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 ended	June 30, ~~2018~~2019



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



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

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

~~(855)~~ (855) 530-6642

(Registrant's telephone number, including area code)

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



Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Class A Common Stock, par value $0.01	NMIH	Nasdaq

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).

The number of shares of common stock, $0.01 par value per share, of the registrant outstanding on July ~~30, 2018~~29, 2019 was ~~65,755,084~~67,768,466 shares.

TABLE OF CONTENTS

CAUTIONARY NOTE REGARDING FORWARD LOOKING STATEMENTS

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

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

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

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

our future profitability, liquidity and capital resources;

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

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

adoption of new or changes to existing laws and regulations that impact our business or financial condition directly or the mortgage insurance industry generally or their enforcement and implementation by ~~regulators;~~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 markets and to enter into, and receive approval of, reinsurance arrangements on terms and conditions that are acceptable to us, the GSEs and our regulators;

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

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

failure of risk management or pricing or investment strategies;

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

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

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

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

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

ability to recruit, train and retain key personnel.

For more information regarding these risks and uncertainties as well as certain additional risks that we face, you should refer to Part I, Item 2, "Management's Discussion and Analysis of Financial Condition and Results of Operations" and elsewhere in this report on Form 10-Q, including the exhibits hereto. In addition, for additional discussion of those risks and uncertainties that have the potential to affect our business, financial condition, results of operations, cash flows or prospects in a material and adverse manner, you should review the Risk Factors ~~in Part 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, ~~2017 (2017~~2018 (2018 10-K), ~~as updated in our Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2018 (First Quarter 10-Q) and~~ as subsequently updated in other reports we file from time to time with the U.S. Securities and Exchange Commission (SEC).

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

PART I

Item 1. Financial Statements

INDEX TO FINANCIAL STATEMENTS



Condensed Consolidated Balance Sheets as of June 30, ~~2018~~2019 and December 31, ~~2017~~2018	6
Condensed Consolidated Statements of Operations and Comprehensive Income (Loss) for the three and six months ended June 30, ~~2018~~2019 and ~~2017~~2018	7
Condensed Consolidated Statements of Changes in Shareholders' Equity for the six months ended June 30, ~~2018~~2019 and ~~the year ended December 31, 2017~~2018	8
Condensed Consolidated Statements of Cash Flows for the six months ended June 30, ~~2018~~2019 and ~~2017~~2018	910
Notes to Condensed Consolidated Financial Statements	1011

NMI HOLDINGS, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)


	June 30, 2018			December 31, 2017			June 30, 2019		December 31, 2018
Assets	(In Thousands, except for share data)						(In Thousands, except for share data)
Fixed maturities, available-for-sale, at fair value (amortized cost of $852,029 and $713,859 as of June 30, 2018 and December 31, 2017, respectively)	$	838,265		$	715,875
Cash and cash equivalents	16,454			19,196
Fixed maturities, available-for-sale, at fair value (amortized cost of $994,543 and $924,987 as of June 30, 2019 and December 31, 2018, respectively)							$	1,017,607	$	911,490
Cash and cash equivalents (including restricted cash of $1,430 and $1,414 as of June 30, 2019 and December 31, 2018, respectively)							35,735		25,294
Premiums receivable	31,252			25,179			42,225		36,007
Accrued investment income	4,789			4,212			6,301		5,694
Prepaid expenses	2,907			2,151			3,358		3,241
Deferred policy acquisition costs, net	42,363			37,925			52,607		46,840
Software and equipment, net	22,803			22,802			25,827		24,765
Intangible assets and goodwill	3,634			3,634			3,634		3,634
Prepaid reinsurance premiums	35,798			40,250			20,426		30,370
Deferred tax asset, net	12,378			19,929
Other assets	5,836			3,695			12,679		4,708
Total assets	$	1,016,479		$	894,848		$	1,220,399	$	1,092,043

Liabilities
Term loan	$	147,262		$	143,882		$	146,253	$	146,757
Unearned premiums	165,658			163,166			151,358		158,893
Accounts payable and accrued expenses	21,407			23,364			24,351		31,141
Reserve for insurance claims and claim expenses	10,601			8,761			18,432		12,811
Reinsurance funds withheld	31,011			34,102			18,092		27,114
Deferred ceding commission	4,507			5,024
Warrant liability, at fair value	6,391			7,472			9,679		7,296
Deferred tax liability, net							28,258		2,740
Other liabilities ⁽¹⁾							11,597		3,791
Total liabilities	386,837			385,771			408,020		390,543
Commitments and contingencies

Shareholders' equity
Common stock - class A shares, $0.01 par value; 65,753,784 and 60,517,512 shares issued and outstanding as of June 30, 2018 and December 31, 2017, respectively (250,000,000 shares authorized)	658			605
Common stock - class A shares, $0.01 par value; 67,768,466 and 66,318,849 shares issued and outstanding as of June 30, 2019 and December 31, 2018, respectively (250,000,000 shares authorized)							677		663
Additional paid-in capital	670,870			585,488			692,163		682,181
Accumulated other comprehensive loss, net of tax	(15,043		)	(2,859		)
Accumulated deficit	(26,843		)	(74,157		)
Accumulated other comprehensive income (loss), net of tax							14,052		(14,832		)
Retained earnings							105,487		33,488
Total shareholders' equity	629,642			509,077			812,379		701,500
Total liabilities and shareholders' equity	$	1,016,479		$	894,848		$	1,220,399	$	1,092,043


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

See accompanying notes to consolidated financial statements.

NMI HOLDINGS, INC.

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


	For the three months ended June 30,						For the six months ended June 30,						For the three months ended June 30,						For the six months ended June 30,
	2018			2017			2018			2017			2019			2018			2019			2018
Revenues	(In Thousands, except for per share data)												(In Thousands, except for per share data)
Net premiums earned	$	61,615		$	37,917		$	116,529		$	71,142		$	83,249		$	61,615		$	157,118		$	116,529
Net investment income	5,735			3,908			10,309			7,715			7,629			5,735			15,012			10,309
Net realized investment gains	59			188			59			130
Net realized investment (losses) gains													(113		)	59			(300		)	59
Other revenues	44			185			108			265			415			44			456			108
Total revenues	67,453			42,198			127,005			79,252			91,180			67,453			172,286			127,005
Expenses
Insurance claims and claim expenses	643			1,373			2,212			2,008			2,923			643			5,666			2,212
Underwriting and operating expenses	29,020			28,048			57,473			54,037			32,543			29,020			63,392			57,473
Total expenses	29,663			29,421			59,685			56,045			35,466			29,663			69,058			59,685
Other expense
Gain (Loss) from change in fair value of warrant liability	109			19			529			(177		)
(Loss) gain from change in fair value of warrant liability													(1,685		)	109			(7,164		)	529
Interest expense	(5,560		)	(3,300		)	(8,979		)	(6,794		)	(3,071		)	(5,560		)	(6,132		)	(8,979		)
Total other expense	(5,451		)	(3,281		)	(8,450		)	(6,971		)	(4,756		)	(5,451		)	(13,296		)	(8,450		)

Income before income taxes	32,339			9,496			58,870			16,236			50,958			32,339			89,932			58,870
Income tax expense	7,098			3,484			11,274			4,732			11,858			7,098			17,933			11,274
Net income	$	25,241		$	6,012		$	47,596		$	11,504		$	39,100		$	25,241		$	71,999		$	47,596

Earnings per share
Basic	$	0.38		$	0.10		$	0.74		$	0.19		$	0.58		$	0.38		$	1.07		$	0.74
Diluted	$	0.37		$	0.10		$	0.70		$	0.18		$	0.56		$	0.37		$	1.04		$	0.70

Weighted average common shares outstanding
Basic	65,664			59,823			63,891			59,577			67,590			65,664			67,143			63,891
Diluted	68,616			63,010			67,171			62,689			69,590			68,616			69,348			67,171

Net income	$	25,241		$	6,012		$	47,596		$	11,504		$	39,100		$	25,241		$	71,999		$	47,596
Other comprehensive income (loss), net of tax:
Net unrealized gains (losses) in accumulated other comprehensive income, net of tax expense (benefit) of ($2,879) and $1,388 for the three months ended June 30, 2018 and 2017, respectively, and ($3,304) and $2,073 for the six months ended June 30, 2018 and 2017	(1,464		)	2,822			(12,429		)	4,017
Reclassification adjustment for realized (gains) included in net income, net of tax expenses of $12 and $66 for the three months ended June 30, 2018 and 2017, respectively, and $10 and $45 for the six months ended June 30, 2018 and 2017	(46		)	(122		)	(37		)	(84		)
Unrealized gains (losses) in accumulated other comprehensive income, net of tax expense (benefit) of $3,662 and ($2,879) for the three months ended June 30, 2019 and 2018 and $7,615 and ($3,304) for the six months ended June 30, 2019 and 2018, respectively													13,779			(1,464		)	28,647			(12,429		)
Reclassification adjustment for realized losses (gains) included in net income, net of tax (benefit) expense of ($24) and $12 for the three months ended June 30, 2019 and 2018 and ($63) and $10 for the six months ended June 30, 2019 and 2018, respectively													89			(46		)	237			(37		)
Other comprehensive income (loss), net of tax	(1,510		)	2,700			(12,466		)	3,933			13,868			(1,510		)	28,884			(12,466		)
Comprehensive income	$	23,731		$	8,712		$	35,130		$	15,437		$	52,968		$	23,731		$	100,883		$	35,130

See accompanying notes to consolidated financial statements.

NMI HOLDINGS, INC.

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


	Common Stock - Class A			Additional Paid-in Capital			Accumulated Other Comprehensive Income (Loss)			Accumulated Deficit			Total			Common Stock - Class A			Additional Paid-in Capital			Accumulated Other Comprehensive Income (Loss)			Retained Earnings		Total
	Shares	Amount														Shares	Amount
	(In Thousands)															(In Thousands)
Balances, January 1, 2017	59,145	$	591	$	576,927		$	(5,287	)	$	(96,722	)	$	475,509
Cumulative effect of change in accounting principle	—	—		388			—			515			903
Balances, January 1, 2019																66,319	$	663	$	682,181		$	(14,832	)	$	33,488	$	701,500
Common stock: class A shares issued related to warrants	32	*		183			—			—			183			39	*		944			—			—		944
Common stock: class A shares issued under stock plans, net of shares withheld for employee taxes	1,341	14		(1,494		)	—			—			(1,480		)	1,144	12		(1,471		)	—			—		(1,459		)
Share-based compensation expense	—	—		9,484			—			—			9,484			—	—		2,981			—			—		2,981
Change in unrealized investment gains/losses, net of tax expense of $1,307	—	—		—			2,428			—			2,428
Change in unrealized investment gains/losses, net of tax expense of $3,992																—	—		—			15,016			—		15,016
Net income	—	—		—			—			22,050			22,050			—	—		—			—			32,899		32,899
Balances, December 31, 2017	60,518	$	605	$	585,488		$	(2,859	)	$	(74,157	)	$	509,077
Cumulative effect of change in accounting principle	—	—		—			282			(282		)	—
Common stock: class A shares issued related to public offering	4,255	43		79,122			—			—			79,165
Balances, March 31, 2019																67,502	$	675	$	684,635		$	184		$	66,387	$	751,881
Common stock: class A shares issued related to warrants	29	*		552			—			—			552			128	1		3,835			—			—		3,836
Common stock: class A shares issued under stock plans, net of shares withheld for employee taxes	952	10		(114		)	—			—			(104		)	138	1		218			—			—		219
Share-based compensation expense	—	—		5,822			—			—			5,822			—	—		3,475			—			—		3,475
Change in unrealized investment gains/losses, net of tax benefit of $3,314	—	—		—			(12,466		)	—			(12,466		)
Change in unrealized investment gains/losses, net of tax benefit of $3,686																—	—		—			13,868			—		13,868
Net income	—	—		—			—			47,596			47,596			—	—		—			—			39,100		39,100
Balances, June 30, 2018	65,754	$	658	$	670,870		$	(15,043	)	$	(26,843	)	$	629,642
Balances, June 30, 2019																67,768	$	677	$	692,163		$	14,052		$	105,487	$	812,379

* During the year ended December 31, 2017 and the six months ended June 30, 2018, we issued 32,368 and 29,437 common shares, respectively, with a par value of $0.01 related to the exercise of warrants, which is not identifiable in this schedule due to rounding.

NMI HOLDINGS, INC.

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



	Common Stock - Class A			Additional Paid-in Capital			Accumulated Other Comprehensive Income (Loss)			Retained Earnings (Accumulated Deficit)			Total
	Shares	Amount		Additional Paid-in Capital			Accumulated Other Comprehensive Income (Loss)			Retained Earnings (Accumulated Deficit)			Total
	(In Thousands)
Balances, January 1, 2018	60,518	$	605	$	585,488		$	(2,859	)	$	(74,157	)	$	509,077
Cumulative effect of change in accounting principle	—	—		—			282			(282		)	—
Common stock: class A shares issued related to public offering	4,255	43		79,122			—			—			79,165
Common stock: class A shares issued related to warrants	26	*		489			—			—			489
Common stock: class A shares issued under stock plans, net of shares withheld for employee taxes	770	8		(999		)	—			—			(991		)
Share-based compensation expense	—	—		2,805			—			—			2,805
Change in unrealized investment gains/losses, net of tax benefit of $423	—	—		—			(10,956		)	—			(10,956		)
Net income	—	—		—			—			22,355			22,355
Balances, March 31, 2018	65,569	$	656	$	666,905		$	(13,533	)	$	(52,084	)	$	601,944
Common stock: class A shares issued related to warrants	3	*		63			—			—			63
Common stock: class A shares issued under stock plans, net of shares withheld for employee taxes	182	2		885			—			—			887
Share-based compensation expense	—	—		3,017			—			—			3,017
Change in unrealized investment gains/losses, net of tax benefit of $2,891	—	—		—			(1,510		)	—			(1,510		)
Net income	—	—		—			—			25,241			25,241
Balances, June 30, 2018	65,754	$	658	$	670,870		$	(15,043	)	$	(26,843	)	$	629,642

See accompanying notes to consolidated financial statements.

NMI HOLDINGS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)



	For the six months ended June 30,
	2019			2018
Cash flows from operating activities	(In Thousands)
Net income	$	71,999		$	47,596
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Net realized investment losses (gains)	300			(59		)
Loss (gain) from change in fair value of warrant liability	7,164			(529		)
Depreciation and amortization	4,339			3,810
Net amortization of premium on investment securities	622			810
Amortization of debt discount and debt issuance costs	499			2,851
Share-based compensation expense	6,456			5,822
Deferred income taxes	17,840			10,864
Changes in operating assets and liabilities:
Premiums receivable	(6,218		)	(6,073		)
Accrued investment income	(607		)	(577		)
Prepaid expenses	(312		)	(756		)
Deferred policy acquisition costs, net	(5,767		)	(4,438		)
Other assets	(260		)	68
Unearned premiums	(7,535		)	2,492
Reserve for insurance claims and claim expenses	5,621			1,840
Reinsurance balances, net	(438		)	365
Accounts payable and accrued expenses	(6,379		)	(2,733		)
Net cash provided by operating activities	87,324			61,353
Cash flows from investing activities
Purchase of short-term investments	(113,276		)	(83,874		)
Purchase of fixed-maturity investments, available-for-sale	(126,179		)	(219,093		)
Proceeds from maturity of short-term investments	119,748			52,562
Proceeds from redemptions, maturities and sale of fixed-maturity investments, available-for-sale	49,229			111,485
Additions to software and equipment	(4,491		)	(3,273		)
Net cash used in investing activities	(74,969		)	(142,193		)
Cash flows from financing activities
Proceeds from issuance of common stock related to public offering, net of issuance costs	—			79,165
Proceeds from issuance of common stock related to employee equity plans	12,374			6,173
Taxes paid related to net share settlement of equity awards	(13,538		)	(6,480		)
Proceeds from senior note, net	—			149,250
Repayments of term loan	(750		)	(146,625		)
Payments of debt issuance/modification costs	—			(3,385		)
Net cash (used in) provided by financing activities	(1,914		)	78,098

Net increase (decrease) in cash, cash equivalents and restricted cash	10,441			(2,742		)
Cash, cash equivalents and restricted cash, beginning of period	25,294			19,196
Cash, cash equivalents and restricted cash, end of period	$	35,735		$	16,454

Supplemental disclosures of cash flow information
Interest paid	$	5,365		$	6,425
Income tax (refunded) paid, net	$	(134	)	$	447

For the six months ended June 30,
2018 2017
Cash flows from operating activities (In Thousands)
Net income $ 47,596
$ 11,504
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Net realized investment gains (59 ) (130 )
(Gain) Loss from change in fair value of warrant liability (529 ) 177
Depreciation and amortization 3,810
3,119
Net amortization of premium on investment securities 810
772
Amortization of debt discount and debt issuance costs 2,851
757
Share-based compensation expense 5,822
4,219
Deferred income taxes 10,864
4,449
Changes in operating assets and liabilities:
Premiums receivable (6,073 ) (4,067 )
Accrued investment income (577 ) (445 )
Prepaid expenses (756 ) (81 )
Deferred policy acquisition costs, net (4,438 ) (4,097 )
Other assets ⁽¹⁾
68
(328 )
Unearned premiums 2,492
4,246
Reserve for insurance claims and claim expenses 1,840
2,047
Reinsurance balances, net ⁽¹⁾
365
(192 )
Accounts payable and accrued expenses (2,733 ) (7,358 )
Net cash provided by operating activities 61,353
14,592
Cash flows from investing activities
Purchase of short-term investments (83,874 ) (78,564 )
Purchase of fixed-maturity investments, available-for-sale (219,093 ) (116,991 )
Proceeds from maturity of short-term investments 52,562
94,677
Proceeds from redemptions, maturities and sale of fixed-maturity investments, available-for-sale 111,485
65,587
Additions to software and equipment (3,273 ) (4,863 )
Net cash used in investing activities (142,193 ) (40,154 )
Cash flows from financing activities
Proceeds from issuance of common stock related to public offering 79,165
—
Proceeds from issuance of common stock related to employee equity plans 6,173
2,614
Taxes paid related to net share settlement of equity awards (6,480 ) (3,643 )
Proceeds from senior note, net 149,250
—
Repayments of term loan (146,625 ) (750 )
Payments of debt modification costs (3,385 ) (370 )
Net cash provided by (used in) financing activities 78,098
(2,149 )

Net decrease in cash and cash equivalents (2,742 ) (27,711 )
Cash and cash equivalents, beginning of period 19,196
47,746
Cash and cash equivalents, end of period $ 16,454
$ 20,035

Supplemental disclosures of cash flow information
Interest paid $ 6,425
$ 7,292
Income tax paid 447
585

⁽¹⁾ ~~Ceded losses recoverable on the QSR Transactions were reclassified from "Other Assets" in prior periods to "Reinsurance balance, net".~~

See accompanying notes to consolidated financial statements.

