UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-Q
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 endedSeptember 30, 20172020
OR
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
Commission file number 001-36174
NMI Holdings, Inc.
(Exact name of registrant as specified in its charter)


DELAWAREDelaware45-4914248
(State or other jurisdiction of incorporation or organization)(I.R.S. Employer Identification No.)
2100 Powell Street Emeryville, CAEmeryville,CA94608
(Address of principal executive offices)(Zip Code)


(855) 530-6642
(Registrant's telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Title of each classTrading Symbol(s)Name of each exchange on which registered
Class A Common Stock, par value $0.01NMIHNASDAQ
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 oYes ☒No ☐
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 oYes ☒No ☐
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 o
☒
Accelerated filer x
☐
Non-accelerated filer o
☐
Smaller reporting company o☐
(Do not check if a smaller reporting company)
Emerging growth company x


☐
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. x☐


Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
YES o NO xYes ☐No ☒

The number of shares of common stock, $0.01 par value per share, of the registrant outstanding on October 30, 2017 November 3, 2020 was 60,033,14484,813,362 shares.

1



TABLE OF CONTENTS
3
5
Item 1.
5
Item 2.
2429
Item 3.
4157
Item 4.
4258
4359
Item 1.
4359
Item 1A.
4359
Item 6.
4363
4466
Exhibit Index
i




2

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," "perceive," "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:
•uncertainty relating to the coronavirus (COVID-19) pandemic and the measures taken by governmental authorities and other third parties to combat it, including their impact on the global economy, the U.S. housing, real estate, housing finance and mortgage insurance markets, and our business, operations and personnel;
•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;enhancement generally, or with first time homebuyers or on very high loan-to-value mortgages;
•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 likeother private mortgage insurers and government mortgage insurers such as the Federal Housing Administration (FHA), the U.S. Department of Agriculture's Rural Housing Service (USDA) and the U.S. Department of Veterans AdministrationAffairs (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;regulators, including any action by the Consumer Financial Protection Bureau to address the planned expiration of the "QM Patch" under the Dodd-Frank Act Ability to Repay/Qualified Mortgage rule;
•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 marketmarkets and to enter into, and receive approval of, reinsurance arrangements on terms and conditions that are acceptable to us, the GSEs and our regulators;
3

•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 II, Item 1A of this Report and in Part I, Item 1A, of our Annual Report on Form 10-K for the year ended December 31, 2016 (20162019 (2019 10-K), and in Part II, Item 1A of our Quarterly Report on Form 10-Q for the quarter ended June 30, 2020, 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 ownedwholly-owned subsidiaries on a consolidated basis.




4

PART I

Item 1. Financial Statements






INDEX TO FINANCIAL STATEMENTS


Condensed Consolidated Balance Sheets as of September 30, 20172020 (Unaudited) and December 31, 20162019
6
Condensed Consolidated Statements of Operations and Comprehensive Income for the three and nine months ended September 30, 20172020 and 20162019 (Unaudited)
7
Condensed Consolidated Statements of Changes in Shareholders' Equity for the nine months ended September 30, 20172020 and the year ended December 31, 20162019 (Unaudited)
8
Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 20172020 and 20162019 (Unaudited)
910
Notes to Condensed Consolidated Financial Statements (Unaudited)
1011


5
NMI HOLDINGS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)



September 30, 2020December 31, 2019
Assets(In Thousands, except for share data)
Fixed maturities, available-for-sale, at fair value (amortized cost of $1,624,970 and $1,113,779 as of September 30, 2020 and December 31, 2019, respectively)$1,689,815 $1,140,940 
Cash and cash equivalents (including restricted cash of $5,555 and $2,662 as of September 30, 2020 and December 31, 2019, respectively)194,199 41,089 
Premiums receivable48,159 46,085 
Accrued investment income9,766 6,831 
Prepaid expenses4,579 3,512 
Deferred policy acquisition costs, net63,194 59,972 
Software and equipment, net28,131 26,096 
Intangible assets and goodwill3,634 3,634 
Prepaid reinsurance premiums8,014 15,488 
Reinsurance recoverable (1)
17,180 4,939 
Other assets (1)
15,149 16,232 
Total assets$2,081,820 $1,364,818 
Liabilities
Debt$392,987 $145,764 
Unearned premiums116,008 136,642 
Accounts payable and accrued expenses59,316 39,904 
Reserve for insurance claims and claim expenses87,230 23,752 
Reinsurance funds withheld10,364 14,310 
Warrant liability, at fair value3,135 7,641 
Deferred tax liability, net97,451 56,360 
Other liabilities7,773 10,025 
Total liabilities774,264 434,398 
Commitments and contingencies
Shareholders' equity
Common stock - class A shares, $0.01 par value; 84,808,516 and 68,358,074 shares issued and outstanding as of September 30, 2020 and December 31, 2019, respectively (250,000,000 shares authorized)848 684 
Additional paid-in capital930,906 707,003 
Accumulated other comprehensive income, net of tax47,059 17,288 
Retained earnings328,743 205,445 
Total shareholders' equity1,307,556 930,420 
Total liabilities and shareholders' equity$2,081,820 $1,364,818 
(1)    Reinsurance recoverable has been reclassified from "Other assets" in the prior period.
 September 30, 2017 December 31, 2016
Assets(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 equivalents20,698
 47,746
Premiums receivable21,056
 13,728
Accrued investment income4,598
 3,421
Prepaid expenses2,651
 1,991
Deferred policy acquisition costs, net36,101
 30,109
Software and equipment, net21,767
 20,402
Intangible assets and goodwill3,634
 3,634
Prepaid reinsurance premiums39,915
 37,921
Deferred tax asset, net38,490
 51,434
Other assets4,973
 542
Total assets$886,612
 $839,897
    
Liabilities   
Term loan$143,969
 $144,353
Unearned premiums161,345
 152,906
Accounts payable and accrued expenses22,028
 25,297
Reserve for insurance claims and claim expenses6,123
 3,001
Reinsurance funds withheld33,105
 30,633
Deferred ceding commission4,971
 4,831
Warrant liability, at fair value4,046
 3,367
Total liabilities375,587
 364,388
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
Additional paid-in capital583,447
 576,927
Accumulated other comprehensive loss, net of tax(630) (5,287)
Accumulated deficit(72,391) (96,722)
Total shareholders' equity511,025
 475,509
Total liabilities and shareholders' equity$886,612
 $839,897

See accompanying notes to condensed consolidated financial statements.statements (unaudited).
6
NMI HOLDINGS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (UNAUDITED)


For the three months ended September 30,For the nine months ended September 30,
2020201920202019
Revenues(In Thousands, except for per share data)
Net premiums earned$98,802 $92,381 $296,463 $249,499 
Net investment income8,337 7,882 23,511 22,894 
Net realized investment (losses) gains(4)81 635 (219)
Other revenues648 1,244 2,771 1,700 
Total revenues107,783 101,588 323,380 273,874 
Expenses
Insurance claims and claim expenses15,667 2,572 55,698 8,238 
Underwriting and operating expenses(1)
33,969 32,335 96,616 95,325 
Service expenses(1)
557 909 2,381 1,311 
Interest expense7,796 2,979 16,481 9,111 
Loss (gain) from change in fair value of warrant liability437 (1,139)(4,286)6,025 
Total expenses58,426 37,656 166,890 120,010 
Income before income taxes49,357 63,932 156,490 153,864 
Income tax expense11,178 14,169 33,192 32,102 
Net income$38,179 $49,763 $123,298 $121,762 
Earnings per share
Basic$0.45 $0.73 $1.63 $1.81 
Diluted$0.45 $0.69 $1.55 $1.75 
Weighted average common shares outstanding
Basic84,805 67,849 75,695 67,381 
Diluted85,599 70,137 76,867 69,520 
Net income$38,179 $49,763 $123,298 $121,762 
Other comprehensive income, net of tax:
Unrealized gains in accumulated other comprehensive income, net of tax expense of $2,494 and $1,376 for the three months ended September 30, 2020 and 2019, respectively, and $7,655 and $8,991 for the nine months ended September 30, 2020 and 2019, respectively9,381 5,177 28,799 33,824 
Reclassification adjustment for realized losses (gains) included in net income, net of tax (benefit) expense of ($1) and $17 for the three months ended September 30, 2020 and 2019, respectively, and ($258) and ($46) for the nine months ended September 30, 2020 and 2019, respectively3 (64)972 173 
Other comprehensive income, net of tax9,384 5,113 29,771 33,997 
Comprehensive income$47,563 $54,876 $153,069 $155,759 

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 income4,170
 3,544
 11,885
 10,117
Net realized investment gains (losses)69
 66
 198
 (758)
Other revenues195
 102
 461
 172
Total revenues48,953
 35,520
 128,205
 87,187
Expenses       
Insurance claims and claims expenses957
 664
 2,965
 1,592
Underwriting and operating expenses24,645
 24,037
 78,682
 69,943
Total expenses25,602
 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 taxes19,497
 6,289
 35,733
 4,393
Income tax expense7,185
 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       
Basic59,883,629
 59,130,401
 59,680,166
 59,047,758
Diluted63,088,958
 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 2016768
 (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 tax723

(148)
4,657

18,448
Comprehensive income$13,035

$6,027

$28,473

$22,727
(1)    Certain "Underwriting and operating expenses" have been reclassified as "Service expenses" in prior periods.
See accompanying notes to condensed consolidated financial statements.statements (unaudited).
7
NMI HOLDINGS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (UNAUDITED)



Common Stock - Class AAdditional
Paid-in Capital		Accumulated Other Comprehensive IncomeRetained EarningsTotal
SharesAmount
(In Thousands)
Balances, December 31, 201968,358 $684 $707,003 $17,288 $205,445 $930,420 
Common stock: class A shares issued related to warrant exercises6 *221 — — 221 
Common stock: class A shares issued under stock plans, net of shares withheld for employee taxes510 5 (3,755)— — (3,750)
Share-based compensation expense— — 2,552 — — 2,552 
Change in unrealized investment gains/losses, net of tax benefit of $3,409— — — (12,824)— (12,824)
Net income— — — — 58,271 58,271 
Balances, March 31, 202068,874 $689 $706,021 $4,464 $263,716 $974,890 
Common stock: class A shares issued related to public offering15,870 $159 $219,528 $— $— $219,687 
Common stock: class A shares issued under stock plans, net of shares withheld for employee taxes61 *(321)— — (321)
Share-based compensation expense— — 2,722 — — 2,722 
Change in unrealized investment gains/losses, net of tax expense of $8,829— — — 33,211 — 33,211 
Net income— — — — 26,848 26,848 
Balances, June 30, 202084,805 $848 $927,950 $37,675 $290,564 $1,257,037 
Common stock: class A shares issued under stock plans, net of shares withheld for employee taxes4 *0 — — 0 
Share-based compensation expense— — 2,956 — — 2,956 
Change in unrealized investment gains, net of tax expense of $2,494— — — 9,384 — 9,384 
Net income— — — — 38,179 38,179 
Balances, September 30, 202084,809 $848 $930,906 $47,059 $328,743 $1,307,556 

*    During the three months ended March 31, 2020, we issued 6,474 common shares with a par value of $0.01 in connection with the exercise of warrants, which is not identifiable in this schedule due to rounding. During the three months ended June 30, 2020 and September 30, 2020, we issued 61,226 and 3,750 common shares, respectively, with a par value of $0.01 in connection with the exercise of options, and vesting of restricted stock units granted under our stock plans, which are not identifiable in this schedule due to rounding.
8
NMI HOLDINGS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (UNAUDITED)
Common Stock - Class AAdditional
Paid-in Capital		Accumulated Other Comprehensive IncomeRetained EarningsTotal
SharesAmount
(In Thousands)
Balances, December 31, 2018Balances, December 31, 201866,319 $663 $682,181 $(14,832)$33,488 $701,500 
Common stock: class A shares issued related to warrant exercisesCommon stock: class A shares issued related to warrant exercises39 *944 — — 944 
Common stock: class A shares issued under stock plans, net of shares withheld for employee taxesCommon stock: class A shares issued under stock plans, net of shares withheld for employee taxes1,144 12 (1,471)— — (1,459)
Share-based compensation expenseShare-based compensation expense— — 2,981 — — 2,981 
Change in unrealized investment gains/losses, net of tax expense of $3,992Change in unrealized investment gains/losses, net of tax expense of $3,992— — — 15,016 — 15,016 
Net incomeNet income— — — — 32,899 32,899 
Balances, March 31, 2019Balances, March 31, 201967,502 $675 $684,635 $184 $66,387 $751,881 
Common stock: class A shares issued related to warrantsCommon stock: class A shares issued related to warrants128 $1 3,835 — — 3,836 
Common stock: class A shares issued under stock plans, net of shares withheld for employee taxesCommon stock: class A shares issued under stock plans, net of shares withheld for employee taxes138 1 218 — — 219 
Share-based compensation expenseShare-based compensation expense— — 3,475 — — 3,475 
Change in unrealized investment gains/losses, net of tax expense of $3,686Change in unrealized investment gains/losses, net of tax expense of $3,686— — — 13,868 — 13,868 
Net incomeNet income— — — — 39,100 39,100 
Balances, June 30, 2019Balances, June 30, 201967,768 $677 $692,163 $14,052 $105,487 $812,379 
Common stock: class A shares issued related to warrantsCommon stock: class A shares issued related to warrants82 1 2,176 — — 2,177 
Common stock: class A shares issued under stock plans, net of shares withheld for employee taxesCommon stock: class A shares issued under stock plans, net of shares withheld for employee taxes77 1 655 — — 656 
Share-based compensation expenseShare-based compensation expense— — 3,399 — — 3,399 
Change in unrealized investment gains/losses, net of tax expense of $1,359Change in unrealized investment gains/losses, net of tax expense of $1,359— — — 5,113 — 5,113 
Net incomeNet income— — — — 49,763 49,763 
Balances, September 30, 2019Balances, September 30, 201967,927 $679 $698,393 $19,165 $155,250 $873,487 
Common Stock - Class AAdditional
Paid-in Capital		Accumulated Other Comprehensive Income (Loss)Accumulated DeficitTotal
SharesAmount
(In Thousands)
Balances, January 1, 201658,808
$588
$570,340
$(7,474)$(160,723)$402,731
Common stock: class A shares issued under stock plans, net of shares withheld for employee taxes337
3
(227)—
—
(224)
Share-based compensation expense—
—
6,814
—
—
6,814
Change in unrealized investment gains/losses, net of tax expense of $1,178—
—
—
2,187
—
2,187
Net income—
—
—
—
64,001
64,001
Balances, December 31, 201659,145
$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 taxes783
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, 201759,928
$599
$583,447
$(630)$(72,391)$511,025


*    During the three months ended March 31, 2019, we issued 39,195 common shares with a par value of $0.01 in connection with the exercise of warrants, which is not identifiable in this schedule due to rounding.
See accompanying notes to condensed consolidated financial statements.statements (unaudited).



9
NMI HOLDINGS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)



For the nine months ended September 30,
20202019
Cash flows from operating activities(In Thousands)
Net income$123,298 $121,762 
Adjustments to reconcile net income to net cash provided by operating activities:
Net realized investment (gains) losses(635)219 
(Gain) loss from change in fair value of warrant liability(4,286)6,025 
Depreciation and amortization7,378 6,661 
Net amortization of premium on investment securities2,116 943 
Amortization of debt discount and debt issuance costs3,600 754 
Deferred income taxes33,178 31,991 
Share-based compensation expense8,230 9,855 
Changes in operating assets and liabilities:
Premiums receivable(2,074)(9,723)
Accrued investment income(2,935)(1,191)
Prepaid expenses(1,067)(1,472)
Deferred policy acquisition costs, net(3,222)(9,802)
Other assets(81)(8,428)
Unearned premiums(20,634)(13,747)
Reserve for insurance claims and claim expenses63,478 7,694 
Reinsurance recoverable(12,241)(1,308)
Reinsurance balances, net2,857 529 
Accounts payable and accrued expenses18,017 (1,195)
Net cash provided by operating activities214,977 139,567 
Cash flows from investing activities
Purchase of short-term investments(41,872)(190,122)
Purchase of fixed-maturity investments, available-for-sale(902,524)(186,793)
Proceeds from maturity of short-term investments85,689 200,105 
Proceeds from redemptions, maturities and sale of fixed-maturity investments, available-for-sale346,931 66,996 
Software and equipment(9,102)(7,449)
Net cash (used in) investing activities(520,878)(117,263)
Cash flows from financing activities
Proceeds from issuance of common stock related to public offering, net of issuance costs219,687 0 
Proceeds from issuance of common stock related to employee equity plans3,407 13,733 
Taxes paid related to net share settlement of equity awards(7,465)(14,317)
Proceeds from senior secured notes400,000 0 
Repayments of term loan(147,750)(1,125)
Payments of debt issuance costs(8,868)0 
Net cash provided by (used in) financing activities459,011 (1,709)
Net increase in cash, cash equivalents and restricted cash153,110 20,595 
Cash, cash equivalents and restricted cash, beginning of period41,089 25,294 
Cash, cash equivalents and restricted cash, end of period$194,199 $45,889 
Supplemental disclosures of cash flow information
Interest paid$4,286 $8,060 
Income taxes refunded$76 $119 
 For the nine months ended September 30,
 2017 2016
Cash flows from operating activities(In Thousands)
Net income$23,816
 $4,279
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 liability679
 187
Depreciation and amortization4,871
 4,300
Net amortization of premium on investment securities1,200
 954
Amortization of debt discount and debt issuance costs1,112
 1,416
Share-based compensation expense6,933
 4,987
Deferred income taxes11,340
 —
Changes in operating assets and liabilities:   
Premiums receivable(7,328) (6,235)
Accrued investment income(1,177) (742)
Prepaid expenses(660) (885)
Deferred policy acquisition costs, net(5,992) (11,381)
Other assets(1,150) (2)
Unearned premiums8,439
 54,628
Reserve for insurance claims and claims expenses3,122
 1,454
Reinsurance balances, net618
 (431)
Accounts payable and accrued expenses(3,847) (1,075)
Net cash provided by operating activities41,778
 52,212
Cash flows from investing activities   
Purchase of short-term investments(111,551) (147,639)
Purchase of fixed-maturity investments, available-for-sale(166,640) (103,418)
Proceeds from maturity of short-term investments142,722
 93,916
Proceeds from redemptions, maturities and sale of fixed-maturity investments, available-for-sale75,785
 101,874
Additions to software and equipment(6,869) (8,449)
Net cash used in investing activities(66,553) (63,714)
Cash flows from financing activities   
Proceeds from issuance of common stock related to employee equity plans3,105
 526
Taxes paid related to net share settlement of equity awards(3,883) (694)
Repayments of term loan(1,125) (1,125)
Payments of debt modification costs(370) —
Net cash used in financing activities(2,273) (1,293)
    
Net decrease in cash and cash equivalents(27,048) (12,795)
Cash and cash equivalents, beginning of period47,746
 57,317
Cash and cash equivalents, end of period$20,698
 $44,522
    
Supplemental disclosures of cash flow information   
Interest paid$10,350
 $9,669
Income taxes paid802
 —
(1)    Reinsurance recoverable have been reclassified from "Reinsurance balance, net" in the prior period.
See accompanying notes to condensed consolidated financial statements.statements (unaudited).
10
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 ownedwholly-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 AOur 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 ownedwholly-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 ownedwholly-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, 2016,2019, included in our 20162019 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 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, 2017.2020.
Deferred Policy Acquisition CostsCOVID-19 Developments
Costs directly associatedOn January 30, 2020, the World Health Organization (WHO) declared the outbreak of COVID-19 a global health emergency and characterized the outbreak as a global pandemic on March 11, 2020.In an effort to stem contagion and control the COVID-19 pandemic, the population at large has severely curtailed day-to-day activity and local, state and federal regulators have imposed a broad set of restrictions on personal and business conduct nationwide.The COVID-19 pandemic, along with the successful acquisitionwidespread public and regulatory response, has caused a dramatic slowdown in U.S. and global economic activity and a record number of Americans have been furloughed or laid-off.
The global dislocation caused by COVID-19 is unprecedented and, while there is broad hope for medical advances that might relieve the crisis and provide for a near-term return to normalized activity, it is not known how long the dislocation will persist and if or when any such medical advances may be developed or made available.In response to the COVID-19 outbreak and continuing uncertainties, we activated our business continuity program to ensure our employees are safe and able to continue serving our customers and their borrowers without interruption.We have also sought to broadly assess the impact that the COVID-19 outbreak has had and may continue to have on the U.S economy and housing market, and the implications for the mortgage insurance policies, consistingmarket, and our business performance and financial position, including our new business production, default and claims experience, and investment portfolio results. Given the uncertainty that remains, we cannot fully assess or estimate the ultimate impact of certain selling expensesCOVID-19.
Significant Accounting Principles
There have been no changes to our significant accounting principles as described in Item 8, "Financial Statements and Supplementary Data - Notes to Consolidated Financial Statements - Note 2 - Summary of Accounting Principles" of our 2019 10-K, other policy issuancethan as noted in "Investments," "Premium Receivables," "Reinsurance" and underwriting expenses, are initially deferred"Recent Accounting Pronouncements - Adopted" below.
Investments
We hold all investments on an available-for-sale basis and reportedevaluate each position quarterly for impairment. We recognize an impairment on a security through the statement of operations if (i) we intend to sell the impaired security; or (ii) it is more likely than not that we will be required to sell the impaired security prior to recovery of its amortized cost basis. If a sale is intended or likely to be required, we write down the amortized cost basis of the security to fair value and recognize the full amount of the impairment through the statement of operations as deferred policy acquisition costs (DAC)a "Realized Investment Loss. DAC"
11
NMI HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
For securities in an unrealized loss position where a sale is reviewed periodicallynot intended or likely to be required, we further assess if the decline in fair value below amortized cost is driven by a credit related impairment, considering several items including, but not limited to:
•the severity of the decline in fair value;
•the financial condition of the issuer;
•the failure of the issuer to make scheduled interest or principal payments;
•recent rating downgrades of the applicable security or issuer by one or more nationally recognized statistical ratings organization; and
•other adverse conditions related to or impacting the security or issuer.
To the extent we determine that it does not exceed recoverable amountsa security impairment is credit-related, an impairment loss is recognized through the statement of operations as a provision for credit loss expense, and presented as a "Realized Investment Loss." We recognize an allowance for credit losses for the difference between the amortized cost and present value of future expected cash flows, limited by the amount the fair value of the security is below its amortized cost. Subsequent changes (favorable and unfavorable) in credit losses are recognized through the statement of operations as a provision for or a reversal of credit loss expense, and presented as a "Realized Investment Gain or Loss." The portion of a security impairment attributed to other non-credit related factors is recognized in other comprehensive income, net of taxes.
We have elected to present accrued interest receivable separately from available for sale securities on our consolidated balance sheet. Accrued interest receivable was $9.8 million as of September 30, 2020 and is adjusted as appropriateincluded in "Accrued Investment Income." We have elected not to measure an allowance for policy cancellations to be consistent with our revenue recognition policy.credit losses for accrued interest receivable on available for sale securities. Accrued interest for available for sale securities is written off against interest income when the receivable has aged 90 days past due. We estimate the rate of amortization to reflect actual experience anddid not write off any changes to persistency or loss development. For each book year 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, "Reinsurance"), was $1.7 million and $1.2 million foraccrued interest receivable during the three months ended September 30, 2017 and 2016, respectively, and $4.0 million and $3.4 million for theor nine months ended September 30, 20172020.
Premiums Receivable
Premiums receivable consists of premiums due on our mortgage insurance policies. If a mortgage insurance premium is unpaid for more than 120 days, the associated receivable is written off against earned premium and 2016, respectively.
Premium Deficiency Reserves
the related insurance policy is canceled. We consider whether a premium deficiency exists at each fiscal quarter using best estimate assumptions asrecognize an allowance for credit losses for premiums receivable based on credit losses expected to arise over the life of the testing date. Per ASC 944, areceivable. Due to the nature of our insurance policies (a necessary precondition for access to mortgage credit for covered borrowers) and the short duration of the related receivables, we do not typically experience credit losses against our premium deficiency reserve shallreceivables and did not establish an allowance for credit loss at September 30, 2020.
Premiums receivable may be recognized ifwritten off prior to 120 days in the sumordinary course of expected claim costs and claim adjustment expenses, expected dividendsbusiness for non-credit events including, but not limited to, policyholders, unamortized acquisition costs and maintenance costs exceeds related unearned premiums and anticipated investment income.the modification or refinancing of an underlying insured loan. We have determined that noestablished a reserve for premium deficiency reserves were necessary for the three and nine months endedwrite-offs based on historical experience; such reserve was deemed to be immaterial at September 30, 2017 or 2016.2020.
Reinsurance
We account for premiums, lossesclaims and lossclaim expenses that are ceded to reinsurers on basesa basis consistent with thosethat which we use to account for the original policies we issue and pursuant to the terms of our reinsurance contracts. We account for premiums ceded or otherwise paid to reinsurers as reductionsa reduction to premium revenue.
WeNMIC has entered into quota share reinsurance treaties effective September 1, 2016 (the 2016 QSR Transaction), January 1, 2018 (the 2018 QSR Transaction) and April 1, 2020 (the 2020 QSR Transaction), which we refer to collectively as the QSR Transactions. We earn profit and ceding commissions in connection with our 2016the QSR Transaction (see Note 5, "Reinsurance").Transactions. Profit commissions represent a percentage of the profits recognized by reinsurers that are returned to us, based on the level of lossesclaims and claim expenses that 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 whichunder the 2016 QSR Transaction and as a percentage of ceded earned premiums under the 2018 and 2020 QSR Transactions, and are intended to cover our costs to acquireof acquiring and service theservicing direct policies. We earn the
NMI HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

