UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q



(Mark One)
x	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended ~~September 30, 2017~~March 31, 2019



o	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to

Commission file number 001-36174

NMI Holdings, Inc.

(Exact name of registrant as specified in its charter)



DELAWARE		45-4914248
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

2100 Powell Street, Emeryville, CA		94608
(Address of principal executive offices)		(Zip Code)

(855) 530-6642

(Registrant's telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

YES x NO o

Indicate by check mark whether the registrant has submitted electronically ~~and posted on its corporate Web site, if any,~~ every Interactive Data File required to be submitted ~~and posted~~ pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit ~~and post~~ such files).

YES x NO o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated ~~filer"~~filer," "smaller reporting ~~company"~~company," and "emerging growth company" in Rule 12b-2 of the Exchange Act. ~~(Check one):~~



Large accelerated filer ox	Accelerated filer xo	Non-accelerated filer o	Smaller reporting company o
		~~(Do not check if a smaller reporting company)~~
Emerging growth company xo

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. xo

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

YES o NO x

The number of shares of common stock, $0.01 par value per share, of the registrant outstanding on ~~October 30, 2017~~April 26, 2019 was ~~60,033,144~~67,533,958 shares.

TABLE OF CONTENTS

CAUTIONARY NOTE REGARDING FORWARD LOOKING STATEMENTS

This report contains forward looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (Securities Act), Section 21E of the Securities Exchange Act of 1934, as amended (Exchange Act), and the U.S. Private Securities Litigation Reform Act of 1995. Any statements about our expectations, beliefs, plans, predictions, forecasts, objectives, assumptions or future events or performance are not historical facts and may be forward looking. These statements are often, but not always, made through the use of words or phrases such as "anticipate," "believe," "can," "could," "may," "predict," "potential," "should," "will," "estimate," "plan," "project," "continuing," "ongoing," "expect," "intend" or words of similar meaning and include, but are not limited to, statements regarding the outlook for our future business and financial performance. All forward looking statements are necessarily only estimates of future results, and actual results may differ materially from expectations. You are, therefore, cautioned not to place undue reliance on such statements which should be read in conjunction with the other cautionary statements that are included elsewhere in this report. Further, any forward looking statement speaks only as of the date on which it is made and we undertake no obligation to update or revise any forward looking statement to reflect events or circumstances after the date on which the statement is made or to reflect the occurrence of unanticipated events. We have based these forward looking statements on our current expectations and projections about future events and financial trends that we believe may affect our financial condition, operating results, business strategy and financial needs. There are important factors that could cause our actual results, level of activity, performance or achievements to differ materially from the results, level of activity, performance or achievements expressed or implied by the forward looking statements including, but not limited to:

changes in the business practices of Fannie Mae and Freddie Mac (collectively, the GSEs), including decisions that have the impact of decreasing or discontinuing the use of mortgage insurance as credit enhancement;

our ability to remain an eligible mortgage insurer under the private mortgage insurer eligibility requirements (PMIERs) and other requirements imposed by the GSEs, which they may change at any time;

retention of our existing certificates of authority in each state and the District of Columbia (D.C.) and our ability to remain a mortgage insurer in good standing in each state and D.C.;

our future profitability, liquidity and capital resources;

actions of existing competitors, including ~~governmental agencies~~other private mortgage insurers and government mortgage insurers like the Federal Housing Administration (FHA), the U.S. Department of Agriculture's Rural Housing Service (USDA) and the Veterans Administration (VA) (collectively, government MIs), and potential market entry by new competitors or consolidation of existing competitors;

developments in the world's financial and capital markets and our access to such markets, including reinsurance;

adoption of new or changes to existing laws and regulations that impact our business or financial condition directly or the mortgage insurance industry generally or their enforcement and implementation by regulators;

legislative or regulatory changes to the GSEs' role in the secondary mortgage market or other changes that could affect the residential mortgage industry generally or mortgage insurance in particular;

potential future lawsuits, investigations or inquiries or resolution of current lawsuits or inquiries;

changes in general economic, market and political conditions and policies, interest rates, inflation and investment results or other conditions that affect the housing market or the markets for home mortgages or mortgage insurance;

our ability to successfully execute and implement our capital plans, including our ability to access the capital, credit and reinsurance ~~market~~markets and to enter into, and receive approval of, reinsurance arrangements on terms and conditions that are acceptable to us, the GSEs and our regulators;

our ability to implement our business strategy, including our ability to write mortgage insurance on high quality low down payment residential mortgage loans, implement successfully and on a timely basis, complex infrastructure, systems, procedures, and internal controls to support our business and regulatory and reporting requirements of the insurance industry;

our ability to attract and retain a diverse customer base, including the largest mortgage originators;

failure of risk management or pricing or investment strategies;

emergence of unexpected claim and coverage issues, including claims exceeding our reserves or amounts we had expected to experience;

potential adverse impacts arising from ~~recent~~ natural disasters, including, with respect to ~~the~~ affected areas, a decline in new business, adverse effects on home prices, and an increase in notices of default on insured mortgages;

the inability of our counter-parties, including third party reinsurers, to meet their obligations to us;

our ability to utilize our net operating loss carryforwards, which could be limited or eliminated in various ways, including if we experience an ownership change as defined in Section 382 of the Internal Revenue Code;

failure to maintain, improve and continue to develop necessary information technology ~~(IT)~~ systems or the failure of technology providers to perform; and

ability to recruit, train and retain key personnel.

For more information regarding these risks and uncertainties as well as certain additional risks that we face, you should refer to Part I, Item 2, "Management's Discussion and Analysis of Financial Condition and Results of Operations" and elsewhere in this report on Form 10-Q, including the exhibits hereto. In addition, for additional discussion of those risks and uncertainties that have the potential to affect our business, financial condition, results of operations, cash flows or prospects in a material and adverse manner, you should review the Risk Factors in Part I, Item 1A, of our Annual Report on Form 10-K for the year ended December 31, ~~2016 (2016~~2018 (2018 10-K), as subsequently updated in other reports we file from time to time with the U.S. Securities and Exchange Commission (SEC).

Unless expressly indicated or the context requires otherwise, the terms "we," "our," "us" and the "Company" in this document refer to NMI Holdings, Inc., a Delaware corporation, and its wholly owned subsidiaries on a consolidated basis.

PART I

Item 1. Financial Statements

INDEX TO FINANCIAL STATEMENTS



Condensed Consolidated Balance Sheets as of ~~September 30, 2017~~March 31, 2019 and December 31, ~~2016~~2018	6
Condensed Consolidated Statements of Operations and Comprehensive Income (Loss) for the three ~~and nine~~ months ended ~~September 30, 2017~~March 31, 2019 and ~~2016~~2018	7
Condensed Consolidated Statements of Changes in Shareholders' Equity for the ~~nine~~three months ended ~~September 30, 2017~~March 31, 2019 and ~~the year ended December 31, 2016~~2018	8
Condensed Consolidated Statements of Cash Flows for the ~~nine~~three months ended ~~September 30, 2017~~March 31, 2019 and ~~2016~~2018	9
Notes to Condensed Consolidated Financial Statements	10

NMI HOLDINGS, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)


	September 30, 2017			December 31, 2016			March 31, 2019		December 31, 2018
Assets	(In Thousands, except for share data)						(In Thousands, except for share data)
Fixed maturities, available-for-sale, at fair value (amortized cost of $687,284 and $630,688 as of September 30, 2017 and December 31, 2016, respectively)	$	692,729		$	628,969
Cash and cash equivalents	20,698			47,746
Fixed maturities, available-for-sale, at fair value (amortized cost of $934,712 and $924,987 as of March 31, 2019 and December 31, 2018, respectively)							$	940,223	$	911,490
Cash and cash equivalents (including restricted cash of $1,422 and $1,414 as of March 31, 2019 and December 31, 2018, respectively)							39,761		25,294
Premiums receivable	21,056			13,728			38,478		36,007
Accrued investment income	4,598			3,421			6,553		5,694
Prepaid expenses	2,651			1,991			4,454		3,241
Deferred policy acquisition costs, net	36,101			30,109			48,820		46,840
Software and equipment, net	21,767			20,402			25,105		24,765
Intangible assets and goodwill	3,634			3,634			3,634		3,634
Prepaid reinsurance premiums	39,915			37,921			27,747		30,370
Deferred tax asset, net	38,490			51,434
Other assets	4,973			542			12,736		4,708
Total assets	$	886,612		$	839,897		$	1,147,511	$	1,092,043

Liabilities
Term loan	$	143,969		$	144,353		$	146,503	$	146,757
Unearned premiums	161,345			152,906			154,325		158,893
Accounts payable and accrued expenses	22,028			25,297			16,981		31,141
Reserve for insurance claims and claim expenses	6,123			3,001			15,537		12,811
Reinsurance funds withheld	33,105			30,633			25,308		27,114
Deferred ceding commission	4,971			4,831
Warrant liability, at fair value	4,046			3,367			11,831		7,296
Deferred tax liability, net							12,770		2,740
Other liabilities ⁽¹⁾							12,375		3,791
Total liabilities	375,587			364,388			395,630		390,543
Commitments and contingencies

Shareholders' equity
Common stock - class A shares, $0.01 par value; 59,928,092 and 59,145,161 shares issued and outstanding as of September 30, 2017 and December 31, 2016, respectively (250,000,000 shares authorized)	599			591
Common stock - class A shares, $0.01 par value; 67,501,958 and 66,318,849 shares issued and outstanding as of March 31, 2019 and December 31, 2018, respectively (250,000,000 shares authorized)							675		663
Additional paid-in capital	583,447			576,927			684,635		682,181
Accumulated other comprehensive loss, net of tax	(630		)	(5,287		)
Accumulated deficit	(72,391		)	(96,722		)
Accumulated other comprehensive income (loss), net of tax							184		(14,832		)
Retain earnings							66,387		33,488
Total shareholders' equity	511,025			475,509			751,881		701,500
Total liabilities and shareholders' equity	$	886,612		$	839,897		$	1,147,511	$	1,092,043


⁽¹⁾	Deferred Ceding Commissions have been reclassified to "Other Liabilities" in prior periods

See accompanying notes to consolidated financial statements.

NMI HOLDINGS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS) (UNAUDITED)

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

2017 2016
2017
2016
Revenues (In Thousands, except for share data)
Net premiums earned $ 44,519
$ 31,808
$ 115,661
$ 77,656
Net investment income 4,170
3,544
11,885
10,117
Net realized investment gains (losses) 69
66
198
(758 )
Other revenues 195
102
461
172
Total revenues 48,953
35,520
128,205
87,187
Expenses
Insurance claims and claims expenses 957
664
2,965
1,592
Underwriting and operating expenses 24,645
24,037
78,682
69,943
Total expenses 25,602
24,701
81,647
71,535
Other expense
Loss from change in fair value of warrant liability (502 ) (797 ) (679 ) (187 )
Interest expense (3,352 ) (3,733 ) (10,146 ) (11,072 )
Total other expense (3,854 ) (4,530 ) (10,825 ) (11,259 )

Income before income taxes 19,497
6,289
35,733
4,393
Income tax expense 7,185
114
11,917
114
Net income $ 12,312
$ 6,175
$ 23,816
$ 4,279

Earnings per share
Basic $ 0.21
$ 0.10
$ 0.40
$ 0.07
Diluted $ 0.20
$ 0.10
$ 0.38
$ 0.07

Weighted average common shares outstanding
Basic 59,883,629
59,130,401
59,680,166
59,047,758
Diluted 63,088,958
60,284,746
62,773,333
59,861,916

Net income $ 12,312
$ 6,175
$ 23,816
$ 4,279
Other comprehensive income (loss), net of tax:
Net unrealized gain (loss) in accumulated other comprehensive income, net of tax expense of $366 and $0 for the three months ended September 30, 2017 and 2016, respectively, and $2,439 and $0 for the nine months ended September 30, 2017 and 2016 768
(82 ) 4,786
17,690
Reclassification adjustment for realized losses (gains) included in net income, net of tax expense of $24 and $0 for the three months ended September 30, 2017 and 2016, respectively, and $69 and $0 for the nine months ended September 30, 2017 and 2016 (45 ) (66 ) (129 ) 758
Other comprehensive income (loss), net of tax 723

(148 )
4,657

18,448
Comprehensive income $ 13,035

$ 6,027

$ 28,473

$ 22,727



	For the three months ended March 31,
	2019			2018
Revenues	(In Thousands, except for per share data)
Net premiums earned	$	73,868		$	54,914
Net investment income	7,383			4,574
Net realized investment losses	(187		)	—
Other revenues	42			64
Total revenues	81,106			59,552
Expenses
Insurance claims and claim expenses	2,743			1,569
Underwriting and operating expenses	30,849			28,453
Total expenses	33,592			30,022
Other expense
Gain (loss) from change in fair value of warrant liability	(5,479		)	420
Interest expense	(3,061		)	(3,419		)
Total other expense	(8,540		)	(2,999		)

Income before income taxes	38,974			26,531
Income tax expense	6,075			4,176
Net income	$	32,899		$	22,355

Earnings per share
Basic	$	0.49		$	0.36
Diluted	$	0.48		$	0.34

Weighted average common shares outstanding
Basic	66,692			62,099
Diluted	68,996			65,697

Net income	$	32,899		$	22,355
Other comprehensive income (loss), net of tax:
Unrealized (losses) gains in accumulated other comprehensive income, net of tax (benefit) expense of $3,953 and ($423) for the quarters ended March 31, 2019 and 2018, respectively	14,868			(10,956		)
Reclassification adjustment for realized losses (gains) included in net income, net of tax expense (benefit) of ($39) and $0 for the quarters ended March 31, 2019 and 2018, respectively	148			—
Other comprehensive income (loss), net of tax	15,016			(10,956		)
Comprehensive income	$	47,915		$	11,399

See accompanying notes to consolidated financial statements.

NMI HOLDINGS, INC.

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


	Common Stock - Class A			Additional Paid-in Capital			Accumulated Other Comprehensive Income (Loss)			Accumulated Deficit			Total			Common Stock - Class A			Additional Paid-in Capital			Accumulated Other Comprehensive Income (Loss)			Retained Earnings (Accumulated Deficit)			Total
	Shares	Amount														Shares	Amount
	(In Thousands)															(In Thousands)
Balances, January 1, 2016	58,808	$	588	$	570,340		$	(7,474	)	$	(160,723	)	$	402,731
Balances, January 1, 2018																60,518	$	605	$	585,488		$	(2,859	)	$	(74,157	)	$	509,077
Cumulative effect of change in accounting principle																—	—		—			282			(282		)	—
Common stock: class A shares issued related to public offering																4,255	43		79,122			—			—			79,165
Common stock: class A shares issued related to warrants																26	*		489			—			—			489
Common stock: class A shares issued under stock plans, net of shares withheld for employee taxes	337	3		(227		)	—			—			(224		)	770	8		(999		)	—			—			(991		)
Share-based compensation expense	—	—		6,814			—			—			6,814			—	—		2,805			—			—			2,805
Change in unrealized investment gains/losses, net of tax expense of $1,178	—	—		—			2,187			—			2,187
Change in unrealized investment gains/losses, net of tax benefit of $423																—	—		—			(10,956		)	—			(10,956		)
Net income	—	—		—			—			64,001			64,001			—	—		—			—			22,355			22,355
Balances, December 31, 2016	59,145	$	591	$	576,927		$	(5,287	)	$	(96,722	)	$	475,509
Cumulative effect of change in accounting principle	—	—		388			—			515			903
Common stock: class A shares issued under stock plans, net of shares withheld for employee taxes	783	8		(801		)	—			—			(793		)
Share-based compensation expense	—	—		6,933			—			—			6,933
Change in unrealized investment gains/losses, net of tax expense of $2,508	—	—		—			4,657			—			4,657
Net income	—	—		—			—			23,816			23,816
Balances, September 30, 2017	59,928	$	599	$	583,447		$	(630	)	$	(72,391	)	$	511,025
Balances, March 31, 2018																65,569	$	656	$	666,905		$	(13,533	)	$	(52,084	)	$	601,944



	Common Stock - Class A			Additional Paid-in Capital			Accumulated Other Comprehensive Income (Loss)			Retained Earnings (Accumulated Deficit)		Total
	Shares	Amount		Additional Paid-in Capital			Accumulated Other Comprehensive Income (Loss)			Retained Earnings (Accumulated Deficit)		Total
	(In Thousands)
Balances, January 1, 2019	66,319	$	663	$	682,181		$	(14,832	)	$	33,488	$	701,500
Common stock: class A shares issued related to warrants	39	*		944			—			—		944
Common stock: class A shares issued under stock plans, net of shares withheld for employee taxes	1,144	12		(1,471		)	—			—		(1,459		)
Share-based compensation expense	—	—		2,981			—			—		2,981
Change in unrealized investment gains/losses, net of tax expense of $3,992	—	—		—			15,016			—		15,016
Net income	—	—		—			—			32,899		32,899
Balances, March 31, 2019	67,502	$	675	$	684,635		$	184		$	66,387	$	751,881


*	During the three months ended March 31, 2019 and 2018, we issued 39,195 and 25,686 common shares, respectively, with a par value of $0.01 related to the exercise of warrants, which is not identifiable in this schedule due to rounding.

See accompanying notes to consolidated financial statements.

NMI HOLDINGS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)


	For the nine months ended September 30,						For the three months ended March 31,
	2017			2016			2019			2018
Cash flows from operating activities	(In Thousands)						(In Thousands)
Net income	$	23,816		$	4,279		$	32,899		$	22,355
Adjustments to reconcile net income to net cash provided by operating activities:
Net realized investment (gains) losses	(198		)	758
Loss from change in fair value of warrant liability	679			187
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Net realized investment losses							187			—
Loss (gain) from change in fair value of warrant liability							5,479			(420		)
Depreciation and amortization	4,871			4,300			2,103			1,858
Net amortization of premium on investment securities	1,200			954			314			439
Amortization of debt discount and debt issuance costs	1,112			1,416			248			361
Share-based compensation expense	6,933			4,987			2,981			2,805
Deferred income taxes	11,340			—			6,038			4,009
Changes in operating assets and liabilities:
Premiums receivable	(7,328		)	(6,235		)	(2,472		)	(2,985		)
Accrued investment income	(1,177		)	(742		)	(859		)	(553		)
Prepaid expenses	(660		)	(885		)	(1,407		)	(1,451		)
Deferred policy acquisition costs, net	(5,992		)	(11,381		)	(1,980		)	(2,101		)
Other assets(1)	(1,150		)	(2		)	191			163
Unearned premiums	8,439			54,628			(4,568		)	2,424
Reserve for insurance claims and claims expenses	3,122			1,454
Reserve for insurance claims and claim expenses							2,726			1,630
Reinsurance balances, net(1)	618			(431		)	(148		)	153
Accounts payable and accrued expenses	(3,847		)	(1,075		)	(13,453		)	(7,556		)
Net cash provided by operating activities	41,778			52,212			28,279			21,131
Cash flows from investing activities
Purchase of short-term investments	(111,551		)	(147,639		)	(47,994		)	(16,858		)
Purchase of fixed-maturity investments, available-for-sale	(166,640		)	(103,418		)	(72,586		)	(74,095		)
Proceeds from maturity of short-term investments	142,722			93,916			81,311			31,309
Proceeds from redemptions, maturities and sale of fixed-maturity investments, available-for-sale	75,785			101,874			29,043			44,444
Additions to software and equipment	(6,869		)	(8,449		)	(1,751		)	(1,370		)
Net cash used in investing activities	(66,553		)	(63,714		)	(11,977		)	(16,570		)
Cash flows from financing activities
Proceeds from issuance of common stock related to public offering, net of issuance costs							—			79,249
Proceeds from issuance of common stock related to employee equity plans	3,105			526			11,017			4,782
Taxes paid related to net share settlement of equity awards	(3,883		)	(694		)	(12,477		)	(5,523		)
Repayments of term loan	(1,125		)	(1,125		)	(375		)	(375		)
Payments of debt modification costs	(370		)	—
Net cash used in financing activities	(2,273		)	(1,293		)
Net cash (used in) provided by financing activities							(1,835		)	78,133

Net decrease in cash and cash equivalents	(27,048		)	(12,795		)
Cash and cash equivalents, beginning of period	47,746			57,317
Cash and cash equivalents, end of period	$	20,698		$	44,522
Net decrease in cash, cash equivalents and restricted cash							14,467			82,694
Cash, cash equivalents and restricted cash, beginning of period							25,294			19,196
Cash, cash equivalents and restricted cash, end of period							$	39,761		$	101,890

Supplemental disclosures of cash flow information
Noncash financing activities
Interest paid	$	10,350		$	9,669		$	2,617		$	3,072
Income taxes paid	802			—
Income tax refunded							$	209		$	—


⁽¹⁾	Ceded losses recoverable under our quota-share reinsurance transactions were reclassified from "Other Assets" in prior periods to "Reinsurance balance, net".

See accompanying notes to consolidated financial statements.

NMI HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

1. Organization, ~~and~~ Basis of Presentation and Summary of Accounting Principles

NMI Holdings, Inc. (NMIH) is a Delaware corporation, incorporated in May 2011, to provide private mortgage guaranty insurance (which we refer to as mortgage insurance or MI) through its wholly owned insurance subsidiaries, National Mortgage Insurance Corporation (NMIC) and National Mortgage Reinsurance Inc One (Re One). ~~In April 2012, we completed a private placement of our securities, through which we offered and sold an aggregate of 55,000,000 of our Class A~~Our common stock resulting in net proceeds of approximately $510 million (the Private Placement), and we completed the acquisition of our insurance subsidiaries for $8.5 million in cash, common stock and warrants, plus the assumption of $1.3 million in liabilities. In November 2013, we completed an initial public offering of 2.4 million shares of our common stock, and our common stock began tradingis listed on the NASDAQ exchange ~~on November 8, 2013,~~ under the ticker symbol "NMIH."

In April 2013, NMIC, our primary insurance subsidiary, issued its first mortgage insurance policy. NMIC is licensed to write mortgage insurance in all 50 states and D.C. In August 2015, NMIH capitalized a wholly owned subsidiary, NMI Services, Inc. (NMIS), through which we offer outsourced loan review services ~~on a limited basis~~ to mortgage loan originators.

Basis of Presentation

The accompanying unaudited condensed consolidated financial statements, which include the results of NMIH and its wholly owned subsidiaries, have been prepared in accordance with the instructions to Form 10-Q as prescribed by the SEC for interim reporting and include other information and disclosures required by accounting principles generally accepted in the U.S. (GAAP). Our accounts are maintained in U.S. dollars. These statements should be read in conjunction with our consolidated financial statements and notes thereto for the year ended December 31, ~~2016,~~2018, included in our ~~2016~~2018 10-K. All intercompany transactions have been eliminated. The preparation of financial statements in accordance with GAAP requires management to make estimates and assumptions that affect reported amounts of assets and liabilities, as well as disclosure of contingent assets and liabilities as of the balance sheet date. Estimates also affect the reported amounts of income and expenses for the reporting period. Actual results could differ from those estimates. Certain reclassifications to our previously reported financial information have been made to conform to current period presentation. 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, ~~2017.~~2019.

~~Deferred Policy Acquisition Costs~~Significant Accounting Principles

Costs directly associated with the successful acquisition of mortgage insurance policies, consisting of certain selling expenses and other policy issuance and underwriting expenses, are initially deferred and reported as deferred policy acquisition costs (DAC). DAC is reviewed periodically to determine that it does not exceed recoverable amounts and is adjusted as appropriate for policy cancellations to be consistent with our revenue recognition policy. We estimate the rate of amortization to reflect actual experience and anyThere have been no changes to ~~persistency or loss development. For each book year~~our significant accounting principles as described in Item 8, "Financial Statements and Supplementary Data - Notes to Consolidated Financial Statements - Note 2 - Summary of business, these costs are amortized to expense in proportion to estimated gross profits over the estimated life of the policies. Total amortization of DAC, net of a portion of ceding commission related to the 2016 QSR Transaction (see Note 5, Accounting Principles"~~Reinsurance"~~), was $1.7 million and $1.2 million for the three months ended September 30, 2017 and 2016, respectively, and $4.0 million and $3.4 million for the nine months ended September 30, 2017 and 2016, respectively.

~~Premium Deficiency Reserves~~

We consider whether a premium deficiency exists at each fiscal quarter using best estimate assumptions as of the testing date. Per ASC 944, a premium deficiency reserve shall be recognized if the sum of expected claim costs and claim adjustment expenses, expected dividends to policyholders, unamortized acquisition costs and maintenance costs exceeds related unearned premiums and anticipated investment income. We have determined that no premium deficiency reserves were necessary for the three and nine months ended September 30, 2017 or 2016.