NMI HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

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

NMI Holdings, Inc. (NMIH) is a Delaware corporation, incorporated in May 2011, to provide private mortgage guaranty insurance (which we refer to as mortgage insurance or MI) through its wholly owned insurance subsidiaries, National Mortgage Insurance Corporation (NMIC) and National Mortgage Reinsurance Inc One (Re One).

~~In April 2012, we completed a private placement of our securities, through which we offered and sold an aggregate of 55 million of our Class A~~ Our common stock resulting in net proceeds of approximately $510 million (the Private Placement), and we completed the acquisition of our insurance subsidiaries for $8.5 million in cash, common stock and warrants, plus the assumption of $1.3 million in liabilities. In November 2013, we completed an initial public offering of 2.4 million shares of our common stock, and our common stock began tradingis listed on the NASDAQ exchange ~~on November 8, 2013,~~ under the ticker symbol "NMIH." ~~In March 2018, we completed the sale of an additional 4.3 million shares of common stock including a 15% option to purchase additional shares, which was exercised in full.~~

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

Basis of Presentation

The accompanying unaudited condensed consolidated financial statements, which include the results of NMIH and its wholly owned subsidiaries, have been prepared in accordance with the instructions to Form 10-Q as prescribed by the SEC for interim reporting and include other information and disclosures required by accounting principles generally accepted in the U.S. (GAAP). Our accounts are maintained in U.S. dollars. These statements should be read in conjunction with our consolidated financial statements and notes thereto for the year ended December 31, ~~2017,~~2018, included in our ~~2017~~2018 10-K. All intercompany transactions have been eliminated. The preparation of financial statements in accordance with GAAP requires management to make estimates and assumptions that affect reported amounts of assets and liabilities, as well as disclosure of contingent assets and liabilities as of the balance sheet date. Estimates also affect the reported amounts of income and expenses for the reporting period. Actual results could differ from those estimates. Certain reclassifications to our previously reported financial information have been made to conform to current period presentation. The results of operations for the interim period may not be indicative of the results that may be expected for the full year ending December 31, ~~2018.~~2019.

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 ~~2017 Form~~2018 10-K, other than as noted in "~~Reinsurance" and "Recent Accounting Pronouncements - Adopted"~~ ~~below.~~

We account for premiums, claims and claim expenses that are ceded to reinsurers on a basis consistent with those we use to account for the original policies we issue and pursuant to the terms of our reinsurance contracts. We account for premiums ceded or otherwise paid to reinsurers as reductions to premium revenue.

Effective January 1, 2018, NMIC entered into a second quota share reinsurance transaction (2018 QSR Transaction) which is similar in nature to the quota share reinsurance transaction we entered into in September 2016 (2016 QSR Transaction, together with 2018 QSR Transaction, the QSR Transactions) (see Note 5, "~~Reinsurance~~"). We earn profit and ceding commissions in connection with the QSR Transactions. Profit commissions represent a percentage of the profits recognized by reinsurers that are returned to us, based on the level of claims 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 under the 2016 QSR Transaction and as a percentage of ceded earned premiums under the 2018 QSR Transaction, to cover our costs to acquire and service the direct policies. We earn the ceding commissions in a manner consistent with our recognition of earnings on the underlying insurance policies, over the terms of the policies reinsured. We account for ceding commissions earned as a reduction to underwriting and operating expenses.

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

~~NMI HOLDINGS, INC.~~

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

Recent Accounting Pronouncements - Adopted" below.

Recent Accounting Pronouncements - Adopted

In ~~May 2014,~~February 2016, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) ~~2014-09,~~ ~~Revenue from Contracts with Customers~~ ~~(Topic 606). This update is intended to provide a consistent approach in recognizing revenue. In December 2016, the FASB clarified that all contracts that are within the scope of Topic 944,~~ ~~Financial Services-Insurance~~, are excluded from the scope of ASU 2014-09. Accordingly, this update did not impact the recognition of revenue related to insurance premiums or investment income, which represent a majority of our total revenues. The update impacted our loan review services revenue, which is the only revenue stream in scope of the update. We adopted this update on January 1, 2018 using the modified-retrospective approach and the impact was immaterial to our consolidated financial statements.

~~In January 2016, the FASB issued ASU 2016-01,~~ ~~Financial Instruments - Overall: Recognition and Measurement of Financial Assets and Financial Liabilities~~ (Subtopic 825-10). This update requires entities to reduce the carrying amount of deferred tax assets, if necessary, by the amount of any tax benefit that is not expected to be realized. We adopted this update effective January 1, 2018. The impact was immaterial to our consolidated financial statements.

~~In February 2018, the FASB issued ASU 2018-02,~~ ~~Reclassification of~~ Ce~~rtain Tax Effects from Accumulated Other Comprehensive Income~~ (Topic 220). This update permits a company to reclassify the disproportionate income tax effects as a result of the 2017 Tax Cuts and Jobs Act (the TCJA) on items within accumulated other comprehensive income (AOCI) to retained earnings. ~~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.~~ ~~We adopted this update on January 1, 2018 and adjusted the disproportionate income tax effects, or "stranded tax effects," resulting in a $0.3 million reduction to our beginning retained earnings as of January 1, 2018.~~

~~Recent Accounting Pronouncements - Not Yet Adopted~~

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

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

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

Recent Accounting Pronouncements - Not Yet Adopted

In June 2016, the FASB issued ASU 2016-13, Financial Instruments-Credit Losses (Topic 326) and in April 2019, the FASB issued ASU 2019-04, Codification Improvements to Topic 326, Financial Instruments-Credit Losses, (Topic ~~326). This update requires~~815, Derivatives and Hedging, and Topic 825, Financial Instruments, which includes codification improvements to Topic 326. These updates will require companies to measure ~~all~~and establish reserves for lifetime expected credit losses ~~for~~on many financial assets held at ~~the~~a given reporting date. ~~The standard also amends~~Under the ~~accounting~~guidance, the methodology for measuring lifetime credit losses will generally shift from an incurred loss

NMI HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

model, whereby losses are only recognized once probable and estimable, to a current 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 will be recorded through an allowance for credit losses, rather than a write-down of the asset as is currently required, with the amount of the allowance limited to the amount by which fair value is less than amortized cost. The length of time an available-for sale fixed maturity security has been held in an unrealized loss position will no longer impact its credit loss determination. The standard will take effect for public business entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. While we are still finalizing our analysis of this guidance, we do not expect it to have a material impact on ~~available-for-sale debt securities~~our consolidated financial statements. This standard will not impact our accounting for insurance claims and ~~purchased~~claim expenses as these items are not in the scope of this ASU.

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

In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820). This update modifies the fair value measurement disclosure requirements of ASC 820. The standard will take effect for public business entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. Adoption of this ASU will not have an impact on our Consolidated Balance Sheet, Statements of Operations and Comprehensive Income, Changes in Shareholders Equity or Cash Flows.

In August 2018, the FASB issued ASU 2018-15, Intangibles - Goodwill and Other - Internal-Use Software (Subtopic 350-40). This update applies to cloud computing arrangements hosted by a vendor and provides companies with ~~credit deterioration.~~guidance on the criteria for capitalizing implementation, set-up and other up-front costs incurred in association with these arrangements. The standard will take effect for public business entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. We are currently evaluating the impact the adoption of this ASU will have, if any, 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 equity-linked financial instruments. 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. The guidance must be applied using a full or modified retrospective approach. We are currently evaluating the impact the adoption of this ASU will have, if any, on our consolidated financial statements.

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

~~NMI HOLDINGS, INC.~~

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

sold or other-than-temporarily impaired.

Fair Values and Gross Unrealized Gains and Losses on Investments

NMI HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Amortized
Cost Gross Unrealized Fair
Value
Gains Losses
As of December 31, 2017 (In Thousands)
U.S. Treasury securities and obligations of U.S. government agencies $ 65,669
$ —
$ (981 ) $ 64,688
Municipal debt securities 89,973
534
(659 ) 89,848
Corporate debt securities 435,562
4,231
(1,958 ) 437,835
Asset-backed securities 100,153
916
(125 ) 100,944
Total bonds 691,357
5,681
(3,723 ) 693,315
Long-term investments - other 353
—
—
353
Short-term investments 22,149
58
—
22,207
Total investments $ 713,859
$ 5,739
$ (3,723 ) $ 715,875



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

We did not own any mortgage-backed securities in our asset-backed securities portfolio at June 30, 2019 or December 31, 2018.

The following table presents a breakdown of the fair value of our corporate debt securities by issuer industry group as of June 30, 2019 and December 31, 2018:



	June 30, 2019		December 31, 2018
Financial	38	%	38	%
Consumer	27		27
Communications	10		12
Utilities	9		7
Industrial	8		7
Technology	6		6
Energy	1		2
Other	1		1
Total	100	%	100	%

As of June 30, ~~2018~~2019 and December 31, ~~2017,~~2018, approximately ~~$5.2~~$5.5 million and ~~$7.0~~$5.3 million, respectively, of our cash and investments were held in the form of U.S. Treasury securities on deposit with various state insurance departments to satisfy regulatory requirements.

Scheduled Maturities

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



As of June 30, 2019	Amortized Cost		Fair Value
	(In Thousands)
Due in one year or less	$	99,314	$	99,375
Due after one through five years	412,820		420,131
Due after five through ten years	300,990		312,792
Due after ten years	13,168		13,878
Asset-backed securities	168,251		171,431
Total investments	$	994,543	$	1,017,607

As of June 30, 2018 Amortized
Cost Fair
Value
(In Thousands)
Due in one year or less $ 72,205
$ 72,166
Due after one through five years 313,545
309,079
Due after five through ten years 314,376
305,507
Due after ten years 3,800
3,729
Asset-backed securities 148,103
147,784
Total investments $ 852,029
$ 838,265

NMI HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)



As of December 31, 2018	Amortized Cost		Fair Value
	(In Thousands)
Due in one year or less	$	76,087	$	76,104
Due after one through five years	352,282		347,701
Due after five through ten years	318,728		310,633
Due after ten years	5,900		5,727
Asset-backed securities	171,990		171,325
Total investments	$	924,987	$	911,490

As of December 31, 2017 Amortized
Cost Fair
Value
(In Thousands)
Due in one year or less $ 97,406
$ 97,394
Due after one through five years 195,795
195,626
Due after five through ten years 305,798
306,930
Due after ten years 14,707
14,981
Asset-backed securities 100,153
100,944
Total investments $ 713,859
$ 715,875

Aging of Unrealized Losses

As of June 30, ~~2018~~2019, the investment portfolio had gross unrealized losses of ~~$14.9 million, $4.7~~$1.0 million, of which ~~has~~$0.8 million 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 June 30, ~~2018.~~2019. We based our conclusion that these investments were not other-than-temporarily impaired as of June 30, ~~2018~~2019 on the following facts: (i) the unrealized losses were primarily caused by interest rate movements and market fluctuations in credit spreads since the purchase date; (ii) we do not intend to sell these investments; and (iii) we do not believe that it is more likely than not that we will be required to sell these investments before recovery of our amortized cost basis, which may not occur until maturity. For those securities in an unrealized loss position, the length of time the securities were in such a position is as follows:

Less Than 12 Months 12 Months or Greater Total
# of Securities Fair Value Unrealized Losses # of Securities Fair Value Unrealized Losses # of Securities Fair Value Unrealized Losses
As of December 31, 2017 (Dollars in Thousands)
U.S. Treasury securities and obligations of U.S. government agencies 16
$ 29,806
$ (394 ) 26
$ 34,882
$ (587 ) 42
$ 64,688
$ (981 )
Municipal debt securities 21
38,628
(264 ) 10
17,945
(395 ) 31
56,573
(659 )
Corporate debt securities 94
128,313
(829 ) 23
48,978
(1,129 ) 117
177,291
(1,958 )
Asset-backed securities 22
27,947
(63 ) 5
12,438
(62 ) 27
40,385
(125 )
Total 153
$ 224,694
$ (1,550 ) 64
$ 114,243
$ (2,173 ) 217
$ 338,937
$ (3,723 )

~~The following table presents the components of net investment income:~~

For the three months ended June 30, For the six months ended June 30,
2018 2017 2018 2017
(In Thousands)
Investment income $ 5,937
$ 4,099
$ 10,719
$ 8,092
Investment expenses (202 ) (191 ) (410 ) (377 )
Net investment income $ 5,735
$ 3,908
$ 10,309
$ 7,715



	Less Than 12 Months						12 Months or Greater						Total
	# of Securities	Fair Value		Unrealized Losses			# of Securities	Fair Value		Unrealized Losses			# of Securities	Fair Value		Unrealized Losses
As of December 31, 2018		(Dollars in Thousands)
U.S. Treasury securities and obligations of U.S. government agencies	—	$	—	$	—		19	$	41,817	$	(1,376	)	19	$	41,817	$	(1,376	)
Municipal debt securities	4	7,409		(11		)	31	58,658		(952		)	35	66,067		(963		)
Corporate debt securities	118	226,477		(3,952		)	126	221,675		(7,736		)	244	448,152		(11,688		)
Asset-backed securities	25	36,017		(1,136		)	22	33,988		(321		)	47	70,005		(1,457		)
Total	147	$	269,903	$	(5,099	)	198	$	356,138	$	(10,385	)	345	$	626,041	$	(15,484	)

NMI HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Net Investment Income

The following table presents the components of net investment income:



	For the three months ended June 30,						For the six months ended June 30,
	2019			2018			2019			2018
	(In Thousands)
Investment income	$	7,741		$	5,937		$	15,237		$	10,719
Investment expenses	(112		)	(202		)	(225		)	(410		)
Net investment income	$	7,629		$	5,735		$	15,012		$	10,309

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



	For the three months ended June 30,					For the six months ended June 30,
	2019			2018		2019			2018
	(In Thousands)
Gross realized investment gains	$	22		$	59	$	217		$	59
Gross realized investment losses	(135		)	—		(517		)	—
Net realized investment losses	$	(113	)	$	59	$	(300	)	$	59

For the three months ended June 30, For the six months ended June 30,
2018 2017 2018 2017
(In Thousands)
Gross realized investment gains $ 59
$ 188
$ 59
$ 467
Gross realized investment losses —
—
—
(337 )
Net realized investment gains (losses) $ 59
$ 188
$ 59
$ 130

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

AtAs of June 30, ~~2018,~~2019, we held no other-than-temporarily impaired ~~securities and during~~securities. During the six months ended June 30, 2019, we recognized a $0.4 million OTTI 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 June 30, 2019 or the three and six months ended June 30, ~~2018, there~~2018. There were no credit losses recognized in earnings for which a portion of an OTTI loss was recognized in accumulated other comprehensive ~~income. During~~income (loss) for the three ~~months ended June 30, 2017, there were no OTTI losses. During the~~or six months ended June 30, ~~2017, there were OTTI losses of $144 thousand recognized in earnings.~~2019.