recognize any ceding commissions we earn 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 earned as reductionsa reduction to underwriting and operating expenses.
We
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NMI HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Under the QSR Transactions, we cede a portion of lossclaims and claim expense reserves paid losses and loss expenses to our reinsurers, which are accountedand account for such ceded reserves as reinsurance recoverables"Reinsurance Recoverables" on the consolidated balance sheets and such ceded claims as reductions to loss expenseclaims expenses on the consolidated statements of operations. As of September 30, 2020, we had $17.2 million of reinsurance recoverables under the QSR Transactions. We remain directly liable for all lossclaim payments in the eventif we are unable to collect the recoverables due from our reinsurers and, as such, we actively monitor and manage our counterparty credit exposure to our reinsurance providers. We establish an allowance for expected credit loss against our reinsurance recoverables if we do not expect to recover amounts due from one or more of our reinsurance counterparties, and report our reinsurance recoverables net of such allowance, if any. We actively monitor the counterparty credit profiles of our reinsurers and each is required to partially collateralize its obligations under the terms of our QSR Transactions. As of September 30, 2020, we did not recognize any reinsurer.allowance for credit loss with respect to our reinsurance recoverables.
Variable interest entityInterest Entities
In May 2017,    NMIC entered intois a party to reinsurance agreementagreements with Oaktown Re Ltd. (Oaktown Re), a Bermuda-domiciled specialOaktown Re II Ltd., Oaktown Re III Ltd. and Oaktown Re IV Ltd. (special purpose reinsurer.reinsurance entities collectively referred to as the Oaktown Re Vehicles) effective May 2, 2017, July 25, 2018, July 30, 2019 and July 30, 2020, respectively. At inception of the respective reinsurance agreement,agreements, we determined that each of the Oaktown Re was aVehicles were variable interest entity (VIE)entities (VIEs), as defined under GAAP (ASC 810),Accounting Standards Codification (ASC) 810, because itthey did not have sufficient equity at risk to finance itstheir respective activities. We evaluated the VIEVIEs at inception to determine whether NMIC was itsthe primary beneficiary under each deal and, if so, whether we were required to consolidate the assets and liabilities of theeach 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; 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 Reeach VIE and that consolidation is not required, as such, we do not have significant economic exposureconsolidate them in the entity.our consolidated financial statements.
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 - Adopted
In May 2014,June 2016, the Financial Accounting StandardsStandard Board (the FASB)(FASB) issued Accounting Standards Update (ASU) 2014-09, Revenue2016-13, Financial Instruments-Credit Losses (Topic 326) and subsequently issued amendments to the initial guidance: ASU 2019-04, Codification Improvements to Topic 326, Financial Instruments-Credit Losses (Topic 815), Derivatives and Hedging, and Topic 825, Financial Instruments, ASU 2019-05, Financial Instruments-Credit Losses: Targeted Transition Relief, and ASU 2019-11, Codification Improvements to Topic 326, Financial Instruments-Credit Losses. These updates will require companies to measure and establish reserves for lifetime expected credit losses on many financial assets held at a given reporting date. Under the guidance, the methodology for measuring lifetime credit losses shifts from Contracts with Customers (Topic 606). This update is intendedan incurred loss model, whereby losses are only recognized once probable and estimable, to provide a consistent approach in recognizing revenue. In accordancecurrent expected credit loss (CECL) model, whereby losses are recognized upfront based on a future economic forecast. Credit losses relating to available-for-sale fixed maturity securities are recorded through an allowance for credit losses, rather than a write-down of the asset as was required, with the new standard, recognitionamount of revenue occurs when a customer obtains controlthe allowance limited to the amount by which fair value is less than amortized cost. The length of promised goods or servicestime an available-for sale fixed maturity security has been held 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 orunrealized loss position will no longer impact its credit loss determination. We adopted these updates 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, will2020. Adoption of the updated standards did not have an immateriala material 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 thehad no impact on presentationour accounting for insurance claims and disclosure.claim expenses as these items are not in scope of the guidance.
In February 2016,August 2018, the FASB issued ASU 2016-02, Leases2018-13, Fair Value Measurement (Topic 842)820). This update requires that businesses recognize rights and obligations associated with certain leases as assets and liabilities onmodifies the balance sheet. The standard also requires additional disclosures regarding the amount, timing, and uncertaintyfair value measurement disclosure requirements of cash flows arising from leases. For public business entities,ASC 820. We adopted this update is effective for annual periods beginning after December 15, 2018 and interim periods therein. Early adoption is permitted in any period. We expect to adopt this guidanceASU 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 this standard will2020 and determined it did not have ana material impact on our consolidated financial position, primarily due to our office space operating lease, as we will be required 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.statements.
In June 2016,August 2018, the FASB issued ASU 2016-13, Financial Instruments-Credit Losses (Topic 326)2018-15, Intangibles - Goodwill and Other - Internal-Use Software (Subtopic 350-40). This update requiresapplies to cloud computing arrangements structured as service contracts, and provides companies to measure all expected credit losseswith guidance on the criteria for financial assets held atcapitalizing implementation, set-up and other up-front costs incurred in association with these arrangements. We adopted this ASU on January 1, 2020 and applied it on a prospective basis for eligible costs incurred after the reportingeffective date. The accountingadoption of this ASU did not have a material impact on our consolidated financial statements.
Recent Accounting Pronouncements - Not Yet Adopted
In August 2018, the FASB issued ASU 2018-12, Targeted Improvements to the Accounting for credit losses on available-for-sale debt securitiesLong-Duration Contracts. This update provides guidance to the existing recognition, measurement, presentation and purchased financial assets with credit deterioration also is amended in the standard. The standarddisclosure requirements for
13
NMI HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

long-duration contracts issued by an insurance entity. The FASB subsequently issued ASU 2019-09 in November 2019, which amended the effective date for this standard. The standard will now take effect for public business entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019.2021. We are currently evaluating the impact the adoption of this ASU will have, if any, on theour consolidated financial statements.
In August 2016,December 2019, the FASB issued ASU 2016-15, Statement of Cash Flows2019-12, Simplifying the Accounting for Income Taxes (Topic 230)740). This update is intendedeliminates certain exceptions for recognizing deferred taxes for investments, performing intra-period allocations and calculating income taxes in interim periods. The ASU also includes guidance to reduce diversitycomplexity in practice in how certain cash receiptsincome tax areas, including recognizing deferred taxes for tax goodwill and cash payments are presented and classified in the statementallocating taxes to members of cash flows.a consolidated group. 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, effective2020. We will adopt these updates on January 1, 2018, is2021 and do not expectedexpect them to have any impactmaterial impacts on our statement of cash flows.consolidated financial statements.
In August 2016,March 2020, the FASB issued ASU 2016-16, Income Taxes- Intra-Entity Transfers of Assets Other Than Inventory (Topic 740)2020-04, Reference Rate Reform (Topic 848). This update provides optional guidance to ease the potential burden in accounting for reference rate reform on financial reporting. Reference rate reform refers to the global transition away from referencing the London Interbank Offered Rate (LIBOR) in financial contracts, which is intendedexpected to improvebe discontinued in 2021. The ASU includes optional expedients and exceptions for applying GAAP to contracts, hedging relationships and other transactions affected by reference rate reform if certain criteria are met. The standard is effective immediately through December 31, 2022 for all entities that have contracts, hedging relationships, and other transactions that reference LIBOR or another reference rate expected to be discontinued because of reference rate reform. We are currently evaluating the impact the adoption of this ASU would have, if any, to our contract modifications that are affected by the discontinuation of LIBOR.
In August 2020, the FASB issued ASU 2020-06, Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging— Contracts in Entity's Own Equity (Subtopic 815-40). This update simplifies the accounting for the income tax consequences of intra-entity transfers of assets other than inventory.convertible instruments and contracts on an entity's own equity, including warrants, eliminating certain triggers for derivative accounting. 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, 2020.2021. Early adoption is permitted, for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017. We have determined that the adoption of this ASU will havebut 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 forearlier than fiscal years beginning after December 15, 2017. Early adoption is permitted, and if an entity early adopts the guidance in an interim period, any adjustments2020. We 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 theour consolidated financial statements.statements, including our warrant liability.
Immaterial Correction
2. Investments
We hold all investments on an available-for-sale basis and evaluate each position quarterly for impairment. We recognize an impairment on a security through the statement of Prior Period Amounts
Duringoperations if (i) we intend to sell the first quarter of 2017, after filingimpaired security; or (ii) it is more likely than not that we will be required to sell 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 allowanceimpaired security prior to December 31, 2016, no expense would have beenrecovery of its amortized cost basis. If a sale is intended or likely to be required, we write down the amortized cost basis of the security to fair value and recognize the full amount of the impairment through the statement of operations as a "Realized Investment Loss." To the extent we determine that a security impairment is credit-related, an impairment loss is recognized through the statement of operations as a provision for credit loss expense. The portion of a security impairment attributed to other non-credit related factors is recognized in 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 millionother comprehensive income, net of taxes.
Fair Values and resulted in a $1.8 million overstatement of our 2016 income tax benefitGross Unrealized Gains and net income.Losses on Investments
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.
Amortized
Cost		Gross UnrealizedFair
Value
GainsLosses
As of September 30, 2020(In Thousands)
U.S. Treasury securities and obligations of U.S. government agencies$31,204 $2,393 $0 $33,597 
Municipal debt securities318,436 11,139 (24)329,551 
Corporate debt securities1,144,217 49,583 (703)1,193,097 
Asset-backed securities130,757 2,486 (29)133,214 
Total bonds1,624,614 65,601 (756)1,689,459 
Short-term investments356 0 0 356 
Total investments$1,624,970 $65,601 $(756)$1,689,815 
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NMI HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)


Amortized
Cost		Gross UnrealizedFair
Value
GainsLosses
As of December 31, 2019(In Thousands)
U.S. Treasury securities and obligations of U.S. government agencies$48,203 $784 $(58)$48,929 
Municipal debt securities189,530 1,721 (1,035)190,216 
Corporate debt securities661,719 23,373 (211)684,881 
Asset-backed securities170,153 2,603 (114)172,642 
Total bonds1,069,605 28,481 (1,418)1,096,668 
Short-term investments44,174 98 0 44,272 
Total investments$1,113,779 $28,579 $(1,418)$1,140,940 
As of and for the full year ended December 31, 2016As previously reported As adjusted
 (In thousands)
Income Statement   
Net income$65,841
 $64,001
Income tax (benefit)(54,389) (52,550)
Basic EPS1.11
 1.08
Diluted EPS1.08
 1.05
    
Balance Sheet   
Deferred tax asset, net$53,274
 $51,434
Total assets841,737
 839,897
Accumulated deficit(94,882) (96,722)
Total shareholders' equity477,349
 475,509
We did not own any mortgage-backed securities in our asset-backed securities portfolio at September 30, 2020 or December 31, 2019. We periodically recognize unsettled trades payable or receivable in connection with our investing activity. Unsettled trades payable represent funds due for investments purchased at period end. Unsettled trades receivable represent funds due for investments sold at period end.
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 aspectsThe following table presents a breakdown of the accounting for and reportingfair value 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 adjustmentsour corporate debt securities by issuer industry group 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.September 30, 2020 and December 31, 2019:
September 30, 2020December 31, 2019
Financial36 %38 %
Consumer24 26 
Utilities11 9 
Communications11 10 
Technology10 7 
Industrial8 8 
Energy— 2 
Total100 %100 %
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 based upon specific identification of securities sold.
Fair Values and Gross Unrealized Gains and Losses on Investments
 Amortized
Cost		 Gross Unrealized Fair
Value
  Gains Losses 
As of September 30, 2017(In Thousands)
U.S. Treasury securities and obligations of U.S. government agencies$65,669
 $21
 $(636) $65,054
Municipal debt securities90,155
 929
 (348) 90,736
Corporate debt securities404,467
 5,619
 (1,246) 408,840
Asset-backed securities96,279
 1,142
 (101) 97,320
Total bonds656,570
 7,711
 (2,331) 661,950
Short-term investments30,714
 65
 —
 30,779
Total investments$687,284
 $7,776
 $(2,331) $692,729
NMI HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

 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 securities40,801
 131
 (663) 40,269
Corporate debt securities349,712
 1,722
 (2,356) 349,078
Asset-backed securities114,456
 765
 (560) 114,661
Total bonds569,104
 2,624
 (4,541) 567,187
Short-term investments61,584
 198
 —
 61,782
Total investments$630,688
 $2,822
 $(4,541) $628,969
As of September 30, 20172020 and December 31, 2016,2019, approximately $7.0$5.7 million and $5.5 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 valuesvalue of available-for-sale securities as of September 30, 20172020 and December 31, 2016,2019, 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, 2020Amortized
Cost		Fair
Value
(In Thousands)
Due in one year or less$79,742 $80,330 
Due after one through five years479,455 504,960 
Due after five through ten years912,664 947,919 
Due after ten years22,352 23,392 
Asset-backed securities130,757 133,214 
Total investments$1,624,970 $1,689,815 

As of September 30, 2017Amortized
Cost		 Fair
Value
 (In Thousands)
Due in one year or less$108,020
 $108,048
Due after one through five years158,353
 159,502
Due after five through ten years309,708
 312,697
Due after ten years14,924
 15,162
Asset-backed securities96,279
 97,320
Total investments$687,284
 $692,729
15
NMI HOLDINGS, INC.
As of December 31, 2016Amortized
Cost		 Fair
Value
 (In Thousands)
Due in one year or less$94,382
 $94,584
Due after one through five years173,296
 173,251
Due after five through ten years242,005
 240,060
Due after ten years6,549
 6,413
Asset-backed securities114,456
 114,661
Total investments$630,688
 $628,969
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
As of December 31, 2019Amortized
Cost		Fair
Value
(In Thousands)
Due in one year or less$138,776 $139,113 
Due after one through five years406,986 417,208 
Due after five through ten years380,737 394,180 
Due after ten years17,127 17,797 
Asset-backed securities170,153 172,642 
Total investments$1,113,779 $1,140,940 
Aging of Unrealized Losses
As of September 30, 2017,2020, the investment portfolio had gross unrealized losses of $2.3 million, $1.5$0.8 million, of which has$28 thousand had 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. We based our conclusion that these investments were not other-than-temporarily impaired as of September 30, 2017 on the following facts: (i) the unrealized losses were primarily caused by interest rate movements 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 not occur until maturity.longer. For those securities in an unrealized loss position, the length of time the length of time the securities were in such a position is as follows:
Less Than 12 Months12 Months or GreaterTotal
# of SecuritiesFair ValueUnrealized Losses# of SecuritiesFair ValueUnrealized Losses# of SecuritiesFair ValueUnrealized Losses
As of September 30, 2020(Dollars in Thousands)
Municipal debt securities9 $15,706 $(24)0 $0 $0 9 $15,706 $(24)
Corporate debt securities20 101,088 (702)1 33 (1)21 101,121 (703)
Asset-backed securities2 7,311 (2)1 2,724 (27)3 10,035 (29)
Total31 $124,105 $(728)2 $2,757 $(28)33 $126,862 $(756)

Less Than 12 Months12 Months or GreaterTotal
# of SecuritiesFair ValueUnrealized Losses# of SecuritiesFair ValueUnrealized Losses# of SecuritiesFair ValueUnrealized Losses
As of December 31, 2019(Dollars in Thousands)
U.S. Treasury securities and obligations of U.S. government agencies4 $12,001 $(58)0 $0 $0 4 $12,001 $(58)
Municipal debt securities26 92,844 (1,034)1 999 (1)27 93,843 (1,035)
Corporate debt securities10 30,481 (140)14 23,976 (71)24 54,457 (211)
Asset-backed securities9 19,236 (102)1 2,988 (12)10 22,224 (114)
Total49 $154,562 $(1,334)16 $27,963 $(84)65 $182,525 $(1,418)
Allowance for credit losses
As of September 30, 2020, we did not recognize an allowance for credit loss for any security in the investment portfolio and we did not record any provision for credit loss for investment securities during the three and nine months ended September 30, 2020. Based on current facts and circumstances, we believe the unrealized losses as of September 30, 2020 are not indicative of the ultimate collectability of the current amortized cost of the securities.
During the nine months ended September 30, 2019, we recognized $0.4 million other-than-temporarily impaired (OTTI) losses in connection with the planned sale of a security that was disposed of in April 2019.
16
NMI HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Net Investment Income
 Less Than 12 Months 12 Months or Greater Total
 # of SecuritiesFair ValueUnrealized Losses # of SecuritiesFair ValueUnrealized Losses # of SecuritiesFair ValueUnrealized Losses
As of September 30, 2017 (Dollars in Thousands)
U.S. Treasury securities and obligations of U.S. government agencies22
$38,425
$(263) 15
$19,621
$(373) 37
$58,046
$(636)
Municipal debt securities9
21,567
(212) 8
10,319
(136) 17
31,886
(348)
Corporate debt securities44
69,602
(317) 14
34,031
(929) 58
103,633
(1,246)
Asset-backed securities15
21,173
(89) 2
4,988
(12) 17
26,161
(101)
Total90
$150,767
$(881) 39
$68,959
$(1,450) 129
$219,726
$(2,331)
 Less Than 12 Months 12 Months or Greater Total
 # of SecuritiesFair ValueUnrealized Losses # of SecuritiesFair ValueUnrealized Losses # of SecuritiesFair ValueUnrealized Losses
As of December 31, 2016 (Dollars in Thousands)
U.S. Treasury securities and obligations of U.S. government agencies33
$51,093
$(962) —
$—
$—
 33
$51,093
$(962)
Municipal debt securities14
28,659
(617) 1
1,704
(46) 15
30,363
(663)
Corporate debt securities77
135,115
(1,955) 8
13,873
(401) 85
148,988
(2,356)
Asset-backed securities30
38,702
(510) 6
2,472
(50) 36
41,174
(560)
Total154
$253,569
$(4,044) 15
$18,049
$(497) 169
$271,618
$(4,541)
The following table presents the components of net investment income:
For the three months ended September 30,For the nine months ended September 30,
2020201920202019
(In Thousands)
Investment income$8,624 $8,003 $24,293 $23,240 
Investment expenses(287)(121)(782)(346)
Net investment income$8,337 $7,882 $23,511 $22,894 
 For the three months ended September 30, For the nine months ended September 30,
 2017 2016 2017 2016
 (In Thousands)
Investment income$4,363
 $3,727
 $12,455
 $10,672
Investment expenses(193) (183) (570) (555)
Net investment income$4,170
 $3,544
 $11,885
 $10,117
The following table presents the components of net realized investment gains (losses):
For the three months ended September 30,For the nine months ended September 30,
2020201920202019
(In Thousands)
Gross realized investment gains$0 $81 $5,126 $297 
Gross realized investment losses(4)0 (4,491)(516)
Net realized investment (losses) gains$(4)$81 $635 $(219)
 For the three months ended September 30, For the nine months ended September 30,
 2017 2016 2017 2016
 (In Thousands)
Gross realized investment gains$69
 $66
 $536
 $683
Gross realized investment losses—
 —
 (338) (1,441)
Net realized investment gains (losses)$69
 $66
 $198
 $(758)

Investment Securities - Other-than-Temporary Impairment (OTTI)
For the quarter ended September 30, 2017, we held no other-than-temporarily impaired securities. There were no credit losses recognized in earnings for which a portion of an OTTI loss was recognized in accumulated other comprehensive income (loss).
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
17
NMI HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
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 levelLevel 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’sour 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 September 30, 2020As of September 30, 2020(In Thousands)
U.S. Treasury securities and obligations of U.S. government agencies$60,214
 $4,840
 $—
 $65,054
U.S. Treasury securities and obligations of U.S. government agencies$33,597 $0 $0 $33,597 
Municipal debt securities—
 90,736
 —
 90,736
Municipal debt securities0 329,551 0 329,551 
Corporate debt securities—
 408,840
 —
 408,840
Corporate debt securities0 1,193,097 0 1,193,097 
Asset-backed securities—
 97,320
 —
 97,320
Asset-backed securities0 133,214 0 133,214 
Cash, cash equivalents and short-term investments51,477
 —
 —
 51,477
Cash, cash equivalents and short-term investments194,555 0 0 194,555 
Total assets$111,691
 $601,736
 $—
 $713,427
Total assets$228,152 $1,655,862 $0 $1,884,014 
       
Warrant liability—
 —
 4,046
 4,046
Warrant liability0 0 3,135 3,135 
Total liabilities$—
 $—
 $4,046
 $4,046
Total liabilities$0 $0 $3,135 $3,135 
 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
As of December 31, 2016(In Thousands)
U.S. Treasury securities and obligations of U.S. government agencies$50,719
 $12,460
 $—
 $63,179
Municipal debt securities—
 40,269
 —
 40,269
Corporate debt securities—
 349,078
 —
 349,078
Asset-backed securities—
 114,661
 —
 114,661
Cash, cash equivalents and short-term investments109,528
 —
 —
 109,528
Total assets$160,247
 $516,468
 $—
 $676,715
        
Warrant liability—
 —
 3,367
 3,367
Total liabilities$—
 $—
 $3,367
 $3,367

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
As of December 31, 2019(In Thousands)
U.S. Treasury securities and obligations of U.S. government agencies$48,929 $0 $0 $48,929 
Municipal debt securities0 190,216 0 190,216 
Corporate debt securities0 684,881 0 684,881 
Asset-backed securities0 172,642 0 172,642 
Cash, cash equivalents and short-term investments85,361 0 0 85,361 
Total assets$134,290 $1,047,739 $0 $1,182,029 
Warrant liability0 0 7,641 7,641 
Total liabilities$0 $0 $7,641 $7,641 
There were no transfers between Level 12 and Level 23 of the fair value hierarchy during the nine months ended September 30, 2017 and2020, or the year-endyear ended December 31, 2016.2019.
18
NMI HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
The following is a roll-forward of Level 3 liabilities measured at fair value:
For the nine months ended September 30,
Warrant Liability20202019
(In Thousands)
Balance, January 1$7,641 $7,296 
Change in fair value of warrant liability included in earnings(4,286)6,025 
Issuance of common stock on warrant exercise(220)(6,957)
Balance, September 30$3,135 $6,364 
 For the nine months ended September 30,
Warrant Liability2017 2016
 (In Thousands)
Balance, January 1$3,367
 $1,467
Change in fair value of warrant liability included in earnings679
 187
Balance, September 30$4,046
 $1,654
We revalueThe following table outlines the key inputs and assumptions used to calculate the fair value of the warrant liability quarterly using ain the Black-Scholes option-pricing model as of the dates indicated.
As of September 30,
20202019
Common stock price$17.80 $26.26 
Risk free interest rate0.13 %1.76%
Expected life1.56 years0.92 years
Expected volatility75.3 % 33.5%
Dividend yield0 %0 %
The changes in combination with a binomial model, and wefair value of the pricing protection features withinwarrant liability for the warrants using a Monte-Carlo simulation model. As ofnine months ended September 30, 2017, the assumptions used2020 and 2019 are primarily attributable to changes in the option-pricing model were as follows: aprice of our common stock price asduring the respective periods, with additional impact related to changes in other Black-Scholes model inputs. The change in fair value of the warrant liability for the nine months ended September 30, 20172019 also reflects the impact of the exercises of outstanding warrants.
Financial Instruments not Measured at Fair Value
On June 19, 2020, we issued $400 million aggregate principal amount of senior secured notes that mature on June 1, 2025 (the Notes). At September 30, 2020, the Notes were carried at a cost of $393.0 million, net of unamortized debt issuance costs of $7.0 million, and had a fair value of $427.5 million as assessed under our Level 2 hierarchy. At December 31, 2019, our 2018 Term Loan was carried at a cost of $145.8 million, net of unamortized debt issuance costs of $2.0 million, and had a fair value of $147.8 million.
4. Debt
Senior Secured Notes
At September 30, 2020, we had $400 million aggregate principal amount of senior secured notes outstanding. The Notes were issued pursuant to an indenture dated June 19, 2020 (the Indenture) and bear interest at a rate of 7.375%, payable semi-annually on June 1 and December 1. A portion of the proceeds from the Notes offering were used to repay the outstanding amount due under our $150 million term loan (2018 Term Loan) and to pay underwriting fees incurred in connection with the offering. Remaining proceeds of $244.4 million are available for general corporate purposes, including to support the growth of our new business production and operations.
The Notes mature on June 1, 2025. At any time, or from time to time, prior to March 1, 2025, we may elect to redeem the Notes in whole or in part at a price based on 100% of the aggregate principal amount of any Notes redeemed plus the "Applicable Premium," plus accrued and unpaid interest thereon. Applicable Premium is defined as the greater of (1) 1.0% of the principal amount of the Notes, or (2) the principal value of the Notes plus the present value of all future interest payments. At any time on or after March 1, 2025, we may elect to redeem the Notes in whole or in part at a price equal to 100% of the aggregate principal amount of the Notes to be redeemed plus accrued and unpaid interest thereon. From time to time prior to June 1, 2022, we may also elect to use proceeds raised from one or more equity offerings to redeem up to 40% of the aggregate principal amount of the Notes at a price equal to 107.375% of the aggregate principal amount thereof plus accrued and unpaid interest thereon, subject to certain exceptions.
19
NMI HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

