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What changed in NMI Holdings, Inc.'s 10-K — 2022 vs 2023

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Paragraph-level year-over-year comparison of NMI Holdings, Inc.'s 2022 and 2023 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2023 report.

+450 added−493 removedSource: 10-K (2024-02-15) vs 10-K (2023-02-15)

Top changes in NMI Holdings, Inc.'s 2023 10-K

450 paragraphs added · 493 removed · 370 edited across 7 sections

Item 1. Business

Business — how the company describes what it does

95 edited+26 added−50 removed245 unchanged
Biggest changeUnder the terms of the 2021 QSR Transaction, NMIC cedes premiums earned related to 22.5% of the risk on eligible policies written in 2021 (subject to an aggregate risk written limit which was exhausted on October 31, 2021), in exchange for reimbursement of ceded claims and claim expenses on covered policies, a 20% ceding commission, and a profit commission of up to 57.5% that varies directly and inversely with ceded claims.
Biggest changeUnder the terms of the 2020 QSR Transaction, NMIC cedes premiums earned related to 21% of the risk on eligible policies written from April 1, 2020 through December 31, 2020, in exchange for reimbursement of ceded claims and claim expenses on covered po licies, a 20% ceding commission, and a profit commission of up to 50% that varies directly and inversely with ceded claims. 15 Under the terms of the 2021 QSR Transaction, NMIC cedes premiums earned related to 22.5% of the risk on eligible policies written in 2021 (subject to an aggregate risk written limit which was exhausted on October 30, 2021), in exchange for reimbursement of ceded claims and claim expenses on covered policies, a 20% ceding commission, and a profit commission of up to 57.5% that varies directly and inversely with ceded claims.
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 payment practices, responsive customer service, financial strength and profitability.
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 payment practices, responsive customer service, and financial strength and profitability.
In general, state insurance regulation of our business relates to: • licenses to transact business; • producer licensing • policy forms; • premium rates; 21 • insurable loans; • annual and quarterly financial reports prepared in accordance with statutory accounting principles; • determination of loss, unearned premium and contingency reserves; • minimum capital levels and adequacy ratios; • affiliate transactions; • reinsurance transactions and related requirements; • limitations on the types of investment instruments which may be held in an investment portfolio; • the size of risks and limits on coverage of individual risks which may be insured; • special deposits of securities; • stockholder dividends; • insurance policy sales practices; • privacy and cybersecurity; • enterprise risk management; • advertising compliance; • restrictions on transactions that have the effect of inducing lenders to place business with NMIC; and • claims handling.
In general, state insurance regulation of our business relates to: • licenses to transact business; • producer licensing; • policy forms; • premium rates; • insurable loans; • annual and quarterly financial reports prepared in accordance with statutory accounting principles; • determination of loss, unearned premium and contingency reserves; • minimum capital levels and adequacy ratios; • affiliate transactions; • reinsurance transactions and related requirements; • limitations on the types of investment instruments which may be held in an investment portfolio; • the size of risks and limits on coverage of individual risks which may be insured; • special deposits of securities; • stockholder dividends; 21 • insurance policy sales practices; • privacy and cybersecurity; • enterprise risk management; • advertising compliance; • restrictions on transactions that have the effect of inducing lenders to place business with NMIC; and • claims handling.
When we approve a claim, our Master Policies give us the option to pay (i) the coverage percentage specified for a loan, with the insured retaining title to the underlying property and receiving all proceeds from an eventual sale of the property (the percentage option), (ii) the actual loss incurred by the insured upon sale of the property to a third party, if less than the percentage option, (iii) the loss an insured is reasonably expected to experience upon a future sale of the property to a third-party, or (iv) the insured's claim amount (as calculated in the applicable Master Policy) in exchange for the insured's conveyance of good and marketable title to the property to us.
When we approve a claim, our Master Policies give us the option to pay (i) the coverage percentage specified for a loan, with the insured retaining title to the underlying property and receiving all proceeds from an eventual sale of the property (the percentage option), (ii) the actual loss incurred by the insured upon sale of the property to a third party, if less than the percentage 12 option, (iii) the loss an insured is reasonably expected to experience upon a future sale of the property to a third-party, or (iv) the insured's claim amount (as calculated in the applicable Master Policy) in exchange for the insured's conveyance of good and marketable title to the property to us.
On receipt of a non-delegated submission, we review the information, documentation and data provided by the lender to underwrite the MI application. • Delegated : We provide eligible customers who have been vetted and approved, and comply with a defined set of delegated underwriting program requirements with the ability to directly underwrite our policies and bind our coverage based on pre-established eligibility rules, approved underwriting guidelines and according to the terms of our Master Policies.
On receipt of a non-delegated submission, we review the information, documentation and data provided by the lender to underwrite the MI application. • Delegated : We provide eligible customers who have been vetted and approved, and comply with a defined set of delegated underwriting program requirements with the ability to directly underwrite our policies and bind our coverage based on pre-established eligibility rules, approved underwriting guidelines and according to the terms of our Master Policy.
The risk-based required asset amount is a function of the risk profile of an approved insurer's RIF, assessed on a loan-by-loan basis and considered against certain risk-based factors derived from tables set out in the PMIERs to gross RIF, which is then adjusted on an aggregate basis for reinsurance transactions approved by the GSEs, such as with respect to our ILN Transactions and QSR Transactions.
The risk-based required asset amount is a function of the risk profile of an approved insurer's RIF, assessed on a loan-by-loan basis and considered against certain risk-based factors derived from tables set out in the PMIERs to gross RIF, which is then adjusted on an aggregate basis for reinsurance transactions approved by the GSEs, such as with respect to our ILN Transactions, QSR Transactions and XOL Transactions.
We believe the existing U.S. implementation of the Basel IV capital framework supports continued use of private MI by portfolio lenders as a risk and capital management tool; however, with the ongoing implementation of Basel IV and the continued evolution of the Basel framework, it is difficult to predict the impact, if any, on the MI industry and the ultimate form of any potential future modifications to the regulations by federal banking regulators.
We believe the existing U.S. implementation of the Basel IV capital framework supports continued use of private MI by portfolio lenders as a risk and capital management tool; however, with the ongoing implementation of Basel IV and the continued evolution of the Basel framework, it is difficult to predict the extent of the impact, if any, on the MI industry and the ultimate form of any potential future modifications to the regulations by federal banking regulators.
For example, Wisconsin prohibits mortgage insurers from allowing any commission, fee, remuneration, or other compensation to be paid to, or received by, any insured lender, including any subsidiary or affiliate, officer, director, or employee of any insured, any member of their immediate family, any corporation, partnership, trust, trade association in which any insured is a member, or other entity in which any insured or any such officer, director, or employee or any member of their immediate family has a financial interest.
For example, Wisconsin prohibits mortgage insurers from allowing any commission, fee, remuneration, or other compensation to be paid to, or received by, any insured lender, including any subsidiary 23 or affiliate, officer, director, or employee of any insured, any member of their immediate family, any corporation, partnership, trust, trade association in which any insured is a member, or other entity in which any insured or any such officer, director, or employee or any member of their immediate family has a financial interest.
These state laws obligate us to protect social security numbers, maintain a comprehensive information security program, submit annual compliance certifications regarding such programs (or an exemption thereto) and notify insurance regulators if a security breach results in a reasonable belief that unauthorized persons may have obtained access to consumer non-public personal information.
These state laws obligate us to protect social security numbers, maintain a comprehensive information security program, 28 submit annual compliance certifications regarding such programs (or an exemption thereto) and notify insurance regulators if a security breach results in a reasonable belief that unauthorized persons may have obtained access to consumer non-public personal information.
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, in exchange for reimbursement of ceded claims and claim expenses on covered policies, a 20% ceding commission, and a profit commission of up to 62% that varies directly and inversely with ceded claims.
Under the terms of the 2022 QSR Transaction, NMIC cedes premiums earned related to 20% of the risk on eligible policies written between October 30, 2021 and December 31, 2022, in exchange for reimbursement of ceded claims and claim expenses on covered policies, a 20% ceding commission, and a profit commission of up to 62% that varies directly and inversely with ceded claims.
We understand that this stockholder has filed a disclaimer of control with the Wisconsin OCI in connection therewith, which has not been disapproved. 22 Our insurance subsidiaries are subject to Wisconsin statutory requirements as to maintenance of minimum policyholders' surplus and payment of dividends or distributions to stockholders.
We understand that this stockholder has filed a disclaimer of control with the Wisconsin OCI in connection therewith, which has not been disapproved. Our insurance subsidiaries are subject to Wisconsin statutory requirements as to maintenance of minimum policyholders' surplus and payment of dividends or distributions to stockholders.
The outstanding reinsurance coverage amounts stop amortizing, and the collateral distribution to ILN Transaction noteholders and amortization of insurance-linked note principal is suspended if certain credit enhancement or delinquency thresholds, as defined in each agreement, are triggered (each, a Lock-Out Event).
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).
The PSPAs have also historically required the GSEs to, among other things, make quarterly dividend payments to the Treasury Department, and also provide the Treasury Department with a liquidation preference. At the direction of the FHFA, the GSEs have expanded their credit and mortgage risk transfer programs with no public notice or opportunity to comment.
The PSPAs have also historically required the GSEs to, among other things, make quarterly dividend payments to the Treasury Department, and also provide the Treasury Department with a liquidation preference. 24 At the direction of the FHFA, the GSEs have expanded their credit and mortgage risk transfer programs with no public notice or opportunity to comment.
Under the 2020 Master Policy, which incorporates the RRPs, a loan may be eligible for early rescission relief following our satisfactory completion of an independent validation, with no set requirement for a minimum number of timely mortgage payments by the borrower.
