What changed in this filing

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Item 1. Financial Statements

2024-11-07 compared with 2024-07-31 · 123 added, 101 removed, 633 unchanged (26% of the section changed)

1 unchanged sentence

INDEX TO FINANCIAL STATEMENTS

Condensed Consolidated Balance Sheets as of June 30, 2024 (Unaudited) and December 31, 2023

Condensed Consolidated Statements of Operations and Comprehensive Income for the three and six months ended June 30, 2024 and 2023 (Unaudited)

Condensed Consolidated Statements of Changes in Shareholders' Equity for the three months ended March 31 and June 30, 2024 and 2023 (Unaudited)

Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2024 and 2023 (Unaudited)

Condensed Consolidated Balance Sheets as of September 30, 2024 (Unaudited) and December 31, 2023

Condensed Consolidated Statements of Operations and Comprehensive Income for the three and nine months ended September 30, 2024 and 2023 (Unaudited)

Condensed Consolidated Statements of Changes in Shareholders' Equity for the three months ended March 31, June 30, and September 30, 2024 and 2023 (Unaudited)

Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2024 and 2023 (Unaudited)

Notes to Condensed Consolidated Financial Statements (Unaudited) 11

1 unchanged sentence

CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)

June 30, 2024 December 31, 2023

September 30, 2024 December 31, 2023

Assets (In Thousands, except for share data)

Fixed maturities, available-for-sale, at fair value (amortized cost of $ 2,707,416 and $ 2,542,862 as of June 30, 2024 and December 31, 2023, respectively)

Fixed maturities, available-for-sale, at fair value (amortized cost of $ 2,806,886 and $ 2,542,862 as of September 30, 2024 and December 31, 2023, respectively)

$ 2,708,286 $ 2,371,021

Cash and cash equivalents (including restricted cash of $ 1,152 and $ 1,338 as of June 30, 2024 and December 31, 2023, respectively)

Cash and cash equivalents (including restricted cash of $ 88 and $ 1,338 as of September 30, 2024 and December 31, 2023, respectively)

133,319 96,689

19 unchanged sentences

Common stock - $ 0.01 par value;

87,900,888 shares issued and 79,763,893 shares outstanding as of June 30, 2024 and 87,334,138 shares issued and 80,881,280 shares outstanding as of December 31, 2023 ( 250,000,000 shares authorized)

87,901,225 shares issued and 79,320,863 shares outstanding as of September 30, 2024 and 87,334,138 shares issued and 80,881,280 shares outstanding as of December 31, 2023 ( 250,000,000 shares authorized)

Additional paid-in capital 997,570 990,816

Treasury Stock, at cost:

8,136,995 and 6,452,858 common shares as of June 30, 2024 and December 31, 2023, respectively

8,580,362 and 6,452,858 common shares as of September 30, 2024 and December 31, 2023, respectively

( 218,364 ) ( 148,921 )

7 unchanged sentences

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

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

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

2024 2023 2024 2023

20 unchanged sentences

Net income $ 92,810 $ 83,955 $ 273,939 $ 238,697

Other comprehensive (loss) income, net of tax:

Unrealized (losses) gains in accumulated other comprehensive income, net of tax (benefit) expense of $( 412 ) and $( 4,120 ) for the three months ended June 30, 2024 and 2023, and $( 3,141 ) and $ 4,513 for the six months ended June 30, 2024 and 2023, respectively

Other comprehensive income (loss), net of tax:

Unrealized gains (losses) in accumulated other comprehensive loss, net of tax expense (benefit) of $ 18,441 and $( 6,980 ) for the three months ended September 30, 2024 and 2023, and $ 15,300 and $( 2,467 ) for the nine months ended September 30, 2024 and 2023, respectively

69,372 ( 26,257 ) 57,918 ( 9,280 )

Reclassification adjustment for realized losses included in net income, net of tax benefit of $ 7 for the six months ended June 30, 2023

Other comprehensive (loss) income, net of tax ( 1,549 ) ( 15,499 ) ( 11,454 ) 17,003

Reclassification adjustment for realized losses included in net income, net of tax benefit of $ 2 and $ 0 for the three months ended September 30, 2024 and 2023, and $ 2 and $ 7 for the nine months ended September 30, 2024 and 2023, respectively

Other comprehensive income (loss), net of tax 69,380 ( 26,257 ) 57,926 ( 9,254 )

