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Item 1A. Risk Factors

2024-02-15 compared with 2023-02-15 · 84 added, 97 removed, 620 unchanged (23% of the section changed)

You should carefully consider the following risk factors, as well as all of the other information contained in this report, including our consolidated financial statements and the related notes thereto, before deciding to invest in our common stock.

You should carefully consider the following risk factors, as well as all other information contained in this report, including our consolidated financial statements and the related notes thereto, before deciding to invest in our common stock.

The occurrence of any of the following risks could materially and adversely affect our business, prospects, financial condition, operating results and cash flow.

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• Changes in factors that impact the length of time that our policies remain in force may adversely affect our future revenues and claims experience.

• Increases in inflation, interest rates and mortgage interest rates may have adverse impact on our business, future revenue, and financial condition.

• Changes in inflation, interest rates and mortgage interest rates may have adverse impact on our business, future revenue and financial condition.

• We outsource the underwriting of our mortgage insurance on certain loans to third-party underwriting service providers (USPs).

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Risk Related to Regulation of the Mortgage Insurance Industry

• There can be no assurance that the GSEs will continue to treat us as an approved insurer in the future, and our failure to maintain compliance with the GSEs' PMIERs could adversely impact our business, financial condition and operating results.

• There can be no assurance that the GSEs will continue to treat us as an approved insurer in the future, and changes to, or our failure to maintain compliance with, the GSEs' PMIERs, could adversely impact our business, financial condition and operating results.

• Changes in the business practices of the GSEs, including a decision to decrease or discontinue the use of private MI, or changes in the terms on which mortgage insurance coverage may be cancelled, federal legislation that changes their charters or a restructuring of the GSEs or changes in loan delivery pricing imposed by the GSEs could reduce the private MI market opportunity, reduce our revenues or increase our losses.

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• Our business prospects and operating results could be adversely impacted if, and to the extent that, the Consumer Financial Protection Bureau's ATR Rules defining a QM negatively impact the size of the origination market.

• The Company may be adversely impacted by the phasing out of London Interbank Offered Rate ( LIBOR).

• The implementation of the Basel rules may discourage the use of mortgage insurance.

Risks Related to Our Holding Company and Capital Structure

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The degree to which lenders or borrowers may select these alternatives now, or in the future, is difficult to predict.

As one or more of the alternatives described above, or new alternatives that may enter the market, are chosen over MI, our revenues

could be adversely impacted.

As one or more of the alternatives described above, or new alternatives that may enter the market, are chosen over MI, our revenues could be adversely impacted.

The loss of business in general or the specific loss of more profitable business could have a material adverse effect on our financial position and operating results.

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The frequency and severity of claims we incur is uncertain and depends largely on general economic conditions, including unemployment rate, interest rates, inflation and the effect of the Federal Reserve's action to control inflation (which could lead to potential economic downturn), and trends in home prices.

These may also be continue to be impacted by developments relating to the COVID-19 virus.

These risks may also be impacted by developments relating to the COVID-19 virus in the future.

To the extent that certain risks are unforeseen, or if we have underestimated the frequency and/or severity of loss of certain risks, our underwriting and credit risk management policies and practices may not be sufficient to mitigate the effects of these risks.

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Borrowers with high-LTV mortgages often have more difficulty (compared to borrowers with lower LTV mortgages) weathering personal financial hardships caused by unforeseen events, because they may not have sufficient personal savings or available credit to structure viable workout solutions.

Rising unemployment rates and deterioration in economic conditions for extended periods of time, including as a result of any potential economic downturn and developments relating to the COVID-19 virus and its variants, across the U.S.

Rising unemployment rates and deterioration in economic conditions for extended periods of time, across the U.S.

or in specific regional economies (such as the wave of layoffs in the technology sector in the recent past), generally increases the likelihood of borrower defaults.

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Home values may decline even absent deterioration in economic conditions due to declines in demand for homes, which may result from changes in buyers' perceptions of the potential for future home price appreciation, rising interest rates or availability of mortgage credit.

The ending of any widely embraced forbearance programs such as those provided under the CARES Act may also increase the realization of losses related to borrower defaults.

The ending of any widely embraced forbearance programs may also increase the realization of losses related to borrower defaults.

If our default and loss projections are materially inaccurate, our actual losses could materially exceed our expectations and adversely affect our financial condition and operating results.

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In the years leading up to 2022, mortgage interest rates had been at historical lows, primarily as a result of monetary policy by the Federal Reserve which kept the federal funds rate at historical lows.