Under our 2020 Master Policy, which incorporates the revised RRPs, a loan may be eligible for early rescission relief following our satisfactory completion of an independent validation, with no set requirement for a minimum number of timely mortgage payments by the borrower.
The secondary market includes institutions that buy and sell mortgages in the form of whole loans or securitized assets, such as mortgage-backed securities. 5 The U.S. residential mortgage market attracts and involves participation from a range of private and governmental institutions.
The secondary market includes institutions that buy and sell mortgages in the form of whole loans or securitized assets, such as mortgage-backed securities. The U.S. residential mortgage market attracts and involves participation from a range of private and governmental institutions.
In 2022 we continued to focus on taking action to: (i) enhance cultural awareness throughout the organization by creating substantive learning opportunities for all employees; (ii) broaden our leadership pipeline by creating and supporting programs and policies that foster leadership development; (iii) seek and support diverse backgrounds on our Board of Directors and amongst our management team; (iv) address potential bias during our hiring, evaluation and promotion processes; (v) support an inclusive corporate culture; and (vi) engage in initiatives that foster economic mobility, community development and financial education.
In 2023, we continued to focus on taking action to: (i) enhance cultural awareness throughout the organization by creating substantive learning opportunities for all employees; (ii) broaden our leadership pipeline by creating and supporting programs and policies that foster leadership development; (iii) seek and support diverse backgrounds on our Board of Directors and amongst our management team; (iv) address potential bias during our hiring, evaluation and promotion processes; (v) support an inclusive corporate culture; and (vi) engage in initiatives that foster economic mobility, community development and financial education.
We also perform quarterly quality control reviews of a statistically relevant sample of our non-delegated underwriting decisions, including those made by our USPs. Our business has been subject to modest seasonality in NIW production.
We also perform quarterly quality control reviews of a statistically relevant sample of our non-delegated underwriting decisions, including those made by our USPs. Our business has been subject to seasonality in NIW production.
For example, New York’s cybersecurity regulation establishes requirements for insurance entities under the New York Department of Financial Services’ jurisdiction, such as NMIC. The NAIC adopted the Insurance Data Security Model Law 29 (Cybersecurity Model Law) for entities licensed under the relevant state’s insurance laws.
For example, New York’s cybersecurity regulation establishes requirements for insurance entities under the New York Department of Financial Services’ jurisdiction, such as NMIC. The NAIC adopted the Insurance Data Security Model Law (Cybersecurity Model Law) for entities licensed under the relevant state’s insurance laws.
Private industry participants include national and regional mortgage banks, money center banks, mortgage brokers, community banks, builder-owned mortgage lenders, internet-sourced lenders, commercial, regional and investment banks, savings institutions, credit unions, real estate investment trusts and other financial institutions.
Private industry participants include national and regional mortgage banks, money center banks, mortgage brokers, community banks, builder-owned mortgage lenders, internet-sourced lenders, commercial, regional and investment banks, savings 5 institutions, credit unions, real estate investment trusts and other financial institutions.
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.
We refer to NMIC's reinsurance agreements with and the insurance-linked note issuances by Oaktown Re Vehicles individually as the 2019 ILN Transaction, 2020-2 ILN Transaction, 2021-1 ILN Transaction and 2021-2 ILN Transaction, and collectively as the ILN Transactions.
The Risk Committee of our Board of Directors (Board) has responsibility for oversight and review of our enterprise risk management approach and is supported by a management enterprise risk committee comprised of senior members of our management team and led by our Head of Internal Audit and Enterprise Risk.
The Risk Committee of our Board of Directors (Board) has responsibility for 16 oversight and review of our enterprise risk management approach and is supported by a management enterprise risk committee comprised of senior members of our management team and led by our Head of Internal Audit and Enterprise Risk.
Policyholders' position, which is also known as statutory capital, is generally the sum of statutory policyholders' surplus (which increases as a result of statutory net income and capital 23 contributions, and decreases as a result of statutory net loss and capital distributions), plus the statutory contingency reserve.
Policyholders' position, which is also known as statutory capital, is generally the sum of statutory policyholders' surplus (which increases as a result of statutory net income and capital contributions, and decreases as a result of statutory net loss and capital distributions), plus the statutory contingency reserve.
NMIS third parties have represented and 8 warranted to NMIS that they comply with the requirements of the federal Secure and Fair Enforcement for Mortgage Licensing Act (SAFE Act) in all applicable jurisdictions. See " Business - U.S. Mortgage Insurance Regulation - Other U.S. Regulation - SAFE Act ," below.
NMIS third parties have represented and warranted to NMIS that they comply with the requirements of the federal Secure and Fair Enforcement for Mortgage Licensing Act (SAFE Act) in all applicable jurisdictions. See " Business - U.S. Mortgage Insurance Regulation - Other U.S.
Under Wisconsin law, the ultimate controlling person of our insurance subsidiaries must file the GCC annually with the Wisconsin OCI.
Under Wisconsin law, the ultimate controlling person of our insurance subsidiaries must file the GCC with the Wisconsin OCI.
Prior to the financial crisis, private mortgage insurers accounted for the majority of the insured mortgage origination market. During the financial crisis, the government MIs captured an increasing share of the high-LTV MI market as incumbent private mortgage insurers came under significant financial stress.
Prior to the financial crisis, private mortgage insurers accounted for the majority of the insured mortgage origination market. During the financial crisis, the government MIs captured an increasing share of the high-LTV MI market as legacy private mortgage insurers came under significant financial stress.
The NAIC has formed a working group within its Financial Condition (E) Committee, the Mortgage Guaranty Insurance Working Group (the Working Group), to discuss, develop and recommend changes to the solvency and market practices regulation of mortgage insurers, including changes to the Mortgage Guaranty Insurers Model Act (Model Act).
The NAIC formed a working group within its Financial Condition (E) Committee, the Mortgage Guaranty Insurance Working Group, to discuss, develop and recommend changes to the solvency and market practices regulation of mortgage insurers, including changes to the Mortgage Guaranty Insurance Model Act #630 (Model Act).
Federal Reserve, the U.S. residential mortgage market is one of the largest in the world, with approximately $13 trillion of mortgage debt outstanding as of December 31, 2022, and includes both primary and secondary components.
Federal Reserve, the U.S. residential mortgage market is one of the largest in the world, with approximately $13 trillion of mortgage debt outstanding as of December 31, 2023, and includes both primary and secondary components.
Customers exceeding 10% of consolidated revenues No individual customer accounted for greater than 10% of our consolidated revenues in 2022. Sales and Marketing Our sales and marketing efforts are designed to help us establish and maintain high-quality customer relationships.
Customers exceeding 10% of consolidated revenues No individual customer accounted for greater than 10% of our consolidated revenues in 2023. Sales and Marketing Our sales and marketing efforts are designed to help us establish and maintain high-quality customer relationships.
Our underwriters are located remotely, facilitating our ability to service our customers nationwide across the different time zones. We also engage third-party underwriting service providers (USPs) who provide us with incremental underwriting capacity. We train and require our USPs to follow the same processes and underwriting guidelines that our own employees follow when rendering insurance decisions.
Our underwriters are located remotely, providing us the ability to efficiently service our customers nationwide across different time zones. We also engage third-party underwriting service providers (USPs) who provide us with incremental underwriting capacity. We train and require our USPs to follow the same processes and underwriting guidelines that our own employees follow when rendering insurance decisions.
Investment Portfolio Our primary objectives with respect to our investment portfolio are to preserve capital and generate investment income, while maintaining sufficient liquidity to cover our operating needs. We aim to achieve diversification as to type, quality, maturity, industry and issuer. At December 31, 2022, our investment portfolio was comprised entirely of investment grade fixed maturity securities, including U.S.
Investment Portfolio Our primary objectives with respect to our investment portfolio are to preserve capital and generate investment income, while maintaining sufficient liquidity to cover our operating needs. We aim to achieve diversification as to type, quality, maturity, industry and issuer. At December 31, 2023, our investment portfolio was comprised of investment grade fixed maturity securities, including U.S.
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 December 31, 2022, we had issued master policies with 1,875 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 lenders.
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 December 31, 2023, we had issued master policies with 1,974 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 lenders.
Mortgage Insurance Tax Deduction In 2006, Congress enacted a private mortgage insurance tax deduction on a temporary basis through the end of 2011. Upon expiration in 2011, Congress temporarily extended the deduction for each tax year from 2012 through 2021. Congress has not extended the deduction to the 2022 tax year.
Mortgage Insurance Tax Deduction In 2006, Congress enacted a private mortgage insurance tax deduction on a temporary basis through the end of 2011. Upon expiration in 2011, Congress temporarily extended the deduction for each tax year from 2012 through 2021. Congress has not extended the deduction to the 2022 and 2023 tax years.
The Fair Housing Act prohibits discrimination on the basis of race, gender and other prohibited bases in connection with housing-secured credit transactions. 30
The Fair Housing Act prohibits discrimination on the basis of race, gender and other prohibited bases in connection with housing-secured credit transactions. 29
According to data reported by Inside Mortgage Finance, in 2007, government MIs accounted for 23% of the total insured mortgage origination market. By 2009, government MI share had peaked at approximately 82% of the total insured mortgage origination market. Government MI share has since declined and is estimated to have been 52% in 2022.
According to data reported by Inside Mortgage Finance, in 2007, government MIs accounted for 23% of the total insured mortgage origination market. By 2009, government MI share had peaked at approximately 82% of the total insured mortgage origination market. Government MI share has since declined and is estimated to have been 55% in 2023.
The Dodd-Frank Act also gave statutory authority to HUD, the VA, and the USDA to develop their own definitions of QM. The General QM Final Rule does not affect the QM definitions adopted by these agencies.
