What changed in this filing

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Item 8. Financial Statements and Supplementary Data

2023-02-15 compared with 2022-02-16 · 332 added, 301 removed, 999 unchanged (39% of the section changed)

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

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

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

Reserve for Insurance Claims and Claims Expense

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

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

Reserve for Insurance Claims and Claim Expense

As described in Notes 2 and 7 to the consolidated financial statements, the Company recorded $99.8 million of reserve for insurance claims and claim expenses at December 31, 2022.

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

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

The claim severity and claim frequency estimates are also strongly influenced by current economic conditions.

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

The claim severity and claim frequency estimates are also strongly influenced by current economic conditions including unemployment and the housing market.

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

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

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

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

/s/ BDO USA, LLP

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Accrued investment income 14,144 11,900

Prepaid expenses 3,530 3,292

Deferred policy acquisition costs, net 58,564 59,584

1 unchanged sentence

Intangible assets and goodwill 3,634 3,634

Prepaid reinsurance premiums 2,393 6,190

Reinsurance recoverable 21,587 20,320

Prepaid federal income taxes (1)

154,409 89,244

Other assets (1) (2)

18,267 10,917

Total assets $ 2,516,030 $ 2,450,581

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

85,792,849 and 85,163,039 shares issued and outstanding as of December 31, 2021 and December 31, 2020, respectively ( 250,000,000 shares authorized)

86,472,742 shares issued and 83,549,879 shares outstanding as of December 31, 2022 and 85,792,849 shares issued and outstanding as of December 31, 2021 ( 250,000,000 shares authorized)

Additional paid-in capital 972,717 955,302

Accumulated other comprehensive income, net of tax 1,485 53,856

Treasury stock, at cost:

2,922,863 and 0 common shares as of December 31, 2022 and December 31, 2021, respectively

Accumulated other comprehensive (loss) income, net of tax ( 204,323 ) 1,485

Retained earnings 901,043 608,141

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Total liabilities and shareholders' equity $ 2,516,030 $ 2,450,581

(1) " Prepaid federal income taxes" have been reclassified from "Other assets" in the prior period.

(2) "Prepaid expenses" and "Prepaid reinsurance premiums" have been reclassified as "Other assets" in the prior period.

See accompanying notes to consolidated financial statements.

9 unchanged sentences

Total revenues 523,345 485,072 433,283

Insurance claims and claim expenses 12,305 59,247 12,507

Insurance claims and claim (benefits) expenses ( 3,594 ) 12,305 59,247

Underwriting and operating expenses 117,490 142,303 131,610

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Interest expense 32,163 31,796 24,387

(Gain) loss from change in fair value of warrant liability ( 566 ) ( 2,907 ) 8,657

Gain from change in fair value of warrant liability ( 1,113 ) ( 566 ) ( 2,907 )

Total expenses 146,040 188,347 215,177

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Common Stock - Class A Additional

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

Paid-in Capital Treasury Stock, At Cost Accumulated Other Comprehensive Income (Loss) Retained Earnings Total

Shares Amount

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Common stock:

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

Common stock:

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

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Common stock:

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

Common stock:

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

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

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

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

— — — — ( 52,371 ) — ( 52,371 )

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class A shares issued under stock plans, net of shares withheld for employee taxes 596 6 223 — — — 229

Repurchase of common stock ( 2,923 ) — — ( 56,575 ) — — ( 56,575 )

Share-based compensation expense — — 15,425 — — — 15,425

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Net realized investment gains ( 481 ) ( 729 ) ( 930 )

(Gain) loss from change in fair value of warrant liability ( 566 ) ( 2,907 ) 8,657

Gain from change in fair value of warrant liability ( 1,113 ) ( 566 ) ( 2,907 )

Depreciation and amortization 11,870 11,232 9,930

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Accrued investment income ( 2,244 ) ( 2,038 ) ( 3,031 )

Prepaid expenses ( 238 ) 220 ( 472 )

Deferred policy acquisition costs, net 1,020 2,641 ( 2,253 )

Reinsurance recoverable ( 1,267 ) ( 2,712 ) ( 12,669 )

Prepaid federal income taxes (1)

( 65,165 ) ( 42,853 ) ( 38,764 )

Other assets (1) (2)

236 ( 218 ) 180

Unearned premiums ( 16,202 ) 20,420 ( 17,825 )

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

Repurchases of common stock ( 56,575 ) — —

Net cash (used in) provided by financing activities ( 55,828 ) ( 1,830 ) 462,804

5 unchanged sentences

Income taxes refunded 20 457 70

(1) " Prepaid federal income taxes" have been reclassified from "Other assets" in prior periods.

(2) "Prepaid expenses" have been reclassified as "Other assets" in prior periods.

See accompanying notes to consolidated financial statements.

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These financial statements have been prepared in accordance with accounting principles generally accepted in the U.S.

(GAAP) and our accounts are maintained in US dollars.

(GAAP) and our accounts are maintained in U.S.

The preparation of financial statements in accordance with GAAP requires management to make estimates and assumptions that affect reported amounts of assets and liabilities, as well as disclosure of contingent assets and liabilities as of the balance sheet date.

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Actual results could differ from those estimates.

Certain prior period amounts have been reclassified to conform to current period presentation.

COVID-19 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.

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

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.

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.

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

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

The global dislocation caused by COVID-19 was unprecedented.

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

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

While the acute economic impact of COVID-19 has begun to recede, the pandemic continues to affect communities across the U.S.

and poses significant risk globally.

The path and pace of global economic recovery will depend, in large part, on the course of the virus, which itself remains unknown and subject to risk.

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

CEO Transition

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

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

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

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

NMI HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2021

and global economic activity.

The global dislocation caused by COVID-19 was unprecedented and the pandemic had a direct impact on the U.S.

housing market, private mortgage insurance industry, and our business and operating performance for an extended period.