~~Reinsurance~~

~~We account for premiums, losses and loss expenses that are ceded to reinsurers on bases consistent with those we use to account for the original policies we issue and pursuant to the terms~~ of our ~~reinsurance contracts. We account for premiums ceded or otherwise paid to reinsurers~~2018 10-K, other than as ~~reductions to premium revenue.~~noted in "Recent Accounting Pronouncements - Adopted" below.

~~We earn profit and ceding commissions in connection with our 2016 QSR Transaction (see Note 5,~~ ~~"Reinsurance"~~).Recent Accounting Pronouncements - Adopted Profit commissions represent a percentage of the profits recognized by reinsurers that are returned to us, based on the level of losses we cede. We recognize any profit commissions we earn as increases to premium revenue. Ceding commissions are calculated as a percentage of ceded written premiums, which are intended to cover our costs to acquire and service the direct policies. We earn the

~~NMI HOLDINGS, INC.~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)~~

ceding commissions in a manner consistent with our recognition of earnings on the underlying insurance policies, over the terms of the policies reinsured. We account for ceding commissions as reductions to underwriting and operating expenses.

We cede a portion of loss reserves, paid losses and loss expenses to our reinsurers, which are accounted for as reinsurance recoverables on the consolidated balance sheets and as reductions to loss expense on the consolidated statements of operations. We remain directly liable for all loss payments in the event we are unable to collect from any reinsurer.

~~Variable interest entity~~

In May 2017, NMIC entered into a reinsurance agreement with Oaktown Re Ltd. (Oaktown Re), a Bermuda-domiciled special purpose reinsurer. At inception of the reinsurance agreement, we determined that Oaktown Re was a variable interest entity (VIE), as defined under GAAP (ASC 810), because it did not have sufficient equity at risk to finance its activities. We evaluated the VIE to determine whether NMIC was its primary beneficiary and, if so, whether we were required to consolidate the assets and liabilities of the VIE. The primary beneficiary of a VIE is an enterprise that (1) has the power to direct the activities of the VIE, which most significantly impact its economic performance and (2) has significant economic exposure to the VIE; ~~i.e.,~~ the obligation to absorb losses or receive benefits that could potentially be significant. The determination of whether an entity is the primary beneficiary of a VIE is complex and requires management judgment regarding determinative factors, including the expected results of the VIE and how those results are absorbed by beneficial interest holders, as well as which party has the power to direct activities that most significantly impact the performance of the VIE.

~~We concluded that we are not the primary beneficiary of Oaktown Re and that consolidation is not required, as we do not have significant economic exposure in the entity.~~

~~See Note 5,~~ ~~"Reinsurance"~~ ~~for further discussion of the reinsurance arrangement.~~

~~Premiums Receivable~~

Premiums receivable consist of premiums due on our mortgage insurance policies. If a mortgage insurance premium is unpaid for more than 120 days, the receivable is written off against earned premium and the related insurance policy is canceled. We have determined that the receivable write-off was immaterial as of September 30, 2017.

~~Recent Accounting Pronouncements~~

~~In May 2014,~~February 2016, the Financial Accounting Standards Board ~~(the FASB)~~(FASB) issued Accounting Standards Update (ASU) ~~2014-09,~~ ~~Revenue from Contracts with Customers~~2016-02, (Topic 606). This update is intended to provide a consistent approach in recognizing revenue. In accordance with the new standard, recognition of revenue occurs when a customer obtains control of promised goods or services in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. In addition, the new standard requires that reporting companies disclose the nature, amount, timing and uncertainty of revenue and cash flows arising from contracts with customers. In August 2015, ASU 2015-14 deferred the provisions of ASU 2014-09 to be effective for interim and annual periods beginning after December 15, 2017. In addition, this guidance amends the existing requirements for the recognition of a gain or loss on the transfer of non-financial assets that are not in a contract with a customer (ASU 2017-05). In September 2017, ASU 2017-13, added guidance from an SEC Staff Announcement, "Transition Related to Accounting Standards Updates No. 2014-09." The adoption of this update for our loan review services revenue, effective January 1, 2018, will have an immaterial impact on our consolidated financial statements and will not affect the Company’s reporting of insurance premiums and investment income. We are still in the process of evaluating the adoption method and the impact on presentation and disclosure.

~~In February 2016, the FASB issued ASU 2016-02,~~ Leases (Topic 842). This update requires that businesses recognize rights and obligations associated with certain leases as assets and liabilities on the balance sheet. The standard also requires additional disclosures regarding the amount, timing, and uncertainty of cash flows arising from leases. ~~For public business entities,~~We adopted this ASU on January 1, 2019 using the modified-retrospective method and applied it prospectively as of the effective date, without adjusting comparative periods presented as permitted by ASU 2018-11, Leases (Topic 842), Targeted Improvements. Adoption of this new standard increased our assets and liabilities by $7.6 million in connection with the recognition of right-of-use assets and lease liabilities, primarily related to the operating lease on our corporate headquarters. Adoption of this standard did not impact our consolidated statements of operations or cash flows. See Note 10,"Leases" for additional information related to our leases.

In July 2017, the FASB issued ASU 2017-11, Earnings Per Share (Topic 260), Distinguishing Liabilities from Equity (Topic 480), and Derivatives and Hedging (Topic 815). This update is ~~effective~~intended to simplify the accounting for ~~annual periods beginning after December 15, 2018 and interim periods therein. Early adoption is permitted in any period.~~certain equity-linked financial instruments. We ~~expect to adopt~~adopted this ~~guidance~~ASU on January 1, 2019. ~~In September 2017, ASU 2017-13, added guidance from an SEC Staff Announcement, "Transition Related to Accounting Standards Update No. 2016-02." We anticipate~~Adoption of this standard ~~will have an~~had no impact on our consolidated financial statements.

In June 2018, the FASB issued ASU 2018-07, Compensation-Stock Compensation (Topic 718). This update expands the scope of Topic 718 to include share-based payments made to non-employees in connection with the acquisition of goods and services. We adopted this ASU on January 1, 2019. Adoption of this standard had no impact on our financial ~~position, primarily due to our office space operating lease,~~results at this time as we ~~will be required~~have not made any share-based grants to recognize lease assets and lease liabilities on our consolidated balance sheet. We will continue to assess the potential impacts of this standard, including the impact the adoption of this guidance will have on our results of operations or cash flows.non-employees as defined in ASC 718-10-20.

Recent Accounting Pronouncements - Not Yet Adopted

In June 2016, the FASB issued ASU 2016-13,Financial Instruments-Credit Losses~~(Topic~~ (Topic 326). This update requires companies to measure all expected credit losses for financial assets held at the reporting date. The standard also amends the accounting for credit losses on available-for-sale debt securities and purchased financial assets with credit ~~deterioration also is amended in~~deterioration. The standard will take effect for public business entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. We are currently reviewing the ~~standard. The standard~~impact the adoption of this ASU will have, if any, on our financial assets. We do not expect it to

NMI HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

impact our accounting for insurance claims and claim expenses as these items are not in the scope of this ASU.

In August 2018, the FASB issued ASU 2018-12, Targeted Improvements to the Accounting for Long-Duration Contracts. This update provides guidance to the existing recognition, measurement, presentation and disclosure requirements for long-duration contracts issued by an insurance entity. The standard will take effect for public business entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020. We are currently evaluating the impact the adoption of this ASU will have, if any, on our consolidated financial statements.

In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820). This update modifies the fair value measurement disclosure requirements of ASC 820. The standard will take effect for public business entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. We are currently evaluating the impact the adoption of this ASU will have, if any, on ~~the consolidated~~our fair value of financial ~~statements.~~instruments disclosures.

In August ~~2016,~~2018, the FASB issued ASU ~~2016-15,~~ ~~Statement of Cash Flows~~2018-15, ~~(Topic 230)~~Intangibles - Goodwill and Other - Internal-Use Software (Subtopic 350-40). This update ~~is intended~~applies to ~~reduce diversity~~cloud computing arrangements hosted by a vendor and provides companies with guidance on the criteria for capitalizing implementation, set-up and other up-front costs incurred in ~~practice in how certain cash receipts and cash payments are presented and classified in the statement of cash flows.~~association with these arrangements. The standard will take effect for public business entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, ~~2017. The adoption of this update, effective January 1, 2018, is not expected to have any impact on our statement of cash flows.~~

~~In August 2016, the FASB issued ASU 2016-16,~~ ~~Income Taxes- Intra-Entity Transfers of Assets Other Than Inventory~~ (Topic 740). This update is intended to improve the accounting for the income tax consequences of intra-entity transfers of assets other than inventory. The standard will take effect for public business entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2017. The adoption of this update, effective January 1, 2018, is not expected to have any impact on our consolidated financial statements.

~~In January 2017, the FASB issued ASU 2017-04,~~ ~~Intangibles - Goodwill and Other~~ (Topic 350). This update is intended to simplify the test for goodwill impairment. The standard will take effect for public business entities for fiscal years, and interim periods within those fiscal years, after December 15, 2020. Early adoption is permitted for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017.2019. We ~~have determined that the adoption of this ASU will have no impact on the consolidated financial statements.~~

~~In March 2017, the FASB issued ASU 2017-08,~~ ~~Receivables - Nonrefundable Fees and Other Costs~~ (Subtopic 310-20). This update shortens the amortization period for the premium on certain purchased callable debt securities to the earliest call date. The standard will take effect for public business entities for fiscal years beginning after December 15, 2017. Early adoption is permitted, and if an entity early adopts the guidance in an interim period, any adjustments are reflected as of the beginning of the fiscal year that includes that interim period. The adoption of this update, effective January 1, 2018, is not expected to have any impact on our consolidated financial statements.

~~In July 2017, the FASB issued ASU 2017-11,~~ ~~Earnings Per Share~~ ~~(Topic 260),~~ ~~Distinguishing Liabilities from Equity~~ ~~(Topic 480), and~~ ~~Derivatives and Hedging~~ (Topic 815). This update is intended to simplify the accounting for certain financial instruments with down round features. This standard will take effect for public business entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. Early adoption is permitted in any interim or annual period. The Company is currently evaluating the impact the adoption of this ASU will have, if any, on ~~the~~our consolidated financial statements.

~~Immaterial Correction of Prior Period Amounts~~

During the first quarter of 2017, after filing the 2016 10-K, including the audited financial statements included therein, we discovered that $1.8 million of deferred taxes on vested options associated with employees terminated in previous years had not been reversed. Because our deferred tax asset (DTA) was subject to a valuation allowance prior to December 31, 2016, no expense would have been recognized in periods prior to December 31, 2016. However, at December 31, 2016, when we released the valuation allowance against the DTA, the DTA was overstated by $1.8 million and resulted in a $1.8 million overstatement of our 2016 income tax benefit and net income.

In order to provide consistency in the consolidated statements and as permitted by Staff Accounting Bulletin (SAB) 108, revisions for these immaterial amounts to previously reported annual amounts are reflected in the Consolidated Balance Sheet financial information herein and will be reflected in the Consolidated Statement of Operations in future filings containing such financial information as permitted by SAB 108. A comparison of the affected amounts as previously reported and as adjusted are presented below.

~~NMI HOLDINGS, INC.~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)~~

As of and for the full year ended December 31, 2016 As previously reported As adjusted
(In thousands)
Income Statement
Net income $ 65,841
$ 64,001
Income tax (benefit) (54,389 ) (52,550 )
Basic EPS 1.11
1.08
Diluted EPS 1.08
1.05

Balance Sheet
Deferred tax asset, net $ 53,274
$ 51,434
Total assets 841,737
839,897
Accumulated deficit (94,882 ) (96,722 )
Total shareholders' equity 477,349
475,509

~~Change in Accounting Principle~~

~~In March 2016, the FASB issued ASU 2016-09,~~ ~~Improvements to Employee Share-Based Payment Accounting~~ (Topic 718), which intends to simplify various aspects of the accounting for and reporting of share-based payments. The new accounting is required to be adopted using a modified retrospective approach, with a cumulative-effect adjustment to opening retained earnings for any outstanding liability awards that qualify for equity classification under the new guidance.

As the guidance is effective for annual and interim reporting periods beginning after December 15, 2016, we adopted the new guidance in the first quarter of 2017. This required us to reflect any adjustments as of January 1, 2017, the beginning of the annual period that includes the interim period of adoption. The primary impact of adoption was the recognition of excess tax benefits in our provision for income taxes in the consolidated statements of operations. Additionally, our consolidated statements of cash flows now present excess tax benefits as an operating activity on a prospective basis. Finally, we have elected to account for forfeitures as they occur, rather than estimate expected forfeitures. The net cumulative effect of this change was recognized as a $0.5 million reduction to the accumulated deficit as of January 1, 2017.

2. Investments

We have designated our investment portfolio as available-for-sale and report it at fair value. The related unrealized gains and losses are, after considering the related tax expense or benefit, recognized through comprehensive income and loss, and on an accumulated basis in shareholders' equity. Net realized investment gains and losses are reported in ~~income~~earnings based ~~upon~~on specific identification of securities ~~sold.~~sold or other-than-temporarily impaired.

Fair Values and Gross Unrealized Gains and Losses on Investments


	Amortized Cost		Gross Unrealized					Fair Value		Amortized Cost		Gross Unrealized					Fair Value
	Amortized Cost		Gains		Losses			Fair Value		Amortized Cost		Gains		Losses			Fair Value
As of September 30, 2017	(In Thousands)
As of March 31, 2019										(In Thousands)
U.S. Treasury securities and obligations of U.S. government agencies	$	65,669	$	21	$	(636	)	$	65,054	$	48,189	$	86	$	(696	)	$	47,579
Municipal debt securities	90,155		929		(348		)	90,736		91,833		671		(331		)	92,173
Corporate debt securities	404,467		5,619		(1,246		)	408,840		613,016		7,471		(2,871		)	617,616
Asset-backed securities	96,279		1,142		(101		)	97,320		156,258		1,241		(125		)	157,374
Total bonds	656,570		7,711		(2,331		)	661,950		909,296		9,469		(4,023		)	914,742
Short-term investments	30,714		65		—			30,779		25,416		65		—			25,481
Total investments	$	687,284	$	7,776	$	(2,331	)	$	692,729	$	934,712	$	9,534	$	(4,023	)	$	940,223



	Amortized Cost		Gross Unrealized					Fair Value
	Amortized Cost		Gains		Losses			Fair Value
As of December 31, 2018	(In Thousands)
U.S. Treasury securities and obligations of U.S. government agencies	$	48,171	$	35	$	(1,376	)	$	46,830
Municipal debt securities	92,014		206		(963		)	91,257
Corporate debt securities	554,079		847		(11,688		)	543,238
Asset-backed securities	171,990		792		(1,457		)	171,325
Total bonds	866,254		1,880		(15,484		)	852,650
Short-term investments	58,733		107		—			58,840
Total investments	$	924,987	$	1,987	$	(15,484	)	$	911,490

We did not own any mortgage-backed securities in our asset-backed securities portfolio as March 31, 2019 and December 31, 2018.

NMI HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

The following table presents a breakdown of the fair value of our corporate debt securities by issuer industry group as of March 31, 2019 and December 31, 2018:

Amortized
Cost Gross Unrealized Fair
Value
Gains Losses
As of December 31, 2016 (In Thousands)
U.S. Treasury securities and obligations of U.S. government agencies $ 64,135
$ 6
$ (962 ) $ 63,179
Municipal debt securities 40,801
131
(663 ) 40,269
Corporate debt securities 349,712
1,722
(2,356 ) 349,078
Asset-backed securities 114,456
765
(560 ) 114,661
Total bonds 569,104
2,624
(4,541 ) 567,187
Short-term investments 61,584
198
—
61,782
Total investments $ 630,688
$ 2,822
$ (4,541 ) $ 628,969



	March 31, 2019		December 31, 2018
Financial	38	%	38	%
Consumer	26		27
Communications	11		12
Utilities	10		7
Industrial	7		7
Technology	5		6
Energy	2		2
Other	1		1
Total	100	%	100	%

As of ~~September 30, 2017~~March 31, 2019 and December 31, ~~2016,~~2018, approximately ~~$7.0~~$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 values of available-for-sale securities as of ~~September 30, 2017~~March 31, 2019 and December 31, ~~2016,~~2018, by contractual maturity, are shown below. Expected maturities will differ from contractual maturities because issuers may have the right to call or prepay obligations with or without call or prepayment penalties. Because most asset-backed securities provide for periodic payments throughout their lives, they are listed below in a separate category.


As of September 30, 2017	Amortized Cost		Fair Value
As of March 31, 2019					Amortized Cost		Fair Value
	(In Thousands)				(In Thousands)
Due in one year or less	$	108,020	$	108,048	$	47,004	$	46,989
Due after one through five years	158,353		159,502		399,669		400,793
Due after five through ten years	309,708		312,697		314,593		317,471
Due after ten years	14,924		15,162		17,188		17,596
Asset-backed securities	96,279		97,320		156,258		157,374
Total investments	$	687,284	$	692,729	$	934,712	$	940,223


As of December 31, 2016	Amortized Cost		Fair Value
As of December 31, 2018					Amortized Cost		Fair Value
	(In Thousands)				(In Thousands)
Due in one year or less	$	94,382	$	94,584	$	76,087	$	76,104
Due after one through five years	173,296		173,251		352,282		347,701
Due after five through ten years	242,005		240,060		318,728		310,633
Due after ten years	6,549		6,413		5,900		5,727
Asset-backed securities	114,456		114,661		171,990		171,325
Total investments	$	630,688	$	628,969	$	924,987	$	911,490

Aging of Unrealized Losses

As of ~~September 30, 2017~~March 31, 2019, the investment portfolio had gross unrealized losses of $~~2.3~~4.0 million, ~~$1.5~~$3.6 million of which has been in an unrealized loss position for a period of 12 months or greater. We did not consider these securities to be other-than-temporarily impaired as of ~~September 30, 2017.~~March 31, 2019. We based our conclusion that these investments were not other-than-temporarily impaired as of ~~September 30, 2017~~March 31, 2019 on the following facts: (i) the unrealized losses were primarily caused by interest rate movements and market fluctuations in credit spreads since the purchase date; (ii) we do not intend to sell these investments; and (iii) we do not believe that it is more likely than not that we will be required to sell these investments before recovery of our amortized cost basis, which may

NMI HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

not occur until maturity. For those securities in an unrealized loss position, the length of time the securities were in such a position is as follows:

~~NMI HOLDINGS, INC.~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)~~



	Less Than 12 Months						12 Months or Greater						Total
	# of Securities	Fair Value		Unrealized Losses			# of Securities	Fair Value		Unrealized Losses			# of Securities	Fair Value		Unrealized Losses
As of March 31, 2019		(Dollars in Thousands)
U.S. Treasury securities and obligations of U.S. government agencies	—	$	—	$	—		17	$	37,425	$	(696	)	17	$	37,425	$	(696	)
Municipal debt securities⁽¹⁾	1	2,000		—			19	33,034		(331		)	20	35,034		(331		)
Corporate debt securities	23	43,094		(423		)	89	158,174		(2,448		)	112	201,268		(2,871		)
Asset-backed securities	10	18,173		(46		)	20	28,453		(79		)	30	46,626		(125		)
Short-term investments⁽¹⁾	1	994		—			—	—		—			1	994		—
Total	35	$	64,261	$	(469	)	145	$	257,086	$	(3,554	)	180	$	321,347	$	(4,023	)


⁽¹⁾	Includes securities with unrealized losses of less than 12 months which are not identifiable in the schedule due to rounding.


	Less Than 12 Months						12 Months or Greater						Total						Less Than 12 Months						12 Months or Greater						Total
	# of Securities	Fair Value		Unrealized Losses			# of Securities	Fair Value		Unrealized Losses			# of Securities	Fair Value		Unrealized Losses			# of Securities	Fair Value		Unrealized Losses			# of Securities	Fair Value		Unrealized Losses			# of Securities	Fair Value		Unrealized Losses
As of September 30, 2017		(Dollars in Thousands)
As of December 31, 2018																				(Dollars in Thousands)
U.S. Treasury securities and obligations of U.S. government agencies	22	$	38,425	$	(263	)	15	$	19,621	$	(373	)	37	$	58,046	$	(636	)	—	$	—	$	—		19	$	41,817	$	(1,376	)	19	$	41,817	$	(1,376	)
Municipal debt securities	9	21,567		(212		)	8	10,319		(136		)	17	31,886		(348		)	4	7,409		(11		)	31	58,658		(952		)	35	66,067		(963		)
Corporate debt securities	44	69,602		(317		)	14	34,031		(929		)	58	103,633		(1,246		)	118	226,477		(3,952		)	126	221,675		(7,736		)	244	448,152		(11,688		)
Asset-backed securities	15	21,173		(89		)	2	4,988		(12		)	17	26,161		(101		)	25	36,017		(1,136		)	22	33,988		(321		)	47	70,005		(1,457		)
Total	90	$	150,767	$	(881	)	39	$	68,959	$	(1,450	)	129	$	219,726	$	(2,331	)	147	$	269,903	$	(5,099	)	198	$	356,138	$	(10,385	)	345	$	626,041	$	(15,484	)

Less Than 12 Months 12 Months or Greater Total
# of Securities Fair Value Unrealized Losses # of Securities Fair Value Unrealized Losses # of Securities Fair Value Unrealized Losses
As of December 31, 2016 (Dollars in Thousands)
U.S. Treasury securities and obligations of U.S. government agencies 33
$ 51,093
$ (962 ) —
$ —
$ —
33
$ 51,093
$ (962 )
Municipal debt securities 14
28,659
(617 ) 1
1,704
(46 ) 15
30,363
(663 )
Corporate debt securities 77
135,115
(1,955 ) 8
13,873
(401 ) 85
148,988
(2,356 )
Asset-backed securities 30
38,702
(510 ) 6
2,472
(50 ) 36
41,174
(560 )
Total 154
$ 253,569
$ (4,044 ) 15
$ 18,049
$ (497 ) 169
$ 271,618
$ (4,541 )
Net Investment Income

The following table presents the components of net investment income:


	For the three months ended September 30,						For the nine months ended September 30,						For the three months ended March 31,
	2017			2016			2017			2016			2019			2018
	(In Thousands)												(In Thousands)
Investment income	$	4,363		$	3,727		$	12,455		$	10,672		$	7,496		$	4,782
Investment expenses	(193		)	(183		)	(570		)	(555		)	(113		)	(208		)
Net investment income	$	4,170		$	3,544		$	11,885		$	10,117		$	7,383		$	4,574

The following table presents the components of net realized investment ~~gains (losses):~~losses:


	For the three months ended September 30,				For the nine months ended September 30,						For the three months ended March 31,
	2017		2016		2017			2016			2019			2018
	(In Thousands)										(In Thousands)
Gross realized investment gains	$	69	$	66	$	536		$	683		$	195		$	—
Gross realized investment losses	—		—		(338		)	(1,441		)	(382		)	—
Net realized investment gains (losses)	$	69	$	66	$	198		$	(758	)
Net realized investment losses											$	(187	)	$	—

NMI HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Investment Securities - Other-than-Temporary Impairment (OTTI)

For the ~~quarter~~three months ended ~~September 30, 2017,~~March 31, 2019, we ~~held no other-than-temporarily impaired securities.~~recognized a $0.4 million OTTI loss in earnings related to the planned sale of a security in a loss position in April 2019. For the three months ended March 31, 2018, we did not recognize any OTTI losses. There were no credit losses recognized in earnings for which a portion of an OTTI loss was recognized in accumulated other comprehensive income (loss). for the three months ended March 31, 2019 or 2018.

~~NMI HOLDINGS, INC.~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)~~

3. Fair Value of Financial Instruments

The following describes the valuation techniques used by us to determine the fair value of our financial instruments:

We established a fair value hierarchy by prioritizing the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). The three levels of the fair value hierarchy under this standard are described below:

Level 1 - Fair value measurements based on quoted prices in active markets that we have the ability to access for identical assets or liabilities. Market price data generally is obtained from exchange or dealer markets. We do not adjust the quoted price for such instruments.

Level 2 - Fair value measurements based on inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly. Level 2 inputs include quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, and inputs other than quoted prices that are observable for the asset or liability, such as interest rates and yield curves that are observable at commonly quoted intervals.

Level 3 - Fair value measurements based on valuation techniques that use significant inputs that are unobservable. Both observable and unobservable inputs may be used to determine the fair values of positions classified in Level 3. The circumstances for using these measurements include those in which there is little, if any, market activity for the asset or liability. Therefore, we must make certain assumptions, which require significant management judgment or estimation about the inputs a hypothetical market participant would use to value that asset or liability.