The Dodd-Frank Act also gave statutory authority to HUD, the VA, and the USDA to develop their own definitions of QM. The ATR rule does not affect the QM definitions adopted by these agencies.
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.
The reinsurance coverage amount of each XOL Transaction is set to approximate the PMIERs minimum required assets of its reference pool and decreases from its peak 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.
Quota share reinsurance NMIC is a party to seven active 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.
Quota Share Reinsurance NMIC is 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 (and amended effective January 1, 2024), 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.
Insured loans that do not qualify for early rescission relief may still achieve rescission relief based on a borrower's payment history at the 36th or 60th month, provided the conditions in the applicable Master Policy are satisfied.
Insured loans that do not qualify for early rescission relief may still achieve rescission relief based on a borrower's payment history at the 36th or 60th month, provided that certain conditions outlined in the 2020 Master Policy are satisfied.
Inclusion committee members reflect a cross-functional and diverse employee mix by gender, ethnicity, race, age and tenure, and work to address diversity topics in areas such as employee and leadership composition, employee education and cultural community outreach. In 2022, we were recognized as a Great Place to Work ® for the seventh consecutive year.
Committee members reflect a cross-functional and diverse employee mix by gender, ethnicity, race, age and tenure, and work to address diversity topics in areas such as employee and leadership composition, employee education and cultural community outreach. In 2023, we were recognized as a Great Place to Work ® for the eighth consecutive year.
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 December 31, 2022.
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 December 31, 2023.
In March 2020, we introduced a new Master Policy (the 2020 Master Policy), which replaced our previous form (the 2014 Master Policy) for MI applications received on and after March 1, 2020.
In March 2020, we introduced our current Master Policy (the 2020 Master Policy), which replaced our previous form (the 2014 Master Policy) for MI applications received on and after March 1, 2020.
In addition, while the GSEs remain in conservatorship, the current leadership of the FHFA may exercise their oversight authority over the GSEs differently than previous Directors and/or have different objectives with regard to the GSEs' operations. Any such changes in how the FHFA engages with and influences the GSEs could have a significant impact on our business.
Any such changes that come to pass could have a significant impact on our business. In addition, while the GSEs remain in conservatorship, the current leadership of the FHFA may exercise their oversight authority over the GSEs differently than previous Directors and/or have different objectives with regard to the GSEs' operations.
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 M ae, 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.
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 , 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.
The proposed rule's requirements would also outline the process for the FHFA's review of any new activity and the timelines for approving a new product, including issuing a public notice and requesting public comment about a new product. The new enterprise products and activities final rule was announced on December 20, 2022 and will be effective on February 27, 2023.
The proposed rule's requirements would also outline the process for the FHFA's review of any new activity and the timelines for approving a new product, including issuing a public notice and requesting public comment about a new product. The new enterprise products and activities final rule was announced on December 20, 2022 and was effective on April 28, 2023.
Traditional reinsurance NMIC is a party to three 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, and the 2022-3 XOL Transaction, effective October 1, 2022 – which we refer to collectively as the XOL Transactions.
Traditional Reinsurance NMIC is party to five 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, the 2023-1 XOL Transaction, effective January 1, 2023, and the 2023-2 XOL Transaction, effective July 1, 2023 – which we refer to collectively as the XOL Transactions.
Loan Review Services We offer outsourced loan review services to mortgage originators through NMIS. In connection with these services, NMIS reviews loan data and documentation and assesses whether individual loan applications comply with the originator's and/or GSEs' underwriting guidelines. We provide loan review services for mortgages that require MI and those that do not.
In connection with these services, NMIS reviews loan data and documentation and assesses whether individual loan applications comply with the originator's and/or GSEs' underwriting guidelines. We provide loan review services for mortgages that require MI and those that do not.
The amendments also imposed specific conditions required for the GSEs to exit conservatorship, including the resolution or settlement of all material litigation relating to the conservatorship, and each GSE achieving common equity tier 1 capital of at least 3% of its total assets.
The amendments also imposed specific conditions required for the GSEs to exit conservatorship, including the resolution or settlement of all material litigation relating to the conservatorship, and each GSE achieving common equity tier 1 capital of at least 3% of its total assets. These amendments provide the most direct path for the GSEs to exit conservatorship established to date.
(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.
(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.
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.
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.
In general, higher quality loans carry lower charges. 20 Under the PMIERs, approved insurers must maintain available assets that equal or exceed minimum required assets , which is an amount equal to the greater of (i) $400 million or (ii) a total risk-based required asset amount .
An asset charge is calculated for each insured loan based on its risk profile. In general, higher quality loans carry lower charges. 20 Under the PMIERs, approved insurers must maintain available assets that equal or exceed minimum required assets , which is an amount equal to the greater of (i) $400 million or (ii) a total risk-based required asset amount.
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 our mortgage origination customers help qualified individuals achieve their homeownership goals, ensure that we remain a strong and credible counter-party, deliver a unique customer service experience, establish a differentiated risk management approach that emphasizes the individual underwriting review or validation of the vast majority of the loans we insure, utilize our proprietary Rate GPS ® 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.
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 borrowers achieve their homeownership goals, ensure that we remain a strong and credible counter-party, deliver a high-quality customer service experience, establish a differentiated risk management approach, utilize our proprietary Rate GPS ® 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.
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).
The respective reinsurance coverage amounts provided by the Oaktown Re Vehicles decrease (over a ten-year period in the case of Oaktown Re III Ltd. and Oaktown Re V Ltd. and 12.5-year period in the case of Oaktown Re VI Ltd. and Oaktown Re 13 VII Ltd.) as the underlying insured mortgages are amortized or repaid, and/or the mortgage insurance coverage is canceled.
The 2020 Master Policy further provides for a sunset of our rescission rights at the 60-month anniversary of the inception of coverage of an insured loan, provided such loan is then current or subsequently cures and all payments due on the loan have been made with a borrower's own funds.
The 2020 Master Policy further provides for rescission relief on or after the 60-month anniversary of the inception of coverage, provided such loan is then current and all payments due on the loan have been made with a borrower's own funds.
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.
NMIC then retains losses in excess of the respective reinsurance coverage amounts. 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.
Under the Master Policies, if a lender has elected not to pursue independent validation and early rescission relief, a loan is still eligible for rescission relief if it is current after 36 months and the borrower has had no more than two 30-day delinquencies and no 60-day or greater delinquencies during such 36-month period.
Under the 2020 Master Policy, if a lender has elected not to pursue independent validation and early rescission relief, a policy is still eligible for rescission relief if the insured loan is current at the 36-month anniversary of the inception of coverage and the borrower has had no more than two 30-day delinquencies and no 60-day or greater delinquencies during such 36-month period.
As of December 31, 2022, 74% of our employee population identified as members of a diverse group, including 58% as women and 33% as racial/ethnic minorities.
As of December 31, 2023, 75% of our employee population identified as members of a diverse group, including 56% as women and 33% as racial/ethnic minorities.
All loans, whether included in our post-close validation processes or not, are eligible for review under our quality control (QC) process, and such QC reviews qualify as independent validations for such loans, making them eligible for early rescission relief. We engage USPs to perform the majority of our delegated and non-delegated independent validation work.
All loans, whether included in our post-close validation processes or not, are eligible for review under our quality control (QC) process, and such QC reviews qualify as independent validations for such loans, making them eligible for early rescission relief.
Customers Since our inception, we have sought to establish customer relationships with a broad group of mortgage lenders. As of December 31, 2022, we had issued Master Policies with 1,875 customers.
Regulation - SAFE Act ," below. 8 Customers Since our inception, we have sought to establish customer relationships with a broad group of mortgage lenders. As of December 31, 2023, we had issued Master Policies with 1,974 customers.
Under the terms of the 2020 QSR Transaction, NMIC cedes premiums earned related to 21% of the risk on eligible policies written from April 1, 2020 through December 31, 2020, in exchange for reimbursement of ceded claims and claim expenses on covered po licies, a 20% ceding commission, and a profit commission of up to 50% that varies directly and inversely with ceded claims.
Under the Amended 2020 QSR Transaction, NMIC retains consistent coverage with that provided under the original 2020 QSR Transaction and continues to cede premiums earned related to 21% of the risk on eligible policies written from April 1, 2020 to December 31, 2020, in exchange for reimbursement of ceded claims and claim expenses on covered policies, a 36% ceding commission, and a profit commission of up to 50% that varies directly and inversely with ceded claims.
( $ values in thousands) Inception Date Covered Production Initial Reinsurance Coverage Current Reinsurance Coverage Initial First Layer Retained Loss Current First Layer Retained Loss (1) 2018 ILN Transaction July 25, 2018 1/1/2017 - 5/31/2018 $264,545 $158,489 $125,312 $122,202 2019 ILN Transaction July 30, 2019 6/1/2018 - 6/30/2019 326,905 204,127 123,424 122,257 2020-2 ILN Transaction October 29, 2020 4/1/2020 - 9/30/2020 (2) 242,351 95,729 121,777 121,177 2021-1 ILN Transaction April 27, 2021 10/1/2020 - 3/31/2021 (3) 367,238 305,139 163,708 163,665 2021-2 ILN Transaction (5) October 26, 2021 4/1/2021 - 9/30/2021 (4) 363,596 363,596 146,229 146,204 (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.