More recently, however, the acute economic impact of COVID-19 has begun to recede.

While the pandemic continues to pose a global risk and affect communities across the U.S., it is no longer the single dominant driver of our performance that it had been in earlier periods.

COVID-19 is now one of several mosaic factors, including a range of macroeconomic forces and public policy initiatives that are influencing our market and business.

Although we are optimistic that the nationwide COVID-19 vaccination effort and other medical advances will continue to support a normalization of personal and business activity, the path of the virus remains unknown and subject to risk.

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.

Summary of Accounting Principles

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

NMI HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2022

Insurance Premium Revenue Recognition

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For the years ended December 31, 2022, 2021 and 2020, no customer accounted for more than 10% of our consolidated revenues.

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

At December 31, 2022, December 31, 2021 and December 31, 2020 approximately 11 %, 10 % and 11 %, respectively, of our total risk-in-force (RIF) was concentrated in California.

Reserves for Insurance Claims and Claim Expenses

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

NMI HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2021

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

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

If a sale is intended or likely to be required, we write down the amortized cost basis of the security to fair value and recognize the full amount of the impairment through the statement of operations as a " Realized Investment Loss ."

If a sale is intended or likely to be required, we write down the amortized cost basis

NMI HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2022

of the security to fair value and recognize the full amount of the impairment through the statement of operations as a " Realized Investment Loss ."

For securities in an unrealized loss position where a sale is not intended or likely to be required, we further assess if the decline in fair value below amortized cost is driven by a credit related impairment, considering several items including, but not limited to:

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

We have elected to present accrued interest receivable separately from available for sale securities on our consolidated balance sheet.

Accrued interest receivable was $ 11.9 million as of December 31, 2021 and is included in " Accrued Investment Income.

We have elected to present accrued interest receivable separately from available for sale securities on our consolidated balance sheets.

Accrued interest receivable was $ 14.1 million and $ 11.9 million as of December 31, 2022 and 2021, respectively, and is included in " Accrued Investment Income.

" We have elected not to measure an allowance for credit losses for accrued interest receivable on available for sale securities.

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We have determined that no premium deficiency reserves were necessary for any of the years in the three-year period ended December 31, 2022.

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

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

NMI HOLDINGS, INC.

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DECEMBER 31, 2022

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

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

October 1, 2021 (the 2022 QSR Transaction), July 1, 2022 (the 2022 Seasoned QSR Transaction), and January 1, 2023 (the 2023 QSR Transaction), which we refer to collectively as the QSR Transactions.

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

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We recognize any profit commissions we earn as an increase to premium revenue.

Ceding commissions are calculated as a percentage of ceded written premiums under the 2016 QSR Transaction and as a percentage of ceded earned premiums under the 2018, 2020, 2021, 2022, and 2023 QSR Transactions, and are intended to cover our costs of acquiring and servicing direct policies.

Ceding commissions are calculated as a percentage of ceded written premiums under the 2016 QSR Transaction and as a percentage of ceded earned premiums under the 2018, 2020, 2021, 2022, 2022 Seasoned and 2023 QSR Transactions, and are intended to cover our costs of acquiring and servicing direct policies.

We recognize any ceding commissions generated under the QSR Transactions in a manner consistent with our recognition of earnings on the underlying reinsured policies.

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Under the QSR Transactions, we cede a portion of claims and claim expenses and reserves to our reinsurers, and account for such ceded reserves as "Reinsurance Recoverables" on the consolidated balance sheets and such ceded expenses as reductions to claims and claim expenses on the consolidated statements of operations.

As of December 31, 2021, we had $ 20.3 million of reinsurance recoverables under the QSR Transactions.

As of December 31, 2022 and 2021, we had $ 21.6 million and $ 20.3 million, respectively, of reinsurance recoverables under the QSR Transactions.

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

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The allowance for credit loss established with respect to our reinsurance recoverables was deemed immaterial as of December 31, 2022 and 2021.

Variable Interest Entities

NMIC is a party to excess-of-loss reinsurance agreements with Oaktown Re II Ltd., Oaktown Re III Ltd., Oaktown Re V Ltd., Oaktown Re VI Ltd., and Oaktown Re VII Ltd.

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

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

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

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

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

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

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

See Note 6, " Reinsurance " for further discussion of the reinsurance arrangements.

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

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Temporary differences are differences between the tax basis of an asset or liability and its reported amount in the consolidated financial statements that would result in future increases or decreases in taxes owed on a cash basis compared to amounts already recognized as tax expense in the consolidated statement of operations.

We account for warrants to purchase our common shares in accordance with ASC 470-20, Debt with Conversion and Other Options and ASC 815-40 Derivatives and Hedging - Contracts in Entity's Own Equity .

Our outstanding warrants may be settled through either (i) physical settlement method, or (ii) cashless exercise, where the number of shares issued upon exercise of the warrants is reduced to cover the cost of the exercise in lieu of the holder remitting a cash payment for the exercise price.

The warrants expire and are not exercisable after the 10th anniversary of the date issued.

The number of warrants and exercise price are subject to anti-dilution provisions whereby the number of warrants may be increased and their exercise price may be adjusted downward under certain circumstances.

The anti-dilutive adjustments may be in excess of any dilution incurred by the warrant holders, and may be triggered by events that are not dilutive.

As a result, the warrants are classified as a liability.

We revalue the warrants at the end of each reporting period, and any change in fair value is reported in the statements of operations in the period in which the change occurred.

We purchase non-interest bearing U.S.

Mortgage Guaranty Tax and Loss Bonds issued by the Treasury Department in order to claim a tax deduction for our contingency reserve balance.

The tax and loss bonds are carried at cost and are reported as " Prepaid Federal Income Taxes " on the consolidated balance sheets.

See Note 11, " Income Taxes ", for further discussion of the tax and loss bonds and other income tax matters.

