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

FORM 10-Q
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period endedMarch 31, 2023
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ______ to ______
 
Commission file number 001-36174
NMI Holdings, Inc.
(Exact name of registrant as specified in its charter)
Delaware 45-4914248
(State or other jurisdiction of incorporation or organization)(I.R.S. Employer Identification No.)
2100 Powell StreetEmeryville,CA 94608
(Address of principal executive offices)(Zip Code)

(855) 530-6642
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading Symbol(s)Name of each exchange on which registered
Class A Common Stock, par value $0.01NMIHNasdaq
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes No
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Yes 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," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large accelerated filerAccelerated filer
Non-accelerated filerSmaller reporting company
Emerging growth company
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.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes No
The number of shares of common stock, $0.01 par value per share, of the registrant outstanding on April 28, 2023 was 83,279,910 shares.
1


TABLE OF CONTENTS
Item 1.
Item 2.
Item 3.
Item 4.
Item 1.
Item 1A.
Item 2.
Item 6.

2


CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
    This report contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (Securities Act), Section 21E of the Securities Exchange Act of 1934, as amended (Exchange Act), and the U.S. Private Securities Litigation Reform Act of 1995. Any statements about our expectations, outlook, 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," "assume," "potential," "should," "will," "estimate," "perceive," "plan," "project," "continuing," "ongoing," "expect," "intend" or words of similar meaning and include, but are not limited to, statements regarding the outlook for our future business and financial performance. All forward-looking statements are necessarily only estimates of future results, and actual results may differ materially from expectations. You are, therefore, cautioned not to place undue reliance on such statements which should be read in conjunction with the other cautionary statements that are included elsewhere in this report. Further, any forward-looking statement speaks only as of the date on which it is made and we undertake no obligation to update or revise any forward-looking statement to reflect events or circumstances after the date on which the statement is made or to reflect the occurrence of unanticipated events. We have based these forward-looking statements on our current expectations and projections about future events and financial trends that we believe may affect our financial condition, operating results, business strategy and financial needs. There are important factors that could cause our actual results, level of activity, performance or achievements to differ materially from the results, level of activity, performance or achievements expressed or implied by the forward-looking statements including, but not limited to:
changes in general economic, market and political conditions and policies (including rising interest rates and inflation) and investment results or other conditions that affect the U.S. housing market or the U.S. markets for home mortgages, mortgage insurance, reinsurance and credit risk transfer markets, including the risk related to geopolitical instability, inflation, an economic downturn (including any decline in home prices) or recession, and their impacts on our business, operations and personnel;
changes in the charters, business practices, policy, pricing or priorities of Fannie Mae and Freddie Mac (collectively, the GSEs), which may include decisions that have the impact of decreasing or discontinuing the use of mortgage insurance as credit enhancement generally, or with first time homebuyers or on very high loan-to-value (LTV) mortgages; or changes in the direction of housing policy objectives of the Federal Housing Finance Agency (FHFA), such as the FHFA's priority to increase the accessibility to and affordability of homeownership for low-and-moderate income borrowers and underrepresented communities;
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 other private mortgage insurers and government mortgage insurers such as the Federal Housing Administration (FHA), the U.S. Department of Agriculture's Rural Housing Service (USDA) and the U.S. Department of Veterans Affairs (VA) (collectively, government MIs), and potential market entry by new competitors or consolidation of existing competitors;
adoption of new or changes to existing laws, rules and regulations that impact our business or financial condition directly or the mortgage insurance industry generally or their enforcement and implementation by regulators, including the implementation of the final rules defining and/or concerning "Qualified Mortgage" and "Qualified Residential Mortgage";
U.S. federal tax reform and other potential changes in tax law and their impact on us and our operations;
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 industry in particular;
potential legal and regulatory claims, investigations, actions, audits or inquiries that could result in adverse judgements, settlements, fines or other reliefs that could require significant expenditures or have other negative effects on our business;
3


uncertainty relating to the coronavirus (COVID-19) virus and its variants or the measures taken by governmental authorities and other third-parties to contain the spread of COVID-19, including their impact on the global economy, the U.S. housing, real estate, housing finance and mortgage insurance markets, and our business, operations and personnel;
our ability to successfully execute and implement our capital plans, including our ability to access the equity, 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;
lenders, the GSEs, or other market participants seeking alternatives to private mortgage insurance;
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;
decrease in the length of time our insurance policies are in force;
emergence of unexpected claim and coverage issues, including claims exceeding our reserves or amounts we had expected to experience;
potential adverse impacts arising from natural disasters including, with respect to affected areas, a decline in new business, adverse effects on home prices, and an increase in notices of default on insured mortgages;
climate risk and efforts to manage or regulate climate risk by government agencies could affect our business and operations;
potential adverse impacts arising from the occurrence of any man-made disasters or public health emergencies, including pandemics;
the inability of our counter-parties, including third-party reinsurers, to meet their obligations to us;
failure to maintain, improve and continue to develop necessary information technology (IT) systems or the failure of technology providers to perform;
effectiveness and security of our information technology systems and digital products and services, including the risks these systems, products or services may fail to operate as expected or planned, or expose us to cybersecurity or third-party risks (including exposure of our confidential customer and other confidential information); 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 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, 2022 (2022 10-K), as subsequently updated in other reports we file from time to time with the U.S. Securities and Exchange Commission (SEC).
Unless expressly indicated or the context requires otherwise, the terms "we," "our," "us," "Company" and "NMI" in this document refer to NMI Holdings, Inc., a Delaware corporation, and its wholly-owned subsidiaries on a consolidated basis.