( $ values in thousands) Inception Date Covered Production Initial Reinsurance Coverage Current Reinsurance Coverage Initial First Layer Retained Loss Current First Layer Retained Loss (1) 2019 ILN Transaction July 30, 2019 6/1/2018 – 6/30/2019 $326,905 $159,476 $123,424 $121,751 2020-2 ILN Transaction October 29, 2020 4/1/2020 – 9/30/2020 (2) 242,351 55,792 121,777 121,177 2021-1 ILN Transaction April 27, 2021 10/1/2020 – 3/31/2021 (3) 367,238 217,630 163,708 163,394 2021-2 ILN Transaction October 26, 2021 4/1/2021 – 9/30/2021 (4) 363,596 310,567 146,229 145,858 (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.
These amendments provide the most direct path for the GSEs to exit conservatorship established to date. 25 On June 23, 2021, the U.S. Supreme Court ruled that the President could remove the FHFA Director other than for cause. Subsequently, President Biden removed the previous FHFA Director and appointed a new Director to lead the FHFA.
On June 23, 2021, the U.S. Supreme Court ruled that the President could remove the FHFA Director other than for cause. Subsequently, President Biden removed the previous FHFA Director and appointed a new Director to lead the FHFA.
" Enterprise Risk Management We have established enterprise wide policies, procedures and processes to allow us to identify, assess, monitor and manage credit market and operational risks in our business, as well as other risks discussed below in Item 1A, " Risk Factors ." Management of these risks is an interdepartmental endeavor including specific operational responsibilities and ongoing senior management and compliance personnel oversight.
For further discussion of the effect of reinsurance on our business, see Part II, Item 7, “ Management's Discussion and Analysis of Financial Condition and Results of Operations - Key Factors Affecting Our Results - Effect of Reinsurance on Our Results. ” Enterprise Risk Management We have established enterprise wide policies, procedures and processes to allow us to identify, assess, monitor and manage credit market and operational risks in our business, as well as other risks discussed below in Item 1A, " Risk Factors ." Management of these risks is an interdepartmental endeavor including specific operational responsibilities and ongoing senior management and compliance personnel oversight.
Our ability to operate efficiently and profitably, to offer products and services that meet the expectations of our customers, and to maintain an effective risk management framework is highly dependent on the competence and integrity of our employees, as well as the employees of the third-party service providers, vendors and others whom we engage.
Human Capital Management As of December 31, 2023, we had 238 full-time and part-time employees, and engaged third-party vendors to provide additional IT, underwriting and other support services. 18 Our ability to operate efficiently and profitably, to offer products and services that meet the expectations of our customers, and to maintain an effective risk management framework is highly dependent on the competence and integrity of our employees, as well as the employees of the third-party service providers, vendors and others whom we engage.
In addition to Wisconsin, other states may limit or restrict our insurance subsidiaries' ability to pay stockholder dividends. For example, in California and New York, mortgage insurers licensed in such states are prohibited from declaring dividends except from undivided profits remaining above the aggregate of their paid-in capital, paid-in surplus and contingency reserves.
For example, in California and New York, mortgage insurers licensed in such states are prohibited from declaring dividends except from undivided profits remaining above the aggregate of their paid-in capital, paid-in surplus and contingency reserves.
Housing Finance Reform The federal government currently plays a dominant role in the U.S. housing finance system through the GSEs and government MIs ( i.e. , the FHA, USDA and VA) and Ginnie Mae.
Housing Finance Reform The federal government currently plays a dominant role in the U.S. housing finance system through the GSEs and government MIs ( i.e. , the FHA, USDA and VA) and Ginnie Mae. There is broad policy consensus toward the need for continued and consistent private capital participation in the U.S. housing finance system.
The FHA's role in the mortgage insurance industry is significantly dependent upon regulatory developments. Since 2012, there have been several legislative proposals intended to reform the FHA; however, no legislation has been enacted to date.
On February 22, 2023, FHA announced a rate reduction to the annual mortgage insurance premiums charged to homebuyers who obtain an FHA-insured mortgage. The FHA's role in the mortgage insurance industry is significantly dependent upon regulatory developments. Since 2012, there have been several legislative proposals intended to reform the FHA; however, no legislation has been enacted to date.
The Wisconsin OCI may prohibit the payment of ordinary dividends or other payments by our insurance subsidiaries to us if they determine that such payments could be adverse to policyholders. In addition, our insurance subsidiaries may make or pay "extraordinary" stockholder dividends ( i.e. , amounts in excess of ordinary dividends) only with the prior approval of the Wisconsin OCI.
The Wisconsin OCI may prohibit the payment of ordinary dividends or other payments by our insurance subsidiaries to us if they determine that such payments could be adverse to policyholders.
On March 16, 2022, the FHFA adopted the final rule (effective May 16, 2022) (2022 ERCF amendment) that amended the enterprise regulatory capital framework by refining the prescribed leverage buffer amount and credit risk transfer (CRT) securitization framework for the GSEs, which reduced the amount of capital the GSEs are required to hold, including by increasing the capital credit the GSEs receive for the credit risk that they distribute.
On March 16, 2022, the FHFA adopted the final rule (effective May 16, 2022) (2022 ERCF amendment) that amended the enterprise regulatory capital framework by refining the prescribed leverage buffer amount and credit risk transfer (CRT) securitization framework for the GSEs, which reduced the amount of capital the GSEs are required to hold, including by increasing the capital credit the GSEs receive for the credit risk that they distribute. 25 The passage and timing of comprehensive GSE reform or incremental change (whether legislative or administrative in nature) is uncertain, making the actual impact on us and our industry difficult to predict.
($ values in thousands) Inception Date Covered Production Initial Reinsurance Coverage Current Reinsurance Coverage Initial First Layer Retained Loss Current First Layer Retained Loss (1) 2022-1 XOL Transaction April 1, 2022 10/1/2021 - 3/31/2022 (2) $289,741 $282,906 $133,366 $133,366 2022-2 XOL Transaction July 1, 2022 4/1/2022 - 6/30/2022 (3) 154,306 151,013 78,906 78,906 2022-3 XOL Transaction October 1, 2022 7/1/2022 - 9/30/2022 96,779 95,825 106,265 106,265 (1) NMIC applies claims paid on covered policies against its first layer aggregate retained loss exposure and cedes reserves for incurred claims and claim expenses to each applicable XOL Transaction and recognizes a reinsurance recoverable if such incurred claims and claim expenses exceed its current first layer retained loss. 15 (2) Approximately 1% of the production covered by the 2022-1 XOL Transaction has coverage reporting dates between October 21, 2019 and September 30, 2021.
($ values in thousands) Inception Date Covered Production Initial Reinsurance Coverage Current Reinsurance Coverage Initial First Layer Retained Loss Current First Layer Retained Loss (1) 2022-1 XOL Transaction April 1, 2022 10/1/2021 - 3/31/2022 (2) $289,741 $253,252 $133,366 $133,123 2022-2 XOL Transaction July 1, 2022 4/1/2022 - 6/30/2022 (3) 154,306 152,347 78,906 78,736 2022-3 XOL Transaction October 1, 2022 7/1/2022 - 9/30/2022 96,779 96,197 106,265 106,265 2023-1 XOL Transaction January 1, 2023 10/1/2022 - 6/30/2023 89,864 88,351 146,513 146,348 2023-2 XOL Transaction (4) July 1, 2023 7/1/2023 - 12/31/2023 71,602 71,602 113,372 113,372 (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.
The PMIERs include a comprehensive reinsurance counter-party grading framework, which includes a modest haircut (based on the credit rating of the reinsurer ) to the capital credit available to an approved insurer for any un-collateralized reinsurance coverage.
The PMIERs include a comprehensive reinsurance counter-party grading framework, which includes a modest haircut (based on the credit rating of the reinsurer ) to the capital credit available to an approved insurer for any un-collateralized reinsurance coverage. By April 15th of each year, NMIC must certify that it met all PMIERs requirements as of December 31st of the prior year.
These provisions apply to BPMI for purchase money, refinance and construction loans secured by the borrower's principal dwelling. Loans insured by government MIs are not covered by HOPA.
HOPA requires that lenders give borrowers certain notices with regard to the automatic termination or cancellation of BPMI. These provisions apply to BPMI for purchase money, refinance and construction loans secured by the borrower's principal dwelling. Loans insured by government MIs are not covered by HOPA.
As to servicing of delinquent mortgage loans covered by our insurance policies, these rules could contribute to delays in and increased costs associated with foreclosure proceedings and have a negative impact on the cost and resolution of claims.
As to servicing of delinquent mortgage loans covered by our insurance policies, these rules could contribute to delays in and increased costs associated with foreclosure proceedings and have a negative impact on the cost and resolution of claims. 27 Homeowners Protection Act of 1998 (HOPA) HOPA provides for the automatic termination, or cancellation upon a borrower's request, of BPMI, as defined in HOPA, upon satisfaction of certain conditions.
Pursuant to the PSPAs, the Treasury Department committed to invest in the GSEs to the extent required for each to maintain a positive net worth. In exchange for its investment, the Treasury Department received shares of the GSEs' senior preferred stock and warrants to purchase 79.9% of the GSEs' common stock.
In exchange for its investment, the Treasury Department received shares of the GSEs' senior preferred stock and warrants to purchase 79.9% of the GSEs' common stock.
The prospect for future unilateral FHA action on premium rates, which may be more likely under the current administration, or the passage of FHA reform legislation in either the House or Senate, and how differences in proposed reforms between the House and Senate might be resolved in any final legislation, remain uncertain.
The passage of FHA reform legislation in either the House or Senate, and how differences in proposed reforms between the House and Senate might be resolved in any final legislation, remain uncertain.