In 2022, in an attempt to curb rising inflation, the Federal Reserve repeatedly and rapidly increased the federal funds rate which hit its highest

levels in 15 years in December 2022, and led to rising interest rates and mortgage interest rates.

Mortgage interest rates also recorded their largest increase in any calendar year in 2022 and the average rate on a 30-year, fixed-rate mortgage increased to the highest in 20 years.

As a result of the higher mortgage interest rates in 2022, we observed lower refinancing activities in the mortgage market compared to what we had observed in recent years prior to 2022, and therefore decreased turnover in our IIF.

Starting in 2022, in an attempt to curb rising inflation, the Federal Reserve repeatedly and rapidly increased the federal funds rate which, in

July 2023, hit its highest levels in 22 years, and led to rising interest rates and mortgage interest rates in 2022 and 2023.

As a result of the higher mortgage interest rates in 2022 and 2023, we observed lower refinancing activities in the mortgage market compared to what we had observed in recent years prior to 2022, and therefore decreased turnover in our IIF.

However, if in the future inflation lowers and the Federal Reserve subsequently loosens its monetary policy, mortgage interest rates would likely decline.

As in the years leading up to 2022, if we experience a lower interest rate environment in the future, we expect that to drive higher levels of refinancing in the mortgage market, including with respect to loans we insure which may have interest rates ( i.e.

, such as those written in 2022 in a higher interest rate environment) that are higher than the future prevailing rates.

, such as those written in 2022 and 2023 in a higher interest rate environment) that are higher than the future prevailing rates.

A lower interest environment could subsequently lead to an increased turnover in our IIF, which could negatively impact our future revenues.

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If the GSEs and other mortgage investors change their view on the timing of cancellation of mortgage insurance due to house price appreciation, policy goals, other risk appetite decisions or otherwise, we could experience increased and unexpected turnover in our IIF, which could negatively impact our future revenues.

Increases in inflation, interest rates and mortgage interest rates may have an adverse impact on our business, future revenue, and financial condition.

Changes in inflation, interest rates and mortgage interest rates may have an adverse impact on our business, future revenue and financial condition.

Since 2021, inflation has increased dramatically.

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Inflation's adverse impact on housing and mortgage affordability may therefore lower overall housing demand, result in lower NIW volume and negatively impact our business, future revenue and financial condition.

In an attempt to curb rising inflation, the Federal Reserve repeatedly and rapidly increased the federal funds rate in 2022 which led to rising interest rates and mortgage interest rates.

In an attempt to curb rising inflation, the Federal Reserve repeatedly and rapidly increased the federal funds rate in 2022 and 2023 which led to rising interest rates and mortgage interest rates, before announcing a pause in September 2023.

Higher interest rates and mortgage rates may have an adverse impact on the refinancing origination market and purchase origination market.

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Falling home prices may also result in an increase in our default losses as borrowers' equity in their homes declines and thus decreases our future revenues and returns.

In addition, if the Federal Reserve decides to continue its interest rate hikes, there can be no guarantee the Fed will raise rates at a gradual pace, nor can there be any assurance that markets will not adversely react to rate increases and that the rate hikes would not trigger an economic downturn.

In addition, if the Federal Reserve decides to resume its interest rate hikes in the future, there can be no guarantee it will raise rates at a gradual pace, nor can there be any assurance that markets will not adversely react to rate increases and that the rate hikes would not trigger an economic downturn.

Downturns in the domestic economy may result in more homeowners defaulting and our losses increasing, with a corresponding decrease in our returns.

Therefore, the ultimate impact that higher inflation rates will have on the mortgage origination and mortgage insurance markets, and our loan delinquencies is unknown, and increases in inflation, interest rates and mortgage interest rates may have an adverse impact on our business, future revenue and financial condition.

Therefore, the ultimate impact that higher inflation rates will have on the mortgage origination and mortgage insurance markets, and our loan delinquencies, is unknown, and changes in inflation, interest rates and mortgage interest rates may have an adverse impact on our business, future revenue and financial condition.

We outsource the underwriting of our mortgage insurance on certain loans to third-party underwriting service providers (USPs).

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We expect our claims to increase as our insured loan portfolio grows and matures.

The actual claims we incur as our portfolio matures are difficult to predict and depend on the specific characteristics of our current in-force book (including the credit score and DTI of the borrower, the LTV ratio of the mortgage and geographic concentrations, among others), as well as the risk profile of new business we write in the future.

In addition, our claims experience is affected by macroeconomic factors such as housing prices, inflation, interest rates, mortgage rates, unemployment rates and other events, such as natural disasters or global pandemics (including the ultimate future consequences of COVID-19), and any federal, state or local governmental response thereto.