$12.40, risk freeInterest expense for the Notes includes interest rateand the amortization of 1.66%, expected life of 3.25 years, expected volatility of 30.6% and a dividend yield of 0%. The change in fair value is primarily attributable to an increase incapitalized debt issuance costs. In connection with the price of our common stock from December 31, 2016 to September 30, 2017.
4. Term Loan
On November 10, 2015,Notes offering, we entered into a credit agreement (the Credit Agreement) to obtain a three-year senior secured term loan (the Term Loan) for $150 million. On February 10, 2017, we entered into an amendment to the Credit Agreement, to extend the maturity date of the Term Loan by one year and reduce the interest rate. Based on our analysis, we concluded the amendment to the Credit Agreement should be treated as a modification. As of September 30, 2017, the Term Loan bears interest at the Eurodollar Rate, as defined in the Credit Agreement and subject to a 1.00% floor, plus an annual margin rate of 6.75% (an all-in rate of 7.99% as of September 30, 2017), payable monthly or quarterly based on our interest rate election. Quarterly principal payments of $375 thousand are also required. The outstanding balance of the Term Loan as of September 30, 2017 was $147 million.
Debtrecorded capitalized debt issuance costs totaling $4.8 million, including $370 thousand related to the modification and a 1% original issue discount, are beingof $7.4 million. Such amounts will be amortized to interest expense, using the effective interest method, over the contractual life of the Term Loan. EffectiveNotes using the effective interest ratemethod. At September 30, 2020, $7.0 million of unamortized debt issuance costs remained.
Interest expense for the Term Loan includes interest, amortization of issuance cost and the discount. For the nine months ended September 30, 2017, we recorded $10.12020 includes $2.6 million of interest expense, including amortizationcosts related to the extinguishment of the 2018 Term Loan and issuance and modification costs and original issue discount.of the Notes.
We are subject to certain quarterly covenants under the Notes (as defined in the Indenture), including, but not limited to, a maximum debt-to-total capitalization ratio of 35%. We were in compliance with all Notes covenants as of September 30, 2020.
2020 Revolving Credit Agreement. TheseFacility
On March 20, 2020, we amended our $85 million three-year secured revolving credit facility (the 2018 Revolving Credit Facility), increasing borrowing capacity under the facility to $100 million, extending its maturity date from May 24, 2021 to February 22, 2023, and reducing the interest cost related to both undrawn commitments and drawn borrowings under the facility (as amended, the 2020 Revolving Credit Facility). Borrowings under the 2020 Revolving Credit Facility may be used for general corporate purposes, including to support the growth of our new business production and operations, and accrue interest at a variable rate equal to, at our discretion, (i) a base rate (as defined in our existing credit agreement (the Credit Agreement), subject to a floor of 1.00% per annum) plus a margin of 0.375% to 1.875% per annum or (ii) the Eurodollar Rate (subject to a floor of 0% per annum) plus a margin of 1.375% to 2.875% per annum, based on the applicable corporate credit rating at the time. As of September 30, 2020, 0 borrowings were drawn under the 2020 Revolving Credit Facility.
Under the 2020 Revolving Credit Facility, we are required to pay a quarterly commitment fee on the average daily undrawn amount of 0.175% to 0.525%, based on the applicable corporate credit rating at the time. As of September 30, 2020, the applicable commitment fee was 0.35%. For the three and nine months ended September 30, 2020, we recorded $0.1 million and $0.3 million of commitment fees in interest expense, respectively.
We incurred debt issuance costs of $0.8 million in connection with the 2020 Revolving Credit Facility and had $0.6 million of unamortized debt issuance costs associated with the 2018 Revolving Credit Facility remaining at the time of its amendment and replacement. Combined unamortized debt issuance will be amortized through interest expense on a straight-line basis over the contractual life of the 2020 Revolving Credit Facility. At September 30, 2020, remaining unamortized deferred debt issuance costs were $1.1 million.
We are subject to certain covenants include,under the 2020 Revolving Credit Facility, including, but are 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-approvedGSE approved waivers), and minimum shareholders' equity requirements. This description is not intended to be complete in all respectsconsolidated 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 ofat September 30, 2017.2020.
Future principal payments due under
5. Reinsurance
We enter into third-party reinsurance transactions to actively manage our risk, ensure compliance with PMIERs, state regulatory and other applicable capital requirements (respectively, as defined therein), and support the Term Loan asgrowth of September 30, 2017 are as follows:our business. The Wisconsin Office of the Commissioner of Insurance (Wisconsin OCI) has approved and the GSEs have indicated their non-objection to all such transactions (subject to certain conditions and ongoing review, including levels of approved capital credit).
20
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 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) approved both transactions (subject to certain conditions and their periodic 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 endedFor the nine months ended
September 30, 2020September 30, 2019September 30, 2020September 30, 2019
(In Thousands)
Net premiums written
Direct$119,323 $100,475 $331,254 $274,418 
Ceded (1)
(17,501)(11,796)(47,952)(31,207)
Net premiums written$101,822 $88,679 $283,302 $243,211 
Net premiums earned
Direct$118,552 $106,687 $351,889 $288,165 
Ceded (1)
(19,750)(14,306)(55,426)(38,666)
Net premiums earned$98,802 $92,381 $296,463 $249,499 
 For the three months endedFor the nine months ended
 September 30, 2017 September 30, 2016September 30, 2017 September 30, 2016
 (In Thousands)
Net premiums written      
Direct$56,217
 $46,535
$142,134
 $133,526
Ceded (1)
(8,501) (37,336)(20,029) (37,336)
Net premiums written$47,716
 $9,199
$122,105
 $96,190
       
Net premiums earned      
Direct$52,024
 $33,052
$133,696
 $78,900
Ceded (1)
(7,505) (1,244)(18,035) (1,244)
Net premiums earned$44,519
 $31,808
$115,661
 $77,656
(1)    Net of profit commissioncommission.
Excess-of-loss reinsurance
In May 2017, NMIC entered into aexcess-of-loss reinsurance agreementagreements with the Oaktown Re thatVehicles. Each agreement provides for up to $211.3 million ofNMIC with aggregate excess-of-loss reinsurance coverage at inception for new delinquencies on an existinga defined portfolio of mortgage insurance policies written from 2013 through December 31, 2016. For the coverage period,during a discrete period. Under each agreement, NMIC will retain theretains a first layer of $126.8 million of aggregate lossesloss exposure on covered policies and the respective Oaktown Re willVehicle then provideprovides second layer coverageloss protection up to the outstandinga defined reinsurance coverage amount. NMIC will then retainretains losses in excess of the outstandingrespective 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 and was $185 million as of September 30, 2017. The outstanding reinsurance coverage amount will stop amortizing if certain credit enhancement or delinquency thresholds are triggered.amounts.
Oaktown Re financed the coverage by issuing mortgage insurance-linked notes in an aggregate amount of $211.3 million to unaffiliated investors (the Notes). The Notes mature on April 26, 2027. All of the proceeds paid to Oaktown Re from the sale of the 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 in the reinsurance trust account are required to be invested in high credit quality money market funds.  We refer collectively to NMIC’s reinsurance agreement with Oaktown Re and the issuance of the Notes by Oaktown Re as the 2017 ILN Transaction. Under the terms of the 2017 ILN Transaction, NMIC makes risk premium payments to the Oaktown Re Vehicles for the applicable outstanding reinsurance coverage amount and pays Oaktown Rean additional amount for anticipated operating expenses (capped at $300 thousand per year)year to Oaktown Re Ltd. and $250 thousand per year to Oaktown Re II Ltd., Oaktown Re III Ltd. and Oaktown IV Ltd.). ForNMIC ceded aggregate premiums to the Oaktown Re Vehicles of $6.3 million and $13.4 million during the three and nine months ended September 30, 2017, NMIC paid risk premiums of $1.92020 and $4.4 million and $3.3$10.3 million during the three and nine months ended September 30, 2019, respectively.
NMIC applies claims paid on covered policies against its first layer aggregate retained loss exposure under each excess-of-loss agreement. NMIC did not cede any incurred losses on covered policies to the Oaktown Re.Re Vehicles during the three and nine months ended September 30, 2020 and 2019, as the aggregate first layer risk retention was not exhausted for each applicable agreement during such periods.
Under the terms of each excess-of-loss reinsurance agreement, the Oaktown Re Vehicles are required to fully collateralize their outstanding reinsurance coverage amount to NMIC with funds deposited into segregated reinsurance trusts. Such trust funds are required to be invested in short-term U.S. Treasury money market funds at all times. Each Oaktown Re Vehicle financed its respective collateral requirement through the issuance of mortgage insurance-linked notes to unaffiliated investors. Such insurance-linked notes mature ten years from the inception date of each reinsurance agreement. We refer to NMIC's reinsurance agreements with and the insurance-linked note issuances by Oaktown Re Ltd., Oaktown Re II Ltd., Oaktown Re III Ltd. and Oaktown Re IV Ltd., individually as the 2017 ILN Transaction, 2018 ILN Transaction, 2019 ILN Transaction, and 2020-1 ILN Transaction, and collectively as the ILN Transactions.
The respective reinsurance coverage amounts provided by the Oaktown Re Vehicles decrease from the inception of each agreement over a ten-year period as the underlying insured mortgages are amortized or repaid, and/or the mortgage insurance coverage is canceled. As the reinsurance coverage decreases, a prescribed amount of collateral held in trust by the Oaktown Re Vehicles is distributed to ILN Transaction noteholders as amortization of the outstanding insurance-linked note principal balances. The outstanding reinsurance coverage amounts stop amortizing, and the collateral distribution to ILN Transaction noteholders and amortization of insurance-linked note principal is suspended if certain credit enhancement or delinquency thresholds, as defined in each agreement, are triggered (each, a Lock-Out Event). Effective June 25, 2020, a Lock-Out Event was deemed to have occurred for each of the 2017, 2018 and 2019 ILN Transactions and the amortization of reinsurance coverage, and distribution of collateral assets and amortization of insurance-linked notes was suspended for each ILN Transaction. The amortization of reinsurance coverage, distribution of collateral assets and amortization of insurance-linked notes will remain suspended for the duration of the Lock-Out Event for each ILN Transaction, and during such period assets will be preserved in the applicable reinsurance trust account to collateralize the excess-of-loss reinsurance coverage provided to NMIC.
21
NMI HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
The following table presents the inception date, covered production period, initial and current reinsurance coverage amount, and initial and current first layer retained aggregate loss under each of the ILN Transactions. Current amounts are presented as of September 30, 2020.
($ values in thousands)
Inception DateCovered ProductionInitial Reinsurance CoverageCurrent Reinsurance CoverageInitial First Layer Retained Loss
Current First Layer Retained Loss (1)
2017 ILN TransactionMay 2, 20171/1/2013 - 12/31/2016$211,320 $40,226 $126,793 $121,602 
2018 ILN TransactionJuly 25, 20181/1/2017 - 5/31/2018264,545 158,489 125,312 123,354 
2019 ILN TransactionJuly 30, 20196/1/2018 - 6/30/2019326,905 231,877 123,424 123,072 
2020-1 ILN TransactionJuly 30, 20207/1/2019 - 3/31/2020322,076 322,076 169,514 169,514 
(1)    NMICapplies claims paid on covered policies against its first layer aggregate retained loss exposure and cedes reserves for incurred claims and claims expenses to each applicable ILN Transaction and recognizes a reinsurance recoverable if such incurred claims and claims expenses exceed its current first layer retained loss.
NMIC holds an optional termination right if certain events occur,rights under each ILN Transaction, including, among others, an optional call feature which provides NMIC the discretion to terminate the transaction on or after a prescribed date, and a clean-up call if the outstanding reinsurance coverage amount amortizes to 10% or less of the reinsurance coverage amount at inception or if NMIC reasonably determines that changes to GSE or rating agency asset requirements would cause a material and adverse effect on the capital treatment adopted by NMIC.afforded to NMIC under a given agreement. In addition, there are certain events that will result intrigger mandatory termination of thean agreement, including NMIC’sNMIC's failure to pay premiums or consent to reductions in thea trust account to make principal payments to noteholders, among others.
AtUnder the time the 2017 ILN Transaction was entered into with Oaktown Re, we evaluated the applicabilityterms of the accounting guidance that addresses VIEs. As2018, 2019 and 2020-1 ILN Transactions, we are required to maintain a resultcertain level of restricted funds in premium deposit accounts with Bank of New York Mellon until the evaluationrespective notes have been redeemed in full. "Cash and cash equivalents" on our condensed consolidated balance sheet includes restricted amounts of $5.6 million as of September 30, 2020. We are not required to deposit additional funds into the 2017 ILN Transaction, we concluded that Oaktown Re is a VIE. However, given that NMIC does not have significant economic exposurepremium deposit accounts in Oaktown Re, we do not consolidate Oaktown Re in our consolidated financial statements.the future and the restricted balances required under these transactions.
22
NMI HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Quota share reinsurance
InNMIC is a party to 3 outstanding quota share reinsurance treaties – the 2016 QSR Transaction, effective September 1, 2016, the 2018 QSR Transaction, effective January 1, 2018 and the 2020 QSR Transaction, effective April 1, 2020. Under each of the QSR Transactions, NMIC entered intocedes a quota-share reinsurance transaction withproportional share of its risk on eligible policies written during a paneldiscrete period to panels of third-party reinsurers (2016 QSR Transaction).reinsurance providers. Each of the third-party reinsurersreinsurance providers has an insurer financial strength rating of A- or better by Standard and Poor’s& Poor's Rating ServicesService (S&P), A.M. Best Company, Inc. (A.M. Best) or both.
Under the terms of the 2016 QSR Transaction, effective September 1, 2016, NMIC cededcedes premiums written related to:
•to 25% of existingthe risk written on eligible primary policies as of Augustwritten for all periods through December 31, 2016;
2017 and 100% of existingthe risk under our pool agreement with Fannie Mae;Mae. 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. 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 re-assuming the related risk.
Under the terms of the 2018 QSR Transaction, NMIC cedes premiums earned related to 25% of the risk on eligible policies written in 2018 and 20% of the risk on eligible policies written in 2019. The 2018 QSR Transaction is scheduled to terminate on December 31, 2029. 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 re-assuming the related risk.
Under the terms of the 2020 QSR Transaction, NMIC cedes premiums earned related to 21% of the risk on eligible policies written from SeptemberApril 1, 2016 through2020 to December 31, 2017.2020. The 2020 QSR Transaction is scheduled to terminate on December 31, 2030. NMIC has the option, based on certain conditions and subject to a termination fee, to terminate the agreement as of December 31, 2023, or at the end of any calendar quarter thereafter, which would result in NMIC re-assuming the related risk.
NMIC may terminate any or all of the QSR Transactions without penalty if, due to a change in PMIERs requirements, it is no longer able to take full PMIERs asset credit for the 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 the termination, ceded premiums written under the 2016 QSR Transaction decreased 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 endedFor the nine months ended
September 30, 2020September 30, 2019September 30, 2020September 30, 2019
(In Thousands)
Ceded risk-in-force$5,159,061 $4,901,809 $5,159,061 $4,901,809 
Ceded premiums earned(24,517)(23,151)(70,738)(65,538)
Ceded claims and claim expenses3,200 766 13,401 2,435 
Ceding commission earned4,798 4,584 13,739 12,961 
Profit commission11,034 13,254 28,718 37,199 
23
 For the three months endedFor the nine months ended
 September 30, 2017September 30, 2016September 30, 2017 September 30, 2016
 (In Thousands)
Ceded risk-in-force$2,682,982
$1,778,235
$2,682,982
 $1,778,235
Ceded premiums written(14,389)(38,977)(36,715) (38,977)
Ceded premiums earned(13,393)(2,885)(34,721) (2,885)
Ceded claims and claims expenses277
90
887
 90
Ceding commission written2,878
7,795
7,343
 7,795
Ceding commission earned2,581
551
6,921
 551
Profit commission7,758
1,641
19,945
 1,641
NMI HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
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 incomerevenue on direct premiums. Under the 2018 QSR Transaction and 2020 QSR Transactions, 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 under each of the QSR Transactions, provided that the loss ratioratios on the loans covered under the agreement2016 QSR Transaction, 2018 QSR Transaction and 2020 QSR Transaction, generally remainsremain below 60%, 61% and 50%, respectively, as measured annually. Ceded claims and claimsclaim expenses under each of the QSR Transactions reduce NMIC'sthe respective profit commission received by NMIC on a dollar-for-dollar basis.
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 ourthe 2016 QSR Transaction was $1.2$4.8 million as of September 30, 2017.2020.
In accordance with the terms of the 2018 and 2020 QSR Transactions, cash payments for ceded premiums earned are settled on a quarterly basis, offset by amounts due to NMIC for ceding and profit commissions. Any loss recoveries and any potential profit commission to NMIC are also recognized quarterly. NMIC's reinsurance recoverable balance is supported by trust accounts established and maintained by each reinsurer in accordance with the PMIERs funding requirements for risk ceded to non-affiliates. The agreement is scheduled to terminatereinsurance recoverable on December 31, 2027, except with respectloss reserves related 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 agreement2018 QSR Transaction was $12.2 million as of December 31,September 30, 2020. The reinsurance recoverable on loss reserves related to the 2020 or at the endQSR Transaction was $0.2 million as of any calendar quarter thereafter, which would result in NMIC reassuming the related risk.September 30, 2020.
6. Reserves for Insurance Claims and ClaimsClaim Expenses
We establishhold gross reserves in an amount equal to recognize the estimated liability for insurance claims and claim expenses related to defaults on insured mortgage loans. Our method, consistent with industry practice,A loan is considered to be in "default" as of the payment date at which a borrower has missed the preceding two or more consecutive monthly payments. We establish reserves only for loans that have been reported to us as having been in default for at least 60 days. Ourby servicers, referred to as case reserves, also include amounts for estimated claims incurred onand additional loans that have beenwe estimate (based on actuarial review and other factors) to be 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 reserves for claim expenses, which represent the estimated cost of the claim administration process, including legal and other fees, as well as other general expenses of administering the claim settlement process. As of September 30, 2017,2020, we had 13,765 primary loans in default and held gross reserves for insurance claims and claimsclaim expenses of $6.1 million for 350 primary loans in default.$87.2 million. During the first nine months of 2017,ended September 30, 2020, we paid 16123 claims totaling $731 thousand,$5.6 million, including two117 claims totaling $11 thousand covered under the 2016 QSR Transaction.Transactions representing $1.2 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, 462020, 277 loans in the pool were past due by 60 days or more.in default. These 46277 loans
NMI HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

represent represented approximately $3.0$23.2 million of risk-in-force (RIF).RIF. Due to the size of the remaining deductible, our expectation that a limited number of $10.0 million, the low level of notices of default (NODs) reported on loans in the pool through September 30, 2017default will progress to a claim and the expected severity on such claim submissions (all loans in the pool have loan-to-value (LTV) ratios (LTVs) under 80%), we havedid not establishedestablish any poolcase or IBNR reserves for claims or IBNR for the three and nine months endedpool risk at September 30, 2017 and 2016.2020. In connection with the settlement of pool claims, we applied $368 thousand$0.9 million to the pool deductible through September 30, 2017.2020. At September 30, 2020, the remaining pool deductible was $9.4 million. We have not paid any pool claims to date. 100% of our pool RIF is reinsured under the 2016 QSR Transaction.
We had 13,765 loans in default in our primary insured portfolio as of September 30, 2020, which represented a 3.60% default rate against 381,899 total policies in-force. We had 1,230 loans in default in our primary insured portfolio as of September 30, 2019, which represented a 0.35% default rate against 350,395 total policies in-force. The increase in our default population is primarily due to challenges borrowers are facing related to the COVID-19 outbreak and their decision to access the forbearance program for federally backed loans codified under the Coronavirus Aid, Relief, and Economic Security (CARES) Act or similar programs made available by private lenders.
The size of the reserve we establish for each defaulted loan (and by extension our aggregate reserve for claims and claim expenses) reflects our best estimate of the future claim payment to be made for each individual loan in default. Our future claims exposure is a function of the number of defaulted loans that progress to claim payment (which we refer to as frequency) and the amount to be paid to settle such claims (which we refer to as severity). Our estimates of claims frequency and severity are not formulaic, rather they are broadly synthesized based on historical observed experience for similarly situated loans and
24
NMI HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
assumptions about future macroeconomic factors. We generally observe that forbearance programs are an effective tool to bridge dislocated borrowers from a time of acute stress to a future date when they can resume timely payment of their mortgage obligations. The effectiveness of forbearance programs is enhanced by the availability of various repayment and loan modification options which allow borrowers to amortize or, in certain instances, outright defer payments otherwise due during the forbearance period over an extended length of time. In response to the COVID-19 outbreak, the Federal Housing Financing Agency (FHFA) and GSEs have introduced new repayment and loan modification options to further assist borrowers with their transition out of forbearance programs and default status.
Our reserve setting process considers the beneficial impact of forbearance, foreclosure moratorium and other assistance programs available to defaulted borrowers. At September 30, 2020, we established lower reserves for defaults that we consider to be connected to the COVID-19 outbreak given our expectation that forbearance, repayment and modification, and other assistance programs will aid affected borrowers and drive higher cure rates on such defaults than we would otherwise expect to experience on similarly situated loans that did not benefit from broad-based assistance programs. While we established lower reserves per defaulted loan at September 30, 2020, our total reserve position and claims and claim expenses increased as of and during the period ended September 30, 2020 due to the growth in the size of our default population.
The following table provides a reconciliation of the beginning and ending gross reserve balances for primary insurance claims and claimsclaim expenses:
For the nine months ended September 30,
20202019
(In Thousands)
Beginning balance$23,752 $12,811 
Less reinsurance recoverables (1)
(4,939)(3,001)
Beginning balance, net of reinsurance recoverables18,813 9,810 
Add claims incurred:
Claims and claim expenses incurred:
Current year (2)
61,198 10,948 
Prior years (3)
(5,500)(2,710)
Total claims and claim expenses incurred55,698 8,238 
Less claims paid:
Claims and claim expenses paid:
Current year (2)
152 0 
Prior years (3)
4,309 2,401 
Reinsurance terminations (4)
0 (549)
Total claims and claim expenses paid4,461 1,852 
Reserve at end of period, net of reinsurance recoverables70,050 16,196 
Add reinsurance recoverables (1)
17,180 4,309 
Ending balance$87,230 $20,505 
 For the nine months ended September 30,
 2017 2016
 (In Thousands)
Beginning balance$3,001
 $679
Less reinsurance recoverables (1)
(297) —
Beginning balance, net of reinsurance recoverables2,704
 679
    
Add claims incurred:   
Claims and claim expenses incurred:   
Current year (2)
3,546
 1,803
Prior years (3)
(581) (214)
Total claims and claims expenses incurred2,965
 1,589
    
Less claims paid:   
Claims and claim expenses paid:   
Current year (2)
—
 —
Prior years (3)
720
 225
Total claims and claim expenses paid720
 225
    
Reserve at end of period, net of reinsurance recoverables4,949
 2,043
Add reinsurance recoverables (1)
1,174
 90
Ending balance$6,123
 $2,133
(1)Related to ceded losses recoverable onunder the 2016 QSR Transaction, included in "Other Assets" on the Condensed Consolidated Balance Sheets.Transactions. See Note 5, "Reinsurance"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, thatthe 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.before the start of the current year. Amounts are presented net of reinsurance.
(4)    Represents the settlement of reinsurance recoverables in conjunction with the termination of one reinsurer under the 2016 QSR Transaction on a cut-off basis. See Note 5, "Reinsurance" for additional information.
The "claims incurred" section of the table above shows claims and claim expenses incurred on NODs fordefaults occurring in current and prior years, including IBNR reserves.reserves and is presented net of reinsurance. The amount of claims incurred relating to current year NODsdefaults represents the estimated amount of claims and claim expenses to ultimately be ultimately paid on such loans in default.loans. We recognized $581 thousand$5.5 million and $214 thousand$2.7 million of favorable prior year development during the nine months ended September 30, 20172020 and 2016,2019, respectively, primarily due to NOD cures and ongoing analysisthe curing of recent loss development trends.previously reported defaults. We may increase or decrease our originalclaim estimates and reserves as we learn additional information about individual defaults and claimsdefaulted loans, and continue to observe and analyze
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NMI HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
loss development trends in our portfolio. ReservesGross reserves of $1.7$11.4 million related to prior year defaults remained as of September 30, 2017.2020.
7. Earnings per Share

(EPS)
Basic earnings per shareEPS is based on the weighted average number of shares of common stock outstanding, while diluted earnings per shareoutstanding. Diluted EPS is based on the weighted average number of shares of common stock outstanding and common stock equivalents that would be issuable upon the vesting of service based and performance and service based restricted stock units (RSUs), and the exercise of vested and unvested stock options 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 shareEPS of common stock:stock.

