September 30, 2022, compared to $59.6 million as of December 31, 2021.

The decrease was primarily driven by the recognition of previously deferred policy acquisition costs and was largely offset by the deferral of certain costs associated with the origination of new policies between the respective balance sheet dates.

Prepaid reinsurance premiums were $1.5 million as of September 30, 2022, compared to $2.4 million as of December 31, 2021.

Prepaid reinsurance premiums, which represent the unearned premiums on single premium policies ceded under the 2016 QSR Transaction, decreased due to the continued amortization of previously ceded unearned premiums.

Reinsurance recoverable was $19.6 million as of June 30, 2022, compared to $20.3 million as of December 31, 2021.

Reinsurance recoverable was $19.8 million as of September 30, 2022, compared to $20.3 million as of December 31, 2021.

The decrease was driven by a decrease in ceded losses recoverable associated with our QSR Transactions.

Other assets increased to $123.6 million as of June 30, 2022, compared to $113.3 million as of December 31, 2021.

Other assets increased to $124.1 million as of September 30, 2022, compared to $113.3 million as of December 31, 2021.

The increase was primarily driven by the recognition of incremental ROU assets in connection with the modification of the operating lease for our corporate headquarters in January 2022.

Other assets included $89.2 million of tax and loss bonds held by the Company at both June 30, 2022 and December 31, 2021.

Other assets included $89.2 million of tax and loss bonds held by the Company at both September 30, 2022 and December 31, 2021.

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

Unearned premiums were $135.7 million as of June 30, 2022, compared to $139.2 million as of December 31, 2021.

The decrease was driven by the amortization of existing unearned premiums through earnings in accordance with the expiration of risk

on related single premium policies and the cancellations of other single premium policies, partially offset by single premium policy originations during the six months ended June 30, 2022.

Accounts payable and accrued expenses were $58.9 million as of June 30, 2022, compared to $72.0 million as of December 31, 2021.

The decrease was primarily driven by the settlement of previously accrued compensation expenses, premium taxes and other contractual payables during the six months ended June 30, 2022, partially offset by an increase in reinsurance payables associated with the 2022-1 XOL Transaction.

Reserve for insurance claims and claim expenses was $98.5 million as of June 30, 2022, compared to $103.6 million as of December 31, 2021.

Unearned premiums were $130.7 million as of September 30, 2022, compared to $139.2 million as of December 31, 2021.

The decrease was driven by the amortization of existing unearned premiums through earnings in accordance with the

expiration of risk on related single premium policies and the cancellations of other single premium policies, partially offset by single premium policy originations during the nine months ended September 30, 2022.

Accounts payable and accrued expenses were $73.9 million as of September 30, 2022, compared to $72.0 million as of December 31, 2021.

The increase was primarily driven by accrued and unpaid interest on the Notes which is payable semi-annually in June and December and reinsurance premiums payable, partially offset by the settlement of previously accrued compensation expenses, premium taxes and other contractual payables during the nine months ended September 30, 2022.

Reserve for insurance claims and claim expenses was $94.9 million as of September 30, 2022, compared to $103.6 million as of December 31, 2021.

The decrease was primarily driven by a release of a portion of the reserves we established for anticipated claims payments in prior periods, cure activity, and a decline in the total size of our default population.

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

Reinsurance funds withheld, which represents our ceded reinsurance premiums written, less our profit and ceding commission receivables related to the 2016 QSR Transaction was $4.5 million as of June 30, 2022, compared to $5.6 million as of December 31, 2021.

Reinsurance funds withheld, which represents our ceded reinsurance premiums written, less our profit and ceding commission receivables related to the 2016 QSR Transaction was $3.7 million as of September 30, 2022, compared to $5.6 million as of December 31, 2021.

The decrease relates to the continued decline in ceded premiums written on single premium policies, due to the end of the reinsurance coverage period for new business under the 2016 QSR Transaction at December 31, 2017.

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All unexercised warrants expired at their contractual maturity in April 2022.

No warrants or warrant liability remained at June 30, 2022.

