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Item 1. Financial Statements

2023-05-03 compared with 2022-11-02 · 186 added, 313 removed, 518 unchanged (49% of the section changed)

1 unchanged sentence

INDEX TO FINANCIAL STATEMENTS

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

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

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

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

Condensed Consolidated Balance Sheets as of March 31, 2023 (Unaudited) and December 31, 2022

Condensed Consolidated Statements of Operations and Comprehensive Income (Loss) for the three months ended March 31, 2023 and 2022 (Unaudited)

Condensed Consolidated Statements of Changes in Shareholders' Equity for the three months ended March 31, 2023 and 2022 (Unaudited)

Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 2023 and 2022 (Unaudited)

Notes to Condensed Consolidated Financial Statements (Unaudited) 10

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CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)

September 30, 2022 December 31, 2021

March 31, 2023 December 31, 2022

Assets (In Thousands, except for share data)

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

Fixed maturities, available-for-sale, at fair value (amortized cost of $ 2,383,982 and $ 2,352,747 as of March 31, 2023 and December 31, 2022, respectively)

$ 2,171,766 $ 2,099,389

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

Cash and cash equivalents (including restricted cash of $ 2,197 and $ 2,176 as of March 31, 2023 and December 31, 2022, respectively)

83,104 44,426

1 unchanged sentence

Accrued investment income 15,702 14,144

Prepaid expenses 4,694 3,530

Deferred policy acquisition costs, net 59,921 58,564

1 unchanged sentence

Intangible assets and goodwill 3,634 3,634

Prepaid reinsurance premiums 1,454 2,393

Reinsurance recoverable 23,479 21,587

Prepaid federal income taxes 154,409 154,409

Other assets 19,733 18,267

5 unchanged sentences

Reinsurance funds withheld 2,313 2,674

Warrant liability, at fair value — 2,363

Deferred tax liability, net 223,368 193,859

1 unchanged sentence

Total liabilities 927,065 902,303

Commitments and contingencies (see Note 11)

Commitments and contingencies

Shareholders' equity

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

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

86,869,169 shares issued and 83,279,886 shares outstanding as of March 31, 2023 and 86,472,742 shares issued and 83,549,879 shares outstanding as of December 31, 2022 ( 250,000,000 shares authorized)

Additional paid-in capital 973,599 972,717

Treasury Stock, at cost:

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

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

3,589,283 and 2,922,863 common shares as of March 31, 2023 and December 31, 2022, respectively

( 71,437 ) ( 56,575 )

Accumulated other comprehensive loss, net of tax ( 171,821 ) ( 204,323 )

Retained earnings 975,501 901,043

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

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

2022 2021 2022 2021

Revenues (In Thousands, except for per share data)

For the three months ended March 31,

(In Thousands, except for per share data)

Net premiums earned $ 121,754 $ 116,495

Net investment income 14,894 10,199

Net realized investment gains 14 3 475 15

Net realized investment (losses) gains ( 33 ) 408

Other revenues 164 339

Total revenues 136,779 127,441

Insurance claims and claim (benefits) expenses ( 3,389 ) 3,204 ( 7,044 ) 12,806

Insurance claims and claim expenses (benefits) 6,701 ( 619 )

Underwriting and operating expenses 25,786 32,935

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Net income $ 74,458 $ 67,680

Other comprehensive loss, net of tax:

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

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

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

Other comprehensive income (loss), net of tax:

Unrealized gains (losses) in accumulated other comprehensive income (loss), net of tax expense (benefit) of $ 8,633 and $( 26,176 ) for the quarters ended March 31, 2023 and 2022, respectively

32,476 ( 98,471 )

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

Reclassification adjustment for realized losses (gains) included in net income, net of tax (benefit) expense of $( 7 ) and $ 86 for the quarters ended March 31, 2023 and 2022, respectively

Other comprehensive income (loss), net of tax 32,502 ( 98,794 )

Comprehensive income (loss) $ 106,960 $ ( 31,114 )

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Common Stock - Class A Additional

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

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

Shares Amount

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Common stock:

class A shares issued related to warrant exercises 51 1 1,143 — — — 1,144

Common stock:

class A shares issued under stock plans, net of shares withheld for employee taxes 396 4 ( 2,610 ) — — — ( 2,606 )

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Share-based compensation expense — — 3,492 — — — 3,492