For the three months ended September 30,For the nine months ended September 30,
2020201920202019
(In Thousands, except for per share data)
Net income$38,179 $49,763 $123,298 $121,762 
Basic weighted average shares outstanding84,805 67,849 75,695 67,381 
Basic earnings per share$0.45 $0.73 $1.63 $1.81 
Net income$38,179 $49,763 $123,298 $121,762 
Gain from change in fair value of warrant liability0 (1,139)(4,286)0 
Diluted net income$38,179 $48,624 $119,012 $121,762 
Basic weighted average shares outstanding84,805 67,849 75,695 67,381 
Dilutive effect of issuable shares794 2,288 1,172 2,139 
Diluted weighted average shares outstanding85,599 70,137 76,867 69,520 
Diluted earnings per share$0.45 $0.69 $1.55 $1.75 
Anti-dilutive shares420 6 91 642 

8. Warrants
 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 outstanding59,883,629
 59,130,401
 59,680,166
 59,047,758
Dilutive effect of non-vested shares and warrants3,205,329
 1,154,345
 3,093,167
 814,158
Dilutive weighted average shares outstanding63,088,958
 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,We issued 992 thousand warrants in connection with a private placement 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.
8. Warrants
We issued 992,000 warrants in connection with our Private Placement.April 2012. Each warrant gives the holder thereof the right to purchase one1 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.
During the three months ended September 30, 2020, 0 warrants were exercised. During the nine months ended September 30, 2020, 9 thousand warrants were exercised resulting in the issuance of 6 thousand shares of common stock. Upon exercise, we reclassified approximately $0.2 million of these warrants, the amounts will be treated aswarrant fair value from warrant liability to additional paid-in capital. No
During the three months ended September 30, 2019, 130 thousand warrants were exercised resulting in the issuance of 82 thousand shares of common stock. Upon exercise, we reclassified approximately $2.2 million of warrant fair value from warrant liability to additional paid-in capital, of which $0.9 million related to changes in fair value during the three months ended September 30, 2019. During the nine months ended September 30, 2019, 390 thousand warrants were exercised resulting in the issuance of 249 thousand shares of common stock. Upon exercise, we reclassified approximately $7.0 million of warrant fair value from warrant liability to additional paid-in capital, of which $3.2 million related to changes in fair value during the nine months ended September 30, 2017 and 2016. 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.2019.
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 based on an estimated annual effective tax rate for the year ending December 31, 2017. Our effective tax rate on our pre-tax income was 36.9%22.6% and 33.3%21.2% for the three and nine months ended September 30, 2017,2020, respectively, compared to 1.8%22.2% and 2.6% for the comparable 2016 periods. The increase in the effective tax expense20.9% for the three and nine months ended September 30, 2017, against the comparable 2016 periods is attributable to the elimination of tax benefits during the comparable 2016 periods due to the recognition of 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. The interim2019, respectively. Our provision for income taxes include current year alternative minimum tax and changes to deferred tax assets. See Note 1, "Organization and Basis of Presentation - Immaterial Correction of Prior Period Amounts"for further details.interim

26
NMI HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

reporting periods is established based on our estimated annual effective tax rate for a given year. Our effective tax rate may fluctuate between interim periods due to the impact of discrete items not included in our estimated annual effective tax rate, including the tax effects associated with the vesting of RSUs and exercise of options, and the change in fair value of our warrant liability. Such items are treated on a discrete basis in the reporting period in which they occur.
As a mortgage guaranty insurance company, we are eligible to claim a tax deduction for our statutory contingency reserve balance, subject to certain limitations outlined under IRC Section 832(e), and only to the extent we acquire tax and loss bonds in an amount equal to the tax benefit derived from the claimed deduction, which is our intent. As a result, our interim provision for income taxes for the three and nine months ended September 30, 2020 represents a change in our net deferred tax liability. As of September 30, 2020, we held $7.6 million of tax and loss bonds in "Other assets" in our condensed consolidated balance sheet.
10. Common Stock
As of September 30, 2020, we had 84.8 million outstanding shares of common stock. Holders of our common stock have no preemptive or conversion rights or other subscription rights, and there are no redemption or sinking fund provisions applicable to the common stock. Each holder of our common stock is entitled to 1 vote per share on all matters to be voted upon by stockholders, and there are no cumulative voting rights. Holders of common stock are entitled to receive dividends ratably if any are declared.
On June 8, 2020, we completed the sale of 13.8 million shares of common stock and granted the underwriters on the transaction a 15% overallotment option to purchase additional shares. The overallotment option was exercised in full, resulting in a total of 15.9 million shares of common stock issued. The common stock offering generated proceeds of $219.7 million, net of underwriting discounts, commissions and other direct offering expenses.
11. Regulatory Information
Statutory InformationRequirements
Our insurance subsidiaries, NMIC and Re One, file financial statements in conformity with statutory accounting principles (SAP) prescribed or permitted by the Wisconsin OCI, NMIC's principal regulator. Prescribed SAP includes state laws, regulations and general administrative rules, as well as a variety of publications of the National Association of Insurance Commissioners.Commissioners (NAIC). The Wisconsin OCI recognizes only statutory accounting practices prescribed or permitted by the state of Wisconsin for determining and reporting the financial condition and results of operations of an insurance company and for determining its solvency under Wisconsin insurance laws.
NMIC and Re One's combined statutory net loss,income (loss) was as follows:
For the three months ended September 30,For the nine months ended September 30,
2020201920202019
(In Thousands)
Statutory net (loss) gain$(5,600)$8,055 $(22,614)$13,594 
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NMI HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
The Wisconsin OCI has imposed a prescribed accounting practice for the treatment of statutory contingency reserves that differs from the treatment promulgated by the NAIC. Under Wisconsin OCI's prescribed practice mortgage guaranty insurers are required to reflect changes in their contingency reserves through statutory income. Such treatment contrasts with the NAIC treatment, which records changes to contingency reserves directly to unassigned funds. As a Wisconsin-domiciled insurer, NMIC's statutory net income reflects an expense associated with the change in its contingency reserve. While such treatment impacts NMIC's statutory net income, it does not have an effect on the company's statutory capital position.
NMIC and Re One's combined statutory surplus, contingency reserve, statutory capital and RTC ratiosrisk-to-capital (RTC) ratio were as follows:
September 30, 2020December 31, 2019
(In Thousands)
Statutory surplus$883,580 $449,602 
Contingency reserve707,769 531,825 
Statutory capital (1)
$1,591,349 $981,427 
RTC ratio12.5:115.8:1
As of and for the nine months and year endedSeptember 30, 2017 December 31, 2016
 (In Thousands)
Statutory net loss$(29,394) $(26,653)
Statutory surplus379,160
 413,809
Contingency reserve157,326
 90,479
Risk-to-Capital11.5:1
 11.6:1
(1)    Represents the total of the statutory surplus and contingency reserve.
In June 2020, NMIH contributed approximately $445 million of capital to NMIC following completion of its respective Notes and common stock offerings.
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 corporationcorporate 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 oncertain rules and regulations prescribed by jurisdictions in which they are authorized to operate and the GSEs that may restrict their ability to pay dividends without prior approval of the Wisconsin OCI. Certain other states in which NMIC is licensed also have statutes or regulations that restrict its ability to pay dividends.NMIH. Since inception, NMIC hasand Re One have not paid any dividends to NMIH.

NMIC and Re One have the capacity to pay aggregate ordinary dividends as calculated under Wisconsin law of $16.1 million to NMIH during the 12-month period ending December 31, 2020.

The Wisconsin OCI has approved the allocation of interest expense on the $400 million Notes and $100 million 2020 Revolving Credit Facility to NMIC, to the extent proceeds from such offering and facility are distributed to NMIC or used to repay, redeem or otherwise defease amounts raised by NMIC under prior credit arrangements that have previously been distributed to NMIC.
12. Subsequent Event
Excess-of-loss reinsurance
On October 29, 2020, NMIC entered into a reinsurance agreement with Oaktown Re V Ltd. (Oaktown Re V), a Bermuda domiciled special purpose reinsurer, that provides for up to $242.4 million of aggregate excess-of-loss reinsurance coverage at inception for new delinquencies on an existing portfolio of mortgage insurance policies primarily written between April 1, 2020 and September 30, 2020. For the reinsurance coverage period, NMIC will retain the first layer of $121.2 million of aggregate losses and Oaktown Re V will then provide second layer coverage up to the outstanding reinsurance coverage amount. NMIC will then retain losses in excess of the outstanding reinsurance coverage amount.
Oaktown Re V financed the coverage by issuing mortgage insurance-linked notes in an aggregate principal amount of $242.4 million to unaffiliated investors. The notes issued by Oaktown Re V mature on October 25, 2030; all proceeds raised were deposited into a reinsurance trust to collateralize and fund the obligations of Oaktown Re V 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 to NMIC's reinsurance agreement with and the insurance-linked notes issued by Oaktown Re V as the 2020-2 ILN Transaction. Under the terms of the 2020-2 ILN Transaction, NMIC makes risk premium payments for the applicable outstanding reinsurance coverage amount and pays Oaktown Re V for anticipated operating expenses (capped at $250,000 per year).
2020 Revolving Credit Facility
On October 30, 2020, we entered into a Joinder Agreement, among NMIH, NMIS, JPMorgan Chase Bank, N.A., as administrative Agent and Citibank, N.A., as lender, (the "Joinder") to the Company's existing Credit Agreement, increasing the
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aggregate principal amount of commitments under the 2020 Revolving Credit Facility from $100 million to $110 million. All other terms remained unchanged. As of the date hereof, 0 amounts are outstanding under the 2020 Revolving Credit Facility.

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 20162019 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 20162019 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. Oursubsidiaries 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 LTVhigh-LTV (i.e., above 80%) residential loans to the GSEs, who are otherwise restricted by their charters from purchasing or guaranteeing low down paymenthigh-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 formedNMIH, 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, 2017,2020, we had master policy relationshipspolicies with 1,2401,551 customers, including national and regional mortgage banks, money center banks, credit unions, community banks, builder-owned mortgage lenders, internet-sourced lenders and internet-sourcedother non-bank lenders. As of September 30, 2017,2020, we had $46.6$106.6 billion of total insurance-in-force (IIF), including primary IIF of $43.3$104.5 billion, and $10.7$26.7 billion of gross RIF, including primary RIF of $10.6$26.6 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 their homeownership goals, 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, utilizing our proprietary Rate GPSSM pricing platform to dynamically evaluate risk and price our policies, 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 claimsclaim payment practices, responsive customer service, and financial strength and profitability.
We discuss below our results of operations forOur common stock trades on the periods presented andNASDAQ under the conditions and trends that have impacted or are expected to impact our business.symbol "NMIH." Our headquarters areis located in Emeryville, California and ourCalifornia. As of September 30, 2020, we had 261 employees. Our corporate website is located at 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.
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COVID-19 Developments
On January 30, 2020, the WHO declared the outbreak of the COVID-19 virus to be a global health emergency and characterized the outbreak as a global pandemic on March 11, 2020. In an effort to stem contagion and control the COVID-19 pandemic, the population at large has severely curtailed day-to-day activity and local, state and federal regulators have imposed a broad set of restrictions on personal and business conduct nationwide. The COVID-19 pandemic, along with the widespread public and regulatory response, has caused a dramatic slowdown in U.S. and global economic activity and a record number of Americans have been furloughed or laid-off.
The global dislocation caused by COVID-19 is unprecedented and, while there is broad hope for medical advances that might relieve the crisis and provide for a near-term return to normalized activity, it is not known how long the dislocation will persist and if or when any such medical advances may be developed or made available. In response to the COVID-19 outbreak and continuing uncertainties, we activated our business continuity program to ensure our employees are safe and able to continue serving our customers without interruption. We have also sought to broadly assess the impact that the COVID-19 outbreak has had and may continue to have on the U.S economy and housing market, and the implications for the mortgage insurance market, and our business performance and financial position.
Potential Impact on the U.S. Housing Market and Mortgage Insurance Industry
The U.S. housing market is demonstrating notable resiliency amidst the broader economic dislocation caused by the outbreak of COVID-19. Low interest rates are helping to support housing affordability, medical concerns and lifestyle preferences are driving people to move from densely populated urban areas to suburban communities where social distancing is more easily achieved, and shelter-in-place directives are reinforcing the value of homeownership – all of which are contributing to an influx of new home buyers, record levels of purchase demand, and generally stable to rising house prices nationally.
While the possibility remains that the housing market will soften, we believe the general strength of the market coming into the COVID-19 crisis will help to mitigate the risk of a severe pullback. We observe several favorable differences in the current environment compared to the period leading up to and through the 2008 Financial Crisis – the last period of significant economic volatility in the U.S. and one noted for its significant housing market dislocation. Such differences include:
(i)    the generally higher quality borrower base (as measured by weighted average FICO scores and LTV ratios) and tighter underwriting standards (with, among other items, full-documentation required to verify borrower income and asset positions) that prevail in the current market;
(ii)    the lower concentration of higher risk loan structures, such as negative amortizing, interest-only or short-termed option adjustable-rate mortgages being originated and outstanding in the current market;
(iii)    the meaningfully higher proportion of loans used for lower risk purposes, such as the purchase of a primary residence or rate-term refinancing in the current market, as opposed to cash-out refinancings, investment properties or second home purchases, which prevailed to a far greater degree in the lead up to the 2008 Financial Crisis;
(iv)    the availability and immediate application by politicians, regulators, lenders, loan servicers and others of a broad toolkit of resources designed to aid distressed borrowers, including forbearance, foreclosure moratoriums and other assistance programs codified under the CARES Act enacted on March 27, 2020; and
(v)    the broader and equally immediate application of significant fiscal and monetary stimulus by the federal government under the CARES Act and across a range of other programs designed to assist unemployed individuals and distressed businesses, as well as support the smooth functioning of various capital and risk markets.
We also perceive the house price environment in the period leading up to the COVID-crisis to be anchored by more balanced market fundamentals than that in the period leading up to the 2008 Financial Crisis. We believe the 2008 Financial Crisis was directly precipitated by irresponsible behavior in the housing market that drove home prices to unsustainable heights (a so-called "bubble"). We see a causal link between the housing market and the 2008 Financial Crisis that we do not see in the COVID-19 outbreak, and we believe this will further contribute to housing market stability through the COVID-19 pandemic.
Purchase mortgage origination volume has increased significantly as factors related to the COVID-19 crisis have spurred significant incremental demand for homeownership. Refinancing origination volume has also grown dramatically as declining mortgage rates have created refinancing opportunities for a large number of existing borrowers.
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Growth in total mortgage origination volume increases the addressable market for the U.S. mortgage insurance industry, while accelerated refinancing activity increases prepayment speed on outstanding insured mortgages. In this context, we anticipate total U.S. mortgage insurance industry new insurance written (NIW) volume will increase, potentially to record levels, while we expect the persistency of existing in-force insured risk across the industry will decline meaningfully.
While we currently observe broad resiliency in the housing and high-LTV mortgage markets and, for the reasons discussed above, expect this trend to continue in the near term, the ultimate impact of COVID-19 remains highly uncertain. See Item 1A, "Risk Factors - The COVID-19 outbreak could materially adversely affect our business, results of operations and financial condition."
Potential Impact on NMI's Business Performance and Financial Position
Operations
We had 261 employees at September 30, 2020, including 113 who typically work at our corporate headquarters in Emeryville, CA and 148 who typically work from home in locations across the country. In response to the COVID-19 outbreak, we activated our business continuity program and instituted additional work-from-home practices for our 113 Emeryville-based staff. We have transitioned our operations seamlessly and continue to positively engage with customers on a remote basis. Our IT environment, underwriting capabilities, policy servicing platform and risk architecture have continued without interruption, and our internal control environment and internal controls over financial reporting are unchanged. We have achieved this transition without incurring additional capital expenditures or operating expenses and we believe our current operating platform can continue to support our newly distributed needs for an extended period without further investment beyond that planned in the ordinary course.
New Business Production
Our NIW volume increased significantly following the onset of the COVID-19 pandemic driven by the broad resiliency of the housing market, growth in total mortgage origination volume and increasing size of the U.S. mortgage insurance market, as well as the continued expansion of our customer franchise. We wrote $18.5 billion of NIW during the three months ended September 30, 2020, up 41% compared to the three months ended June 30, 2020 and 31% compared to the three months ended September 30, 2019. We expect our NIW volume and total mortgage insurance industry production will remain elevated through the remainder of 2020, with the potential for total market production and our NIW volume to reach record levels.
While we currently expect our new business production will remain elevated, the potential onset of a second viral wave, reintroduction of broad-based shelter-in-place directives, increased unemployment or other potential outcomes related to COVID-19 could drive a moderation or decline in our volume going forward.
We have broadly defined underwriting standards and loan-level eligibility criteria that are designed to limit our exposure to higher risk loans, and have used Rate GPS to actively shape the mix of our new business production and insured portfolio by, among other risk factors, borrower FICO score, debt-to-income (DTI) ratio and LTV ratio.In the weeks following the outbreak of COVID-19, we adopted changes to our underwriting guidelines, including changes to our loan documentation requirements, asset reserve requirements, employment verification process and income continuance determinations, that have further strengthened the credit risk profile of our NIW volume and IIF. At September 30, 2020, the weighted average FICO score of our RIF was 754 and we had a 3% mix of below 680 FICO score risk. Similarly, at September 30, 2020, the weighted average LTV ratio (at origination) of our insured portfolio was 92.4% and we had a 9% mix of 97% LTV risk.
We set our premium rates based on a broad range of individual and market variables, including property type, type of loan product, borrower credit characteristics, and lender profile. Given the significant economic dislocation caused thus far by the COVID-19 outbreak, the uncertain duration and ultimate global impact of this crisis, and the continued potential that it will have a deleterious effect on the residential housing market, we have taken action to increase the premium rates we charge on all new business production, in accordance with our filed rates and applicable rating rules.

Delinquency Trends and Claims Expense
We had 13,765 defaulted loans in our primary insured portfolio at September 30, 2020, which represented a 3.60% default rate against our 381,899 total policies in-force. Our default population has increased significantly since the outbreak of the pandemic as borrowers have faced increasing challenges related to COVID-19 and chosen to access the forbearance program for federally backed loans codified under the CARES Act or other similar assistance programs made available by private lenders. At September 30, 2020, 24,809 or 6.5% of the loans we insured in our primary portfolio were enrolled in a forbearance program,
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including 12,665 of the loans in our default population, 1,772 loans that had missed at least one payment, but not progressed into default status and 10,372 additional loans that were fully performing without any missed payments. As of October 31, 2020, our default population had decreased to 13,108, representing a 3.41% default rate and identified 23,727 loans in forbearance programs.
While we are encouraged by the recent decline in our forbearance and default populations, and the rising level of cure activity amongst COVID impacted borrowers, the continued social and economic dislocation caused by the pandemic may contribute to an increase in our forbearance and default counts in future periods.
We establish reserves for claims and allocated claim expenses when we are notified that a borrower is in default. The size of the reserve we establish for each defaulted loan (and by extension our aggregate reserve and claims expense) reflects our best estimate of the future claim payment to be made under each individual policy. Our future claims exposure is a function of the number of delinquent loans that progress to claim payment (which we refer to as frequency) and the amount to be paid to settle such claims (which we refer to as severity). Our estimates of claims frequency and severity are not formulaic, rather they are broadly synthesized based on historical observed experience for similarly situated loans and assumptions about future macroeconomic factors.
We generally observe that forbearance programs are an effective tool to bridge dislocated borrowers from a time of acute stress to a future date when they can resume timely payment of their mortgage obligations. The effectiveness of forbearance programs is enhanced by the availability of various repayment and loan modification options, which allow borrowers to amortize, or in certain instances fully defer the payments otherwise due during the forbearance period, over an extended length of time. In response to the onset of the COVID-19 outbreak, the GSEs have introduced new repayment and loan modification options to further assist borrowers with their transition out of forbearance and back into performing status. Our reserve setting process considers the beneficial impact of forbearance, foreclosure moratorium and other assistance programs available to defaulted borrowers. At September 30, 2020, we established lower reserves for defaults that we consider to be connected to the COVID-19 outbreak given our expectation that forbearance, repayment and modification, and other assistance programs will aid affected borrowers and drive higher cure rates on such defaults than we would otherwise expect to experience on similarly situated loans that did not benefit from broad-based assistance programs.
Our master policies require insureds to file a claim no later than 60-days after completion of a foreclosure, and in connection with the claim, the insured is generally entitled to include in the claim amount (i) interest (capped at three years) and (ii) certain advances, each as incurred through the date the claim is filed. Under our master policies, a national foreclosure moratorium of the type currently required will not limit the amount of accrued interest (subject to the three-year limit) or advances that may be included in the claim amount. If the duration of the current foreclosure moratorium mandated by the GSEs is extended beyond December 31, 2020 for an extended period of time, loans in our default inventory, including those with defaults unrelated to the COVID-19 crisis that had not yet gone through foreclosure, may remain in a pre-foreclosure default status for a prolonged period of time, which would delay our receipt of certain claims for loans that do not cure and could increase the severity of claims we may ultimately be required to pay after the moratorium is lifted.
Regulatory Capital Position
As an approved mortgage insurer and Wisconsin-domiciled carrier, we are required to satisfy financial and/or capitalization requirements stipulated by each of the GSEs and the Wisconsin OCI.
The financial requirements stipulated by the GSEs are outlined in the PMIERs. Under the PMIERs, we must maintain available assets that are equal to or exceed a minimum risk-based required asset amount, subject to a minimum floor of $400 million. At September 30, 2020, we reported $1,672 million available assets against $991 million risk-based required assets for a $681 million of "excess" funding position. The capital relief we expect to receive in connection with our 2020-2 ILN Transaction is not included in our PMIERs position as of September 30, 2020, as the transaction was completed after quarter end. In future periods, the 2020-2 ILN Transaction will bolster our "excess" PMIERs funding position, subject to GSE approvals.
The risk-based required asset amount under PMIERs is determined at an individual policy-level based on the risk characteristics of each insured loan. Loans with higher risk factors, such as higher LTVs or lower borrower FICO scores, are assessed a higher charge. Non-performing loans that have missed two or more payments are generally assessed a significantly higher charge than performing loans, regardless of the underlying borrower or loan risk profile; however, special consideration is given under PMIERs to loans that are delinquent on homes located in an area declared by the Federal Emergency Management Agency (FEMA) to be a Major Disaster zone. In June 2020, the GSEs issued guidance (subsequently amended and restated in September 2020) on the risk-based treatment of loans affected by the COVID-19 crisis. Under the guidance, non-performing loans that are subject to a forbearance program granted in response to a financial hardship related to COVID-19 will benefit from a
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permanent 70% risk-based required asset haircut for the duration of the forbearance period and subsequent repayment plan or trial modification period.
Our PMIERs minimum risk-based required asset amount is also adjusted for our reinsurance transactions (as approved by the GSEs). Under our quota share reinsurance treaties, we receive credit for the PMIERs risk-based required asset amount on ceded RIF. As our gross PMIERs risk-based required asset amount on ceded RIF increases, our PMIERS credit for ceded RIF automatically increases as well (in an unlimited amount). Under our ILN transactions, we generally receive credit for the PMIERs risk-based required asset amount on ceded RIF to the extent such requirement is within the subordinated coverage (excess of loss detachment threshold) afforded by the transaction. We have structured our ILN transactions to be overcollateralized, such that there are more ILN notes outstanding and cash held in trust than we currently receive credit for under the PMIERs. To the extent our PMIERs risk-based required asset amount on RIF ceded under the ILN transactions grows, we receive increased PMIERs credit under the treaties. The increasing PMIERs credit we receive under the ILN treaties is further enhanced by their delinquency lockout triggers. In the event of certain credit enhancement or delinquency events, the ILN notes stop amortizing and the cash held in trust is secured for our benefit (a Lock-Out Event). As the underlying RIF continues to run-off, this has the effect of increasing the overcollateralization within, and excess PMIERs capacity provided by, each ILN structure.
Effective June 25, 2020, a Lock-Out Event was deemed to have occurred for each of the 2017, 2018 and 2019 ILN Transactions and the amortization of reinsurance coverage, and distribution of collateral assets and amortization of insurance-linked notes was suspended for each ILN Transaction. The amortization of reinsurance coverage, distribution of collateral assets and amortization of insurance-linked notes will remain suspended for the duration of the Lock-Out Event for each ILN Transaction, and during such period the overcollateralization within and PMIERs capacity provided by each ILN Transaction will grow as assets are preserved in the applicable reinsurance trust account.
The following table provides detail on the level of overcollateralization of each of our ILN Transactions at September 30, 2020:

($ values in thousands)2017 ILN Transaction2018 ILN Transaction2019 ILN Transaction2020-1 ILN Transaction
Ceded RIF$2,275,759 $2,703,393 $3,358,641 $6,055,359 
Current First Layer Retained Loss121,602 123,354 123,072 169,514 
Current Reinsurance Coverage40,226 158,489 231,877 322,076 
Eligible Coverage$161,828 $281,843 $354,949 $491,590 
Subordinated Coverage (1)
7.11%10.43%10.57%8.00%
PMIERs Charge on Ceded RIF5.93%7.48%7.79%6.13%
Overcollateralization$26,875 $79,629 $93,311 $120,396 
Delinquency Trigger (2)
4.0%4.0%4.0%6.0%

(1) For the 2020-1 ILN Transaction, absent a delinquency trigger, the subordinated coverage is capped at 8%.
(2) For the 2020-1 ILN Transaction, the delinquency trigger is equal to seventy-five percent of subordinated coverage.