No warrants or warrant liability remained at September 30, 2022.

Warrant liability was $2.4 million at December 31, 2021.

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

Net deferred tax liability was $161.7 million at June 30, 2022, compared to $164.2 million at December 31, 2021.

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

Net deferred tax liability was $166.6 million at September 30, 2022, compared to $164.2 million at December 31, 2021.

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

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

Other liabilities increased to $12.6 million as of June 30, 2022, compared to $3.2 million as of December 31, 2021.

Other liabilities increased to $12.4 million as of September 30, 2022, compared to $3.2 million as of December 31, 2021.

The increase was primarily driven by the recognition of an incremental lease liability in connection with the modification of the operating lease for our corporate headquarters in January 2022.

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

Consolidated cash flows For the six months ended June 30,

Consolidated cash flows For the nine months ended September 30,

Net cash provided by (used in):

3 unchanged sentences

Financing activities (50,326) (538)

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

Net cash provided by operating activities was $173.8 million for the six months ended June 30, 2022, compared to $182.5 million for the six months ended June 30, 2021.

The decrease in cash provided by operating activities year-on-year was primarily driven by a decline in premium written tied to a reduction in single premium policies written during the six months ended June 30, 2022.

Cash used in investing activities for the six months ended June 30, 2022 and 2021 reflects the purchase of fixed and short-term maturities with cash provided by operating activities, and the reinvestment of coupon payments, maturities and sale proceeds within our investment portfolio.

Cash used in financing activities was $30.3 million for the six months ended June 30, 2022, compared to $0.7 million for the six months ended June 30, 2021.

Cash used in financing activities during the six months ended June 30, 2022 primarily relates to the repurchase of common stock.

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

Net cash provided by operating activities was $281.6 million for the nine months ended September 30, 2022, compared to $281.4 million for the nine months ended September 30, 2021.

Cash provided by operating activities during the nine months ended September 30, 2022 reflects a reduction in technology service costs paid under our long-term IT services agreement with TCS, largely offset by a decline in premium written tied to a decrease in single premium policies written during the period.

Cash used in investing activities for the nine months ended September 30, 2022 and 2021 reflects the purchase of fixed and short-term maturities with cash provided by operating activities, and the reinvestment of coupon payments, maturities and sale proceeds within our investment portfolio.

Cash used in financing activities was $50.3 million for the nine months ended September 30, 2022, compared to $0.5 million for the nine months ended September 30, 2021.

Cash used in financing activities during the nine months ended September 30, 2022 primarily relates to the repurchase of common stock.

Liquidity and Capital Resources

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

As of June 30, 2022, NMIH had $114.4 million of cash and investments.

As of September 30, 2022, NMIH had $97.4 million of cash and investments.

NMIH's principal sources of net cash are dividends from its subsidiaries and investment income.

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The authorization provides NMIH 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 six months ended June 30, 2022, NMIH repurchased 1.7 million shares of common stock pursuant to a trading plan under Rule 10b-18 of the Exchange Act, at a total cost of $30.4 million, including associated costs.

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

During the nine months ended September 30, 2022, NMIH repurchased 2.7 million shares of common stock pursuant to a trading plans under Rule 10b-18 and Rule 10b5-1 of the Exchange Act, at a total cost of $51.2 million, including associated costs.

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

NMIH has entered into tax and expense-sharing agreements with its subsidiaries which have been approved by the Wisconsin OCI, with such approvals subject to change or revocation at any time.

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

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

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%.

We are subject to certain covenants under the 2021 Revolving Credit Facility, including:

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

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

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

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

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

On April 1, 2022, NMIC paid a $34.9 million ordinary course dividend to NMIH.

On April 1, 2022, NMIC paid a

$34.9 million ordinary course dividend to NMIH.

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

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

At June 30, 2022, NMIC reported $2,169 million available assets against $1,240 million risk-based required assets, for a $929 million "excess" funding position.

At September 30, 2022, NMIC reported $2,275 million available assets against $1,173 million risk-based required assets, for a $1,102 million "excess" funding position.