We view our comprehensive approach to credit risk management as a core competency and believe that it provides us with the ability to actively manage the aggregation of borrower default risk in our insured loan portfolio and mitigate the impact of such exposure under a range of macroeconomic scenarios. 17 Operational Risk Operational risks are inherent in our daily business activities, and include, among others, the risk of damage to physical assets, reliance on outside vendors, continued access to qualified underwriting resources, cyber security threats, including breaches of our system or other compromises resulting in unauthorized access to confidential, private and proprietary information, reliance on a complex IT system and employee fraud or negligence.
Operational Risk Operational risks are inherent in our daily business activities, and include, among others, the risk of damage to physical assets, reliance on outside vendors, continued access to qualified underwriting resources, cyber security threats, including breaches of our system or other compromises resulting in unauthorized access to confidential, private and proprietary information, reliance on a complex IT system and employee fraud or negligence.
As of December 31, 2022, we had $185.0 billion of total insurance-in-force (IIF), including primary IIF of $184.0 billion, and $47.7 billion of gross risk-in-force (RIF), including primary RIF of $47.6 billion. For the year ended December 31, 2022, we generated new insurance written (NIW) of $58.7 billion. As of December 31, 2022, we had 242 full-time and part-time employees.
As of December 31, 2023, we had $197.0 billion of primary insurance-in-force (IIF) and $51.8 billion of primary risk-in-force (RIF). For the year ended December 31, 2023, we generated new insurance written (NIW) of $40.5 billion. As of December 31, 2023, we had 238 full-time and part-time employees.
We seek to manage our operational exposures through a variety of standard risk management practices and procedures, such as purchasing hazard and cyber insurance coverage, maintaining oversight of third-party vendors, establishing IT system redundancy and security and disaster recovery practices, maintaining internal controls and ensuring appropriate segregation of duties.
We seek to manage our operational exposures through a variety of standard risk management practices and procedures, such as purchasing hazard and cyber insurance coverage, maintaining oversight of third-party vendors, establishing IT system redundancy and security and disaster recovery practices, maintaining internal controls and ensuring appropriate segregation of duties. 17 Information Technology Systems and Intellectual Property We rely on information technology to directly engage with our lender customers, receive MI applications and supporting documentation, streamline our underwriting and validation processes, deliver binding policy certificates, and facilitate post-close MI policy servicing.
(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.
Excess-of-Loss Reinsurance Insurance-Linked Notes NMIC is party to reinsurance agreements with Oaktown Re III Ltd., Oaktown Re V Ltd., Oaktown Re VI Ltd., and Oaktown Re VII Ltd. (special purpose reinsurance entities collectively referred to as the Oaktown Re Vehicles) effective July 30, 2019, October 29, 2020, April 27, 2021, and October 26, 2021, respectively.
In 2013, NMIC entered into a pool agreement with Fannie Mae, pursuant to which NMIC initially insured 21,921 loans with IIF of $5.2 billion (as of September 1, 2013). Fannie Mae pays monthly premiums for this transaction, which are recorded as written and earned in the month received.
In 2013, NMIC entered into a ten-year pool agreement with Fannie Mae, pursuant to which NMIC initially insured 21,921 loans with initial IIF of $5.2 billion (as of September 1, 2013). The pool agreement with Fannie Mae expired on August 31, 2023.
In connection with the termination, ceded premiums written under the 2016 QSR Transaction decreased from 25% to 20.5% on eligible policies.
In connection with the termination, NMIC recaptured approximately $500 million of previously ceded primary RIF and stopped ceding new premiums written with respect to the recaptured risk. With this termination, ceded premiums written under the 2016 QSR Transaction decreased from 25% to 20.5% on eligible policies.

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Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

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Biggest changeGeneral Risks Related to Ownership of Our Common Stock • We do not currently pay any dividends on our common stock and may not do so in the future, and payment of any declared dividends may be delayed. 32 • The market price of our common stock may be volatile, which could cause the value of an investment in our common stock to decline. • The market price of our common stock could decline due to the large number of outstanding shares of our common stock eligible for future sale, and future issuances of our common stock may depress our share price and dilute the book value of our common stock. • Future issuance of debt or preferred stock, which would rank senior to our Class A common stock upon our liquidation, may adversely affect the market value of our common stock. • Provisions contained in our organizational documents, as well as provisions of Delaware law and Wisconsin insurance law, could delay or prevent a change of control of us, which could adversely affect the price of shares of our common stock.
Biggest changeRisks Related to Our Holding Company and Capital Structure • Our holding company structure and certain regulatory and other constraints could affect our ability to satisfy our obligations and potentially require us to raise more capital. • Our substantial indebtedness could adversely affect our financial condition. • Our existing, and any future, variable rate indebtedness subjects us to interest rate risk, which could cause our annual debt service obligations to increase significantly. • Despite our substantial level of debt, we may incur more debt, which could exacerbate any or all of the risks described above. • Our current credit ratings may adversely affect our ability to access capital and the cost of such capital, which could have a material adverse effect on our business, financial condition and operating results. 31 General Risks Related to Ownership of Our Common Stock • We do not currently pay any dividends on our common stock and may not do so in the future, and payment of any declared dividends may be delayed. • The market price of our common stock may be volatile, which could cause the value of an investment in our common stock to decline. • The market price of our common stock could decline due to the large number of outstanding shares of our common stock eligible for future sale, and future issuances of our common stock may depress our share price and dilute the book value of our common stock. • Future issuance of debt or preferred stock, which would rank senior to our Class A common stock upon our liquidation, may adversely affect the market value of our common stock. • Provisions contained in our organizational documents, as well as provisions of Delaware law and Wisconsin insurance law, could delay or prevent a change of control of us, which could adversely affect the price of shares of our common stock.
Risk Related to Our Business Operations • We face intense competition for business in our industry, and if we are unable to compete effectively, we may not be able to achieve our business goals, which would adversely affect our business, financial condition and operating results. • Our NIW volumes could be adversely affected if lenders and investors select alternatives to private MI. • If we are unable to continue to attract and retain the most significant mortgage originators as customers, our ability to achieve our business goals could be negatively impacted. • If the volume of high-LTV loan originations declines, our NIW volume could decline, which would reduce our revenues. • Our underwriting and credit risk management policies and practices may not anticipate all risks and/or the magnitude of potential for loss as the result of unforeseen risks. • Unexpected material increases in borrower defaults could cause our actual losses to materially exceed our expected loss rates, including in certain geographic regions in which our business may be concentrated and more susceptible to downturns. • The premiums we charge may be insufficient to cover claim payments and our operating costs. • Changes in factors that impact the length of time that our policies remain in force may adversely affect our future revenues and claims experience. • Increases in inflation, interest rates and mortgage interest rates may have adverse impact on our business, future revenue, and financial condition. • We outsource the underwriting of our mortgage insurance on certain loans to third-party underwriting service providers (USPs).
Risk Related to Our Business Operations • We face intense competition for business in our industry, and if we are unable to compete effectively, we may not be able to achieve our business goals, which would adversely affect our business, financial condition and operating results. • Our NIW volumes could be adversely affected if lenders and investors select alternatives to private MI. • If we are unable to continue to attract and retain the most significant mortgage originators as customers, our ability to achieve our business goals could be negatively impacted. • If the volume of high-LTV loan originations declines, our NIW volume could decline, which would reduce our revenues. • Our underwriting and credit risk management policies and practices may not anticipate all risks and/or the magnitude of potential for loss as the result of unforeseen risks. • Unexpected material increases in borrower defaults could cause our actual losses to materially exceed our expected loss rates, including in certain geographic regions in which our business may be concentrated and more susceptible to downturns. • The premiums we charge may be insufficient to cover claim payments and our operating costs. • Changes in factors that impact the length of time that our policies remain in force may adversely affect our future revenues and claims experience. • Changes in inflation, interest rates and mortgage interest rates may have adverse impact on our business, future revenue and financial condition. • We outsource the underwriting of our mortgage insurance on certain loans to third-party underwriting service providers (USPs).
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.
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 ratio 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.
We use third-party reinsurance, including the QSR Transactions, the ILN Transactions and XOL Transactions, to actively manage our risk, ensure compliance with PMIERs, state regulatory and other applicable capital requirements and support the growth of our business.
We use third-party reinsurance, including the ILN Transactions, QSR Transactions, and XOL Transactions, to actively manage our risk, ensure compliance with PMIERs, state regulatory and other applicable capital requirements and support the growth of our business.
Any compromise of the security of our IT systems may result in loss of personally identifiable information, financial losses, loss of customers and the inability to transact business; could be costly and time-consuming to address and resolve; could expose us to liability for further compromise, damages, harm our reputation, subject us to regulatory scrutiny and/or expose us to civil litigation or regulatory action.
Any compromise of the security of our IT systems may result in loss of personally identifiable information, financial losses, loss of customers and the inability to transact business; could be costly and time-consuming to address and resolve; could expose us to liability for further compromise, damages, harm our reputation; and may subject us to regulatory scrutiny and/or expose us to civil litigation or regulatory action.
We may be required or find it advisable to change our investments or investment policies depending upon regulatory, economic, social and market conditions, or our existing or anticipated financial condition and operating requirements, including the tax position, of our business. Our investment objectives may not be achieved.
We may be required or find it advisable to change our investments or investment policies depending upon regulatory, economic, social and market requirements or conditions, or our existing or anticipated financial condition and operating requirements, including the tax position, of our business. Our investment objectives may not be achieved.
In January 2014, the CFPB implemented the Dodd-Frank Act ATR mortgage provisions (ATR), which govern the obligation of lenders to determine a borrower's ability to pay when originating a mortgage loan covered by ATR. A subset of mortgages falling under the ATR that has certain low-risk characteristics are known as QMs.
In January 2014, the CFPB implemented the Dodd-Frank Act ATR mortgage provisions, which govern the obligation of lenders to determine a borrower's ability to pay when originating a mortgage loan covered by ATR. A subset of mortgages falling under the ATR that has certain low-risk characteristics are known as QMs.