At September 30, 2020, we had an aggregate $320 million of overcollateralization available across our 2017, 2018, 2019 and 2020-1 ILN Transactions to absorb an increase in the PMIERs risk-based required asset amount on ceded RIF. Assuming the Lock-Out Events remain in effect for each of the 2017, 2018 and 2019 ILN Transactions and our underlying RIF continues to run-off at the same rate as it did during the month ended September 30, 2020, we estimate that our total overcollateralization would increase by up to approximately $70 million per quarter.
Our PMIERs funding requirement will go up in future periods based on the volume and risk profile of our new business production, and performance of our in-force insurance portfolio. We estimate, however, that we will remain in compliance with our PMIERs asset requirements even if the forbearance-driven default rate on our in-force portfolio materially exceeds its current level, given our $681 million excess available asset position at September 30, 2020, the nationwide applicability of the 70% haircut on delinquent policies affected by the COVID-19 crisis, the increasing PMIERs relief automatically provided under each of our quota share treaties and 2017, 2018, 2019 and 2020-1 ILN Transactions and the additional risk protection and PMIERs capacity provided under our recently announced 2020-2 ILN Transaction.
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NMIC is also subject to state regulatory minimum capital requirements based on its RIF. Formulations of this minimum capital vary by state, however, the most common measure allows for a maximum ratio of RIF to statutory capital (commonly referred to as RTC) of 25:1. The RTC calculation does not assess a different charge or impose a different threshold RTC limit based on the underlying risk characteristics of the insured portfolio. Non-performing loans are treated the same as performing loans under the RTC framework. As such, the PMIERs generally imposes a stricter financial requirement than the state RTC standard, and we expect this to remain the case in the aftermath of the COVID-19 outbreak.
Liquidity
We evaluate our liquidity position at both a holding company (NMIH) and primary operating subsidiary (NMIC) level. As of September 30, 2020, we had $1.9 billion of consolidated cash and investments, including $75 million of cash and investments at NMIH.
On June 8, 2020, NMIH completed the sale of 15.9 million shares of common stock, including the exercise of a 15% overallotment option, and raised proceeds of approximately $220 million, net of underwriting discounts, commissions and other direct offering expenses. See Item 1, "Financial Statements - Notes to Condensed Consolidated Financial Statements - Note 10, Common Stock." On June 19, 2020, NMIH also completed the sale of its $400 million aggregate principal amount of senior secured notes, raising net proceeds of $244 million after giving effect to offering expenses and the repayment of the principal amount outstanding under our $150 million 2018 Term Loan. See Item 1, "Financial Statements - Notes to Condensed Consolidated Financial Statements - Note 4, Debt."NMIH contributed approximately $445 million of capital to NMIC following completion of its respective Notes and common stock offerings.
NMIH also has access to $110 million of undrawn revolving credit capacity under the 2020 Revolving Credit Facility and $16.1 million of aggregate ordinary course dividend capacity available from NMIC and Re One without the prior approval of the Wisconsin OCI. Amounts drawn under the 2020 Revolving Credit Facility are available as directed for NMIH needs or may be down-streamed to support the requirements of our operating subsidiaries if we so decide. See Item 1, "Financial Statements - Notes to Condensed Consolidated Financial Statements - Note 4, Debt and Note 12, Subsequent Event."
NMIH's principal liquidity demands include funds for the payment of (i) certain corporate expenses, (ii) certain reimbursable expenses of our insurance subsidiaries, including NMIC, and (iii) principal and interest as due on our outstanding debt. NMIH generates cash interest income on its investment portfolio and benefits from tax, expense-sharing and debt service agreements with its subsidiaries. Such agreements have been approved by the Wisconsin OCI and provide for the reimbursement of substantially all of NMIH's annual cash expenditures. While such agreements are subject to revocation by the Wisconsin OCI, we do not expect such action to be taken at this time. The Wisconsin OCI has refreshed its approval of the debt service agreement providing for the additional reimbursement by NMIC of interest expense due on our newly issued Notes and 2020 Revolving Credit Facility.
NMIC's principal sources of liquidity include (i) premium receipts on its insured portfolio and new business production, (ii) interest income on its investment portfolio and principal repayments on maturities therein, and (iii) existing cash and cash equivalent holdings. At September 30, 2020, NMIC had $1.8 billion of cash and investments, including $158 million of cash and equivalents. NMIC's principal liquidity demands include funds for the payment of (i) reimbursable holding company expenses, (ii) premiums ceded under our reinsurance transactions (iii) claims payments, and (iv) taxes as due or otherwise deferred through the purchase of tax and loss bonds. NMIC's cash inflow is generally significantly in excess of its cash outflow in any given period. During the twelve-month period ended September 30, 2020, NMIC generated $268million of cash flow from operations and received an additional $411 million of cash flow on the maturity, sale and redemption of securities held in its investment portfolio. NMIC is not a party to any contracts (derivative or otherwise) that require it to post an increasing amount of collateral to any counterparty and NMIC's principal liquidity demands (other than claims payments) generally develop along a scheduled path (i.e., are of a contractually predetermined amount and due at a contractually predetermined date). NMIC's only use of cash that develops along an unscheduled path is claims payments. Given the breadth and duration of forbearance programs available to borrowers, separate foreclosure moratoriums that have been enacted at a local, state and federal level, and the general duration of the default to foreclosure to claim cycle, we do not expect NMIC to use a meaningful amount of cash to settle claims in the near-term.
Premiums paid to NMIC on monthly policies are generally collected and remitted by loan servicers. We have noted the broad discussion about the liquidity challenges loan servicers may themselves face in the event of widespread borrower utilization of forbearance programs. We do not currently believe that loan servicer liquidity issues will have a material impact on NMIC's premium receipts or liquidity profile. Loan servicers are contractually obligated to advance mortgage insurance premiums in a timely manner, even if the underlying borrowers fail to remit their monthly mortgage payments. In June 2020, the GSEs issued guidance to the PMIERs (subsequently amended and restated in September 2020) that, among other items, requires us, and we have agreed, to notify them of our intent to cancel coverage on policies for which servicers have failed to make timely premium
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payments so that the GSEs can pay the premiums directly to us and preserve the mortgage insurance coverage. Through September 30, 2020, we did not see any notable changes in servicer payment practices, with servicers generally continuing to remit monthly premium payments as scheduled, including those for policies covering loans that are in a forbearance program.

Investment portfolio
At September 30, 2020, we had $1.9 billion of cash and invested assets. Our investment strategy equally prioritizes capital preservation alongside income generation, and we have a long-established investment policy that sets conservative limits for asset types, industry sectors, single issuers and instrument credit ratings. At September 30, 2020, our investment portfolio was comprised of 100% fixed income assets with 100% of our holdings rated investment grade and our portfolio having an average rating of "A+." At September 30, 2020, our portfolio was in a $65 million aggregate unrealized gain position; it was highly liquid and highly diversified with no Level 3 asset positions and no single issuer concentration greater than 1.6%. We did not record any allowance for credit losses in the portfolio during the three months ended September 30, 2020, as we expect to recover the amortized cost basis of all securities held.
The pre-tax book yield on our investment portfolio was 2.3% for the three months ended September 30, 2020. At the onset of the COVID-19 crisis, we decided to prioritize liquidity and increased our cash and equivalent holdings as a percentage of our total portfolio. We believe such action was prudent in light of the heightened market volatility and general uncertainty developing in the early stages of the COVID-19 pandemic. We have since redeployed much of our excess liquidity position.
Taxes
The CARES Act, among other things, includes provisions relating to refundable payroll tax credits, deferment of employer side social security payments, net operating loss carryback periods, alternative minimum tax credit refunds, modifications to the net interest deduction limitations, increased limitations on qualified charitable contributions, and technical corrections to tax depreciation methods for qualified improvement property. We continue to monitor the impact that the CARES Act may have on our business, financial condition and results of operations.
New Insurance Written, Insurance In ForceInsurance-In-Force and Risk In ForceRisk-In-Force
New insurance written (NIW)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 paymenthigh-LTV mortgage originations,originations. Our NIW is also affected by the percentage of such low down paymenthigh-LTV originations covered by private versus publicgovernment 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 anybefore consideration of the impact of reinsurance. Net RIF representsis 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 weWe 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 " - GSE Oversight," belowOn June 4, 2018, we introduced a proprietary risk-based pricing platform, which we refer to as Rate GPS. 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 overfor the estimated lifeduration 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 and premium write-offs. As a result, net premiums written are generally influenced by:
•NIW;
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•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 claimsclaim 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 majoritySubstantially all of our single premium policies in force as of September 30, 20172020 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 generally 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 profitabilityrevenue is likely to decline.
Effect of reinsurance on our results
We utilize third-party reinsurance to actively manage our risk, ensure compliance with PMIERs, compliancestate regulatory and other applicable capital requirements, 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’scompany'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.
In September 2016, Quota share reinsurance
NMIC entered intois a party to three outstanding quota share reinsurance treaties – the 2016 QSR Transaction. Transaction, effective September 1, 2016, the 2018 QSR Transaction, effective January 1, 2018, and 2020 QSR Transaction, effective April 1, 2020. Under each of the QSR Transactions, NMIC cedes a proportional share of its risk on eligible policies written during a discrete period to panels of third-party reinsurance providers. Each of the third-party reinsurance providers has an insurer financial strength rating of A- or better by S&P, A.M. Best or both.
Under the terms of the 2016 QSR Transaction, NMIC (1) cededcedes premiums written related to 25% of the risk on eligible primary policies written for all periods through December 31, 2017 and 100% of the risk relating tounder our pool agreement with Fannie Mae and (2) ceded or will cede 25% of the risk relating to eligible primary insurance policies written between September 1, 2016 and December 31, 2017,Mae, in exchange for reimbursement of ceded claims and claimsclaim expenses on covered policies, a 20% ceding commission, and a profit commission of up to 60% that varies directly and inversely with ceded claims.
Under the terms of the 2018 QSR Transaction, NMIC cedes premiums earned related to 25% of the risk on eligible policies written in 2018 and 20% of the risk on eligible policies written in 2019, in exchange for reimbursement of ceded claims
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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 2020 QSR Transaction, NMIC cedes premiums earned related to 21% of the risk on eligible policies written from April 1, 2020 through December 31, 2020, in exchange for reimbursement of ceded claims and claim expenses on covered policies, a 20% ceding commission, and a profit commission of up to 50% that varies directly and inversely with ceded claims.
NMIC may elect to 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 Mayconnection with the termination, NMIC recaptured approximately $500 million of previously ceded primary RIF and stopped ceding new premiums written with respect to the recaptured risk. With this termination, ceded premiums written under the 2016 QSR Transaction decreased from 25% to 20.5% on eligible policies. The termination had no effect on the cession of pool risk under the 2016 QSR Transaction.
Excess-of-loss reinsurance
NMIC has secured aggregate excess-of-loss reinsurance coverage on defined portfolios of mortgage insurance policies written during discrete periods through a series of mortgage insurance-linked note offerings by the Oaktown Re Vehicles. Under each agreement, NMIC retains a first layer of aggregate loss exposure on covered policies and the respective Oaktown Re Vehicle then provides second layer loss protection up to a defined reinsurance coverage amount. NMIC then retains losses in excess of the respective reinsurance coverage amounts.
The respective reinsurance coverage amounts provided by the Oaktown Re Vehicles decrease from the inception of each agreement over a ten-year period as the underlying insured mortgages are amortized or repaid, and/or the mortgage insurance coverage is canceled. As the reinsurance coverage decreases, a prescribed amount of collateral held in trust by the Oaktown Re Vehicles is distributed to ILN Transaction note-holders as amortization of the outstanding insurance-linked note principal balances occurs. The outstanding reinsurance coverage amounts stop amortizing, and the collateral distribution to ILN Transaction note-holders and amortization of insurance-linked note principal is suspended if certain credit enhancement or delinquency thresholds, as defined in each agreement, are triggered (each, a Lock-Out Event). Effective June 25, 2020, a Lock-Out Event was deemed to have occurred for each of the 2017, 2018 and 2019 ILN Transactions and the amortization of reinsurance coverage, and distribution of collateral assets and amortization of insurance-linked notes was suspended for each ILN Transaction. The amortization of reinsurance coverage, distribution of collateral assets and amortization of insurance-linked notes will remain suspended for the duration of the Lock-Out Event for each ILN Transaction, and during such period assets will be preserved in the applicable reinsurance trust account to collateralize the excess-of-loss reinsurance coverage provided to NMIC.
The following table presents the inception date, covered production period, initial and current reinsurance coverage amount, and initial and current first layer retained aggregate loss under each of the ILN Transactions. Current amounts are presented as of September 30, 2020.
($ values in thousands)
Inception DateCovered ProductionInitial Reinsurance CoverageCurrent Reinsurance CoverageInitial First Layer Retained Loss
Current First Layer Retained Loss (1)
2017 ILN TransactionMay 2, 20171/1/2013 - 12/31/2016$211,320 $40,226 $126,793 $121,602 
2018 ILN TransactionJuly 25, 20181/1/2017 - 5/31/2018264,545 158,489 125,312 123,354 
2019 ILN TransactionJuly 30, 20196/1/2018 - 6/30/2019326,905 231,877 123,424 123,072 
2020-1 ILN TransactionJuly 30, 20207/1/2019 - 3/31/2020322,076 322,076 169,514 169,514 

(1)    NMICapplies claims paid on covered policies against its first layer aggregate retained loss exposure, and cedes reserves for incurred claims and claims expenses to each applicable ILN Transaction and recognizes a reinsurance recoverable if such incurred claims and claims expenses exceed its current first layer retained loss.
In October 2020, NMIC secured $211.3$242.4 million of aggregate excess-of-loss reinsurance coverage at inception for an existingexisting portfolio of MI policies primarily written from 2013 through December 31, 2016,April 1, 2020 to September 30, 2020, through a mortgage insurance-linked
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notes offering by


Oaktown Re.Re V. The reinsurance coverage amount under the terms of the 20172020-2 ILN Transaction decreases from $211.3$242.4 million at inception over a ten-year period as the underlying covered mortgages amortize and was $185 million asare 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 September 30, 2017.credit enhancement is obtained. For the reinsurance coverage period, NMIC will retainretains the first layer of $126.8$121.2 million of aggregate losses and Oaktown Re willV then provide aprovides second layer of 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 NIWAs of and for the three months endedFor the nine months ended
September 30, 2020September 30, 2019September 30, 2020September 30, 2019
IIFNIWIIFNIWNIW
(In Millions)
Monthly$88,584 $16,516 $71,814 $12,994 $38,862 $30,272 
Single15,910 1,983 17,899 1,106 4,058 2,920 
Primary104,494 18,499 89,713 14,100 42,920 33,192 
Pool2,115 — 2,668 — — — 
Total$106,609 $18,499 $92,381 $14,100 $42,920 $33,192 
Primary and pool IIF and NIWAs of and for the three months ended For the nine months ended
 September 30, 2017 September 30, 2016 September 30, 2017 September 30, 2016
 IIF NIW IIF NIW NIW
   (In Millions)
Monthly$28,707
 $4,833
 $16,038
 $4,162
 $11,824
 $10,354
Single14,552
 1,282
 12,190
 1,695
 2,887
 5,595
Primary43,259
 6,115
 28,228
 5,857
 14,711
 15,949
            
Pool3,330
 —
 3,826
 $—
 —
 —
Total$46,589
 $6,115
 $32,054
 $5,857
 $14,711
 $15,949
For the three months ended September 30, 2017, primary NIW increased 4%, 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 months ended September 30, 2017, compared to the nine months ended September 30, 2016, due to a reduction in our single 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. For the three and nine months ended September 30, 2017, monthly premium2020, NIW increased 16%31% and 14%29%, respectively, compared to the same periods a year ago, driven primarily by the growth of our customer base.
For thethree and nine months ended September 30, 2017, 80%2019, due to growth in our monthly and single premium policy production tied to growth in the size of the total mortgage insurance market, as well as the increased penetration of existing customer accounts and new customer account activations.
For the three months ended September 30, 2020, monthly premium polices accounted for 89% of our NIW related to monthly premium policies.NIW. As of September 30, 2017,2020, monthly premium policies accounted for 66%85% of our primary IIF, as compared to 60% at December 31, 2016 and 57%80% at September 30, 2016.2019. We expect the break-down of monthly premium policies and single premium policies (which we refer to as "mix") in our primary IIF towill continue to trend toward our current NIWan increased monthly mix over time. Our totaltime given the composition of our NIW.
Total IIF increased 45%15% as of September 30, 20172020 compared to September 30, 2016,2019, primarily because of ourdue to the NIW generated between such measurement dates, and higher persistencypartially offset by the run-off of our policies in force.in-force policies. Our persistency rate decreased to 60% at September 30, 2020 from 82% at September 30, 2019, reflecting the impact of increased refinancing activity tied to record low interest rates.
The following table presents net premiums written and earned for the periods indicated.
Primary and pool premiums written and earnedFor the three months endedFor the nine months ended
 September 30, 2017 September 30, 2016September 30, 2017September 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 earnedFor the three months endedFor the nine months ended
September 30, 2020September 30, 2019September 30, 2020September 30, 2019
(In Thousands)
Net premiums written$101,822 $88,679 $283,302 $243,211 
Net premiums earned98,802 92,381 296,463 249,499 
For the three and nine months ended September 30, 2017,2020, net premiums written increased 419%15% and 27%16%, respectively, and net premiums earned increased 40%7% and 49%19%, respectively, compared to the same periods in 2016.three and nine months ended September 30, 2019. The increases in net premiums written are due to growth of our monthly policy production and IIF and the initial cession of premiums written on IIF at 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 the growth inof our IIF and increased monthly policy production, and IIF, partially offset by increased cessions under the 2016 QSR Transaction and 2017 ILN Transaction and, compared to the same periods in 2016, reductions in our single premium policy production and earningsTransactions.


from cancellations. Pool premiums written and earned for the three and nine months ended September 30, 20172020 and 2019, were $0.9$0.6 million and $2.9$2.0 million, and $0.7 million and $2.3 million, respectively, before the effects ofgiving effect to the 2016 QSR Transaction.Transaction, under which
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all of our written and earned pool premiums are ceded. A portion of ceded pool premiums written and earned are recouped through profit commission.
Portfolio Statistics
Unless otherwise noted, the portfolio statistics tables presented below do not include the effects of our third-party reinsurance arrangements described above. The table below highlights trends in our primary portfolio as of the datedates and for the periods indicated.
Primary portfolio trendsAs of and for the three months ended
September 30, 2020June 30, 2020March 31, 2020December 31, 2019September 30, 2019
($ Values In Millions, except as noted below)
New insurance written$18,499 $13,124 $11,297 $11,949 $14,100 
Percentage of monthly premium89 %91 %93 %93 %92 %
Percentage of single premium11 %9 %7 %7 %8 %
New risk written$4,577 $3,260 $2,897 $3,082 $3,651 
Insurance-in-force (1)
104,494 98,905 98,494 94,754 89,713 
Percentage of monthly premium85 %84 %83 %81 %80 %
Percentage of single premium15 %16 %17 %19 %20 %
Risk-in-force (1)
$26,568 $25,238 $25,192 $24,173 $22,810 
Policies in force (count) (1)
381,899 372,934 376,852 366,039 350,395 
Average loan size ($ value in thousands) (1)
$274 $265 $261 $259 $256 
Coverage percentage (2)
25.4 %25.5 %25.6 %25.5 %25.4 %
Loans in default (count) (1)
13,765 10,816 1,449 1,448 1,230 
Default rate (1)
3.60 %2.90 %0.38 %0.40 %0.35 %
Risk-in-force on defaulted loans (1)
$1,008 $799 $84 $84 $70 
Net premium yield (3)
0.39 %0.40 %0.41 %0.41 %0.43 %
Earnings from cancellations$12.6 $15.5 $8.6 $8.0 $7.4 
Annual persistency (4)
60.0 %64.1 %71.7 %76.8 %82.4 %
Quarterly run-off (5)
13.1 %12.9 %8.0 %7.7 %7.5 %
Primary portfolio trendsAs of and for the three months ended
 September 30, 2017 June 30, 2017 March 31, 2017 December 31, 2016 September 30, 2016
 ($ Values In Millions)
New insurance written$6,115
 $5,037
 $3,559
 $5,240
 $5,857
New risk written1,496
 1,242
 868
 1,244
 1,415
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
Policies in force (count) (1)
180,089
 161,195
 145,632
 134,662
 119,002
Average loan size (1)
$0.240
 $0.240
 $0.239
 $0.239
 $0.237
Weighted-average coverage (2)
24.4% 24.4% 24.3% 24.2% 24.3%
Loans in default (count)350
 249
 207
 179
 115
Percentage of loans in default0.2% 0.2% 0.1% 0.1% 0.1%
Risk in force on defaulted loans$19
 $14
 $12
 $10
 $6
Average premium yield (3)
0.43% 0.41% 0.40% 0.44% 0.48%
Earnings from cancellations$4.3
 $3.8
 $2.5
 $5.1
 $5.8
Annual persistency85.1% 83.1% 81.3% 80.7% 81.8%
Quarterly run-off (4)
3.8% 3.4% 2.9% 4.6% 5.3%
(1)    Reported as of the end of the period.