Change in unrealized investment gains/losses, net of tax benefit of $ 26,262

Change in unrealized investment gains/losses, net of tax expense of $ 8,640

— — — — 32,502 32,502

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Balances, March 31, 2023 83,280 $ 869 $ 973,599 $ ( 71,437 ) $ ( 171,821 ) $ 975,501 $ 1,706,711

Common stock:

class A shares issued related to warrant exercises 33 * 624 — — — 624

Common stock:

class A shares issued under stock plans, net of shares withheld for employee taxes 68 1 ( 504 ) — — — ( 503 )

Repurchase of common stock ( 1,439 ) — — ( 25,371 ) — — ( 25,371 )

Share-based compensation expense — — 3,867 — — — 3,867

Change in unrealized investment gains/losses, net of tax benefit of $ 17,015

— — — — ( 64,011 ) — ( 64,011 )

Net income — — — — — 75,444 75,444

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

Common stock:

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

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

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

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

— — — — ( 59,946 ) — ( 59,946 )

Net income — — — — — 76,838 76,838

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

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

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

NMI HOLDINGS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (UNAUDITED)

Common Stock - Class A Additional

Paid-in Capital Accumulated Other Comprehensive Income Retained Earnings Total

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

Shares Amount

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class A shares issued under stock plans, net of shares withheld for employee taxes 430 4 26 — — — 30

Repurchase of common stock ( 235 ) — — ( 5,000 ) ( 5,000 )

Share-based compensation expense — — 4,196 — — — 4,196

3 unchanged sentences

Balances, March 31, 2022 86,039 $ 863 $ 960,667 $ ( 5,000 ) $ ( 97,309 ) $ 675,821 $ 1,535,042

Common stock:

class A shares issued related to warrant exercises 8 * 197 — — 197

Common stock:

class A shares issued under stock plans, net of shares withheld for employee taxes 95 1 ( 286 ) — — ( 285 )

Share-based compensation expense — — 3,383 — — 3,383

Change in unrealized investment gains/losses, net of tax expense of $ 4,992

— — — 18,780 — 18,780

Net income — — — — 57,522 57,522

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

Common stock:

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

Common stock:

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

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

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

— — — ( 8,146 ) — ( 8,146 )

Net income — — — — 60,193 60,193

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

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

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

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

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CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

For the nine months ended September 30,

For the three months ended March 31,

Cash flows from operating activities (In Thousands)

1 unchanged sentence

Adjustments to reconcile net income to net cash provided by operating activities:

Net realized investment gains ( 475 ) ( 15 )

Net realized investment losses (gains) 33 ( 408 )

Gain from change in fair value of warrant liability — ( 93 )

7 unchanged sentences

Accrued investment income ( 1,558 ) ( 521 )

Prepaid expenses ( 1,164 ) ( 1,117 )

Deferred policy acquisition costs, net ( 1,357 ) ( 143 )

1 unchanged sentence

Other assets (1)

( 1,612 ) ( 1,299 )

Unearned premiums ( 8,971 ) ( 844 )

12 unchanged sentences

Proceeds from issuance of common stock related to employee equity plans 2,657 4,491

Proceeds from issuance of common stock related to warrants 518 412

Proceeds from issuance of common stock related to warrant exercises — 290

Taxes paid related to net share settlement of equity awards ( 5,263 ) ( 4,461 )

1 unchanged sentence

Net cash used in financing activities ( 17,406 ) ( 4,680 )

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

Net increase in cash, cash equivalents and restricted cash 38,678 54,260

Cash, cash equivalents and restricted cash, beginning of period 44,426 76,646

Cash, cash equivalents and restricted cash, end of period $ 83,104 $ 130,906

Supplemental disclosures of cash flow information

Interest paid $ 14,750 $ 14,750

Income taxes refunded — 457

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

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

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The results of operations for the interim period may not be indicative of the results that may be expected for the full year ending December 31, 2023.

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 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.

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.

Significant Accounting Principles

There have been no changes to our significant accounting principles as described in Item 8, " Financial Statements and Supplementary Data - Notes to Consolidated Financial Statements - Note 2 - Summary of Accounting Principles " of our 2021 10-K, except as noted in " Share Repurchases" and " Recent Accounting Pronouncements - Adopted " below.

Share Repurchases

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

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

NMI HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

There have been no changes to our significant accounting principles as described in Item 8, " Financial Statements and Supplementary Data - Notes to Consolidated Financial Statements - Note 2 - Summary of Accounting Principles " of our 2022 10-K, except as noted in " Recent Accounting Pronouncements - Adopted " below.

Recent Accounting Pronouncements - Adopted

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, including our warrant liability.

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).