NMI HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2022

We accounted for warrants to purchase our common shares in accordance with ASC 470-20, Debt with Conversion and Other Options and ASC 815-40 Derivatives and Hedging - Contracts in Entity's Own Equity .

Our outstanding warrants were settled through either (i) physical settlement method, or (ii) cashless exercise, where the number of shares issued upon exercise of the warrants was reduced to cover the cost of the exercise in lieu of the holder remitting a cash payment for the exercise price.

All unexercised warrants expired in April 2022 after the 10th anniversary of the date issued.

The number of warrants and exercise price were subject to anti-dilution provisions whereby the number of warrants may have been increased and their exercise price may been adjusted downward under certain circumstances.

The anti-dilutive adjustments may have been in excess of any dilution incurred by the warrant holders, and may have been triggered by events that are not dilutive.

As a result, the warrants were classified as a liability.

We revalued the warrants at the end of each reporting period, and any change in fair value was reported in the statements of operations in the period in which the change occurred.

We calculated the fair value of the warrants using a Black-Scholes option-pricing model in combination with a binomial model.

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We account for stock compensation in accordance with ASC 718, Compensation - Stock Compensation , which addresses accounting for share-based awards and recognition of compensation expense, measured using grant date fair value, over the requisite service or performance period of the award.

Share-based compensation includes restricted stock units (RSUs) and stock option grants under our Stock Plans.

Share-based compensation includes restricted stock units (RSUs) and stock option grants under our stock incentive plans.

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

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

NMI HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2021

to the contractual terms of any award.

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

We use the simplified method to estimate expected option term during the period as sufficient historical exercise data is not available.

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

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Earnings per Share (EPS)

Basic earnings (loss) per share is based on the weighted-average number of common shares outstanding.

Diluted earnings (loss) per share is based on the weighted-average number of common shares outstanding and common share equivalents that would be issuable upon the vesting of existing service based and certain performance and service based RSUs, and exercise of vested and unvested stock options and outstanding warrants.

Basic earnings per share is based on the weighted-average number of common shares outstanding.

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

Share Repurchases

Common stock repurchases are recorded at cost and presented as "Treasury Stock" on the consolidated balance sheets and statements of changes in shareholders' equity.

At the date of repurchase, shareholders' equity is reduced by the aggregate repurchase price plus commissions, applicable taxes and other expenses that arise from the repurchase transaction .

Cash and Cash Equivalents

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For further detail, see Note 12, " Software and Equipment.

NMI HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2022

We recognize right-of-use (ROU) assets and corresponding lease liabilities for our lease arrangements.

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Goodwill represents the excess of the purchase price over the estimated fair value of net assets acquired from a business combination.

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

In accordance with ASC 350, Intangibles - Goodwill and Other , we test goodwill for impairment annually or more frequently if we believe indicators of impairment exist.

We have no t identified any impairments of goodwill through December 31, 2022.

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

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

We test indefinite-lived intangible assets for impairment annually or more frequently if we believe indicators of impairment exist.

We have no t identified any impairments of indefinite-lived intangible assets through December 31, 2022.

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

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

NMI HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

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

Variable Interest Entities

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

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

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

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

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

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

See Note 6, " Reinsurance " for further discussion of the reinsurance arrangements.

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

Other Revenues

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Recent Accounting Pronouncements - Adopted

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

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

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

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

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

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

Recent Accounting Pronouncements - Not Yet Adopted

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

Recent Accounting Pronouncements - Not Yet Adopted In August 2018, the FASB issued ASU 2018-12, Targeted Improvements to the Accounting for Long-Duration Contracts (Topic 944).

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

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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 adopted this ASU on January 1, 2023 and determined it did not have a material impact on our consolidated financial statements.

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

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Reference rate reform refers to the global transition away from referencing the London Interbank Offered Rate (LIBOR) in financial contracts, which is expected to be discontinued during a transition period from 2021 through 2023.

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

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

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

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

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

NMI HOLDINGS, INC.

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DECEMBER 31, 2022

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

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

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

certain criteria are met.

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

In December 2022, the FASB issued ASU 2022-06, which extended the sunset date of Topic 848 from December 31, 2022 to December 31, 2024.

We continue to monitor the impact the discontinuance of LIBOR will have on our contracts and other transactions;

however, the adoption of, and future elections under ASU 2020-04 and ASU 2022-06 are not expected to have a material impact on our consolidated financial statements as the ASUs will ease, if warranted, the requirements for accounting for the future effects of the rate reform.

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

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Total investments $ 2,078,773 $ 2,085,931

Aging of Unrealized Losses

As of December 31, 2022, the investment portfolio had gross unrealized losses of $ 254.7 million, of which $ 218.5 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.

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

NMI HOLDINGS, INC.

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DECEMBER 31, 2022

Aging of Unrealized Losses

As of December 31, 2021, the investment portfolio had gross unrealized losses of $ 23.2 million, of which $ 6.5 million had been in an unrealized loss position for a period of twelve months or longer.

As of December 31, 2020, the investment portfolio had gross unrealized losses of $ 512 thousand, of which $ 8 thousand had been in an unrealized loss position for a period of twelve months or longer.

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

Less Than Twelve Months Twelve Months or Greater Total

# 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, 2022 ($ In Thousands)

Treasury securities and obligations of U.S.

government agencies 19 $ 77,164 $ ( 2,260 ) 4 $ 2,768 $ ( 109 ) 23 $ 79,932 $ ( 2,369 )

Municipal debt securities 57 143,097 ( 12,942 ) 181 340,079 ( 67,854 ) 238 483,176 ( 80,796 )

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Asset-backed securities 12 13,527 ( 1,097 ) 14 55,031 ( 5,107 ) 26 68,558 ( 6,204 )

Short-term investments 12 104,236 ( 227 ) — — — 12 104,236 ( 227 )

Total 241 $ 772,198 $ ( 36,225 ) 367 $ 1,188,415 $ ( 218,467 ) 608 $ 1,960,613 $ ( 254,692 )

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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, 2020 (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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As of December 31, 2022 and 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 years ended December 31, 2022 or 2021.