The actual claims we incur as our portfolio matures are difficult to predict and depend on the specific characteristics of our current in-force book (including the credit score and DTI ratio of the borrower, the LTV ratio of the mortgage and geographic concentrations, among others), as well as the risk profile of new business we write in the future.

In addition, our claims experience is affected by macroeconomic factors such as housing prices, inflation, interest rates, mortgage rates, unemployment rates and other events, such as natural disasters or global pandemics, and any federal, state or local governmental response thereto.

See Part II, Item 7, " Management's Discussion and Analysis of Financial Condition and Results of Operations - Insurance Claims and Claim Expenses." Incurred losses and claims may exceed our expectations in the event of general economic weakness or decreases in housing values.

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The COVID-19 pandemic demonstrated that government actions in response to a national pandemic could create strains on servicers in connection with the remittance of premiums.

The COVID-19 virus, and the continuing spread and rise of new variants, remains a threat and we cannot estimate how the rise of new variants and government actions in response to them could affect our servicers in the future.

We cannot estimate how the rise of new variants and government actions in response to them could affect our servicers in the future.

If one or more of our large servicers were to experience adverse effects to its business, such servicers could experience delays in meeting their reporting requirements, which could result in our inability to correctly record new loans as they are underwritten and/or properly recognize and establish loss reserves on loans when defaults exist or occur but are not reported timely or at all.

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The COVID-19 virus has had and may continue to have negative impacts on the economy and on the financial, equity and credit markets, both globally and within the U.S.

While the initial impact of COVID-19 on our business has moderated, the COVID-19 virus, with the rise of new variants (including those with greater transmissibility and/or mortality rates), has continued to pose a global risk and affect communities across the U.S.

During the pandemic, there were a number of governmental and GSE efforts to implement programs designed to assist individuals and businesses impacted by the COVID-19 virus, including the CARES Act, the Consolidated Appropriations Act, 2021 (2021 Appropriations Act), the American Rescue Plan Act (the American Rescue Plan).

These programs provide financial assistance for businesses and individuals, and targeted regulatory relief for financial institutions.

Among other things, the CARES Act suspended foreclosures and evictions and remains in effect today.

The GSEs, the primary purchasers of mortgages we insure, have also adopted certain measures during the pandemic to assist borrowers impacted by COVID-19.

Consistent with the CARES Act, the GSEs have provided a forbearance plan to certain borrowers.

At the end of a forbearance plan, the affected borrower will not be required to pay back their reduced or suspended mortgage payments in one lump sum, but may be eligible for a number of different options offered by their mortgage servicer depending on their financial situation, including repayment plans, resuming normal payments or lowering the monthly loan payment through a modification.

Notwithstanding the GSEs' efforts and other programs, there can be no assurance that borrowers will be able to remain current on their mortgages after a forbearance period ends, and a significant percentage could remain in default and result in mortgage insurance claims.

Given the continuing spread and mutation of COVID-19 virus and the rise of new variants both within and outside of the U.S., the extent to which the COVID-19 virus and its current and future variants may materially impact our future financial results, business, liquidity and/or financial condition is uncertain and cannot be predicted.

There were and there may continue to be impacts on our markets, customers, new business, revenues, loss development and related impacts to our capital needs, employee health and productivity, investment portfolio performance, and ability to access capital and reinsurance markets in the future (if we need to).

The magnitude of any future impact of the COVID-19 virus and its variants on our business will depend on, among other things:

the spread of the virus and its variants (including those with greater transmissibility and/or mortality rates);

the extent and duration of any future containment measures implemented by governmental authorities to manage the spread of the virus and its variants;

the extent and effectiveness of medical treatments and vaccination efforts for the virus and its variants;

the extent and duration of COVID-19's effects on the economy, unemployment, governmental assistance programs, consumer confidence and consumer and business spending;

and the virus and its variants' long-term impact on the mortgage origination and mortgage insurance markets.

Because the COVID-19 virus and its variants has continued to pose a global risk and affect communities across the U.S., COVID-19 may continue to have an impact and effect on our business, liquidity, results of operations and financial condition.

The rise of new variants (including those with greater transmissibility and/or mortality rates), may continue to pose a global risk and affect communities across the U.S.

During the pandemic, there were a number of governmental and GSE efforts to implement programs designed to assist individuals and businesses impacted by the COVID-19 virus, among them the Coronavirus Aid, Relief, and Economic Security Act (CARES Act).

These programs provided financial assistance for businesses and individuals, and targeted regulatory relief for financial institutions.