Comprehensive income $ 162,190 $ 57,698 $ 331,865 $ 229,443

23 unchanged sentences

Balances, June 30, 2024 79,764 $ 879 $ 993,143 $ ( 201,323 ) $ ( 151,371 ) $ 1,404,282 $ 2,045,610

Common stock:

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

Repurchase of common stock ( 443 ) — — ( 17,041 ) — — ( 17,041 )

Share-based compensation expense — — 4,439 — — — 4,439

Change in unrealized investment gains/losses, net of tax expense of $ 18,443

— — — — 69,380 — 69,380

Net income — — — — — 92,810 92,810

Balances, September 30, 2024 79,321 $ 879 $ 997,570 $ ( 218,364 ) $ ( 81,991 ) $ 1,497,092 $ 2,195,186

* During the three months ended September 30, 2024, we issued 337 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 is not identifiable in this schedule due to rounding.

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

22 unchanged sentences

Balances, June 30, 2023 82,290 $ 870 $ 977,295 $ ( 97,675 ) $ ( 187,320 ) $ 1,055,785 $ 1,748,955

Common stock:

shares issued under stock plans, net of shares withheld for employee taxes 15 * 9 — — — 9

Repurchase of common stock ( 675 ) — — ( 19,441 ) — — ( 19,441 )

Share-based compensation expense — — 3,740 — — — 3,740

Change in unrealized investment gains/losses, net of tax benefit of $ 6,980

— — — — ( 26,257 ) — ( 26,257 )

Net income — — — — — 83,955 83,955

Balances, September 30, 2023 81,630 $ 870 $ 981,044 $ ( 117,116 ) $ ( 213,577 ) $ 1,139,740 $ 1,790,961

* During the three months ended September 30, 2023, we issued 15,430 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 is not identifiable in this schedule due to rounding.

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

1 unchanged sentence

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

For the six months ended June 30,

For the nine months ended September 30,

Cash flows from operating activities (In Thousands)

3 unchanged sentences

Depreciation and amortization 8,970 8,516

Net amortization of premium on investment securities 785 2,077

Net accretion of discount on investment securities ( 229 ) ( 55 )

Loss on extinguishment of debt 6,966 —

28 unchanged sentences

Net cash used in financing activities ( 67,997 ) ( 62,621 )

Net (decrease) increase in cash, cash equivalents and restricted cash ( 34,060 ) 28,893

Net increase in cash, cash equivalents and restricted cash 36,630 132,037

Cash, cash equivalents and restricted cash, beginning of period 96,689 44,426

28 unchanged sentences

Actual results could differ from those estimates.

In the opinion of management, these unaudited condensed consolidated financial statements include all adjustments (including normal recurring adjustments) that are necessary to present a fair statement of financial position, results of operations and cash flows for the periods presented.

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, 2024.

5 unchanged sentences

The standard will take effect for all public business entities, including those that have only a single reportable segment for fiscal years beginning after December 15, 2023, and interim periods beginning after December 31, 2024.

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

We are currently evaluating the impact the adoption of this ASU will have and will include enhanced disclosures in our fiscal year-end 2024 annual consolidated financial statements, as applicable.

In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740).

12 unchanged sentences

Cost Gross Unrealized Fair

As of June 30, 2024 (In Thousands)

As of September 30, 2024 (In Thousands)

Treasury securities and obligations of U.S.

16 unchanged sentences

Total investments $ 2,542,862 $ 12,498 $ ( 184,339 ) $ 2,371,021

We did not own any mortgage-backed securities in our asset-backed securities portfolio at June 30, 2024 or December 31, 2023.

We did not own any mortgage-backed securities in our asset-backed securities portfolio at September 30, 2024 or December 31, 2023.

We periodically recognize unsettled trade receivables or payables in connection with our investing activity.

1 unchanged sentence

Unsettled trade payables represent funds due but not yet paid for investments purchased at period end.

“Other Assets” on our condensed consolidated balance sheets included $ 43.0 million of unsettled trade receivables related to the maturity of certain investment securities at June 30, 2024.

“Accounts Payable and Accrued Expenses” on our condensed consolidated balance sheets included $ 16.2 million of unsettled trade payables related to the purchase of certain investment securities at September 30, 2024.

No unsettled trade receivables were outstanding at September 30, 2024.

No unsettled trade receivables or payables were outstanding at December 31, 2023.