(2)    Calculated as end of period RIF divided by end of period IIF.
(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 is no longer on our books after any three-month period.
(3)    Calculated as net premiums earned divided by average primary IIF for the period, annualized.
(4)    Defined as the percentage of IIF that remains on our books after a given 12-month period.
(5)    Defined as the percentage of IIF that is no longer on our books after a given three month period.
The table below presents a summary of the change in total primary IIF duringfor the dates and periods indicated.
Primary IIFFor the three months endedFor the nine months ended
September 30, 2020September 30, 2019September 30, 2020September 30, 2019
(In Millions)
IIF, beginning of period$98,905 $81,708 $94,754 $68,551 
NIW18,499 14,100 42,920 33,192 
Cancellations, principal repayments and other reductions(12,910)(6,095)(33,180)(12,030)
IIF, end of period$104,494 $89,713 $104,494 $89,713 
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Primary IIFFor the three months ended For the nine months ended
 September 30, 2017 September 30, 2016 September 30, 2017 September 30, 2016
 (In Millions)
IIF, beginning of period$38,629
 $23,624
 $32,168
 $14,824
NIW6,115
 5,857
 14,711
 15,949
Cancellations and other reductions(1,485) (1,253) (3,620) (2,545)
IIF, end of period$43,259
 $28,228
 $43,259
 $28,228



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 RIFAs of September 30, 2017 As of September 30, 2016
 IIF RIF IIF RIF
 (In Millions)
September 30, 2017$14,315
 $3,508
 $—
 $—
201618,684
 4,520
 15,433
 3,719
20158,742
 2,167
 10,679
 2,610
20141,479
 368
 2,062
 505
201339
 9
 54
 13
Total$43,259
 $10,572
 $28,228
 $6,847
Primary IIF and RIFAs of September 30, 2020As of September 30, 2019
IIFRIFIIFRIF
(In Millions)
September 30, 2020$40,969 $10,255 $— $— 
201929,865 7,791 31,844 8,283 
201811,859 3,019 21,932 5,571 
20179,671 2,413 16,283 4,028 
20168,050 2,047 12,944 3,231 
2015 and before4,080 1,043 6,710 1,697 
Total$104,494 $26,568 $89,713 $22,810 
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 loanhave established prudential underwriting standards and loan-level eligibility matrices which prescribe the maximum LTV, minimum borrower creditFICO score, maximum borrower debt-to-incomeDTI ratio, maximum loan size, property type, loan type, loan term and occupancy status of loans that we will insure. Our loaninsure 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 mitigatelimit the layeredlayering 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.
In response to the outbreak of COVID-19, we adopted changes to our underwriting guidelines, including changes to our loan documentation requirements, asset reserve requirements, employment verification process and income continuance determinations, that have further strengthened the credit risk profile of our NIW volume and IIF.
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 FICOFor the three months endedFor the nine months ended
September 30, 2020September 30, 2019September 30, 2020September 30, 2019
(In Millions)
>= 760$11,600 $6,994 $25,942 $15,678 
740-7592,575 2,288 6,056 5,677 
720-7392,187 2,102 5,373 4,931 
700-7191,217 1,450 3,214 3,579 
680-699793 915 1,872 2,359 
<=679127 351 463 968 
Total$18,499 $14,100 $42,920 $33,192 
Weighted average FICO764 754 761 752 

40

Primary NIW by FICOFor the three months ended For the nine months ended
 September 30, 2017 September 30, 2016 September 30, 2017 September 30, 2016
 ($ In Millions)
>= 760$2,806
 $2,975
 $6,865
 $8,418
740-759934
 934
 2,277
 2,606
720-739807
 725
 1,889
 1,870
700-719697
 588
 1,662
 1,540
680-699456
 387
 1,088
 940
<=679415
 248
 930
 575
Total$6,115
 $5,857
 $14,711
 $15,949
Weighted average FICO747
 753
 748
 754
Primary NIW by LTVFor the three months endedFor the nine months ended
September 30, 2020September 30, 2019September 30, 2020September 30, 2019
(In Millions)
95.01% and above$587 $989 $1,855 $2,529 
90.01% to 95.00%7,767 6,592 18,161 15,947 
85.01% to 90.00%6,968 4,933 16,117 11,259 
85.00% and below3,177 1,586 6,787 3,457 
Total$18,499 $14,100 $42,920 $33,192 
Weighted average LTV90.7 %91.7 %90.8 %91.9 %



Primary NIW by purchase/refinance mixFor the three months endedFor the nine months ended
September 30, 2020September 30, 2019September 30, 2020September 30, 2019
(In Millions)
Purchase$12,764 $11,284 $28,531 $28,364 
Refinance
5,735 2,816 14,389 4,828 
Total$18,499 $14,100 $42,920 $33,192 
Primary NIW by LTVFor the three months endedFor the nine months ended
 September 30, 2017 September 30, 2016September 30, 2017 September 30, 2016
 ($ In Millions)
95.01% and above$722
 $347
$1,470
 $918
90.01% to 95.00%2,714
 2,557
6,623
 7,005
85.01% to 90.00%1,765
 1,844
4,372
 4,996
85.00% and below914
 1,109
2,246
 3,030
Total$6,115
 $5,857
$14,711
 $15,949
Weighted average LTV92.3% 91.7%92.2% 91.6%
Primary NIW by purchase/refinance mixFor the three months ended For the nine months ended
 September 30, 2017 September 30, 2016 September 30, 2017 September 30, 2016
 (In Millions)
Purchase$5,387
 $4,400
 $12,889
 $11,518
Refinance728
 1,457
 1,822
 4,431
Total$6,115
 $5,857
 $14,711
 $15,949

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 FICOAs of
September 30, 2020September 30, 2019
($ Values In Millions)
>= 760$53,742 51 %$41,855 47 %
740-75916,193 16 15,028 17 
720-73914,352 14 12,666 14 
700-71910,235 10 9,822 11 
680-6996,713 6 6,559 7 
<=6793,259 3 3,783 4 
Total$104,494 100 %$89,713 100 %

Primary RIF by FICOAs of
September 30, 2020September 30, 2019
($ Values In Millions)
>= 760$13,563 51 %$10,611 47 %
740-7594,141 16 3,847 17 
720-7393,694 14 3,257 14 
700-7192,635 10 2,501 11 
680-6991,730 6 1,665 7 
<=679805 3 929 4 
Total$26,568 100 %$22,810 100 %

41

Primary IIF by FICOAs of
 September 30, 2017 September 30, 2016
 ($ Values In Millions)
>= 760$21,329
 49% $14,258
 50%
740-7596,983
 16
 4,612
 16
720-7395,547
 13
 3,648
 13
700-7194,505
 10
 2,813
 10
680-6992,942
 7
 1,863
 7
<=6791,953
 5
 1,034
 4
Total$43,259
 100% $28,228
 100%
Primary IIF by LTVAs of
September 30, 2020September 30, 2019
($ Values In Millions)
95.01% and above$8,130 8 %$8,500 10 %
90.01% to 95.00%47,828 46 42,255 47 
85.01% to 90.00%35,224 33 28,083 31 
85.00% and below13,312 13 10,875 12 
Total$104,494 100 %$89,713 100 %

Primary RIF by FICOAs of
 September 30, 2017 September 30, 2016
 ($ Values In Millions)
>= 760$5,251
 50% $3,470
 51%
740-7591,713
 16
 1,130
 17
720-7391,349
 13
 887
 13
700-7191,092
 10
 680
 10
680-699707
 7
 443
 6
<=679460
 4
 237
 3
Total$10,572
 100% $6,847
 100%
Primary RIF by LTVAs of
September 30, 2020September 30, 2019
($ Values In Millions)
95.01% and above$2,310 9 %$2,326 10 %
90.01% to 95.00%14,056 53 12,358 54 
85.01% to 90.00%8,642 32 6,854 30 
85.00% and below1,560 6 1,272 6 
Total$26,568 100 %$22,810 100 %



Primary IIF by LTVAs of
 September 30, 2017 September 30, 2016
 ($ Values In Millions)
95.01% and above$3,038
 7% $1,363
 5%
90.01% to 95.00%19,562
 45
 12,644
 45
85.01% to 90.00%13,437
 31
 9,157
 32
85.00% and below7,222
 17
 5,064
 18
Total$43,259
 100% $28,228
 100%
Primary RIF by LTVAs of
 September 30, 2017 September 30, 2016
 ($ Values In Millions)
95.01% and above$822
 8% $380
 6%
90.01% to 95.00%5,722
 54
 3,725
 54
85.01% to 90.00%3,205
 30
 2,174
 32
85.00% and below823
 8
 568
 8
Total$10,572
 100% $6,847
 100%
Primary RIF by Loan TypeAs ofPrimary RIF by Loan TypeAs of
September 30, 2017 September 30, 2016September 30, 2020September 30, 2019
   
Fixed98% 98%Fixed99 %98 %
Adjustable rate mortgages:   
Adjustable rate mortgagesAdjustable rate mortgages
Less than five years—
 —
Less than five years— — 
Five years and longer2
 2
Five years and longer1 2 
Total100% 100%Total100 %100 %
The table below showspresents selected primary portfolio statistics, by book year, as of September 30, 2017.2020.
As of September 30, 2020
Book yearOriginal Insurance WrittenRemaining Insurance in Force% Remaining of Original InsurancePolicies Ever in ForceNumber of Policies in ForceNumber of Loans in Default# of Claims Paid
Incurred Loss Ratio (Inception to Date) (1)
Cumulative Default Rate (2)
Current Default Rate (3)
($ Values in Millions)
2013$162 $13 8 %655 82 4 1 0.8 %0.8 %4.9 %
20143,451 556 16 %14,786 3,172 139 48 4.2 %1.3 %4.4 %
201512,422 3,511 28 %52,548 17,706 674 108 3.3 %1.5 %3.8 %
201621,187 8,050 38 %83,626 36,731 1,609 116 3.0 %2.1 %4.4 %
201721,582 9,671 45 %85,897 44,498 2,584 79 5.0 %3.1 %5.8 %
201827,295 11,859 43 %104,043 52,967 3,246 49 8.8 %3.2 %6.1 %
201945,141 29,865 66 %148,423 105,991 4,327 4 15.4 %2.9 %4.1 %
202042,920 40,969 95 %125,639 120,752 1,182 — 12.7 %0.9 %1.0 %
Total$174,160 $104,494 615,617 381,899 13,765 405 
(1)    Calculated as total claims incurred (paid and reserved) divided by cumulative premiums earned, net of reinsurance.
(2)    Calculated as the sum of the number of claims paid ever to date and number of loans in default divided by policies ever in force.
(3)    Calculated as the number of loans in default divided by number of policies in force.
42
 As of September 30, 2017
Book yearOriginal 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)
2013$162
 $39
 24% 655
 201
 —
 1
 0.2% 0.2%
20143,451
 1,479
 43% 14,786
 7,451
 54
 9
 3.8% 0.4%
201512,422
 8,742
 70% 52,548
 39,727
 164
 14
 2.9% 0.3%
201621,187
 18,684
 88% 83,626
 76,095
 119
 3
 1.6% 0.1%
201714,711
 14,315
 97% 57,800
 56,615
 13
 —
 0.5% —
Total$51,933
 $43,259
 
 209,415
 180,089
 350
 27
 
 


(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, 2017,2020, our RIF continues to be relativelymodestly 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 theour acquisition of new customers. The distribution of riskour primary RIF as of September 30, 20172020 is not necessarily representative of the geographic distribution we expect in the future.

Top 10 primary RIF by stateAs of
September 30, 2020September 30, 2019
California11.3 %11.9 %
Texas8.3 8.1 
Florida6.7 5.6 
Virginia5.4 5.3 
Colorado4.0 3.4 
Illinois4.0 3.8 
Maryland3.6 3.3 
Washington3.5 3.2 
Pennsylvania3.5 3.6 
Massachusetts3.5 3.1 
Total53.8 %51.3 %


Top 10 primary RIF by stateAs of
 September 30, 2017 September 30, 2016
California13.6% 13.2%
Texas7.6
 6.8
Virginia5.6
 6.6
Arizona4.4
 3.8
Florida4.3
 4.7
Colorado3.8
 4.0
Michigan3.7
 3.9
Pennsylvania3.6
 3.6
Utah3.6
 3.6
Maryland3.6
 3.6
Total53.8% 53.8%
Insurance Claims and ClaimsClaim Expenses
Insurance claims and claimsclaim expenses incurred represent estimated future payments on newly defaulted insured loans and any change in our claim estimates for previously existing defaults. Claims incurred isare generally affected by a variety of factors, including the state of the economy,macroeconomic environment, national and regional unemployment trends, changes in housing values, loanborrower risk characteristics, LTV ratios and borrowerother 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 claimsclaim expenses are established for mortgage loans that are in default. A loan defaults,is considered to be in default as of the payment date at which we refera borrower has missed the preceding two or more consecutive monthly payments. We establish reserves for loans that have been reported to us in default by servicers, referred to as case reserves, whenand additional loans that 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 defaultsestimate (based on actuarial review and other factors) to be in default that have been incurred but have not yet been reported to us by loan servicers, based upon historical reporting trends, and establish IBNR reserves for those estimates.referred to as IBNR. We also establish reserves for unallocated claimsclaim expenses, not associated with a specific claim. The claims expenses consist ofwhich represent the estimated cost of the claim administration process, including legal and other fees as well asand other general expenses of administering the claimsclaim settlement process. Reserves are not established for future claims on insured loans which are not currently reported or which we estimate are not currently in default.
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 2016the QSR Transaction.Transactions and ILN Transactions, as applicable under each treaty. We willhave not cedeyet ceded any reserves to the reinsurer under the 2017 ILN Transaction unless losses exceed our retained coverage layer. Reserves are not established for future claims on insured loans which are not currently in default.
We expect our insuranceTransactions as incurred claims and claims expenses to be relatively low in the near-term. Based on each respective reference pool remain within 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. Asretained coverage layer of September 30, 2017, over 95% of our primary IIF was related to business written since January 1, 2015. Additionally, oureach transaction. 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 poolclaims or claim expense reserves for claims or IBNRpool exposure 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. To date, our claims experience is developing at a slower pace than historical trends indicate,other events, such 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 Expenses."
We insure mortgages for homes in areas that have been impacted by recent natural disasters including hurricanes Harveyor global pandemics, and Irmaany federal, state or local governmental response thereto.
43

Our reserve setting process considers the beneficial impact of forbearance, foreclosure moratorium and other assistance programs available to defaulted borrowers. We generally observe that forbearance programs are an effective tool to bridge dislocated borrowers from a time of acute stress to a future date when they can resume timely payment of their mortgage obligations. The effectiveness of forbearance programs is enhanced by the firesavailability of various repayment and loan modification options which allow borrowers to amortize or, in Northern California. We do not provide coveragecertain instances, outright defer payments otherwise due during the forbearance period over an extended length of time.
In response to the COVID-19 outbreak, politicians, regulators, lenders, loan servicers and others have offered extraordinary assistance to dislocated borrowers through, among other programs, the forbearance, foreclosure moratorium and other assistance programs codified under the CARES Act. The FHFA and GSEs have offered further assistance by introducing new repayment and loan modification options to assist borrowers with their transition out of forbearance programs and default status. At September 30, 2020, we established lower reserves for property or casualty claims related to physical damage of a home underpinning an insured mortgage. We anticipatedefaults that we consider to be connected to the COVID-19 outbreak, given our expectation that forbearance, repayment and modification, and other assistance programs will experience an increase in NODs on insured loans in the


impacted areas. Our ultimate claims exposure will depend on the number of NODs received, proximate cause of each defaultaid affected borrowers and cure rate of the NOD population. In the event of natural disasters,drive higher cure rates are influenced by the adequacy of homeowners and flood insurance carried on a related property, and a borrower's accesssuch defaults than we would otherwise expect to aidexperience on similarly situated loans that did not benefit from government entities and private organizations, in addition to other factors which generally impact cure rates in unaffected areas.broad-based assistance programs.
The following table provides a reconciliation of the beginning and ending gross reserve balances for primary insurance claims and claimsclaim expenses.
For the three months endedFor the nine months ended
September 30, 2020September 30, 2019September 30, 2020September 30, 2019
(In Thousands)
Beginning balance$69,903 $18,432 $23,752 $12,811 
Less reinsurance recoverables (1)
(14,307)(3,775)(4,939)(3,001)
Beginning balance, net of reinsurance recoverables55,596 14,657 18,813 9,810 
Add claims incurred:
Claims and claim expenses incurred:
Current year (2)
18,682 3,547 61,198 10,948 
Prior years (3)
(3,015)(975)(5,500)(2,710)
Total claims and claim expenses incurred15,667 2,572 55,698 8,238 
Less claims paid:
Claims and claim expenses paid:
Current year (2)
113 — 152 — 
Prior years (3)
1,100 1,033 4,309 2,401 
Reinsurance terminations (4)
— — — (549)
Total claims and claim expenses paid1,213 1,033 4,461 1,852 
Reserve at end of period, net of reinsurance recoverables70,050 16,196 70,050 16,196 
Add reinsurance recoverables (1)
17,180 4,309 17,180 4,309 
Ending balance$87,230 $20,505 $87,230 $20,505 
 For the three months ended For the nine months ended
 September 30, 2017 September 30, 2016 September 30, 2017 September 30, 2016
 (In Thousands)
Beginning balance$5,048
 $1,475
 $3,001
 $679
Less reinsurance recoverables (1)
(899) —
 (297) —
Beginning balance, net of reinsurance recoverables4,149
 1,475
 2,704
 679
        
Add claims incurred:       
Claims and claim expenses incurred:       
Current year (2)
1,215
 690
 3,546
 1,803
Prior years (3)
(258) (29) (581) (214)
Total claims and claims expenses incurred957
 661
 2,965
 1,589
        
Less claims paid:       
Claims and claim expenses paid:       
Current year (2)
—
 —
 —
 —
Prior years (3)
157
 93
 720
 225
Total claims and claim expenses paid157
 93
 720
 225
        
Reserve at end of period, net of reinsurance recoverables4,949
 2,043
 4,949
 2,043
Add reinsurance recoverables (1)
1,174
 90
 1,174
 90
Ending balance$6,123
 $2,133
 $6,123
 $2,133
(1)Related to ceded losses recoverable onunder the 2016 QSR Transaction, included in "Other Assets" on the Condensed Consolidated Balance Sheets.Transactions. See Item 1, "Financial Statements - Notes to Condensed Consolidated Financial Statements - Note 5, Reinsurance"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.before the start of the current year. Amounts are presented net of reinsurance.
(4)    Represents the settlement of reinsurance recoverables in conjunction with the termination of one reinsurer under the 2016 QSR Transaction on a cut-off basis. See Item 1, "Financial Statements - Notes to Condensed Consolidated Financial Statements - Note 5, Reinsurance" for additional information.
44

The "claims incurred" section of the table above shows claims and claim expenses incurred on NODs fordefaults occurring in current and prior years, including IBNR reserves.reserves and is presented net of reinsurance. The amount of claims incurred relating tofor current year NODsdefaults represents the estimated amount of claims and claim expenses to be ultimately be paid on such loans in default.loans. The decreases during the periods presented in reserves held for prior year defaults represent favorable development and are generally the result of ongoing analysisthe curing of recent loss development trends.previously reported defaults. We may increase or decrease our originalclaim estimates and reserves as we learn additional information about individual defaults and claimsdefaulted loans, and continue to observe and analyze loss development trends in our portfolio.


Gross reserves of $11.4 million related to prior year defaults remained as of September 30, 2020.
The following table provides a reconciliation of the beginning and ending count of loans in default for the periods indicated.default.
For the three months endedFor the nine months ended
September 30, 2020September 30, 2019September 30, 2020September 30, 2019
Beginning default inventory10,816 1,028 1,448 877 
Plus: new defaults6,588 718 16,870 1,838 
Less: cures(3,598)(476)(4,426)(1,383)
Less: claims paid(40)(37)(123)(98)
Less: claims denied(1)(3)(4)(4)
Ending default inventory13,765 1,230 13,765 1,230 
 For the three months ended For the nine months ended
 September 30, 2017 September 30, 2016 September 30, 2017 September 30, 2016
Beginning default inventory249
 79
 179
 36
Plus: new defaults208
 69
 479
 158
Less: cures(103) (30) (292) (73)
Less: claims paid(4) (3) (16) (6)
Ending default inventory350
 115
 350
 115
The increase in the ending default inventory at September 30, 20172020 compared to September 30, 2016 was2019, is primarily dueattributable to an increase in the number of policies in forceCOVID-19 outbreak as borrowers have faced increasing challenges and expected loss developmentchosen to access the forbearance program for federally backed loans codified under the CARES Act and other similar assistance programs made available by private lenders. At September 30, 2020, 12,238 of our portfolio.     13,765 ending default inventory were in a COVID-19 related forbearance program.
The following table provides details of our claims paid, before giving effect to claims paidceded under the 2016 QSR Transaction,Transactions and ILN Transactions, for the periods indicated.
For the three months endedFor the nine months ended
September 30, 2020September 30, 2019September 30, 2020September 30, 2019
($ In Thousands)
Number of claims paid (1)
40 37 123 98 
Total amount paid for claims$1,540 $1,265 $5,621 $2,979 
Average amount paid per claim
$39 $34 $46 $30 
Severity (2)
67 %70 %80 %70 %
(1)    Count includes six and eight claims settled without payment for the three and nine months ended September 30, 20172020, respectively, and eight and fourteen claims settled without payment for the three and nine months ended September 30, 2016.2019, respectively.
 For the three months ended For the nine months ended
 September 30, 2017 September 30, 2016 September 30, 2017 September 30, 2016
 ($ Values In Thousands)
Number of claims paid4
 3
 16
 6
Total amount paid for claims$160
 $93
 $731
 $225
Average amount paid per claim$40
 $31
 $46
 $32
Severity(1)
73% 53% 83% 62%
(1) (2)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.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, 20172020 increased compared to the same periodsthree and nine months ended September 30, 2016 is2019, primarily due to an increase in our default inventory. We expectinventory and the continued growth and seasoning of our insured portfolio. The timing and magnitude of future claims paid may be impacted by, among other factors, the forbearance program and foreclosure moratorium codified under the CARES Act and implemented by the GSEs through at least December 31, 2020, which may extend the timeline over which loans would otherwise progress through the default cycle to a paid claim.
Our claims severity for the three and nine months ended September 30, 2020 was 67% and 80%, respectively, compared to 70% for each of the three and nine month periods ended September 30, 2019. Claims severity for the three months ended September 30, 2020 benefited from the resiliency of the housing market and broad national house price appreciation. An increase in the value of the homes collateralizing the mortgages we insure provides additional equity support to our risk exposure by increasing the possibility of a third-party sale of the foreclosed property, which can mitigate the severity of our settled claims. The increase in claims severity for the nine months ended September 30, 2020 relates to an increase in the portion of claims we receive to be between 85%settled using the percent option instead of through third-party sales during the six months ended June 30, 2020 as third-party marketing and 95%sales activity was broadly constrained in the period immediately following the outbreak of the coverage amount. We believeCOVID-19 pandemic.
45

The following table provides detail on our severity is below long-term expectations dueaverage 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, 2020As of September 30, 2019
(In Thousands)
Case (1)
$5.8 $15.3 
IBNR (1)(2)
0.5 1.4 
Total$6.3 $16.7 
Average reserve per default:As of September 30, 2017 As of September 30, 2016
 (In Thousands)
Case (1)
$16
 $17
IBNR1
 1
Total$17
 $18
(1)Defined as the gross reserve per insured loan in default.

(2)    Amount includes claims adjustment expenses.
The average reserve per default at September 30, 2020 decreased from September 30, 2019, primarily due to new COVID-19 related defaults. At September 30, 2020, we established lower reserves that we consider to be connected to the COVID-19 outbreak given our expectation that forbearance, repayment and modification, and other assistance programs will aid affected borrowers and drive higher cure rates on such defaults than we would otherwise expect to experience on similarly situated loans that did not benefit from broad-based assistance programs. While we established lower reserves per defaulted loan at September 30, 2020, our total reserve position and claims and claims expenses increased substantially as of and during the period ended September 30, 2020 due to the increase in the size of our default population.
GSE Oversight
As anApproved Insurer approved insurer, NMIC is subject to ongoing compliance with the PMIERs.PMIERs established by each of the GSEs (Italicizeditalicized 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 toApproved 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 total risk-based required asset amount. Therisk-based required asset amount is a function of the risk profile of anApproved Insurers net approved insurer's RIF, calculated by applyingassessed on a loan-


by-loanloan-by-loan basis and considered against certain risk-based factors derived from tables set out in the PMIERs, to the net RIF, and other transactional adjustmentswhich is then adjusted on an aggregate basis for reinsurance transactions approved by the GSEs, such as with respect to our 2017 ILN TransactionTransactions and 2016 QSR Transaction.Transactions. The aggregate gross risk-based required asset amountfor performing, primary insurance is subject to a floor of 5.6% of total, performing primary adjusted RIF, and the risk-based required asset amountfor pool insurance considers both the factors in the PMIERs tables and thenet remaining stop lossfor 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, 20172020 that NMIC fully compliedwas in full compliance with the PMIERs as of December 31, 2016.2019. NMIC also has an ongoing obligation to immediately notify the GSEs in writing upon discovery of itsa failure to meet one or more of the PMIERs requirements. We continuously monitor ourNMIC's compliance with the PMIERs.
The following table provides a comparison of the PMIERs financial requirementsavailable assets and risk-based required asset amount as reported by NMIC as of the dates indicated.
As of
September 30, 2020September 30, 2019
(In Thousands)
Available assets$1,671,990 $955,554 
Risk-based required assets990,678 637,914 
 As of 
 September 30, 2017  September 30, 2016 
 (In Thousands) 
Available assets$495,182
  $488,635
 
Risk-based required assets356,207
  320,609
 

Available assets were $1,672 million at September 30, 2020, compared to $956 million at September 30, 2019. In June 2020, NMIH completed the sale of 15.9 million shares of common stock raising net proceeds of approximately $220 million and the sale of the $400 million aggregate principal amount of senior secured notes. NMIH contributed approximately $445 million of capital to NMIC following completion of the Notes and equity offerings. The $716 million increase in NMIC's available assets as of September 30, 2017 compared to September 30, 2016 is
46

between the periods presented was driven by the NMIH capital contribution and NMIC's positive cash flow from operations and amortization of unearned premium reserves. during the intervening periods.
The increase in therisk-based required asset amount is between the periods presented was primarily due to the growth of our gross RIF, increase in our default inventory related to the onset of the COVID-19 pandemic, partially offset by the increased cession of risk relating tounder our third-party reinsurance agreements.agreements including the inception of the 2020-1 ILN Transaction. See "- COVID-19 Developments," above.
LIBOR Transition
In July 2017, the U.K. Financial Conduct Authority announced that it intends to stop persuading or compelling banks to submit LIBOR rates after 2021, which is expected to render these widely used reference rates unavailable or unreliable. We have exposure to LIBOR-based financial instruments, such as LIBOR-based securities held in our investment portfolio. The 2020 Revolving Credit Facility and premiums paid on our ILN Transactions are also LIBOR-based. We are in the process of reviewing our LIBOR-based contracts that extend beyond 2021 and transitioning to a set of alternative reference rates. We will continue to monitor, assess and plan for the phase out of LIBOR; however, we currently do not know the impact it will have on our operations or financial results.
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, 2017,2020, NMIC's performing primary RIF, net of reinsurance, was approximately $6.2$19.9 billion. NMIC ceded 100% of its pool RIF pursuant to the 2016 QSR Transaction. Based on NMIC's total statutory surpluscapital of $502.6 million$1.6 billion (including contingency reserves) as of September 30, 2017,2020, NMIC's RTC ratio was 12.3:12.8:1. Re One had total statutory capital of $33.9$37 million as of September 30, 2017, with2020, and a RTC ratio of 0.7:1.2:1. We continuously monitor our compliance with state capital requirements.
In August 2017,June 2020, Moody's Investors Service (Moody's) re-affirmedaffirmed its "Ba1""Baa2" financial strength rating forof NMIC and its B2 "Ba2"rating of NMIH's $150 million Term Loan. Moody's2020 Revolving Credit Facility, and assigned a "Ba2" rating to the Notes. The outlook for bothMoody's ratings changedis stable. In March 2020, S&P updated its outlook from " stable"stable to " positive." In July 2017, S&P re-affirmed its "BBB-"negative for the mortgage insurance sector, including NMIH and NMIC's financial strength and long-term counter-party credit ratings on NMICratings. In June 3, 2020, S&P assigned a "BB" rating to NMIH's senior secured Notes.
Information Technology
Effective March 31, 2020, we entered into an IT services agreement with Tata Consultancy Services (TCS). Under the agreement, TCS is providing IT services over a seven-year period across such functions as application development and its"BB-" long-term counter-party credit rating on NMIH. S&P's outlooksupport, infrastructure support, (service desk, end user computing and engineering services), and information security. We expect the engagement with TCS will further our ability to provide innovative IT solutions for both companies is "positive."our internal and external constituents, while realizing cost efficiencies by leveraging TCS's global platform. In connection with the agreement, a majority of our IT employees transitioned to TCS. We have the ability to terminate the agreement at any time with 120 days' prior notice, subject to the payment of a termination fee and other obligations as specified in the agreement.
Competition
The MI industry is highly competitive and currently consists of six private mortgage insurers, including NMIC, as well as governmental agencies likegovernment MIs such as the FHA, and theUSDA or VA. Private MI companies compete based on service, customer relationships, underwriting and other factors, including price.price, credit risk tolerance and information technology capabilities. We expect the private MI market to remain competitive, with pressure for industry participants to growmaintain or maintaingrow their market share.
The private MI industry overall competes more broadly with government entitiesMIs who significantly increased their presenceshare in the MI market following the financial crisis.2008 Financial Crisis. Although there has been broad policy consensus toward the need for increasing private capital to play a larger roleparticipation 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 VAgovernment MIs will recede to historicalpre-2008 levels. A range of factors influence a lender's and borrower'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 governmentalgovernment MI alternatives.