There are many factors that impact the market price of our common stock, including, without limitation: • general market conditions, including price levels and volume and changes in interest rates and rising inflation; • national, regional and local economic or business conditions; • the effects of, and changes in, trade, tax, monetary and fiscal policies, including the interest rate policies of the Federal Reserve; • changes in U.S. housing and housing finance policy, including changes to the GSEs and the role of government MIs; • our actual or projected financial condition, liquidity, operating results, cash flows and capital levels; • changes in, or failure to meet, our publicly disclosed expectations as to our future financial and operating performance; • publication of research reports about us, our competitors or the financial services industry generally, or changes in, or failure to meet, securities analysts' estimates of our financial and operating performance, or lack of research reports by industry analysts or ceasing of coverage; • market valuations, as well as the financial and operating performance and prospects, of similar companies; • future issuances or sales, or anticipated issuances or sales, of our common stock or other securities convertible into or exchangeable or exercisable for our common stock; • additional indebtedness we may incur in the future; • expenses incurred in connection with changes in our stock price, such as changes in the value of the liability reflected on our financial statements associated with outstanding warrants; • the potential failure to establish and maintain effective internal controls over financial reporting; • additions or departures of key personnel and management; • our failure to satisfy the continued listing requirements of the Nasdaq; and • our failure to comply with the Sarbanes-Oxley Act of 2002.
There are many factors that impact the market price of our common stock, including, without limitation: • general market conditions, including price levels and volume and changes in interest rates and rising inflation; • national, regional and local economic or business conditions; • the effects of, and changes in, trade, tax, monetary and fiscal policies, including the interest rate policies of the Federal Reserve; • changes in U.S. housing and housing finance policy, including changes to the GSEs and the role of government MIs; • our actual or projected financial condition, liquidity, operating results, cash flows and capital levels; • changes in, or failure to meet, our publicly disclosed expectations as to our future financial and operating performance; 50 • publication of research reports about us, our competitors or the financial services industry generally, or changes in, or failure to meet, securities analysts' estimates of our financial and operating performance, or lack of research reports by industry analysts or ceasing of coverage; • market valuations, as well as the financial and operating performance and prospects, of similar companies; • future issuances or sales, or anticipated issuances or sales, of our common stock or other securities convertible into or exchangeable or exercisable for our common stock; • additional indebtedness we may incur in the future; • expenses incurred in connection with changes in our stock price, such as changes in the value of the liability reflected on our financial statements associated with outstanding warrants; • the potential failure to establish and maintain effective internal controls over financial reporting; • additions or departures of key personnel and management; • our failure to satisfy the continued listing requirements of the Nasdaq; and • our failure to comply with the Sarbanes-Oxley Act of 2002.
If these USPs fail to adequately perform their underwriting services or place our coverage on loans we would deem ineligible, we could experience increased claims on loans underwritten by them and our customer relationships could be negatively impacted. • Our Master Policies contain restrictions on our ability to rescind coverage for certain material misrepresentations (including fraud) and underwriting defects, and if we were to fail to timely discover any such misrepresentations or underwriting defects, our rights of rescission would be significantly limited, and we could suffer increased losses as a result of paying claims on loans with unacceptable risk characteristics. • The mix of business we write affects our revenue stream and the likelihood of losses occurring. • We expect our claims to increase as our insured loan portfolio grows and matures. • Our business depends, in part, on effective and reliable loan servicing. • If the estimates we use in establishing claims reserves are incorrect, the actual claim payments we make may materially exceed the amount of our corresponding claims reserves, resulting in unexpected charges to income, which could be material and adversely affect our results of operations. 31 • The COVID-19 virus may continue to impact our financial results and may also continue to affect our business, liquidity and financial condition. • The occurrence of natural or man-made disasters or pandemics could adversely affect our business, financial condition and operating results. • Climate change and efforts to manage or regulate climate risk by government agencies could affect our business and operations. • We are exposed to certain risks associated with our third-party reinsurance transactions, including the possibility that our reinsurers will fail to perform their obligations or that we will lose the capital credit we expected to receive when we entered into the transactions as a result of future GSE or Wisconsin OCI action or if any of our reinsurers experiences a downgrade or other adverse business event. • Our operating results depend in large part on our ability to manage the risks related to the growth of our business and on maintaining and enhancing effective operating procedures and internal controls. • We are exposed to operational risk from fraud, malfeasance or error by borrowers, employees and third-party service providers, and any such fraud, malfeasance or error could materially and adversely affect us. • If we do not maintain connectivity with or otherwise meet the technological demands of our customers or are unable to develop, enhance and maintain our proprietary technology platform, our business and financial performance could be adversely affected. • We may not be able to prevent the unauthorized disclosure or misuse of confidential, personal or proprietary information. • Adverse investment performance may affect our financial results and ability to conduct business. • We face regulatory and litigation risks associated with offering loan review services.
If these USPs fail to adequately perform their underwriting services or place our coverage on loans we would deem ineligible, we could experience increased claims on loans underwritten by them, and our customer relationships could be negatively impacted. • Our Master Policies contain restrictions on our ability to rescind coverage for certain material misrepresentations (including fraud) and underwriting defects, and if we were to fail to timely discover any such misrepresentations or underwriting defects, our rights of rescission would be significantly limited, and we could suffer increased losses as a result of paying claims on loans with unacceptable risk characteristics. • The mix of business we write affects our revenue stream and the likelihood of losses occurring. • We expect our claims to increase as our insured loan portfolio grows and matures. • Our business depends, in part, on effective and reliable loan servicing. • If the estimates we use in establishing claims reserves are incorrect, the actual claim payments we make may materially exceed the amount of our corresponding claims reserves, resulting in unexpected charges to income, which could be material and adversely affect our results of operations. 30 • The COVID-19 virus may continue to impact our financial results and may also continue to affect our business, liquidity and financial condition. • The occurrence of natural or man-made disasters or pandemics could adversely affect our business, financial condition and operating results. • Climate change and efforts to manage or regulate climate risk by government agencies could affect our business and operations. • We are exposed to certain risks associated with our third-party reinsurance transactions, including the possibility that our reinsurers will fail to perform their obligations or that we will lose the capital credit we expected to receive when we entered into the transactions as a result of future GSE or Wisconsin OCI action or if any of our reinsurers experiences a downgrade or other adverse business event. • Our operating results depend in large part on our ability to manage the risks related to the growth of our business and on maintaining and enhancing effective operating procedures and internal controls. • We are exposed to operational risk from fraud, malfeasance or error by borrowers, employees and third-party service providers, and any such fraud, malfeasance or error could materially and adversely affect us. • If we do not maintain connectivity with or otherwise meet the technological demands of our customers or are unable to develop, enhance and maintain our proprietary technology platform, our business and financial performance could be adversely affected. • We may not be able to prevent the unauthorized disclosure or misuse of confidential, personal or proprietary information. • Adverse investment performance may affect our financial results and ability to conduct business. • We face regulatory and litigation risks associated with offering loan review services.
Our indebtedness could have significant negative consequences for our business, financial condition and operating results, including: 50 • increasing our vulnerability to adverse economic and industry conditions; • limiting our ability to obtain additional financing; • requiring the dedication of a substantial portion of the cash flow from our subsidiaries' operations to service our indebtedness, thereby reducing the amount of cash flow available for other purposes; • making it more difficult for us to retain our existing ratings or to obtain investment-grade credit ratings in the future; • making it more difficult to conduct our business successfully or to grow our business, or limiting our flexibility in planning for, or reacting to, changes in our business; and • placing us at a possible competitive disadvantage with less leveraged competitors and competitors that may have better access to capital resources.
Our indebtedness could have significant negative consequences for our business, financial condition and operating results, including: • increasing our vulnerability to adverse economic and industry conditions; • limiting our ability to obtain additional financing; • requiring the dedication of a substantial portion of the cash flow from our subsidiaries' operations to service our indebtedness, thereby reducing the amount of cash flow available for other purposes; • making it more difficult for us to retain our existing ratings or to obtain investment-grade credit ratings in the future; • making it more difficult to conduct our business successfully or to grow our business, or limiting our flexibility in planning for, or reacting to, changes in our business; and • placing us at a possible competitive disadvantage with less leveraged competitors and competitors that may have better access to capital resources.
Some other examples of potential GSE reforms or policy changes that could impact our business, may also include, but are not limited by, the following: • Policies or requirements that may result in a reduction in the number of mortgages GSEs acquire; • The national conforming loan limit for mortgages GSEs acquire; • The level of mortgage insurance required; • The terms on which mortgage insurance coverage may be canceled, including GSE requirements and programs that permit cancellation prior to reaching the cancellation thresholds and conditions established by law; • The terms required to be included in master policies for the mortgage insurance policies GSEs acquire; • The amount of loan level price adjustments or guarantee fees that the GSEs charge on loans that require mortgage insurance; and • The degree of influence that the GSEs have over a mortgage lender’s selection of the mortgage insurer providing coverage.
Some other examples of potential GSE reforms or policy changes that could impact our business may also include, but are not limited by, the following: • Policies or requirements that may result in a reduction in the number of mortgages GSEs acquire; 45 • The national conforming loan limit for mortgages GSEs acquire; • The level of mortgage insurance required; • The terms on which mortgage insurance coverage may be canceled, including GSE requirements and programs that permit cancellation prior to reaching the cancellation thresholds and conditions established by law; • The terms required to be included in master policies for the mortgage insurance policies GSEs acquire; • The amount of loan level price adjustments or guarantee fees that the GSEs charge on loans that require mortgage insurance; and • The degree of influence that the GSEs have over a mortgage lender’s selection of the mortgage insurer providing coverage.