In August 2018, the Financial Accounting Standards Board (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 have evaluated the impact of the adoption of this guidance and have determined it will not have a material impact on our consolidated financial statements.

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

Recent Accounting Pronouncements - Not Yet Adopted

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

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

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

or (ii) it is more likely than not that we will be required to sell the impaired security prior to recovery of its amortized 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 consolidated statement of operations and comprehensive income as a "Net Realized Investment Loss." To the extent we determine that a security impairment is credit-related, an impairment loss is recognized through the statement of operations as a provision for credit loss expense.

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

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.

NMI HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

We hold all investments on an available-for-sale basis at fair value on our condensed consolidated balance sheets and evaluate each position quarterly for impairment.

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

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

If a sale is intended or likely to be required, we recognize an impairment loss equivalent to the difference of the amortized cost basis of the security and its fair value through the condensed consolidated statement of operations and comprehensive income as a "Net Realized Investment Loss." In the event of an impairment of a security that we intend to and have the ability to hold to maturity, we evaluate the drivers of the impairment to determine the portion that is credit related and the portion that is non-credit related.

The portion of impairment loss that is attributed to credit related factors is recognized through the statement of operations as a provision for credit loss and the portion that is attributed to non-credit related factors is recognized in other comprehensive income, net of taxes.

Fair Values and Gross Unrealized Gains and Losses on Investments

Cost Gross Unrealized Fair

As of September 30, 2022 (In Thousands)

As of March 31, 2023 (In Thousands)

Treasury securities and obligations of U.S.

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Total investments $ 2,352,747 $ 1,334 $ ( 254,692 ) $ 2,099,389

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

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

September 30, 2022 December 31, 2021

We did not own any mortgage-backed securities in our asset-backed securities portfolio at March 31, 2023 or December 31, 2022.

NMI HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

The following table presents a breakdown of the fair value of our corporate debt securities by issuer industry group as of March 31, 2023 and December 31, 2022:

March 31, 2023 December 31, 2022

Financial 38 % 38 %

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Total 100 % 100 %

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

As of March 31, 2023 and December 31, 2022, approximately $ 5.5 million and $ 5.4 million, respectively, of our cash and investments were held in the form of U.S.

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

NMI HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Scheduled Maturities

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

The amortized cost and fair value of available-for-sale securities as of March 31, 2023 and December 31, 2022, by contractual maturity, are shown below.

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

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

As of September 30, 2022 Amortized

As of March 31, 2023 Amortized

(In Thousands)

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Aging of Unrealized Losses

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

As of March 31, 2023, the investment portfolio had gross unrealized losses of $ 215.8 million, of which $ 209.2 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, 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.

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

Less Than 12 Months 12 Months or Greater Total

NMI HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

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 September 30, 2022 ($ In Thousands)

As of March 31, 2023 ($ In Thousands)

Treasury securities and obligations of U.S.

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Total 105 $ 375,308 $ ( 6,614 ) 491 $ 1,567,307 $ ( 209,156 ) 596 $ 1,942,615 $ ( 215,770 )

NMI HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Less Than 12 Months 12 Months or Greater Total

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, 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 )

1 unchanged sentence

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 )

Allowance for credit losses

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

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

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

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

As of March 31, 2023 and December 31, 2022, we did not recognize an allowance for credit loss for any security in the investment portfolio and we did not record any provision for credit loss for investment securities during the three months ended March 31, 2023 or 2022.

The decrease in the number of securities in and the aggregate size of the unrealized loss position as of March 31, 2023, was driven by fluctuations in interest rates and, to a lesser extent, movements in credit spreads since December 31, 2022.

We evaluated the securities in an unrealized loss position as of March 31, 2023, 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 March 31, 2023 are not indicative of the ultimate collectability of the current amortized cost of the securities.

Net Investment Income

The following table presents the components of net investment income:

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

2022 2021 2022 2021

For the three months ended March 31,

(In Thousands)

2 unchanged sentences

Net investment income $ 14,894 $ 10,199

NMI HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

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

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

2022 2021 2022 2021

For the three months ended March 31,

(In Thousands)

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Gross realized investment losses ( 33 ) ( 1 )

Net realized investment gains $ 14 $ 3 $ 475 $ 15

NMI HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Net realized investment (losses) gains $ ( 33 ) $ 408

Fair Value of Financial Instruments

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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.

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

NMI HOLDINGS, INC.

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(Level 3) Fair Value

As of September 30, 2022 (In Thousands)

As of March 31, 2023 (In Thousands)

Treasury securities and obligations of U.S.