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 is determined based on the lowest level input that is significant to the fair value measurement in its entirety.

NMI HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Assets classified as Level 1 and Level 2

To determine the fair value of securities available-for-sale in Level 1 and Level 2 of the fair value hierarchy, independent pricing sources have been utilized. One price is provided per security based on observable market data. To ensure securities are appropriately classified in the fair value hierarchy, we review the pricing techniques and methodologies of the independent pricing sources and believe that their policies adequately consider market activity, either based on specific transactions for the issue valued or based on modeling of securities with similar credit quality, duration, yield and structure that were recently traded. A variety of inputs are utilized by the independent pricing sources including benchmark yields, reported trades, non-binding broker/dealer quotes, issuer spreads, two sided markets, benchmark securities, bids, offers and reference data including data published in market research publications. Inputs may be weighted differently for any security, and not all inputs are used for each security evaluation. Market indicators, industry and economic events are also considered. This information is evaluated using a multidimensional pricing model. Quality controls are performed by the independent pricing sources throughout this process, which include reviewing tolerance reports, trading information and data changes, and directional moves compared to market moves. This model combines all inputs to arrive at a value assigned to each security. We have not made any adjustments to the prices obtained from the independent pricing sources.

~~NMI HOLDINGS, INC.~~

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

Liabilities classified as Level 3

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

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


	Fair Value Measurements Using								Fair Value Measurements Using
	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Fair Value		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Fair Value
As of June 30, 2018	(In Thousands)
As of June 30, 2019									(In Thousands)
U.S. Treasury securities and obligations of U.S. government agencies	$	46,238	$	—	$	—	$	46,238	$	48,765	$	—	$	—	$	48,765
Municipal debt securities	—		92,351		—		92,351		—		93,074		—		93,074
Corporate debt securities	—		498,026		—		498,026		—		651,972		—		651,972
Asset-backed securities	—		147,784		—		147,784		—		171,431		—		171,431
Long-term investment – other	—		—				—
Cash, cash equivalents and short-term investments	70,320						70,320		88,100		—		—		88,100
Total assets	$	116,558	$	738,161	$	—	$	854,719	$	136,865	$	916,477	$	—	$	1,053,342
Warrant liability	—		—		6,391		6,391		—		—		9,679		9,679
Total liabilities	$	—	$	—	$	6,391	$	6,391	$	—	$	—	$	9,679	$	9,679

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, 2017 (In Thousands)
U.S. Treasury securities and obligations of U.S. government agencies $ 59,844
$ 4,844
$ —
$ 64,688
Municipal debt securities —
89,848
—
89,848
Corporate debt securities —
437,835
—
437,835
Asset-backed securities —
100,944
—
100,944
Long-term investment - other 353
—
—
353
Cash, cash equivalents and short-term investments 41,403
—
—
41,403
Total assets $ 101,600
$ 633,471
$ —
$ 735,071
Warrant liability —
—
7,472
7,472
Total liabilities $ —
$ —
$ 7,472
$ 7,472

NMI HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)



	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, 2018	(In Thousands)
U.S. Treasury securities and obligations of U.S. government agencies	$	46,830	$	—	$	—	$	46,830
Municipal debt securities	—		91,257		—		91,257
Corporate debt securities	—		543,238		—		543,238
Asset-backed securities	—		171,325		—		171,325
Cash, cash equivalents and short-term investments	84,134		—		—		84,134
Total assets	$	130,964	$	805,820	$	—	$	936,784
Warrant liability	—		—		7,296		7,296
Total liabilities	$	—	$	—	$	7,296	$	7,296

There were no transfers between Level 1 and Level 2, nor any transfers in or out of Level 3, of the fair value hierarchy during the six months ended June 30, ~~2018~~2019 and the year ended December 31, ~~2017.~~

~~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 six months ended June 30,
Warrant Liability	2019			2018
	(In Thousands)
Balance, January 1	$	7,296		$	7,472
Change in fair value of warrant liability included in earnings	7,164			(529		)
Issuance of common stock on warrant exercise	(4,781		)	(552		)
Balance, June 30	$	9,679		$	6,391

For the six months ended June 30,
Warrant Liability 2018 2017
(In Thousands)
Balance, January 1 $ 7,472
$ 3,367
Change in fair value of warrant liability included in earnings (529 ) 177
Issuance of common stock on warrant exercise (552 ) —
Balance, June 30 $ 6,391
$ 3,544

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



	As of June 30,
	2019			2018
Common stock price	$	28.39		$	16.30
Risk free interest rate	1.72 - 1.95%			2.60		%
Expected life	0.92 - 2.81 years			2.49 years
Expected volatility	33.8 - 40.0%			32.7		%
Dividend yield	0		%	0		%

As of June 30,
2018 2017
Common Stock Price $ 16.30
$ 11.45

Risk free interest rate 2.60%
1.68 %
Expected life 2.49 years
3.75 years

Expected volatility 32.7 % 30.6 %
Dividend yield 0%
0%

The changes in fair value of the warrant liability for the six months ended June 30, ~~2018~~2019 and ~~2017~~2018 are primarily attributable to changes in the price of our common stock during the respective periods, with additional impact related to changes in the Black-Scholes model inputs and exercises of outstanding warrants.

4. Debt ~~Obligations~~

On May 24, 2018, we entered into a credit agreement (2018 Credit Agreement), which provides for (i) a $150 million ~~five-year~~5-year senior secured term loan facility (2018 Term Loan) that matures on May 24, 2023; and (ii) a $85 million three-year secured revolving credit facility (2018 Revolving Credit Facility) that matures on May 24, 2021. Proceeds from the 2018 Term Loan were used to repay in full the outstanding amount due under our $150 million amended term loan (2015 Term Loan) due on November 10, 2019, ~~(the 2015 Term Loan)~~ and to pay fees and expenses incurred in connection with the 2018 Credit Agreement.

NMI HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

The 2018 Term Loan bears interest at the Eurodollar Rate, as defined in the 2018 Credit Agreement and subject to a 1.00% floor, plus an annual margin rate of 4.75%, representing an all-in rate of ~~6.84%~~6.95% as of June 30, ~~2018,~~2019, payable monthly based on our current interest period election. Quarterly principal payments of $375 thousand are also ~~required starting on September~~required. As of June 30, ~~2018. The~~2019, the outstanding principal balance of the 2018 Term Loan has a prepayment premium of 1% for any refinancing prepayments made on or prior to the date that is six months after the date of the 2018 Credit Agreement, after which there is no prepayment penalty.was $148.5 million.

Interest expense for the ~~quarter ending June 30,~~ 2018 Term Loan includes ~~amounts related to our~~ interest ~~payment, one-time financing costs~~ and the amortization of issuance costs, ~~and~~an original issue ~~discounts.~~discount and capitalized modification costs related to the 2015 Term Loan. For the three and six months ended June 30, ~~2018, we recorded $9.0 million of~~2019, interest expense ~~including~~was $2.8 million and $5.7 million, respectively. Remaining unamortized issuance costs were $2.2 million as of ~~costs related to the extinguishment of the 2015 Term Loan~~June 30, 2019 and ~~issuance of the 2018 Term Loan. Capitalized debt issuance costs totaling $1.8 million and original issue discounts totaling $986 thousand~~ are being amortized to interest expense using the effective interest method over the contractual life of the 2018 Term Loan. ~~As of June 30, 2018, the remaining unamortized issuance cost and original issue discounts totaled $2.7 million, and the outstanding balance of the Term Loan was $150 million.~~

We are subject to certain covenants under the 2018 Term Loan (as defined in the 2018 Credit Agreement), including (but not limited to) a maximum debt-to-total capitalization ratio (as defined in the 2018 Credit Agreement) of 35% under the 2018 Term Loan. We were in compliance with all covenants as of June 30, ~~2018.~~

~~NMI HOLDINGS, INC.~~

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

Future principal payments due under the 2018 Term Loan as of June 30, ~~2018~~2019 are as follows:



As of June 30, 2019	Principal
	(In thousands)
2019	$	750
2020	1,500
2021	1,500
2022	1,500
2023	143,250
Total	$	148,500

As of June 30, 2018 Principal
(In thousands)
2018 $ 750

2019 1,500

2020 1,500

2021 1,500

2022 1,500

2023 143,250

Total $ 150,000

2018 Revolving Credit Facility

Borrowings under the 2018 Revolving Credit Facility may be used for general corporate purposes and will accrue interest at a variable rate equal to, at our discretion, (i) a base rate (as defined in the 2018 Credit Agreement, subject to a floor of 1.00% per annum) plus a margin of 1.00% to 2.50% per annum, based on the applicable corporate credit rating at the time, or (ii) the Eurodollar Rate (subject to a floor of 0.00% per annum) plus a margin of 2.00% to 3.50% per annum, based on the applicable corporate credit rating at the time. As of June 30, ~~2018,~~2019, no borrowings had been made under the 2018 Revolving Credit Facility.

We are required to pay a quarterly commitment fee on the average daily undrawn amount of the 2018 Revolving Credit Facility, which ranges from 0.30% to 0.60%, based on the applicable corporate credit rating at the time. As of June 30, ~~2018,~~2019, the applicable commitment fee was ~~0.50%~~0.40%. WeFor the three and six months ended June 30, 2019, we recorded ~~$46 thousand~~$0.1 million and $0.2 million of commitment fees in interest expense, ~~for the period from May 24, 2018 through June 30, 2018.~~

We incurred issuance costs of $1.5 million in connection with the establishment of the 2018 Revolving Credit Facility, which were deferred and recorded within Other Assets. These costs ~~will be~~are being amortized through interest expense over the three-year life of the 2018 Revolving Credit Facility on a straight line basis. ~~As of~~For the three and six months ended June 30, ~~2018,~~2019, we recognized $0.1 million and $0.3 million, respectively, of interest expense from the amortization of deferred issuance costs. At June 30, 2019, remaining deferred issuance ~~cost was $1.5~~costs were $1.0 million, net of ~~$42 thousand of~~ accumulated amortization.

We are subject to certain covenants under the 2018 Revolving Credit Facility, including (but not limited to) the following: a maximum debt-to-total capitalization ratio of 35%, a minimum liquidity requirement, compliance with the PMIERs financial requirements (subject to any GSE-approved waivers), and minimum consolidated net worth and statutory capital requirements (respectively, as defined therein). We were in compliance with all covenants as of June 30, ~~2018.~~2019.

~~NMI HOLDINGS, INC.~~

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

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

NMI HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

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

⁽¹⁾ ~~Net of profit commission~~


⁽¹⁾	Net of profit commission.

Excess-of-loss reinsurance

2017 ILN Transaction

In May 2017, NMIC entered into a reinsurance agreement with Oaktown Re Ltd. (Oaktown Re) ~~that~~, which provides for up to $211.3 million of aggregate excess-of-loss reinsurance coverage at inception for new delinquencies on an existing portfolio of mortgage insurance policies written from 2013 through December 31, 2016. For the reinsurance coverage period, NMIC ~~will retain~~retains the first layer of $126.8 million of aggregate losses, of which $124.4 million remained at June 30, 2019, and Oaktown Re ~~will~~ then ~~provide~~provides second layer coverage up to the outstanding reinsurance coverage amount. NMIC ~~will~~ then ~~retain~~retains losses in excess of the outstanding reinsurance coverage amount. The outstanding reinsurance coverage amount decreases from $211.3 million at inception over a ten-year period as the underlying covered mortgages ~~amortize~~are amortized or repaid, and/or ~~are repaid~~the mortgage insurance coverage is canceled and was ~~$156.1~~$91.5 million as of June 30, ~~2018.~~2019. The outstanding reinsurance coverage amount will stop amortizing if certain credit enhancement or delinquency thresholds are triggered.

Oaktown Re financed the coverage by issuing mortgage insurance-linked notes in an aggregate amount of $211.3 million to unaffiliated investors (the 2017 Notes). The 2017 Notes mature on April 26, 2027. All of the proceeds paid to Oaktown Re from the sale of the 2017 Notes were deposited into a reinsurance trust to collateralize and fund the obligations of Oaktown Re to NMIC under the reinsurance agreement. Funds in the reinsurance trust account are required to be invested in high credit quality money market funds at all times. We refer collectively to NMIC's reinsurance agreement with Oaktown Re and the issuance of the 2017 Notes by Oaktown Re as the 2017 ILN Transaction. Under the terms of the 2017 ILN Transaction, NMIC makes risk premium payments for the applicable outstanding reinsurance coverage amount and pays Oaktown Re for anticipated operating expenses (capped at $300 thousand per year). NMIC ceded risk premiums to Oaktown Re of $1.3 million and $2.6 million during the three and six months ended June 30, 2019, respectively, and $1.6 million and $3.3 million during the three and six months ended June 30, 2018, respectively. NMIC did not cede any losses to Oaktown Re during the three and six months ended June 30, 2019 and 2018.

2018 ILN Transaction

In July 2018, NMIC entered into a reinsurance agreement with Oaktown Re II Ltd. (Oaktown Re II), which provides for up to $264.5 million of aggregate excess-of-loss reinsurance coverage at inception for new delinquencies on an existing portfolio of mortgage insurance policies written between January 1, 2017 and May 31, 2018. For the reinsurance coverage period, NMIC retains the first layer of $125.3 million of aggregate losses, of which $125.2 million remained at June 30, 2019, and Oaktown Re II then provides second layer coverage up to the outstanding reinsurance coverage amount. NMIC then retains losses in excess of the outstanding reinsurance coverage amount. The outstanding reinsurance coverage amount decreases from $264.5 million at inception over a ten-year period as the underlying covered mortgages are amortized or repaid, and/or the mortgage insurance coverage is canceled, and was $258.2 million as of June 30, 2019. The outstanding reinsurance coverage amount will stop amortizing if certain credit enhancement or delinquency thresholds are triggered.

Oaktown Re II financed the coverage by issuing mortgage insurance-linked notes in an aggregate amount of $264.5 million to unaffiliated investors (the 2018 Notes). The 2018 Notes mature on July 25, 2028. All of the proceeds paid to Oaktown Re II from the sale of the 2018 Notes were deposited into a reinsurance trust to collateralize and fund the obligations of Oaktown Re II to NMIC

NMI HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

under the reinsurance agreement. Funds in the reinsurance trust account are required to be invested in high credit quality money market funds at all times. We refer collectively to NMIC's reinsurance agreement with Oaktown Re II and the issuance of the 2018 Notes by Oaktown Re II as the 2018 ILN Transaction. Under the terms of the 2018 ILN Transaction, NMIC makes risk premium payments for the applicable outstanding reinsurance coverage amount and pays Oaktown Re II for anticipated operating expenses (capped at $250 thousand per year). For the three and six months ended June 30, ~~2018,~~2019, NMIC ceded risk premiums of $1.6 million and $3.3 million, ~~respectively. For~~respectively, to Oaktown Re II. NMIC did not cede any losses to Oaktown Re II during the three and six months ended June 30, ~~2017, NMIC ceded risk premiums of $1.4 million. NMIC did not cede any losses to Oaktown Re.~~2019.

Under the ~~reinsurance agreement,~~terms of the 2018 ILN Transaction, we are required to maintain a certain level of restricted funds in a premium deposit account with Bank of New York Mellon until the 2018 Notes have been redeemed in full. "Cash and cash equivalents" on our balance sheet includes restricted cash of $1.4 million as of June 30, 2019. We are not required to deposit additional funds into the premium deposit account and the restricted balance will decrease over time as the principal balance of the 2018 Notes declines.

We refer collectively to the 2017 ILN Transaction and 2018 ILN Transaction as the ILN Transactions. NMIC holds an optional termination ~~right if~~rights under each ILN Transaction in the event of certain ~~events occur,~~occurrences, including, among others, a clean-up call if the outstanding reinsurance coverage amount amortizes to 10% or less of the reinsurance coverage amount at inception or if NMIC reasonably determines that changes to GSE or rating agency asset requirements would cause a material and adverse effect on the capital treatment afforded to NMIC under ~~the~~a given agreement. In addition, there are certain events that ~~will result in~~trigger mandatory termination of ~~the~~an agreement, including NMIC's failure to pay premiums or consent to reductions in ~~the~~a trust account to make principal payments to noteholders, among others.