4


PART I
Item 1. Financial Statements



INDEX TO FINANCIAL STATEMENTS
Condensed Consolidated Balance Sheets as of March 31, 2023 (Unaudited) and December 31, 2022
Condensed Consolidated Statements of Operations and Comprehensive Income (Loss) for the three months ended March 31, 2023 and 2022 (Unaudited)
Condensed Consolidated Statements of Changes in Shareholders' Equity for the three months ended March 31, 2023 and 2022 (Unaudited)
Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 2023 and 2022 (Unaudited)
Notes to Condensed Consolidated Financial Statements (Unaudited)

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NMI HOLDINGS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
March 31, 2023December 31, 2022
Assets(In Thousands, except for share data)
Fixed maturities, available-for-sale, at fair value (amortized cost of $2,383,982 and $2,352,747 as of March 31, 2023 and December 31, 2022, respectively)
$2,171,766 $2,099,389 
Cash and cash equivalents (including restricted cash of $2,197 and $2,176 as of March 31, 2023 and December 31, 2022, respectively)
83,104 44,426 
Premiums receivable70,198 69,680 
Accrued investment income15,702 14,144 
Deferred policy acquisition costs, net59,921 58,564 
Software and equipment, net31,830 31,930 
Intangible assets and goodwill3,634 3,634 
Reinsurance recoverable 23,479 21,587 
Prepaid federal income taxes154,409 154,409 
Other assets19,733 18,267 
Total assets$2,633,776 $2,516,030 
Liabilities
Debt$396,426 $396,051 
Unearned premiums114,064 123,035 
Accounts payable and accrued expenses70,341 74,576 
Reserve for insurance claims and claim expenses108,157 99,836 
Reinsurance funds withheld2,313 2,674 
Deferred tax liability, net223,368 193,859 
Other liabilities12,396 12,272 
Total liabilities927,065 902,303 
Commitments and contingencies
Shareholders' equity
Common stock - class A shares, $0.01 par value; 86,869,169 shares issued and 83,279,886 shares outstanding as of March 31, 2023 and 86,472,742 shares issued and 83,549,879 shares outstanding as of December 31, 2022 (250,000,000 shares authorized)
869 865 
Additional paid-in capital973,599 972,717 
Treasury Stock, at cost: 3,589,283 and 2,922,863 common shares as of March 31, 2023 and December 31, 2022, respectively
(71,437)(56,575)
Accumulated other comprehensive loss, net of tax(171,821)(204,323)
Retained earnings 975,501 901,043 
Total shareholders' equity1,706,711 1,613,727 
Total liabilities and shareholders' equity$2,633,776 $2,516,030 



See accompanying notes to condensed consolidated financial statements (unaudited).
6

NMI HOLDINGS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS) (UNAUDITED)
For the three months ended March 31,
20232022
(In Thousands, except for per share data)
Revenues
Net premiums earned$121,754 $116,495 
Net investment income14,894 10,199 
Net realized investment (losses) gains (33)408 
Other revenues164 339 
Total revenues136,779 127,441 
Expenses
Insurance claims and claim expenses (benefits)6,701 (619)
Underwriting and operating expenses25,786 32,935 
Service expenses80 430 
Interest expense8,039 8,041 
Gain from change in fair value of warrant liability (93)
Total expenses40,606 40,694 
Income before income taxes96,173 86,747 
Income tax expense 21,715 19,067 
Net income $74,458 $67,680 
Earnings per share
Basic$0.89 $0.79 
Diluted$0.88 $0.77 
Weighted average common shares outstanding
Basic83,600 85,953 
Diluted84,840 87,310 
Net income $74,458 $67,680 
Other comprehensive income (loss), net of tax:
Unrealized gains (losses) in accumulated other comprehensive income (loss), net of tax expense (benefit) of $8,633 and $(26,176) for the quarters ended March 31, 2023 and 2022, respectively
32,476 (98,471)
Reclassification adjustment for realized losses (gains) included in net income, net of tax (benefit) expense of $(7) and $86 for the quarters ended March 31, 2023 and 2022, respectively
26 (323)
Other comprehensive income (loss), net of tax32,502 (98,794)
Comprehensive income (loss) $106,960 $(31,114)

See accompanying notes to condensed consolidated financial statements (unaudited).
7

NMI HOLDINGS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (UNAUDITED)



Common Stock - Class AAdditional
Paid-in Capital
Treasury Stock, At CostAccumulated Other Comprehensive LossRetained EarningsTotal
SharesAmount
(In Thousands)
Balances, December 31, 202283,550 $865 $972,717 $(56,575)$(204,323)$901,043 $1,613,727 
Common stock: class A shares issued under stock plans, net of shares withheld for employee taxes396 4 (2,610)— — — (2,606)
Repurchase of common stock(666)— — (14,862)— — (14,862)
Share-based compensation expense— — 3,492 — — — 3,492 
Change in unrealized investment gains/losses, net of tax expense of $8,640
— — — — 32,502 32,502 
Net income— — — — — 74,458 74,458 
Balances, March 31, 202383,280 $869 $973,599 $(71,437)$(171,821)$975,501 $1,706,711 




Common Stock - Class AAdditional
Paid-in Capital
Treasury Stock, At CostAccumulated Other Comprehensive Income (Loss)Retained EarningsTotal
SharesAmount
(In Thousands)
Balances, December 31, 202185,793 $858 $955,302 $ $1,485 $608,141 $1,565,786 
Common stock: class A shares issued related to warrant exercises51 1 1,143 — — — 1,144 
Common stock: class A shares issued under stock plans, net of shares withheld for employee taxes430 4 26 — — — 30 
Repurchase of common stock(235)— — (5,000)(5,000)
Share-based compensation expense— — 4,196 — — — 4,196 
Change in unrealized investment gains/losses, net of tax benefit of $26,262
— — — — (98,794)— (98,794)
Net income— — — — — 67,680 67,680 
Balances, March 31, 202286,039 $863 $960,667 $(5,000)$(97,309)$675,821 $1,535,042 







See accompanying notes to condensed consolidated financial statements (unaudited).
8