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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

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

NMI HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

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

For the nine months ended September 30,

Warrant Liability 2022 2021

(In Thousands)

Balance, January 1 $ 2,363 $ 4,409

Change in fair value of warrant liability included in earnings ( 1,113 ) ( 454 )

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

Balance, September 30 $ — $ 3,010

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

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

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

As of September 30, 2021

Common stock price $ 22.61

Risk free interest rate 0.05 %

Expected life 0.56 years

Expected volatility 34.4 %

Dividend yield 0 %

There were no transfers between Level 2 and Level 3 of the fair value hierarchy during the three months ended March 31, 2023, or the year ended December 31, 2022.

Financial Instruments not Measured at Fair Value

On June 19, 2020, we issued $ 400 million aggregate principal amount of senior secured notes that mature on June 1, 2025 (the Notes) and used a portion of the proceeds from the Notes offering to repay the outstanding amount due under our $ 150 million term loan (2018 Term Loan).

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

At March 31, 2023, the Notes were carried at a cost of $ 396.4 million, net of unamortized debt issuance costs of $ 3.6 million, and had a fair value of $ 401.9 million as assessed under our Level 2 hierarchy.

At December 31, 2022, the Notes were carried at a cost of $ 396.1 million, net of unamortized debt issuance costs of $ 3.9 million, and had a fair value of $ 405.9 million.

Senior Secured Notes

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

At March 31, 2023, we had $ 400 million aggregate principal amount of senior secured notes outstanding.

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

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

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

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over the principal amount.

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

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

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

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

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The effective interest rate on the Notes is 7.825 %.

At March 31, 2023 and December 31, 2022, approximately $ 3.6 million and $ 3.9 million, respectively, of unamortized debt issuance costs remained.

At March 31, 2023 and December 31, 2022, $ 9.8 million and $ 2.5 million, respectively, of accrued and unpaid interest on the Notes was included in "Accounts Payable and Accrued Expenses" on the condensed 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 (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 September 30, 2022 and December 31, 2021, no amount was drawn under the 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 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 March 31, 2023 and December 31, 2022, no amounts were drawn under the 2021 Revolving Credit Facility.

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

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

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

As of March 31, 2023, the applicable commitment fee was 0.30 %.

For the three months ended March 31, 2023, we recorded $ 0.2 million of commitment fees in interest expense.

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

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

The 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 March 31, 2023 and December 31, 2022, remaining unamortized deferred debt issuance costs were $ 1.1 million and $ 1.2 million, respectively.

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

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

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

We were in compliance with all covenants at March 31, 2023.

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

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

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

For the three months ended For the nine months ended

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

For the three months ended

March 31, 2023 March 31, 2022

(In Thousands)

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(1) Net of profit commission.

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Excess-of-loss reinsurance

Insurance-linked notes

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

(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.

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.

(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.

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

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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 $ 10.7 million and $ 31.8 million during the three and nine months ended September 30, 2022, respectively, and $ 10.4 million and $ 30.0 million during the three and nine months ended September 30, 2021, respectively.

NMIC ceded aggregate premiums to the Oaktown Re Vehicles of $ 9.1 million and $ 10.9 million during the three months ended March 31, 2023 and 2022, respectively.

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

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

NMIC did not cede any incurred losses on covered policies to the Oaktown Re Vehicles during the three months ended March 31, 2023 and 2022, 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.

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

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

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

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

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

The amortization of reinsurance coverage, distribution of collateral assets and amortization of insurance-linked notes issued in connection with the 2018 and 2021-2 ILN Transactions will remain suspended for the duration of the Lock-Out Event for each respective ILN Transaction, and during such period assets will be preserved in the applicable reinsurance trust account to collateralize the excess-of-loss reinsurance coverage provided to NMIC.

Effective August 31, 2022, a Lock-Out Event for the 2019 ILN Transaction was deemed to have cleared and amortization of the associated reinsurance coverage, and distribution of collateral assets and amortization of the associated insurance-linked notes resumed.

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

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

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

The outstanding reinsurance coverage amounts stop amortizing, and the distribution of collateral assets 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).

As of March 31, 2023, the 2021-2 ILN Transaction was deemed to be in Lock

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

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

In connection with the termination of each respective transaction, NMIC’s excess of loss reinsurance agreements with Oaktown Re Ltd.

and Oaktown Re IV Ltd.

were commuted and the insurance-linked notes issued by the respective Oaktown Re Ltd and Oaktown Re IV Ltd.