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

~~NMI HOLDINGS, INC.~~The amount of reinsurance premium ceded under the ILN Transactions fluctuates based on changes in one-month LIBOR and changes in the earned rate on the money market funds in which the assets of the reinsurance trusts are invested. As the reinsurance premiums will vary based on changes in these rates, we have concluded that the ILN Transactions contain embedded derivatives that must be accounted for separately as freestanding derivatives. The total fair value of such derivatives at June 30, 2019 and December 31, 2018, and the change in fair value of the derivatives during the three and six months ended June 30, 2019 and 2018, were not material to our consolidated financial statements.

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

Quota share reinsurance

2016 QSR Transaction

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

Under the 2016 QSR Transaction, NMIC ceded premiums written related to:

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

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

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

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

2018 QSR Transaction

Effective January 1, 2018, NMIC entered into ~~the 2018 QSR Transaction~~a second quota share reinsurance treaty with a panel of third-party ~~reinsurers.~~reinsurers (the 2018 QSR Transaction, together with the 2016 QSR Transaction, the QSR Transactions). Each of the third-party reinsurers has an insurer financial strength rating of A- or better by S&P, ~~A.M.~~AM Best or both. Under the 2018 QSR Transaction, NMIC cedes premiums earned related to 25% of risk on eligible policies written in 2018 and 20% ~~to 30% (such amount to be determined by NMIC at its sole election by December 1, 2018)~~of risk on eligible policies written in 2019.

The 2018 QSR Transaction is scheduled to terminate on December 31, 2029. However, NMIC has the option, based on certain conditions and subject to a termination fee, to terminate the agreement as of December 31, 2022, or at the end of any calendar quarter thereafter, which

NMI HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

would result in NMIC reassuming the related risk.

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

Effective April 1, 2019, NMIC elected to terminate its engagement with one reinsurer under the 2016 QSR Transaction on a cut-off basis. In connection with the termination, NMIC recaptured approximately $500 million of previously ceded primary RIF and stopped ceding new premiums earned or written with respect to the recaptured risk. With this termination, ceded premiums written under the 2016 QSR Transaction 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 QSR Transactions:



	For the three months ended						For the six months ended
	June 30, 2019			June 30, 2018			June 30, 2019			June 30, 2018
	(In Thousands)
Ceded risk-in-force	$	4,558,862		$	3,606,928		$	4,558,862		$	3,606,928
Ceded premiums written	(18,592		)	(15,318		)	(37,437		)	(29,843		)
Ceded premiums earned	(20,919		)	(18,077		)	(42,387		)	(34,295		)
Ceded claims and claim expenses	770			173			1,669			716
Ceding commission written	3,717			3,064			7,488			5,969
Ceding commission earned	4,171			3,536			8,377			6,687
Profit commission	11,884			10,707			23,945			19,908

For the three months ended For the six months ended
June 30, 2018 June 30, 2017 June 30, 2018 June 30, 2017
(In Thousands)
Ceded risk-in-force 3,606,928
2,403,027
3,606,928
2,403,027
Ceded premiums written (15,318 ) (12,034 ) (29,843 ) (22,326 )
Ceded premiums earned (18,077 ) (11,463 ) (34,295 ) (21,328 )
Ceded claims and claims expenses 173
342
716
610
Ceding commission written 3,064
2,407
5,969
4,465
Ceding commission earned 3,536
2,275
6,687
4,340
Profit commission 10,707
6,536
19,908
12,187

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 revenue on direct premiums. Under the 2018 QSR Transaction, premiums are ceded on an earned basis as defined in the agreement. NMIC receives a 20% ceding commission for premiums ceded under the QSR Transactions. NMIC also receives a profit commission, provided that the loss ratio on the loans covered under the 2016 QSR Transaction and 2018 QSR Transaction generally remains below 60% and 61%, respectively, as measured annually. Ceded claims and claim expenses under the QSR Transactions reduce NMIC's profit commission on a dollar-for-dollar basis.

~~NMI HOLDINGS, INC.~~

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

In accordance with the terms of the 2016 QSR Transaction, rather than making a cash payment or transferring investments for ceded premiums written, NMIC established a funds withheld liability, which also includes amounts due to NMIC for ceding and profit commissions. Any loss recoveries and any potential profit commission to NMIC will be realized from this account until exhausted. NMIC's reinsurance recoverable balance is further supported by trust accounts established and maintained by each reinsurer in accordance with the PMIERs funding requirements for risk ceded to non-affiliates. The reinsurance recoverable on loss reserves related to our 2016 QSR Transaction was ~~$2.4~~$2.7 million as of June 30, ~~2018.~~2019.

In accordance with the terms of the 2018 QSR Transaction, cash payments for ceded premiums earned are settled on a quarterly basis, offset by amounts due to NMIC for ceding and profit commissions. Any loss recoveries and any potential profit commission to NMIC are also settled quarterly. NMIC's reinsurance recoverable balance is supported by trust accounts established and maintained by each reinsurer in accordance with the PMIERs funding requirements for risk ceded to non-affiliates. The reinsurance recoverable on loss reserves related to our 2018 QSR Transaction was ~~$8 thousand~~$1.1 million as of June 30, ~~2018.~~2019.

6. Reserves for Insurance Claims and Claim Expenses

We establish reserves to recognize the estimated liability for insurance claims and claim expenses related to defaults on insured mortgage loans. Consistent with industry practice, we establish reserves for loans that have been reported to us by servicers as having been in default for at least 60 days, referred to as case reserves, and additional loans that we estimate (based on actuarial review) have been in default for at least 60 days that have not yet been reported to us by servicers, referred to as incurred but not

NMI HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

reported (IBNR) reserves. We also establish ~~claims~~claim expense reserves, which represent the estimated cost of the claim administration process, including legal and other fees, as well as other general expenses of administering the claims settlement process. As of June 30, ~~2018,~~2019, we had reserves for insurance claims and ~~claims~~claim expenses of ~~$10.6~~$18.4 million for ~~768~~1,028 primary loans in default. During the ~~first~~ six months ~~of 2018,~~ended June 30, 2019, we paid 3562 claims totaling ~~$1.1~~$1.7 million, including 2658 claims covered under the QSR Transactions representing ~~$237 thousand~~$0.3 million of ceded claims and ~~claims~~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 this deductible. At June 30, ~~2018,~~2019, 54 loans in the pool were past due by 60 days or more. These 54 loans ~~represent~~represented approximately ~~$3.2~~$3.4 million of ~~risk-in-force (RIF).~~RIF. Due to the size of the remaining deductible, the low level of notices of default (NODs) reported on loans in the pool through June 30, ~~2018~~2019 and the expected severity (all loans in the pool have loan-to-value ratios (LTV) ratios under 80%), we did not ~~have~~establish any case or IBNR reserves for pool ~~risks~~risk at June 30, ~~2018~~2019. In connection with the settlement of pool claims, we applied ~~$574 thousand~~$0.7 million to the pool deductible through June 30, ~~2018.~~2019. At June 30, ~~2018,~~2019, the remaining pool deductible was ~~$9.8~~$9.6 million. We have not paid any pool claims to date. 100% of our pool RIF is reinsured under the 2016 QSR Transaction.

~~NMI HOLDINGS, INC.~~

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

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



	For the six months ended June 30,
	2019			2018
	(In Thousands)
Beginning balance	$	12,811		$	8,761
Less reinsurance recoverables ⁽¹⁾	(3,001		)	(1,902		)
Beginning balance, net of reinsurance recoverables	9,810			6,859

Add claims incurred:
Claims and claim expenses incurred:
Current year ⁽²⁾	7,401			3,152
Prior years⁽³⁾	(1,735		)	(940		)
Total claims and claim expenses incurred	5,666			2,212

Less claims paid:
Claims and claim expenses paid:
Current year ⁽²⁾	—			—
Prior years ⁽³⁾	1,368			852
Reinsurance terminations ⁽⁴⁾	(549		)	—
Total claims and claim expenses paid	819			852

Reserve at end of period, net of reinsurance recoverables	14,657			8,219
Add reinsurance recoverables ⁽¹⁾	3,775			2,382
Ending balance	$	18,432		$	10,601

For the six months ended June 30,
2018 2017
(In Thousands)
Beginning balance $ 8,761
$ 3,001
Less reinsurance recoverables ⁽¹⁾
(1,902 ) (297 )
Beginning balance, net of reinsurance recoverables 6,859
2,704

Add claims incurred:
Claims and claim expenses incurred:
Current year ⁽²⁾
3,152
2,331
Prior years⁽³⁾
(940 ) (323 )
Total claims and claims expenses incurred 2,212
2,008

Less claims paid:
Claims and claim expenses paid:
Current year ⁽²⁾
—
—
Prior years ⁽³⁾
852
563
Total claims and claim expenses paid 852
563

Reserve at end of period, net of reinsurance recoverables 8,219
4,149
Add reinsurance recoverables ⁽¹⁾
2,382
899
Ending balance $ 10,601
$ 5,048

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

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

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


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


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


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


⁽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 for current and prior years, including IBNR ~~reserves.~~reserves and is presented net of reinsurance. The amount of claims incurred relating to current year NODs represents the estimated amount of claims and ~~claims~~claim expenses to be ultimately paid on such loans in default. We recognized ~~$940 thousand~~$1.7 million and ~~$323 thousand~~$0.9 million of favorable prior year development during the six months ended June 30, ~~2018~~2019 and ~~2017,~~2018, respectively, due to NOD cures and ongoing analysis of recent loss development trends. We may increase or decrease our original estimates as we

NMI HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

learn additional information about individual defaults and claims and continue to observe and analyze loss development trends in our portfolio. Gross reserves of ~~$5.9~~$8.9 million related to prior year defaults remained as of June 30, ~~2018.~~2019.

7. Earnings per Share (EPS)

Basic earnings per share is based on the weighted average number of shares of common stock ~~outstanding, while diluted~~outstanding. Diluted earnings per share is based on the weighted average number of shares of common stock outstanding and common stock equivalents that would be issuable upon the vesting of service based ~~RSUs,~~ and performance and service based restricted stock units (RSUs), and the exercise of vested and unvested stock options and outstanding warrants. The number of shares issuable for RSUs subject to performance and service based vesting requirements are only included in diluted shares if the relevant performance measurement period has commenced and results during such period meet the necessary performance criteria. The following table reconciles the net income and the weighted average shares of common stock outstanding used in the computations of basic and diluted earnings per share of common ~~stock:~~stock.

~~NMI HOLDINGS, INC.~~



	For the three months ended June 30,					For the six months ended June 30,
	2019		2018			2019		2018
	(In Thousands, except for per share data)
Net income	$	39,100	$	25,241		$	71,999	$	47,596
Basic weighted average shares outstanding	67,590		65,664			67,143		63,891
Basic earnings per share	$	0.58	$	0.38		$	1.07	$	0.74

Net income	$	39,100	$	25,241		$	71,999	$	47,596
Warrant gain, net of tax	—		(86		)	—		(418		)
Diluted net income	$	39,100	$	25,155		$	71,999	$	47,178

Basic weighted average shares outstanding	67,590		65,664			67,143		63,891
Dilutive effect of issuable shares	2,000		2,952			2,205		3,280
Diluted weighted average shares outstanding	69,590		68,616			69,348		67,171

Diluted earnings per share	$	0.56	$	0.37		$	1.04	$	0.70

Anti-dilutive shares	705		308			748		231

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

For the three months ended June 30, For the six months ended June 30,
2018 2017 2018 2017

(In Thousands, except for per share data)
Basic net income $ 25,241
$ 6,012
$ 47,596
$ 11,504
Basic weighted average shares outstanding 65,664
59,823
63,891
59,577
Basic earnings per share $ 0.38
$ 0.10
$ 0.74
$ 0.19

Basic net income $ 25,241
$ 6,012
$ 47,596
$ 11,504
Warrant gain, net of tax (86 ) (12 ) (418 ) —
Diluted net income $ 25,155
$ 6,000
$ 47,178
$ 11,504

Basic weighted average shares outstanding 65,664
59,823
63,891
59,577
Dilutive effect of issuable shares 2,952
3,187
3,280
3,112
Diluted weighted average shares outstanding 68,616
63,010
67,171
62,689

Diluted earnings per share $ 0.37
$ 0.10
$ 0.70
$ 0.18

Anti-dilutive shares 308
835
231
834

8. Warrants

We issued 992 thousand warrants in connection with ~~the Private Placement.~~a private placement of our common stock in April 2012. Each warrant gives the holder thereof the right to purchase one share of common stock at an exercise price equal to $10.00. The warrants were issued with an aggregate fair value of $5.1 million.

During the six months ended June 30, 2019, 260 thousand warrants were exercised resulting in the issuance of 168 thousand common shares. Upon exercise, we reclassified approximately $4.8 million of warrant fair value from warrant liability to additional paid-in capital, of which $2.3 million related to changes in fair value during the six months ended June 30, 2019. During the six months ended June 30, 2018, 63 thousand warrants were exercised resulting in the issuance of 29 thousand common ~~shares issued. No warrants were exercised~~shares. Upon exercise, we reclassified approximately $0.6 million of warrant fair value from warrant liability to additional paid-in capital, of which $42 thousand related to changes in fair value during the six months ended June 30, ~~2017. Upon exercise, we reclassified the fair value of the warrants from warrant liability to additional paid-in capital and recognized a loss of approximately $42 thousand.~~2018.

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

9. Income Taxes

We are a U.S. taxpayer and are subject to a statutory U.S. federal corporate income tax rate of 21% for the current and all future years following the enactment of the TCJA on December 22, 2017. We were subject to a statutory U.S. federal corporate income tax rate of 35% for all prior years through December 31, 2017.. NMIH files a consolidated U.S. federal and various state income tax returns on behalf of itself and its subsidiaries. Our effective tax rate on our pre-tax income was 23.3% and 19.9% for the three and six months ended June 30, 2019, respectively, compared to 21.9% and 19.2% for the three and six months ended June 30, 2018, respectively. Our provision for income taxes for interim reporting periods is established based on our estimated annual effective tax ~~rates~~rate for a given year. Our effective tax rate on our pre-tax income was 21.9% and 19.2% for the three and six months ended June 30, 2018, respectively, compared to 36.7% and 29.1% for the three and six months ended June 30, 2017, respectively. The decrease in the effective tax rates for the three and six months ended June 30, 2018 compared to the three and six months ended June 30, 2017 is attributable to the decrease in the statutory U.S. federal corporate income tax rate. We currently pay no federal income tax primarilymay fluctuate between interim periods due to the forecasted utilization of our federal net operating loss carryforwards, which were $93.3 million as of December 31, 2017. As a result, the interim provision for income taxes represents changes to deferred tax assets.

~~Provisional amounts~~

The TCJA reduced the statutory U.S. federal corporate income tax rate from 35% to 21% and changed the tax deductibility of certain expenses for tax years beginning after December 31, 2017. We have not completed our full assessment of the tax effects of the enactment of the TCJA on our deferred tax balances as of June 30, 2018 and December 31, 2017; however, in certain cases, as described below, we have made reasonable estimates of the effects on our deferred tax balances. We recognized a $13.6 million income tax expense in the year ended December 31, 2017 for the items we could reasonably estimate. We are still analyzing the TCJA and refining our calculations, which could impact the measurement of our existing deferred tax assets including those related

NMI HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

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 ~~share-based compensation. For~~claim a tax ~~years beginning after December 31, 2017, the TCJA expanded the number of individuals whose compensation is~~deduction for our statutory contingency reserve balance, subject to ~~a $1 million cap on~~certain limitations outlined under IRC Section 832(e), and only to the extent we acquire tax ~~deductibility~~ and ~~includes performance-based compensation~~loss bonds in an amount equal to the ~~calculation.~~tax benefit derived from the claimed deduction, which is our intent. As a result, ~~we recorded~~our interim provision for income taxes for the three and six months ended June 30, 2019 represents a ~~provisional amount to reduce the future~~change in our net deferred tax benefit related to share-based compensation. We will continue to make and refine our calculations as additional analysis is completed. In addition, our estimates may also be affected as we incorporate additional guidance that may be issued by the U.S. Treasury Department, the IRS, or other standard-setting bodies.