1 unchanged sentence

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 June 30, 2024 and December 31, 2023:

June 30, 2024 December 31, 2023

The following table presents a breakdown of the fair value of our corporate debt securities by issuer industry group as of September 30, 2024 and December 31, 2023:

September 30, 2024 December 31, 2023

Financial 38 % 35 %

5 unchanged sentences

Total 100 % 100 %

As of both June 30, 2024 and December 31, 2023, approximately $ 5.3 million of our cash and investments were held in the form of U.S.

As of September 30, 2024 and December 31, 2023, approximately $ 5.4 million and $ 5.3 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.

Scheduled Maturities

The amortized cost and fair value of available-for-sale securities as of June 30, 2024 and December 31, 2023, by contractual maturity, are shown below.

The amortized cost and fair value of available-for-sale securities as of September 30, 2024 and December 31, 2023, by contractual maturity, are shown below.

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

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

As of June 30, 2024 Amortized

As of September 30, 2024 Amortized

(In Thousands)

14 unchanged sentences

Aging of Unrealized Losses

As of June 30, 2024, the investment portfolio had gross unrealized losses of $ 190.1 million, of which $ 184.8 million were associated with securities that had been in an unrealized loss position for a period of twelve months or longer.

As of September 30, 2024, the investment portfolio had gross unrealized losses of $ 128.0 million, of which $ 127.5 million were associated with securities that had been in an unrealized loss position for a period of twelve months or longer.

As of December 31, 2023, the investment portfolio had gross unrealized losses of $ 184.3 million, of which $ 183.1 million were associated with securities that had been in an unrealized loss position for a period of twelve months or longer.

4 unchanged sentences

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

As of June 30, 2024 ($ In Thousands)

As of September 30, 2024 ($ In Thousands)

Treasury securities and obligations of U.S.

16 unchanged sentences

Allowance for Credit Losses

As of June 30, 2024 and December 31, 2023, we did not recognize an allowance for credit loss for any security in the investment portfolio and we did not record any provision for credit loss for investment securities during the three or six months ended June 30, 2024 or 2023.

We evaluated the securities in an unrealized loss position as of June 30, 2024, assessing their credit ratings as well as any adverse conditions specifically related to the security.

Based upon our assessment of the amount and timing of cash flows to be collected over the remaining life of each instrument, we believe the unrealized losses as of June 30, 2024 are not indicative of the ultimate collectability of the current amortized cost of the securities.

Rather, the unrealized losses on securities held as of June 30, 2024 were primarily driven by fluctuations in interest rates, and to a lesser extent, movements in credit spreads following the purchase of those securities.

As of September 30, 2024 and December 31, 2023, 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 months ended September 30, 2024 or 2023.

We evaluated the securities in an unrealized loss position as of September 30, 2024, assessing their credit ratings as well as any adverse conditions specifically related to the security.

Based upon our assessment 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, 2024 are not indicative of the ultimate collectability of the current amortized cost of the securities.

Rather, the unrealized losses on securities held as of September 30, 2024 were primarily driven by fluctuations in interest rates, and to a lesser extent, movements in credit spreads following the purchase of those securities.

Net Investment Income

The following table presents the components of net investment income:

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

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

2024 2023 2024 2023

4 unchanged sentences

Net investment income $ 22,474 $ 17,853 $ 62,598 $ 49,265

(1) Includes interest income recognized on cash and cash equivalents of $ 1.8 million and $ 2.9 million during the three and six months ended June 30, 2024, respectively, and $ 0.4 million and $ 0.7 million during the three and six months ended June 30, 2023, respectively.

(1) Includes interest income recognized on cash and cash equivalents of $ 1.3 million and $ 4.2 million during the three and nine months ended September 30, 2024, respectively, and $ 0.8 million and $ 1.4 million during the three and nine months ended September 30, 2023, respectively.

NMI HOLDINGS, INC.

1 unchanged sentence

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

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

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

2024 2023 2024 2023

41 unchanged sentences

(Level 3) Fair Value

As of June 30, 2024 (In Thousands)

As of September 30, 2024 (In Thousands)

Treasury securities and obligations of U.S.

21 unchanged sentences

Total assets $ 286,890 $ 2,180,820 $ — $ 2,467,710

There were no transfers between Level 2 and Level 3 of the fair value hierarchy during the six months ended June 30, 2024 or the year ended December 31, 2023.