Among other things, the CARES Act previously suspended foreclosures and evictions.

The GSEs, the primary purchasers of mortgages we insure, also adopted certain measures during the pandemic to assist borrowers impacted by COVID-19, including providing a forbearance plan to certain borrowers.

Since the COVID-related forbearance programs have since ended, there can be no assurance that borrowers will be able to remain current on their mortgages, and a significant percentage could remain in default and result in mortgage insurance claims.

The extent to which the COVID-19 virus and future variants may materially impact our future financial results, business, liquidity and/or financial condition is uncertain and cannot be predicted.

The occurrence of natural or man-made disasters or pandemics could adversely affect our business, financial condition and operating results.

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Our ultimate claims exposure when we experience these events depends on the number of loans in default, proximate cause of each default and cure rate of the default population.

Cure rates on loan defaults following natural disasters are influenced by the adequacy of homeowners and other hazard insurance carried on a related property, GSE-sponsored forbearance and other assistance programs, and a borrower's access to aid from government entities and private organizations, in ad dition to other factors which generally impact cure rates in

unaffected areas.

We have observed that l oans in default in disaster zones typically cure at a higher rate than non-disaster related loans in default.

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To that end, the FHFA announced a new Conservatorship Scorecard which would hold the GSEs accountable for ensuring resiliency to climate risks, and also enhanced its monitoring and supervision of climate change issues.

The FHFA has also established eight agency-wide internal working groups and a steering committee to assess the progress of the regulated entities in managing climate risk.

The goals of the working groups and steering committee are to better understand the impact of climate risk on the housing and mortgage markets.

It is possible that efforts to manage climate risk by the FHFA, GSEs (including through GSE guideline or mortgage insurance policy changes) or others could materially impact the volume and characteristics of our NIW (including its policy terms), home prices in certain areas and defaults by borrowers in certain areas, as well as increase the costs to us of providing mortgage insurance in certain areas, and therefore may impact our business and operations.

We are exposed to certain risks associated with our third-party reinsurance transactions, including the possibility that our reinsurers will fail to perform their obligations or that we will lose the capital credit we expected to receive when we entered into the transactions as a result of future GSE or Wisconsin OCI action or if any of our reinsurers experiences a downgrade or other adverse business event.

We use third-party reinsurance, including the QSR Transactions, the ILN Transactions and XOL Transactions, to actively manage our risk, ensure compliance with PMIERs, state regulatory and other applicable capital requirements and support the growth of our business.

We use third-party reinsurance, including the ILN Transactions, QSR Transactions, and XOL Transactions, to actively manage our risk, ensure compliance with PMIERs, state regulatory and other applicable capital requirements and support the growth of our business.

There is a risk that these transactions will not continue to provide the benefits we expected when we entered into them, including as a result of our counter-parties under the QSR Transactions and XOL Transactions (which are not fully collateralized like the ILN Transactions) not performing their obligations, the GSEs or the Wisconsin OCI not continuing to give us full capital credit as anticipated for the duration of the contracts, or if one or more reinsurers under any of the QSR Transactions or XOL Transactions experiences a downgrade or other adverse business event.

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If we do not continue to receive full capital credit in connection with these transactions, we would likely need to seek other sources of capital or reductions in RIF sooner than we would have expected with full capital credit under PMIERs and state insurance laws.

Future sources of capital will depend on the cost, availability and terms and conditions that are acceptable to us, our regulators and the GSEs.

sources of capital will depend on the cost, availability and terms and conditions that are acceptable to us, our regulators and the GSEs.

We cannot be sure that we will be able to secure other sources of capital or substitute reductions in RIF in the amounts we require and on favorable terms, if at all.

Our operating results depend in large part on our ability to manage the risks related to the growth of our business and on maintaining and enhancing effective operating procedures and internal controls.

Our mortgage insurance business has been rapidly growing since 2013.

Our mortgage insurance business has been quickly growing since 2013.

Our future operating results depend to a large extent on our ability to successfully manage the continued growth of our business and the demands such growth places on our operations personnel and senior management team.

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Our IT systems process, transmit, store and protect large amounts of personal information of borrowers whose mortgages we insure, in addition to the confidential, proprietary, financial and other information that are critical to our business.

Our IT systems and networks, including those functions that we may outsource, are vulnerable to unauthorized access, interruptions or failures due to events that are often beyond our control, including cyber-attacks, natural disasters, theft, terrorist attacks and general technology failures.

See Item 1C, " Cybersecurity ." Our IT systems and networks, including those functions that we may outsource, are vulnerable to unauthorized access, interruptions or failures due to events that are often beyond our control, including cyber-attacks, natural disasters, theft, terrorist attacks and general technology failures.