~~In February 2018, the FASB issued ASU 2018-02,~~ ~~Reclassification of~~ Ce~~rtain Tax Effects from Accumulated Other Comprehensive Income~~ (Topic 220). This update permits a company to reclassify the disproportionate income tax effects as a result of the TCJA on items within AOCI to retained earnings. We adopted this update on January 1, 2018 and adjusted the disproportionate income tax effects, or "stranded tax effects," resulting in a $0.3 million reduction to our beginning retained earnings as of January 1, 2018. The disproportionate tax effects that remain in AOCI of $4.2 million were not related to the TCJA and will remain in AOCI until certain events occur. Our elected accounting policy for available-for-sale debt securities is the "aggregate portfolio" approach.liability.

10. ~~Common Stock Offerings~~Leases

~~In March 2018,~~We have two operating lease agreements related to our corporate headquarters and a data center facility for which we ~~completed~~recognized operating right-of-use (ROU) assets and lease liabilities of $7.3 million and $8.4 million, respectively, as of June 30, 2019. As of June 30, 2019, we did not have any finance leases.

We recognize ROU assets and lease liabilities in connection with the ~~sale~~adoption of ~~3.7 million shares of common stock~~ASU 2016-02, Leases (Topic 842). ROU assets and ~~granted the underwriters~~lease liabilities are established based on the ~~transaction~~estimated present value of lease payments over the relevant lease term. We estimate a ~~15% overallotment~~discount rate for each lease based on our estimated incremental borrowing rate at the commencement date of the relevant lease.

Right-of-use assets obtained in exchange for new operating lease liabilities for the six months ended June 30, 2019 were $8.1 million. The following table provides a summary of our ROU asset and lease liability assumptions as of June 30, 2019:



Weighted-average remaining lease term	3.7 years
Weighted-average discount rate	6.21	%

Cash paid on our operating lease liabilities for the three and six months ended June 30, 2019 was $0.6 million and $1.2 million, respectively. Lease expenses recognized on our operating lease liabilities for the three and six months ended June 30, 2019 were $0.6 million and $1.1 million, respectively. Future payments due under our existing operating leases as of June 30, 2019 are as follows:



As of June 30, 2019	(In Thousands)
2019	$	1,239
2020	2,537
2021	2,609
2022	2,574
2023	462
Total undiscounted lease payments	9,421
Less effects of discounting	(1,028		)
Present value of lease payments	$	8,393

Lease expense is recorded in underwriting and operating expenses on the consolidated statements of operations. Our existing operating leases have terms that range from three to five years. The lease for our corporate headquarters includes an option to ~~purchase~~renew for an additional ~~shares. The overallotment~~five years at prevailing market rates at time of renewal. We have not included this renewal option ~~was exercised~~ in ~~full, resulting in a total~~our calculation of ~~4.3 million shares~~minimum lease payments as it is not reasonably certain to be exercised.

NMI HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

As of ~~common stock issued. The common stock offering generated total proceeds~~December 31, 2018, the future minimum lease payments as accounted for prior to our adoption of ~~approximately $79.2 million, net of underwriting discounts, commissions and other direct offering expenses.~~ASU 2016-02, Leases (Topic 842) are as follows:



Year ending December 31, 2018
	(In Thousands)
2019	$	2,346
2020	2,417
2021	2,489
2022	2,564
2023	463
Totals	$	10,279

11. Regulatory Information

Statutory Requirements

Our insurance subsidiaries, NMIC and Re One, file financial statements in conformity with statutory accounting principles (SAP) prescribed or permitted by the Wisconsin OCI, NMIC's principal regulator. Prescribed SAP includes state laws, regulations and general administrative rules, as well as a variety of publications of the National Association of Insurance Commissioners. The Wisconsin OCI recognizes only statutory accounting practices prescribed or permitted by the state of Wisconsin for determining and reporting the financial condition and results of operations of an insurance company and for determining its solvency under Wisconsin insurance laws.

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

For the three months ended June 30, For the six months ended June 30,
2018 2017 2018 2017
(In Thousands)
Statutory net income (loss) $ 2,066
$ (11,616 ) $ (4,748 ) $ (21,706 )



	For the three months ended June 30,				For the six months ended June 30,
	2019		2018		2019		2018
	(In Thousands)
Statutory net income (loss)	$	6,466	$	2,066	$	5,539	(4,748	)

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



	June 30, 2019		December 31, 2018
	(Dollars In Thousands)
Statutory surplus	$	438,397	$	430,785
Contingency reserve	423,413		332,702
RTC Ratio	15.8:1		13.1:1

June 30, 2018 December 31, 2017
(Dollars In Thousands)
Statutory surplus $ 439,754
$ 371,084
Contingency reserve 253,817
186,641
RTC Ratio 13.7:1
13.2:1

NMIH is not subject to any limitations on its ability to pay dividends except those generally applicable to corporations that are incorporated in Delaware. Delaware corporate law provides that dividends are only payable out of a corporation's capital surplus or, subject to certain limitations, recent net profits. NMIC and Re One's ability to pay dividends to NMIH is subject to Wisconsin OCI notice or approval. Certain other states in which NMIC is licensed also have statutes or regulations that restrict its ability to pay dividends. Since inception, NMIC and Re One have not paid any dividends to NMIH.

NMI HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

12. Subsequent Event

On July ~~25, 2018,~~30, 2019, NMIC entered into a reinsurance agreement with Oaktown Re IIIII Ltd. (Oaktown Re ~~II)~~III), a Bermuda domiciled special purpose reinsurer, that provides for up to ~~$264.5~~$326.9 million of aggregate excess-of-loss reinsurance coverage at inception for new delinquencies on an existing portfolio of mortgage insurance policies written between ~~January~~June 1, ~~2017~~2018 and ~~May 31, 2018.~~June 30, 2019. For the reinsurance coverage period, NMIC will retain the first layer of ~~$125.3~~$123.4 million of aggregate losses and Oaktown Re IIIII 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 IIIII financed the coverage by issuing mortgage insurance-linked notes in an aggregate amount of ~~$264.5~~$326.9 million to unaffiliated investors (the ~~2018~~2019 Notes). The ~~2018~~2019 Notes mature on July 25, ~~2028.~~2029. All of the proceeds paid to Oaktown Re IIIII from the sale of the ~~2018~~2019 Notes were deposited into a reinsurance trust to collateralize and fund the obligations of Oaktown Re IIIII to NMIC under the reinsurance agreement. Funds in the reinsurance trust account are required to be invested in high credit quality money market funds at all times. We refer collectively to NMIC's reinsurance agreement with Oaktown Re IIIII and the issuance of the ~~2018~~2019 Notes by Oaktown Re IIIII as the ~~2018~~2019 ILN Transaction. Under the terms of the ~~2018~~2019 ILN Transaction, NMIC makes risk premium payments for the applicable outstanding reinsurance coverage amount and pays Oaktown Re IIIII for anticipated operating expenses (capped at $250,000 per year).

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 ~~2017~~2018 10-K, for a more complete understanding of our financial position and results of operations. In addition, investors should review the "Cautionary Note Regarding Forward-Looking Statements" above and the "Risk Factors" detailed in Part II, Item 1A of this report and in Part I, Item 1A of our ~~2017~~2018 10-K, ~~and Part II, Item 1A of our First Quarter 10-Q,~~ 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 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 and is approved as an MI provider by the GSEs and is licensed to write coverage in all 50 states and D.C. Re One 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 to mortgage loan originators.

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

NMIH, a Delaware corporation, was incorporated in May 2011, and we began start-up operations in 2012 and wrote our first MI policy in 2013. Since formation, we have sought to establish customer relationships with a broad group of mortgage lenders and build a diversified, high-quality insured portfolio. As of June 30, ~~2018,~~2019, we had master ~~policy relationships~~policies with ~~1,313~~1,424 customers, including national and regional mortgage banks, money center banks, credit unions, community banks, builder-owned mortgage lenders, internet-sourced lenders and other ~~non bank~~non-bank lenders. As of June 30, ~~2018,~~2019, we had ~~$61.2~~$84.5 billion of total insurance-in-force (IIF), including primary IIF of ~~$58.1~~$81.7 billion, and ~~$14.4~~$20.8 billion of gross RIF, including primary RIF of ~~$14.3~~$20.7 billion.

We believe that our success in acquiring a large and diverse group of lender customers and growing a portfolio of high-quality IIF traces to our founding principles, whereby we aim to help qualified individuals achieve ~~the dream of~~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 GPS^SM 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 ~~claims~~claim payment practices, responsive customer service, financial strength and profitability.

Our common stock trades on the NASDAQ under the symbol "NMIH." Our headquarters is located in Emeryville, California. As of June 30, 2019, we had 314 full time employees. Our website is www.nationalmi.com. Our website and the information contained on or accessible through our website are not incorporated by reference into this report.

We discuss below our results of operations for the periods presented, as well as the conditions and trends that have impacted or are expected to impact our business, including ~~customer development,~~ new ~~business~~insurance writings, the composition of our insurance portfolio and other factors that we expect to impact our results. ~~Our headquarters are located in Emeryville, California and our website is~~ ~~www.nationalmi.com. Our website and the information contained on or accessible through our website are not incorporated by reference into this report.~~

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

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

aggregate unpaid principal balance of the mortgages we insure, as reported to us by servicers at a given date, and represents the sum total of

NIW from all prior periods less principal payments on insured mortgages and policy cancellations (including for prepayment, nonpayment of premiums, coverage rescission and 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 before consideration of reinsurance. Net RIF is gross RIF net of ceded reinsurance.

Net Premiums Written and Net Premiums Earned

We set our premium rates on individual policies based on the risk characteristics of the underlying mortgage loans and borrowers, and in accordance with our filed rates and applicable rating rules. ~~Effective~~On June 4, 2018, we ~~implemented our~~introduced a proprietary risk-based pricing platform, which we refer to as Rate GPS^SM. Rate GPS considers upa 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 ~~30 individual~~set and charge premium rates commensurate with the underlying risk ~~variables to assist in our underwriting selection process and determine policy pricing on an individual~~of each loan ~~basis.~~that we insure. We introduced Rate GPS ~~evaluates a broader and more granular spectrum of risk attributes than~~in June 2018 to replace our previous rate card pricing ~~system and, we believe, provides us with an increased ability to align~~system. While most of our ~~premium rates with the risks of each individual loan. Although we expect most~~ new business ~~to be~~is priced through Rate GPS, we ~~will~~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 ~~will enhance~~provides us with a 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 ~~allow us to achieve~~delivering attractive risk-adjusted ~~returns in line with our pricing expectations.~~returns.

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

NIW;

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

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

cession of premiums under third-party reinsurance arrangements.

Premiums are paid either by the borrower (BPMI) or the lender (LPMI) in a single payment at origination (single premium), on a monthly installment basis (monthly premium) or on an annual installment basis (annual premium). Our net premiums written will differ from our net premiums earned due to policy payment type. For single premiums, we receive a single premium payment at origination, which is ~~initially recorded as unearned premium and~~ earned over the estimated life of the policy. A majority of our single premium policies in force as of June 30, ~~2018~~2019 were non-refundable under most cancellation scenarios. If non-refundable single premium policies are canceled, we immediately recognize the remaining unearned premium balances as earned premium revenue. Monthly premiums are recognized in the month billed and when the coverage is effective. Annual premiums are earned on a straight-line basis over the year of coverage. Substantially all of our policies provide for either single or monthly premiums.

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

Effect of reinsurance on our results

We utilize third-party reinsurance to actively manage our risk, ensure PMIERs compliance and support the growth of our

business. We currently have both quota share and excess-of-loss reinsurance agreements in place, which impact our results of operations and regulatory capital and PMIERs asset positions. Under a quota share reinsurance agreement, the reinsurer receives a

premium in exchange for covering an agreed-upon portion of incurred losses. Such a quota share arrangement reduces ~~net~~ premiums written and earned and also reduces ~~net~~ RIF, providing capital relief to the ceding insurance company and reducing incurred claims in accordance with the terms of the reinsurance agreement. In addition, reinsurers typically pay ceding commissions as part of quota share transactions, which offset the ceding company's 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.

Quota share reinsurance

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

Effective January 1, 2018, NMIC entered into the 2018 QSR Transaction ~~which took effect January 1, 2018.~~with a panel of third-party reinsurers. Under ~~the terms of~~ the 2018 QSR Transaction, NMIC ~~will cede~~cedes premiums earned related to 25% of ~~its~~risk on eligible policies written in 2018 and will cede premiums earned related to 20% ~~to 30% (such amount to be determined by NMIC at its sole election by December 1, 2018)~~ of risk on eligible policies written in 2019, in exchange for reimbursement of ceded claims and ~~claims~~claim expenses on covered policies, a 20% ceding commission, and a profit commission of up to 61% that varies directly and inversely with ceded claims.

~~NMIC entered into the 2016 QSR Transaction in September 2016.~~ 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 ~~(1)~~recaptured approximately $500 million of previously ceded ~~100%~~primary RIF and stopped ceding new premiums earned or written with respect to the recaptured risk. With this termination, ceded premiums written under the 2016 QSR Transaction 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. PMIERs risk-based required assets increased by approximately $27 million at April 1, 2019 as a result of the risk relating to our pool agreement with Fannie Mae, (2) ceded 25% of existing risk written on eligible policies as of August 31, 2016 and (3) ceded 25% of the risk relating to eligible primary insurance policies written between September 1, 2016 and December 31, 2017, in exchange for reimbursement of ceded claims and claims expenses on covered policies, a 20% ceding commission, and a profit commission of up to 60% that varies directly and inversely with ceded claims.termination.

Excess-of-loss reinsurance

In May 2017, NMIC secured $211.3 million of aggregate excess-of-loss reinsurance coverage at inception for an existing portfolio of MI policies written from 2013 through December 31, 2016, through a mortgage insurance-linked notes offering by Oaktown Re. The reinsurance coverage amount under the terms of the 2017 ILN Transaction decreases from $211.3 million at inception over a ten-year period as the underlying covered mortgages ~~amortize~~are amortized or repaid, and/or ~~are repaid,~~the mortgage insurance coverage is canceled and was ~~$156.1~~$91.5 million as of June 30, ~~2018.~~2019. For the reinsurance coverage period, NMIC ~~will retain~~retains the first layer of $126.8 million of aggregate losses, of which $124.4 million remained as of June 30, 2019, and Oaktown Re ~~will~~ then ~~provide a~~provides second layer of coverage up to the outstanding reinsurance coverage amount. NMIC then retains losses in excess of the outstanding reinsurance coverage amount.

In July 2018, NMIC secured $264.5 million of aggregate excess-of-loss reinsurance coverage at inception for an existing portfolio of MI policies written from January 1, 2017 through May 31, 2018, through a mortgage insurance-linked notes offering by Oaktown Re II. The reinsurance coverage amount under the terms of the 2018 ILN Transaction decreases from $264.5 million at inception over a ten-year period as the underlying covered mortgages ~~amortize~~are amortized or repaid, and/or ~~are repaid.~~the mortgage insurance coverage is canceled and was $258.2 million as of June 30, 2019. For the reinsurance coverage period, NMIC ~~will retain~~retains the first layer of $125.3 million of aggregate losses, of which $125.2 million remained at June 30, 2019, and Oaktown Re II ~~will~~ then ~~provide a~~provides second layer of coverage up to the outstanding reinsurance coverage amount. NMIC then retains losses in excess of the outstanding reinsurance coverage amount.

In July 2019, NMIC secured $326.9 million of aggregate excess-of-loss reinsurance coverage at inception for an existing portfolio of policies written from June 1, 2018 through June 30, 2019, through a mortgage insurance-linked notes offering by Oaktown Re III. The reinsurance coverage amount under the terms of the 2019 ILN Transaction decreases from $326.9 million at inception over a ten-year period as the underlying covered mortgages are amortized or repaid, and/or the mortgage insurance coverage is canceled. The outstanding reinsurance coverage amount will begin amortizing after an initial period in which a target level of credit enhancement is obtained. For the reinsurance coverage period, NMIC retains the first layer of $123.4 million of aggregate losses and Oaktown Re III then provides second layer coverage up to the outstanding reinsurance coverage amount. NMIC then retains losses in excess of the outstanding reinsurance coverage amount.