47


Consolidated Results of Operations
Consolidated statements of operationsThree months endedNine months ended
September 30, 2020September 30, 2019September 30, 2020September 30, 2019
Revenues($ in thousands, except for per share data)
Net premiums earned$98,802 $92,381 $296,463 $249,499 
Net investment income8,337 7,882 23,511 22,894 
Net realized investment (losses) gains(4)81 635 (219)
Other revenues648 1,244 2,771 1,700 
Total revenues107,783 101,588 323,380 273,874 
Expenses
Insurance claims and claim expenses15,667 2,572 55,698 8,238 
Underwriting and operating expenses(1)
33,969 32,335 96,616 95,325 
Service expenses(1)
557 909 2,381 1,311 
Interest expense7,796 2,979 16,481 9,111 
Loss (gain) from change in fair value of warrant liability437 (1,139)(4,286)6,025 
Total expenses58,426 37,656 166,890 120,010 
Income before income taxes49,357 63,932 156,490 153,864 
Income tax expense11,178 14,169 33,192 32,102 
Net income$38,179 $49,763 $123,298 $121,762 
Earnings per share - Basic$0.45 $0.73 $1.63 $1.81 
Earnings per share - Diluted$0.45 $0.69 (2)$1.55 (2)$1.75 
Loss ratio(3)
15.9 %2.8 %18.8 %3.3 %
Expense ratio(4)
34.4 %35.0 %32.6 %38.2 %
Combined ratio (5)
50.2 %37.8 %51.4 %41.5 %
Consolidated statements of operationsThree months ended Nine months ended
 September 30, 2017 September 30, 2016 September 30, 2017 September 30, 2016
Revenues(In Thousands)
Net premiums earned$44,519
 $31,808
 $115,661
 $77,656
Net investment income4,170
 3,544
 11,885
 10,117
Net realized investment gains (losses)69
 66
 198
 (758)
Other revenues195
 102
 461
 172
Total revenues48,953
 35,520
 128,205
 87,187
Expenses       
Insurance claims and claims expenses957
 664
 2,965
 1,592
Underwriting and operating expenses24,645
 24,037
 78,682
 69,943
Total expenses25,602
 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)
Income before income taxes19,497
 6,289
 35,733
 4,393
Income tax expense7,185
 114
 11,917
 114
Net income$12,312
 $6,175
 $23,816
 $4,279
        
Loss ratio(1)
2.1% 2.1% 2.6% 2.1%
Expense ratio(2)
55.4% 75.6% 68.0% 90.1%
Combined ratio57.5% 77.7% 70.6% 92.2%

Three months endedNine months ended
Non-GAAP financial measures (6)
September 30, 2020September 30, 2019September 30, 2020September 30, 2019
($ in thousands, except for per share data)
Adjusted income before tax$52,052 $64,401 $157,087 $162,461 
Adjusted net income40,400 49,894 122,870 129,819 
Adjusted diluted EPS0.470.711.601.87
(1)    Certain "Underwriting and operating expenses" have been reclassified as "Service expenses" in prior periods.
(2)    Diluted net income for the three months ended September 30, 2019 and the nine months ended September 30, 2020 excludes the impact of the warrant fair value change as it was anti-dilutive. For all other periods presented in the table, diluted net income equals reported net income as the impact of the warrant fair value change was dilutive.
(3)    Loss ratio is calculated by dividing the provision for insurance claims and claimsclaim expenses by net premiums earned.earned..
(2) (4)Expense ratio is calculated by dividing other underwriting and operating expenses by net premiums earned.
(5)    Combined ratio may not foot due to rounding.
(6)    See "Explanation and Reconciliation of Our Use of Non-GAAP Financial Measures," below.

Revenues
For the three and nine months ended September 30, 2017,2020, net premiums earned increased $12.7$6.4 million or 40%7% and $38.0$47.0 million or 49%19%, respectively, compared to the corresponding three and nine months ended September 30, 2016.2019. The increase in both periods is primarily due to the continued growth of our IIF, a rise in our monthly policy production and IIF,higher single premium policy cancellations, partially offset by
48

increased cessions under the effects of the 2016 QSR Transaction and 2017 ILN Transaction and reductions in our single policy production and earnings from early policy cancellations.Transactions.
For the three and nine months ended September 30, 2017,2020, net investment income increased $0.6$0.5 million and $1.8$0.6 million, respectively, compared to the three and nine months ended September 30, 2016, due to2019. The increases were driven by an increase in the size of and improved yields on our total investment portfolio.portfolio, partially offset by a decline in book yield tied to the prevailing interest rate and credit spread environment.
For the three months ended September 30, 2020, other revenues decreased $0.6 million compared to the three months ended September 30, 2019. For the nine months ended September 30, 2020, other revenues increased $1.1 million, compared to nine months ended September 30, 2019. Other revenues represent underwriting fee revenue generated by our subsidiary, NMIS, which provides outsourced loan review services to mortgage loan originators. Fluctuations in other revenues were driven by the size of NMIS' outsourced loan review volume. Amounts recognized in other revenues generally correspond with amounts incurred as service expenses for outsourced loan review activities in the same periods.
Expenses
We recognize insurance claims and claimsclaim 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.



We also incur service expenses in connection with NMIS' outsourced loan review activities.
Insurance claims and claimsclaim expenses increased $0.3$13.1 million and $1.4$47.5 million for the three and nine months ended September 30, 2017,2020, respectively, compared to the three and nine months ended September 30, 2016,2019, as a result of an increase in our NODs, primarily due todefaults, driven by new defaults on insured loans impacted by COVID-19 outbreak, and an increase in the overall number of policies in force year-over-yearour portfolio and expected loss developmentaging of our portfolio. The increase in claimsearlier book years, partially offset by the release of certain reserves related to prior year defaults.
    Underwriting and claimsoperating expenses increased $1.6 million, and $1.3 million for the three and nine months ended September 30, 2017 was offset by the partial release of reserves related to prior year defaults.
Underwriting and operating expenses increased $0.6 million or 3%, and $8.7 million or 12% for the three and nine months ended September 30, 2017,2020, respectively, compared to the three and nine months ended September 30, 2016. Employee compensation accounts for2019. The increase primarily relates to the majorityrecognition of our operating expenses. We increasedpreviously deferred policy acquisition costs taken in connection with in-force portfolio run-off and an increase in issuance expenses incurred in connection with capital market reinsurance transaction activity, partially offset by reductions in payroll, travel and entertainment, and office administrative expenses as a result of 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.COVID-19 outbreak. Underwriting and operating expenses included capital market reinsurance transaction costs of $2.3 million and $1.7 million, for the three months ended September 30, 2020 and 2019, respectively, and $2.9 million and $2.4 million, for the nine months ended September 30, 2017 also reflect $4.8 million of operating2020 and 2019, respectively.
Service expenses related to the 2017 ILN Transaction and amendment of the Credit Agreement.
We incurred interest expense related to the Term Loan of $3.4were $0.6 million and $10.1$2.4 million for the three and nine months ended September 30, 2017,2020, respectively, compared to interest expense of $3.7$0.9 million and $11.1$1.3 million for the three and nine months ended September 30, 2016, respectively. Interest expense declined2019, respectively. Service expenses represent third-party costs incurred by NMIS in connection with the amendmentservices it provides. Fluctuations in service expenses for the three and nine months ended September 30, 2020, were driven by the size of our Credit Agreement which weNMIS' outsourced loan review volume. Amounts incurred as service expenses generally correspond with amounts recognized in other revenues in the same periods.
Interest expense was $7.8 million and $16.5 million for the three and nine months ended September 30, 2020, respectively, compared to $3.0 million and $9.1 million for the three and nine months ended September 30, 2019, respectively. Interest expense increased in connection with the $400 million Notes issuance and retirement of the $150 million 2018 Term Loan completed in February 2017, which among other items, reducedJune 2020. Interest expense for the interest rate payable onnine months ended September 30, 2020 includes $2.6 million of costs related to the extinguishment of the 2018 Term Loan. See Item 1, "Financial Statements - Notes to Condensed Consolidated Financial Statements - Note 4, Term Loan.Debt."
Income Tax
tax expense was $11.2 million and $33.2 million for the three and nine months ended September 30, 2020, respectively, compared to $14.2 million and $32.1 million for the three and nine months ended September 30, 2019, respectively. Fluctuations in income tax expense for the three and nine months ended September 30, 2020, reflect fluctuations in pre-tax income during such periods. We are a U.S. taxpayer and are subject to a 21% statutory U.S. federal corporate income tax rate. Our effective tax rate of 35%. Our holding company files a consolidated U.S. federalon pre-tax income was 22.6% and various state income tax returns on behalf of itself21.2% for the three and its subsidiaries.
nine months ended September 30, 2020, respectively, compared to 22.2% and 20.9% for the three and nine months ended September 30, 2019, respectively. Our provision for income taxes for the interim reporting periods areis 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% for the three months ended September 30, 2017, compared to 1.8% for the comparable 2016 period. 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 due to a2020 and 2019 reflect the discrete tax benefit associated with excess tax benefits for restricted stock units that were recognized during the periods as a resulteffects of the adoptionvesting of ASU 2016-09RSUs and exercise of options, and the change in the prior quarter.fair value of our warrant liability in each period. See Item 1, "Financial Statements - Notes to Consolidated Financial Statements - Note 1, Organization and Basis of Presentation - Change in Accounting Principle." We expect 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 sheetsSeptember 30, 2017 
December 31, 2016 (1)
 (In Thousands)
Total investment portfolio$692,729
 $628,969
Cash and cash equivalents20,698
 47,746
Premiums receivable21,056
 13,728
Deferred policy acquisition costs, net36,101
 30,109
Software and equipment, net21,767
 20,402
Prepaid reinsurance premiums39,915
 37,921
Deferred tax asset, net38,490
 51,434
Other assets15,856
 9,588
Total assets$886,612
 $839,897
Term loan$143,969
 $144,353
Unearned premiums161,345
 152,906
Accounts payable and accrued expenses22,028
 25,297
Reserve for insurance claims and claims expenses6,123
 3,001
Reinsurance funds withheld33,105
 30,633
Deferred ceding commission4,971
 4,831
Warrant liability4,046
 3,367
Total liabilities375,587
 364,388
Total shareholders' equity511,025
 475,509
Total liabilities and shareholders' equity$886,612
 $839,897
(1) The 2016 prior period balance sheet has been revised. See Item 1, "Financial Statements - Notes to Condensed Consolidated Financial Statements - Note 1, Organization9, Income Taxes."
49

Net Income
Net income was $38.2 million and Basis$123.3 million for the three and nine months ended September 30, 2020, respectively, compared to $49.8 million and $121.8 million for the three and nine months ended September 30, 2019, respectively. Adjusted net income was $40.4 million and $122.9 million for the three and nine months ended September 30, 2020, respectively, compared to $49.9 million and $129.8 million for the three and nine months ended September 30, 2019, respectively. Net income and adjusted net income for the three and nine months ended September 30, 2020, benefited from an increase in total revenues, but were also impacted by defaults caused by the COVID-19 pandemic, which drove an increase in insurance claims and claim expenses.
Diluted EPS was $0.45 and $1.55 for the three and nine months ended September 30, 2020, respectively, compared to $0.69 and $1.75 for the three and nine months ended September 30, 2019, respectively. Adjusted diluted EPS was $0.47 and $1.60 for the three and nine months ended September 30, 2020, respectively, compared to $0.71 and $1.87 for the three and nine months ended September 30, 2019, respectively. Diluted and adjusted diluted EPS decreased primarily due to an increase in weighted average diluted shares outstanding in connection with the issuance of Presentation. Immaterial Correction15.9 million shares of Prior Period Amounts" common stock we completed in June 2020.
The non-GAAP financial measures adjusted income before tax, adjusted net income and adjusted diluted EPS are presented to enhance the comparability of financial results between periods.
Non-GAAP Financial Measure ReconciliationsFor the three months ended September 30,For the nine months ended September 30,
2020201920202019
As reported($ in thousands, except for per share data)
Income before income taxes$49,357 $63,932 $156,490 $153,864 
Income tax expense11,178 14,169 33,192 32,102 
Net income$38,179 $49,763 $123,298 $121,762 
Adjustments
Net realized investment losses (gains)4 (81)(635)219 
Loss (gain) from change in fair value warrant liability437 (1,139)(4,286)6,025 
Capital market transaction costs2,254 1,689 5,518 2,353 
Adjusted income before tax52,052 64,401 157,087 162,461 
Income tax expense on adjustments474 338 1,025 540 
Adjusted net income$40,400 $49,894 $122,870 $129,819 
Weighted average diluted shares outstanding85,599 70,137 76,867 69,520 
Adjusted diluted EPS$0.47 $0.71 $1.60 $1.87 
Explanation and Reconciliation of Our Use of Non-GAAP Financial Measures
We believe the use of the non-GAAP measures of adjusted income before tax, adjusted net income and adjusted diluted EPS enhances the comparability of our fundamental financial performance between periods, and provides relevant information to investors. These non-GAAP financial measures align with the way the company's business performance is evaluated by management. These measures are not prepared in accordance with GAAP and should not be viewed as alternatives to GAAP measures of performance. These measures have been presented to increase transparency and enhance the comparability of our fundamental operating trends across periods. Other companies may calculate these measures differently; their measures may not be comparable to those we calculate and present.
Adjusted income before tax is defined as GAAP income before tax, excluding the pre-tax effects of the gain or loss related to the change in fair value of our warrant liability, periodic costs incurred in connection with capital markets transactions, net realized gains or losses from our investment portfolio, and discrete, non-recurring and non-operating items in the periods in which such items are incurred.
50

Adjusted net income is defined as GAAP net income, excluding the after-tax effects of the gain or loss related to the change in fair value of our warrant liability, periodic costs incurred in connection with capital markets transactions, net realized gains or losses from our investment portfolio, and discrete, non-recurring and non-operating items in the periods in which such items are incurred. Adjustments to components of pre-tax income are tax effected using the applicable federal statutory tax rate for further details.the respective periods.
Adjusted diluted EPS is defined as adjusted net income divided by adjusted weighted average diluted shares outstanding. Adjusted weighted average diluted shares outstanding is defined as weighted average diluted shares outstanding, adjusted for changes in the dilutive effect of non-vested shares that would otherwise have occurred had GAAP net income been calculated in accordance with adjusted net income. There will be no adjustment to weighted average diluted shares outstanding in the years that non-vested shares are anti-dilutive under GAAP.
Although adjusted income before tax, adjusted net income and adjusted diluted EPS exclude certain items that have occurred in the past and are expected to occur in the future, the excluded items: (1) are not viewed as part of the operating performance of our primary activities; or (2) are impacted by market, economic or regulatory factors and are not necessarily indicative of operating trends, or both. These adjustments, and the reasons for their treatment, are described below.
•Change in fair value of warrant liability. Outstanding warrants at the end of each reporting period are revalued, and any change in fair value is reported in the statement of operations in the period in which the change occurred. The change in fair value of our warrant liability can vary significantly across periods and is influenced principally by equity market and general economic factors that do not impact or reflect our current period operating results. We believe trends in our operating performance can be more clearly identified by excluding fluctuations related to the change in fair value of our warrant liability.
•Capital markets transaction costs. Capital markets transaction costs result from activities that are undertaken to improve our debt profile or enhance our capital position through activities such as debt refinancing and capital markets reinsurance transactions that may vary in their size and timing due to factors such as market opportunities, tax and capital profile, and overall market cycles.
•Net realized investment gains and losses. The recognition of the net realized investment gains or losses can vary significantly across periods as the timing is highly discretionary and is influenced by factors such as market opportunities, tax and capital profile, and overall market cycles that do not reflect our current period operating results.
•Infrequent or unusual non-operating items. Items that are the result of unforeseen or uncommon events, which occur separately from operating earnings and are not expected to recur in the future. Identification and exclusion of these items provides clarity about the impact special or rare occurrences may have on our current financial performance. Past adjustments under this category include the effects of the release of the valuation allowance recorded against our net federal and certain state net deferred tax assets in 2016 and the re-measurement of our net deferred tax assets in connection with tax reform in 2017. We believe such items are non-recurring in nature, are not part of our primary operating activities and do not reflect our current period operating results.

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Consolidated balance sheetsSeptember 30, 2020December 31, 2019
(In Thousands)
Total investment portfolio$1,689,815 $1,140,940 
Cash and cash equivalents194,199 41,089 
Premiums receivable48,159 46,085 
Deferred policy acquisition costs, net63,194 59,972 
Software and equipment, net28,131 26,096 
Prepaid reinsurance premiums8,014 15,488 
Reinsurance recoverable (1)
17,180 4,939 
Other assets (1)
33,128 30,209 
Total assets$2,081,820 $1,364,818 
Debt$392,987 $145,764 
Unearned premiums116,008 136,642 
Accounts payable and accrued expenses59,316 39,904 
Reserve for insurance claims and claim expenses87,230 23,752 
Reinsurance funds withheld10,364 14,310 
Warrant liability3,135 7,641 
Deferred tax liability, net97,451 56,360 
Other liabilities7,773 10,025 
Total liabilities774,264 434,398 
Total shareholders' equity1,307,556 930,420 
Total liabilities and shareholders' equity$2,081,820 $1,364,818 
(1)    Reinsurance recoverable has been reclassified from "Other assets" in prior periods.
As of September 30, 2017,2020, we had approximately $713.4 million$1.9 billion in cash and investments, including $61.7$75.1 million held atby NMIH. The increaseincreases in cash and investments from year-end 2016 primarily relatesDecember 31, 2019 related to net proceeds of approximately $220 million raised from the issuance of common stock and approximately $245 million raised from the issuance of the Notes, both of which were completed in June 2020, as well as cash generated from operations.
Net deferred policy acquisition costs were $36.1$63.2 million as of September 30, 2017,2020, compared to $30.1$60.0 million atas of December 31, 2016.2019. The increase was primarily driven by growth in the defermentnumber 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 the capitalization of ceding commissions associated with the 2016 QSR Transaction during the period.costs.
UnearnedPrepaid reinsurance premiums increased $8.4 million to $161.3were $8.0 million as of September 30, 2017,2020, compared to $15.5 million as of December 31, 2019. Prepaid reinsurance premiums, which represent the unearned premiums on single premium policies ceded under the 2016 QSR Transaction, decreased due to the continued amortization of previously ceded unearned premiums.
Reinsurance recoverable was $17.2 million as of September 30, 2020, compared to $4.9 million as of December 31, 2019. The increase in reinsurance recoverable was primarily driven by an increase in ceded losses recoverable associated with our QSR transactions due to an increase in defaults and related reserves for insurance claims and claims expense resulting from the COVID-19 pandemic.
Unearned premiums decreased from $136.6 million as of December 31, 2019 to $116.0 million as of September 30, 2020, 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.    policies, partially offset by single premium policy originations during the nine months ended September 30, 2020.
Other assets balance increased $6.3 million to $15.9Debt was $393.0 million as of September 30, 2017, primarily due2020, compared to $3.3$145.8 million as of pending proceeds fromDecember 31, 2019. Debt at December 31, 2019, represented the salecarrying value of short-term investmentsthe $150 million 2018 Term Loan, which was repaid in full during the second quarter of 2020. Debt at September and a $1.2 million increase30, 2020, represented the carrying value of the recently issued the Notes completed in accrued investment income as a result of an increase in the size of our investment portfolio.June 2020.
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Accounts payable and accrued expenses decreasedincreased from $39.9 million as of December 31, 2019 to $22.0$59.3 million as of September 30, 2017, from $25.3 million at December 31, 2016. The balance consists of expenses2020, primarily due to be paid within the next 12 months and decreased as a result of lower operating accruals and loweran increase in reinsurance premiums payable, accrued interest due to a lower interest rateand payable semi-annually on the Term Loan.Notes issued in June 2020, unsettled payments from the purchase of certain investment securities, and timing of other payments due, partially offset by the settlement of previously accrued compensation during the nine months ended September 30, 2020.
Reinsurance funds withheld was $33.1Reserve for insurance claims and claim expenses increased from $23.8 million as of December 31, 2019 to $87.2 million as of September 30, 2017,2020, primarily due to an increase in defaults, driven by new defaults on insured loans impacted by the COVID-19 outbreak, and an increase in the overall number of policies in our portfolio and aging of earlier book years. This was partially offset by the release of prior year reserves primarily tied to default cures. See "- Insurance Claims and Claim Expenses," abovefor further details.
Reinsurance funds withheld was $10.4 million as of September 30, 2020, representing the net of our ceded reinsurance premiums written, less our profit and ceding commission receivables related to the 2016 QSR Transaction. The increasedecrease in reinsurance funds withheld of $2.5$3.9 million from December 31, 2016, was a result of increased2019, 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 decreased from $7.6 million at December 31, 2019 to $3.1 million at September 30, 2020, primarily due to a decrease in our stock price. 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."

Net deferred tax liability increased from $56.4 million as of December 31, 2019 to $97.5 million as of September 30, 2020, primarily due an increase in the tax deduction claimed for our statutory contingency reserve. 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 flowsFor the nine months ended September 30,
20202019
Net cash provided by (used in):(In Thousands)
Operating activities$214,977 $139,567 
Investing activities(520,878)(117,263)
Financing activities459,011 (1,709)
Net increase in cash and cash equivalents$153,110 $20,595 
Consolidated cash flowsFor the nine months ended September 30,
 2017 2016
Net cash (used in) provided by:(In Thousands)
Operating activities$41,778
 $52,212
Investing activities(66,553) (63,714)
Financing activities(2,273) (1,293)
Net decrease in cash and cash equivalents$(27,048) $(12,795)

Net cash provided by operating activities was $41.8$215.0 million for the nine months ended September 30, 2017,2020, compared to $52.2$139.6 million infor the same period in 2016.nine months ended September 30, 2019. The decreaseincrease in cash generated from operating activities was primarily causeddriven by increased operating expensesgrowth in connection with employee compensation and benefits costs and higher claims paid due topremiums written, partially offset by an increase in our default inventory offset by growth in net premiums written.claims paid.
Cash used in investing activities for the periods presented was driven by the purchase of fixed and short-term maturities during those periods.with cash provided by operating and, as available, financing activities, and the reinvestment of coupon payments, maturities and sale proceeds within our investment portfolio. Cash used in investing activities for the nine months ended September 30, 2020, reflects, in part, the investment of net cash proceeds from the common stock and Notes offerings we completed in June 2020.
The $1Cash provided by financing activities was $459.0 million increase infor the nine months ended September 30, 2020, compared to cash used in financing activities of $1.7 million for the nine months ended September 30, 2019. Cash provided by financing activities for the nine months ended September 30, 2017 compared to the same period ended September 30, 2016, was primarily due to an increase2020 reflects $219.7 million net cash proceeds raised in taxes paid related to theour 2020 common stock offering and $244.2 million net share settlement of employee equity awards.cash proceeds raised in our 2020 Notes offering.
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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 andthe interest related to the Term Loan;Notes and 2020 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, 2017,2020, NMIH had $61.7$75.1 million of cash and investments. NMIH's principal source of operatingnet cash is investment incomeincome. NMIH also has access to $110 million of undrawn revolving credit capacity under the 2020 Revolving Credit Facility (See Item 1, "Financial Statements - Notes to Condensed Consolidated Financial Statements - Note 12, Subsequent Event"). Our insurance operating subsidiaries also have the capacity, under Wisconsin law, to pay $16.1 million of aggregate ordinary dividends to NMIH during the 12-month period ending December 31, 2020.
On June 8, 2020, NMIH completed the sale of 15.9 million shares of common stock, including the exercise of a 15% overallotment option, and inraised proceeds of $219.7 million, net of underwriting discounts, commissions and other direct offering expenses. In June 2020, NMIH also completed the future could include dividends fromsale of the Notes, raising net proceeds of $244.4 million after giving effect to offering expenses and the repayment of principal amount outstanding under our $150 million 2018 Term Loan. In June 2020, NMIH contributed $445.4 million of capital to NMIC if availablefollowing completion of the equity and permitted under law and by the GSEs.Notes offerings.
NMIH has entered into tax and expense-sharing agreements with its subsidiaries which have been approved by the Wisconsin OCI, butwith such approval may be changedapprovals subject to change or revokedrevocation at any time. WithAmong such agreements, the Wisconsin OCI's approval, NMIH began allocatingOCI has approved the allocation of interest expense on its Term Loanthe Notes and $100 million of the 2020 Revolving Credit Facility to NMIC into the first quarter of 2017, consistent with the benefitsextent proceeds from such offering and facility are distributed to NMIC received when NMIH down-streamed the loan proceedsor used to repay, redeem or otherwise defease amounts raised by NMIC under prior credit arrangements that have previously been distributed to NMIC.
NMIC's ability to pay dividends to NMIH isNMIC and Re One are subject to insurance department notice or approval.certain capital and dividend rules and regulations prescribed by jurisdictions in which they are authorized to operate and the GSEs. 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’sinsurer'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. Since inception, NMIC has neverand Re One have not paid any dividends to NMIH. NMIC reported a statutory net loss forand Re One have the twelve months ended December 31, 2016 and currently cannotcapacity to pay any$16.1 million of aggregate ordinary dividends to NMIH withoutduring the prior approval of the Wisconsin OCI. Certain other states in which12-month period ending December 31, 2020.
As an approved insurer under PMIERs, NMIC is licensed also have statutes or regulations that restrictwould 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 from the GSEs. Through March 31, 2021, even if an approved insurer has an available assets surplus, approved insurers must obtain Fannie Mae's prior written approval before taking any of the following actions: a) pay dividends, make payments of principal or increase payments of interest beyond those commitments made prior to the guidance effective date associated with surplus notes issued by the approved insurer, make any other payments, unless related to expenses incurred in the normal course of business or to commitments made prior to the guidance effective date, or pledge or transfer asset(s) to any affiliate or investor, or b) enter into any new arrangements or alter any existing arrangements under tax sharing and intercompany expense-sharing agreements other than renewals and extensions of agreements in effect prior to the guidance effective date.
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, access the reinsurance markets 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.requirements (respectively, as defined therein). NMIH may require liquidity to fund the capital needs of its insurance subsidiaries.