In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, the level in the fair value hierarchy ~~within which the fair value measurement in its entirety falls~~ is determined based on the lowest level input that is significant to the fair value measurement in its entirety.

Assets classified as Level 1 and Level 2

To determine the fair value of securities available-for-sale in Level 1 and Level 2 of the fair value hierarchy, independent pricing sources have been utilized. One price is provided per security based on observable market data. To ensure securities are appropriately classified in the fair value hierarchy, we review the pricing techniques and methodologies of the independent pricing sources and believe that their policies adequately consider market activity, either based on specific transactions for the issue valued or based on modeling of securities with similar credit quality, duration, yield and structure that were recently traded. A variety of inputs are utilized by the independent pricing sources including benchmark yields, reported trades, non-binding broker/dealer quotes, issuer spreads, two sided markets, benchmark securities, bids, offers and reference data including data published in market research publications. Inputs may be weighted differently for any security, and not all inputs are used for each security evaluation. Market indicators, industry and economic events are also considered. This information is evaluated using a multidimensional pricing model. Quality controls are performed by the independent pricing sources throughout this process, which include reviewing tolerance reports, trading information and data changes, and directional moves compared to market moves. This model combines all inputs to arrive at a value assigned to each security. We have not made any adjustments to the prices obtained from the independent pricing sources. ~~There were no transfers between Level 1 and Level 2 of the fair value hierarchy during the quarter ended September 30, 2017.~~

Liabilities classified as Level 3

We calculate the fair value of outstanding warrants utilizing ~~level~~Level 3 inputs, including a Black-Scholes option-pricing model, in combination with a binomial model, and we value the pricing protection features within the warrants using a Monte-Carlo simulation model. Variables in the model include the risk-free rate of return, dividend yield, expected life and expected volatility of our stock price.

NMI HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

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


	Fair Value Measurements Using								Fair Value Measurements Using
	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Fair Value		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Fair Value
As of September 30, 2017	(In Thousands)
As of March 31, 2019									(In Thousands)
U.S. Treasury securities and obligations of U.S. government agencies	$	60,214	$	4,840	$	—	$	65,054	$	47,579	$	—	$	—	$	47,579
Municipal debt securities	—		90,736		—		90,736		—		92,173		—		92,173
Corporate debt securities	—		408,840		—		408,840		—		617,616		—		617,616
Asset-backed securities	—		97,320		—		97,320		—		157,374		—		157,374
Cash, cash equivalents and short-term investments	51,477		—		—		51,477		65,242		—		—		65,242
Total assets	$	111,691	$	601,736	$	—	$	713,427	$	112,821	$	867,163	$	—	$	979,984

Warrant liability	—		—		4,046		4,046		—		—		11,831		11,831
Total liabilities	$	—	$	—	$	4,046	$	4,046	$	—	$	—	$	11,831	$	11,831


	Fair Value Measurements Using								Fair Value Measurements Using
	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Fair Value		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Fair Value
As of December 31, 2016	(In Thousands)
As of December 31, 2018									(In Thousands)
U.S. Treasury securities and obligations of U.S. government agencies	$	50,719	$	12,460	$	—	$	63,179	$	46,830	$	—	$	—	$	46,830
Municipal debt securities	—		40,269		—		40,269		—		91,257		—		91,257
Corporate debt securities	—		349,078		—		349,078		—		543,238		—		543,238
Asset-backed securities	—		114,661		—		114,661		—		171,325		—		171,325
Cash, cash equivalents and short-term investments	109,528		—		—		109,528		84,134		—		—		84,134
Total assets	$	160,247	$	516,468	$	—	$	676,715	$	130,964	$	805,820	$	—	$	936,784

Warrant liability	—		—		3,367		3,367		—		—		7,296		7,296
Total liabilities	$	—	$	—	$	3,367	$	3,367	$	—	$	—	$	7,296	$	7,296

There were no transfers between Level 1 and Level 2, nor any transfers in or out of Level 3, of the fair value hierarchy during the ~~nine~~three months ended ~~September 30, 2017~~March 31, 2019 and the ~~year-end~~year ended December 31, ~~2016.~~2018.

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

For the nine months ended September 30,
Warrant Liability 2017 2016
(In Thousands)
Balance, January 1 $ 3,367
$ 1,467
Change in fair value of warrant liability included in earnings 679
187
Balance, September 30 $ 4,046
$ 1,654

We revalue the warrant liability quarterly using a Black-Scholes option-pricing model, in combination with a binomial model, and we value the pricing protection features within the warrants using a Monte-Carlo simulation model. As of September 30, 2017, the assumptions used in the option-pricing model were as follows: a common stock price as of September 30, 2017 of



	For the three months ended March 31,
Warrant Liability	2019			2018
	(In Thousands)
Balance, January 1	$	7,296		$	7,472
Change in fair value of warrant liability included in earnings	5,479			(420		)
Issuance of common stock on warrant exercise	(944		)	(489		)
Balance, March 31	$	11,831		$	6,563

NMI HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

~~$12.40, risk free interest rate~~The following table outlines the key inputs and assumptions used to calculate the fair value of ~~1.66%, expected life~~the warrant liability in the Black-Scholes option-pricing model as of ~~3.25 years, expected volatility of 30.6% and a dividend yield of 0%.~~ the dates indicated.



	As of March 31,
	2019		2018
Common stock price	$	25.87	$	16.55
Risk free interest rate	2.21 - 2.31%		2.37		%
Expected life	1.67 - 3.06 years		2.59 years
Expected volatility	42.30 - 45.7%		30.1		%
Dividend yield	0%		0%

The ~~change~~changes in fair value isof the warrant liability for the three months ended March 31, 2019 and 2018 are primarily attributable to ~~an increase~~changes in the price of our common stock ~~from December 31, 2016~~during the respective periods, with additional impact related to ~~September 30, 2017.~~changes in the Black-Scholes model inputs and exercises of outstanding warrants.

4. ~~Term Loan~~Debt

On ~~November 10, 2015,~~May 24, 2018, we entered into a credit agreement ~~(the~~(2018 Credit Agreement) ~~to obtain~~, which provides for (i) a ~~three-year~~$150 million 5-year senior secured term loan ~~(the~~facility (2018 Term Loan) ~~for $150 million. On February 10, 2017, we entered into an amendment to~~that matures on May 24, 2023; and (ii) a $85 million three-year secured revolving credit facility (2018 Revolving Credit Facility) that matures on May 24, 2021. Proceeds from the ~~Credit Agreement, to extend the maturity date of the~~2018 Term Loan ~~by one year~~were used to repay in full the outstanding amount due under our $150 million amended term loan (2015 Term Loan) due on November 10, 2019, and ~~reduce~~to pay fees and expenses incurred in connection with the ~~interest rate. Based on our analysis, we concluded the amendment to the~~2018 Credit ~~Agreement should be treated as a modification. As of September 30, 2017, the~~Agreement.

2018 Term Loan

The 2018 Term Loan bears interest at the Eurodollar Rate, as defined in the 2018 Credit Agreement and subject to a 1.00% floor, plus an annual margin rate of ~~6.75% (an~~4.75%, representing an all-in rate of ~~7.99%~~7.25% as of ~~September 30, 2017),~~March 31, 2019, payable monthly ~~or quarterly~~ based on our current interest ~~rate~~period election. Quarterly principal payments of $375 thousand are also required. ~~The~~As of March 31, 2019, the outstanding principal balance of the 2018 Term Loan ~~as of September 30, 2017~~ was ~~$147~~$148.9 million.

~~Debt~~Interest expense for the 2018 Term Loan includes interest and the amortization of issuance costs, ~~totaling $4.8 million, including $370 thousand~~an original issue discount and capitalized modification costs related to the ~~modification~~2015 Term Loan. For the three months ended March 31, 2019, interest expense was $2.8 million. Remaining unamortized issuance costs were $2.4 million as of March 31, 2019 and ~~a 1% original issue discount,~~ are being amortized to interest expense using the effective interest method over the contractual life of the 2018 Term Loan. Effective interest rate for the Term Loan includes interest, amortization of issuance cost and the discount. For the nine months ended September 30, 2017, we recorded $10.1 million of interest expense, including amortization of the issuance and modification costs and original issue discount.

We are subject to certain ~~quarterly~~ covenants under the 2018 Term Loan (as defined in the 2018 Credit ~~Agreement. These covenants include, but are~~Agreement), including (but not limited to) a maximum debt-to-total capitalization ratio (as defined in the 2018 Credit Agreement) of 35% under the 2018 Term Loan. We were in compliance with all covenants as of March 31, 2019.

Future principal payments due under the 2018 Term Loan as of March 31, 2019 are as follows:



As of March 31, 2019	Principal
	(In thousands)
2019	$	1,125
2020	1,500
2021	1,500
2022	1,500
2023	143,250
Total	$	148,875

2018 Revolving Credit Facility

Borrowings under the 2018 Revolving Credit Facility may be used for general corporate purposes and will accrue interest at a variable rate equal to, at our discretion, (i) a base rate (as defined in the 2018 Credit Agreement, subject to a floor of 1.00% per annum) plus a margin of 1.00% to 2.50% per annum, based on the applicable corporate credit rating at the time, or (ii)

NMI HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

the Eurodollar Rate (subject to a floor of 0.00% per annum) plus a margin of 2.00% to 3.50% per annum, based on the applicable corporate credit rating at the time. As of March 31, 2019, no borrowings had been made under the 2018 Revolving Credit Facility.

We are required to pay a quarterly commitment fee on the average daily undrawn amount of the 2018 Revolving Credit Facility, which ranges from 0.30% to 0.60%, based on the applicable corporate credit rating at the time. As of March 31, 2019, the applicable commitment fee was 0.50%. For the three months ended March 31, 2019, we recorded $0.1 million of commitment fees in interest expense.

We incurred issuance costs of $1.5 million in connection with the establishment of the 2018 Revolving Credit Facility, which were deferred and recorded within Other Assets. These costs are being amortized through interest expense over the three-year life of the 2018 Revolving Credit Facility on a straight line basis. For the three months ended March 31, 2019, we recognized $0.1 million of interest expense from the amortization of deferred issuance costs. At March 31, 2019, remaining deferred issuance costs were $1.1 million, net of accumulated amortization.

We are subject to certain covenants under the 2018 Revolving Credit Facility, including (but not limited to) the following: a maximum debt-to-total capitalization ratio ~~(as defined therein)~~ of 35%, ~~maximum risk-to-capital (RTC) ratio of 22.0:1.0,~~a minimum liquidity ~~(as defined therein),~~requirement, compliance with the PMIERs financial requirements (subject to any GSE-approved waivers), and minimum ~~shareholders' equity requirements. This description is not intended to be complete in all respects~~consolidated net worth and ~~is qualified in its entirety by the terms of the Credit Agreement, including its covenants and events of default.~~statutory capital requirements (respectively, as defined therein). We were in compliance with all covenants as of ~~September 30, 2017.~~March 31, 2019.

~~Future principal payments due under the Term Loan as of September 30, 2017 are as follows:~~

As of September 30, 2017 Principal
(In thousands)
2017 $ 375
2018 1,500
2019 145,125
Total $ 147,000

~~NMI HOLDINGS, INC.~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)~~

5. Reinsurance

We ~~have entered~~enter into ~~two~~ third-party reinsurance transactions to actively manage our risk, ensure PMIERs compliance and support the growth of our business. The GSEs and the Wisconsin Office of the Commissioner of Insurance (Wisconsin OCI) have approved ~~both~~all such transactions (subject to certain conditions and ~~their periodic~~ongoing review, ~~of the transactions,~~ including levels of approved capital credit).

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


	For the three months ended						For the nine months ended						For the three months ended
	September 30, 2017			September 30, 2016			September 30, 2017			September 30, 2016			March 31, 2019			March 31, 2018
	(In Thousands)												(In Thousands)
Net premiums written
Direct	$	56,217		$	46,535		$	142,134		$	133,526		$	81,730		$	66,027
Ceded ⁽¹⁾	(8,501		)	(37,336		)	(20,029		)	(37,336		)	(9,807		)	(6,997		)
Net premiums written	$	47,716		$	9,199		$	122,105		$	96,190		$	71,923		$	59,030

Net premiums earned
Direct	$	52,024		$	33,052		$	133,696		$	78,900		$	86,298		$	63,604
Ceded ⁽¹⁾	(7,505		)	(1,244		)	(18,035		)	(1,244		)	(12,430		)	(8,690		)
Net premiums earned	$	44,519		$	31,808		$	115,661		$	77,656		$	73,868		$	54,914

⁽¹⁾ Net of profit commission

Excess-of-loss reinsurance

2017 ILN Transaction

In May 2017, NMIC entered into a reinsurance agreement with Oaktown Re ~~that~~Ltd. (Oaktown Re), which provides for up to $211.3 million of aggregate excess-of-loss reinsurance coverage at inception for new delinquencies on an existing portfolio of mortgage insurance policies written from 2013 through December 31, 2016. For the reinsurance coverage period, NMIC ~~will retain~~retains the first layer of $126.8 million of aggregate losses, of which $124.7 million remained at March 31, 2019, and Oaktown Re ~~will~~ then ~~provide~~provides second layer coverage up to the outstanding reinsurance coverage amount. NMIC ~~will~~ then ~~retain~~retains losses in excess of the outstanding reinsurance coverage amount. The outstanding reinsurance coverage amount decreases from $211.3 million at inception over a ten-year period as the underlying covered mortgages ~~amortize~~are amortized or repaid, and/or the mortgage insurance coverage is canceled and was ~~$185~~$117.4 million as of ~~September 30, 2017.~~March 31, 2019. The outstanding reinsurance coverage amount will stop amortizing if certain credit enhancement or delinquency thresholds are triggered.

NMI HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Oaktown Re financed the coverage by issuing mortgage insurance-linked notes in an aggregate amount of $211.3 million to unaffiliated investors (the 2017 Notes). The 2017 Notes mature on April 26, 2027. All of the proceeds paid to Oaktown Re from the sale of the 2017 Notes were deposited into a reinsurance trust to collateralize and fund the obligations of Oaktown Re to NMIC under the reinsurance agreement. ~~At all times, funds~~Funds in the reinsurance trust account are required to be invested in high credit quality money market ~~funds.~~funds at all times. We refer collectively to ~~NMIC’s~~NMIC's reinsurance agreement with Oaktown Re and the issuance of the 2017 Notes by Oaktown Re as the 2017 ILN Transaction. Under the terms of the 2017 ILN Transaction, NMIC makes risk premium payments for the applicable outstanding reinsurance coverage amount and pays Oaktown Re for anticipated operating expenses (capped at $300 thousand per year). For the three ~~and nine~~ months ended ~~September 30, 2017,~~March 31, 2019 and 2018, NMIC ~~paid~~ceded risk premiums of ~~$1.9~~$1.4 million and ~~$3.3~~$1.6 million, respectively. NMIC did not cede any losses to Oaktown ~~Re.~~Re during the three months ended March 31, 2019 and 2018.

2018 ILN Transaction

In July 2018, NMIC entered into a reinsurance agreement with Oaktown Re II Ltd. (Oaktown Re II), which provides for up to $264.5 million of aggregate excess-of-loss reinsurance coverage at inception for new delinquencies on an existing portfolio of mortgage insurance policies written between January 1, 2017 and May 31, 2018. For the reinsurance coverage period, NMIC retains the first layer of $125.3 million of aggregate losses, of which $125.3 million remained at March 31, 2019, and Oaktown Re II then provides second layer coverage up to the outstanding reinsurance coverage amount. NMIC then retains losses in excess of the outstanding reinsurance coverage amount. The outstanding reinsurance coverage amount decreases from $264.5 million at inception over a ten-year period as the underlying covered mortgages are amortized or repaid, and/or the mortgage insurance coverage is canceled, and was $264.5 million as of March 31, 2019. The outstanding reinsurance coverage amount will begin amortizing after an initial period in which a target level of credit enhancement is obtained and will stop amortizing if certain credit enhancement or delinquency thresholds are triggered.

Oaktown Re II financed the coverage by issuing mortgage insurance-linked notes in an aggregate amount of $264.5 million to unaffiliated investors (the 2018 Notes). The 2018 Notes mature on July 25, 2028. All of the proceeds paid to Oaktown Re II from the sale of the 2018 Notes were deposited into a reinsurance trust to collateralize and fund the obligations of Oaktown Re II to NMIC under the reinsurance agreement. Funds in the reinsurance trust account are required to be invested in high credit quality money market funds at all times. We refer collectively to NMIC's reinsurance agreement with Oaktown Re II and the issuance of the 2018 Notes by Oaktown Re II as the 2018 ILN Transaction. Under the terms of the 2018 ILN Transaction, NMIC makes risk premium payments for the applicable outstanding reinsurance coverage amount and pays Oaktown Re II for anticipated operating expenses (capped at $250 thousand per year). For the three months ended March 31, 2019, NMIC ceded risk premiums of $1.7 million and did not cede any losses to Oaktown Re II.

Under the ~~reinsurance agreement,~~terms of the 2018 ILN Transaction, we are required to maintain a certain level of restricted funds in a premium deposit account with Bank of New York Mellon until the 2018 Notes have been redeemed in full. "Cash and cash equivalents" on our balance sheet includes restricted cash of $1.4 million as of March 31, 2019. We are not required to deposit additional funds into the premium deposit account and the restricted balance will decrease over time as the principal balance of the 2018 Notes declines.

We refer collectively to the 2017 ILN Transaction and 2018 ILN Transaction as the ILN Transactions. NMIC holds an optional termination ~~right if~~rights under each ILN Transaction in the event of certain ~~events occur,~~occurrences, including, among others, ~~after~~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 ~~adopted by NMIC.~~afforded to NMIC under a given agreement. In addition, there are certain events that ~~will result in~~trigger mandatory termination of ~~the~~an agreement, including ~~NMIC’s~~NMIC's failure to pay premiums or consent to reductions in ~~the~~a trust account to make principal payments to noteholders, among others.

At ~~the time the 2017 ILN Transaction was entered into with Oaktown Re, we evaluated the applicability~~inception of ~~the accounting guidance that addresses VIEs. As a result of the evaluation of the 2017~~each ILN Transaction, we ~~concluded~~determined that Oaktown Re ~~is a VIE.~~and Oaktown Re II were variable interest entities (VIEs). However, ~~given~~we concluded that we are not the primary beneficiary of either Oaktown Re or Oaktown Re II because NMIC does not have significant economic exposure into either Oaktown Re or Oaktown Re II, and, as such, we do not consolidate ~~Oaktown Re~~the VIEs in our consolidated financial statements.

~~NMI HOLDINGS, INC.~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)~~

Quota share reinsurance

In2016 QSR Transaction

Effective September 1, 2016, NMIC entered into a quota-share reinsurance (QSR) transaction (the 2016 QSR Transaction) with a panel of third-party ~~reinsurers (2016 QSR Transaction).~~reinsurers. Each of the third-party reinsurers has an insurer financial strength rating of A- or better by Standard and Poor’s Rating Services (S&P), A.M. Best or both.

NMI HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Under the 2016 QSR Transaction, ~~effective September 1, 2016,~~ NMIC ceded premiums written related to:

•25% of existing risk written on eligible policies as of August 31, 2016;

100% of existing risk under our pool agreement with Fannie Mae; and

25% of risk on eligible policies written from September 1, 2016 through December 31, 2017.

The 2016 QSR Transaction is scheduled to terminate on December 31, 2027, except with respect to the ceded pool risk, which is scheduled to terminate on August 31, 2023. However, NMIC has the option, based on certain conditions and subject to a termination fee, to terminate the agreement as of December 31, 2020, or at the end of any calendar quarter thereafter, which would result in NMIC reassuming the related risk.

2018 QSR Transaction

Effective January 1, 2018, NMIC entered into a second quota share reinsurance treaty with a panel of third-party reinsurers (the 2018 QSR Transaction, together with the 2016 QSR Transaction, the QSR Transactions). Each of the third-party reinsurers has an insurer financial strength rating of A- or better by S&P, AM Best or both. Under the 2018 QSR Transaction, NMIC cedes premiums earned related to 25% of risk on eligible policies written in 2018 and 20% of risk on eligible policies written in 2019. The 2018 QSR Transaction is scheduled to terminate on December 31, 2029. However, NMIC has the option, based on certain conditions and subject to a termination fee, to terminate the agreement as of December 31, 2022, or at the end of any calendar quarter thereafter, which would result in NMIC reassuming the related risk.

NMIC may terminate either or both of the QSR Transactions without penalty if, due to a change in PMIERs requirements, it is no longer able to take full PMIERs asset credit for the risk-in-force (RIF) ceded under the respective agreements. Additionally, under the terms of the QSR Transactions, NMIC may elect to selectively terminate its engagement with individual reinsurers on a run-off basis (i.e., reinsurers continue providing coverage on all risk ceded prior to the termination date, with no new cessions going forward) or cut-off basis (i.e., the reinsurance arrangement is completely terminated with NMIC recapturing all previously ceded risk) under certain circumstances. Such selective termination rights arise when, among other reasons, a reinsurer experiences a deterioration in its capital position below a prescribed threshold and/or a reinsurer breaches (and fails to cure) its collateral posting obligations under the relevant agreement.

Effective April 1, 2019, NMIC elected to terminate its engagement with one reinsurer under the 2016 QSR Transaction on a cut-off basis. In connection with the termination, NMIC recaptured approximately $500 million of previously ceded primary RIF and stopped ceding new premiums earned or written with respect to the recaptured risk. With this termination, ceded premiums written under the 2016 QSR Transaction will decrease from 25% to 20.5% on eligible policies. The termination has no effect on the cession of pool risk under the 2016 QSR Transaction.

The following table shows the amounts related to the ~~2016~~ QSR ~~Transaction:~~Transactions:


	For the three months ended						For the nine months ended						For the three months ended
	September 30, 2017			September 30, 2016			September 30, 2017			September 30, 2016			March 31, 2019			March 31, 2018
	(In Thousands)												(In Thousands)
Ceded risk-in-force	$	2,682,982		$	1,778,235		$	2,682,982		$	1,778,235		$	4,534,353		$	3,304,335
Ceded premiums written	(14,389		)	(38,977		)	(36,715		)	(38,977		)	(18,845		)	(14,525		)
Ceded premiums earned	(13,393		)	(2,885		)	(34,721		)	(2,885		)	(21,468		)	(16,218		)
Ceded claims and claims expenses	277			90			887			90
Ceded claims and claim expenses													899			543
Ceding commission written	2,878			7,795			7,343			7,795			3,771			2,905
Ceding commission earned	2,581			551			6,921			551			4,206			3,151
Profit commission	7,758			1,641			19,945			1,641			12,061			9,201

Ceded premiums written under the 2016 QSR Transaction are recorded on the balance sheet as prepaid reinsurance premiums and amortized to ceded premiums earned in a manner consistent with the recognition of ~~income~~revenue on direct premiums. Under the 2018 QSR Transaction, premiums are ceded on an earned basis as defined in the agreement. NMIC receives a 20% ceding commission for premiums ceded ~~pursuant to this transaction.~~under the QSR Transactions. NMIC also receives a profit commission, provided that the loss ratio on the loans covered under the ~~agreement~~2016 QSR Transaction and 2018 QSR Transaction generally remains below 60% and 61%, respectively, as measured annually. Ceded claims and ~~claims~~claim expenses under the QSR Transactions reduce NMIC's profit commission on a dollar-for-dollar basis.

NMI HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

In accordance with the terms of the 2016 QSR Transaction, rather than making a cash payment or transferring investments for ceded premiums written, NMIC established a funds withheld liability, which also includes amounts due to NMIC for ceding and profit commissions. Any loss recoveries and any potential profit commission to NMIC will be realized from this account until exhausted. 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 our 2016 QSR Transaction was ~~$1.2~~$3.1 million as of ~~September 30, 2017.~~March 31, 2019.

In accordance with the terms of the 2018 QSR Transaction, cash payments for ceded premiums earned are settled on a quarterly basis, offset by amounts due to NMIC for ceding and profit commissions. Any loss recoveries and any potential profit commission to NMIC are also settled quarterly. NMIC's reinsurance recoverable balance is supported by trust accounts established and maintained by each reinsurer in accordance with the PMIERs funding requirements for risk ceded to non-affiliates. The ~~agreement is scheduled~~reinsurance recoverable on loss reserves related to terminate on December 31, 2027, except with respect to the ceded pool risk, which is scheduled to terminate on August 31, 2023. However, NMIC has the option, based on certain conditions and subject to a termination fee, to terminate the agreementour 2018 QSR Transaction was $0.6 million as of ~~December~~March 31, ~~2020, or at the end of any calendar quarter thereafter, which would result in NMIC reassuming the related risk.~~2019.