There were no transfers between Level 2 and Level 3 of the fair value hierarchy during the nine months ended September 30, 2024 or the year ended December 31, 2023.

Financial Instruments Not Measured at Fair Value

1 unchanged sentence

Proceeds from the 2024 Notes offering were primarily used to repay our then outstanding $ 400 million senior secured notes (the 2020 Notes).

At June 30, 2024, the 2024 Notes were carried at a cost of $ 414.2 million, net of unamortized debt issuance costs and an original issue discount totaling $ 10.8 million, and had a fair value of $ 421.6 million as assessed under our Level 2 hierarchy.

At September 30, 2024, the 2024 Notes were carried at a cost of $ 414.7 million, net of unamortized debt issuance costs and an original issue discount totaling $ 10.3 million, and had a fair value of $ 437.9 million as assessed under our Level 2 hierarchy.

At December 31, 2023, the 2020 Notes were carried at a cost of $ 397.6 million, net of unamortized debt issuance costs of $ 2.4 million, and had a fair value of $ 401.9 million.

Senior Unsecured Notes

At June 30, 2024, we had $ 425 million aggregate principal amount of senior unsecured notes outstanding.

At September 30, 2024, we had $ 425 million aggregate principal amount of senior unsecured notes outstanding.

The 2024 Notes were issued pursuant to an indenture dated May 21, 2024 and bear interest at a rate of 6.00 %, payable semi-annually on February 15 and August 15.

10 unchanged sentences

The effective interest rate on the 2024 Notes is 6.583 %.

At June 30, 2024, $ 10.8 million of unamortized debt issuance costs and original issue discounts remained.

At September 30, 2024, $ 10.3 million of unamortized debt issuance costs and original issue discounts remained.

At December 31, 2023, $ 2.4 million of unamortized debt issuance costs remained related to the 2020 Notes.

During the six months ended June 30, 2024, we recorded a $ 6.8 million loss related to the redemption of the 2020 Notes in “Interest Expense” on our condensed consolidated statements of comprehensive income.

At June 30, 2024 and December 31, 2023, $ 2.8 million and $ 2.5 million, respectively, of accrued and unpaid interest was included in “Accounts Payable and Accrued Expenses” on our condensed consolidated balance sheets.

During the nine months ended September 30, 2024, we recorded a $ 6.8 million loss related to the redemption of the 2020 Notes in “Interest Expense” on our condensed consolidated statements of operations and comprehensive income.

At September 30, 2024 and December 31, 2023, $ 9.2 million and $ 2.5 million, respectively, of accrued and unpaid interest was included in “Accounts Payable and Accrued Expenses” on our condensed consolidated balance sheets.

Revolving Credit Facility

2 unchanged sentences

Borrowings under the 2024 Revolving Credit Facility may be used for general corporate purposes, including to support growth, 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 2024 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 2024 Revolving Credit Facility) plus a margin of 1.375 % to 2.875 % per annum, with the margin in each of (i) or (ii) based on our applicable corporate credit rating at the time.

As of June 30, 2024 and December 31, 2023, no amounts were drawn under the 2024 or 2021 Revolving Credit Facilities, respectively.

As of September 30, 2024 and December 31, 2023, no amounts were drawn under the 2024 or 2021 Revolving Credit Facilities, respectively.

Under the 2024 Revolving Credit Facility, we are required to pay a quarterly commitment fee on the average daily undrawn amount of 0.175 % to 0.525 %, based on the applicable corporate credit rating at the time.

As of June 30, 2024, the applicable commitment fee was 0.225 %.

For the three and six months ended June 30, 2024, we recorded $ 0.2 million and $ 0.3 million, respectively, of commitment fees in interest expense.

As of September 30, 2024, the applicable commitment fee was 0.225 %.

For the three and nine months ended September 30, 2024, we recorded $ 0.1 million and $ 0.4 million, respectively, of commitment fees in interest expense.

We incurred debt issuance costs of $ 2.1 million in connection with the 2024 Revolving Credit Facility and had $ 0.6 million of unamortized debt issuance costs associated with the 2021 Revolving Credit Facility remaining at the time of its replacement.

Combined unamortized debt issuance costs are amortized through interest expense on a straight-line basis over the contractual life of the 2024 Revolving Credit Facility.