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

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

Based on our estimate of the amount and timing of cash flows to be collected, we believe the unrealized losses as of December 31, 2021 are not indicative of the ultimate collectability of the current amortized cost of the securities.

The increase in the number of securities and the aggregate size of the unrealized loss position as of December 31, 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 December 31, 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 December 31, 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 year ended December 31,

For the years ended December 31,

2022 2021 2020

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

For the year ended December 31,

For the years ended December 31,

2022 2021 2020

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We have not made any adjustments to the prices obtained from the independent pricing sources.

Liabilities classified as Level 3

We calculate the fair value of outstanding warrants utilizing Level 3 inputs, including a Black-Scholes option-pricing model, in combination with a binomial model, and we value the pricing protection features within the warrants using a Monte-Carlo simulation model.

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

NMI HOLDINGS, INC.

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DECEMBER 31, 2022

Liabilities classified as Level 3

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 December 31, 2022.

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

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Total assets $ 298,439 $ 1,845,376 $ — $ 2,143,815

Warrant liability — — 2,363 2,363

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

Fair Value Measurements Using

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

For the year ended December 31,

For the years ended December 31,

Warrant Liability 2022 2021 2020

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DECEMBER 31, 2022

All outstanding and unexercised warrants expired in April 2022 and there was no warrant liability remaining as of December 31, 2022.

For more information on the expiration of warrants and changes in the fair value of the warrant liability during the years ended December 31, 2022, 2021 and 2020, see Note 9, "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 dates indicated:

As of December 31,

2021 2020 2019

Common stock price $ 21.85 $ 22.65

Risk free interest rate 0.07 % 0.11 %

Expected life 0.31 years 1.31 years 2.31 years

Expected life 0.31 years 1.31 years

Expected volatility 26.3 % 83.7 %

Dividend yield — % — %

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

Financial Instruments not Measured at Fair Value

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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.

$ 244.4 million of proceeds from the Notes offering were contributed to our lead operating subsidiary, NMIC and remaining proceeds were used to repay the outstanding amount due under the 2018 Term Loan due on May 24, 2023 and to pay underwriting fees incurred connection with the offering.

The Notes mature on June 1, 2025.

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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.

From time to time prior to June 1, 2022, we may also elect to use proceeds raised from one or more equity offerings to redeem up to 40 % of the aggregate principal amount of the Notes at a price equal to 107.375 % of the aggregate principal amount thereof plus accrued and unpaid interest thereon, subject to certain exceptions.

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

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

The effective interest rate on the Notes is 7.825 %.

At December 31, 2022 and 2021, approximately $ 3.9 million and $ 5.4 million, respectively, of unamortized debt issuance costs remained.

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

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

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

2021 Revolving Credit Facility

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

Borrowings under the 2021 Revolving Credit Facility may be used for general corporate purposes, including to support the growth of our new business production and operations, and accrue interest at a variable rate equal to, at our discretion, (i) a Base Rate (as defined in the 2021 Revolving Credit Facility) subject to a floor of 1.00 % per annum) plus a margin of 0.375 % to 1.875 % per annum or (ii) the Adjusted Term Secured Overnight Financing Rate (SOFR, as defined in the 2021 Revolving Credit Facility) plus a margin of 1.375 % to 2.875 % per annum, with the margin in each of (i) or (ii) based on our applicable corporate credit rating at the time.

As of December 31, 2022 and 2021, no amounts were drawn under the 2021 Revolving Credit Facility.

NMI HOLDINGS, INC.

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DECEMBER 31, 2022

2021 Revolving Credit Facility

Borrowings under the 2021 Revolving Credit Facility may be used for general corporate purposes, including to support the growth of our new business production and operations, and accrue interest at a variable rate equal to, at our discretion, (i) a Base Rate (as defined in the 2021 Revolving Credit Facility) subject to a floor of 1.00 % per annum) plus a margin of 0.375 % to 1.875 % per annum or (ii) the Adjusted Term SOFR Rate (as defined in the 2021 Revolving Credit Facility) plus a margin of 1.375 % to 2.875 % per annum, with the margin in each of (i) or (ii) based on our applicable corporate credit rating at the time.

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

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

As of December 31, 2022, the applicable commitment fee was 0.30 %.

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

For the years ended December 31, 2022 and 2021, we recorded $ 0.8 million and $ 0.4 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 December 31, 2021, remaining unamortized deferred debt issuance costs were $ 1.6 million.

At December 31, 2022 and 2021, remaining unamortized deferred debt issuance costs were $ 1.2 million and $ 1.6 million, respectively.

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

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

For the year ended

December 31, 2021 December 31, 2020 December 31, 2019

For the years ended December 31,

2022 2021 2020

(In Thousands)

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Excess-of-loss reinsurance

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

Under each agreement, NMIC retains a first layer of

NMI HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2021

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

Insurance-linked notes

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

Each agreement 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 respective Oaktown Re Vehicle then provides second layer loss protection up to a defined reinsurance coverage amount.

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

NMIC makes risk premium payments to the Oaktown Re Vehicles for the applicable outstanding reinsurance coverage amount and pays an additional amount for anticipated operating expenses (capped at $ 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 $ 41.9 million, $ 41.3 million and $ 22.8 million during the years ended December 31, 2022, 2021 and 2020, respectively.

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

and Oaktown Re V Ltd.

in 2020 and Oaktown Re VI Ltd.

and Oaktown VII Ltd.