Higher interest rates may increase the potential housing costs for consumers hoping to purchase homes, which may have the effect of reducing the pool of potential borrowers available to purchase homes; • restrictions on mortgage credit due to more stringent underwriting standards, more restrictive regulatory and capital requirements and lender liquidity issues; • the health of the real estate industry and the national economy and conditions in regional and local economies, which may be impacted by inflation and the related Federal Reserve measures which may cause potential economic downturn; • housing affordability; • housing supply; • population trends, including the rate of household formation, preferences of potential mortgage borrowers and cultural shifts; • the rate and anticipated path of home price appreciation, which in times of heavy refinancing can affect whether refinance loans have LTVs that require MI; • deductibility of mortgage interest or other changes in tax policy, including the TCJA of 2017, which may have an effect on the residential housing market; • U.S. government housing policy encouraging loans to first-time homebuyers; • GSEs' demand to participate in the high-LTV or first-time homebuyer origination market; • the extent to which the GSEs' guaranty and other fees, credit underwriting guidelines and other business terms affect lenders' willingness to extend credit for high-LTV mortgages; and • COVID-19 and any related imposed containment measures. 35 A decline in the volume of high-LTV loan originations could decrease demand for MI, decrease our NIW and therefore reduce our revenues and have a material adverse effect on our operating results.
Higher interest rates may increase the potential housing costs for consumers hoping to purchase homes, which may have the effect of reducing the pool of potential borrowers available to purchase homes; • restrictions on mortgage credit due to more stringent underwriting standards, more restrictive regulatory and capital requirements and lender liquidity issues; • the health of the real estate industry and the national economy and conditions in regional and local economies, which may be impacted by inflation and the related Federal Reserve measures, which may cause potential economic downturn; • housing affordability; • housing supply; • population trends, including the rate of household formation, preferences of potential mortgage borrowers and cultural shifts; • the rate and anticipated path of home price appreciation, which in times of heavy refinancing can affect whether refinance loans have LTVs that require MI; • deductibility of mortgage interest or other changes in tax policy, including the TCJA of 2017, which may have an effect on the residential housing market; • U.S. government housing policy encouraging loans to first-time homebuyers; • GSEs' demand to participate in the high-LTV or first-time homebuyer origination market; • the extent to which the GSEs' guaranty and other fees, credit underwriting guidelines and other business terms affect lenders' willingness to extend credit for high-LTV mortgages; and • COVID-19 and any related imposed containment measures. 34 A decline in the volume of high-LTV loan originations could decrease demand for MI, decrease our NIW and therefore reduce our revenues and have a material adverse effect on our operating results.
If our business grows faster ( i.e. , our RIF grows faster than expected) or is less profitable than expected ( i.e. , our revenues do not generate the 47 return we expect), our actual RTC ratios over the short to mid-term could exceed our expected RTC ratios and could begin to approach the limits to which we are subject, which could require us to enter into alternative arrangements to reduce our RIF, including through additional reinsurance or raising additional capital.
If our business grows faster ( i.e. , our RIF grows faster than expected) or is less profitable than expected ( i.e. , our revenues do not generate the return we expect), our actual RTC ratios over the short to mid-term could exceed our expected RTC ratios and could begin to approach the limits to which we are subject, which could require us to enter into alternative arrangements to reduce our RIF, including through additional reinsurance or raising additional capital.
Among others, alternatives to private MI include, but are not limited to: • lenders using government mortgage insurance programs, including those of the FHA, USDA and VA, and state-supported mortgage insurance funds in several states, including Massachusetts and California; 33 • lenders and other investors holding mortgages in their portfolios and self-insuring; • GSEs and other investors using credit enhancements other than MI (including alternative forms of credit risk transfer such as the suspended IMAGIN and EPMI programs that could be relaunched in the future), using other credit enhancements in conjunction with reduced levels of MI coverage, or accepting credit risk without credit enhancement; • lenders originating mortgages using "piggy-back" or other structures to avoid MI, such as a first mortgage with an 80% LTV and a second mortgage with a 10%, 15% or 20% LTV (referred to as 80-10-10, 80-15-5 or 80-20 loans, respectively) rather than a first mortgage with an LTV above 80% that has MI; • lender retention program; and • borrowers paying cash or making large down payments versus securing mortgage financing.
Among others, alternatives to private MI include, but are not limited to: 32 • lenders using government mortgage insurance programs, including those of the FHA, USDA and VA, and state-supported mortgage insurance funds in several states, including Massachusetts and California; • lenders and other investors holding mortgages in their portfolios and self-insuring; • GSEs and other investors using credit enhancements other than MI (including alternative forms of credit risk transfer such as the suspended IMAGIN and EPMI programs that could be relaunched in the future), using other credit enhancements in conjunction with reduced levels of MI coverage, or accepting credit risk without credit enhancement; • lenders originating mortgages using "piggy-back" or other structures to avoid MI, such as a first mortgage with an 80% LTV and a second mortgage with a 10%, 15% or 20% LTV (referred to as 80-10-10, 80-15-5 or 80-20 loans, respectively) rather than a first mortgage with an LTV above 80% that has MI; • lender retention program; and • borrowers paying cash or making large down payments versus securing mortgage financing.
Further, the GSEs may modify or change their interpretation of terms they require us to include in our mortgage insurance policies for loans purchased by them, requiring us to modify our terms of coverage or operational procedures to remain an approved insurer, and such changes could have a material adverse impact on our financial position and operating results.
Further, the GSEs may modify or change their interpretation of terms they require us to include in our mortgage insurance policies for loans purchased by them, requiring us to modify our terms of coverage or operational procedures to remain an approved insurer, and such changes could have a material adverse impact on our financial 44 position and operating results.
Our business, financial condition and operating results may be adversely impacted if we do not successfully establish and maintain these arrangements and relationships, or otherwise keep pace with the technological demands of customers. The success of our business depends on our ability to timely and effectively resolve any significant issues that may arise with the operation of our technology platform.
Our business, financial condition and operating results may be adversely impacted if we do not successfully establish and maintain these arrangements and relationships, or otherwise keep pace with the technological demands of customers. 42 The success of our business depends on our ability to timely and effectively resolve any significant issues that may arise with the operation of our technology platform.
It is possible that Wisconsin and other states that have dividend restrictions will adopt revised statutory provisions or interpretations of existing statutory provisions that could be more restrictive than those currently in effect or will otherwise take actions that may further restrict the ability of our insurance subsidiaries to pay dividends or make distributions or returns of capital.
It is possible that Wisconsin and other states that have dividend restrictions will adopt revised statutory provisions or 48 interpretations of existing statutory provisions that could be more restrictive than those currently in effect or will otherwise take actions that may further restrict the ability of our insurance subsidiaries to pay dividends or make distributions or returns of capital.
Cure rates on loan defaults following natural disasters 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 to other factors which generally impact cure rates in 41 unaffected areas.
Cure rates on loan defaults following natural disasters 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 to other factors which generally impact cure rates in unaffected areas.
On March 16, 2022, the FHFA adopted the final rule (effective May 16, 2022) (2022 ERCF amendment) that amended the ERCF by refining the prescribed leverage buffer amount and the CRT securitization 46 framework for the GSEs, which reduced the amount of capital the GSEs are required to hold, including by increasing the capital credit the GSEs receive for the credit risk that they distribute.
On March 16, 2022, the FHFA adopted the final rule (effective May 16, 2022) (2022 ERCF amendment) that amended the ERCF by refining the prescribed leverage buffer amount and the CRT securitization framework for the GSEs, which reduced the amount of capital the GSEs are required to hold, including by increasing the capital credit the GSEs receive for the credit risk that they distribute.
Future sources of capital will depend on the cost, availability and terms and conditions that are acceptable to us, our regulators and the GSEs. We cannot be sure that we will be able to secure other sources of capital or substitute reductions in RIF in the amounts we require and on favorable terms, if at all.
Future 41 sources of capital will depend on the cost, availability and terms and conditions that are acceptable to us, our regulators and the GSEs. We cannot be sure that we will be able to secure other sources of capital or substitute reductions in RIF in the amounts we require and on favorable terms, if at all.
The success of our investment activity is affected by general economic conditions, which may adversely affect the markets for credit and interest-rate-sensitive securities, including the extent and timing of investor participation in these markets, the level and volatility of interest rates and, consequently, the value of fixed income securities.
The success of our 43 investment activity is affected by general economic conditions, which may adversely affect the markets for credit and interest-rate-sensitive securities, including the extent and timing of investor participation in these markets, the level and volatility of interest rates and, consequently, the value of fixed income securities.
NMIC's investments and investment policies are subject to state insurance laws, which results in our portfolio being predominantly limited to highly rated fixed income securities. Much of our investment portfolio has been established at a time of historically low interest rates.
NMIC's investments and investment policies are subject to state insurance laws and PMIERs, which results in our portfolio being predominantly limited to highly rated fixed income securities. Much of our investment portfolio has been established at a time of historically low interest rates.
Any of these actions could have a material adverse effect on our business, financial condition and operating results. Our existing, and any future, variable rate indebtedness subjects us to interest rate risk, which could cause our annual debt service obligations to increase significantly.
Any of these actions could have a material adverse effect on our business, financial condition and operating results. 49 Our existing, and any future, variable rate indebtedness subjects us to interest rate risk, which could cause our annual debt service obligations to increase significantly.
Item 1A. Risk Factors You should carefully consider the following risk factors, as well as all of the other information contained in this report, including our consolidated financial statements and the related notes thereto, before deciding to invest in our common stock.