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

Portfolio Data

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


Primary and pool IIF and NIW	As of and for the three months ended								For the six months ended				As of and for the three months ended								For the six months ended
	June 30, 2018				June 30, 2017				June 30, 2018		June 30, 2017		June 30, 2019				June 30, 2018				June 30, 2019		June 30, 2018
	IIF		NIW		IIF		NIW		NIW				IIF		NIW		IIF		NIW		NIW
			(In Millions)										(In Millions)
Monthly	$	41,843	$	5,711	$	24,865	$	4,099	$	11,152	$	6,991	$	63,922	$	11,067	$	41,843	$	5,711	$	17,278	$	11,152
Single	16,246		802		13,764		938		1,821		1,605		17,786		1,112		16,246		802		1,814		1,821
Primary	58,089		6,513		38,629		5,037		12,973		8,596		81,708		12,179		58,089		6,513		19,092		12,973

Pool	3,064		—		3,447		$	—	—		—		2,758		—		3,064		—		—		—
Total	$	61,153	$	6,513	$	42,076	$	5,037	$	12,973	$	8,596	$	84,466	$	12,179	$	61,153	$	6,513	$	19,092	$	12,973

For the three and six months ended June 30, 2019, NIW increased 87% and 47%, respectively, compared to the three and six months ended June 30, 2018, ~~NIW increased 29%, compared~~primarily due to ~~the three months ended June 30, 2017, primarily because of the~~ growth in our monthly premium policy volume tied to increased penetration of existing customer accounts and new customer account activations, partially offset by a reduction in our single policy production. NIW increased 51% for the six months ended June 30, 2018, compared to the six months ended June 30, 2017, primarily due to the growth within and expansion of our customer base .activations. For the three and six months ended June 30, ~~2018,~~2019, monthly premium NIW increased ~~39%~~94% and ~~60%~~55%, respectively, compared to the ~~same periods a year ago.~~

~~For the~~three and six months ended June 30, ~~2018, 86%~~2018.

For the three months ended June 30, 2019, monthly premium polices accounted for 91% of our ~~NIW related to monthly premium policies.~~NIW. As of June 30, ~~2018,~~2019, monthly premium policies accounted for ~~72%~~78% of our primary IIF, as compared to ~~64%~~72% at June 30, ~~2017.~~2018. We expect the break-down of monthly premium policies and single premium policies (which we refer to as "mix") in our primary IIF to continue to trend toward ~~our current NIW~~an increased monthly mix over ~~time.~~time given the composition of our NIW. Our ~~total~~primary IIF increased ~~45%~~41% as of June 30, ~~2018~~2019 compared to June 30, ~~2017,~~2018, primarily ~~because of~~due to the NIW we generated between such measurement dates and the ~~high~~ persistency of ~~our policies~~ in ~~force.~~force policies.

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

Primary and pool premiums written and earned For the three months ended For the six months ended
June 30, 2018 June 30, 2017 June 30, 2018 June 30, 2017
(In Thousands)
Net premiums written ⁽¹⁾
$ 64,443
$ 39,786
$ 123,473
$ 74,389
Net premiums earned ⁽¹⁾
61,615
37,917
116,529
71,142

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



Primary and pool premiums written and earned	For the three months ended				For the six months ended
	June 30, 2019		June 30, 2018		June 30, 2019		June 30, 2018
	(In Thousands)
Net premiums written	$	82,609	$	64,443	$	154,532	$	123,473
Net premiums earned	83,249		61,615		157,118		116,529

For the three and six months ended June 30, ~~2018,~~2019, net premiums written increased ~~62%~~28% and ~~66%~~25%, respectively, and net premiums earned increased ~~62% and 64%, respectively,~~35% compared to each of the ~~same periods in 2017.~~three and six months ended June 30, 2018. The increases in net premiums written and earned are due to the growth of our IIF and increased monthly policy production, partially offset by increased cessions under the QSR Transactions tied to the growth of our direct premium volume and the inception of the ~~2017~~2018 ILN ~~Transaction~~Transaction. Single premium policy cancellations also contributed to the increases in ~~May 2017.~~ net premiums earned for the three and six months ended June 30, 2019 compared to the same periods in 2018.

Pool premiums written and earned for the three and six months ended June 30, ~~2018,~~2019, were $0.8 million and ~~$1.7~~$1.6 million, respectively, before ~~the effects of~~giving effect to the 2016 QSR Transaction, under which all of our written and earned pool premiums have been ceded.

A portion of our ceded pool premiums written and earned are recouped through profit commission under the 2016 QSR Transaction.

Portfolio Statistics

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


Primary portfolio trends	As of and for the three months ended															As of and for the three months ended
	June 30, 2018			March 31, 2018			December 31, 2017			September 30, 2017			June 30, 2017			June 30, 2019			March 31, 2019			December 31, 2018			September 30, 2018			June 30, 2018
	($ Values In Millions)															($ Values In Millions)
New insurance written	$	6,513		$	6,460		$	6,876		$	6,115		$	5,037		$	12,179		$	6,913		$	6,962		$	7,361		$	6,513
Percentage of monthly premium	88		%	84		%	83		%	79		%	81		%	91		%	90		%	90		%	91		%	88		%
Percentage of single premium	12		%	16		%	17		%	21		%	19		%	9		%	10		%	10		%	9		%	12		%
New risk written	$	1,647		$	1,580		$	1,665		$	1,496		$	1,242		$	3,183		$	1,799		$	1,799		$	1,883		$	1,647
Insurance in force(IIF) ⁽¹⁾	58,089			53,434			48,465			43,259			38,629
Insurance-in-force(IIF) ⁽¹⁾																81,708			73,234			68,551			63,527			58,089
Percentage of monthly premium	72		%	70		%	69		%	66		%	64		%	78		%	76		%	75		%	74		%	72		%
Percentage of single premium	28		%	30		%	31		%	34		%	36		%	22		%	24		%	25		%	26		%	28		%
Risk in force⁽¹⁾	$	14,308		$	13,085		$	11,843		$	10,572		$	9,417
Risk-in-force⁽¹⁾																$	20,661		$	18,373		$	17,091		$	15,744		$	14,308
Policies in force (count)⁽¹⁾	241,993			223,263			202,351			180,089			161,195			324,876			297,232			280,825			262,485			241,993
Average loan size ⁽¹⁾	$	0.240		$	0.239		$	0.240		$	0.240		$	0.240		$	0.252		$	0.246		$	0.244		$	0.242		$	0.240
Average coverage ⁽²⁾	24.6		%	24.5		%	24.4		%	24.4		%	24.4		%
Coverage percentage ⁽²⁾																25.3		%	25.1		%	24.9		%	24.8		%	24.6		%
Loans in default (count)(1)	768			1,000			928			350			249			1,028			940			877			746			768
Percentage of loans in default(1)	0.3		%	0.5		%	0.5		%	0.2		%	0.2		%	0.3		%	0.3		%	0.3		%	0.3		%	0.3		%
Risk in force on defaulted loans(1)	$	43		$	57		$	53		$	19		$	14		$	58		$	53		$	48		$	42		$	43
Average premium yield ⁽³⁾	0.44		%	0.43		%	0.44		%	0.43		%	0.41		%	0.43		%	0.42		%	0.42		%	0.43		%	0.44		%
Earnings from cancellations	$	3.1		$	2.8		$	4.2		$	4.3		$	3.8		$	4.5		$	2.3		$	2.1		$	2.6		$	3.1
Annual persistency⁽⁴⁾	85.5		%	85.7		%	86.1		%	85.1		%	83.1		%	86.0		%	87.2		%	87.1		%	86.1		%	85.5		%
Quarterly run-off⁽⁵⁾	3.5		%	3.1		%	3.9		%	3.8		%	3.4		%	5.1		%	3.3		%	3.1		%	3.3		%	3.5		%


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


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


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


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


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

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


Primary IIF	For the three months ended						For the six months ended						For the three months ended						For the six months ended
	June 30, 2018			June 30, 2017			June 30, 2018			June 30, 2017			June 30, 2019			June 30, 2018			June 30, 2019			June 30, 2018
	(In Millions)												(In Millions)
IIF, beginning of period	$	53,434		$	34,779		$	48,465		$	32,168		$	73,234		$	53,434		$	68,551		$	48,465
NIW	6,513			5,037			12,973			8,596			12,179			6,513			19,092			12,973
Cancellations and other reductions	(1,858		)	(1,187		)	(3,349		)	(2,135		)	(3,705		)	(1,858		)	(5,935		)	(3,349		)
IIF, end of period	$	58,089		$	38,629		$	58,089		$	38,629		$	81,708		$	58,089		$	81,708		$	58,089

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

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


Primary IIF and RIF	As of June 30, 2018				As of June 30, 2017				As of June 30, 2019				As of June 30, 2018
	IIF		RIF		IIF		RIF		IIF		RIF		IIF		RIF
	(In Millions)								(In Millions)
June 30, 2018	$	12,758	$	3,174	$	—	$	—
June 30, 2019									$	18,745	$	4,892	$	—	$	—
2018									24,344		6,177		12,758		3,174
2017	19,784		4,837		8,460		2,078		17,512		4,319		19,784		4,837
2016	16,800		4,109		19,288		4,650		13,903		3,454		16,800		4,109
2015	7,505		1,877		9,243		2,284		6,218		1,569		7,505		1,877
2014	1,210		303		1,596		395
2013	32		8		42		10
2014 and before									986		250		1,242		311
Total	$	58,089	$	14,308	$	38,629	$	9,417	$	81,708	$	20,661	$	58,089	$	14,308

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

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


Primary NIW by FICO	For the three months ended				For the six months ended				For the three months ended				For the six months ended
	June 30, 2018		June 30, 2017		June 30, 2018		June 30, 2017		June 30, 2019		June 30, 2018		June 30, 2019		June 30, 2018
	($ In Millions)								($ In Millions)
>= 760	$	2,807	$	2,376	$	5,425	$	4,059	$	5,627	$	2,807	$	8,684	$	5,425
740-759	1,129		793		2,203		1,343		2,165		1,129		3,389		2,203
720-739	964		626		1,878		1,082		1,785		964		2,829		1,878
700-719	747		568		1,558		965		1,337		747		2,129		1,558
680-699	469		368		1,036		632		891		469		1,444		1,036
<=679	397		306		873		515		374		397		617		873
Total	$	6,513	$	5,037	$	12,973	$	8,596	$	12,179	$	6,513	$	19,092	$	12,973
Weighted average FICO	747		749		745		749		751		747		751		745

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.

The table below ~~shows~~presents selected primary portfolio statistics, by book year, as of June 30, ~~2018.~~2019.

Incurred Loss Ratio (Inception to Date) ⁽¹⁾

Cumulative default rate ⁽²⁾

Geographic Dispersion

The following table shows the distribution by state of our primary RIF as of the periods indicated. As of June 30, ~~2018,~~2019, our RIF continues to be relatively more concentrated in California, primarily as a result of the size of the California mortgage market relative to the rest of the country and the location and timing of our acquisition of new customers. The distribution of ~~risk~~our primary RIF as of June 30, ~~2018~~2019 is not necessarily representative of the geographic distribution we expect in the future.

Insurance Claims and Claim Expenses

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

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

Reserves are established by estimating the number of loans in default that will result in a claim payment, which is referred to as claim frequency, and the amount of the claim payment expected to be paid on each such loan in default, which is referred to as claim severity. Claim frequency and severity estimates are established based on historical observed experience regarding certain loan factors, such as age of the default, cure rates, size of the loan and estimated change in property ~~valuation.~~value. Reserves are released the month in which a loan in default is brought current by the borrower, which is referred to as a cure. Adjustments to reserve estimates are reflected in the period in which the adjustment is made. Reserves are also ceded to reinsurers under the QSR Transactions. We will not cede ~~reserves to the reinsurer~~claims under the ~~2017 ILN and 2018~~ ILN Transactions unless losses exceed the respective retained coverage layers. Reserves are not established for future claims on insured loans which are not currently in default.

Based on our experience and industry data, we believe that claims incidence for mortgage insurance is generally highest in the third through sixth years after loan origination. 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 primary insured portfolio will be between 20% and 25% of earned premiums, and we price to that expectation. Additionally, our Our pool insurance agreement with Fannie Mae contains a claim deductible through which Fannie Mae absorbs specified losses before we are obligated to pay any claims. We have not established any ~~pool~~claims or claim expense reserves for ~~claims or IBNR~~pool exposure to date.

Based on our experience and industry data, we believe that claims incidence for mortgage insurance is generally highest in the third through sixth years after loan origination. As of June 30, 2019, approximately 85% of our primary IIF related to business written since June 30, 2016. Although the claims experience on our IIF to date has been modest, we expect incurred claims to increase as a greater amount of our existing insured portfolio reaches its anticipated period of highest claim frequency.

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, ~~and employment~~unemployment rates and other events, such as natural disasters. To date, our claims experience is developing at a slower pace than historical trends indicate, as a result of high quality underwriting, a strong

macroeconomic environment and a favorable housing market. For additional discussion of our reserves, see Item 1, "Financial Statements - Notes to Condensed Consolidated Financial Statements - Note 6, Reserves for Insurance Claims and ~~Claims~~Claim Expenses."

We insure mortgages for homes in areas that ~~have been~~are impacted by recent natural ~~disasters, including hurricanes Harvey and Irma and the California wildfires.~~disasters. We do not provide coverage for property or casualty claims related to physical damage of a home underpinning an insured mortgage. We experienced an increase in NODs on insured loans in the impacted areas in the fourth quarter of 2017 and the first quarter of 2018. In the second quarter of 2018, we experienced an increase in cure activity on this NOD population. Our ultimate claims exposure for loans in ~~the~~areas impacted ~~areas~~by natural disasters will depend on the number of NODs received, proximate cause of each default, cure rate of the NOD population, and potential repair cost curtailment for appropriate claims on damaged properties as permitted byunder our Master Policy. ~~In the event of~~Cure rates on loan defaults following natural disasters ~~cure rates~~ are influenced by the adequacy of homeowners and other hazard insurance carried on a related property, GSE-sponsored forbearance and other assistance programs, and a borrower's access to aid from government entities and private organizations, in ad~~dition~~addition to other factors which generally impact cure rates in unaffected areas.

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

Current year ⁽²⁾

Prior years ⁽³⁾

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

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.

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

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

The "claims incurred" section of the table above shows claims and claim expenses incurred on NODs for current and prior years, including IBNR ~~reserves.~~reserves and is presented net of reinsurance. The amount of claims incurred for current year NODs represents the estimated amount to be ultimately paid on such loans in default. The decreases during the periods presented in reserves held for prior year defaults represent favorable development and are generally the result of NOD cures and ongoing analysis of recent loss development trends. We may increase or decrease our original estimates as we ~~learn~~gather additional information about individual defaults and claims and continue to observe

and analyze loss development trends in our portfolio. Gross reserves of ~~$5.9~~$8.9 million related to prior year defaults remained as of June 30, ~~2018.~~2019.

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

The increase in the ending default inventory at June 30, ~~2018~~2019 compared to June 30, ~~2017 was~~2018, primarily relates to an increase in new defaults tied to the growth in the number of policies in force and the aging of our earlier book years, partially offset by cure activity on our beginning NOD population. The ratio of cures to new defaults decreased during the three and six months ended June 30, 2019 compared to the same periods in the prior year due to ~~new~~the elevated level of defaults on insured loans in areas ~~impacted~~declared by ~~hurricanes~~FEMA to be individual disaster zones following Hurricanes Harvey and Irma, and the California wildfires ~~as well as~~in 2017, and the ~~aging~~subsequent curing of ~~earlier book years and an increase~~the majority of such defaults in ~~the overall number of policies in our portfolio which, historically drives a general increase in defaults.~~2018.

The following table provides details of our claims paid, before giving effect to claims ceded under the ~~2016~~ QSR ~~Transaction,~~Transactions, for ~~the periods indicated. No claims paid were ceded under the 2018 QSR Transaction during~~ the periods indicated.

Number of claims paid ⁽¹⁾

Average amount paid per claim⁽²⁾

Severity⁽³⁾⁽²⁾

⁽¹⁾~~Count includes claims settled without payment.~~

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

⁽³⁾~~Severity represents the total amount of claims paid divided by the related RIF on the loan at the time the claim is perfected.~~

The increase in the number of claims paid for the three and six months ended June 30, ~~2018,~~2019, compared to the ~~same periods~~three and six months ended June 30, ~~2017~~2018, is due to an increase in our default ~~inventory. Claims settled without payment are included in claim counts, but excluded from averages.~~inventory and the continued growth and seasoning of our insured portfolio. Over time, we expect the severity of claims paid to be between 85% and 95% of the coverage amount. ~~We believe our severity for the period ended June 30, 2018 is below long-term expectations due to home price appreciation in recent periods.~~

The following table ~~shows~~provides detail on our average reserve per default, before giving effect to reserves ceded under the QSR Transactions, as of the ~~periods~~dates indicated.

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


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


⁽²⁾	Amount includes claims adjustment expenses.