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

NMIC did not cede any incurred losses on covered policies to the Oaktown Re Vehicles during the years ended December 31, 2021, 2020 and 2019, 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 years ended

NMI HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2022

December 31, 2022, 2021 and 2020, as the aggregate first layer risk retention for each applicable agreement was not exhausted during such periods.

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

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

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

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

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

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

A Lock-Out Event was deemed to have occurred, effective June 25, 2020 for each of the 2017, 2018 and 2019 ILN Transactions (related to the default experience of the underlying reference pools for each respective transaction) and at inception of the 2021-1 and 2021-2 ILN Transactions (related to the initial build of their target credit enhancement levels), and the amortization of reinsurance coverage, and distribution of collateral assets and amortization of insurance-linked notes was suspended for each such ILN Transaction.

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

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

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

As of December 31, 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 noteholders, among others.

Effective March 25, 2022 and April 25, 2022, NMIC exercised its optional clean-up call to terminate and commute its previously outstanding excess of loss reinsurance agreements with Oaktown Re Ltd.

and Oaktown Re IV Ltd., respectively.

In connection with the termination and commutation of each respective agreement, the insurance-linked notes issued by Oaktown Re Ltd.

and Oaktown Re IV Ltd.

were redeemed in full with a distribution of remaining collateral assets.

NMI HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2022

Current amounts are presented as of December 31, 2022.

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Inception Date Covered Production Initial Reinsurance Coverage Current Reinsurance Coverage Initial First Layer Retained Loss Current First Layer Retained Loss (1)

2017 ILN Transaction May 2, 2017 1/1/2013 - 12/31/2016 $ 211,320 $ 27,425 $ 126,793 $ 121,163

2018 ILN Transaction July 25, 2018 1/1/2017 - 5/31/2018 $ 264,545 $ 158,489 $ 125,312 $ 122,202

2019 ILN Transaction July 30, 2019 6/1/2018 - 6/30/2019 326,905 204,127 123,424 122,257

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

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

242,351 95,729 121,777 121,177

2021-1 ILN Transaction (5)

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

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

367,238 305,139 163,708 163,665

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363,596 363,596 146,229 146,204

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2021

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

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

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

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

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

(5) As of December 31, 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 December 31, 2022 and 2021, respectively.

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

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

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

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

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 reinsurance

NMIC is a party to three excess-of-loss reinsurance agreements with broad panels of third-party reinsurers – the 2022-1 XOL Transaction, effective April 1, 2022, the 2022-2 XOL Transaction, effective July 1, 2022, and the 2022-3 XOL Transaction, effective October 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.

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 $ 13.9 million during the year ended December 31, 2022.

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 year ended December 31, 2022, as the aggregate first layer risk retention for each agreement was not exhausted during the period.

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 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.

Current amounts are presented as of December 31, 2022.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2022

( $ values in thousands)

Inception Date Covered Production Initial Reinsurance Coverage Current Reinsurance Coverage Initial First Layer Retained Loss Current First Layer Retained Loss (1)

2022-1 XOL Transaction April 1, 2022 10/1/2021 - 3/31/2022 (2)

$ 289,741 $ 282,906 $ 133,366 $ 133,366

2022-2 XOL Transaction July 1, 2022 4/1/2022 - 6/30/2022 (3)

154,306 151,013 78,906 78,906

2022-3 XOL Transaction October 1, 2022 7/1/2022 - 9/30/2022 96,779 95,825 106,265 106,265

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

(2) Approximately 1 % of the production covered by the 2022-1 XOL Transaction has coverage reporting dates between October 21, 2019 and September 30, 2021.

(3) Approximately 1 % of the production covered by the 2022-2 XOL Transaction has coverage reporting dates between January 4, 2021 and March 31, 2022.

Quota share reinsurance

NMIC is a party to seven 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, the 2022 Seasoned QSR Transaction, effective July 1, 2022 and the 2023 QSR Transaction, effective January 1, 2023 – 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.

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 Mae.

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

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

Under the terms of the 2021 QSR Transaction, NMIC cedes premiums earned related to 22.5 % of the risk on eligible policies written from January 1, 2021 to October 30, 2021.

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

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

The 2022 QSR Transaction is scheduled to

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2021

terminate on December 31, 2032.

The 2022 QSR Transaction is scheduled to terminate on December 31, 2032.

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

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

Under the terms of the 2023 QSR Transactions, NMIC will cede premiums earned related to 20 % of the risk on eligible policies written in 2023.

In connection with the 2022 QSR Transaction, NMIC entered into the 2023 QSR Transaction as a springing back-to-back quota share agreement.

Under the terms of the 2023 QSR Transaction, NMIC cedes premiums earned related to 20 % of the risk on eligible policies written from January 1, 2023 to December 31, 2023.

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

NMIC has the option, based on certain conditions and subject to a termination fee, to terminate the agreement as of December 31, 2026 or semi-annually thereafter, which would result in NMIC recapturing the related risk.

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 retired Oaktown Re Ltd.

and Oaktown Re IV Ltd.

reinsurance transactions, after the consideration of coverage provided by other QSR

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2022

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 RIF ceded under the respective agreements.

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The following table shows amounts related to the QSR Transactions:

For the year ended

December 31, 2021 December 31, 2020 December 31, 2019

As of and for the years ended December 31,

2022 2021 2020

(In Thousands)

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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 %, 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 $ 4.6 million as of December 31, 2021.

In accordance with the terms of the 2016, 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 $ 2.6 million and $ 4.6 million as of December 31, 2022 and 2021, respectively.

In accordance with the terms of the 2018, 2020, 2021, 2022 and 2023 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 $ 15.7 million as of December 31, 2021.

The aggregate reinsurance recoverable on loss reserves related to the 2018, 2020, 2021 and 2022 QSR and 2022 Seasoned QSR Transactions was $ 19.0 million and $ 15.7 million as of December 31, 2022 and 2021, respectively.

NMI HOLDINGS, INC.