In November 2015, NMIH entered into the Credit Agreement for the Term Loan. On February 10, 2017, NMIH amended the Credit Agreement, (Amendment No. 1) to reduce the interest rateThe Notes mature on June 19, 2025 and extend the maturity date of the Term Loan from November 10, 2018 to November 10, 2019. The amended Term Loan bearsbear interest at the Eurodollar Rate, asa rate of 7.375%, payable semi-annually on June 1 and December 1. Our $100 million 2020 Revolving Credit Facility matures on February 22, 2023 and accrues interest at a variable rate equal to, at our discretion, (i) a base rate (as defined in the Credit Agreement, and subject to a floor of 1.00% per annum) plus a margin of 0.375% to 1.875% per annum or (ii) the Eurodollar Rate (subject to a floor of 0.00% per annum) plus an annuala margin rate of 6.75%, payable monthly or quarterly1.375% to 2.875% per annum, in each case based on the applicable corporate credit rating at the time. Borrowings under the 2020 Revolving
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Credit Facility may be used for general corporate purposes, including to support the growth of our interest rate election. Thenew business production and operations.
Under the 2020 Revolving Credit Agreement contains various restrictive covenants and required financial ratios and tests (which were not modified by Amendment No. 1) thatFacility, we are required to meet or maintain. Thesepay a quarterly commitment fee on the average daily undrawn amount of 0.175% to 0.525%, based on the applicable corporate credit rating at the time. As of September 30, 2020, the applicable commitment fee was 0.35%.
We are subject to certain covenants include, butunder the Notes and 2020 Revolving Credit Facility. Under the Notes (and as defined in the Indenture), we are not limitedsubject to the following: a maximum debt-to-total capitalization ratio of 35%. Under the 2020 Revolving Credit Facility (as defined therein)in the 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 requirements. In October 2017, NMIH further amended the Credit Agreement to remove a covenant that required NMIH to maintain liquidity (asconsolidated net worth and statutory capital requirements (respectively, as defined therein). We were in an aggregate amount no less thancompliance 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).September 30, 2020.
Consolidated Investment Portfolio
OurThe primary objectives with respect toof our investment portfolioactivity are to preserve capital and generate investment income, while maintaining sufficient liquidity to cover our operating needs. We aim to achieve diversification as toby 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,investments; concentration limits for asset types, industry sectors, single issuers, and certain credit ratings,ratings; and benchmarks for asset duration.
Substantially all of ourOur investment portfolio is held incomprised entirely of fixed maturity instruments. As of September 30, 2017,2020, the fair value of our investment portfolio was $692.7 million. We also had$1.7 billion and we held an additional $20.7$194.2 million of cash and equivalents as of September 30, 2017.equivalents. Pre-tax book yield on the investment portfolio for the nine months ended September 30, 20172020 was 2.3%. The book yield is calculated as period-to-date net investment income divided by the 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 holdings 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 valueSeptember 30, 2017 December 31, 2016
1.Corporate debt securities57% 52%
2.U.S. treasury securities and obligations of U.S. government agencies9
 9
3.Asset-backed securities14
 17
4.Cash, cash equivalents, and short-term investments7
 16
5.Municipal debt securities13
 6
 Total100% 100%
Percentage of portfolio's fair valueSeptember 30, 2020December 31, 2019
Corporate debt securities63 %58 %
Municipal debt securities18 16 
Cash, cash equivalents, and short-term investments10 7 
Asset-backed securities7 15 
U.S. treasury securities and obligations of U.S. government agencies2 4 
Total100 %100 %
The ratings
Investment portfolio ratings at fair value (1)
September 30, 2020December 31, 2019
AAA16 %20 %
AA(2)
23 19 
A(2)
43 47 
BBB(2)
18 14 
Total100 %100 %
(1)    Excluding certain operating cash accounts.
(2)    Includes +/– ratings.

All of our investment portfolio were:
Investment portfolio ratings at fair valueSeptember 30, 2017 December 31, 2016
AAA19% 24%
AA(1)
21
 19
A(1)
45
 44
BBB(1)
15
 13
Total100% 100%
(1) Include +/– ratings.
The ratings aboveinvestments are providedrated by one or more of: Moody's, S&P and Fitch Ratings.nationally recognized statistical rating organizations. If three or more ratings are available, we assign the middle rating for classification purposes, otherwise we assign the lowest rating.

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Investment Securities - Allowance for credit losses
Other ItemsAs of September 30, 2020, we did not recognize an allowance for credit loss for any security in our investment portfolio and we did not record any provision for credit loss for investment securities during the three and nine months ended September 30, 2020. As of September 30, 2019, we held no OTTI securities. During the nine months ended September 30, 2019, we recognized a $0.4 million loss in earnings related to the planned sale of a security in a loss position that was disposed of in April 2019. We did not recognize any OTTI losses for the three months ended September 30, 2019.
Off-Balance Sheet Arrangements and Contractual Obligations
We had no material off-balance sheet arrangements as of September 30, 2017.2020. In connection with the 2017 ILN Transaction,Transactions, we have certain future contractual commitments to the Oaktown Re a specialVehicles (special purpose VIE that isare not consolidated in our financial results.results). See Item 1, "Financial Statements - Notes to Condensed Consolidated Financial Statements - Note 1,1. Organization, and Basis of Presentation - Variable interest entity" and "Note 5, Reinsurance. Summary of Accounting Principles."
There are no material changes outside the ordinary course of business in the contractual obligations specified in our 2016 10-K.Effective March 31, 2020, we entered into a seven-year IT services agreement with TCS under which we outsource certain IT support and expertise functions. See "- Information Technology" above for more information.
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 claimsclaim 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 not been noany material changes to our critical accounting policies and estimates as compared to the critical accounting policies and estimates described in our 20162019 10-K.

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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, 20172020 and December 31, 20162019 was $693 million$1.7 billion and $629 million,$1.1 billion, 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, 2017,2020, the duration of our fixed income portfolio, including cash and cash equivalents, was 3.954.53 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%4.53% in fair value of our fixed income portfolio. Excluding cash, our fixed income portfolio duration was 4.134.87 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%4.87% in fair value of our fixed income portfolio.
We are also subject to market risk related to our Term Loanthe Notes and 2017the ILN Transaction.Transactions. As discussed in Item 1, "Financial Statements - Notes to Condensed Consolidated Financial Statements - Note 4, Term Loan,Debt" the Term Loan bearsNotes bear 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 TransactionTransactions 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.

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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 PrincipalChief Executive Officer and PrincipalChief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.
Our management, including our PrincipalChief Executive Officer and PrincipalChief 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, 2017,2020 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 PrincipalChief Executive Officer and PrincipalChief Financial Officer concluded that, as of September 30, 2017,2020 our disclosure controls and procedures were not effective due to provide reasonable assurance that the existence of a material weaknessinformation 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 withor submit under the SEC. We believe these actions are sufficient to remediateExchange Act is recorded, processed, summarized, and reported within the identified material weaknesstime 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 wereThere was no changeschange in our internal control over financial reporting that occurred during the period covered by this report that havehas materially affected, or areis reasonably likely to materially affect, our internal control over financial reporting.



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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’smanagement'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 20162019 10-K. As of the date of this report, other than as included below, we are not aware of any material changes in our risk factors from the risk factors disclosed in our 20162019 10-K. You should carefully consider the risks and uncertainties described herein and in our 20162019 10-K, which have 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 20162019 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.
The COVID-19 outbreak could materially adversely affect our business, results of operations and financial condition.

We continue to closely monitor developments related to the COVID-19 pandemic to assess its impact on our business. As a result of the COVID-19 pandemic, the U.S. federal government and certain U.S. states have adopted numerous measures to contain the virus, such as travel bans and restrictions, quarantines, shelter-in-place orders, social-distancing measures and business shut-downs. The COVID-19 pandemic and related containment measures have had, and are expected to continue to have, a substantial negative impact on nearly every sector of the U.S. economy and on the financial, capital and credit markets.
Since the outbreak of the COVID-19 pandemic, there have been a number of governmental and GSE efforts to implement programs designed to assist individuals and businesses impacted by the virus. On March 27, 2020, the U.S. Congress enacted the CARES Act. The CARES Act provides financial assistance for businesses and individuals and targeted regulatory relief for financial institutions. Among many other things, the CARES Act suspended foreclosures and evictions for at least 60 days from March 18, 2020, on mortgages purchased or securitized by the GSEs, which moratorium has been extended by the GSEs through at least December 31, 2020 and may be further extended. In addition, the CARES Act enacts into law a requirement to provide payment forbearance on mortgages to borrowers experiencing hardship during the COVID-19 emergency. Forbearance under the CARES Act allows for a mortgage payment to be suspended for up to 360 days due to hardship caused by COVID-19. The CARES Act also provides for enhanced unemployment benefits, direct aid to individuals in the form of refundable tax credit rebates and increased flexibility under retirement plans, among other things.
The GSEs, the primary purchasers of mortgages we insure, have also adopted certain measures to assist borrowers impacted by COVID-19. Consistent with the CARES Act, the GSEs will provide a forbearance plan to any borrower who requests a forbearance with an attestation of the financial hardship, directly or indirectly caused by the COVID-19 emergency; and no additional documentation other than the borrower's attestation to a financial hardship caused by the COVID-19 emergency is required. Borrowers that avail themselves of forbearance relief will not incur interest or late fees on deferred amounts. In addition, the GSEs have announced that, at the end of a forbearance plan, the affected borrower will not be required to pay back their
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reduced or suspended mortgage payments in one lump sum, but may be eligible for a number of different options offered by their mortgage servicer depending on their financial situation, including:
•if the borrower is unable to repay their deferred payments all at once and can afford to pay a higher monthly mortgage payment for a period of time, the borrower may be eligible for a repayment plan that allows them to repay past due amounts over a period of time;
•if the borrower can afford to resume their monthly mortgage payment, they may be eligible for a payment deferral in which missed mortgage payments are due at the sale or refinancing of the home or are moved to the end of the maturity of the loan; and
•if the borrower has a sustained reduction in income and is unable to afford their regular monthly mortgage payment, they may be eligible for a loan modification that changes the terms of the mortgage loan to enable an affordable payment, including through a change to the maturity and amortization schedule of the mortgage loan.
Due to the evolving and highly uncertain nature of this crisis, it is too soon to fully assess or predict the ultimate impact COVID-19 will have on the markets in which we operate and on our business, but we believe it will be material and could adversely affect our business, operations and financial condition. We are currently unable to estimate precisely the magnitude of the impact that the pandemic will ultimately have on our business, operations and financial condition. We believe there are or will be a range of adverse effects on our markets, customers and new business, revenues, loss development and related impacts to our capital needs, employee health and productivity, investment portfolio performance, and ability to access capital and reinsurance markets in the future if we need to. In turn, these impacts may cause changes, which also cannot be precisely determined at this time, to our estimates of future earnings and other guidance we have provided to the markets. In particular, we believe we will experience the following impacts, among others:
•Containment measures implemented to mitigate the negative effects of the pandemic could adversely impact our ability to continue to conduct our business. Although we have been able to continue operations under our business continuity program, the spread of COVID-19 could negatively impact a significant number of our employees and the availability of key personnel necessary to conduct our business activities. Such a spread or outbreak could also negatively impact the business and operations of our customers and critical third-party service providers. Further, extreme market volatility may leave us unable to react to market events in a manner consistent with our historical practices in dealing with more orderly markets.
•The COVID-19 pandemic and related containment measures could also affect the number of new mortgages available for us to insure. Our NIW volume and future revenues are significantly dependent on the volume of high-LTV loan originations. If there is a significant decline in our NIW, our future revenue could be negatively impacted.
•Mortgage delinquencies are typically affected by a variety of factors, including illness, death, unemployment and other life events, among others, many of which are likely exacerbated by the COVID-19 pandemic. While there are efforts underway to combat the spread and severity of COVID-19 and the related economic impacts, these measures may be ineffective in mitigating the spike in defaults we have received as a direct result of the COVID-19 pandemic. It is unclear how many borrowers will obtain forbearance plans, the length of assistance borrowers will require, and whether borrowers will be able to resume their mortgage payments thereafter. Increases in unemployment as well as borrowers entering into forbearance plans could result in further increases in the defaults we receive in the near term. In addition, as a result of COVID-19-related relief programs, the defaults related to the pandemic, if not cured, could remain in our default inventory for a protracted period of time, potentially resulting in higher levels of claim severity for those loans that ultimately result in claims. There may be additional, extended or extensive forbearance programs or other changes in regulations or laws which may adversely impact us.
•We include a loan in our default population and establish loss reserves on such loan when we have received notice from the servicer that as of a particular payment date, the borrower has missed the preceding two or more consecutive monthly payments. In addition, PMIERs generally requires us to treat such loans as non-performing, which then increases the capital we are required to hold against such loans. Under PMIERs, non-performing loans that have missed two or more payments are generally assessed a significantly higher capital charge than performing loans. The GSEs issued PMIERs guidance in June 2020 (subsequently amended and restated in September 2020) on the risk-based treatment of loans affected by the COVID-19 crisis (COVID Guidance). The GSEs clarified that for each non-performing loan that: i) has an initial missed payment (as defined in the COVID Guidance) occurring on or after March 1, 2020 and prior to January 1, 2021 (COVID-19 Crisis Period); or ii) is subject to a forbearance plan granted in response to a financial hardship related to COVID-19 (which shall be assumed to be the case for any loan that has an initial missed payment (as defined in the COVID Guidance) occurring during the COVID-19 Crisis Period and is subject to a forbearance plan), the PMIERs charge on such non-performing loans is adjusted by a 30%
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multiplier (inversely, a 70% haircut). As such, the PMIERs risk-based required asset charge for all newly delinquent loans nationwide (including those that go delinquent under a forbearance program) are reduced by 70%. Under the COVID Guidance, non-performing loans that are subject to a forbearance program granted in response to a financial hardship related to COVID-19 will benefit from the risk-based required asset haircut for the duration of the forbearance period and subsequent repayment plan or trial modification period. As a result of costs incurred in connection with rising defaults associated with the COVID-19 crisis, the impact to our capital needs and incurred losses could be material and adversely impact our NIW opportunity and our business, results of operations and financial condition.
•Whether delinquencies ultimately result in claims will depend on a variety of factors, including the length of the crisis and ultimate success of forbearance, government stimulus and other initiatives established to assist homeowners with curing their delinquencies. Due to the inherent uncertainty and significant judgment involved in our assumptions when we establish loss estimates for loans in default, they may turn out to be materially inaccurate and we can provide no assurance that actual claims paid by us, if any, with respect to defaults arising from the pandemic will not be substantially more than the reserves we establish for such defaults.
•Our master policies require insureds to file a claim no later than 60-days after completion of a foreclosure, and in connection with the claim, the insured is generally entitled to include in the claim amount (i) interest (capped at three years) and (ii) certain advances, each as incurred through the date the claim is filed. Under our master policies, a national foreclosure moratorium of the type currently required will not limit the amount of accrued interest (subject to the three-year limit) or advances that may be included in the claim amount. If the duration of the current foreclosure moratorium mandated by the GSEs is continued beyond December 31, 2020 for an extended period of time, loans in our default inventory, including those with defaults unrelated to the COVID-19 crisis that had not yet gone through foreclosure, may remain in a pre-foreclosure default status for a prolonged period of time, which would delay our receipt of certain claims for loans that do not cure and could increase the severity of claims we may ultimately be required to pay after the moratorium is lifted.
•Home values could materially decline as a result of a persistent economic downturn arising from the COVID-19 pandemic. Depreciation in the values of properties underpinning our insured loans may increase the likelihood of default and negatively impact borrowers' abilities to sell their properties for amounts sufficient to cover their unpaid principal. In turn, the frequency or severity of losses we may incur would be negatively impacted.
•Servicers of our insured loans could experience liquidity impacts, which may affect their willingness and/or ability to continue to pay premiums to us. Although our master policies do not require payment of premiums after a loan has gone into default, most servicers continue to remit premiums to us to avoid a lapse in coverage if the borrower cures the default; however, in the current environment, it remains uncertain whether servicers will continue to do so. As set forth in the COVID Guidance, during the COVID-19 Crisis Period, if one or more servicers are unable to continue to remit premiums on loans in default, we, and other GSE-approved mortgage insurers, have agreed to notify the relevant GSE and give such GSE the opportunity to pay the premium to keep the coverage in force. Notwithstanding our agreement with the GSEs, if there are wide-spread servicer liquidity issues and the GSEs choose not to remit premiums, we could experience adverse impacts to our liquidity, which could be material.
•Our investment portfolio (and, specifically, the valuations of investment assets we hold) has been, and may continue to be, adversely affected as a result of market deterioration caused by the COVID-19 pandemic and uncertainty regarding its outcome.
•The COVID-19 pandemic initially caused significant volatility and disruption to the financial, capital and reinsurance markets and such volatility may continue, making access to such markets difficult. To the extent that our current sources of income and capitalization are insufficient to meet GSE and state capital requirements (respectively, as defined therein) or to fund our future operations, we would need to raise additional funds through future financing activities, including through the issuance of additional debt, equity, or a combination of both, reduce our RIF, including through additional reinsurance, or curtail our growth and reduce our expenses. We can give no assurance that any such efforts to raise capital, obtain additional reinsurance or otherwise reduce our RIF would be successful. If we cannot obtain adequate capital, our business, results of operations and financial condition could be adversely affected.
For the reasons described above, it is uncertain at this time what impact the COVID-19 crisis will ultimately have on our revenues, losses, expenses, required assets under PMIERs, statutory and GAAP capital, and liquidity, and that impact may be material and adverse over time. The ultimate significance of COVID-19 on our business will depend on, among other things: the extent and duration of, and severity of illness caused by, the pandemic; the effects on the economy and the time it takes to stabilize; the extent and duration of current and future containment measures implemented by governmental authorities; current
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and future governmental assistance programs; and the long-term impact on the mortgage origination and mortgage insurance markets. While at this time we cannot estimate the short or long-term impacts of COVID-19 on our business, the above and other factors, including those set forth under the heading "Risk Factors" contained in our 2019 10-K could have a material adverse effect on our business, liquidity, results of operations and financial condition.

Item 5. Other Information
On October 30, 2020, we entered into a Joinder Agreement, among NMIH, NMIS, JPMorgan Chase Bank, N.A., as administrative Agent and Citibank, N.A., as a lender, (the "Joinder") to the Company's existing Credit Agreement, increasing the aggregate principal amount of commitments under the 2020 Revolving Credit Facility from $100 million to $110 million. All other terms remained unchanged. As of the date hereof, no amounts are outstanding under the 2020 Revolving Credit Facility. The foregoing summary of the Joinder does not purport to be complete and is subject to, and qualified in its entirety by, the full text of the Joinder, which is attached hereto as Exhibit 10.20 and is incorporated herein by reference.
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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 NumberDescription
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)
4.7
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)
10.410.3 ~
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 ~
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)
10.610.4 ~
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)
10.710.5 ~
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)
10.810.6 ~
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)
10.910.7 ~
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)
10.1010.8 ~
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)

i


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)
10.1210.9 ~
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)
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10.1310.10 ~
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)
10.1410.11 ~
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)
10.1510.12 +
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)
10.1610.13
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)
10.1710.14
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)
10.1810.15
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
10.18
10.19
10.20
10.21 ~
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)
10.2010.22 ~


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)
10.2110.23 ~
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)
10.2210.24 ~
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)
10.2310.25 ~

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)
10.2410.26 ~
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)
10.2510.27 ~

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)
10.2610.28 ~
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 ~

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)
10.2810.29 ~
NMI Holdings, Inc. Severance Benefit Plan (incorporated herein by reference to Exhibit 10.1 to our Form 8-K, filed on February 17, 2016)
10.2910.30 ~
NMI Holdings, Inc. Amended and Restated Change in Control Severance Benefit Plan (incorporated(incorporated herein by reference to Exhibit 10.110.30 to our Form 8-K,10-Q, filed on February 23, 2017)October 30, 2018)
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10.3010.31 ~
NMI Holdings, Inc. Clawback Policy (incorporated herein by reference to Exhibit 10.2 to our Form 8-K, filed on February 23, 2017)
10.3110.32 ~
Separation AgreementEmployment Letter by and between NMI Holdings, Inc. and Glenn FarrellBradley M. Shuster, effective July 31, 2017as of January 1, 2019 (incorporated herein by reference to Exhibit 10.1 to our Form 8-K, filed on August 1, 2017)December 28, 2018)
21.110.33 ~
Employment Letter by and between NMI Holdings, Inc. and Claudia J. Merkle, effective as of January 1, 2019 (incorporated herein by reference to Exhibit 10.2 to our Form 8-K, filed on December 28, 2018)
10.34 ~
Form of NMI Holdings, Inc. 2012 Stock Incentive Plan Restricted Stock Unit Award Agreement for Independent Directors (incorporated herein by reference to Exhibit 10.30 to our Form 10-Q, filed on May 2, 2019)
10.35 ~
Form of NMI Holdings, Inc. 2012 Stock Incentive Plan Restricted Stock Unit Award Agreement for Employees (incorporated herein by reference to Exhibit 10.31 to our Form 10-Q, filed on May 2, 2019)
10.36 ~
Form of NMI Holdings, Inc. 2012 Stock Incentive Plan Nonqualified Stock Option Agreement for Employees (incorporated herein by reference to Exhibit 10.32 to our Form 10-Q, filed on May 2, 2019)
10.37 ~
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 10.33 to our Form 10-Q, filed on May 2, 2019)
10.38 ~
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 10.34 to our Form 10-Q, filed on May 2, 2019)
10.39 ~
Form of NMI Holdings, Inc. Amended and Restated 2014 Omnibus Incentive Plan Nonqualified Stock Option Agreement for Employees (incorporated herein by reference to Exhibit 10.35 to our Form 10-Q, filed on May 2, 2019)
10.40 ~
Form of NMI Holdings, Inc. Amended and Restated 2014 Omnibus Incentive Plan Restricted Stock Unit Award Agreement (Performance Based) (incorporated herein by reference to Exhibit 10.38 to our Form 10-Q, filed on May 7, 2020)
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

ii


32.1 #
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, 20172020 formatted in XBRL (eXtensible Business Reporting Language):
(i) Condensed Consolidated Balance Sheets as of September 30, 20172020 and December 31, 2016
2019;
(ii) Condensed Consolidated Statements of Operations and Comprehensive Income (Loss) for the three and nine months ended September 30, 20172020 and 2016
2019;
(iii) Condensed Consolidated Statements of Changes in Shareholders' Equity for the nine months ended September 30, 20172020 and the year ended December 31, 2016
2019;
(iv) Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 20172020 and 2016,2019; and
(v) Notes to Condensed Consolidated Financial Statements. The instance document does not appear in the Interactive Data File because XBRL tags are embedded within the Inline XBRL document.

~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.

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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: November 5, 2020
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




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