6. Reserves for Insurance Claims and ~~Claims~~Claim Expenses

We establish reserves to recognize the estimated liability for insurance claims and claim expenses related to defaults on insured mortgage loans. ~~Our method, consistent~~Consistent with industry practice, ~~is to~~we establish reserves ~~only~~ for loans that have been reported to us by servicers as having been in default for at least 60 ~~days. Our~~days, referred to as case reserves, ~~also include amounts for estimated claims incurred~~and additional loans that we estimate (based on ~~loans that~~actuarial review) have been in default for at least 60 days that have not yet been reported to us by ~~the~~ servicers, ~~often~~ referred to as ~~IBNR.~~incurred but not reported (IBNR) reserves. We also establish claim expense reserves, which represent the estimated cost of the claim administration process, including legal and other fees, as well as other general expenses of administering the claims settlement process. As of ~~September 30, 2017,~~March 31, 2019, we had reserves for insurance claims and ~~claims~~claim expenses of ~~$6.1~~$15.5 million for ~~350~~940 primary loans in default. During the ~~first nine~~three months ~~of 2017,~~ended March 31, 2019, we paid 1637 claims totaling ~~$731 thousand,~~$0.9 million, including ~~two~~36 claims ~~totaling $11 thousand~~ covered under the ~~2016~~ QSR ~~Transaction.~~Transactions representing $0.2 million of ceded claims and claim expenses.

In 2013, we entered into a pool insurance transaction with Fannie Mae. The pool transaction includes a deductible, which represents the amount of claims to be absorbed by Fannie Mae before we are obligated to pay any claims. We only establish reserves for pool risk if we expect claims to exceed ~~the deductible under the pool agreement, which represents the amount of claims absorbed by Fannie Mae before we are obligated to pay any claims.~~this deductible. At ~~September 30, 2017, 46~~March 31, 2019, 53 loans in the pool were past due by 60 days or more. These 4653 loans

~~NMI HOLDINGS, INC.~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)~~

~~represent~~ represented approximately ~~$3.0~~$3.3 million of ~~risk-in-force (RIF).~~RIF. Due to the size of the remaining deductible, ~~of $10.0 million,~~ the low level of notices of default (NODs) reported on loans in the pool through ~~September 30, 2017~~March 31, 2019 and the expected severity (all loans in the pool have loan-to-value ratios ~~(LTVs)~~(LTV) ratios under 80%), we ~~have~~did not ~~established~~establish any ~~pool~~case or IBNR reserves for ~~claims or IBNR for the~~pool risk at ~~three and nine months endedSeptember 30, 2017~~March 31, 2019 ~~and 2016.~~. In connection with the settlement of pool claims, we applied ~~$368 thousand~~$0.6 million to the pool deductible through ~~September 30, 2017.~~March 31, 2019. At March 31, 2019, the remaining pool deductible was $9.7 million. We have not paid any pool claims to date. 100% of our pool RIF is reinsured under the 2016 QSR Transaction.

NMI HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

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


	For the nine months ended September 30,						For the three months ended March 31,
	2017			2016			2019			2018
	(In Thousands)						(In Thousands)
Beginning balance	$	3,001		$	679		$	12,811		$	8,761
Less reinsurance recoverables ⁽¹⁾	(297		)	—			(3,001		)	(1,902		)
Beginning balance, net of reinsurance recoverables	2,704			679			9,810			6,859

Add claims incurred:
Claims and claim expenses incurred:
Current year ⁽²⁾	3,546			1,803			3,909			1,940
Prior years⁽³⁾	(581		)	(214		)	(1,166		)	(371		)
Total claims and claims expenses incurred	2,965			1,589
Total claims and claim expenses incurred							2,743			1,569

Less claims paid:
Claims and claim expenses paid:
Current year ⁽²⁾	—			—			—			—
Prior years ⁽³⁾	720			225			694			371
Total claims and claim expenses paid	720			225			694			371

Reserve at end of period, net of reinsurance recoverables	4,949			2,043			11,859			8,057
Add reinsurance recoverables ⁽¹⁾	1,174			90			3,678			2,334
Ending balance	$	6,123		$	2,133		$	15,537		$	10,391

⁽¹⁾ ~~Related to ceded losses recoverable on the 2016 QSR Transaction, included in "Other Assets" on the Condensed Consolidated Balance Sheets. See Note 5,~~ ~~"Reinsurance"~~ ~~for additional information.~~

⁽²⁾ Related to insured loans with their most recent defaults occurring in the current year. For example, if a loan had defaulted in a prior year and subsequently cured and later re-defaulted in the current year, that default would be included in the current year.

⁽³⁾ ~~Related to insured loans with defaults occurring in prior years, which have been continuously in default since that time.~~


⁽¹⁾	Related to ceded losses recoverable on the QSR Transactions, included in "Other Assets" on the Condensed Consolidated Balance Sheets. See Note 5, "Reinsurance" for additional information.


⁽²⁾	Related to insured loans with their most recent defaults occurring in the current year. For example, if a loan had defaulted in a prior year and subsequently cured and later re-defaulted in the current year, that default would be included in the current year. Amounts are presented net of reinsurance.


⁽³⁾	Related to insured loans with defaults occurring in prior years, which have been continuously in default since that time. Amounts are presented net of reinsurance.

The "claims incurred" section of the table above shows claims and claim expenses incurred on NODs for current and prior years, including IBNR ~~reserves.~~reserves and is presented net of reinsurance. The amount of claims incurred relating to current year NODs represents the estimated amount of claims and claim expenses to be ultimately paid on such loans in default. We recognized ~~$581 thousand~~$1.2 million and ~~$214 thousand~~$0.4 million of favorable prior year development during the ~~nine~~three months ended ~~September 30, 2017~~March 31, 2019 and ~~2016,~~2018, respectively, due to NOD cures and ongoing analysis of recent loss development trends. We may increase or decrease our original estimates as we learn additional information about individual defaults and claims and continue to observe and analyze loss development trends in our portfolio. ~~Reserves~~Gross reserves of ~~$1.7~~$10.4 million related to prior year defaults remained as of ~~September 30, 2017.~~March 31, 2019.

7. Earnings per Share

(EPS)

Basic earnings per share is based on the weighted average number of shares of common stock ~~outstanding, while diluted~~outstanding. Diluted earnings per share is based on the weighted average number of shares of common stock outstanding and common stock equivalents that would be issuable upon the vesting of service based and performance and service based RSUs, and the exercise of vested and unvested stock options ~~other share-based compensation arrangements,~~ and ~~the dilutive effect of~~

~~NMI HOLDINGS, INC.~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)~~

outstanding warrants. The number of shares issuable for RSUs subject to performance and service based vesting requirements are only included in diluted shares if the relevant performance measurement period has commenced and results during such period meet the necessary performance criteria. The following table reconciles the net income and the weighted average shares of common stock outstanding used in the computations of basic and diluted earnings per share of common ~~stock:~~stock.

NMI HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

For the three months ended September 30, For the nine months ended September 30,
2017 2016 2017 2016

(In Thousands, except for per share data)
Net income $ 12,312
$ 6,175
$ 23,816
$ 4,279

Basic earnings per share $ 0.21
$ 0.10
$ 0.40
$ 0.07

Basic weighted average shares outstanding 59,883,629
59,130,401
59,680,166
59,047,758
Dilutive effect of non-vested shares and warrants 3,205,329
1,154,345
3,093,167
814,158
Dilutive weighted average shares outstanding 63,088,958
60,284,746
62,773,333
59,861,916

Diluted earnings per share $ 0.20

$ 0.10
$ 0.38
$ 0.07

For the three and nine months ended September 30, 2017, 830,043 and 832,460, respectively, and for the three and nine months ended September 30, 2016, 4,012,046 and 4,326,168, respectively, of our common stock equivalents issued under share-based compensation arrangements were not included in the calculation of diluted earnings per share because they were anti-dilutive. The warrants were not dilutive in 2016.



	For the three months ended March 31,
	2019		2018
	(In Thousands, except for per share data)
Net income	$	32,899	$	22,355
Basic weighted average shares outstanding	66,692		62,099
Basic earnings per share	$	0.49	$	0.36

Net income	$	32,899	$	22,355
Warrant gain, net of tax	—		(332		)
Diluted net income	$	32,899	$	22,023

Basic weighted average shares outstanding	66,692		62,099
Dilutive effect of issuable shares	2,304		3,598
Diluted weighted average shares outstanding	68,996		65,697

Diluted earnings per share	$	0.48	$	0.34

Anti-dilutive shares	754		169

8. Warrants

We issued ~~992,000~~992 thousand warrants in connection with a private placement of our ~~Private Placement.~~common stock in April 2012. Each warrant gives the holder thereof the right to purchase one share of common stock at an exercise price equal to $10.00. The warrants were issued with an aggregate fair value of $5.1 million. ~~Upon exercise of these warrants,~~During the ~~amounts will be treated as additional paid-in capital. No~~three months ended March 31, 2019, 67 thousand warrants were exercised resulting in the issuance of 39 thousand common shares. Upon exercise, we reclassified approximately $0.9 million of warrant fair value from warrant liability to additional paid-in capital, of which $0.3 million related to changes in fair value during the ~~nine~~three months ended ~~September 30, 2017 and 2016.~~ March 31, 2019. During the three months ended March 31, 2018, 54 thousand warrants were exercised resulting in the issuance of 26 thousand common shares. Upon exercise, we reclassified approximately $0.5 million of warrant fair value from warrant liability to additional paid-in capital, of which $0.1 million related to changes in fair value during the three months ended March 31, 2018.

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

9. Income Taxes

We are a U.S. taxpayer and are subject to a statutory U.S. federal corporate income tax rate of ~~35%~~21%. NMIH files a consolidated U.S. federal and various state income tax returns on behalf of itself and its subsidiaries. Our provision for income taxes for ~~the~~ interim reporting periods ~~are~~is established based on anour estimated annual effective tax ~~rate~~rates for ~~the year ending December 31, 2017.~~a given year. Our effective tax rate on our pre-tax income was ~~36.9% and 33.3%~~15.6% for the three ~~and nine~~ months ended ~~September 30, 2017, respectively,~~March 31, 2019, compared to ~~1.8% and 2.6% for the comparable 2016 periods. The increase in the effective tax expense~~15.7% for the three ~~and nine~~ months ended ~~September 30, 2017, against the comparable 2016 periods is attributable~~March 31, 2018. As a mortgage guaranty insurance company, we are eligible to claim a tax deduction of our statutory contingency reserve balance, subject to certain limitations outlined under IRC Section 832(e), and only to the ~~elimination of~~extent we acquire tax ~~benefits during the comparable 2016 periods due~~and loss bonds in an amount equal to the ~~recognition of~~tax benefit derived from the claimed deduction, which is our intent. As a full valuation allowance which had been recorded to reflect the amount of the deferred taxes that may not be realized. We currently pay no regular federal income tax due to the forecasted utilization of federal net operating loss carryforwards, which were $122.9 million as of December 31, 2016. Theresult, our interim provision for income taxes ~~include current year alternative minimum tax and changes to~~for the three months ended March 31, 2019 represents a change in our net deferred tax ~~assets. See Note 1~~liability.

10. Leases

We have two operating lease agreements related to our corporate headquarters and a data center facility for which we recognized operating right-of-use (ROU) assets and lease liabilities of $7.7 million and $8.9 million, respectively, as of March 31, 2019. As of March 31, 2019, we did not have any finance leases.

We recognize ROU assets and lease liabilities in connection with the adoption of ASU 2016-02, ~~, "Organization and Basis of Presentation - Immaterial Correction of Prior Period Amounts"~~Leases (Topic 842). ROU assets and lease liabilities are established based on the estimated present value of lease payments over the relevant lease term. We estimate a discount rate for ~~further details.~~each lease based on our estimated incremental borrowing rate at the commencement date of the relevant lease.

NMI HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

~~10.~~ Right-of-use assets obtained in exchange for new operating lease liabilities for the three months ended March 31, 2019 were $8.1 million. The following table provides a summary of our ROU asset and lease liability assumptions as of March 31, 2019:



Weighted-average remaining lease term	4 years
Weighted-average discount rate	6.21	%

Cash paid and lease expenses recognized on our operating lease liabilities for the three months ended March 31, 2019 were $0.6 million. Future payments due under our existing operating leases as of March 31, 2019 are as follows:



As of March 31, 2019	(In Thousands)
2019	$	1,853
2020	2,537
2021	2,609
2022	2,574
2023	462
Total undiscounted lease payments	10,035
Less effects of discounting	(1,164		)
Present value of lease payments	$	8,871

Lease expense is recorded in underwriting and operating expenses on the consolidated statements of operations. Our existing operating leases have terms that range from three to five years. The lease for our corporate headquarters includes an option to renew for an additional five years at prevailing market rates at time of renewal. We have not included this renewal option in our calculation of minimum lease payments as it is not reasonably certain to be exercised.

As of December 31, 2018, the future minimum lease payments as accounted for prior to our adoption of ASU 2016-02, Leases (Topic 842) are as follows:



Year ending December 31,
	(In Thousands)
2019	$	2,346
2020	2,417
2021	2,489
2022	2,564
2023	463
Totals	$	10,279

11. Regulatory Information

Statutory ~~Information~~Requirements

Our insurance subsidiaries, NMIC and Re One, file financial statements in conformity with statutory accounting principles (SAP) prescribed or permitted by the Wisconsin OCI, NMIC's principal regulator. Prescribed SAP includes state laws, regulations and general administrative rules, as well as a variety of publications of the National Association of Insurance Commissioners. 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.

NMI HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

NMIC and Re One's combined statutory net ~~loss,~~income (loss) was as follows:



	For the three months ended March 31,
	2019			2018
	(In Thousands)
Statutory net income (loss)	$	(927	)	$	(6,814	)

NMIC and Re One's combined statutory surplus, contingency reserve and ~~RTC~~risk-to-capital (RTC) ratios were as follows:

As of and for the nine months and year ended September 30, 2017 December 31, 2016
(In Thousands)
Statutory net loss $ (29,394 ) $ (26,653 )
Statutory surplus 379,160
413,809
Contingency reserve 157,326
90,479
Risk-to-Capital 11.5:1
11.6:1



	March 31, 2019		December 31, 2018
	(Dollars In Thousands)
Statutory surplus	$	431,824	$	430,785
Contingency reserve	375,823		332,702
RTC Ratio	14:1		13.1:1

NMIH is not subject to any limitations on its ability to pay dividends except those generally applicable to corporations that are incorporated in Delaware. Delaware ~~such as NMIH. Delaware corporation~~corporate law provides that dividends are only payable out of a corporation's capital surplus or, subject to certain limitations, recent net ~~profits (subject to certain limitations).~~profits. NMIC and Re ~~One are subject to restrictions on their~~One's ability to pay dividends ~~without prior approval of the~~to NMIH is subject to Wisconsin ~~OCI.~~OCI notice or approval. Certain other states in which NMIC is licensed also have statutes or regulations that restrict its ability to pay dividends. Since inception, NMIC ~~has~~and Re One have not paid any dividends to NMIH.

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

The following analysis should be read in conjunction with our unaudited condensed consolidated financial statements and the notes thereto included in this report and our audited financial statements, notes thereto and "Management's Discussion and Analysis of Financial Condition and Results of Operations" included in our ~~2016~~2018 10-K, for a more complete understanding of our financial position and results of operations. In addition, investors should review the "Cautionary Note Regarding Forward-Looking Statements" above and the "Risk Factors" detailed in Part II, Item 1A of this report and in Part I, Item 1A of our ~~2016~~2018 10-K, as subsequently updated in other reports we file with the SEC, for a discussion of those risks and uncertainties that have the potential to affect our business, financial condition, results of operations, cash flows or prospects in a material and adverse manner. Our results of operations for interim periods are not necessarily indicative of results to be expected for a full fiscal year or for any other period.

Overview

We provide private MI through our wholly owned insurance ~~subsidiaries. Our~~subsidiaries NMIC and Re One. NMIC and Re One are domiciled in Wisconsin and principally regulated by the Wisconsin OCI. NMIC is our primary insurance subsidiary ~~NMIC,~~and is approved as an MI provider by the GSEs and is licensed to write MI coverage in all 50 states and D.C. ~~Both of our insurance subsidiaries, NMIC and~~ Re One ~~are domiciled in Wisconsin and directly regulated by our primary regulator, the Wisconsin OCI. Re One solely~~ provides ~~statutorily required~~ reinsurance to NMIC on insured loans ~~with coverage levels in excess of 25%.~~after giving effect to third-party reinsurance. Our subsidiary, NMIS, provides outsourced loan review services ~~on a limited basis~~ to mortgage loan originators. ~~Our stock trades on the NASDAQ under the symbol "NMIH."~~

MI protects lenders and investors from default-related losses on a portion of the unpaid principal balance of a covered mortgage. MI plays a critical role in the U.S. housing market by mitigating mortgage credit risk and facilitating the secondary market sale of ~~high LTV~~high-LTV (i.e. above 80%) residential loans to the GSEs, who are otherwise restricted by their charters from purchasing or guaranteeing ~~low down payment~~high-LTV mortgages that are not covered by certain credit protections. Such credit protection and secondary market sales allow lenders to increase their capacity for mortgage commitments and expand financing access to existing and prospective ~~primarily first-time,~~ homeowners.

~~We were formed~~NMIH, a Delaware corporation, was incorporated in May 2011, and we began start-up operations in 2012 and wrote our first MI policy in 2013. Since formation, we have sought to establish customer relationships with a broad group of mortgage lenders and build a diversified, high-quality insured portfolio. As of ~~September 30, 2017,~~March 31, 2019, we had master ~~policy relationships~~policies with ~~1,240~~1,392 customers, including national and regional mortgage banks, money center banks, credit unions, community banks, builder-owned mortgage lenders, internet-sourced lenders and ~~internet-sourced~~other non-bank lenders. As of ~~September 30, 2017,~~March 31, 2019, we had ~~$46.6~~$76.1 billion of total insurance-in-force (IIF), including primary IIF of ~~$43.3~~$73.2 billion, and ~~$10.7~~$18.5 billion of gross RIF, including primary RIF of ~~$10.6~~$18.4 billion.

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

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

~~We discuss below our results of operations for~~Our common stock trades on the ~~periods presented and~~NASDAQ under the ~~conditions and trends that have impacted or are expected to impact our business.~~symbol "NMIH." Our headquarters ~~are~~is located in Emeryville, ~~California and our~~California. As of March 31, 2019, we had 308 full time employees. Our website is www.nationalmi.com. Our website and the information contained on or accessible through our website are not incorporated by reference into this report.

We discuss below our results of operations for the periods presented, as well as the conditions and trends that have impacted or are expected to impact our business, including new insurance writings, the composition of our insurance portfolio and other factors that we expect to impact our results.

New Insurance Written, ~~Insurance In Force~~Insurance-In-Force and ~~Risk In Force~~Risk-In-Force

New insurance written (NIW) is the aggregate unpaid principal balance of mortgages underpinning new policies written during a given period. Our NIW is affected by the overall size of the mortgage origination market and the volume of ~~low down payment~~high-LTV mortgage originations, which tend to be generated to a greater extent in purchase originations as compared to refinancings. Our NIW is also affected by the percentage of such ~~low down payment~~high-LTV originations covered by private versus ~~public~~government MI or other alternative credit enhancement structures and our share of the private MI market. NIW, together with persistency, drives our IIF. IIF is the aggregate unpaid principal balance of the mortgages we insure, as reported to us by servicers at a given date, and represents the sum

total of NIW from all prior periods less principal payments on insured mortgages and policy cancellations (including for prepayment, nonpayment of premiums, coverage rescission and ~~claims payment)~~claim payments). RIF is related to IIF and represents the aggregate amount of coverage we provide on all outstanding policies at a given date. RIF is calculated as the sum total of the coverage percentage of each individual policy in our portfolio applied to the unpaid principal balance of such insured mortgage. RIF is affected by IIF and the LTV profile of our insured mortgages, with lower LTV loans generally having a lower coverage percentage and higher LTV loans having a higher coverage percentage. Gross RIF represents RIF ~~without any~~before consideration ~~of the impact~~ of reinsurance. Net RIF ~~represents~~is gross RIF net of ceded ~~risk and is therefore affected by our reinsurance agreements.~~reinsurance.

Net Premiums Written and Net Premiums Earned

~~Our objective is to achieve a mid-teens return on PMIERs required assets and we~~We set our premium rates on individual policies based on the risk characteristics of the underlying mortgage loans and borrowers, and in accordance with our filed rates and applicable rating rules. ~~See " -~~ On June 4, 2018, we introduced a proprietary risk-based pricing platform, which we refer to as Rate GPS~~GSE Oversight~~^SM~~," below~~. Rate GPS considers a broad range of individual variables, including property type, type of loan product, borrower credit characteristics, and lender and market factors, and provides us with the ability to set and charge premium rates commensurate with the underlying risk of each loan that we insure. We introduced Rate GPS in June 2018 to replace our previous rate card pricing system. While most of our new business is priced through Rate GPS, we also continue to offer a rate card pricing option to a limited number of lender customers who require a rate card for operational reasons. We believe the introduction and utilization of Rate GPS provides us with a ~~discussion of the PMIERs financial requirements.~~more granular and analytical approach to evaluating and pricing risk, and that this approach enhances our ability to continue building a high-quality mortgage insurance portfolio and delivering attractive risk-adjusted returns.

Premiums are generally fixed ~~over~~for the ~~estimated life~~duration of our coverage of the underlying loans. Net premiums written are equal to gross premiums written minus ceded premiums written under our reinsurance ~~arrangements.~~arrangements, less premium refunds. As a result, net premiums written are generally influenced by:

NIW;

premium rates and the mix of premium payment type, which are either single, monthly or annual premiums, as described below;

cancellation rates of our insurance policies, which are impacted by payments or prepayments on mortgages, refinancings (which are affected by prevailing mortgage interest ~~rates)~~rates as compared to interest rates on loans underpinning our in force policies), levels of ~~claims~~claim payments and home prices; and

cession of premiums under third-party reinsurance arrangements.

Premiums are paid either by the borrower (BPMI) or the lender (LPMI) in a single payment at origination (single premium), on a monthly installment basis (monthly premium) or on an annual installment basis (annual premium). Our net premiums written will differ from our net premiums earned due to policy payment type. For single premiums, we receive a single premium payment at origination, which is ~~initially recorded as unearned premium and~~ earned over the estimated life of the policy. A majority of our single premium policies in force as of ~~September 30, 2017~~March 31, 2019 were non-refundable under most cancellation scenarios. If non-refundable single premium policies are canceled, we immediately recognize the remaining unearned premium balances as earned premium revenue. Monthly premiums are recognized in the month billed and when the coverage is effective. Annual premiums are earned on a straight-line basis over the year of coverage. Substantially all of our policies provide for either single or monthly premiums.

The percentage of IIF that remains on our books after any 12-month period is defined as our persistency rate. Because our insurance premiums are earned over the life of a policy, higher persistency rates can have a significant impact on our net premiums earned and profitability. Generally, faster speeds of mortgage prepayment lead to lower persistency. Prepayment speeds and the relative mix of business between single and monthly premium policies also impact our profitability. Our premium rates include certain assumptions regarding repayment or prepayment speeds of the mortgages underlying our policies. Because premiums are paid at origination on single premium policies and substantially all of our single premium policies are non-refundable on cancellation, assuming all other factors remain constant, if single premium loans are prepaid earlier than expected, our profitability on these loans is likely to increase and, if loans are repaid slower than expected, our profitability on these loans is likely to decrease. By contrast, if monthly premium loans are repaid earlier than anticipated, we do not earn any more premium with respect to those loans and, unless we replace the repaid monthly premium loan with a new loan at the same premium rate or higher, our profitability is likely to decline.

Effect of reinsurance on our results

We utilize third-party reinsurance to actively manage our risk, ensure PMIERs compliance and support the growth of our business. We currently have both quota share and excess-of-loss reinsurance agreements in place, which impact our results of

operations and regulatory capital and PMIERs asset positions. Under a quota share reinsurance agreement, the reinsurer receives a premium in exchange for covering an agreed-upon portion of incurred losses. Such a quota share arrangement reduces ~~net~~ premiums written and earned and also reduces ~~net~~ RIF, providing capital relief to the ceding insurance company and reducing incurred claims in accordance with the terms of the reinsurance agreement. In addition, reinsurers typically pay ceding commissions as part of quota share transactions, which offset the ceding ~~company’s~~company's acquisition and underwriting expenses. Certain quota share agreements include profit commissions that are earned based on loss performance and serve to reduce ceded premiums. Under an excess-of-loss agreement, the ceding insurer is typically responsible for losses up to an agreed-upon threshold and the reinsurer then provides coverage in excess of such threshold up to a maximum agreed-upon limit. In general, there are no ceding commissions under excess-of-loss reinsurance agreements. We expect to continue to evaluate reinsurance opportunities in the normal course of business.