The average reserve per default at June 30, ~~2018 decreased~~2019 increased from June 30, ~~2017,~~2018, primarily due to cure activity on defaults ~~on insured~~outstanding at June 30, 2018 for loans in areas impacted by ~~hurricanes Harvey and Irma and~~natural disasters. We established lower reserves for these NODs than we otherwise do for similarly situated NODs in non-disaster zones. As this default population declined with increased cure activity, the ~~California wildfires.~~average reserve per remaining default increased. As of June 30, ~~2018, 215~~2019, 17 of the ~~768~~1,028 loans in default ~~relate~~related to homes in areas declared by FEMA to be individual assistance disaster zones following ~~the aforementioned~~ natural ~~disasters.~~catastrophes that we determine to be focal events, compared to 215 of 768 loans at June 30, 2018. We anticipate that ~~this population of~~focal disaster-related loans in default will cure at a higher rate than the estimated rate we apply to non-disaster related loans in default,

due to our ~~Master Policy coverage terms,~~ historical and observed industry experience, and current economic indicators and relief programs. As such, we ~~have established~~establish lower reserves for these NODs than we otherwise do for ~~similarly situated NODs in non-disaster zones. Over time, we anticipate that~~ our ~~average reserve per default will revert to our historical averages as the NODs in these zones cure.~~broader NOD population.

GSE Oversight

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

Under the PMIERs, ~~financial requirements,~~ ~~Approved Insurers~~ approved insurers must maintainavailable assets that equal or exceedminimum required assets, which is an amount equal to the greater of (i) $400 million or (ii) a total risk-based required asset amount. Therisk-based required asset amount is a function of the risk profile of an~~Approved Insurer's~~ ~~net~~ approved insurer's RIF, ~~calculated by applying~~assessed on a loan-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 adjustments~~, which is then adjusted on an aggregate basis for reinsurance transactions approved by the GSEs, such as with respect to our ~~2017~~ ILN ~~Transaction~~Transactions and QSR Transactions. Therisk-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, ~~2018~~2019 that NMIC was in full compliance with the PMIERs as of December 31, ~~2017.~~2018. NMIC also has an ongoing obligation to immediately notify the GSEs in writing upon discovery of a ~~material~~ failure to meet one or more of the PMIERs requirements. We continuously monitor ~~our~~NMIC's compliance with the PMIERs.

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


	As of				As of
	June 30, 2018		June 30, 2017		June 30, 2019		June 30, 2018
	(In Thousands)				(In Thousands)
Available assets	$	653,080	$	485,019	$	878,550	$	653,080
Risk-based required assets	587,235		298,091		782,460		587,235

Available assets were $879 million at June 30, 2019, compared to $653 million at June 30, 2018. The increase in available assetsof ~~$168~~$225 million ~~as of June 30, 2018 compared to June 30, 2017 is~~was driven by our positive cash flow from operations and ~~a $70 million capital contribution from NMIH to NMIC during~~ the ~~second quarter~~impact of ~~2018, partially offset by an increase in our unearned premium reserve.~~adopting the revised PMIERs guidance effective March 31, 2019. The increase in therisk-based required asset amount is was primarily due to the growth of our gross RIF and ~~to a lesser extent, an increase in~~the termination of our ~~NOD population, which has a higher~~ ~~risk-based required asset amount~~ ~~charge,~~engagement with and recapture of previously ceded primary RIF from one reinsurer under the 2016 QSR Transaction, partially offset by the cession of risk ~~relating to~~generally under our third-party reinsurance agreements.

On December 18, 2017, the GSEs provided us with a confidential summary of the proposed changes to the PMIERs financial, business and other requirements that they are developing with the FHFA. On June 27, 2018, we received a revised draft of the proposed changes to the PMIERs. All of the information and discussions regarding the revised PMIERs are subject to non-disclosure agreements. We currently expect the GSEs to issue final revised PMIERs in the third quarter of 2018, and that any changes therein will become effective on March 31, 2019.

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 June 30, ~~2018,~~2019, NMIC's performing primary RIF, net of reinsurance, was approximately ~~$9.5~~$13.6 billion. NMIC ceded 100% of its pool RIF pursuant to the 2016 QSR Transaction. Based on NMIC's total statutory ~~surplus~~capital of ~~$659.2~~$826 million (including contingency reserves) as of June 30, ~~2018,~~2019, NMIC's RTC ratio was ~~14.4:~~16.4:1. Re One had total statutory capital of ~~$34.4~~$36 million as of June 30, ~~2018,~~

~~with~~2019, and a RTC ratio of ~~0.9:~~1.2:1. We continuously monitor our compliance with state capital requirements.

In June 2019, S&P upgraded its financial strength and long-term counter-party credit ratings on NMIC from "BBB-" to "BBB" and upgraded its long-term counter-party credit rating on NMIH from "BB-" to "BB". The outlook for S&P's ratings is positive. In May 2018, Moody's Investors Service (Moody's) upgraded its financial strength rating on NMIC from "Ba1" to "Baa3" ~~for NMIC~~ and issued a "Ba3" rating for NMIH's $150 million senior secured 2018 Term Loan, compared to its previous "B1" rating on the 2015 Term Loan. In August 2018, Moody's assigned a "Ba3" rating to our2018 Revolving Credit Facility. The outlook for ~~both~~Moody's ratings is stable. In July 2018, S&P affirmed its "BBB-" financial strength and long-term counter-party credit ratings on NMIC and its "BB-" long-term counter-party credit rating on NMIH. The outlook on both ratings is positive.

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

The private MI industry overall competes more broadly with ~~public~~government MIs who significantly increased their presence in the MI market following the financial crisis. Although there has been broad policy consensus toward the need for increasing private capital ~~to play a larger role~~participation and decreasing government exposure to credit risk ~~to be reduced~~ in the U.S. housing finance system, it remains difficult to predict whether the combined market share of ~~public~~government MIs will recede to historical levels. A range of factors influence a lender's and borrower's decision to choose private over ~~public~~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 ~~public~~government MI alternatives.

Consolidated Results of Operations


Consolidated statements of operations	Three months ended						Six months ended						Three months ended						Six months ended
	June 30, 2018			June 30, 2017			June 30, 2018			June 30, 2017			June 30, 2019			June 30, 2018			June 30, 2019			June 30, 2018
Revenues	(In Thousands)												(In Thousands)
Net premiums earned	$	61,615		$	37,917		$	116,529		$	71,142		$	83,249		$	61,615		$	157,118		$	116,529
Net investment income	5,735			3,908			10,309			7,715			7,629			5,735			15,012			10,309
Net realized investment gains	59			188			59			130
Net realized investment (losses) gains													(113		)	59			(300		)	59
Other revenues	44			185			108			265			415			44			456			108
Total revenues	67,453			42,198			127,005			79,252			91,180			67,453			172,286			127,005
Expenses
Insurance claims and claim expenses	643			1,373			2,212			2,008			2,923			643			5,666			2,212
Underwriting and operating expenses	29,020			28,048			57,473			54,037			32,543			29,020			63,392			57,473
Total expenses	29,663			29,421			59,685			56,045			35,466			29,663			69,058			59,685
Other expense
Gain (Loss) from change in fair value of warrant liability	109			19			529			(177		)
(Loss) gain from change in fair value of warrant liability													(1,685		)	109			(7,164		)	529
Interest expense	(5,560		)	(3,300		)	(8,979		)	(6,794		)	(3,071		)	(5,560		)	(6,132		)	(8,979		)
Income before income taxes	32,339			9,496			58,870			16,236			50,958			32,339			89,932			58,870
Income tax expense	7,098			3,484			11,274			4,732			11,858			7,098			17,933			11,274
Net income	$	25,241		$	6,012		$	47,596		$	11,504		$	39,100		$	25,241		$	71,999		$	47,596

Earnings per share - Basic													$	0.58		$	0.38		$	1.07		$	0.74
Earnings per share - Diluted													$	0.56		$	0.37		$	1.04		$	0.70

Loss ratio⁽¹⁾	1.0		%	3.6		%	1.9		%	2.8		%	3.5		%	1.0		%	3.6		%	1.9		%
Expense ratio⁽²⁾	47.1		%	74.0		%	49.3		%	76.0		%	39.1		%	47.1		%	40.3		%	49.3		%
Combined ratio	48.1		%	77.6		%	51.2		%	78.8		%
Combined ratio⁽³⁾													42.6		%	48.1		%	44.0		%	51.2		%

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

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


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


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


⁽³⁾	Combined ratio may not foot due to rounding.

Revenues

For the three and six months ended June 30, ~~2018,~~2019, net premiums earned increased ~~$23.7~~$21.6 million or ~~62%~~35% and ~~$45.4~~$40.6 million or ~~64%~~35%, respectively, compared to the three and six months ended June 30, ~~2017.~~2018. The increase ~~in both periods~~ is primarily due to the growth of our IIF and increased monthly policy production, as well as an increase in earnings from single premium policy cancellations, partially offset by increased cessions under the QSR Transactions tied to the growth of our direct premium volume and the inception of the ~~2017~~2018 ILN ~~Transaction in May 2017.~~Transaction.

For the three and six months ended June 30, ~~2018,~~2019, net investment income increased ~~$1.8~~$1.9 million and ~~$2.6~~$4.7 million, respectively, compared to the three and six months ended June 30, ~~2017,~~2018, due to an increase in the size and yield of ~~and improved yields on~~ our ~~total~~ investment portfolio.

Expenses

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

Insurance claims and claim expenses ~~decreased $0.7~~increased $2.3 million ~~or 53% for the three months ended June 30, 2018, compared to the three months ended June 30, 2017. The decrease was primarily driven by the cure activity~~ and decline in the number of NODs on insured loans impacted by Hurricanes Harvey and Irma and the California wildfires, and the release of previously established reserves on such loans. Insurance claims and claim expenses increased $0.2$3.5 million or 10% for the six months ended June 30, 2018, compared to the six months ended June 30, 2017, as a result of an increase in NODs, driven by new defaults on insured loans, and an increase in the overall number of policies in our portfolio and aging of earlier book years, offset by the partial release of reserves related to prior year defaults.

~~Underwriting and operating expenses increased $1.0 million or 3% and $3.4 million or 6%,~~ for the three and six months ended June 30, ~~2018,~~2019, respectively, compared to the three and six months ended June 30, ~~2017. Employee compensation accounts for~~2018, primarily due to an increase in NODs tied to the ~~majority~~growth in the number of policies in force and the aging of our ~~operating expenses. We increased~~earlier book years, and an increase in our average reserve per default tied to the ~~size~~aging of our ~~workforce from 297 employees as of June 30, 2017 to 301 employees as of June 30, 2018 to support the growth~~NOD population and composition of our ~~business, particularly~~default inventory between loans in ~~our operating functions. We incurred $0.7 million of underwriting~~disaster and ~~operating~~non-disaster

impacted areas. The growth in insurance claims and claim expenses in the second quarter of 2018 in connection with the 2018 ILN Transaction. Underwriting and operating expenses for the six months ended June 30, 2017 included $4.8 million related to the 2017 ILN Transaction and an amendment of the 2015 Credit Agreement.

~~Interest expense was $5.6 million $9.0 million for three and six months ended June 30, 2018, respectively, compared to $3.3 million and $6.8 million, respectively,~~ for the three and six months ended June 30, ~~2017.~~ 2019 was partially offset by the release of prior year reserves tied to NOD cures and ongoing analysis of recent loss development trends.

Underwriting and operating expenses increased $3.5 million or 12% and $5.9 million or 10% for the three and six months ended June 30, 2019, respectively, compared to the three and six months ended June 30, 2018. The increase relates to an increase in underwriting expenses associated with the growth in our policy volume, as well as certain employee compensation and technology costs incurred to support the growth of our business.

Interest expense inwas $3.1 million and $6.1 million for the ~~second quarter of~~three and six months ended June 30, 2019, respectively, compared to $5.6 million and $9.0 million, for the three and six months ended June 30, 2018, respectively. Interest expense for the three and six months ended June 30, 2018 included $2.2 million of costs related to the extinguishment of the 2015 Term Loan and issuance of the 2018 Term ~~Loan. We expect interest costs to decline~~Loan completed in May 2018. Interest expense for the ~~future in connection with the reduction in the~~three and six months ended June 30, 2019 further benefited from a lower interest spread payable on ~~our~~ borrowings under the 2018 Term Loan as compared to the 2015 Term ~~Loan.~~Loan, partially offset by interest recognized on the 2018 Revolving Credit Facility. See Item 1, "Financial Statements - Notes to Condensed Consolidated Financial Statements - Note 4, ~~Debt Obligations.~~Debt."

Income tax expense ~~increased~~was $11.9 million and $17.9 million for the three and six months ended June 30, 2019, respectively, compared to $7.1 million and $11.3 million for the three and six months ended June 30, 2018, ~~from $4.7 million for the six months ended June 30, 2017 because of~~respectively. Income tax expense increased due to the growth in our pre-tax income, partially offset by a decrease in our effective tax rate. Our effective tax rate on our pre-tax income decreased to 19.2% for the six months ended June 30, 2018 from 29.1% for the six months ended June 30, 2017, primarily because the TCJA reduced the statutory U.S. federal corporate income tax rate to 21% for the current and all future years from 35% for all prior years through December 31, 2017.income. Our provision for income taxes for interim periods is established based on our estimated annual effective tax rate for a given year. ~~We expect our annual~~Our effective tax rate on our pre-tax income was 23.3% and 19.9% for the ~~year ending December 31,~~three and six months ended June 30, 2019, respectively, compared to 21.9% and 19.2% for the three and six months ended June 30, 2018, ~~will approximate the current~~respectively. We are subject to a 21% statutory U.S. federal corporate income tax rate. Our effective tax rate for the three and six month interim periods ended June 30, 2019 and 2018 reflect the discrete tax effects of the vesting of RSUs and exercise of options, and the change in fair value of our warrant liability in each period. See Item 1, "Financial Statements - Notes to Condensed Consolidated Financial Statements - Note 9, Income Taxes."

Net Income

Net income was $39.1 million and $72.0 million for the three and six months ended June 30, 2019, respectively, compared to $25.2 million and $47.6 million for the three and six months ended June 30, 2018, respectively. The increase in net income primarily relates to growth in total revenues and a reduction in interest expense, partially offset by an increase in total expenses, an increase in the fair value of our warrant liability and an increase in tax expense.

Diluted EPS was $0.56 and $1.04 for the three and six months ended June 30, 2019, respectively, compared to $0.37 and $0.70 for the three and six months ended June 30, 2018, respectively. Diluted EPS increased due to growth in net income, partially offset by an increase in weighted average diluted shares outstanding.


Consolidated balance sheets	June 30, 2018		December 31, 2017		June 30, 2019		December 31, 2018
	(In Thousands)				(In Thousands)
Total investment portfolio	$	838,265	$	715,875	$	1,017,607	$	911,490
Cash and cash equivalents	16,454		19,196		35,735		25,294
Premiums receivable	31,252		25,179		42,225		36,007
Deferred policy acquisition costs, net	42,363		37,925		52,607		46,840
Software and equipment, net	22,803		22,802		25,827		24,765
Prepaid reinsurance premiums	35,798		40,250		20,426		30,370
Deferred tax asset, net	12,378		19,929
Other assets	17,166		13,692		25,972		17,277
Total assets	$	1,016,479	$	894,848	$	1,220,399	$	1,092,043
Term loan	$	147,262	$	143,882	$	146,253	$	146,757
Unearned premiums	165,658		163,166		151,358		158,893
Accounts payable and accrued expenses	21,407		23,364		24,351		31,141
Reserve for insurance claims and claims expenses	10,601		8,761
Reserve for insurance claims and claim expenses					18,432		12,811
Reinsurance funds withheld	31,011		34,102		18,092		27,114
Deferred ceding commission	4,507		5,024
Warrant liability	6,391		7,472		9,679		7,296
Deferred tax liability, net					28,258		2,740
Other liabilities					11,597		3,791
Total liabilities	386,837		385,771		408,020		390,543
Total shareholders' equity	629,642		509,077		812,379		701,500
Total liabilities and shareholders' equity	$	1,016,479	$	894,848	$	1,220,399	$	1,092,043

As of June 30, ~~2018,~~2019, we had ~~approximately $854.7 million~~$1.1 billion in cash and investments, including ~~$57.8~~$44.8 million held atby NMIH. The increase in cash and ~~cash equivalents and~~ investments from December 31, ~~2017 primarily~~2018 relates to ~~net proceeds of approximately $79.2 million from the common stock offering completed in March 2018 and~~ cash generated from operations.

Premiums receivable was ~~$31.3~~$42.2 million as of June 30, ~~2018,~~2019, compared to ~~$25.2~~$36.0 million as of December 31, ~~2017.~~2018. The increase was primarily driven by the increase in our monthly premium policies in force, where premiums are generally paid one month in arrears.