At June 30, 2024 and December 31, 2023, unamortized deferred debt issuance costs of $ 2.6 million and $ 0.8 million, respectively, were recorded in “Other Assets” on our condensed consolidated balance sheets.

At September 30, 2024 and December 31, 2023, unamortized deferred debt issuance costs of $ 2.5 million and $ 0.8 million, respectively, were recorded in “Other Assets” on our condensed consolidated balance sheets.

Under the 2024 Revolving Credit Facility we are subject to certain covenants, including a maximum debt-to-total capitalization ratio of 35 %, a minimum consolidated net worth requirement (as defined therein), and a requirement to maintain compliance with the financial standards prescribed by the PMIERs (subject to any GSE approved waivers).

We were in compliance with all covenants at June 30, 2024.

We were in compliance with all covenants at September 30, 2024.

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.

3 unchanged sentences

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

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

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

2024 2023 2024 2023

11 unchanged sentences

Insurance-Linked Notes

NMIC is a party to reinsurance agreements with 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 30, 2019, October 29, 2020, April 27, 2021, and October 26, 2021, respectively.

NMIC is a party to reinsurance agreements with 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 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.

2 unchanged sentences

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).

NMIC ceded aggregate premiums to the Oaktown Re Vehicles of $ 5.9 million and $ 11.8 million during the three and six months ended June 30, 2024, respectively, and $ 8.8 million and $ 17.9 million during the three and six months ended June 30, 2023, respectively.

NMIC ceded aggregate premiums to the Oaktown Re Vehicles of $ 4.3 million and $ 16.1 million during the three and nine months ended September 30, 2024, respectively, and $ 6.9 million and $ 24.8 million during the three and nine months ended September 30, 2023, respectively.

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

NMIC did not cede any incurred losses on covered policies to the Oaktown Re Vehicles during the three and six months ended June 30, 2024 and 2023, as the aggregate first layer risk retention for each applicable agreement was not exhausted during such periods.

NMIC did not cede any incurred losses on covered policies to the Oaktown Re Vehicles during the three and nine months ended September 30, 2024 and 2023, 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.

2 unchanged sentences

Each Oaktown Re Vehicle financed its respective collateral requirement through the issuance of mortgage insurance-linked notes to unaffiliated investors.

Such insurance-linked notes mature ten-years (in the case of the notes issued by Oaktown Re III Ltd.

and Oaktown Re V Ltd.) and 12.5 years (in the case of the notes issued by Oaktown Re VI Ltd.

Such insurance-linked notes mature ten-years (in the case of the notes issued by Oaktown Re V Ltd.) and 12.5 years (in the case of the notes issued by Oaktown Re VI Ltd.

and Oaktown Re VII Ltd.) from the inception date of their associated reinsurance agreement.

We refer to NMIC’s reinsurance agreements with and the insurance-linked note issuances by Oaktown Re Vehicles individually as the 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 in the case of Oaktown Re III Ltd.

and Oaktown Re V Ltd.

We refer to NMIC’s reinsurance agreements with and the insurance-linked note issuances by Oaktown Re Vehicles individually as the 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 in the case of Oaktown Re V Ltd.

and 12.5 -year period in the case of Oaktown Re VI Ltd.

1 unchanged sentence

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

The outstanding reinsurance coverage amounts stop amortizing, and the distribution of collateral assets to ILN Transaction noteholders and amortization of insurance-

NMI HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

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).

linked note principal is suspended if certain credit enhancement or delinquency thresholds, as defined in each agreement, are triggered (each, a Lock-Out Event).

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

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

Effective July 25, 2024, NMIC exercised its optional call to terminate a reinsurance agreement with and the associated insurance-linked notes issued by Oaktown Re III Ltd.

In connection with the termination, NMIC’s excess of loss reinsurance agreement with Oaktown Re III Ltd.

was commuted and the insurance-linked notes issued by Oaktown Re III Ltd.

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

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

Current amounts are presented as of June 30, 2024.

Current amounts are presented as of September 30, 2024.

( $ values in thousands)

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

2019 ILN Transaction July 30, 2019 6/1/2018 – 6/30/2019 $ 326,905 $ 143,430 $ 123,424 $ 121,588

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

9 unchanged sentences

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 condensed consolidated balance sheets includes restricted amounts of $ 1.2 million and $ 1.3 million as of June 30, 2024 and December 31, 2023, respectively.