We may, from time to time, upgrade certain of our information systems, and transform and automate certain of our business processes.

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Our employees, contractors, customers or other users of our systems are from time-to-time subject to fraudulent inducements by parties attempting to gain access to our data or that of our customers.

Although we believe that we have appropriate information security policies and systems in place, t here is no assurance that our information security policies and systems in place can prevent unauthorized use or disclosure of confidential information, including nonpublic personal information.

Although w e seek to have appropriate information security policies and systems in place, t here is no assurance that our information security policies and systems in place can prevent unauthorized use or disclosure of confidential information, including nonpublic personal information.

Any compromise of the security of our IT systems may result in loss of personally identifiable information, financial losses, loss of customers and the inability to transact business;

could be costly and time-consuming to address and resolve;

could expose us to liability for further compromise, damages, harm our reputation, subject us to regulatory scrutiny and/or expose us to civil litigation or regulatory action.

could expose us to liability for further compromise, damages, harm our reputation;

and may subject us to regulatory scrutiny and/or expose us to civil litigation or regulatory action.

If any of these were to occur, our business, financial condition and operating results could be materially adversely affected.

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If we improperly structure our investments to meet those future liabilities or have unexpected losses in our portfolio, including losses resulting from impairments or the forced liquidation of investments before their maturity, we may be unable to meet those obligations.

NMIC's investments and investment policies are subject to state insurance laws, which results in our portfolio being predominantly limited to highly rated fixed income securities.

NMIC's investments and investment policies are subject to state insurance laws and PMIERs, which results in our portfolio being predominantly limited to highly rated fixed income securities.

Much of our investment portfolio has been established at a time of historically low interest rates.

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If it was necessary to sell these securities while they are in an unrealized loss position, it would adversely impact our financial condition.

We may be required or find it advisable to change our investments or investment policies depending upon regulatory, economic, social and market conditions, or our existing or anticipated financial condition and operating requirements, including the tax position, of our business.

We may be required or find it advisable to change our investments or investment policies depending upon regulatory, economic, social and market requirements or conditions, or our existing or anticipated financial condition and operating requirements, including the tax position, of our business.

Our investment objectives may not be achieved.

The success of our investment activity is affected by general economic conditions, which may adversely affect the markets for credit and interest-rate-sensitive securities, including the extent and timing of investor participation in these markets, the level and volatility of interest rates and, consequently, the value of fixed income securities.

The success of our

investment activity is affected by general economic conditions, which may adversely affect the markets for credit and interest-rate-sensitive securities, including the extent and timing of investor participation in these markets, the level and volatility of interest rates and, consequently, the value of fixed income securities.

We face regulatory and litigation risks associated with offering loan review services.

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Risks Related to Regulation of the Mortgage Insurance Industry

There can be no assurance that the GSEs will continue to treat us as an approved insurer in the future, and our failure to maintain compliance with the GSEs' PMIERs could adversely impact our business, financial condition and operating results.

There can be no assurance that the GSEs will continue to treat us as an approved insurer in the future, and changes to, or our failure to maintain compliance with the GSEs' PMIERs, could adversely impact our business, financial condition and operating results.

NMIC is a GSE- approved insurer , and the significant majority of insurance we write is on loans sold to the GSEs.

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In addition, the GSEs may amend or clarify other aspects of the PMIERs at any time.

There is no assurance NMIC will remain in

compliance or that the GSEs will not make the PMIERs financial requirements more onerous in the future.

There is no assurance NMIC will remain in compliance or that the GSEs will not make the PMIERs financial requirements more onerous in the future.

If any future updates to the PMIERs would require NMIC to materially increase the amount of available assets to support its business writings, the amount of capital NMIC is required to hold will increase, which may have a negative effect on our returns.

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PMIERs' approval requirements could prohibit, materially modify or delay us in our intended course of action.

Further, the GSEs may modify or change their interpretation of terms they require us to include in our mortgage insurance policies for loans purchased by them, requiring us to modify our terms of coverage or operational procedures to remain an approved insurer, and such changes could have a material adverse impact on our financial position and operating results.

position and operating results.

For example, we and other approved insurers were required to implement new master policies to, among other things, include terms that conform to the GSEs' RRP.

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In September 2021, the FHFA under Director Thompson, together with the Treasury Department, proposed amendments to the 2020 ERCF rule.