4 unchanged sentences

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

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

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.

6 unchanged sentences

These 49 loans represented approximately $ 3.7 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 December 31, 2021.

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 LTV ratios under 80 % at origination), we did not establish any case or IBNR reserves for pool risk at December 31, 2022.

In connection with the settlement of pool claims, we applied $ 1.0 million to the pool deductible through December 31, 2022.

4 unchanged sentences

We had 6,227 loans in default in our primary insured portfolio as of December 31, 2021, which represented a 1.22 % default rate against 512,316 total policies in-force.

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

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

4 unchanged sentences

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

We generally observe that forbearance, repayment and modification, and other assistance programs aid affected borrowers and drive higher cure rates on defaults than would otherwise be expected on similarly situated loans that did not benefit from broad-based assistance programs.

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

At December 31, 2021 and 2020, we generally established lower reserves for defaults that we consider to be connected to the COVID-19 pandemic given our expectation that forbearance, repayment and modification, and other assistance programs will aid affected borrowers and drive higher cure rates on such defaults than we would otherwise expect to experience on similarly situated loans that did not benefit from broad-based assistance programs.

NMI HOLDINGS, INC.

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DECEMBER 31, 2022

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

For the year ended

December 31, 2021 December 31, 2020 December 31, 2019

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

For the years ended December 31,

2022 2021 2020

(In Thousands)

4 unchanged sentences

Add claims incurred:

Claims and claim expenses incurred:

Claims and claim (benefits) expenses incurred:

Current year (2)

2 unchanged sentences

( 48,762 ) ( 11,128 ) ( 7,696 )

Total claims and claim expenses incurred 12,305 59,247 12,507

Total claims and claim (benefits) expenses incurred ( 3,594 ) 12,305 59,247

Less claims paid:

3 unchanged sentences

1,314 2,017 4,515

Reinsurance terminations (4)

Total claims and claim expenses paid 1,388 2,033 5,101

7 unchanged sentences

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

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

Amounts are presented net of reinsurance and included $ 39.9 million attributed to net case reserves and $ 4.5 million attributed to net IBNR reserves for the year ended December 31, 2022, $ 18.1 million attributed to net case reserves and $ 4.7 million attributed to net IBNR reserves for the year ended December 31, 2021, and $ 60.8 million attributed to net case reserves and $ 5.0 million attributed to net IBNR reserves for the year ended December 31, 2020.

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

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

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

See Note 6, " Reinsurance " for additional information.

Amounts are presented net of reinsurance and included $ 42.5 million attributed to net case reserves and $ 4.7 million attributed to net IBNR reserves for the year ended December 31, 2022, $ 6.3 million attributed to net case reserves and $ 5.0 million attributed to net IBNR reserves for the year ended December 31, 2021, and $ 6.2 million attributed to net case reserves and $ 1.3 million attributed to net IBNR reserves for the year ended December 31, 2020.

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

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Accident Year 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 Total of IBNR Defaults (2)

($ Values In Thousands)

($ in Thousands)

2013 $ — $ — $ — $ — $ — $ — $ — $ — $ — $ — $ — —

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2021 22,847 14,337 612 494

2022 44,334 2,467 3,398

Total $ 92,928 $ 4,464 4,449

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DECEMBER 31, 2022

The following table shows the average percentage of claims and allocated claims adjustment expenses paid in the years following the incurrence of a claim:

The following table shows the average percentage of claims and allocated claims adjustment expenses paid in the years following the incurrence of a claim as of December 31, 2022:

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

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

Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9

Claims duration disclosure 3 % 38 % 25 % 7 % 3 % 3 % 0 % 0 % 0 %

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

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

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

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

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

For the year ended December 31,

For the years ended December 31,

2022 2021 2020

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Anti-dilutive shares 18 3 58

We issued 992 thousand warrants in connection with a private placement of our common stock in April 2012, of which 199 thousand remained outstanding available for exercise at December 31, 2021.

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

We issued 992 thousand warrants in connection with a private placement of our common stock in April 2012 with a ten-year contractual term that expired in April 2022.

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

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

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

No warrants remained outstanding as of December 31, 2022.

During the year ended December 31, 2022, 110 thousand warrants were exercised resulting in the issuance of 84 thousand shares of common stock.

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DECEMBER 31, 2022

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

Share-Based Compensation

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The 2012 Plan was approved by the Board on April 16, 2012 and authorized 5.5 million shares of common stock to be reserved for issuance, with limits of 3.85 million shares available for stock option issuance and 1.65 million shares available for RSU issuance.

Options granted under the 2012 Plan are non-qualified stock options and may be granted to employees, directors and other key persons.

The exercise price per share for options covered by the 2012 Plan is determined by the Board at the time of grant, but shall not be less than the fair market value of our common stock, defined as the closing price of our common stock, on the date of the grant.

The term of the stock option grants is established by the Board, but no stock option shall be exercisable more than ten years after the date the stock option is granted.

The vesting period of the stock option grants is also established by the Board at the time of grant and is generally a three-year period.

Upon the exercise of stock options, we issue shares from the authorized, unissued share reserve.

The 2012 Plan expired on April 24, 2022, with all unissued shares of common stock remaining under the 2012 Plan expiring thereafter.

Share-based compensation previously issued under the 2012 Plan remains outstanding following the 2012 Plan expiry to the extent non-exercised or non-vested.

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

On May 11, 2017, our stockholders approved amendments to the 2014 Plan at our annual stockholder meeting, authorizing an additional 2.0 million shares of common stock for issuance, increasing the total shares of common stock reserved for issuance under the plan to 6.0 million with the full amount available to be issued as either RSUs or options.

On May 12, 2022, our stockholders approved further amendments to the 2014 Plan, authorizing an additional 2.25 million shares of common stock for issuance, increasing the total shares of common stock reserved for issuance under the plan to 8.25 million with the full amount available to be issued as either RSUs or options.