NMI HOLDINGS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
For the three months ended March 31,
20232022
Cash flows from operating activities(In Thousands)
Net income $74,458 $67,680 
Adjustments to reconcile net income to net cash provided by operating activities:
Net realized investment losses (gains) 33 (408)
Gain from change in fair value of warrant liability (93)
Depreciation and amortization2,798 3,093 
Net amortization of premium on investment securities966 1,707 
Amortization of debt discount and debt issuance costs480 451 
Deferred income taxes20,869 19,054 
Share-based compensation expense3,492 4,196 
Changes in operating assets and liabilities:
Premiums receivable(518)(168)
Accrued investment income(1,558)(521)
Deferred policy acquisition costs, net(1,357)(143)
Reinsurance recoverable(1,892)240 
Other assets (1)
(1,612)(1,299)
Unearned premiums(8,971)(844)
Reserve for insurance claims and claim expenses8,321 (1,179)
Reinsurance balances, net(196)79 
Accounts payable and accrued expenses(5,478)(11,535)
Net cash provided by operating activities89,835 80,310 
Cash flows from investing activities
Purchase of short-term investments(106,614)(2)
Purchase of fixed-maturity investments, available-for-sale(133,971)(66,513)
Proceeds from maturity of short-term investments179,297 10,640 
Proceeds from redemptions, maturities and sale of fixed-maturity investments, available-for-sale29,054 36,479 
Software and equipment(1,517)(1,974)
Net cash used in investing activities(33,751)(21,370)
Cash flows from financing activities
Proceeds from issuance of common stock related to employee equity plans2,657 4,491 
Proceeds from issuance of common stock related to warrant exercises 290 
Taxes paid related to net share settlement of equity awards(5,263)(4,461)
Repurchases of common stock(14,800)(5,000)
Net cash used in financing activities(17,406)(4,680)
Net increase in cash, cash equivalents and restricted cash38,678 54,260 
Cash, cash equivalents and restricted cash, beginning of period44,426 76,646 
Cash, cash equivalents and restricted cash, end of period$83,104 $130,906 
(1)    "Prepaid expenses" have been reclassified as "Other assets" in prior periods.

See accompanying notes to condensed consolidated financial statements (unaudited).
9

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). Our common stock is listed on the Nasdaq exchange under the ticker symbol "NMIH."
NMIC, our primary insurance subsidiary, issued its first mortgage insurance policy in April 2013. NMIC is licensed to write mortgage insurance in all 50 states and the District of Columbia (D.C.). Re One historically provided reinsurance coverage to NMIC in accordance with certain statutory risk retention requirements. Such requirements have been repealed and the reinsurance coverage provided by Re One to NMIC has been commuted. Re One remains a wholly-owned, licensed insurance subsidiary; however, it does not currently have active insurance exposures. 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, 2022, included in our 2022 10-K. All intercompany transactions have been eliminated. Certain reclassifications to previously reported financial information have been made to conform to our current period presentation. 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. 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, 2023.
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 2022 10-K, except as noted in "Recent Accounting Pronouncements - Adopted" below.
Recent Accounting Pronouncements - Adopted
In August 2018, the Financial Accounting Standards Board (the FASB) issued ASU 2018-12, Targeted Improvements to the Accounting for Long-Duration Contracts (Topic 944). The update provides guidance to the existing recognition, measurement, presentation and disclosure requirements for long-duration contracts issued by an insurance entity. The FASB subsequently issued ASU 2019-09 in November 2019 and ASU 2020-11 in November 2020, which amended the effective date for this standard and provided transition relief to facilitate early application for long duration contracts. The standard will now take effect for public business entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2022. We adopted this ASU on January 1, 2023 and determined it did not have a material impact on our consolidated financial statements.
Recent Accounting Pronouncements - Not Yet Adopted
In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848). The update provides optional guidance to ease the potential burden in accounting for reference rate reform on financial reporting. Reference rate reform refers to the global transition away from referencing the London Interbank Offered Rate (LIBOR) in financial contracts, which is expected to be discontinued during a transition period from 2021 through 2023. The ASU includes optional expedients and exceptions for applying GAAP to contracts, hedging relationships and other transactions affected by reference rate reform if certain criteria are met. This standard may be elected and applied prospectively over time from March 12, 2020 through December 31, 2022 as reference rate reform activities occur. In December 2022, the FASB issued ASU 2022-06, which extended the sunset date of Topic 848 from December 31, 2022 to December 31, 2024. We continue to monitor the impact the discontinuance of LIBOR will have on our contracts and other transactions; however, the adoption of, and future elections under ASU 2020-04 and ASU 2022-06 are not expected to have a material impact on our consolidated financial statements as the ASUs will ease, if warranted, the requirements for accounting for the future effects of the rate reform.

10

NMI HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
2. Investments
We hold all investments on an available-for-sale basis at fair value on our condensed consolidated balance sheets and evaluate each position quarterly for impairment. We recognize an impairment on a security through the statement of operations if (i) we intend to sell the impaired security; or (ii) it is more likely than not that we will be required to sell the impaired security prior to recovery of its amortized cost basis. If a sale is intended or likely to be required, we recognize an impairment loss equivalent to the difference of the amortized cost basis of the security and its fair value through the condensed consolidated statement of operations and comprehensive income as a "Net Realized Investment Loss." In the event of an impairment of a security that we intend to and have the ability to hold to maturity, we evaluate the drivers of the impairment to determine the portion that is credit related and the portion that is non-credit related. The portion of impairment loss that is attributed to credit related factors is recognized through the statement of operations as a provision for credit loss and the portion that is attributed to non-credit related factors is recognized in other comprehensive income, net of taxes.
Fair Values and Gross Unrealized Gains and Losses on Investments
Amortized
Cost
Gross UnrealizedFair
Value
GainsLosses
As of March 31, 2023(In Thousands)
U.S. Treasury securities and obligations of U.S. government agencies$82,327 $ $(1,826)$80,501 
Municipal debt securities638,842 162 (65,386)573,618 
Corporate debt securities1,486,824 3,000 (143,354)1,346,470 
Asset-backed securities74,168  (5,112)69,056 
Total bonds2,282,161 3,162 (215,678)2,069,645 
Short-term investments101,821 392 (92)102,121 
Total investments$2,383,982 $3,554 $(215,770)$2,171,766 
Amortized
Cost
Gross UnrealizedFair
Value
GainsLosses
As of December 31, 2022(In Thousands)
U.S. Treasury securities and obligations of U.S. government agencies$82,301 $ $(2,369)$79,932 
Municipal debt securities563,972  (80,796)483,176 
Corporate debt securities1,457,589 1,149 (165,096)1,293,642 
Asset-backed securities74,762  (6,204)68,558 
Total bonds2,178,624 1,149 (254,465)1,925,308 
Short-term investments174,123 185 (227)174,081 
Total investments$2,352,747 $1,334 $(254,692)$2,099,389 
We did not own any mortgage-backed securities in our asset-backed securities portfolio at March 31, 2023 or December 31, 2022.
11