On March 16, 2022, the FHFA adopted the final rule (effective May 16, 2022) (2022 ERCF amendment) that amended the ERCF by refining the prescribed leverage buffer amount and the CRT securitization

framework for the GSEs, which reduced the amount of capital the GSEs are required to hold, including by increasing the capital credit the GSEs receive for the credit risk that they distribute.

On March 16, 2022, the FHFA adopted the final rule (effective May 16, 2022) (2022 ERCF amendment) that amended the ERCF by refining the prescribed leverage buffer amount and the CRT securitization framework for the GSEs, which reduced the amount of capital the GSEs are required to hold, including by increasing the capital credit the GSEs receive for the credit risk that they distribute.

While the 2022 ERCF amendment made positive modifications to the ERCF, the total capital required to be held by the GSEs upon implementation of the final rule remains significant.

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, our RIF grows faster than expected) or is less profitable than expected ( i.e.

, our revenues do not generate the

return we expect), our actual RTC ratios over the short to mid-term could exceed our expected RTC ratios and could begin to approach the limits to which we are subject, which could require us to enter into alternative arrangements to reduce our RIF, including through additional reinsurance or raising additional capital.

, our revenues do not generate the return we expect), our actual RTC ratios over the short to mid-term could exceed our expected RTC ratios and could begin to approach the limits to which we are subject, which could require us to enter into alternative arrangements to reduce our RIF, including through additional reinsurance or raising additional capital.

If this were to occur, we can give no assurance that our efforts to obtain additional reinsurance or otherwise reduce our RIF, or to raise capital would be successful, and if such efforts are unsuccessful, we could exceed state-imposed capital requirements.

Accordingly, if we fail to meet the capital adequacy requirements in one or more states, we could be required to suspend writing business in some or all of the states in which we do business.

The NAIC has formed the Working Group to discuss and recommend changes to the solvency and market practices regulation of mortgage insurers, including changes to the Model Act.

We, along with other mortgage insurers, have provided feedback to the Working Group since early 2013, including comments on proposed amendments to the Model Act which is still pending.

The Working Group's discussions are ongoing and the ultimate outcome of these discussions and any potential actions taken by the NAIC cannot be predicted at this time.

If the Working Group's final proposal to the NAIC contains more stringent capital requirements, this could ultimately lead to NMIC being obligated to hold more capital for its insured business than we are required to hold under PMIERs, which would reduce our profitability compared to the profitability we expect under the existing capital requirements.

The private MI industry is, and as a participant we are, subject to litigation and regulatory enforcement risk generally.

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As a result, the members of the MI industry, including NMIC, face litigation risk, including the risk of class action lawsuits, and administrative enforcement by federal regulators and state insurance agencies in the ordinary course of operations.

In addition, the private MI industry, including NMIC, may be affected by changes in the laws and regulations to which we are subject or the way they are interpreted or applied.

In addition, the

private MI industry, including NMIC, may be affected by changes in the laws and regulations to which we are subject or the way they are interpreted or applied.

See " Item 1 - Business - U.S.

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Our business prospects and operating results could be adversely impacted if, and to the extent that, the Consumer Financial Protection Bureau's ATR Rules defining a QM negatively impact the size of the origination market.

In January 2014, the CFPB implemented the Dodd-Frank Act ATR mortgage provisions (ATR), which govern the obligation of lenders to determine a borrower's ability to pay when originating a mortgage loan covered by ATR.

In January 2014, the CFPB implemented the Dodd-Frank Act ATR mortgage provisions, which govern the obligation of lenders to determine a borrower's ability to pay when originating a mortgage loan covered by ATR.

A subset of mortgages falling under the ATR that has certain low-risk characteristics are known as QMs.

QMs that are deemed to have the lowest risk profiles are entitled to a safe-harbor presumption of compliance with the ability-to-pay requirements.

In the fourth

quarter of 2020, the CFPB released a series of final rules to (i) eliminate the QM Patch, (ii) amend the definition of a General QM, and (iii) provide for a new, Seasoned QM category.

In the fourth quarter of 2020, the CFPB released a series of final rules to (i) eliminate the temporary QM category, typically referred to as the "QM Patch", (ii) amend the definition of a General QM, and (iii) provide for a new, Seasoned QM category.

The General QM final rule was effective on March 1, 2021 with an extended mandatory compliance date of October 1, 2022.

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Our business prospects and operating results could be adversely impacted if, and to the extent that, the QM regulations or the CFPB's actions negatively impact the size of the origination market.

The Company may be adversely impacted by the phasing out of London Interbank Offered Rate (LIBOR).

Certain financial contracts around the world specify rates that are based on LIBOR which is produced daily by averaging the rates for inter-bank lending reported by a number of banks.