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

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

Options granted under the 2014 Plan are non-qualified stock options and may be granted to employees, directors and other key persons.

The exercise price per share for options covered by the 2014 Plan is determined by the Board at the time of grant, but shall not be less than the fair market value of our common stock, defined as the closing price of our common stock, on the date of the grant.

The term of the stock option grants is established by the Board, but no stock option shall be exercisable more than ten years after the date the stock option was granted.

The vesting period of the stock option grants is also established by the Board at the time of grant and is generally expected to be a three-year period.

For the years ended December 31, 2022, 2021 and 2020, we incurred $ 15.4 million, $ 16.7 million and $ 11.1 million, respectively, of expenses related to awards granted under the Stock Plans.

We recognized gross income tax benefits of $ 3.2 million, $ 3.5 million and $ 2.3 million for the years ended December 31, 2022, 2021 and 2020, respectively.

31 unchanged sentences

The aggregate intrinsic value of such fully vested and exercisable options was $ 8.6 million as of December 31, 2022.

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

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

No stock options were granted during the years ended December 31, 2022, 2021 and 2020.

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

For the year ended December 31, 2019

Expected life 6 years

Risk free interest rate 2.57 %

Dividend yield — %

Expected stock price volatility 36.8 %

Expected life - is the period of time over which the options granted are expected to remain outstanding giving consideration to vesting schedules, historical exercise and forfeiture patterns.

We use the simplified method outlined in SEC Staff Accounting Bulletin No.

107 to estimate expected life for options granted during the period as sufficient historical exercise data is not available and the options meet the requirements set out in the Bulletin.

Options granted have a maximum term of 10 years.

Risk-free interest rate - is the U.S.

Treasury rate on the date of the grant having a term approximating the expected life of the option.

Dividend yield - is calculated by dividing the expected annual dividend by our stock price at the valuation date.

Expected price volatility - is a measure of the amount by which a price has fluctuated or is expected to fluctuate.

As of December 31, 2022, all outstanding options had vested and no unrecognized compensation cost related to non-vested stock options remained.

A summary of RSU activity during the years ended December 31, 2022, 2021 and 2020 is as follows:

6 unchanged sentences

Non-vested restricted stock units at December 31, 2022 1,190 $ 24.06

NMI HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2021

For the year ended December 31, 2021 Shares Weighted Average Grant Date Fair Value per Share

14 unchanged sentences

The total fair value of RSUs vested during the year ended December 31, 2022 was $ 11.6 million.

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

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

The remaining

NMI HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2022

weighted average contractual life of non-vested RSUs was 1.27 years.

As of December 31, 2022 and 2021, there was $ 10.2 million and $ 8.8 million of total unrecognized compensation costs related to non-vested RSUs, respectively.

The weighted-average period over which total remaining unrecognized compensation costs related to non-vested RSUs outstanding at December 31, 2022 will be recognized is 1.28 years.

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

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

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

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

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

9 unchanged sentences

Total income tax expense consists of the following components:

For the year ended December 31,

For the years ended December 31,

2022 2021 2020

3 unchanged sentences

Total income tax expense $ 84,403 $ 65,595 $ 46,540

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

NMI HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2021

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

For the years ended December 31, 2022, 2021 and 2020, we had income tax expenses of $ 84.4 million, $ 65.6 million, and $ 46.5 million, respectively, including amounts related to current state income taxes and changes to our federal and state net deferred tax liability.

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

For the year ended December 31,

For the years ended December 31,

2022 2021 2020

2 unchanged sentences

Share-based and other compensation 0.5 0.6 0.1

Warrant gain/loss — % ( 0.3 ) 0.9

Warrant gain ( 0.1 ) — ( 0.3 )

Other 0.4 — —

Effective income tax rate 22.4 % 22.1 % 21.3 %

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

NMI HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2022

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

As of December 31,

Deferred tax asset (In Thousands)

Deferred tax asset:

(In Thousands)

Unrealized loss on investments $ 53,205 $ —

Net operating loss carry forwards 8,898 8,759

17 unchanged sentences

As a result, we had no current federal income tax provision for the years ended December 31, 2022, 2021 and 2020.

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

As of December 31, 2022 and 2021, we held $ 154.4 million and $ 89.2 million of tax and loss bonds, respectively, in "Prepaid federal income taxes" on our consolidated balance sheets.

At December 31, 2022, we had a federal net operating loss carryforward of $ 1.5 million which expires in varying amounts in 2030 and 2031, and state net operating loss carryforward of $ 133.2 million which expire in varying amounts from 2031 to 2043.

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

NMI HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2021

thereafter, through 2028.

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

6 unchanged sentences

federal income tax returns for 2019 and subsequent years, and state income tax returns for 2018 and subsequent years, remain open by statute.

NMI HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2022

Software and Equipment

24 unchanged sentences

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

The PMIERs financial requirements

NMI HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2021

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

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

non-performing ( i.e.

3 unchanged sentences

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

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

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

1 unchanged sentence

We certified to the GSEs by April 15, 2022, that NMIC was in full compliance with the PMIERs as of December 31, 2021.

NMIC also has an ongoing obligation to immediately notify the GSEs in writing upon discovery of a failure to meet one or more of the PMIERs requirements.

NMI HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2022

also has an ongoing obligation to immediately notify the GSEs in writing upon discovery of a failure to meet one or more of the PMIERs requirements.

We continuously monitor NMIC's compliance with the PMIERs.

We have two operating lease agreements related to our corporate headquarters and a data center facility for which we recognized operating ROU assets and lease liabilities of $ 2.6 million and $ 2.9 million in " Other assets " and " Other liabilities ," respectively, on our consolidated balance sheet as of December 31, 2021.