NMI HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
The following table presents a breakdown of the fair value of our corporate debt securities by issuer industry group as of March 31, 2023 and December 31, 2022:
March 31, 2023December 31, 2022
Financial38 %38 %
Consumer24 24 
Communications11 11 
Utilities11 11 
Technology8 8 
Industrial8 8 
Total100 %100 %
As of March 31, 2023 and December 31, 2022, approximately $5.5 million and $5.4 million, respectively, of our cash and investments were held in the form of U.S. Treasury securities on deposit with various state insurance departments to satisfy regulatory requirements.
Scheduled Maturities
The amortized cost and fair value of available-for-sale securities as of March 31, 2023 and December 31, 2022, 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 March 31, 2023Amortized
Cost
Fair
Value
(In Thousands)
Due in one year or less$215,196 $214,150 
Due after one through five years996,997 928,613 
Due after five through ten years1,069,343 932,616 
Due after ten years28,278 27,331 
Asset-backed securities74,168 69,056 
Total investments$2,383,982 $2,171,766 
As of December 31, 2022Amortized
Cost
Fair
Value
(In Thousands)
Due in one year or less$271,613 $270,428 
Due after one through five years935,615 862,747 
Due after five through ten years1,047,461 875,947 
Due after ten years23,296 21,709 
Asset-backed securities74,762 68,558 
Total investments$2,352,747 $2,099,389 
Aging of Unrealized Losses
As of March 31, 2023, the investment portfolio had gross unrealized losses of $215.8 million, of which $209.2 million were associated with securities that had been in an unrealized loss position for a period of twelve months or longer. As of December 31, 2022, the investment portfolio had gross unrealized losses of $254.7 million, of which $218.5 million were associated with securities that had been in an unrealized loss position for a period of twelve months or longer. For those securities in an unrealized loss position, the length of time the securities were in such a position is as follows:
12

NMI HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Less Than Twelve MonthsTwelve Months or GreaterTotal
# of SecuritiesFair ValueUnrealized Losses# of SecuritiesFair ValueUnrealized Losses# of SecuritiesFair ValueUnrealized Losses
As of March 31, 2023($ In Thousands)
U.S. Treasury securities and obligations of U.S. government agencies10 $57,051 $(900)13 $23,450 $(926)23 $80,501 $(1,826)
Municipal debt securities16 58,938 (483)225 472,635 (64,903)241 531,573 (65,386)
Corporate debt securities76 234,568 (5,139)227 1,002,166 (138,215)303 1,236,734 (143,354)
Asset-backed securities   26 69,056 (5,112)26 69,056 (5,112)
Short-term investments3 24,751 (92)   3 24,751 (92)
Total 105 $375,308 $(6,614)491 $1,567,307 $(209,156)596 $1,942,615 $(215,770)
Less Than Twelve MonthsTwelve Months or GreaterTotal
# of SecuritiesFair ValueUnrealized Losses# of SecuritiesFair ValueUnrealized Losses# of SecuritiesFair ValueUnrealized Losses
As of December 31, 2022($ In Thousands)
U.S. Treasury securities and obligations of U.S. government agencies19 $77,164 $(2,260)4 $2,768 $(109)23 $79,932 $(2,369)
Municipal debt securities57 143,097 (12,942)181 340,079 (67,854)238 483,176 (80,796)
Corporate debt securities141 434,174 (19,699)168 790,537 (145,397)309 1,224,711 (165,096)
Asset-backed securities12 13,527 (1,097)14 55,031 (5,107)26 68,558 (6,204)
Short-term investments12 104,236 (227)   12 104,236 (227)
Total241 $772,198 $(36,225)367 $1,188,415 $(218,467)608 $1,960,613 $(254,692)
Allowance for credit losses
As of March 31, 2023 and December 31, 2022, we did not recognize an allowance for credit loss for any security in the investment portfolio and we did not record any provision for credit loss for investment securities during the three months ended March 31, 2023 or 2022.
The decrease in the number of securities in and the aggregate size of the unrealized loss position as of March 31, 2023, was driven by fluctuations in interest rates and, to a lesser extent, movements in credit spreads since December 31, 2022. We evaluated the securities in an unrealized loss position as of March 31, 2023, assessing their credit ratings as well as any adverse conditions specifically related to the security. Based upon our estimate of the amount and timing of cash flows to be collected over the remaining life of each instrument, we believe the unrealized losses as of March 31, 2023 are not indicative of the ultimate collectability of the current amortized cost of the securities.
Net Investment Income
The following table presents the components of net investment income:
For the three months ended March 31,
20232022
(In Thousands)
Investment income$15,174 $10,532 
Investment expenses(280)(333)
Net investment income$14,894 $10,199 
13

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

The following table presents the components of net realized investment gains:
For the three months ended March 31,
20232022
(In Thousands)
Gross realized investment gains$ $409 
Gross realized investment losses(33)(1)
Net realized investment (losses) gains$(33)$408 

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.
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.
14