As previously announced by the United Kingdom’s Financial Conduct Authority in 2017, most maturities and currencies of LIBOR were phased out at the end of 2021, with the remaining ones to be phased out on June 30, 2023.

Efforts to identify and transition to a set of alternative U.S.

dollar reference rates have been underway, including proposals by the Alternative Reference Rates Committee of the Federal Reserve (ARRC).

In 2017, the ARRC recommended an alternative reference rate referred to as the Secured Overnight Financing Rate (SOFR), a combination of certain overnight repo rates, to replace USD LIBOR, and the Federal Reserve Bank of New York began publishing SOFR in 2018.

We have exposure to LIBOR-indexed financial instruments, including our credit instruments and ILN Transactions.

As of December 31, 2022, we held $21.9 million of floating-rate securities in our investment portfolio that yield interest based on an index rate, predominantly LIBOR, plus a margin (the LIBOR-indexed securities).

We continue to analyze potential risks associated with the LIBOR transition, including financial, operational, legal and market risks.

We have reviewed and identified our LIBOR-indexed financial instructions.

We have created an enterprise plan for our LIBOR-based contracts to transition to an alternative reference rate at the discontinuance of LIBOR.

We continue to review and monitor our exposure to LIBOR, along with the market adoption of alternative reference rates and industry-standard contractual fall-back provisions.

Each of our LIBOR-indexed financial instruments and we believe most of our LIBOR-indexed securities provides for determining an alternative reference rate if LIBOR is discontinued.

LIBOR-indexed ARMs typically provide lenders with the option to choose a comparable rate if LIBOR ceases to exist.

However, there is considerable uncertainty as to how the financial services industry will address the discontinuance of LIBOR in these financial instruments.

Alternative reference rates that replace LIBOR may not yield the same or similar economic results over the lives of these financial instruments.

In addition, while the ARRC was created to ensure a successful transition from LIBOR, there can be no assurance that the ARRC will endorse practices that create a smooth transition and minimize value transfers between market participants, or that its endorsed practices will be broadly adopted by market participants.

In addition, we cannot anticipate how long it will take to develop the systems and processes necessary to adopt SOFR or other benchmark replacements, which may delay and contribute to uncertainty and volatility surrounding the LIBOR transition.

Accordingly, a change or transition away from LIBOR as a common reference rate in the financial market could have a range of adverse effects on our business.

In particular any such transition could:

• adversely affect the interest rates we pay on our LIBOR-indexed financial instruments;

• cause volatility in the yield of our LIBOR-indexed securities and investment income;

• prompt additional inquiries or other actions from regulators in respect of our preparation and readiness for the replacement of LIBOR with an alternative reference rate;

• result in disputes, litigation or other actions with our counterparties regarding the interpretation and enforceability of certain fall-back language in LIBOR-based instruments and securities we hold;

• disrupt the residential mortgage market, including with respect to ARMs, if replacement indices unilaterally chosen by lenders negatively impact borrowers, which could give rise to higher than expected rates of default on such loans and increased litigation.

The implementation of the Basel rules may discourage the use of mortgage insurance.

The Basel Committee developed t he Basel Capital Accord in 1988 to set out international benchmarks for assessing banks' capital adequacy requirements.

See Item 1, " U.S.

Mortgage Insurance Regulations - Basel Rules.

" The capital adequacy requirements, among other factors, govern the capital treatment of MI purchased and held on balance sheet by domestic and international banks in respect of their residential mortgage loan origination and securitization activities.

In July 2013, U.S.

banking regulators promulgated regulations to implement significant elements of the Basel framework, which we refer to as Basel III.

In December 2017, the Basel Committee published final revisions to Basel III (informally known as "Basel IV").

Under Basel IV, banks using the standardized approach to determine their credit risk may consider mortgage insurance in calculating the exposure amount for real estate.

However, such banks will need to determine the risk-weight for residential mortgages based on the LTV ratio at loan origination, without factoring in mortgage insurance.

Under the standardized approach, after the appropriate risk-weight is determined, the existence of mortgage insurance could be considered, but only if the company issuing the insurance has a lower risk-weight than the underlying exposure.

Mortgage insurance issued by private companies would not meet this test.

Therefore, under Basel IV, mortgage insurance could not mitigate credit and lower the capital charge under the standardized approach.

On September 9, 2022, the U.S.

banking regulators announced their intent to revise U.S.

regulatory capital requirements to align them with Basel IV.

On July 27, 2023, the U.S.

banking regulators jointly issued a proposed rule that would revise large bank capital requirements.