We have two operating lease agreements related to our corporate headquarters and a data center facility for which we recognized operating ROU assets and lease liabilities of $ 10.4 million and $ 12.1 million in " Other assets " and " Other liabilities ," respectively, on our consolidated balance sheets as of December 31, 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 December 31, 2022 and 2021, we did not have any finance leases.

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

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

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

In February 2022, we renewed the lease of our data center facility, extending its term through January 2024.

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.

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

The following table provides a summary of our ROU asset and lease liability assumptions as of December 31, 2022:

1 unchanged sentence

Weighted-average discount rate 6.50 %

Cash paid on our operating leases for the years ended December 31, 2021, 2020 and 2019 was $ 2.6 million, $ 2.5 million and $ 2.5 million and lease expense incurred was $ 2.3 million, $ 2.3 million and $ 2.2 million during each respective period, reflecting the net benefit of incentives received at inception of the lease.

Cash paid on our operating leases for the years ended December 31, 2022, 2021 and 2020 was $ 0.8 million, $ 2.6 million and $ 2.5 million and lease expense incurred was $ 2.0 million, $ 2.3 million and $ 2.3 million during each respective period.

Future payments due under our existing operating leases as of December 31, 2022 are as follows:

Years ending December 31, (In Thousands)

2028 and thereafter 5,317

Total undiscounted lease payments 15,448

1 unchanged sentence

Present value of lease payments $ 12,086

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

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

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

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

The existing and modified lease for our corporate

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

Our existing leases have original terms that range 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 time of renewal.

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.

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 defendant in one such case.

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

NMI HOLDINGS, INC.

1 unchanged sentence

DECEMBER 31, 2022

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

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

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

As of December 31, 2022 and 2021, we had 83.5 million and 85.8 million outstanding shares of Class A common stock, respectively.

Holders of our common stock have no preemptive or conversion rights or other subscription rights, and there are no redemption or sinking fund provisions applicable to the common stock.

1 unchanged sentence

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

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

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

Share repurchase program

On February 10, 2022, our Board of Directors approved a $ 125 million share repurchase program effective through December 31, 2023.

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 year ended December 31, 2022, we repurchased 2.9 million shares at an average price of $ 19.34 per share (excluding associated costs) pursuant to trading plans under Rule 10b-18 and Rule 10b5-1 of the Exchange Act.

As of December 31, 2022, $ 68.4 million of repurchase authority remained available under the program.

Regulatory Information

7 unchanged sentences

As a Wisconsin-domiciled insurer, NMIC's statutory net income reflects an expense associated with the change in its contingency reserve.

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

NMIC and Re One's combined statutory net income (loss), statutory surplus, contingency reserve, statutory capital and risk-to-capital (RTC) ratios as of and for the years ended December 31, 2021, 2020 and 2019 were as follows:

As of and for the year ended December 31,

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 net income (loss), statutory surplus, contingency reserve, statutory capital and risk-to-capital (RTC) ratio as of and for the years ended December 31, 2022, 2021 and 2020:

As of and for the years ended December 31,

2022 2021 2020

7 unchanged sentences

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

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

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

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

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

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

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

As of December 31, 2022, NMIC's performing primary RIF, net of reinsurance, was approximately $ 25.0 billion and its RTC ratio was 11.1 :1.

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

NMI HOLDINGS, INC.

1 unchanged sentence

DECEMBER 31, 2022

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

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

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

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

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

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

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

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

Ohio repealed this requirement for future periods beginning January 10, 2019.

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

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

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

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

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

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

Re One recorded a statutory loss of $ 58 thousand for the year ended December 31, 2022, and statutory income of $ 3.0 million and $ 0.4 million for the years ended December 31, 2021 and 2020, respectively.

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

Debt Service Allocation

The Wisconsin OCI has approved the allocation of interest expense on the $ 400 million Notes and $ 250 million 2021 Revolving Credit Facility to NMIC, to the extent proceeds from such offering and facility are distributed to NMIC or used to repay, redeem or otherwise defease amounts raised by NMIC under prior credit arrangements that have previously been distributed to NMIC.

Dividend Restrictions

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

During the year ended December 31, 2022, NMIC paid a $ 34.9 million ordinary course dividend to NMIH.

NMIC has the capacity to pay aggregate ordinary dividends of $ 98.0 million to NMIH during the twelve-month period ending December 31, 2023.

Following the commutation of the reinsurance agreement between NMIC and Re One, Re One distributed $ 26.0 million to NMIH in the form of a $ 1.6 million ordinary dividend and a $ 24.4 million extraordinary dividend with prior approval of the WI OCI.

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

Approved insurers that fail to meet the prescribed PMIERs financial requirements are not permitted to pay dividends without prior approval from the GSEs.

NMI HOLDINGS, INC.

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DECEMBER 31, 2022

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

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

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

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

Quarterly Financial Data (Unaudited)

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Other revenues 339 376 301 176 1,192

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

Insurance claims and claim (benefit) expenses ( 619 ) ( 3,036 ) ( 3,389 ) 3,450 ( 3,594 )

Underwriting and operating expenses 32,935 30,700 27,144 26,711 117,490

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Interest expense 8,041 8,051 8,036 8,035 32,163

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

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

Gain from change in fair value of warrant liability ( 93 ) ( 1,020 ) — — ( 1,113 )

Income before income taxes 86,747 97,189 98,589 94,780 377,305

Income tax expense 19,067 21,745 21,751 21,840 84,403

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

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

NMI HOLDINGS, INC.

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

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

Net realized investment gains — 12 3 714 729

Other revenues 501 483 613 380 1,977

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

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

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

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

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

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

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

Income before income taxes 67,456 73,655 77,451 78,162 296,725 (2)

Income tax expense 14,565 16,133 17,258 17,639 65,595

7 unchanged sentences

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

Subsequent Event

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

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

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

Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

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

What changed 10-K

Item 8. Financial Statements and Supplementary Data