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

The following tables present the level within the fair value hierarchy at which our financial instruments were measured:
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 March 31, 2023(In Thousands)
U.S. Treasury securities and obligations of U.S. government agencies$80,501 $ $ $80,501 
Municipal debt securities 573,618  573,618 
Corporate debt securities 1,346,470  1,346,470 
Asset-backed securities 69,056  69,056 
Cash, cash equivalents and short-term investments185,225   185,225 
Total assets$265,726 $1,989,144 $ $2,254,870 
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, 2022(In Thousands)
U.S. Treasury securities and obligations of U.S. government agencies$79,932 $ $ $79,932 
Municipal debt securities 483,176  483,176 
Corporate debt securities 1,293,642  1,293,642 
Asset-backed securities 68,558  68,558 
Cash, cash equivalents and short-term investments218,507   218,507 
Total assets$298,439 $1,845,376 $ $2,143,815 
There were no transfers between Level 2 and Level 3 of the fair value hierarchy during the three months ended March 31, 2023, or the year ended December 31, 2022.
Financial Instruments not Measured at Fair Value
On June 19, 2020, we issued $400 million aggregate principal amount of senior secured notes that mature on June 1, 2025 (the Notes) and used a portion of the proceeds from the Notes offering to repay the outstanding amount due under our $150 million term loan (2018 Term Loan). At March 31, 2023, the Notes were carried at a cost of $396.4 million, net of unamortized debt issuance costs of $3.6 million, and had a fair value of $401.9 million as assessed under our Level 2 hierarchy. At December 31, 2022, the Notes were carried at a cost of $396.1 million, net of unamortized debt issuance costs of $3.9 million, and had a fair value of $405.9 million.
4. Debt
Senior Secured Notes
At March 31, 2023, we had $400 million aggregate principal amount of senior secured notes outstanding. The Notes were issued pursuant to an indenture dated June 19, 2020 (the Indenture) and bear interest at a rate of 7.375%, payable semi-annually on June 1 and December 1.
The Notes mature on June 1, 2025. At any time, or from time to time, prior to March 1, 2025, we may elect to redeem the Notes in whole or in part at a price based on 100% of the aggregate principal amount of any Notes redeemed plus the "Applicable Premium," plus accrued and unpaid interest thereon. Applicable Premium is defined as the greater of (1) 1.0% of the principal amount of the Notes, or (2) the excess of the present value of the principal value of the Notes plus all future interest payments
15

NMI HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
over the principal amount. At any time on or after March 1, 2025, we may elect to redeem the Notes in whole or in part at a price equal to 100% of the aggregate principal amount of the Notes to be redeemed plus accrued and unpaid interest thereon.
Interest expense for the Notes includes interest and the amortization of capitalized debt issuance costs. In connection with the Notes offering, we recorded capitalized debt issuance costs of $7.4 million. Such amounts will be amortized over the contractual life of the Notes using the effective interest method. The effective interest rate on the Notes is 7.825%. At March 31, 2023 and December 31, 2022, approximately $3.6 million and $3.9 million, respectively, of unamortized debt issuance costs remained.
At March 31, 2023 and December 31, 2022, $9.8 million and $2.5 million, respectively, of accrued and unpaid interest on the Notes was included in "Accounts Payable and Accrued Expenses" on the condensed consolidated balance sheets.
    2021 Revolving Credit Facility
On November 29, 2021, we amended our $110 million senior secured revolving credit facility (the 2020 Revolving Credit Facility and as amended, the 2021 Revolving Credit Facility), expanding the lender group, increasing the revolving capacity to $250 million, and extending the maturity from February 22, 2023 to the earlier of (x) November 29, 2025, or (y) if any existing senior secured notes remain outstanding on such date, February 28, 2025. Borrowings under the 2021 Revolving Credit Facility may be used for general corporate purposes, including to support the growth of our new business production and operations, and accrue interest at a variable rate equal to, at our discretion, (i) a Base Rate (as defined in the 2021 Revolving Credit Facility) subject to a floor of 1.00% per annum) plus a margin of 0.375% to 1.875% per annum or (ii) the Adjusted Term Secured Overnight Financing Rate (SOFR, as defined in the 2021 Revolving Credit Facility) plus a margin of 1.375% to 2.875% per annum, with the margin in each of (i) or (ii) based on our applicable corporate credit rating at the time. As of March 31, 2023 and December 31, 2022, no amounts were drawn under the 2021 Revolving Credit Facility.
Under the 2021 Revolving Credit Facility, we are required to pay a quarterly commitment fee on the average daily undrawn amount of 0.175% to 0.525%, based on the applicable corporate credit rating at the time. As of March 31, 2023, the applicable commitment fee was 0.30%. For the three months ended March 31, 2023, we recorded $0.2 million of commitment fees in interest expense.
We incurred debt issuance costs of $1.1 million in connection with the 2021 Revolving Credit Facility, and had $0.6 million of unamortized debt issuance costs associated with the 2020 Revolving Credit Facility remaining at the time of its amendment and replacement. The combined unamortized debt issuance will be amortized through interest expense on a straight-line basis over the contractual life of the 2021 Revolving Credit Facility. At March 31, 2023 and December 31, 2022, remaining unamortized deferred debt issuance costs were $1.1 million and $1.2 million, respectively.
We are subject to certain covenants under the 2021 Revolving Credit Facility, including, but not limited to, the following: a maximum debt-to-total capitalization ratio of 35%, compliance with the private mortgage insurer eligibility requirements (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 at March 31, 2023.