InQuota share reinsurance

Effective September 1, 2016, NMIC entered into the 2016 QSR ~~Transaction.~~Transaction with a panel of third-party reinsurers. Under the terms of the 2016 QSR Transaction, NMIC ceded premiums written related to (1) ~~ceded~~ 100% of the risk ~~relating to~~under our pool agreement with Fannie Mae, (2) 25% of the existing risk on eligible policies written as of August 31, 2016 and ~~(2) ceded or will cede~~(3) 25% of the risk ~~relating to~~on eligible ~~primary insurance~~ policies written between September 1, 2016 and December 31, 2017, in exchange for reimbursement of ceded claims and ~~claims~~claim expenses on covered policies, a 20% ceding commission, and a profit commission of up to 60% that varies directly and inversely with ceded claims.

Effective January 1, 2018, NMIC entered into the 2018 QSR Transaction with a panel of third-party reinsurers. Under the 2018 QSR Transaction, NMIC cedes premiums earned related to 25% of risk on eligible policies written in 2018 and will cede premiums earned related to 20% of risk on eligible policies written in 2019, in exchange for reimbursement of ceded claims and claim expenses on covered policies, a 20% ceding commission, and a profit commission of up to 61% that varies directly and inversely with ceded claims.

Under the terms of the QSR Transactions, NMIC may elect to selectively terminate its engagement with individual reinsurers on a run-off basis (i.e., reinsurers continue providing coverage on all risk ceded prior to the termination date, with no new cessions going forward) or cut-off basis (i.e., the reinsurance arrangement is completely terminated with NMIC recapturing all previously ceded risk under certain circumstances). Such selective termination rights arise when, among other reasons, a reinsurer experiences a deterioration in its capital position below a prescribed threshold and/or a reinsurer breaches (and fails to cure) its collateral posting obligations under the relevant agreement.

Excess-of-loss reinsurance

In May 2017, NMIC secured $211.3 million of aggregate excess-of-loss reinsurance coverage at inception for an existing portfolio of MI policies written from 2013 through December 31, 2016, through a mortgage insurance-linked notes offering by

Oaktown Re. The reinsurance coverage amount under the terms of the 2017 ILN Transaction decreases from $211.3 million at inception over a ten-year period as the underlying covered mortgages ~~amortize~~are amortized or repaid, and/or the mortgage insurance coverage is canceled and was ~~$185~~$117.4 million as of ~~September 30, 2017.~~March 31, 2019. For the reinsurance coverage period, NMIC ~~will retain~~retains the first layer of $126.8 million of aggregate losses, of which $124.7 million remained as of March 31, 2019, and Oaktown Re ~~will~~ then ~~provide a~~provides second layer of coverage up to the outstanding reinsurance coverage amount. NMIC then retains losses in excess of the outstanding reinsurance coverage amount.

In July 2018, NMIC secured $264.5 million of aggregate excess-of-loss reinsurance coverage at inception for an existing portfolio of policies written from January 1, 2017 through May 31, 2018, through a mortgage insurance-linked notes offering by Oaktown Re II. The reinsurance coverage amount under the terms of the 2018 ILN Transaction decreases from $264.5 million at inception over a ten-year period as the underlying covered mortgages are amortized or repaid, and/or the mortgage insurance coverage is canceled. The outstanding reinsurance coverage amount will begin amortizing after an initial period in which a target level of credit enhancement is obtained and was $264.5 million as of March 31, 2019. For the reinsurance coverage period, NMIC retains the first layer of $125.3 million of aggregate losses, of which $125.3 million remained at March 31, 2019, and Oaktown Re II then provides second layer coverage up to the outstanding reinsurance coverage amount. NMIC then retains losses in excess of the outstanding reinsurance coverage amount.

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

Portfolio Data

The following table presents primary and pool NIW and IIF as of the dates and for the periods indicated. Unless otherwise noted, the tables below do not include the effects of our third-party reinsurance arrangements described above.


Primary and pool IIF and NIW	As of and for the three months ended								For the nine months ended				As of and for the three months ended
	September 30, 2017				September 30, 2016				September 30, 2017		September 30, 2016		March 31, 2019				March 31, 2018
	IIF		NIW		IIF		NIW		NIW				IIF		NIW		IIF		NIW
			(In Millions)										(In Millions)
Monthly	$	28,707	$	4,833	$	16,038	$	4,162	$	11,824	$	10,354	$	55,995	$	6,211	$	37,574	$	5,441
Single	14,552		1,282		12,190		1,695		2,887		5,595		17,239		702		15,860		1,019
Primary	43,259		6,115		28,228		5,857		14,711		15,949		73,234		6,913		53,434		6,460

Pool	3,330		—		3,826		$	—	—		—		2,838		—		3,153		$	—
Total	$	46,589	$	6,115	$	32,054	$	5,857	$	14,711	$	15,949	$	76,072	$	6,913	$	56,587	$	6,460

For the three months ended ~~September 30, 2017, primary~~March 31, 2019, NIW increased 4%7%, compared to the ~~same period in 2016, primarily because of the growth within and an expansion of our customer base. Primary NIW decreased 8% for the nine~~three months ended ~~September 30, 2017, compared~~March 31, 2018, primarily due to ~~the nine months ended September 30, 2016, due~~growth in our monthly premium policy volume tied to increased penetration of existing customer accounts and new customer account activations, partially offset by a reduction in our single premium policy ~~production, driven primarily by actions we initiated to reduce the concentration of single policies in our product mix, partially offset by growth in our monthly policy volume.~~production. For the three ~~and nine~~ months ended ~~September 30, 2017,~~March 31, 2019, monthly premium NIW increased ~~16% and~~ 14%, ~~respectively,~~ compared to the ~~same periods a year ago, driven primarily by the growth of our customer base.~~three months ended March 31, 2018.

For the ~~nine~~three months ended ~~September 30, 2017, 80%~~March 31, 2019, monthly premium polices accounted for 90% of our ~~NIW related to monthly premium policies.~~NIW. As of ~~September 30, 2017,~~March 31, 2019, monthly premium policies accounted for ~~66%~~76% of our primary IIF, as compared to ~~60%~~70% at ~~December~~March 31, ~~2016 and 57% at September 30, 2016.~~2018. We expect the break-down of monthly premium policies and single premium policies (which we refer to as "mix") in our primary IIF to continue to trend toward ~~our current NIW~~an increased monthly mix over ~~time.~~time given the composition of our NIW. Our ~~total~~primary IIF increased ~~45%~~37% as of ~~September 30, 2017~~March 31, 2019 compared to ~~September 30, 2016,~~March 31, 2018, primarily ~~because of our~~due to the NIW generated between such measurement dates and ~~higher~~the persistency of ~~our policies~~ in ~~force.~~force policies.

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

Primary and pool premiums written and earned For the three months ended For the nine months ended
September 30, 2017 September 30, 2016 September 30, 2017 September 30, 2016
(In Thousands)
Net premiums written ⁽¹⁾
$ 47,716
$ 9,199
$ 122,105
$ 96,190
Net premiums earned ⁽¹⁾
44,519
31,808
115,661
77,656

⁽¹⁾~~Net premiums written and earned are reported net of reinsurance.~~



Primary and pool premiums written and earned	For the three months ended
	March 31, 2019		March 31, 2018
	(In Thousands)
Net premiums written	$	71,923	$	59,030
Net premiums earned	$	73,868	$	54,914

For the three ~~and nine~~ months ended ~~September 30, 2017,~~March 31, 2019, net premiums written increased ~~419% and 27%, respectively,~~22% and net premiums earned increased ~~40% and 49%, respectively,~~35% compared to the ~~same periods in 2016.~~three months ended March 31, 2018. The increases in net premiums written and earned are due to the growth of our IIF and increased monthly policy production, ~~and IIF and~~partially offset by increased cessions under the ~~initial cession~~QSR Transactions tied to the growth of ~~premiums written on IIF at~~our direct premium volume and the inception of the 2016 QSR Transaction, partially offset by the decrease in single premium NIW. The increases in net premiums earned are primarily due to growth in our monthly policy production and IIF, partially offset by cessions under the 2016 QSR Transaction and 20172018 ILN ~~Transaction and, compared to the same periods in 2016, reductions in our single premium policy production and earnings~~Transaction.

~~from cancellations.~~ Pool premiums written and earned for the three ~~and nine~~ months ended ~~September 30, 2017~~March 31, 2019 and 2018, were ~~$0.9~~$0.8 million and ~~$2.9~~$0.9 million, respectively, before ~~the effects of~~giving effect to the 2016 QSR Transaction, under which all of our written and earned pool premiums have been ceded. A portion of our ceded pool premiums written and earned are recouped through profit commission under the 2016 QSR Transaction.

Portfolio Statistics

Unless otherwise noted, the portfolio statistics tables presented below do not include the effects of our third-party reinsurance arrangements described above. The table below highlights trends in our primary portfolio as of the ~~date~~dates and for the periods indicated.


Primary portfolio trends	As of and for the three months ended															As of and for the three months ended
	September 30, 2017			June 30, 2017			March 31, 2017			December 31, 2016			September 30, 2016			March 31, 2019			December 31, 2018			September 30, 2018			June 30, 2018			March 31, 2018
	($ Values In Millions)															($ Values In Millions)
New insurance written	$	6,115		$	5,037		$	3,559		$	5,240		$	5,857		$	6,913		$	6,962		$	7,361		$	6,513		$	6,460
Percentage of monthly premium																90		%	90		%	91		%	88		%	84		%
Percentage of single premium																10		%	10		%	9		%	12		%	16		%
New risk written	1,496			1,242			868			1,244			1,415			$	1,799		$	1,799		$	1,883		$	1,647		$	1,580
Insurance in force⁽¹⁾	43,259			38,629			34,779			32,168			28,228
Risk in force⁽¹⁾	10,572			9,417			8,444			7,790			6,847
Insurance-in-force(IIF) ⁽¹⁾																73,234			68,551			63,527			58,089			53,434
Percentage of monthly premium																76		%	75		%	74		%	72		%	70		%
Percentage of single premium																24		%	25		%	26		%	28		%	30		%
Risk-in-force⁽¹⁾																$	18,373		$	17,091		$	15,744		$	14,308		$	13,085
Policies in force (count)⁽¹⁾	180,089			161,195			145,632			134,662			119,002			297,232			280,825			262,485			241,993			223,263
Average loan size ⁽¹⁾	$	0.240		$	0.240		$	0.239		$	0.239		$	0.237		$	0.246		$	0.244		$	0.242		$	0.240		$	0.239
Weighted-average coverage ⁽²⁾	24.4		%	24.4		%	24.3		%	24.2		%	24.3		%
Loans in default (count)	350			249			207			179			115
Average coverage ⁽²⁾																25.1		%	24.9		%	24.8		%	24.6		%	24.5		%
Loans in default (count) ⁽¹⁾																940			877			746			768			1,000
Percentage of loans in default	0.2		%	0.2		%	0.1		%	0.1		%	0.1		%	0.3		%	0.3		%	0.3		%	0.3		%	0.5		%
Risk in force on defaulted loans	$	19		$	14		$	12		$	10		$	6
Risk in force on defaulted loans ⁽¹⁾																$	53		$	48		$	42		$	43		$	57
Average premium yield ⁽³⁾	0.43		%	0.41		%	0.40		%	0.44		%	0.48		%	0.42		%	0.42		%	0.43		%	0.44		%	0.43		%
Earnings from cancellations	$	4.3		$	3.8		$	2.5		$	5.1		$	5.8		$	2.3		$	2.1		$	2.6		$	3.1		$	2.8
Annual persistency	85.1		%	83.1		%	81.3		%	80.7		%	81.8		%
Quarterly run-off⁽⁴⁾	3.8		%	3.4		%	2.9		%	4.6		%	5.3		%
Annual persistency⁽⁴⁾																87.2		%	87.1		%	86.1		%	85.5		%	85.7		%
Quarterly run-off⁽⁵⁾																3.3		%	3.1		%	3.3		%	3.5		%	3.1		%


⁽¹⁾	Reported as of the end of the period.


⁽²⁾	Calculated as end of period RIF divided by IIF.


⁽³⁾	Calculated as net primary and pool premiums earned, net of reinsurance, divided by average ~~gross~~ primary IIF for the period, annualized.


⁽⁴⁾	Defined as the percentage of IIF that remains on our books after any 12-month period.


⁽⁵⁾	Defined as the percentage of IIF that is no longer on our books after any ~~three-month~~3-month period.

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


Primary IIF	For the three months ended						For the nine months ended						For the three months ended
	September 30, 2017			September 30, 2016			September 30, 2017			September 30, 2016			March 31, 2019			March 31, 2018
	(In Millions)												(In Millions)
IIF, beginning of period	$	38,629		$	23,624		$	32,168		$	14,824		$	68,551		$	48,465
NIW	6,115			5,857			14,711			15,949			6,913			6,460
Cancellations and other reductions	(1,485		)	(1,253		)	(3,620		)	(2,545		)	(2,230		)	(1,491		)
IIF, end of period	$	43,259		$	28,228		$	43,259		$	28,228		$	73,234		$	53,434

We consider a "book" to be a collective pool of policies insured during a particular period, normally a calendar year. In general, the majority of underwriting profit, calculated as earned premium revenue minus claims and underwriting and operating expenses, generated by a particular book year emerges in the years immediately following origination. This pattern generally occurs because relatively few of the claims that a book will ultimately experience typically occur in the first few years following origination, when premium revenue is highest, while subsequent years are affected by declining premium revenues, as the number of insured loans decreases (primarily due to loan prepayments), and by increasing losses.

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


Primary IIF and RIF	As of September 30, 2017				As of September 30, 2016				As of March 31, 2019				As of March 31, 2018
	IIF		RIF		IIF		RIF		IIF		RIF		IIF		RIF
	(In Millions)								(In Millions)
September 30, 2017	$	14,315	$	3,508	$	—	$	—
March 31, 2019									$	6,872	$	1,789	$	—	$	—
2018									25,609		6,492		6,427		1,573
2017									18,353		4,514		20,272		4,948
2016	18,684		4,520		15,433		3,719		14,750		3,652		17,497		4,262
2015	8,742		2,167		10,679		2,610		6,585		1,658		7,913		1,971
2014	1,479		368		2,062		505
2013	39		9		54		13
2014 and before									1,065		268		1,325		331
Total	$	43,259	$	10,572	$	28,228	$	6,847	$	73,234	$	18,373	$	53,434	$	13,085

We utilize certain risk principles that form the basis of how we underwrite and originate ~~primary~~ NIW. We ~~manage our portfolio credit risk by using several loan~~have established prudential underwriting standards and loan-level eligibility matrices which prescribe the maximum LTV, minimum borrower ~~credit~~FICO score, maximum borrower debt-to-income (DTI) ratio, maximum loan size, property type, loan type, loan term and occupancy status of loans that we will ~~insure. Our loan~~insure and memorialized these standards and eligibility matrices ~~as well as all of our detailed underwriting guidelines, are contained~~ in our Underwriting Guideline Manual that is publicly available on our website. Our underwriting standards and eligibility criteria ~~and underwriting guidelines~~ are designed to ~~mitigate~~limit the ~~layered~~layering of risk ~~inherent~~ in a single insurance policy. "Layered risk" refers to the accumulation of borrower, loan and property risk. For example, we have higher credit score and lower maximum allowed LTV requirements for investor-owned properties, compared to owner-occupied properties. We monitor the concentrations of various risk attributes in our insurance portfolio, which may change over time, in part, as a result of regional conditions or public policy shifts.

The tables below present our primary NIW by FICO, LTV and purchase/refinance mix for the periods indicated. We calculate the LTV of a loan as the percentage of the original loan amount to the original purchase value of the property securing the loan.


Primary NIW by FICO	For the three months ended				For the nine months ended				For the three months ended
	September 30, 2017		September 30, 2016		September 30, 2017		September 30, 2016		March 31, 2019		March 31, 2018
	($ In Millions)								($ In Millions)
>= 760	$	2,806	$	2,975	$	6,865	$	8,418	$	3,057	$	2,619
740-759	934		934		2,277		2,606		1,224		1,073
720-739	807		725		1,889		1,870		1,044		914
700-719	697		588		1,662		1,540		792		811
680-699	456		387		1,088		940		553		567
<=679	415		248		930		575		243		476
Total	$	6,115	$	5,857	$	14,711	$	15,949	$	6,913	$	6,460
Weighted average FICO	747		753		748		754		749		743


Primary NIW by LTV	For the three months ended						For the nine months ended						For the three months ended
	September 30, 2017			September 30, 2016			September 30, 2017			September 30, 2016			March 31, 2019			March 31, 2018
	($ In Millions)												($ In Millions)
95.01% and above	$	722		$	347		$	1,470		$	918		$	569		$	997
90.01% to 95.00%	2,714			2,557			6,623			7,005			3,424			2,765
85.01% to 90.00%	1,765			1,844			4,372			4,996			2,241			1,755
85.00% and below	914			1,109			2,246			3,030			679			943
Total	$	6,115		$	5,857		$	14,711		$	15,949		$	6,913		$	6,460
Weighted average LTV	92.3		%	91.7		%	92.2		%	91.6		%	92.2		%	92.5		%


Primary NIW by purchase/refinance mix	For the three months ended				For the nine months ended				For the three months ended
	September 30, 2017		September 30, 2016		September 30, 2017		September 30, 2016		March 31, 2019		March 31, 2018
	(In Millions)								(In Millions)
Purchase	$	5,387	$	4,400	$	12,889	$	11,518	$	6,383	$	5,425
Refinance	728		1,457		1,822		4,431		530		1,035
Total	$	6,115	$	5,857	$	14,711	$	15,949	$	6,913	$	6,460

The tables below present our total primary IIF and RIF by FICO and LTV and total primary RIF by loan type as of the dates indicated.


Primary IIF by FICO	As of								As of
	September 30, 2017				September 30, 2016				March 31, 2019				March 31, 2018
	($ Values In Millions)								($ In Millions)
>= 760	$	21,329	49	%	$	14,258	50	%	$	33,902	46	%	$	25,371	48	%
740-759	6,983		16		4,612		16		12,160		17		8,635		16
720-739	5,547		13		3,648		13		10,096		14		6,981		13
700-719	4,505		10		2,813		10		8,122		11		5,814		11
680-699	2,942		7		1,863		7		5,435		7		3,852		7
<=679	1,953		5		1,034		4		3,519		5		2,781		5
Total	$	43,259	100	%	$	28,228	100	%	$	73,234	100	%	$	53,434	100	%


Primary RIF by FICO	As of								As of
	September 30, 2017				September 30, 2016				March 31, 2019				March 31, 2018
	($ Values In Millions)								($ In Millions)
>= 760	$	5,251	50	%	$	3,470	51	%	$	8,506	46	%	$	6,246	48	%
740-759	1,713		16		1,130		17		3,076		17		2,125		16
720-739	1,349		13		887		13		2,550		14		1,710		13
700-719	1,092		10		680		10		2,036		11		1,416		11
680-699	707		7		443		6		1,357		7		932		7
<=679	460		4		237		3		848		5		656		5
Total	$	10,572	100	%	$	6,847	100	%	$	18,373	100	%	$	13,085	100	%


Primary IIF by LTV	As of								As of
	September 30, 2017				September 30, 2016				March 31, 2019				March 31, 2018
	($ Values In Millions)								($ In Millions)
95.01% and above	$	3,038	7	%	$	1,363	5	%	$	7,204	10	%	$	4,872	9	%
90.01% to 95.00%	19,562		45		12,644		45		34,024		46		23,937		45
85.01% to 90.00%	13,437		31		9,157		32		22,208		30		16,034		30
85.00% and below	7,222		17		5,064		18		9,798		14		8,591		16
Total	$	43,259	100	%	$	28,228	100	%	$	73,234	100	%	$	53,434	100	%


Primary RIF by LTV	As of								As of
	September 30, 2017				September 30, 2016				March 31, 2019				March 31, 2018
	($ Values In Millions)								($ In Millions)
95.01% and above	$	822	8	%	$	380	6	%	$	1,928	10	%	$	1,294	10	%
90.01% to 95.00%	5,722		54		3,725		54		9,923		54		6,978		53
85.01% to 90.00%	3,205		30		2,174		32		5,384		30		3,831		29
85.00% and below	823		8		568		8		1,138		6		982		8
Total	$	10,572	100	%	$	6,847	100	%	$	18,373	100	%	$	13,085	100	%


Primary RIF by Loan Type	As of				As of
	September 30, 2017		September 30, 2016		March 31, 2019		March 31, 2018

Fixed	98	%	98	%	98	%	98	%
Adjustable rate mortgages:
Less than five years	—		—		—		—
Five years and longer	2		2		2		2
Total	100	%	100	%	100	%	100	%

The table below ~~shows~~presents selected primary portfolio statistics, by book year, as of ~~September 30, 2017.~~March 31, 2019.


	As of September 30, 2017														As of March 31, 2019
Book year	Original Insurance Written		Remaining Insurance in Force		% Remaining of Original Insurance		Policies Ever in Force	Number of Policies in Force	Number of Loans in Default	# of Claims Paid	Incurred Loss Ratio (Inception to Date) ⁽¹⁾		Cumulative default rate ⁽²⁾		Original Insurance Written		Remaining Insurance in Force		% Remaining of Original Insurance		Policies Ever in Force	Number of Policies in Force	Number of Loans in Default	# of Claims Paid	Incurred Loss Ratio (Inception to Date) ⁽¹⁾	Cumulative default rate ⁽²⁾
	($ Values in Millions)														($ Values in Millions)
2013	$	162	$	39	24	%	655	201	—	1	0.2	%	0.2	%	$	162	$	28	17	%	655	153	—	1	0.20%	0.15	%
2014	3,451		1,479		43	%	14,786	7,451	54	9	3.8	%	0.4	%	3,451		1,037		30	%	14,786	5,450	45	34	3.44%	0.53	%
2015	12,422		8,742		70	%	52,548	39,727	164	14	2.9	%	0.3	%	12,422		6,585		53	%	52,548	30,653	167	64	2.64%	0.44	%
2016	21,187		18,684		88	%	83,626	76,095	119	3	1.6	%	0.1	%	21,187		14,750		70	%	83,626	61,940	231	56	2.28%	0.34	%
2017	14,711		14,315		97	%	57,800	56,615	13	—	0.5	%	—		21,582		18,353		85	%	85,897	75,951	326	10	2.99%	0.39	%
2018															27,289		25,609		94	%	104,017	99,200	171	2	2.34%	0.17	%
2019															6,913		6,872		99	%	24,006	23,885	—	—	—%	—	%
Total	$	51,933	$	43,259			209,415	180,089	350	27					$	93,006	$	73,234			365,535	297,232	940	167


⁽¹⁾	The ratio of total claims incurred (paid and reserved) divided by cumulative premiums earned, net of reinsurance.


⁽²⁾	The sum of the number of claims paid ever to date and number of loans in default as of the end of the period divided by policies ever in force.

Geographic Dispersion

The following table shows the distribution by state of our primary RIF as of the periods indicated. As of ~~September 30, 2017,~~March 31, 2019, our RIF continues to be relatively more concentrated in California, primarily as a result of the size of the California mortgage market relative to the rest of the country and the location and timing of ~~the~~our acquisition of new customers. The distribution of ~~risk~~our primary RIF as of ~~September 30, 2017~~March 31, 2019 is not necessarily representative of the geographic distribution we expect in the future.


Top 10 primary RIF by state	As of				As of
	September 30, 2017		September 30, 2016		March 31, 2019		March 31, 2018
California	13.6	%	13.2	%	12.7	%	13.5	%
Texas	7.6		6.8		8.3		8.0
Florida					5.2		4.7
Virginia	5.6		6.6		5.0		5.1
Arizona	4.4		3.8		4.8		4.8
Florida	4.3		4.7
Colorado	3.8		4.0
Michigan	3.7		3.9		3.6		3.7
Pennsylvania	3.6		3.6		3.6		3.6
Utah	3.6		3.6
Colorado					3.4		3.5
Illinois					3.4		3.3
Maryland	3.6		3.6		3.2		3.4
Total	53.8	%	53.8	%	53.2	%	53.6	%

Insurance Claims and ~~Claims~~Claim Expenses

Insurance claims and ~~claims~~claim expenses incurred represent estimated future payments on newly defaulted insured loans and any change in our claim estimates for previously existing defaults. Claims incurred is generally affected by a variety of factors, including the ~~state of the economy,~~macroeconomic environment, national and regional unemployment trends, changes in housing values, ~~loan~~borrower risk characteristics, LTV ratios and ~~borrower~~other loan level risk ~~characteristics,~~attributes, the size and type of loans insured, and the percentage of coverage on insured loans.