Net deferred policy acquisition costs were ~~$42.4~~$52.6 million as of June 30, ~~2018,~~2019, compared to ~~$37.9~~$46.8 million atas of December 31, ~~2017.~~2018. The increase was primarily driven by growth in the number of policies written during the period ~~ended June 30, 2018~~ and the deferral of certain costs associated with the 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.

Prepaid reinsurance premiums were ~~$35.8~~$20.4 million as of June 30, ~~2018,~~2019, compared to ~~$40.3~~$30.4 million as of December 31, ~~2017. The prepaid~~2018. Prepaid reinsurance premiums, balance represents the ceded unearned premiums reserve on the single premium policies under the 2016 QSR Transaction. The reinsurance coverage period of the 2016 QSR Transaction ended for new premiums written after December 31, 2017, and under our 2018 QSR Transaction we cede premiums on an earned basis. Consequently, we did not cede any unearned premium reserves on single premium policies with coverage effective dates on or after January 1, 2018. The decrease in prepaid reinsurance premiums reflects the amortization ofwhich represent the unearned ~~premium balance~~premiums on single premium policies ceded under the 2016 QSR ~~Transaction.~~Transaction, decreased due to the termination of our engagement with one reinsurer under the 2016 QSR Transaction and the continued amortization of previously ceded unearned premiums.

~~Net deferred tax~~Other assets ~~decreased~~increased to ~~$12.4~~$26.0 million as of June 30, 2019 from $17.3 million as of December 31, 2018. Other assets as of June 30, 2019 include $7.3 million of operating lease right-of-use assets, which we recognized following the adoption of ASU 2016-02, Leases (Topic 842). See Item 1, "Financial Statements - Notes to Condensed Consolidated Financial Statements - Note 10, Leases."

Unearned premiums decreased from $158.9 million as of December 31, 2018 to $151.4 million as of June 30, 2019, primarily due to the amortization of existing unearned premiums through earnings in accordance with the expiration of risk on related single premium policies and the cancellation of other single premium policies, partially offset by single premium policy originations during the six months ended June 30, 2019.

Accounts payable and accrued expenses decreased from ~~$19.9~~$31.1 million as of December 31, 2018 to $24.4 million as of June 30, 2019, primarily due to the payment of previously accrued compensation during the six months ended June 30, 2019.

Reserve for insurance claims and claim expenses increased from $12.8 million as of December 31, 2018 to $18.4 million as of June 30, 2019, primarily due to an increase in NODs tied to the growth in the number of policies in force and the aging of our earlier book years, and an increase in our average reserve per default tied to the aging of our NOD population and composition of our default inventory between loans in disaster and non-disaster impacted areas, partially offset by the release of prior year

reserves tied to NOD cures and ongoing analysis of recent loss development trends. See "- Insurance Claims and Claim Expenses," abovefor further details.

Reinsurance funds withheld was $18.1 million as of June 30, 2019, representing the net of our ceded reinsurance premiums written, less our profit and ceding commission receivables related to the 2016 QSR Transaction. The decrease in reinsurance funds withheld of $9.0 million from December 31, 2018, relates to the termination of our engagement with one reinsurer under the 2016 QSR Transaction and the continued decline in ceded premiums written on single premium policies, due to the end of the reinsurance coverage period for new business under the 2016 QSR Transaction at December 31, 2017. See Item 1, "Financial Statements - Notes to Condensed Consolidated Financial Statements - Note 5, Reinsurance."

Warrant liability increased from $7.3 million at December 31, ~~2017,~~2018 to $9.7 million at June 30, 2019, primarily due to an increase in our stock price from December 31, 2018 to June 30, 2019 and partially offset by the reclassification of warrant liability to additional paid-in-capital following warrant exercises during the period and changes in the Black-Scholes model inputs during the period. 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 $2.7 million as of December 31, 2018 to $28.3 million as of June 30, 2019, primarily due to the ~~utilization~~forecasted deductibility of ~~net operating loss carryforwards during the period.~~our statutory contingency reserve in fiscal year 2019. For further information regarding income taxes and their impact on our results of operations and financial position, see Item 1, "Financial Statements - Notes to Condensed Consolidated Financial Statements - Note 9, Income Taxes."

Other ~~assets increased to $17.1 million~~liabilities as of June 30, ~~2018 from $13.7~~2019 include $8.4 million as of ~~December 31, 2017, driven by an increase in accrued investment income and prepaid expense for advance payments on rent and insurance costs, as well as~~operating lease liabilities, which we recognized following the ~~capitalization~~adoption of ~~$1.5 million deferred debt issuance costs in connection with the establishment of the 2018 Revolving Credit Facility.~~

Unearned premiums increased $2.5 million to $165.7 million as of June 30, 2018, primarily due to single premium policy origination during the period, partially offset by the amortization through earnings of existing unearned premiums in accordance with the expiration of risk on the related policies and the cancellation of other single premium policies.



Cautionary Note Regarding Forward Looking Statements		3
PART I		5
Item 1.	Financial Statements	5
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	2527
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	4447
Item 4.	Controls and Procedures	4548
PART II		4649
Item 1.	Legal Proceedings	4649
Item 1A.	Risk Factors	4649
Item 6.	Exhibits	4650
Signatures		47
~~Exhibit Index~~		i53


	For the three months ended						For the six months ended						For the three months ended						For the six months ended
	June 30, 2018			June 30, 2017			June 30, 2018			June 30, 2017			June 30, 2019			June 30, 2018			June 30, 2019			June 30, 2018
	(In Thousands)												(In Thousands)
Net premiums written
Direct	$	70,677		$	46,672		$	136,704		$	85,916		$	92,213		$	70,677		$	173,943		$	136,704
Ceded ⁽¹⁾	(6,234		)	(6,886		)	(13,231		)	(11,527		)	(9,604		)	(6,234		)	(19,411		)	(13,231		)
Net premiums written	$	64,443		$	39,786		$	123,473		$	74,389		$	82,609		$	64,443		$	154,532		$	123,473

Net premiums earned
Direct	$	70,609		$	44,233		$	134,212		$	81,671		$	95,180		$	70,609		$	181,478		$	134,212
Ceded ⁽¹⁾	(8,994		)	(6,316		)	(17,683		)	(10,529		)	(11,931		)	(8,994		)	(24,360		)	(17,683		)
Net premiums earned	$	61,615		$	37,917		$	116,529		$	71,142		$	83,249		$	61,615		$	157,118		$	116,529


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



As of December 31, 2017	Amortized Cost		Fair Value
	(In Thousands)
Due in one year or less	$	97,406	$	97,394
Due after one through five years	195,795		195,626
Due after five through ten years	305,798		306,930
Due after ten years	14,707		14,981
Asset-backed securities	100,153		100,944
Total investments	$	713,859	$	715,875


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


Primary NIW by LTV	For the three months ended						For the six months ended						For the three months ended						For the six months ended
	June 30, 2018			June 30, 2017			June 30, 2018			June 30, 2017			June 30, 2019			June 30, 2018			June 30, 2019			June 30, 2018
	($ In Millions)												($ In Millions)
95.01% and above	$	971		$	474		$	1,968		$	748		$	971		$	971		$	1,540		$	1,968
90.01% to 95.00%	2,932			2,297			5,696			3,909			5,931			2,932			9,355			5,696
85.01% to 90.00%	1,888			1,506			3,644			2,607			4,085			1,888			6,326			3,644
85.00% and below	722			760			1,665			1,332			1,192			722			1,871			1,665
Total	$	6,513		$	5,037		$	12,973		$	8,596		$	12,179		$	6,513		$	19,092		$	12,973
Weighted average LTV	92.7		%	92.2		%	92.6		%	92.1		%	92.0		%	92.7		%	92.1		%	92.6		%


Primary NIW by purchase/refinance mix	For the three months ended				For the six months ended				For the three months ended				For the six months ended
	June 30, 2018		June 30, 2017		June 30, 2018		June 30, 2017		June 30, 2019		June 30, 2018		June 30, 2019		June 30, 2018
	(In Millions)								(In Millions)
Purchase	$	6,137	$	4,518	$	11,562	$	7,502	$	10,697	$	6,137	$	17,080	$	11,562
Refinance	376		519		1,411		1,094		1,482		376		2,012		1,411
Total	$	6,513	$	5,037	$	12,973	$	8,596	$	12,179	$	6,513	$	19,092	$	12,973


Primary IIF by FICO	As of								As of
	June 30, 2018				June 30, 2017				June 30, 2019				June 30, 2018
	($ In Millions)								($ In Millions)
>= 760	$	27,311	47	%	$	19,224	50	%	$	37,830	46	%	$	27,311	47	%
740-759	9,460		16		6,269		16		13,731		17		9,460		16
720-739	7,722		14		4,927		13		11,388		14		7,722		14
700-719	6,355		11		3,973		10		9,028		11		6,355		11
680-699	4,174		7		2,615		7		6,045		7		4,174		7
<=679	3,067		5		1,621		4		3,686		5		3,067		5
Total	$	58,089	100	%	$	38,629	100	%	$	81,708	100	%	$	58,089	100	%


Primary RIF by FICO	As of								As of
	June 30, 2018				June 30, 2017				June 30, 2019				June 30, 2018
	($ In Millions)								($ In Millions)
>= 760	$	6,758	47	%	$	4,720	50	%	$	9,551	46	%	$	6,758	47	%
740-759	2,344		16		1,535		16		3,499		17		2,344		16
720-739	1,905		14		1,198		13		2,904		14		1,905		14
700-719	1,558		11		960		10		2,286		11		1,558		11
680-699	1,016		7		627		7		1,524		8		1,016		7
<=679	727		5		377		4		897		4		727		5
Total	$	14,308	100	%	$	9,417	100	%	$	20,661	100	%	$	14,308	100	%


Primary IIF by LTV	As of								As of
	June 30, 2018				June 30, 2017				June 30, 2019				June 30, 2018
	($ In Millions)								($ In Millions)
95.01% and above	$	5,747	10	%	$	2,367	6	%	$	7,925	10	%	$	5,747	10	%
90.01% to 95.00%	26,119		45		17,441		46		38,371		47		26,119		45
85.01% to 90.00%	17,319		30		12,157		31		25,099		31		17,319		30
85.00% and below	8,904		15		6,664		17		10,313		12		8,904		15
Total	$	58,089	100	%	$	38,629	100	%	$	81,708	100	%	$	58,089	100	%


Primary RIF by LTV	As of								As of
	June 30, 2018				June 30, 2017				June 30, 2019				June 30, 2018
	($ In Millions)								($ In Millions)
95.01% and above	$	1,522	11	%	$	648	7	%	$	2,145	10	%	$	1,522	11	%
90.01% to 95.00%	7,610		53		5,120		54		11,206		54		7,610		53
85.01% to 90.00%	4,154		29		2,893		31		6,108		30		4,154		29
85.00% and below	1,022		7		756		8		1,202		6		1,022		7
Total	$	14,308	100	%	$	9,417	100	%	$	20,661	100	%	$	14,308	100	%


Primary RIF by Loan Type	As of				As of
	June 30, 2018		June 30, 2017		June 30, 2019		June 30, 2018

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


	As of June 30, 2018														As of June 30, 2019
Book year	Original Insurance Written		Remaining Insurance in Force		% Remaining of Original Insurance		Policies Ever in Force	Number of Policies in Force	Number of Loans in Default	# of Claims Paid	Incurred Loss Ratio (Inception to Date) ⁽¹⁾		Cumulative default rate ⁽²⁾		Original Insurance Written		Remaining Insurance in Force		% Remaining of Original Insurance		Policies Ever in Force	Number of Policies in Force	Number of Loans in Default	# of Claims Paid	Incurred Loss Ratio (Inception to Date) (1)	Cumulative default rate (2)		Current default rate (3)
	($ Values in Millions)														($ Values in Millions)
2013	$	162	$	32	20	%	655	171	1	1	0.3	%	0.3	%	$	162	$	27	16	%	655	145	—	1	0.2%	0.2	%	—	%
2014	3,451		1,210		35	%	14,786	6,245	54	21	3.6	%	0.5	%	3,451		960		28	%	14,786	5,085	46	35	3.8%	0.5	%	0.9	%
2015	12,422		7,505		60	%	52,548	34,641	235	33	2.9	%	0.5	%	12,422		6,218		50	%	52,548	29,049	183	69	2.9%	0.5	%	0.6	%
2016	21,187		16,800		79	%	83,626	69,454	283	18	2.2	%	0.4	%	21,187		13,902		66	%	83,626	58,662	209	67	2.0%	0.3	%	0.4	%
2017	21,582		19,784		92	%	85,897	80,646	188	1	2.0	%	0.2	%	21,582		17,512		81	%	85,897	72,988	355	17	3.1%	0.4	%	0.5	%
2018	12,973		12,758		98	%	51,457	50,836	7	—	0.5	%	—	%	27,288		24,344		89	%	104,015	95,477	231	3	3.0%	0.2	%	0.2	%
2019															19,092		18,745		98	%	64,429	63,470	4	—	0.3%	—	%	—	%
Total	$	71,777	$	58,089			288,969	241,993	768	74					$	105,184	$	81,708			405,956	324,876	1,028	192


⁽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.


⁽³⁾	The ratio of the number of loans in default divided by number of policies in force.


Top 10 primary RIF by state	As of				As of
	June 30, 2018		June 30, 2017		June 30, 2019		June 30, 2018
California	13.4	%	13.8	%	12.3	%	13.4	%
Texas	8.0		7.5		8.2		8.0
Florida					5.4		4.7
Virginia					5.2		5.0
Arizona	5.0		4.2		4.6		5.0
Virginia	5.0		6.0
Florida	4.7		4.4
Illinois					3.6		3.3
Pennsylvania					3.6		3.6
Michigan	3.7		3.6		3.5		3.7
Pennsylvania	3.6		3.6
Colorado	3.5		3.9		3.4		3.5
Utah	3.3		3.7
Illinois	3.3		3.3
Maryland					3.3		3.3
Total	53.5	%	54.0	%	53.1	%	53.5	%


⁽¹⁾	Count includes 4 and 7 claims settled without payment for the three and six months ended June 30, 2019, respectively, and 1 and 4 claims settled without payment for the three and six months ended June 30, 2018, respectively.


⁽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, and is calculated including claims settled without payment.


Average reserve per default:	As of June 30, 2018		As of June 30, 2017		As of June 30, 2019		As of June 30, 2018
	(In Thousands)				(In Thousands)
Case ⁽¹⁾	$	13	$	19	$	16	$	13
IBNR	1		1		2		1
Total(2)	$	14	$	20	$	18	$	14


Consolidated cash flows	For the six months ended June 30,						For the six months ended June 30,
	2018			2017			2019			2018
Net cash provided by (used in) :	(In Thousands)
Net cash provided by (used in):							(In Thousands)
Operating activities	$	61,353		$	14,592		$	87,324		$	61,353
Investing activities	(142,193		)	(40,154		)	(74,969		)	(142,193		)
Financing activities	78,098			(2,149		)	(1,914		)	78,098
Net decrease in cash and cash equivalents	$	(2,742	)	$	(27,711	)
Net increase (decrease) in cash and cash equivalents							$	10,441		$	(2,742	)


Percentage of portfolio's fair value	June 30, 2018		December 31, 2017		June 30, 2019		December 31, 2018
Corporate debt securities	58	%	59	%	62	%	58	%
Asset-backed securities	17		14		16		18
Municipal debt securities					9		10
Cash, cash equivalents, and short-term investments	8		6		8		9
Municipal debt securities	11		12
U.S. treasury securities and obligations of U.S. government agencies	6		9		5		5
Total	100	%	100	%	100	%	100	%


Investment portfolio ratings at fair value ⁽¹⁾	June 30, 2018		December 31, 2017		June 30, 2019		December 31, 2018
AAA	20	%	21	%	19	%	22	%
AA⁽²⁾	21		19		15		18
A⁽²⁾	43		46		51		42
BBB⁽²⁾	16		14		15		18
BB⁽³⁾					—		—
Total	100	%	100	%	100	%	100	%


⁽³⁾	We held one security with a BB rating at December 31, 2018, which is not identifiable in the table due to rounding.


•	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., 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.



	~~NMI HOLDINGS, INC.~~
~~Date: August 1, 2018~~

	~~By:~~ ~~/s/ Adam S. Pollitzer~~
	~~Name:Adam S. Pollitzer~~
	~~Title:Chief Financial Officer and Duly Authorized Signatory~~



Exhibit Number		Description

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



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


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