“Cash and Cash Equivalents” on our condensed consolidated balance sheets includes restricted amounts of $ 0.1 million and $ 1.3 million as of September 30, 2024 and December 31, 2023, respectively.

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

5 unchanged sentences

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

Under the terms of the XOL Transactions, NMIC makes risk premium payments to its third-party reinsurance providers for the outstanding reinsurance coverage amount and ceded aggregate premiums of $ 9.4 million and $ 18.6 million during the three and six months ended June 30, 2024, respectively, and $ 7.7 million and $ 14.9 million during the three and six months ended June 30, 2023, 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 $ 9.8 million and $ 28.4 million during the three and nine months ended September 30, 2024, respectively, and $ 8.0 million and $ 22.9 million during the three and nine months ended September 30, 2023, respectively.

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

NMIC did not cede any incurred losses on covered policies under the XOL Transactions during the three and six months ended June 30, 2024 and 2023, 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

NMIC did not cede any incurred losses on covered policies under the XOL Transactions during the three and nine months ended September 30, 2024 and 2023, as the aggregate first layer risk retention for each agreement was not exhausted during such periods.

NMI HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

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.

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

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

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

4 unchanged sentences

Current amounts are presented as of June 30, 2024.

Current amounts are presented as of September 30, 2024.

($ values in thousands) Inception Date Covered Production Initial Reinsurance Coverage

32 unchanged sentences

The 2020 QSR Transaction is scheduled to terminate on December 31, 2030.

NMIC had the option, based on certain conditions and subject to a termination fee, to terminate the agreement as of December 31, 2025, or at the end of any calendar quarter thereafter, which could result in NMIC recapturing the related risk.

NMIC has the option, based on certain conditions and subject to a termination fee, to terminate the agreement as of December 31, 2025, or at the end of any calendar quarter thereafter, which could result in NMIC recapturing the related risk.

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

22 unchanged sentences

The following table shows amounts related to the QSR Transactions:

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

June 30, 2024 June 30, 2023 June 30, 2024 June 30, 2023

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

September 30, 2024 September 30, 2023 September 30, 2024 September 30, 2023

(In Thousands)

1 unchanged sentence

Ceded premiums earned ( 41,761 ) ( 42,015 ) ( 124,585 ) ( 126,113 )

Ceded claims and claim (benefits) expenses

Ceded claims and claim expenses

2,449 2,221 2,970 4,989

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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 $ 1.4 million and $ 1.7 million as of June 30, 2024 and December 31, 2023, respectively.

The reinsurance recoverable on loss reserves related to the 2016 QSR Transaction was $ 1.2 million and $ 1.7 million as of September 30, 2024 and December 31, 2023, respectively.

In accordance with the terms of the 2018, 2020, 2021, 2022, 2022 Seasoned, 2023 and 2024 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.

1 unchanged sentence

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, 2022 Seasoned, 2023, and 2024 QSR Transactions was $ 25.9 million and $ 25.8 million as of June 30, 2024 and December 31, 2023, respectively.

The aggregate reinsurance recoverable on loss reserves related to the 2018, 2020, 2021, 2022, 2022 Seasoned, 2023, and 2024 QSR Transactions was $ 28.0 million and $ 25.8 million as of September 30, 2024 and December 31, 2023, respectively.

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

1 unchanged sentence

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

The allowance for credit loss established against our reinsurance recoverable was deemed immaterial as of June 30, 2024 and December 31, 2023.

The allowance for credit loss established against our reinsurance recoverable was deemed immaterial as of September 30, 2024 and December 31, 2023.

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 June 30, 2024, we held gross reserves for insurance claims and claim expenses of $ 125.4 million.

During the six months ended June 30, 2024, we paid 101 claims totaling $ 3.0 million, including 97 claims covered under the QSR Transactions representing $ 0.7 million of ceded claims and claim expenses.

We had 4,904 loans in default in our primary insured portfolio as of June 30, 2024, which represented a 0.76 % default rate against 645,276 total policies in-force and 5,099 loans in default in our primary portfolio as of December 31, 2023, which represented a 0.81 % default rate against 629,690 total policies in-force.

As of September 30, 2024, we held gross reserves for insurance claims and claim expenses of $ 135.5 million.

During the nine months ended September 30, 2024, we paid 168 claims totaling $ 5.7 million, including 162 claims covered under the QSR Transactions representing $ 1.3 million of ceded claims and claim expenses.