Reserves for claims and allocated ~~claims~~claim expenses are established for reported mortgage loan defaults, which we refer to as case reserves, when we are notified that a borrower has missed two or more mortgage payments (i.e., an NOD). We also make estimates of IBNR defaults, which are defaults that have been incurred but have not been reported by loan servicers, based ~~upon~~on historical reporting trends, and establish IBNR reserves for those estimates. We also establish reserves for unallocated ~~claims~~claim expenses not associated with a specific claim. ~~The claims~~Claim expenses consist of the estimated cost of the claim administration process, including legal and other fees as well as other general expenses of administering the ~~claims~~claim settlement process.

Reserves are established by estimating the number of loans in default that will result in a claim payment, which is referred to as claim frequency, and the amount of the claim payment expected to be paid on each such loan in default, which is referred to as claim severity. Claim frequency and severity estimates are established based on historical observed experience regarding certain loan factors, such as age of the default, cure rates, size of the loan and estimated change in property ~~valuation.~~value. Reserves are released the month in which a loan in default is brought current by the borrower, which is referred to as a cure. Adjustments to reserve estimates are reflected in the period in which the adjustment is made. Reserves are also ceded to reinsurers under ~~our 2016~~the QSR ~~Transaction.~~Transactions. We will not cede ~~reserves to the reinsurer~~claims under the ~~2017~~ ILN ~~Transaction~~Transactions unless losses exceed ~~our~~the respective retained coverage ~~layer.~~layers. Reserves are not established for future claims on insured loans which are not currently in default.

~~We expect our insurance claims and claims expenses to be relatively low in the near-term.~~ Based on our experience and industry data, we believe that claims incidence for mortgage insurance is generally highest in the third through sixth years after loan origination. As of ~~September 30, 2017, over 95%~~March 31, 2019, approximately 90% of our primary IIF ~~was~~ related to business written since ~~January 1, 2015.~~March 31, 2016. Although the claims experience on our IIF to date has been modest, we expect incurred claims to increase as a greater amount of our existing insured portfolio reaches its anticipated period of highest claim frequency. Additionally, our pool insurance agreement with Fannie Mae contains a claim deductible through which Fannie Mae absorbs specified losses before we are obligated to pay any claims. We have not established any pool reserves for claims or IBNR to date. Although the claims experience on new primary insurance written by us to date has been favorable, we expect incurred claims to increase as a greater amount of our existing insured portfolio reaches its anticipated period of highest claim frequency. We estimate that the loss ratio over the life of our existing insured portfolio will be between 20% and 25% of earned premiums, and we price to that expectation.

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, claims experience will be affected by future macroeconomic factors such as housing prices, interest rates, unemployment rates and ~~employment.~~ other events, such as natural disasters.

To date, our claims experience is developing at a slower pace than historical trends indicate, as a result of high quality underwriting, a strong macroeconomic environment and a favorable housing market. For additional discussion of our reserves, see, Item 1, "Financial Statements - Notes to Condensed Consolidated Financial Statements - Note 6, Reserves for Insurance Claims and ~~Claims~~Claim Expenses."

We insure mortgages for homes in areas that have been impacted by recent natural ~~disasters, including hurricanes Harvey and Irma and the fires in Northern California.~~disasters. We do not provide coverage for property or casualty claims related to physical damage of a home underpinning an insured mortgage. ~~We anticipate that we will experience an increase in NODs on insured loans in the~~

~~impacted areas.~~ Our ultimate claims exposure for loans in areas impacted by natural disasters will depend on the number of NODs received, proximate cause of each default, ~~and~~ cure rate of the NOD ~~population. In the event of~~population, and potential repair cost curtailment for appropriate claims on damaged properties as permitted under our Master Policy. Cure rates on loan defaults following natural disasters ~~cure rates~~ are influenced by the adequacy of homeowners and ~~flood~~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~~addition to other factors which generally impact cure rates in unaffected areas.

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


	For the three months ended						For the nine months ended						For the three months ended
	September 30, 2017			September 30, 2016			September 30, 2017			September 30, 2016			March 31, 2019			March 31, 2018
	(In Thousands)												(In Thousands)
Beginning balance	$	5,048		$	1,475		$	3,001		$	679		$	12,811		$	8,761
Less reinsurance recoverables ⁽¹⁾	(899		)	—			(297		)	—			(3,001		)	(1,902		)
Beginning balance, net of reinsurance recoverables	4,149			1,475			2,704			679			9,810			6,859

Add claims incurred:
Claims and claim expenses incurred:
Current year ⁽²⁾	1,215			690			3,546			1,803			3,909			1,940
Prior years⁽³⁾	(258		)	(29		)	(581		)	(214		)	(1,166		)	(371		)
Total claims and claims expenses incurred	957			661			2,965			1,589
Total claims and claim expenses incurred													2,743			1,569

Less claims paid:
Claims and claim expenses paid:
Current year ⁽²⁾	—			—			—			—			—			—
Prior years ⁽³⁾	157			93			720			225			694			371
Total claims and claim expenses paid	157			93			720			225			694			371

Reserve at end of period, net of reinsurance recoverables	4,949			2,043			4,949			2,043			11,859			8,057
Add reinsurance recoverables ⁽¹⁾	1,174			90			1,174			90			3,678			2,334
Ending balance	$	6,123		$	2,133		$	6,123		$	2,133		$	15,537		$	10,391

⁽¹⁾ ~~Related to ceded losses recoverable on the 2016 QSR Transaction,~~

(1)

Related to ceded losses recoverable on the QSR Transactions, included in "Other Assets" on the Condensed Consolidated Balance Sheets. See Item 1, "Financial Statements - Notes to Condensed Consolidated Financial Statements - Note 5, Reinsurance" for additional information.

⁽³⁾ ~~Related to insured loans with defaults occurring in prior years, which have been continuously in default since that time.~~


(2)	Related to insured loans with their most recent defaults occurring in the current year. For example, if a loan had defaulted in a prior year and subsequently cured and later re-defaulted in the current year, that default would be included in the current year. Amounts are presented net of reinsurance.


(3)	Related to insured loans with defaults occurring in prior years, which have been continuously in default since that time. Amounts are presented net of reinsurance.

development trends. We may increase or decrease our original estimates as we ~~learn~~gather additional information about individual defaults and claims and continue to observe and analyze loss development trends in our portfolio.

Gross reserves of $10.4 million related to prior year defaults remained as of March 31, 2019.

The following table provides a reconciliation of the beginning and ending count of loans in ~~default for the periods indicated.~~default.


	For the three months ended				For the nine months ended				For the three months ended
	September 30, 2017		September 30, 2016		September 30, 2017		September 30, 2016		March 31, 2019		March 31, 2018
Beginning default inventory	249		79		179		36		877		928
Plus: new defaults	208		69		479		158		574		413
Less: cures	(103	)	(30	)	(292	)	(73	)	(474	)	(324	)
Less: claims paid	(4	)	(3	)	(16	)	(6	)	(37	)	(17	)
Ending default inventory	350		115		350		115		940		1,000

The ~~increase~~decrease in the ending default inventory at ~~September 30, 2017~~March 31, 2019 compared to ~~September 30, 2016~~March 31, 2018, primarily relates to cure activity on defaults on insured loans in areas declared by FEMA to be individual assistance disaster zones following Hurricanes Harvey and Irma, and the California wildfires in 2017, and to a lesser extent, cure activity on our non-disaster related NOD population. The impact of this cure activity was ~~primarily due~~partially offset by an increase in new defaults tied to ~~an increase~~the growth in the number of policies in force, ~~and expected loss development~~the aging of our ~~portfolio.~~ earlier book years and, to a more limited extent, default experience in areas declared by FEMA to be individual assistance disaster zones following disasters that we determined to be focal events in 2018.

The following table provides details of our claims paid, before giving effect to claims ~~paid~~ceded under the ~~2016~~ QSR ~~Transaction,~~Transactions, for the ~~three and nine months ended September 30, 2017 and September 30, 2016.~~periods indicated.


	For the three months ended						For the nine months ended						For the three months ended
	September 30, 2017			September 30, 2016			September 30, 2017			September 30, 2016			March 31, 2019			March 31, 2018
	($ Values In Thousands)												($ In Thousands)
Number of claims paid(1)	4			3			16			6			37			17
Total amount paid for claims	$	160		$	93		$	731		$	225		$	926		$	482
Average amount paid per claim(2)	$	40		$	31		$	46		$	32		$	27		$	34
Severity⁽¹⁾⁽³⁾	73		%	53		%	83		%	62		%	64		%	74		%


⁽¹⁾~~Severity represents the total amount of claims paid divided by the related RIF on the loan at the time the claim is perfected.~~	Count includes claims settled without payment.


⁽²⁾	Calculation is net of claims settled without payment.


⁽³⁾	Severity represents the total amount of claims paid including claim expenses divided by the related RIF on the loan at the time the claim is perfected, and is calculated including claims settled without payment.

The increase in the number of claims paid for the three ~~and nine~~ months ended ~~September 30, 2017~~March 31, 2019, compared to the ~~same periods~~three months ended ~~September 30, 2016~~March 31, 2018, is due to an increase in our default ~~inventory. We~~inventory and the continued growth and seasoning of our insured portfolio. Claims settled without payment are included in claim counts, but excluded from averages. Over time, we expect the severity of claims ~~we receive~~paid to be between 85% and 95% of the coverage amount. ~~We believe~~

The following table provides detail on our ~~severity is below long-term expectations due~~average reserve per default, before giving effect to ~~home price appreciation in recent periods.~~

reserves ceded under the QSR Transactions, as of the dates indicated.


Average reserve per default:	As of September 30, 2017		As of September 30, 2016		As of March 31, 2019		As of March 31, 2018
	(In Thousands)				(In Thousands)
Case ⁽¹⁾	$	16	$	17	$	15	$	9
IBNR	1		1		2		1
Total(2)	$	17	$	18	$	17	$	10


⁽¹⁾⁽¹⁾	Defined as the gross reserve per insured loan in default.


⁽²⁾	Amount includes claims adjustment expenses.

The average reserve per ~~insured loan~~default at March 31, 2019 increased from March 31, 2018, primarily due to cure activity on defaults outstanding at March 31, 2018 for loans in ~~default.~~

areas impacted by natural disasters. We established lower reserves for these NODs than we otherwise do for similarly situated NODs in non-disaster zones. As this default population declined with increased cure activity, the average reserve per remaining default increased. As of March 31, 2019, 42 of the 940 loans in default related to homes in areas declared by FEMA to be individual assistance disaster zones following natural catastrophes that we determine to be focal events, compared to 474 of 1,000 loans at March 31, 2018. We anticipate that focal disaster-related loans in default will cure at a higher rate than the estimated rate we apply to non-disaster related loans in default, due to our historical and observed industry experience, and current economic indicators and relief programs. As such, we establish lower reserves for these NODs than we otherwise do for our broader NOD population.

GSE Oversight

As an~~Approved Insurer~~ approved insurer, NMIC is subject to ongoing compliance with the ~~PMIERs.~~PMIERs established by each of the GSEs (~~Italicized~~italicized terms have the same meaning that such terms have in the PMIERs, as described ~~below.)~~below). The PMIERs establish operational, business, remedial and financial requirements applicable to~~Approved Insurers~~ approved insurers. The PMIERs financial requirements prescribe a risk-based methodology whereby the amount of assets required to be held against each insured loan is determined based on certain loan-level risk characteristics, such as FICO, vintage (year of origination), performing vs. non-performing (i.e., current vs. delinquent), LTV ratio and other risk features. ~~An asset charge is calculated for each insured loan based on its risk profile.~~ In general, higher quality loans carry lower asset charges.

Under the PMIERs, ~~financial requirements,~~ ~~Approved Insurers~~ approved insurers must maintainavailable assets that equal or exceedminimum required assets, which is an amount equal to the greater of (i) $400 million or (ii) a totalrisk-based required asset amount. Therisk-based required asset amount is a function of the risk profile of an~~Approved Insurers~~ ~~net~~approved insurer's RIF, ~~calculated by applying~~assessed on a ~~loan-~~

~~by-loan~~loan-by-loan basis and considered against certain risk-based factors derived from tables set out in the PMIERs to ~~the net~~gross RIF, ~~and other transactional adjustments~~ which is then adjusted on an aggregate basis for reinsurance transactions approved by the GSEs, such as with respect to our ~~2017~~ ILN ~~Transaction~~Transactions and ~~2016~~ QSR ~~Transaction.~~Transactions. Therisk-based required asset amountfor performing, primary insurance is subject to a floor of 5.6% of ~~total,~~ performing primary adjusted RIF, and therisk-based required asset amountfor pool insurance considers both ~~the~~ factors in the PMIERs tables and thenet remaining stop loss for each pool insurance policy. ~~The PMIERs financial requirements also increase the amount of~~ ~~available assets~~ ~~that must be held by an~~ ~~Approved Insurer~~ ~~for LPMI policies originated on or after January 1, 2016.~~

By April 15th of each year, NMIC must certify it met all PMIERs requirements as of December 31st of the prior year. We certified to the GSEs by April 15, ~~2017~~2019 that NMIC ~~fully complied~~was in full compliance with the PMIERs as of December 31, ~~2016.~~2018. NMIC also has an ongoing obligation to immediately notify the GSEs in writing upon discovery of ~~its~~a failure to meet one or more of the PMIERs requirements. We continuously monitor ~~our~~NMIC's compliance with the PMIERs.

On September 27, 2018, the GSEs published revised PMIERs that took effect and became applicable to NMIC on March 31, 2019. The following table provides a comparison of the PMIERs ~~financial requirements~~available assets and risk-based required asset amount as reported by NMIC as of the dates ~~indicated.~~indicated as calculated under the applicable PMIERs requirement.


	As of				As of
	September 30, 2017		September 30, 2016		March 31, 2019		March 31, 2018
	(In Thousands)				(In Thousands)
Available assets	$	495,182	$	488,635	$	817,758	$	555,336
Risk-based required assets	356,207		320,609		607,325		522,260

Available assets were $818 million at March 31, 2019, compared to $555 million at March 31, 2018. The increase in available assets as of ~~September 30, 2017 compared to September 30, 2016 is~~$263 million was driven by ~~the~~our positive cash flow from operations, a $70 million capital contribution from NMIH to NMIC during the second quarter of 2018 and ~~amortization~~the impact of ~~unearned premium reserves.~~adopting the revised PMIERs guidance effective March 31, 2019. The increase in therisk-based required asset amount iswas primarily due to the growth of our gross RIF, partially offset by the increased cession of risk ~~relating to~~under our third-party reinsurance ~~agreements.~~agreements and a decrease in our NOD population.

Capital Position of Our Insurance Subsidiaries and Financial Strength Ratings

In addition to GSE-imposed asset requirements, NMIC is ~~also~~ subject to state regulatory minimum capital requirements based on its RIF. While formulations of this minimum capital may vary by jurisdiction, the most common measure allows for a maximum permitted RTC ratio of 25:1.

As of ~~September 30, 2017,~~March 31, 2019, NMIC's performing primary RIF, net of reinsurance, was approximately ~~$6.2~~$12.3 billion. NMIC ceded

100% of its pool RIF pursuant to the 2016 QSR Transaction. Based on NMIC's total statutory ~~surplus~~capital of ~~$502.6~~$772 million (including contingency reserves) as of ~~September 30, 2017,~~March 31, 2019, NMIC's RTC ratio was ~~12.3:~~14.6:1. Re One had total statutory capital of ~~$33.9~~$35 million as of ~~September 30, 2017, with~~March 31, 2019, and a RTC ratio of ~~0.7:~~1.1:1. We continuously monitor our compliance with state capital requirements.

In ~~August 2017,~~May 2018, Moody's Investors Service (Moody's) ~~re-affirmed~~upgraded its ~~"Ba1"~~ financial strength rating ~~for~~on NMIC from "Ba1" to "Baa3" and ~~its B2~~issued a "Ba3" rating offor NMIH's $150 million senior secured 2018 Term Loan, compared to its previous "B1" rating on the 2015 Term Loan. In August 2018, Moody's assigned a "Ba3" rating to our2018 Revolving Credit Facility. The outlook for ~~both~~Moody's ratings ~~changed from " stable" to " positive."~~is stable. In July ~~2017,~~2018, S&P ~~re-affirmed~~affirmed its "BBB-" financial strength and long-term counter-party credit ratings on NMIC and ~~its"BB-~~its "BB-" long-term counter-party credit rating on NMIH. ~~S&P's~~The outlook for ~~both companies~~S&P's ratings is ~~"positive."~~positive.

Competition

The MI industry is highly competitive and currently consists of six private mortgage insurers, including NMIC, as well as ~~governmental agencies like~~government MIs such as the FHA, ~~and the~~USDA or VA. Private MI companies compete based on service, customer relationships, underwriting and other factors, including ~~price.~~price and information technology capabilities. We expect the private MI market to remain competitive, with pressure for industry participants to grow or maintain their market share.

The private MI industry overall competes more broadly with government ~~entities~~MIs who significantly increased their presence in the MI market following the financial crisis. Although there has been broad policy consensus toward the need for increasing private capital ~~to play a larger role~~participation and decreasing government exposure to credit risk ~~to be reduced~~ in the U.S. housing finance system, it remains difficult to predict whether the combined market share of ~~governmental agencies such as the FHA and VA~~government MIs will recede to historical levels. A range of factors influence a lender's decision to choose private MI over ~~governmental insurance options,~~government MI, including among others, premium rates and other charges, loan eligibility requirements, cancelability, loan size limits and the relative ease of use of private MI products compared to ~~governmental~~government MI alternatives.

Consolidated Results of Operations


Consolidated statements of operations	Three months ended						Nine months ended						Three months ended
	September 30, 2017			September 30, 2016			September 30, 2017			September 30, 2016			March 31, 2019			March 31, 2018
Revenues	(In Thousands)												(In Thousands)
Net premiums earned	$	44,519		$	31,808		$	115,661		$	77,656		$	73,868		$	54,914
Net investment income	4,170			3,544			11,885			10,117			7,383			4,574
Net realized investment gains (losses)	69			66			198			(758		)
Net realized investment losses													(187		)	—
Other revenues	195			102			461			172			42			64
Total revenues	48,953			35,520			128,205			87,187			81,106			59,552
Expenses
Insurance claims and claims expenses	957			664			2,965			1,592
Insurance claims and claim expenses													2,743			1,569
Underwriting and operating expenses	24,645			24,037			78,682			69,943			30,849			28,453
Total expenses	25,602			24,701			81,647			71,535			33,592			30,022
Other expense
Loss from change in fair value of warrant liability	(502		)	(797		)	(679		)	(187		)
Gain (loss) from change in fair value of warrant liability													(5,479		)	420
Interest expense	(3,352		)	(3,733		)	(10,146		)	(11,072		)	(3,061		)	(3,419		)
Income before income taxes	19,497			6,289			35,733			4,393			38,974			26,531
Income tax expense	7,185			114			11,917			114			6,075			4,176
Net income	$	12,312		$	6,175		$	23,816		$	4,279		$	32,899		$	22,355

Loss ratio⁽¹⁾	2.1		%	2.1		%	2.6		%	2.1		%	3.7		%	2.9		%
Expense ratio⁽²⁾	55.4		%	75.6		%	68.0		%	90.1		%	41.8		%	51.8		%
Combined ratio	57.5		%	77.7		%	70.6		%	92.2		%	45.5		%	54.7		%

⁽¹⁾ ~~Loss ratio is calculated by dividing the provision for insurance claims and claims expenses by net premiums earned.~~

⁽²⁾~~Expense ratio is calculated by dividing other underwriting and operating expenses by net premiums earned.~~


⁽¹⁾	Loss ratio is calculated by dividing the provision for insurance claims and claim expenses by net premiums earned.


⁽²⁾	Expense ratio is calculated by dividing other underwriting and operating expenses by net premiums earned.

Revenues

For the three ~~and nine~~ months ended ~~September 30, 2017,~~March 31, 2019, net premiums earned increased ~~$12.7~~$19.0 million or ~~40% and $38.0 million or 49%~~35%, ~~respectively,~~ compared to the ~~corresponding~~ three ~~and nine~~ months ended ~~September 30, 2016.~~March 31, 2018. The increase ~~in both periods~~ is primarily due to the ~~continued~~ growth inof our IIF and increased monthly policy production, ~~and IIF,~~ partially offset by increases to cessions under the ~~effects~~QSR Transactions tied to the growth of our direct premium volume and the inception of the ~~2016 QSR Transaction and 2017~~2018 ILN ~~Transaction and reductions in our single policy production and earnings from early policy cancellations.~~Transaction.

For the three ~~and nine~~ months ended ~~September 30, 2017,~~March 31, 2019, net investment income increased ~~$0.6~~$2.8 million, ~~and $1.8 million, respectively,~~ compared to ~~the~~ three ~~and nine~~ months ended ~~September 30, 2016,~~March 31, 2018, due to an increase in the size and yield of ~~and improved yields on~~ our ~~total~~ investment portfolio.

Expenses

We recognize insurance claims and ~~claims~~claim expenses in connection with the loss experience of our insured portfolio and incur other underwriting and operating expenses, including employee compensation and benefits, policy acquisition costs, and technology, professional services and facilities expenses, in connection with the development and operation of our business.

Insurance claims and ~~claims~~claim expenses increased ~~$0.3~~$1.2 million ~~and $1.4 million~~or 75% for the three ~~and nine~~ months ended ~~September 30, 2017, respectively,~~March 31, 2019, compared to the three ~~and nine~~ months ended ~~September 30, 2016, as a result of an increase in our NODs,~~March 31, 2018, primarily due to an increase in our average reserve per default tied to the aging of our NOD population and composition of our default inventory between loans in disaster and non-disaster impacted areas, partially offset by a reduction in the total number of ~~policies in force year-over-year~~NODs and ~~expected loss development of our portfolio. The increase in claims and claims expenses for the three and nine months ended September 30, 2017 was offset by the partial~~related release of ~~reserves related to~~ prior year reserves on cured defaults.

Underwriting and operating expenses increased ~~$0.6~~$2.4 million or ~~3%, and $8.7 million or 12%~~8% for the three ~~and nine~~ months ended ~~September 30, 2017, respectively,~~March 31, 2019, compared to the three ~~and nine~~ months ended ~~September 30, 2016.~~March 31, 2018. Employee compensation ~~accounts~~and technology costs account for the majority of our operating ~~expenses. We~~expenses and increased ~~the size of our workforce from 273 employees as of September 30, 2016 to 298 employees as of September 30, 2017~~ to support the growth of our business, particularly our sales and operating functions. Underwriting and operating expenses for the nine months ended September 30, 2017 also reflect $4.8 million of operating expenses related to the 2017 ILN Transaction and amendment of the Credit Agreement.business.

~~We incurred interest~~Interest expense ~~related to the Term Loan of $3.4 million and $10.1~~was $3.1 million for the three ~~and nine~~ months ended ~~September 30, 2017, respectively,~~March 31, 2019, compared to ~~interest expense of $3.7 million and $11.1~~$3.4 million for the three ~~and nine~~ months ended ~~September 30, 2016, respectively.~~March 31, 2018. Interest expense ~~declined~~decreased in ~~connection with~~ the ~~amendment of our Credit Agreement which we completed~~three months ended March 31, 2019 compared to the three months ended March 31, 2018 due to the reduction in ~~February 2017, which among other items, reduced~~ the interest ~~rate~~spread payable on borrowings under the 2018 Term ~~Loan.~~Loan as compared to the 2015 Term Loan partially offset by interest recognized on the 2018 Revolving Credit Facility. See Item 1, "Financial Statements - Notes to Condensed Consolidated Financial Statements - Note 4, ~~Term Loan.~~Debt."