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

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

As of June 30, 2022, NMIC's performing primary RIF, net of reinsurance, was approximately $24.6 billion.

As of September 30, 2022, NMIC's performing primary RIF, net of reinsurance, was approximately $23.7 billion.

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

Based on NMIC's total statutory capital of $2.1 billion (including contingency reserves) as of June 30, 2022, NMIC's RTC ratio was 11.9:1.

Based on NMIC's total statutory capital of $2.2 billion (including contingency reserves) as of September 30, 2022, NMIC's RTC ratio was 10.9:1.

Re One has no risk in force remaining and no longer reports a RTC ratio.

NMIC's principal sources of liquidity include (i) premium receipts on its insured portfolio and new business production, (ii) interest income on its investment portfolio and principal repayments on maturities therein, and (iii) existing cash and cash equivalent holdings.

At June 30, 2022, NMIC had $2.0 billion of cash and investments, including $50 million of cash and equivalents.

At September 30, 2022, NMIC had $2.0 billion of cash and investments, including $108 million of cash and equivalents.

NMIC's principal liquidity demands include funds for the payment of (i) reimbursable holding company expenses, (ii) premiums ceded under our reinsurance transactions (iii) claims payments, and (iv) taxes as due or otherwise deferred through the purchase of tax and loss bonds.

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

During the twelve-month period ended June 30, 2022, NMIC generated $267 million of cash flow from operations and received an additional $109 million of cash flow on the maturity, sale and redemption of securities held in its investment portfolio.

During the twelve-month period ended September 30, 2022, NMIC generated $272 million of cash flow from operations and received an additional $162 million of cash flow on the maturity, sale and redemption of securities held in its investment portfolio.

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

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Moody's outlook for both its ratings is stable and S&P’s outlook for both its ratings is positive.

For more information, see Item 1, " Financial Statements - Notes to Condensed Consolidated Financial Statements - Note 4, Debt."

Consolidated Investment Portfolio

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Our investment portfolio is comprised entirely of fixed maturity instruments.

As of June 30, 2022, the fair value of our investment portfolio was $2.0 billion and we held an additional $72.4 million of cash and equivalents.

Pre-tax book yield on the investment portfolio for the six months ended June 30, 2022 was 2.0%.

As of September 30, 2022, the fair value of our investment portfolio was $2.0 billion and we held an additional $125.8 million of cash and equivalents.

Pre-tax book yield on the investment portfolio for the nine months ended September 30, 2022 was 2.0%.

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

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

Percentage of portfolio's fair value June 30, 2022 December 31, 2021

Percentage of portfolio's fair value September 30, 2022 December 31, 2021

Corporate debt securities 59 % 64 %

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Cash, cash equivalents, and short-term investments 11 4

Asset-backed securities 4 5

treasury securities and obligations of U.S.

government agencies 4 1

Asset-backed securities 3 5

Total 100 % 100 %

Investment portfolio ratings at fair value (1)

June 30, 2022 December 31, 2021

September 30, 2022 December 31, 2021

Total 100 % 100 %

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(2) Includes +/– ratings.

(3) We held one security with a BB+ rating at June 30, 2022, which is not identifiable in the table due to rounding.

(3) We held one security with a BB+ rating at September 30, 2022, which is not identifiable in the table due to rounding.

All of our investments are rated by one or more nationally recognized statistical rating organizations.

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Investment Securities - Allowance for credit losses

We did not recognize an allowance for credit loss for any security in the investment portfolio as of June 30, 2022 or December 31, 2021, 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 2021.

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

We did not recognize an allowance for credit loss for any security in the investment portfolio as of September 30, 2022 or December 31, 2021, 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 2021.

As of September 30, 2022, the investment portfolio had gross unrealized losses of $275.2 million, of which $173.4 million 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.

The increase in 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.

The increase in the aggregate size of the unrealized loss position as of September 30, 2022, was primarily 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.

Critical Accounting Estimates

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What changed 10-Q

Item 2. Management’s Discussion and Analysis