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

Out in connection with the initial build of its target credit enhancement level and will remain in Lock Out until such target credit enhancement level is achieved.

Effective February 28, 2023, a previously triggered Lock-Out Event for the 2018 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 outstanding ILN Transaction.

Current amounts are presented as of September 30, 2022.

Current amounts are presented as of March 31, 2023.

( $ values in thousands)

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

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

(5) As of March 31, 2023, 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 September 30, 2022 and December 31, 2021, respectively.

"Cash and cash equivalents" on our condensed consolidated balance sheets includes restricted amounts of $ 2.2 million as of both March 31, 2023 and December 31, 2022.

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

NMIC is a party to four 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, the 2022-3 XOL Transaction, effective October 1, 2022, and the 2023-1 XOL Transaction, effective January 1, 2023 – 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.

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

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

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

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 $ 7.2 million during the three months ended March 31, 2023.

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

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

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

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

Additionally, under the terms of the treaties, NMIC may

NMIC did not cede any incurred losses on covered policies under the XOL Transactions during the three months ended March 31, 2023, 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

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selectively terminate its engagement with individual reinsurers under certain circumstances.

specified date.

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.

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Best) or both.

Current amounts are presented as of March 31, 2023.

($ 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 $ 283,077 $ 133,366 $ 133,366

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

154,306 152,347 78,906 78,906

2022-3 XOL Transaction October 1, 2022 7/1/2022 – 9/30/2022 96,779 96,197 106,265 106,265

2023-1 XOL Transaction (4)

January 1, 2023 10/1/2022 – 6/30/2023 59,509 59,509 94,977 94,977

(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.

(4) The initial reinsurance coverage, current reinsurance coverage, initial first layer retained loss and current first layer retained loss for the 2023-1 XOL Transaction will increase as incremental covered production is ceded under the transaction through June 30, 2023.

Quota share reinsurance

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

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.

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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, 2022, or at the end of any calendar quarter thereafter, which would result in NMIC recapturing the related risk.

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Under the terms of the 2020 QSR Transaction, NMIC cedes premiums earned related to 21 % of the risk on eligible policies written from April 1, 2020 to December 31, 2020.

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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, 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.

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

In 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.

and Oaktown Re IV Ltd.

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

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

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

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

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run-off basis ( i.e.

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

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

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

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The following table shows amounts related to the QSR Transactions:

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

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

As of and for the three months ended

March 31, 2023 March 31, 2022

(In Thousands)

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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 $ 3.5 million as of September 30, 2022.

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

The reinsurance recoverable on loss reserves related to the 2016 QSR Transaction was $ 2.4 million and $ 2.6 million as of March 31, 2023 and December 31, 2022, 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, 2022 QSR and 2022 Seasoned QSR Transactions was $ 16.3 million as of September 30, 2022.

The aggregate reinsurance recoverable on loss reserves related to the 2018, 2020, 2021, 2022, 2023 QSR and 2022 Seasoned QSR Transactions was $ 21.1 million and $ 19.0 million as of March 31, 2023 and December 31, 2022, respectively.

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

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

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

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The allowance for credit loss established on our reinsurance recoverable was deemed immaterial at March 31, 2023 and December 31, 2022.

Reserves for Insurance Claims and Claim Expenses

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

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

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

As of March 31, 2023, we had 4,475 primary loans in default and held gross reserves for insurance claims and claim expenses of $ 108.2 million.

During the three months ended March 31, 2023, we paid 21 claims totaling $ 0.4 million, including 20 claims covered under the QSR Transactions representing $ 0.1 million of ceded claims and claim expenses.

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

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

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

At March 31, 2023, 41 loans in the pool were in default.

These 41 loans represented approximately $ 2.9 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 September 30, 2022.

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

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

In connection with the settlement of pool claims, we applied $ 1.0 million to the pool deductible through March 31, 2023.

At March 31, 2023, the remaining pool deductible was $ 9.4 million.

We have not paid any pool claims to date.

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

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

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

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

We had 4,475 loans in default in our primary insured portfolio as of March 31, 2023, which represented a 0.75 % default rate against 600,294 total policies in-force and 4,449 loans in default in our primary portfolio as of December 31, 2022, which represented a 0.75 % default rate against 594,142 total policies in-force.

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.

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Our estimates of claims frequency and severity are not formulaic, rather they are broadly synthesized based on historical observed experience for similarly situated loans and assumptions about future macroeconomic factors.

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

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

In response to the COVID-19 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.