We had 5,712 loans in default in our primary insured portfolio as of September 30, 2024, which represented a 0.87 % default rate against 654,374 total policies in-force and 5,099 loans in default in our primary portfolio as of December 31, 2023, which represented a 0.81 % default rate against 629,690 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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The following table provides a reconciliation of the beginning and ending gross reserve balances for primary insurance claims and claim expenses:

For the six months ended June 30,

For the nine months ended September 30,

(In Thousands)

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

Amounts are presented net of reinsurance and included $ 43.1 million attributed to net case reserves and $ 6.4 million attributed to net IBNR reserves for the six months ended June 30, 2024 and $ 39.1 million attributed to net case reserves and $ 5.0 million attributed to net IBNR reserves for the six months ended June 30, 2023.

Amounts are presented net of reinsurance and included $ 63.2 million attributed to net case reserves and $ 7.0 million attributed to net IBNR reserves for the nine months ended September 30, 2024 and $ 54.4 million attributed to net case reserves and $ 5.8 million attributed to net IBNR reserves for the nine months ended September 30, 2023.

(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 $ 39.2 million attributed to net case reserves and $ 6.3 million attributed to net IBNR reserves for the six months ended June 30, 2024 and $ 30.3 million attributed to net case reserves and $ 4.5 million attributed to net IBNR reserves for the six months ended June 30, 2023.

Amounts are presented net of reinsurance and included $ 49.8 million attributed to net case reserves and $ 6.3 million attributed to net IBNR reserves for the nine months ended September 30, 2024 and $ 41.1 million attributed to net case reserves and $ 4.5 million attributed to net IBNR reserves for the nine months ended September 30, 2023.

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

The amount of claims incurred relating to current year defaults increased during the six months ended June 30, 2024, compared to the same period in the prior year, primarily due to an increase in the total number of new delinquencies emerging during the period tied to the growth and natural seasoning of our portfolio, partially offset by a decrease in the average case reserve established against newly defaulted loans.

Our provision for claims and claim expenses during both the six months ended June 30, 2024 and 2023 benefited from favorable development on prior year defaults.

We recognized $ 46.4 million and $ 35.3 million of favorable prior year development during the six months ended June 30, 2024 and 2023, respectively, primarily due to cure activity and ongoing analysis of recent loss development trends.

The amount of claims incurred relating to current year defaults increased during the nine months ended September 30, 2024, compared to the same period in the prior year, primarily due to an increase in the total number of new delinquencies emerging during the period tied to the growth and natural seasoning of our portfolio, partially offset by a decrease in the average case reserve established against newly defaulted loans.

Our provision for claims and claim expenses during both the nine months ended September 30, 2024 and 2023 benefited from favorable development on prior year defaults.

We recognized $ 57.2 million and $ 46.6 million of favorable prior year development during the nine months ended September 30, 2024 and 2023, respectively, primarily due to cure activity and ongoing analysis of recent loss development trends.

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 $ 61.4 million related to prior year defaults remained as of June 30, 2024.

Gross reserves of $ 45.1 million related to prior year defaults remained as of September 30, 2024.

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:

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

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

2024 2023 2024 2023

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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 pre-tax income was 22.4 % and 22.3 % for the three and six months ended June 30, 2024, respectively, compared to 22.8 % and 22.7 % for the three and six months ended June 30, 2023, respectively.

Our effective tax rate on pre-tax income was 22.2 % and 22.3 % for the three and nine months ended September 30, 2024, respectively, compared to 21.8 % and 22.4 % for the three and nine months ended September 30, 2023, respectively.

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

2 unchanged sentences

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

As a result, our interim provision for income taxes for the three and six months ended June 30, 2024 and 2023 primarily represents a change in our net deferred tax liability.

As of June 30, 2024 and December 31, 2023, we held $ 235.3 million of tax and loss bonds in “Prepaid Federal Income Taxes” on our condensed consolidated balance sheets.

As a result, our interim provision for income taxes for the three and nine months ended September 30, 2024 and 2023 primarily represents a change in our net deferred tax liability.

As of September 30, 2024 and December 31, 2023, we held $ 235.3 million of tax and loss bonds in “Prepaid Federal Income Taxes” on our condensed consolidated balance sheets.

Stockholders' Equity

3 unchanged sentences

The authorization provides us the flexibility, based on market and business conditions, stock price and other factors, to repurchase stock from time to time through open market purchases, privately negotiated transactions, or other means, including pursuant to Rule 10b5-1 trading plans.