5. Reinsurance
We enter into third-party reinsurance transactions to actively manage our risk, ensure compliance with PMIERs, state regulatory and other applicable capital requirements, (respectively, as defined therein), and support the growth of our business. The Wisconsin Office of the Commissioner of Insurance (Wisconsin OCI) has approved and the GSEs have indicated their non-objection to all such transactions (subject to certain conditions and ongoing review, including levels of approved capital credit).
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NMI HOLDINGS, INC.
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The effect of our reinsurance agreements on premiums written and earned is as follows:
For the three months ended
March 31, 2023March 31, 2022
(In Thousands)
Net premiums written
Direct$148,932 $138,872 
Ceded (1)
(35,956)(22,838)
Net premiums written$112,976 $116,034 
Net premiums earned
Direct$157,904 $139,716 
Ceded (1)
(36,150)(23,221)
Net premiums earned$121,754 $116,495 
(1)    Net of profit commission.
Excess-of-loss reinsurance
Insurance-linked notes
NMIC is a party to reinsurance agreements with Oaktown Re II Ltd., Oaktown Re III Ltd., Oaktown Re V Ltd., Oaktown Re VI Ltd., and Oaktown Re VII Ltd. (special purpose reinsurance entities collectively referred to as the Oaktown Re Vehicles) effective July 25, 2018, July 30, 2019, October 29, 2020, April 27, 2021, and October 26, 2021, respectively. Each agreement provides NMIC with aggregate excess-of-loss reinsurance coverage on a defined portfolio of mortgage insurance policies. Under each agreement, NMIC retains a first layer of aggregate loss exposure on covered policies and the respective Oaktown Re Vehicle then provides second layer loss protection up to a defined reinsurance coverage amount. NMIC then retains losses in excess of the respective reinsurance coverage amounts.
NMIC makes risk premium payments to the Oaktown Re Vehicles for the applicable outstanding reinsurance coverage amount and pays an additional amount for anticipated operating expenses (capped at $250 thousand per year). NMIC ceded aggregate premiums to the Oaktown Re Vehicles of $9.1 million and $10.9 million during the three months ended March 31, 2023 and 2022, respectively.
NMIC applies claims paid on covered policies against its first layer aggregate retained loss exposure under each excess-of-loss agreement. NMIC did not cede any incurred losses on covered policies to the Oaktown Re Vehicles during the three months ended March 31, 2023 and 2022, as the aggregate first layer risk retention for each applicable agreement was not exhausted during such periods.
Under the terms of each excess-of-loss reinsurance agreement, the Oaktown Re Vehicles are required to fully collateralize their outstanding reinsurance coverage amount to NMIC with funds deposited into segregated reinsurance trusts. Such trust funds are required to be invested in short-term U.S. Treasury money market funds at all times. Each Oaktown Re Vehicle financed its respective collateral requirement through the issuance of mortgage insurance-linked notes to unaffiliated investors. Such insurance-linked notes mature ten years from the inception date of each reinsurance agreement (except the notes issued by Oaktown Re VI Ltd. and Oaktown Re VII Ltd., which have a 12.5-year maturity). We refer to NMIC's reinsurance agreements with and the insurance-linked note issuances by Oaktown Re Vehicles individually as the 2018 ILN Transaction, 2019 ILN Transaction, 2020-2 ILN Transaction, 2021-1 ILN Transaction, and 2021-2 ILN Transaction, and collectively as the ILN Transactions.
The respective reinsurance coverage amounts provided by the Oaktown Re Vehicles decrease over a ten-year period as the underlying insured mortgages are amortized or repaid, and/or the mortgage insurance coverage is canceled (except the coverage provided by Oaktown Re VI Ltd. and Oaktown Re VII Ltd., which decreases over a 12.5-year period). As the reinsurance coverage decreases, a prescribed amount of collateral held in trust by the Oaktown Re Vehicles is distributed to ILN Transaction noteholders as amortization of the outstanding insurance-linked note principal balances. The outstanding reinsurance coverage amounts stop amortizing, and the distribution of collateral assets to ILN Transaction noteholders and amortization of insurance-linked note principal is suspended if certain credit enhancement or delinquency thresholds, as defined in each agreement, are triggered (each, a Lock-Out Event). As of March 31, 2023, the 2021-2 ILN Transaction was deemed to be in Lock
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Out in connection with the initial build of its target credit enhancement level and will remain in Lock Out until such target credit enhancement level is achieved. Effective February 28, 2023, a previously triggered Lock-Out Event for the 2018 ILN Transaction was deemed to have cleared and amortization of the associated reinsurance coverage, and distribution of collateral assets and amortization of the associated insurance-linked notes resumed.
NMIC holds optional termination rights under each ILN Transaction, including, among others, an optional call feature which provides NMIC the discretion to terminate the transaction on or after a prescribed date, and a clean-up call if the outstanding reinsurance coverage amount amortizes to 10% or less of the reinsurance coverage amount at inception or if NMIC reasonably determines that changes to GSE or rating agency asset requirements would cause a material and adverse effect on the capital treatment afforded to NMIC under a given agreement. In addition, there are certain events that trigger mandatory termination of an agreement, including NMIC's failure to pay premiums or consent to reductions in a trust account to make principal payments to noteholders, among others.
The following table presents the inception date, covered production period, initial and current reinsurance coverage amount, and initial and current first layer retained aggregate loss under each outstanding ILN Transaction. Current amounts are presented as of March 31, 2023.
($ values in thousands)
Inception DateCovered ProductionInitial Reinsurance Coverage Current Reinsurance CoverageInitial First Layer Retained Loss
Current First Layer Retained Loss (1)
2018 ILN TransactionJuly 25, 20181/1/2017 – 5/31/2018$264,545 $147,608 $125,312 $122,166 
2019 ILN TransactionJuly 30, 20196/1/2018 – 6/30/2019326,905 191,044 123,424 122,182 
2020-2 ILN TransactionOctober 29, 2020
4/1/2020 – 9/30/2020 (2)
242,351 85,011 121,777 121,177 
2021-1 ILN Transaction April 27, 2021
10/1/2020 – 3/31/2021 (3)
367,238 282,630 163,708 163,654 
2021-2 ILN Transaction (5)
October 26, 2021
4/1/2021 – 9/30/2021 (4)
363,596 363,596 146,229 146,167 

(1)    NMIC applies claims paid on covered policies against its first layer aggregate retained loss exposure and cedes reserves for incurred claims and claim expenses to each applicable ILN Transaction and recognizes a reinsurance recoverable if such incurred claims and claim expenses exceed its current first layer retained loss.
(2)    Approximately 1% of the production covered by the 2020-2 ILN Transaction has coverage reporting dates between July 1, 2019 and March 31, 2020.
(3)    Approximately 1% of the production covered by the 2021-1 ILN Transaction has coverage reporting dates between July 1, 2019 and September 30, 2020.
(4)    Approximately 2% of the production covered by the 2021-2 ILN Transaction has coverage reporting dates between July 1, 2019 and March 31, 2021.
(5)    As of March 31, 2023, the current reinsurance coverage amount on the 2021-2 ILN Transactions is equal to the initial reinsurance coverage amount, as the reinsurance coverage provided by Oaktown Re VII Ltd. will not begin to amortize until its target credit enhancement level is reached.