Income ~~Tax~~

~~We are a U.S. taxpayer and are subject~~tax expense increased to ~~a statutory U.S. federal corporate income tax rate~~$6.1 million for the three months ended March 31, 2019 from $4.2 million for the three months ended March 31, 2018 because of ~~35%. Our holding company files a consolidated U.S. federal and various state income tax returns on behalf of itself and its subsidiaries.~~

the growth in our pre-tax income. Our provision for income taxes for ~~the~~ interim ~~reporting~~ periods ~~are~~is established based on anour estimated annual effective tax rate for the year ending December 31, 2017. We currently pay no regular federal income tax due to the forecasted utilization of federal net operating loss carryforwards, which were $122.9 million as of December 31, 2016. The interim provision for income taxes include current year alternative minimum tax and changes to deferred tax assets.a given year. Our effective tax rate on our pre-tax income was ~~36.9%~~15.6% and 15.7% for the three months ended ~~September 30, 2017, compared to 1.8% for the comparable 2016 period.~~March 31, 2019 and 2018, respectively. Our effective tax rate on our pre-tax income was 33.3% for the nine months ended September 30, 2017, compared to our effective tax rate on our pre-tax income of 2.6% for the comparable 2016 period. The difference between our statutory tax rate and our effective tax rates for the three ~~and nine~~ months ended ~~September 30, 2017 is~~March 31, 2019 and 2018, was below our statutory U.S. federal tax rate of 21% primarily due to ~~a discrete tax benefit associated with~~the impact of excess tax benefits ~~for restricted stock units that were recognized during~~on the ~~periods as a result~~vesting of ~~the adoption~~RSUs and exercise of ~~ASU 2016-09 in the prior quarter. See Item 1,~~ ~~"Financial Statements - Notes to Consolidated Financial Statements - Note 1, Organization and Basis of Presentation - Change in Accounting Principle."~~ ~~We expect~~options held by our effective tax rate to return to approximately the statutory tax rate for the year ending December 31, 2017. From inception through September 30, 2016, we had evaluated the realizability of our net deferred tax assets on a quarterly basis and concluded that it was more-likely-than-not that our net deferred tax assets may not be realized and recognized a full valuation allowance against net deferred tax assets.

Consolidated balance sheets September 30, 2017
December 31, 2016 ⁽¹⁾
(In Thousands)
Total investment portfolio $ 692,729
$ 628,969
Cash and cash equivalents 20,698
47,746
Premiums receivable 21,056
13,728
Deferred policy acquisition costs, net 36,101
30,109
Software and equipment, net 21,767
20,402
Prepaid reinsurance premiums 39,915
37,921
Deferred tax asset, net 38,490
51,434
Other assets 15,856
9,588
Total assets $ 886,612
$ 839,897
Term loan $ 143,969
$ 144,353
Unearned premiums 161,345
152,906
Accounts payable and accrued expenses 22,028
25,297
Reserve for insurance claims and claims expenses 6,123
3,001
Reinsurance funds withheld 33,105
30,633
Deferred ceding commission 4,971
4,831
Warrant liability 4,046
3,367
Total liabilities 375,587
364,388
Total shareholders' equity 511,025
475,509
Total liabilities and shareholders' equity $ 886,612
$ 839,897

⁽¹⁾~~The 2016 prior period balance sheet has been revised.~~employees. See Item 1, "Financial Statements - Notes to Condensed Consolidated Financial Statements - Note ~~1, Organization~~9, Income Taxes."

Net Income

Net income was $32.9 million for the three months ended March 31, 2019, compared to $22.4 million for the three months ended March 31, 2018. The increase in net income primarily relates to growth in total revenues, partially offset by an increase in total expenses, an increase in the fair value of our warrant liability and ~~Basis of Presentation. Immaterial Correction of Prior Period Amounts"~~ an increase in tax expense.

Diluted EPS was $0.48 and $0.34 for ~~further details.~~the three months ended March 31, 2019 and 2018, respectively. Diluted EPS increased due to growth in net income, partially offset by an increase in weighted average diluted shares outstanding.



Consolidated balance sheets	March 31, 2019		December 31, 2018
	(In Thousands)
Total investment portfolio	$	940,223	$	911,490
Cash and cash equivalents	39,761		25,294
Premiums receivable	38,478		36,007
Deferred policy acquisition costs, net	48,820		46,840
Software and equipment, net	25,105		24,765
Prepaid reinsurance premiums	27,747		30,370
Other assets	27,377		17,277
Total assets	$	1,147,511	$	1,092,043
Term loan	$	146,503	$	146,757
Unearned premiums	154,325		158,893
Accounts payable and accrued expenses	16,981		31,141
Reserve for insurance claims and claim expenses	15,537		12,811
Reinsurance funds withheld	25,308		27,114
Warrant liability	11,831		7,296
Deferred tax liability, net	12,770		2,740
Other liabilities	12,375		3,791
Total liabilities	395,630		390,543
Total shareholders' equity	751,881		701,500
Total liabilities and shareholders' equity	$	1,147,511	$	1,092,043

As of ~~September 30, 2017,~~March 31, 2019, we had ~~approximately $713.4~~$980.0 million in cash and investments, including ~~$61.7~~$43.7 million held atby NMIH. The increase in cash and cash equivalents and investments from ~~year-end 2016 primarily~~December 31, 2018 relates to cash generated from operations.

Premiums receivable was $38.5 million as of March 31, 2019, compared to $36.0 million as of December 31, 2018. The increase was primarily driven by the increase in our monthly premium policies in force, where premiums are generally paid one month in arrears.

Net deferred policy acquisition costs were ~~$36.1~~$48.8 million as of ~~September 30, 2017,~~March 31, 2019, compared to ~~$30.1~~$46.8 million at December 31, ~~2016.~~2018. The increase was primarily driven by growth in the ~~deferment~~number of policies written during the period and the deferral of certain costs associated with ~~polices written during~~ the ~~nine months ended September 30, 2017,~~origination of those policies, partially offset by the amortization of previously deferred acquisition ~~costs and~~costs.

Prepaid reinsurance premiums were $27.7 million as of March 31, 2019, compared to $30.4 million as of December 31, 2018. The prepaid reinsurance premiums balance represents the ~~capitalization~~unearned premiums reserve on single premium policies ceded under the 2016 QSR Transaction. The reinsurance coverage period of ~~ceding commissions associated with~~ the 2016 QSR Transaction ended for new business written after December 31, 2017, and the decrease in prepaid reinsurance premiums reflects the amortization of the unearned premiums reserve on singles policies previously ceded under the 2016 QSR Transaction.

Other assets increased to $27.4 million as of March 31, 2019 from $17.3 million as of December 31, 2018. Other assets at March 31, 2019 includes $7.7 million of operating lease right-of-use assets, which we recognized for the first time during the ~~period.~~three months ended March 31, 2019 following the adoption of ASU 2016-02, Leases (Topic 842). See Item 1, "Financial Statements - Notes to Condensed Consolidated Financial Statements - Note 10, Leases."

Unearned premiums ~~increased $8.4 million to $161.3~~decreased from $158.9 million as of ~~September 30, 2017,~~December 31, 2018 to $154.3 million as of March 31, 2019, primarily due to ~~single premium policy origination during the period, offset by~~ the amortization ~~through earnings~~ of existing unearned premiums through earnings in accordance with the expiration of risk on ~~the~~ related single premium policies and the cancellation of other single premium ~~policies.~~

~~Other assets balance increased $6.3 million to $15.9 million as of September 30, 2017, primarily due to $3.3 million of pending proceeds from~~policies, partially offset by single premium policy originations during the ~~sale of short-term investments in September and a $1.2 million increase in accrued investment income as a result of an increase in the size of our investment portfolio.~~three months ended March 31, 2019.

Accounts payable and accrued ~~expenses~~expense decreased ~~to $22.0 million as of September 30, 2017,~~ from ~~$25.3~~$31.1 million at December 31, ~~2016. The balance consists~~2018 to $17.0 million as of ~~expenses to be paid within the next 12 months and decreased as a result of lower operating accruals and lower accrued interest~~March 31, 2019, primarily due to the payment of previously accrued compensation during the three months ended March 31, 2019.

Reserve for insurance claims and claim expenses increased from $12.8 million as of December 31, 2018 to $15.5 million at March 31, 2019, primarily due to an increase in our average reserve per default tied to the aging of our NOD population and composition of our default inventory between loans in disaster and non-disaster impacted areas, partially offset by a ~~lower interest rate~~reduction in the total number of NODs and related release of prior year reserves on ~~the Term Loan.~~cured defaults. See "- Insurance Claims and Claim Expenses," abovefor further details.

Reinsurance funds withheld was ~~$33.1~~$25.3 million as of ~~September 30, 2017,~~March 31, 2019, representing the net of our ceded reinsurance premiums written, less our profit and ceding commission receivables related to the 2016 QSR Transaction. The ~~increase~~decrease in reinsurance funds withheld of ~~$2.5~~$1.8 million from December 31, ~~2016, was a result of increased~~2018, relates to the continued decline in ceded premiums ~~written.~~written on single premium policies, due to the end of the reinsurance coverage period for new business under the 2016 QSR Transaction at December 31, 2017. See, Item 1, "Financial Statements - Notes to Condensed Consolidated Financial Statements - Note 5, Reinsurance."

Warrant liability increased from $7.3 million at December 31, 2018 to $11.8 million at March 31, 2019, primarily due to an increase in our stock price from December 31, 2018 to March 31, 2019 and changes in the Black-Scholes model inputs used to measure warrant fair value. For further information regarding the valuation of our warrant liability and its impact on our results of operations and financial position, see Item 1, "Financial Statements - Notes to Condensed Consolidated Financial Statements - Note 3, Fair Value of Financial Instruments."

Other liabilities as of March 31, 2019 includes $8.9 million of operating lease liabilities, which we recognized for the first time during the three months ended March 31, 2019 following the adoption of ASU 2016-02, Leases (Topic 842). See Item 1, "Financial Statements - Notes to Condensed Consolidated Financial Statements - Note 10, Leases."

Net deferred tax liability increased from $2.7 million at December 31, 2018 to $12.8 million as of March 31, 2019, primarily due to the forecasted deductibility of our statutory contingency reserve in fiscal year 2019. For further information regarding income taxes and their impact on our results of operations and financial position, see Item 1, "Financial Statements - Notes to Condensed Consolidated Financial Statements - Note 9, Income Taxes."

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


Consolidated cash flows	For the nine months ended September 30,						For the three months ended March 31,
	2017			2016			2019			2018
Net cash (used in) provided by:	(In Thousands)
Net cash provided by (used in) :							(In Thousands)
Operating activities	$	41,778		$	52,212		$	28,279		$	21,131
Investing activities	(66,553		)	(63,714		)	(11,977		)	(16,570		)
Financing activities	(2,273		)	(1,293		)	(1,835		)	78,133
Net decrease in cash and cash equivalents	$	(27,048	)	$	(12,795	)	$	14,467		$	82,694

Net cash provided by operating activities was ~~$41.8~~$28.3 million for the ~~nine~~three months ended ~~September 30, 2017,~~March 31, 2019, compared to ~~$52.2~~$21.1 million infor the ~~same period in 2016.~~three months ended March 31, 2018. The ~~decrease~~increase in cash generated from operating activities was primarily ~~caused~~

driven by growth in premiums written and investment income, partially offset by increased operating expenses ~~in connection with employee compensation~~ and ~~benefits costs and higher~~growth in claims paid ~~due~~tied to ~~an increase in~~the growth and aging of our ~~default inventory offset by growth in net premiums written.~~insured portfolio.

Cash used in investing activities for the periods presented was driven by the purchase of fixed and short-term maturities during those periods.

~~The $1 million increase in cash~~Cash used in financing activities was $1.8 million for the ~~nine~~three months ended ~~September 30, 2017~~March 31, 2019, compared to cash provided by financing activities of $78.1 million for the ~~same period~~three months ended ~~September 30, 2016, was primarily due to an increase~~March 31, 2018. Cash flow provided activities for the three months ended March 31, 2018 reflects $79.2 million of net cash proceeds raised through a common stock offering we completed in ~~taxes paid related to the net share settlement of employee equity awards.~~March 2018.

Holding Company Liquidity and Capital Resources

NMIH serves as the holding company for our insurance subsidiaries and does not have any significant operations of its own. NMIH's principal liquidity demands include funds for: (i) payment of certain corporate expenses; (ii) payment of certain reimbursable expenses of its insurance subsidiaries; (iii) payment of principal and interest related to the 2018 Term ~~Loan;~~Loan and 2018 Revolving Credit Facility; (iv) tax payments to the Internal Revenue Service; (v) capital support for its subsidiaries; and (vi) payment of dividends, if any, on its common stock. NMIH is not subject to any limitations on its ability to pay dividends except those generally applicable to corporations ~~such as NMIH,~~ that are incorporated in Delaware. Delaware ~~corporation~~ law provides that dividends are only payable out of a corporation's surplus or recent net profits (subject to certain limitations).

As of ~~September 30, 2017,~~March 31, 2019, NMIH had ~~$61.7~~$43.7 million of cash and investments. NMIH's principal source of ~~operating~~net cash is investment ~~income~~income. NMIH also has access to $85 million of undrawn revolving credit capacity under the 2018 Revolving Credit Facility and in$2.7 million of ordinary course dividend capacity from Re One. In the future, NMIH could ~~include dividends~~benefit from dividend capacity from NMIC, ifas available and permitted under law and by the GSEs.

NMIH has entered into tax and expense-sharing agreements with its subsidiaries which have been approved by the Wisconsin OCI, but such approval may be changed or revoked at any time. With the Wisconsin OCI's approval, NMIH began allocating the interest expense on ~~its~~the 2015 Term Loan to NMIC in the first quarter of 2017, consistent with the benefits NMIC received when NMIH ~~down-streamed~~contributed the loan proceeds to NMIC. NMIH received similar approval from the Wisconsin OCI to allocate interest expense to NMIC on the 2018 Term Loan and 2018 Revolving Credit Facility.

~~NMIC's~~NMIC and Re One's ability to pay dividends to NMIH is subject to insurance department notice or approval. Under Wisconsin law, NMIC and Re One may pay dividends up to specified levels ~~(i.e.~~(i.e., "ordinary" dividends) with 30 days' prior notice to the Wisconsin OCI. Dividends in larger amounts, or "extraordinary" dividends, are subject to the Wisconsin OCI's prior approval. Under Wisconsin insurance laws, an extraordinary dividend is defined as any payment or distribution that together with other dividends and distributions made within the preceding 12 months exceeds the lesser of (i) 10% of the ~~insurer’s~~insurer's statutory policyholders' surplus as of the preceding December 31 or (ii) adjusted statutory net income for the 12-month period ending the preceding December 31.

NMIC has never paid any dividends to NMIH. NMIC reported a statutory net loss for the ~~twelve months~~year ended December 31, ~~2016~~2018 and ~~currently~~ cannot pay any dividends to NMIH through December 31, 2019 without the prior approval of the Wisconsin OCI. Re One has never paid dividends to NMIH. Re One has capacity to pay ordinary dividends of up to $2.7 million to NMIH through December 31, 2019. Certain other states in which NMIC isand Re One are licensed also have statutes or regulations that may restrict their ability to pay dividends.

As an approved insurer under PMIERs, NMIC would be subject to additional restrictions on its ability to pay ~~dividends.~~dividends to NMIH if it failed to meet the financial requirements prescribed by PMIERs. Approved insurers that fail to meet the PMIERs financial requirements are not permitted to pay dividends without prior approval of the GSEs.

NMIC's capital needs depend on many factors including its ability to successfully write new business, establish premium rates at levels sufficient to cover claims and operating costs and meet minimum required asset thresholds under the PMIERs and minimum state capital requirements. NMIC's capital needs also depend on its decision to access the reinsurance markets. NMIH may require liquidity to fund the capital needs of its insurance subsidiaries.

In ~~November 2015,~~May 2018, NMIH entered into the 2018 Credit Agreement ~~for~~covering the ~~Term Loan. On February 10, 2017, NMIH amended the Credit Agreement, (Amendment No. 1) to reduce the interest rate and extend the maturity date of the~~2018 Term Loan ~~from November 10,~~and 2018 ~~to November 10, 2019.~~Revolving Credit Facility. The ~~amended~~2018 Term Loan bears interest at the Eurodollar Rate, as defined in the 2018 Credit Agreement and subject to a 1.00% floor, plus an annual margin rate of ~~6.75%~~4.75%, payable monthly ~~or quarterly~~ based on our current interest period election. Borrowings under the 2018 Revolving Credit Facility will accrue interest at a variable rate ~~election. The~~equal to, at our discretion, (i) a base rate (as defined in the 2018 Credit Agreement, ~~contains various restrictive~~subject to a floor of 1.00% per annum) plus a margin of 1.00% to 2.50% per annum, based on the applicable corporate credit rating at the time, or (ii) the Eurodollar Rate (subject to a floor of 0.00% per annum) plus a margin of 2.00% to 3.50% per annum, based on the applicable corporate credit rating at the time. The 2018 Revolving Credit Facility also requires a

quarterly commitment fee on the average daily undrawn amount ranging from 0.30% to 0.60%, based on the applicable corporate credit rating at the time.

We are subject to certain covenants under the 2018 Term Loan and ~~required financial ratios and tests (which were not modified by Amendment No. 1) that~~2018 Revolving Credit Facility. Under the 2018 Term Loan (and as defined in the 2018 Credit Agreement), we are ~~required to meet or maintain. These covenants include, but are not limited to the following:~~subject a maximum debt-to-total capitalization ratio ~~(as~~of 35%. Under the 2018 Revolving Credit Facility (and as defined ~~therein)~~in the 2018 Credit Agreement), we are subject to a maximum debt-to-total capitalization ratio of 35%, ~~maximum RTC ratio of 22.0:1.0,~~a minimum liquidity ~~(as defined therein) of $27.4 million as of September 30, 2017,~~requirement, compliance with the PMIERs financial requirements (subject to any GSE-approved waivers), and minimum ~~shareholders' equity~~consolidated net worth and statutory capital requirements. ~~In October 2017, NMIH further amended the Credit Agreement to remove a covenant that required NMIH to maintain liquidity (as defined therein)~~We were in ~~an aggregate amount no less than~~compliance with all remaining interest payments due under the Term Loan, while retaining the requirement to maintain minimum liquidity (as defined therein) in an amount no less than all remaining principle amortization payments due under the Term Loan, estimated to be $3 millioncovenants as of ~~the date of this report (not including the amount due at the maturity date).~~March 31, 2019.

Consolidated Investment Portfolio

Our primary objectives with respect to our investment portfolio are to preserve capital and generate investment income, while maintaining sufficient liquidity to cover our operating needs. We aim to achieve diversification ~~as to~~by type, quality, maturity, ~~industry,~~ and ~~issuer that maximizes the after-tax return on investments.~~industry. We have adopted an investment policy that defines, among other things, eligible and ineligible investments, concentration limits for asset types, industry sectors, single issuers, and certain credit ratings, and benchmarks for asset duration.

~~Substantially all of our~~Our investment portfolio is ~~held in~~entirely comprised of fixed maturity instruments. As of ~~September 30, 2017,~~March 31, 2019, the fair value of our investment portfolio was ~~$692.7~~$940.2 million. We also had an additional ~~$20.7~~$39.8 million of cash and equivalents as of ~~September 30, 2017.~~March 31, 2019. Pre-tax book yield on the investment portfolio for the ~~nine~~three months ended ~~September 30, 2017~~March 31, 2019 was ~~2.3%~~3.2%. The book yield is calculated as period-to-date net investment income divided by average amortized cost of the investment portfolio. Yield on the investment portfolio is likely to change over time based on movements in interest rates, credit spreads, the duration or mix of our investment portfolio and other factors.

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

Percentage of portfolio's fair value September 30, 2017 December 31, 2016
1. Corporate debt securities 57 % 52 %
2. U.S. treasury securities and obligations of U.S. government agencies 9
9
3. Asset-backed securities 14
17
4. Cash, cash equivalents, and short-term investments 7
16
5. Municipal debt securities 13
6
Total 100 % 100 %

~~The ratings of our investment portfolio were:~~



Percentage of portfolio's fair value	March 31, 2019		December 31, 2018
Corporate debt securities	63	%	58	%
Asset-backed securities	16		18
Municipal debt securities	9		10
Cash, cash equivalents, and short-term investments	7		9
U.S. treasury securities and obligations of U.S. government agencies	5		5
Total	100	%	100	%


Investment portfolio ratings at fair value(1)	September 30, 2017		December 31, 2016		March 31, 2019		December 31, 2018
AAA	19	%	24	%	20	%	22	%
AA⁽¹⁾⁽²⁾	21		19		15		18
A⁽¹⁾⁽²⁾	45		44		49		42
BBB⁽¹⁾⁽²⁾	15		13		16		18
BB⁽³⁾					—		—
Total	100	%	100	%	100	%	100	%


⁽¹⁾	Excluding certain operating cash accounts.


⁽²⁾	Includes +/– ratings.


⁽³⁾	We held one security with a BB rating at March 31, 2019, which is not identifiable in the table due to rounding.

⁽¹⁾ ~~Include +/– ratings.~~

~~The ratings above~~Our investments are ~~provided~~rated by one or more ~~of: Moody's, S&P and Fitch Ratings.~~nationally recognized statistical rating organizations. If ~~three~~multiple ratings are available, we assign the middle rating for classification purposes, otherwise we assign the lowest rating.

Investment Securities - Other-than-Temporary Impairment (OTTI)

For the three months ended March 31, 2019, we recognized a $0.4 million OTTI loss in earnings related to the planned sale of a security in a loss position in April 2019. For the three months ended March 31, 2018, we did not recognize any OTTI losses. There were no credit losses recognized in earnings for which a portion of an OTTI loss was recognized in accumulated other comprehensive income (loss) for the three months ended March 31, 2019 or 2018.

Other Items

Off-Balance Sheet Arrangements and Contractual Obligations

We had no material off-balance sheet arrangements as of ~~September 30, 2017.~~March 31, 2019. In connection with the ~~2017~~ ILN ~~Transaction,~~Transactions, we have certain future contractual commitments to Oaktown Re aand Oaktown Re II, special purpose ~~VIE~~VIEs that isare not consolidated in our financial results. See Item 1, "Financial Statements - Notes to Condensed Consolidated Financial Statements - Note ~~1, Organization and Basis of Presentation - Variable interest entity"~~ ~~and~~ ~~"Note~~ 5, Reinsurance."

~~There are no material changes outside the ordinary course of business in the contractual obligations specified in our 2016 10-K.~~

Critical Accounting Estimates

We use accounting principles and methods that conform to GAAP. ~~Where GAAP specifically excludes mortgage insurance we follow general industry practices.~~ We are required to apply significant judgment and make material estimates in the preparation of our financial statements and with regard to various accounting, reporting and disclosure matters. Assumptions and estimates are required to apply these principles where actual measurement is not possible or practical. On an ongoing basis, we evaluate our estimates and assumptions. Our actual results may differ from these estimates under different assumptions or conditions.

We believe that the assumptions and estimates associated with revenue recognition, fair value measurements, our investment portfolio, deferred policy acquisition costs, premium deficiency reserves, income taxes and reserves for insurance claims and ~~claims~~claim expenses ~~warrants and share-based compensation~~ have the greatest potential impact on our consolidated financial statements. Therefore, we consider these to be our critical accounting estimates. There have been no material changes to our critical accounting policies and estimates as compared to the critical accounting policies and estimates described in our ~~2016~~2018 10-K.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

We own and manage a large portfolio of various holdings, types and maturities. NMIH's principal source of operating cash is investment income. The assets within the investment portfolio are exposed to the same factors that affect overall financial market performance.

We manage market risk via a defined investment policy implemented by our treasury function with oversight from our Board of Director's Risk Committee. Important drivers of our market risk exposure monitored and managed by us include but are not limited to:

Changes to the level of interest rates. Increasing interest rates may reduce the value of certain fixed-rate bonds held in the investment portfolio. Higher rates may cause variable rate assets to generate additional income. Decreasing rates will have the reverse impact. Significant changes in interest rates can also affect persistency and claim rates of our insurance portfolio, and as a result we may determine that our investment portfolio needs to be restructured to better align it with future liabilities and claim payments. Such restructuring may cause investments to be liquidated when market conditions are adverse. Additionally, the changes in Eurodollar based interest rates affect the interest expense related to the Company's debt.

Changes to the term structure of interest rates. Rising or falling rates typically change by different amounts along the yield curve. These changes may have unforeseen impacts on the value of certain assets.

Market volatility/changes in the real or perceived credit quality of investments. Deterioration in the quality of investments, identified through changes to our own or third party ~~(e.g.~~(e.g., rating agency) assessments, will reduce the value and potentially the liquidity of investments.

Concentration Risk. If the investment portfolio is highly concentrated in one asset, or in multiple assets whose values are highly correlated, the value of the total portfolio may be greatly affected by the change in value of just one asset or a group of highly correlated assets.

Prepayment Risk. Bonds may have call provisions that permit debtors to repay prior to maturity when it is to their advantage. This typically occurs when rates fall below the interest rate of the debt.