On September 18, 2023, the U.S.

banking regulators announced this proposed rule would increase risk-based capital requirements for banks with total assets of $100 billion or more.

This proposal increases the risk weights for LTVs that are above 80% and eliminates the current capital relief credit that is given to these loans if they are covered by mortgage insurance.

Accordingly, as proposed, the revised standards would mean mortgage insurance would not lower the LTV ratio of residential loans for capital purposes for these large banks, and therefore may decrease their demand for mortgage insurance.

These large banks may also retreat from high LTV lending if the proposal, as drafted, is passed.

However, we do not have clarity on when we can expect the final proposal or how much time will be provided for banking organizations to implement the final rule once it has been issued.

Further, it is possible (but not mandated by Basel IV) that the U.S.

banking regulators and the GSEs might likewise discontinue taking mortgage insurance into account when determining a mortgage’s LTV ratio for prudential (non-capital) purposes.

We believe the existing U.S.

implementation of the Basel IV capital framework supports continued use of private MI by portfolio lenders as a risk and capital management tool;

however, with the ongoing implementation of Basel IV and the continued evolution of the Basel framework, it is difficult to predict the extent of the impact, if any, on the MI industry and the ultimate form of any potential future modifications to the regulations by federal banking regulators.

If the Basel Committee revises the Basel IV framework to reduce or eliminate the capital benefit banks receive from insuring low down payment loans with private MI, our current and future business may be adversely affected.

Risks Related to Our Holding Company and Capital Structure

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Other states in which our insurance subsidiaries are licensed also limit or restrict their ability to pay dividends.

It is possible that Wisconsin and other states that have dividend restrictions will adopt revised statutory provisions or interpretations of existing statutory provisions that could be more restrictive than those currently in effect or will otherwise take actions that may further restrict the ability of our insurance subsidiaries to pay dividends or make distributions or returns of capital.

It is possible that Wisconsin and other states that have dividend restrictions will adopt revised statutory provisions or

interpretations of existing statutory provisions that could be more restrictive than those currently in effect or will otherwise take actions that may further restrict the ability of our insurance subsidiaries to pay dividends or make distributions or returns of capital.

In addition, under the PMIERs, if an approved insurer fails to meet the PMIERs financial requirements, such approved insurer may not pay dividends without the prior written approval of the GSEs.

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Our current credit ratings may adversely affect our ability to access capital and the cost of such capital, which could have a material adverse effect on our business, financial condition and operating results.

Our current issuer credit and debt ratings are below investment grade.

Our current credit ratings, or any future negative actions the credit agencies may take, could affect our ability to access the reinsurance, credit and capital markets in the future and could lead to worsened trade terms, adversely affecting the cost.

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These sales could also make it more difficult for us to sell equity or equity-related securities in the future, at a time and place that we deem appropriate.

Our Amended and Restated 2014 Omnibus Incentive Plan (2014 Plan) has a total of 8,250,000 shares authorize for issuance.

Our Amended and Restated 2014 Omnibus Incentive Plan (2014 Plan) has a total of 8,250,000 shares authorized for issuance.

Any shares issued under our 2014 Plan, including as a result of the exercise of stock options, would dilute the percentage ownership held by investors who purchase our shares prior to such issuance.

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These provisions, alone or together, could delay hostile takeovers and changes of control of the Company or changes in our management.

Additionally, cumulative voting in the election of our directors in not allowed.

Additionally, cumulative voting in the election of our directors is not allowed.

As a Delaware corporation, we are also subject to anti-takeover provisions of Delaware law, including Section 203 of the Delaware General Corporation Law, which, subject to certain exceptions, prohibits a public Delaware corporation from engaging in a business combination (as defined in such section) with an "interested stockholder" (defined generally as any person who beneficially owns 15% or more of the outstanding voting stock of such corporation or any person affiliated with such person) for a period of three years following the time that such stockholder became an interested stockholder, unless (i) prior to such time, the board of such corporation approved either the business combination or the transaction that resulted in the stockholder becoming an interested stockholder;

6 unchanged sentences

Any provision of our certificate of incorporation or bylaws or Delaware law or under the Wisconsin insurance regulations that has the effect of delaying or deterring a change in control could limit the opportunity for our stockholders to receive a premium for their shares of common stock, and could also affect the price that some investors are willing to pay for shares of our common stock.

Unresolved Staff Comments

We lease approximately 36,983 square feet of office space in Emeryville, California pursuant to an office facility lease that we initially entered into in 2012 (as amended, the Lease).

The term of the Lease extends through March 2030.

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 1A. Risk Factors