Under the terms of our ILN Transactions, we are required to maintain a certain level of restricted funds in premium deposit accounts with Bank of New York Mellon until the respective notes have been redeemed in full. "Cash and cash equivalents" on our condensed consolidated balance sheets includes restricted amounts of $2.2 million as of both March 31, 2023 and December 31, 2022. The restricted balances required under these transactions will decline over time as the outstanding principal balance of the respective insurance-linked notes are amortized.
Traditional reinsurance
NMIC is a party to four excess-of-loss reinsurance agreements with broad panels of third-party reinsurers – the 2022-1 XOL Transaction, effective April 1, 2022, the 2022-2 XOL Transaction, effective July 1, 2022, the 2022-3 XOL Transaction, effective October 1, 2022, and the 2023-1 XOL Transaction, effective January 1, 2023 – which we refer to collectively as the XOL Transactions. Each XOL Transaction provides NMIC with aggregate excess-of-loss reinsurance coverage on a defined portfolio of mortgage insurance policies. Under each agreement, NMIC retains a first layer of aggregate loss exposure on covered policies and the reinsurers then provide second layer loss protection up to a defined reinsurance coverage amount. The reinsurance coverage amount of each XOL Transaction is set to approximate the PMIERs minimum required assets of its reference pool and decreases from the inception of each respective agreement over a ten-year period in the event the PMIERs minimum required assets of the pool declines. NMIC retains losses in excess of the outstanding reinsurance coverage amount.
Under the terms of the XOL Transactions, NMIC makes risk premium payments to its third-party reinsurance providers for the outstanding reinsurance coverage amount and ceded aggregate premiums of $7.2 million during the three months ended March 31, 2023. NMIC applies claims paid on covered policies against its first layer aggregate retained loss exposure under each agreement. NMIC did not cede any incurred losses on covered policies under the XOL Transactions during the three months ended March 31, 2023, as the aggregate first layer risk retention for each agreement was not exhausted during the period.
NMIC holds optional termination rights which provide it the discretion to terminate each XOL Transaction on or after a
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NMI HOLDINGS, INC.
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specified date. NMIC may also elect to terminate the XOL Transactions at any point if the outstanding reinsurance coverage amount amortizes to 10% or less of the reinsurance coverage amount provided at inception, or if it determines that it will no longer be able to take full PMIERs asset credit for the coverage. Additionally, under the terms of the treaties, NMIC may selectively terminate its engagement with individual reinsurers under certain circumstances. Such selective termination rights arise when, among other reasons, a reinsurer experiences a deterioration in its capital position below a prescribed threshold, and/or a reinsurer breaches (and fails to cure) its collateral posting obligation.
Each of the third-party reinsurance providers that is party to the XOL Transactions has an insurer financial strength rating of A- or better by Standard & Poor’s Rating Service (S&P), A.M. Best Company Inc. (A.M. Best) or both.
The following table presents the inception date, covered production period, initial and current reinsurance coverage amount, and initial and current first layer retained aggregate loss under each outstanding XOL Transaction. Current amounts are presented as of March 31, 2023.
($ values in thousands)Inception DateCovered Production
Initial Reinsurance Coverage
Current Reinsurance CoverageInitial First Layer Retained Loss
Current First Layer Retained Loss (1)
2022-1 XOL TransactionApril 1, 2022
10/1/2021 – 3/31/2022 (2)
$289,741$283,077$133,366$133,366
2022-2 XOL TransactionJuly 1, 2022
4/1/2022 – 6/30/2022 (3)
154,306152,34778,90678,906
2022-3 XOL TransactionOctober 1, 20227/1/2022 – 9/30/202296,77996,197106,265106,265
2023-1 XOL Transaction (4)
January 1, 202310/1/2022 – 6/30/202359,50959,50994,97794,977
(1)    NMIC applies claims paid on covered policies against its first layer aggregate retained loss exposure and cedes reserves for incurred claims and claim expenses to each applicable XOL Transaction and recognizes a reinsurance recoverable if such incurred claims and claim expenses exceed its current first layer retained loss.
(2)    Approximately 1% of the production covered by the 2022-1 XOL Transaction has coverage reporting dates between October 21, 2019 and September 30, 2021.
(3)    Approximately 1% of the production covered by the 2022-2 XOL Transaction has coverage reporting dates between January 4, 2021 and March 31, 2022.
(4)    The initial reinsurance coverage, current reinsurance coverage, initial first layer retained loss and current first layer retained loss for the 2023-1 XOL Transaction will increase as incremental covered production is ceded under the transaction through June 30, 2023.
Quota share reinsurance
NMIC is a party to seven quota share reinsurance treaties – the 2016 QSR Transaction, effective September 1, 2016, the 2018 QSR Transaction, effective January 1, 2018, the 2020 QSR Transaction, effective April 1, 2020, the 2021 QSR Transaction, effective January 1, 2021, the 2022 QSR Transaction, effective October 1, 2021, the 2022 Seasoned QSR Transaction, effective July 1, 2022 and the 2023 QSR Transaction, effective January 1, 2023 – which we refer to collectively as the QSR Transactions. Under each of the QSR Transactions, NMIC cedes a proportional share of its risk on eligible policies to panels of third-party reinsurance providers. Each of the third-party reinsurance providers that is party to the QSR Transactions has an insurer financial strength rating of A- or better by S&P, A.M. Best or both.