The carrying value of our investment portfolio as of ~~September 30, 2017~~March 31, 2019 and December 31, ~~2016~~2018 was ~~$693~~$940 million and ~~$629~~$911 million, respectively, of which 100% was invested in fixed maturity securities. The primary market risk to our investment portfolio is interest rate risk associated with investments in fixed maturity securities. We mitigate the market risk associated with our fixed maturity securities portfolio by matching the duration of our fixed maturity securities with the expected duration of the liabilities that those securities are intended to support.

As of ~~September 30, 2017,~~March 31, 2019, the duration of our fixed income portfolio, including cash and cash equivalents, was ~~3.95~~3.47 years, which means that an instantaneous parallel shift (movement up or down) in the yield curve of 100 basis points would result in a change of ~~3.95%~~3.47% in fair value of our fixed income portfolio. Excluding cash, our fixed income portfolio duration was ~~4.13~~3.62 years, which means that an instantaneous parallel shift (movement up or down) in the yield curve of 100 basis points would result in a change of ~~4.13%~~3.62% in fair value of our fixed income portfolio.

We are also subject to market risk related to our 2018 Term Loan and ~~2017~~the ILN ~~Transaction.~~Transactions. As discussed in Item 1, "Financial Statements - Notes to Condensed Consolidated Financial Statements - Note 4, ~~Term Loan,~~Debt" the 2018 Term Loan bears interest at a variable rate and, as a result, increases in market interest rates would generally result in increased interest expense on our outstanding principal.

The risk premium amounts under the ~~2017~~ ILN ~~Transaction~~Transactions are calculated by multiplying the outstanding reinsurance coverage amount at the beginning of any payment period by a coupon rate, which is the sum of 1-month LIBOR and a risk margin, and then subtracting actual investment income earned on the trust balance during that payment period. An increase in 1-month LIBOR rates would generally increase the risk premium payments, while an increase to money market rates, which directly affect investment income earned on the trust balance, would generally decrease them. Although we expect the two rates to move in tandem, to the extent they do not, it could increase or decrease the risk premium payments that otherwise would be due.

Item 4. Controls and Procedures

Disclosure Controls and Procedures

We maintain disclosure controls and procedures designed to ensure that information required to be disclosed in the reports we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC's rules and forms, and that such information is accumulated and communicated to our management, including our ~~Principal~~Chief Executive Officer and ~~Principal~~Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.

Our management, including our ~~Principal~~Chief Executive Officer and ~~Principal~~Chief Financial Officer, conducted an evaluation of the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) of the Exchange Act) as of ~~September 30, 2017,~~March 31, 2019 pursuant to Rule 13a-15(e) under the Exchange Act. Management applied its judgment in assessing the costs and benefits of such controls and procedures, which by their nature, can provide only reasonable assurance regarding management's control objectives. Management does not expect that our disclosure controls and procedures will prevent or detect all errors and fraud. A control system, irrespective of how well it is designed and operated, can only provide reasonable assurance and cannot guarantee that it will succeed in its stated objectives.

Based upon that evaluation, our ~~Principal~~Chief Executive Officer and ~~Principal~~Chief Financial Officer concluded that, as of ~~September 30, 2017,~~March 31, 2019 our disclosure controls and procedures were ~~not~~ effective ~~due~~ to provide reasonable assurance that the ~~existence of a material weakness~~information required to be disclosed by us in the design and operating effectiveness of an internal control related to reconciliation support used to validate our deferred tax inventory. A material weakness is a deficiency, or combination of deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected in a timely basis. As described in Item 1, "~~Financial Statements - Notes to Consolidated Financial Statements - Note 1, Organization and Basis of Presentation - Immaterial Correction of Prior Period Amounts~~," above, we detected a $1.8 million error in the deferred tax balance that was immaterial to the 2016 financial statements. Notwithstanding the material weakness identified, our management has concluded that the consolidated financial statements included in this Form 10-Q fairly present, in all material respects, our financial condition, results of operations and cash flows at and for the periods presented. In addition, there were no material errors in our financial results or balances identified as a result of this control deficiency, and accordingly, amendment of our 2016 Form 10-K is not required.

We enhanced existing controls and designed and implemented new controls applicable to our deferred tax accounting, including those related to stock compensation, to ensure that our DTA is accurately calculated and appropriately reflected in our financial statements and reports we file ~~with~~or submit under the ~~SEC. We believe these actions are sufficient to remediate~~Exchange Act is recorded, processed, summarized, and reported within the ~~identified material weakness~~time periods specified in the SEC's rules and strengthen our internal control over financial reporting; however, there can be no guarantee that such remediation will be sufficient. We will continue to monitor the effectiveness of our controls and will make any further changes management determines appropriate.forms.

Internal Control Over Financial Reporting

~~Other than noted above, there were~~There was no ~~changes~~change in our internal control over financial reporting that occurred during the period covered by this report that ~~have~~has materially affected, or ~~are~~is reasonably likely to materially affect, our internal control over financial reporting.

PART II

Item 1. Legal Proceedings

Certain lawsuits and claims arising in the ordinary course of business may be filed or pending against us or our affiliates from time to time. In accordance with applicable accounting guidance, we establish accruals for all lawsuits, claims and expected settlements when we believe it is probable that a loss has been incurred and the amount of the loss is reasonably estimable. When a loss contingency is not both probable and estimable, we do not establish an accrual. Any such loss estimates are inherently uncertain, based on currently available information and are subject to management’s judgment and various assumptions. Due to the inherent subjectivity of these estimates and unpredictability of outcomes of legal proceedings, any amounts accrued may not represent the ultimate resolution of such matters.

To the extent we believe any potential loss relating to such lawsuits and claims may have a material impact on our liquidity, consolidated financial position, results of operations, and/or our business as a whole and is reasonably possible but not probable, we will disclose information relating to any such potential loss, whether in excess of any established accruals or where there is no established accrual. We will also disclose information relating to any material potential loss that is probable but not reasonably estimable. Where reasonably practicable, we will provide an estimate of loss or range of potential loss. No disclosures are generally made for any loss contingencies that are deemed to be remote.

Based upon information available to us and our review of lawsuits and claims filed or pending against us to date, we have not recognized a material accrual liability for these matters, nor do we currently expect it is reasonably possible that these matters will result in a material liability to the Company. However, the outcome of litigation and other legal and regulatory matters is inherently uncertain, and it is possible that one or more of such matters currently pending or threatened could have an unanticipated material adverse effect on our liquidity, consolidated financial position, results of operations, and/or our business as a whole, in the future.

Item 1A. Risk Factors

Risk factors that affect our business and financial results are discussed in Part I, Item 1A of our ~~2016~~2018 10-K. As of the date of this report, we are not aware of any material changes in our risk factors from the risk factors disclosed in our ~~2016~~2018 10-K. You should carefully consider the risks and uncertainties described herein and in our ~~2016~~2018 10-K, which ~~have~~has the potential to affect our business, financial condition, results of operations, cash flows or prospects in a material and adverse manner. The risks described herein and in our ~~2016~~2018 10-K are not the only risks we face, as there are additional risks and uncertainties not currently known to us or that we currently deem to be immaterial which may in the future adversely affect our business, financial condition and/or operating results.

Item 6. Exhibits

~~An index to exhibits has been filed as part of this report and is incorporated herein by reference.~~

~~SIGNATURES~~

~~Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.~~



	~~NMI HOLDINGS, INC.~~
~~November 1, 2017~~	~~By: /s/ Adam Pollitzer~~
	~~Name: Adam Pollitzer~~ ~~Title: Chief Financial Officer and Duly Authorized Signatory~~

~~EXHIBIT INDEX~~



Exhibit Number		Description

2.1		Stock Purchase Agreement, dated November 30, 2011, between NMI Holdings, Inc. and MAC Financial Ltd. (incorporated herein by reference to Exhibit 2.1 to our Form S-1 Registration Statement (Registration No. 333-191635), filed on October 9, 2013)
2.2		Amendment to Stock Purchase Agreement, dated April 6, 2012, between NMI Holdings, Inc. and MAC Financial Ltd. (incorporated herein by reference to Exhibit 2.2 to our Form S-1 Registration Statement (Registration No. 333-191635), filed on October 9, 2013)
3.1		Second Amended and Restated Certificate of Incorporation (incorporated herein by reference to Exhibit 3.1 to our Form S-1 Registration Statement (Registration No. 333-191635), filed on October 9, 2013)
3.2		Third Amended and Restated By-Laws (incorporated herein by reference to Exhibit 3.1 to our Form 8-K, filed on December 9, 2014)
4.1		Specimen Class A common stock certificate (incorporated herein by reference to Exhibit 4.1 to our Form S-1 Registration Statement (Registration No. 333-191635), filed on October 9, 2013)
4.2		Registration Rights Agreement between NMI Holdings, Inc. and FBR Capital Markets & Co., dated April 24, 2012 (incorporated herein by reference to Exhibit 4.2 to our Form S-1 Registration Statement (Registration No. 333-191635), filed on October 9, 2013)
4.3		Registration Rights Agreement by and between MAC Financial Ltd. and NMI Holdings, Inc., dated April 24, 2012 (incorporated herein by reference to Exhibit 4.3 to our Form S-1 Registration Statement (Registration No. 333-191635), filed on October 9, 2013)
4.4		Registration Rights Agreement between FBR & Co., FBR Capital Markets LT, Inc., FBR Capital Markets & Co., FBR Capital Markets PT, Inc. and NMI Holdings, Inc., dated April 24, 2012 (incorporated herein by reference to Exhibit 4.4 to our Form S-1 Registration Statement (Registration No. 333-191635), filed on October 9, 2013)
4.5		Warrant No. 1 to Purchase Common Stock of NMI Holdings, Inc. issued to FBR Capital Markets & Co., dated June 13, 2013 (incorporated herein by reference to Exhibit 4.5 to our Form S-1 Registration Statement (Registration No. 333-191635), filed on October 9, 2013)
4.6		Form of Warrant to Purchase Common Stock of NMI Holdings, Inc. issued to former stockholders of MAC Financial Ltd. (incorporated herein by reference to Exhibit 4.6 to our Form S-1 Registration Statement (Registration No. 333-191635), filed on October 9, 2013)
10.1 ~		NMI Holdings Inc. 2012 Stock Incentive Plan (incorporated herein by reference to Exhibit 10.1 to our Form S-1 Registration Statement (registration No. 333-191635), filed on October 9, 2013)
10.2 ~		Form of NMI Holdings, Inc. 2012 Stock Incentive Plan Restricted Stock Unit Award Agreement for ~~Chief Executive Officer and Chief Financial Officer~~ ~~(incorporated herein by reference to Exhibit 10.2 to our Form S-1 Registration Statement (Registration No. 333-191635), filed on October 9, 2013)~~
~~10.3 ~~~		~~Form of NMI Holdings, Inc. 2012 Stock Incentive Plan Restricted Stock Unit Award Agreement for~~ Management (incorporated herein by reference to Exhibit 10.3 to our Form S-1 Registration Statement (Registration No. 333-191635), filed on October 9, 2013)
~~10.4 ~~~		~~Form of NMI Holdings, Inc. 2012 Stock Incentive Plan Restricted Stock Unit Award Agreement for Directors~~ ~~(incorporated herein by reference to Exhibit 10.4 to our Form S-1 Registration Statement (Registration No. 333-191635), filed on October 9, 2013)~~
~~10.5~~10.3 ~		Form of NMI Holdings, Inc. 2012 Stock Incentive Plan Nonqualified Stock Option Award Agreement for Chief Executive Officer and Chief Financial Officer (incorporated herein by reference to Exhibit 10.5 to our Form S-1 Registration Statement (Registration No. 333-191635), filed on October 9, 2013)
~~10.6~~10.4 ~		Form of NMI Holdings, Inc. 2012 Stock Incentive Plan Nonqualified Stock Option Award Agreement for Management (incorporated herein by reference to Exhibit 10.6 to our Form S-1 Registration Statement (Registration No. 333-191635), filed on October 9, 2013)
~~10.7~~10.5 ~		Form of NMI Holdings, Inc. 2012 Stock Incentive Plan Nonqualified Stock Option Award Agreement for Directors (incorporated herein by reference to Exhibit 10.7 to our Form S-1 Registration Statement (Registration No. 333-191635), filed on October 9, 2013)
~~10.8~~10.6 ~		Form of NMI Holdings, Inc. 2012 Stock Incentive Plan Nonqualified Stock Option Award Agreement for Chief Executive Officer and Chief Financial Officer (incorporated herein by reference to Exhibit 10.8 to our Form 10-K, filed on February 17, 2017)
~~10.9~~10.7 ~		Form of NMI Holdings, Inc. 2012 Stock Incentive Plan Nonqualified Stock Option Award Agreement for Employees (incorporated herein by reference to Exhibit 10.9 to our Form 10-K, filed on February 17, 2017)
~~10.10~~10.8 ~		Amended and Restated Employment Agreement by and between NMI Holdings, Inc. and Bradley M. Shuster, dated December 23, 2015 (incorporated herein by reference to Exhibit 10.1 to our Form 8-K, filed on December 29, 2015)



~~10.11 ~~~		~~Offer Letter by and between NMI Holdings, Inc. and Glenn Farrell, effective December 4, 2014~~ ~~(incorporated herein by reference to Exhibit 10.1 to our Form 8-K, filed on December 9, 2014)~~
~~10.12~~10.9 ~		Offer Letter by and between NMI Holdings, Inc. and William Leatherberry, dated July 11, 2014 (incorporated herein by reference to Exhibit 10.10 to our Form 10-Q, filed on April 28, 2016)
~~10.13~~10.10 ~		Offer Letter by and between NMI Holdings, Inc. and Adam Pollitzer, dated February 1, 2017 (incorporated herein by reference to Exhibit 10.1 to our Form 8-K, filed on February 3, 2017)

~~10.14~~

10.11 ~		Form of Indemnification Agreement between NMI Holdings, Inc. and its directors and certain executive officers (incorporated herein by reference to Exhibit 10.1 to our Form 8-K, filed on November 25, 2014)
~~10.15~~10.12 +		Commitment Letter dated July 12, 2013 for Bulk Fannie Mae-Paid Loss-on-Sale Mortgage Insurance on the Portfolio of approximately $5.46 billion Purchased by Fannie Mae and Identified by Fannie Mae as Deal No. 2013 MIRT 01 and by the Company as Policy No. P-0001-01 (incorporated herein by reference to Exhibit 10.14 to our Form S-1 Registration Statement (Registration No. 333-191635), filed on October 9, 2013)
~~10.16~~10.13		Credit Agreement, dated November 10, 2015, between NMI Holdings, Inc., the lenders party thereto and JPMorgan Chase Bank, N.A., as administrative agent (incorporated herein by reference to Exhibit 4.1 to our Form 8-K, filed on November 10, 2015)
~~10.17~~10.14		Amendment No. 1, dated February 10, 2017, to the Credit Agreement dated November 10, 2015, between NMI Holdings, Inc., the lender parties thereto and JPMorgan Chase Bank, N.A., as administrative agent (incorporated herein by reference to Exhibit 10.1 to our Form 8-K, filed on February 10, 2017)
~~10.18~~10.15		Amendment No. 2, dated October 25, 2017, to the Credit Agreement dated November 10, 2015, between NMI Holdings, Inc., the lender parties thereto and JPMorgan Chase Bank, N.A., as administrative agent (incorporated herein by reference to Exhibit 10.1 to our Form 8-K, filed on October 26, 2017)
~~10.19~~10.16		Credit Agreement, dated May 24, 2018, between NMI Holdings, Inc., the lender party thereto, and JPMorgan Chase Bank, N.A., as administrative agent (incorporated herein by reference to Exhibit 4.1 to our Form 8-K, filed on May 25, 2018)
10.17 ~		NMI Holdings, Inc. Amended and Restated 2014 Omnibus Incentive Plan (incorporated herein by reference to Appendix A to our 2017 Annual Proxy Statement, filed on March 30, 2017)
~~10.20~~10.18 ~		Form of NMI Holdings, Inc. Amended and Restated 2014 Omnibus Incentive Plan Restricted Stock Unit Award Agreement for Chief Executive Officer (incorporated herein by reference to Exhibit 10.19 to our Form 10-Q filed on August 1, 2017)
~~10.21~~10.19 ~		Form of NMI Holdings, Inc. Amended and Restated 2014 Omnibus Incentive Plan Restricted Stock Unit Award Agreement for Executive Officers (incorporated herein by reference to Exhibit 10.20 to our Form 10-Q filed on August 1, 2017)
~~10.22~~10.20 ~		Form of NMI Holdings, Inc. Amended and Restated 2014 Omnibus Incentive Plan Restricted Stock Unit Award Agreement for Employees (incorporated herein by reference to Exhibit 10.21 to our Form 10-Q filed on August 1, 2017)
~~10.23~~10.21 ~		Form of NMI Holdings, Inc. Amended and Restated 2014 Omnibus Incentive Plan Restricted Stock Unit Award Agreement for Independent Directors (incorporated herein by reference to Exhibit 10.22 to our Form 10-Q filed on August 1, 2017)
~~10.24~~10.22 ~		Form of NMI Holdings, Inc. Amended and Restated 2014 Omnibus Incentive Plan Nonqualified Stock Option Award Agreement for Chief Executive Officer (incorporated herein by reference to Exhibit 10.23 to our Form 10-Q filed on August 1, 2017)
~~10.25~~10.23 ~		Form of NMI Holdings, Inc. Amended and Restated 2014 Omnibus Incentive Plan Nonqualified Stock Option Award Agreement for Executive Officers and Employees (incorporated herein by reference to Exhibit 10.24 to our Form 10-Q filed on August 1, 2017)
~~10.26 ~~~		~~Form of NMI Holdings, Inc. 2014 Omnibus Incentive Plan Phantom Unit Award Agreement for Independent Directors~~ ~~(incorporated herein by reference to Exhibit 10.21 to our Form 10-Q, filed on August 5, 2015)~~
~~10.27~~10.24 ~		Form of NMI Holdings, Inc. 2014 Omnibus Incentive Plan Performance Based Restricted Stock Unit Award Agreement for Chief Executive Officer (incorporated herein by reference to Exhibit 10.26 to our Form 10-K, filed on February 17, 2017)
~~10.28~~10.25 ~		NMI Holdings, Inc. Severance Benefit Plan (incorporated herein by reference to Exhibit 10.1 to our Form 8-K, filed on February 17, 2016)
~~10.29~~10.26 ~		NMI Holdings, Inc. Amended and Restated Change in Control Severance Benefit Plan ~~(incorporated~~(incorporated herein by reference to Exhibit ~~10.1~~10.30 to our Form ~~8-K,~~10-Q, filed on ~~February 23, 2017)~~October 30, 2018)
~~10.30~~10.27 ~		NMI Holdings, Inc. Clawback Policy (incorporated herein by reference to Exhibit 10.2 to our Form 8-K, filed on February 23, 2017)
~~10.31~~ 10.28 ~		~~Separation Agreement~~Employment Letter by and between NMI Holdings, Inc. and ~~Glenn Farrell~~Bradley M. Shuster, effective ~~July 31, 2017~~as of January 1, 2019 (incorporated herein by reference to Exhibit 10.1 to our Form 8-K, filed on ~~August~~December 28, 2018)
10.29 ~		Employment Letter by and between NMI Holdings, Inc. and Claudia J. Merkle, effective as of January 1, ~~2017)~~2019 (incorporated herein by reference to Exhibit 10.2 to our Form 8-K, filed on December 28, 2018)
10.30~		Form of NMI Holdings, Inc. 2012 Stock Incentive Plan Restricted Stock Unit Award Agreement for Independent Directors
10.31~		Form of NMI Holdings, Inc. 2012 Stock Incentive Plan Restricted Stock Unit Award Agreement for Employees
10.32~		Form of NMI Holdings, Inc. 2012 Stock Incentive Plan Nonqualified Stock Option Agreement for Employees
10.33~		Form of NMI Holdings, Inc. Amended and Restated 2014 Omnibus Incentive Plan Restricted Stock Unit Award Agreement for Independent Directors



10.34~		Form of NMI Holdings, Inc. Amended and Restated 2014 Omnibus Incentive Plan Restricted Stock Unit Award Agreement for Employees
10.35~		Form of NMI Holdings, Inc. Amended and Restated 2014 Omnibus Incentive Plan Nonqualified Stock Option Agreement for Employees
21.1		Subsidiaries of NMI Holdings, Inc. (incorporated herein by reference to Exhibit 21.1 to our Form 10-Q, filed on October 30, 2015)
31.1		Principal Executive Officer's Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2		Principal Financial Officer's Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002



32.1 #		Certifications of CEO and CFO Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
101 *		The following financial information from NMI Holdings, Inc.'s Quarterly Report on Form 10-Q for the quarter ended ~~September 30, 2017~~March 31, 2019 formatted in XBRL (eXtensible Business Reporting Language): (i) ~~Condensed~~ Consolidated Balance Sheets as of ~~September 30, 2017~~March 31, 2019 and December 31, ~~2016~~ 2018 (ii) ~~Condensed~~ Consolidated Statements of Operations and Comprehensive Income (Loss) for each of the three month periods ended March 31, 2019 and ~~nine months ended September 30, 2017 and 2016~~2018 (iii) ~~Condensed~~ Consolidated Statements of Changes in Shareholders' Equity for each of the ~~nine months~~three month periods ended ~~September 30, 2017~~March 31, 2019 and ~~the year ended December 31, 2016~~ 2018 (iv) ~~Condensed~~ Consolidated Statements of Cash Flows for each of the ~~nine months~~three month periods ended ~~September 30, 2017~~March 31, 2019 and ~~2016,~~2018, and (v) Notes to ~~Condensed~~ Consolidated Financial Statements.



~	Indicates a management contract or compensatory plan or contract.
+	Confidential treatment granted as to certain portions, which portions have been filed separately with the SEC.
#	In accordance with Item 601(b)(32)(ii) of Regulation S-K and SEC Release No. 34-47986, the certifications furnished in Exhibit 32 hereto are deemed to accompany this Form 10-Q and will not be deemed "filed" for purposes of Section 18 of the Exchange Act or deemed to be incorporated by reference into any filing under the Exchange Act or the Securities Act except to the extent that the registrant specifically incorporates it by reference.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.



	NMI HOLDINGS, INC.
Date: May 1, 2019

	By: /s/ Adam S. Pollitzer
*	In accordance with Rule 406T of Regulation S-T, the information furnished in these exhibits will not be deemed "filed" for purposes of Section 18 of the Exchange Act. Such exhibits will not be deemed to be incorporated by reference into any filing under the Securities Act or the Exchange Act except to the extent that the registrant specifically incorporates it by reference.Name: Adam S. Pollitzer
	Title: Chief Financial Officer and Duly Authorized Signatory

~~iii~~



Cautionary Note Regarding Forward Looking Statements		3
PART I		5
Item 1.	Financial Statements	5
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	2425
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	4144
Item 4.	Controls and Procedures	4245
PART II		4346
Item 1.	Legal Proceedings	4346
Item 1A.	Risk Factors	4346
Item 6.	Exhibits	4347
Signatures		44
~~Exhibit Index~~		i50



As of and for the full year ended December 31, 2016	As previously reported			As adjusted
	(In thousands)
Income Statement
Net income	$	65,841		$	64,001
Income tax (benefit)	(54,389		)	(52,550		)
Basic EPS	1.11			1.08
Diluted EPS	1.08			1.05

Balance Sheet
Deferred tax asset, net	$	53,274		$	51,434
Total assets	841,737			839,897
Accumulated deficit	(94,882		)	(96,722		)
Total shareholders' equity	477,349			475,509



Consolidated balance sheets	September 30, 2017		December 31, 2016 ⁽¹⁾
	(In Thousands)
Total investment portfolio	$	692,729	$	628,969
Cash and cash equivalents	20,698		47,746
Premiums receivable	21,056		13,728
Deferred policy acquisition costs, net	36,101		30,109
Software and equipment, net	21,767		20,402
Prepaid reinsurance premiums	39,915		37,921
Deferred tax asset, net	38,490		51,434
Other assets	15,856		9,588
Total assets	$	886,612	$	839,897
Term loan	$	143,969	$	144,353
Unearned premiums	161,345		152,906
Accounts payable and accrued expenses	22,028		25,297
Reserve for insurance claims and claims expenses	6,123		3,001
Reinsurance funds withheld	33,105		30,633
Deferred ceding commission	4,971		4,831
Warrant liability	4,046		3,367
Total liabilities	375,587		364,388
Total shareholders' equity	511,025		475,509
Total liabilities and shareholders' equity	$	886,612	$	839,897