During the six months ended June 30, 2024, we repurchased 1.7 million shares at an average price of $ 30.89 per share (excluding associated costs and applicable taxes).

During the nine months ended September 30, 2024, we repurchased 2.1 million shares at an average price of $ 32.38 per share (excluding associated costs and applicable taxes).

During the year ended December 31, 2023, we repurchased 3.5 million shares at an average price of $ 25.93 per share (excluding associated costs and applicable taxes).

As of June 30, 2024, we had $ 124.9 million of repurchase authority remaining under our program.

As of September 30, 2024, we had $ 108.1 million of repurchase authority remaining under our program.

NMI HOLDINGS, INC.

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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 $ 2.2 million and $ 2.7 million reserve for premium write-offs at June 30, 2024 and December 31, 2023, respectively.

We established a $ 2.0 million and $ 2.7 million reserve for premium write-offs at September 30, 2024 and December 31, 2023, respectively.

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

Due to the nature of our insurance policies (a necessary precondition for access to mortgage credit for covered borrowers) and the short duration of the related receivables, we do not typically experience credit losses against our premium receivables and the allowance for credit loss established on premium receivable was deemed immaterial at June 30, 2024 and December 31, 2023.

Regulatory Information

3 unchanged sentences

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

NMIC and Re One generated combined statutory net income of $ 36.0 million and $ 70.7 million for the three and six months ended June 30, 2024, respectively, compared to $ 28.1 million and $ 49.9 million for the three and six months ended June 30, 2023, respectively.

NMIC and Re One generated combined statutory net income of $ 20.0 million and $ 90.7 million for the three and nine months ended September 30, 2024, respectively, compared to $ 30.1 million and $ 80.0 million for the three and nine months ended September 30, 2023, 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.

5 unchanged sentences

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 June 30, 2024 and December 31, 2023.

June 30, 2024 December 31, 2023

The following table presents NMIC's statutory surplus, contingency reserve, statutory capital and risk-to-capital (RTC) ratio as of September 30, 2024 and December 31, 2023.

September 30, 2024 December 31, 2023

(In Thousands)

5 unchanged sentences

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

Re One had $ 2.1 million and $ 2.0 million of statutory capital at June 30, 2024 and December 31, 2023, respectively.

Re One had $ 2.1 million and $ 2.0 million of statutory capital at September 30, 2024 and December 31, 2023, respectively.

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

3 unchanged sentences

Subsequent Events

Effective July 25, 2024, NMIC exercised its optional call to terminate the 2019 ILN Transaction.

In connection with the termination of the transaction, NMIC’s excess of loss reinsurance agreement with Oaktown Re III Ltd.

was commuted and the insurance-linked notes issued by Oaktown Re III Ltd.

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

In October 2024, NMIC entered into three sequential quota share reinsurance treaties that will provide coverage for mortgage insurance policies to be written in 2025, 2026 and 2027 (the “2025 QSR Transaction,” “2026 QSR Transaction” and “2027 QSR Transaction”, respectively).

Under the terms of the 2025 and 2026 QSR Transactions, NMIC will cede premiums earned related to 20 % of the risk on eligible policies written between January 1, 2025 and December 31, 2026, in exchange for reimbursement of ceded claims and claims expenses on covered policies, a 20 % ceding commission, and a profit commission of up to 62 % that varies directly and inversely with ceded claims.

Under the terms of the 2027 QSR Transaction, NMIC will cede premiums earned related to 12 % of the risk on eligible policies written between January 1, 2027 and December 31, 2027, in exchange for reimbursement of ceded claims and claims expenses on covered policies, a 20 % ceding commission, and a profit commission of up to 61 % that varies directly and inversely with ceded claims.

In October 2024, NMIC entered into two sequential excess-of-loss reinsurance treaties that will provide aggregate coverage for mortgage insurance policies to be written in 2025 and 2026 (the “2025 XOL Transaction” and “2026 XOL Transaction”, respectively).

Under the terms of each agreement, NMIC will retain a first layer of aggregate loss exposure on covered policies and its reinsurance counterparties will then provide second layer loss protection up to a defined reinsurance coverage amount (of $ 283.8 million for the 2025 XOL Transaction and $ 164.2 million for the 2026 XOL Transaction).

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

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