Under the terms of the 2016 QSR Transaction, NMIC cedes premiums written related to 25% of the risk on eligible primary policies written for all periods through December 31, 2017 and 100% of the risk under our pool agreement with Fannie Mae. The 2016 QSR Transaction is scheduled to terminate on December 31, 2027, except with respect to the ceded pool risk, which is scheduled to terminate on August 31, 2023. NMIC has the option, based on certain conditions and subject to a termination fee, to terminate the agreement as of December 31, 2020, or at the end of any calendar quarter thereafter, which would result in NMIC recapturing the related risk.
Under the terms of the 2018 QSR Transaction, NMIC cedes premiums earned related to 25% of the risk on eligible policies written in 2018 and 20% of the risk on eligible policies written in 2019. The 2018 QSR Transaction is scheduled to terminate on December 31, 2029. NMIC has the option, based on certain conditions and subject to a termination fee, to terminate the agreement as of December 31, 2022, or at the end of any calendar quarter thereafter, which would result in NMIC recapturing the related risk.
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NMI HOLDINGS, INC.
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Under the terms of the 2020 QSR Transaction, NMIC cedes premiums earned related to 21% of the risk on eligible policies written from April 1, 2020 to December 31, 2020. The 2020 QSR Transaction is scheduled to terminate on December 31, 2030. NMIC has the option, based on certain conditions and subject to a termination fee, to terminate the agreement as of December 31, 2023, or at the end of any calendar quarter thereafter, which would result in NMIC recapturing the related risk.
Under the terms of the 2021 QSR Transaction, NMIC cedes premiums earned related to 22.5% of the risk on eligible policies written from January 1, 2021 to October 30, 2021. The 2021 QSR Transaction is scheduled to terminate on December 31, 2031. NMIC has the option, based on certain conditions and subject to a termination fee, to terminate the agreement as of December 31, 2024, or at the end of any calendar quarter thereafter, which would result in NMIC recapturing the related risk.
Under the terms of the 2022 QSR Transaction, NMIC cedes premiums earned related to 20% of the risk on eligible policies written primarily between October 30, 2021 and December 31, 2022. The 2022 QSR Transaction is scheduled to terminate on December 31, 2032. NMIC has the option, based on certain conditions and subject to a termination fee, to terminate the agreement as of December 31, 2025 or semi-annually thereafter, which would result in NMIC recapturing the related risk.
In connection with the 2022 QSR Transaction, NMIC entered into the 2023 QSR Transaction as a springing back-to-back quota share agreement. Under the terms of the 2023 QSR Transaction, NMIC cedes premiums earned related to 20% of the risk on eligible policies written from January 1, 2023 to December 31, 2023. The 2023 QSR Transaction is scheduled to terminate on December 31, 2033. NMIC has the option, based on certain conditions and subject to a termination fee, to terminate the agreement as of December 31, 2026 or semi-annually thereafter, which would result in NMIC recapturing the related risk.
Under the terms of the 2022 Seasoned QSR Transaction, NMIC cedes premiums earned related to 95% of the net risk on eligible policies primarily for a seasoned pool of mortgage insurance policies that had previously been covered under the retired Oaktown Re Ltd. and Oaktown Re IV Ltd. reinsurance transactions, after the consideration of coverage provided by other QSR Transactions. The 2022 Seasoned QSR Transaction is scheduled to terminate on June 30, 2032. NMIC has the option, based on certain conditions, to terminate the agreement as of June 30, 2025 or quarterly thereafter through December 31, 2027 with the payment of a termination fee, and as of March 31, 2028 or quarterly thereafter without the payment of a termination fee. Such termination would result in NMIC recapturing the related risk.
NMIC may terminate any or all of the QSR Transactions without penalty if, due to a change in PMIERs requirements, it is no longer able to take full PMIERs asset credit for the risk-in-force (RIF) ceded under the respective agreements. Additionally, under the terms of the QSR Transactions, NMIC may elect to selectively terminate its engagement with individual reinsurers on a run-off basis (i.e., reinsurers continue providing coverage on all risk ceded prior to the termination date, with no new cessions going forward) or cut-off basis (i.e., the reinsurance arrangement is completely terminated with NMIC recapturing all previously ceded risk) under certain circumstances. Such selective termination rights arise when, among other reasons, a reinsurer experiences a deterioration in its capital position below a prescribed threshold and/or a reinsurer breaches (and fails to cure) its collateral posting obligations under the relevant agreement.
Effective April 1, 2019, NMIC elected to terminate its engagement with one reinsurer under the 2016 QSR Transaction on a cut-off basis. In connection with the termination, NMIC recaptured approximately $500 million of previously ceded primary RIF and stopped ceding new premiums earned or written with respect to the recaptured risk. With the termination, ceded premiums written under the 2016 QSR Transaction decreased from 25% to 20.5% on eligible policies. The termination has no effect on the cession of pool risk under the 2016 QSR Transaction.
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NMI HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
The following table shows amounts related to the QSR Transactions:
As of and for the three months ended
March 31, 2023March 31, 2022
(In Thousands)
Ceded risk-in-force$12,635,442 $8,504,853 
Ceded premiums earned(42,096)(29,005)
Ceded claims and claim expenses (benefits)1,965 (159)
Ceding commission earned9,965 5,886 
Profit commission22,279 16,723 
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 all other QSR Transactions, 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, except with respect to the 2022 Seasoned QSR Transaction under which it receives a 35% ceding commission. NMIC also receives a profit commission under each of the QSR Transactions, provided that the loss ratios on loans covered under the 2016, 2018, 2020, 2021, 2022, 2023 QSR and 2022 Seasoned QSR Transactions, generally remain below 60%, 61%, 50%, 57.5%, 62%, 62%, and