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

For the nine months ended September 30,

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

For the three months ended March 31,

(In Thousands)

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Add claims incurred:

Claims and claim (benefits) expenses incurred:

Claims and claim expenses (benefits) incurred:

Current year (2)

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( 20,907 ) ( 10,699 )

Total claims and claim (benefits) expenses incurred ( 7,044 ) 12,806

Total claims and claim expenses (benefits) incurred 6,701 ( 619 )

Less claims paid:

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

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

Amounts are presented net of reinsurance and included $ 22.3 million attributed to net case reserves and $ 4.9 million attributed to net IBNR reserves for the three months ended March 31, 2023 and $ 5.2 million attributed to net case reserves and $ 4.7 million attributed to net IBNR reserves for the three months ended March 31, 2022.

(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 $ 29.2 million attributed to net case reserves and $ 4.7 million attributed to net IBNR reserves for the nine months ended September 30, 2022 and $ 1.8 million attributed to net case reserves and $ 5.0 million attributed to net IBNR reserves for the nine months ended September 30, 2021.

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

Amounts are presented net of reinsurance and included $ 16.2 million attributed to net case reserves and $ 4.5 million attributed to net IBNR reserves for the three months ended March 31, 2023 and $ 5.8 million attributed to net case reserves and $ 4.7 million attributed to net IBNR reserves for the three months ended March 31, 2022.

NMI HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

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

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

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

Gross reserves of $ 72.7 million related to prior year defaults remained as of March 31, 2023.

Earnings per Share (EPS)

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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:

NMI HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

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

2022 2021 2022 2021

For the three months ended March 31,

(In Thousands, except for per share data)

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Anti-dilutive shares — 8

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 September 30, 2022 and there were no warrant exercises or changes in warrant liability fair value during the three months ended September 30, 2022.

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

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

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

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

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

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

We are a U.S.

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

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

Our effective tax rate on our pre-tax income was 22.6 % and 22.0 % for the three months ended March 31, 2023 and 2022, respectively.

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

Our effective tax rate may fluctuate between interim periods due to the impact of discrete items not included in our estimated annual effective tax rate, including the tax effects associated with the vesting of RSUs and exercise of options, and the change in fair value of our warrant liability.

Such items are treated on a discrete basis in the reporting period in which they occur.

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

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

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

As a result, our interim provision for income taxes for the three months ended March 31, 2023 primarily represents a change in our net deferred tax liability.

As of March 31, 2023 and December 31, 2022, we held $ 154.4 million of tax and loss bonds in "Prepaid federal income taxes" on our condensed consolidated balance sheets.

NMI HOLDINGS, INC.

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Stockholders' Equity

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

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

Commitments and Contingencies

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

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

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

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

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.

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

Weighted-average remaining lease term 7.4 years

Weighted-average discount rate 6.50 %

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

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

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

(In Thousands)

Remaining in 2022 $ 313

2028 and thereafter 5,316

Total undiscounted lease payments 15,781

Less effects of discounting ( 3,576 )

Present value of lease payments $ 12,205

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

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

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

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

NMI HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

On February 10, 2022, our Board of Directors approved a $ 125 million share repurchase program (excluding associated costs and applicable taxes) effective through December 31, 2023.

During the three months ended March 31, 2023, we repurchased 0.7 million shares at an average price of $ 22.19 (excluding associated costs and applicable taxes).

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).

As of March 31, 2023, $ 53.7 million of repurchase authority remained under the program.

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

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

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

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

Premium Receivable

Premiums Receivable

Premiums receivable consists of premiums due on our mortgage insurance policies.

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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 receivable was deemed immaterial at September 30, 2022 and December 31, 2021.

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

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

We established a $ 2.6 million and $ 2.3 million reserve for premium write-offs at March 31, 2023 and December 31, 2022, respectively.

Regulatory Information

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

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

NMIC and Re One generated combined statutory net income of $ 21.8 million and $ 18.6 million for the three months ended March 31, 2023 and 2022, respectively.

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

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

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

September 30, 2022 December 31, 2021

The following table presents NMIC's statutory surplus, contingency reserve, statutory capital and risk-to-capital (RTC) ratio as of March 31, 2023 and December 31, 2022.

March 31, 2023 December 31, 2022

(In Thousands)

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

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

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

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

Re One had $ 5.6 million of statutory capital at March 31, 2023 and December 31, 2022.

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

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

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

Subsequent Events

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

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

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

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

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

What changed 10-Q

Item 1. Financial Statements