Item 1A. Risk Factors You should carefully consider the following risk factors, as well as all other information contained in this report, including our consolidated financial statements and the related notes thereto, before deciding to invest in our common stock.
In addition, the private MI industry, including NMIC, may be affected by changes in the laws and regulations to which we are subject or the way they are interpreted or applied. See " Item 1 - Business - U.S.
In addition, the 46 private MI industry, including NMIC, may be affected by changes in the laws and regulations to which we are subject or the way they are interpreted or applied. See " Item 1 - Business - U.S.
As a result of the higher mortgage interest rates in 2022, we observed lower refinancing activities in the mortgage market compared to what we had observed in recent years prior to 2022, and therefore decreased turnover in our IIF.
As a result of the higher mortgage interest rates in 2022 and 2023, we observed lower refinancing activities in the mortgage market compared to what we had observed in recent years prior to 2022, and therefore decreased turnover in our IIF.
Any provision of our certificate of incorporation or bylaws or Delaware law or under the Wisconsin insurance regulations that has the effect of delaying or deterring a change in control could limit the opportunity for our stockholders to receive a premium for their shares of common stock, and could also affect the price that some investors are willing to pay for shares of our common stock. 54 Item 1B.
Any provision of our certificate of incorporation or bylaws or Delaware law or under the Wisconsin insurance regulations that has the effect of delaying or deterring a change in control could limit the opportunity for our stockholders to receive a premium for their shares of common stock, and could also affect the price that some investors are willing to pay for shares of our common stock. 52 Item 1B.
Any deterioration in housing prices, housing markets or economic conditions in regions in which we have a significant concentration of IIF and which adversely affects the ability of borrowers to make payments 36 on their insured loans may increase the likelihood and severity of our losses, which could have a material adverse effect on our financial condition and operating results.
Any deterioration in housing prices, housing markets or economic conditions in regions in which we have a significant concentration of IIF and which adversely affects the ability of borrowers to make payments 35 on their insured loans may increase the likelihood and severity of our losses, which could have a material adverse effect on our financial condition and operating results.
As in the years leading up to 2022, if we experience a lower interest rate environment in the future, we expect that to drive higher levels of refinancing in the mortgage market, including with respect to loans we insure which may have interest rates ( i.e. , such as those written in 2022 in a higher interest rate environment) that are higher than the future prevailing rates.
As in the years leading up to 2022, if we experience a lower interest rate environment in the future, we expect that to drive higher levels of refinancing in the mortgage market, including with respect to loans we insure which may have interest rates ( i.e. , such as those written in 2022 and 2023 in a higher interest rate environment) that are higher than the future prevailing rates.
These sales could also make it more difficult for us to sell equity or equity-related securities in the future, at a time and place that we deem appropriate. Our Amended and Restated 2014 Omnibus Incentive Plan (2014 Plan) has a total of 8,250,000 shares authorize for issuance.
These sales could also make it more difficult for us to sell equity or equity-related securities in the future, at a time and place that we deem appropriate. Our Amended and Restated 2014 Omnibus Incentive Plan (2014 Plan) has a total of 8,250,000 shares authorized for issuance.
Increases in inflation, interest rates and mortgage interest rates may have an adverse impact on our business, future revenue, and financial condition. Since 2021, inflation has increased dramatically. Rising inflation may negatively impact our expense base by increasing the costs (including for services) we have to pay contractors, employees, service providers and vendors.
Changes in inflation, interest rates and mortgage interest rates may have an adverse impact on our business, future revenue and financial condition. Since 2021, inflation has increased dramatically. Rising inflation may negatively impact our expense base by increasing the costs (including for services) we have to pay contractors, employees, service providers and vendors.
Risks Related to Regulation of the Mortgage Insurance Industry There can be no assurance that the GSEs will continue to treat us as an approved insurer in the future, and our failure to maintain compliance with the GSEs' PMIERs could adversely impact our business, financial condition and operating results.
Risks Related to Regulation of the Mortgage Insurance Industry There can be no assurance that the GSEs will continue to treat us as an approved insurer in the future, and changes to, or our failure to maintain compliance with the GSEs' PMIERs, could adversely impact our business, financial condition and operating results.
There is no assurance NMIC will remain in 45 compliance or that the GSEs will not make the PMIERs financial requirements more onerous in the future.
There is no assurance NMIC will remain in compliance or that the GSEs will not make the PMIERs financial requirements more onerous in the future.
If these USPs fail to perform their services as expected, we could experience increased claims on loans 38 underwritten by them and our customer relationships could be negatively impacted, which would have an adverse impact on our business, financial condition and operating results.
If these USPs fail to perform their services as expected, we could experience increased claims on loans 37 underwritten by them, and our customer relationships could be negatively impacted, which would have an adverse impact on our business, financial condition and operating results.
As a result, future losses on loans that are not currently in default may have a material impact on future results if, and when, such losses emerge. 40 The COVID-19 virus may continue to impact our financial results and may also continue to affect our business, liquidity and financial condition.
As a result, future losses on loans that are not currently in default may have a material impact on future results if, and when, such losses emerge. 39 The COVID-19 virus may continue to impact our financial results and may also continue to affect our business, liquidity and financial condition.
Additionally, cumulative voting in the election of our directors in not allowed. 53 As a Delaware corporation, we are also subject to anti-takeover provisions of Delaware law, including Section 203 of The Delaware General Corporation Law, which, subject to certain exceptions, prohibits a public Delaware corporation from engaging in a business combination (as defined in such section) with an "interested stockholder" (defined generally as any person who beneficially owns 15% or more of the outstanding voting stock of such corporation or any person affiliated with such person) for a period of three years following the time that such stockholder became an interested stockholder, unless (i) prior to such time, the board of such corporation approved either the business combination or the transaction that resulted in the stockholder becoming an interested stockholder; (ii) upon consummation of the transaction that resulted in the stockholder becoming an interested stockholder, the interested stockholder owned at least 85% of the voting stock of such corporation at the time the transaction commenced (excluding for purposes of determining the voting stock outstanding (but not the outstanding voting stock owned by the interested stockholder) the voting stock owned by directors who are also officers or held in employee benefit plans in which the employees do not have a confidential right to tender or vote stock held by the plan); or (iii) on or subsequent to such time the business combination is approved by the board of such corporation and authorized at a meeting of stockholders by the affirmative vote of at least two-thirds of the outstanding voting stock of such corporation not owned by the interested stockholder.
As a Delaware corporation, we are also subject to anti-takeover provisions of Delaware law, including Section 203 of the Delaware General Corporation Law, which, subject to certain exceptions, prohibits a public Delaware corporation from engaging in a business combination (as defined in such section) with an "interested stockholder" (defined generally as any person who beneficially owns 15% or more of the outstanding voting stock of such corporation or any person affiliated with such person) for a period of three years following the time that such stockholder became an interested stockholder, unless (i) prior to such time, the board of such corporation approved either the business combination or the transaction that resulted in the stockholder becoming an interested stockholder; (ii) upon consummation of the transaction that resulted in the stockholder becoming an interested stockholder, the interested stockholder owned at least 85% of the voting stock of such corporation at the time the transaction commenced (excluding for purposes of determining the voting stock outstanding (but not the outstanding voting stock owned by the interested stockholder) the voting stock owned by directors who are also officers or held in employee benefit plans in which the employees do not have a confidential right to tender or vote stock held by the plan); or (iii) on or subsequent to such time the business combination is approved by the board of such corporation and authorized at a meeting of stockholders by the affirmative vote of at least two-thirds of the outstanding voting stock of such corporation not owned by the interested stockholder.
We certified to the GSEs by April 15, 2022 that NMIC was in full compliance with the PMIERs as of December 31, 2021. There can be no assurance, however, that NMIC will continue to comply with the PMIERs financial requirements.
We certified to the GSEs by April 15, 2023 that NMIC was in full compliance with the PMIERs as of December 31, 2022. There can be no assurance, however, that NMIC will continue to comply with the PMIERs financial requirements.
Therefore, the ultimate impact that higher inflation rates will have on the mortgage origination and mortgage insurance markets, and our loan delinquencies is unknown, and increases in inflation, interest rates and mortgage interest rates may have an adverse impact on our business, future revenue and financial condition.
Therefore, the ultimate impact that higher inflation rates will have on the mortgage origination and mortgage insurance markets, and our loan delinquencies, is unknown, and changes in inflation, interest rates and mortgage interest rates may have an adverse impact on our business, future revenue and financial condition.
Servicers are required to comply with a multitude of legal, regulatory and GSE requirements, procedures and standards for 39 servicing residential mortgage loans. If servicers of our insured loans fail to adhere to applicable requirements, procedures and standards, our losses may unexpectedly increase.
Servicers are required to comply with a multitude of legal, regulatory and GSE requirements, procedures and standards for 38 servicing residential mortgage loans. If servicers of our insured loans fail to adhere to applicable requirements, procedures and standards, our losses may unexpectedly increase.
Our operating results depend in large part on our ability to manage the risks related to the growth of our business and on maintaining and enhancing effective operating procedures and internal controls. Our mortgage insurance business has been rapidly growing since 2013.
Our operating results depend in large part on our ability to manage the risks related to the growth of our business and on maintaining and enhancing effective operating procedures and internal controls. Our mortgage insurance business has been quickly growing since 2013.
These may also be continue to be impacted by developments relating to the COVID-19 virus. To the extent that certain risks are unforeseen, or if we have underestimated the frequency and/or severity of loss of certain risks, our underwriting and credit risk management policies and practices may not be sufficient to mitigate the effects of these risks.
These risks may also be impacted by developments relating to the COVID-19 virus in the future. To the extent that certain risks are unforeseen, or if we have underestimated the frequency and/or severity of loss of certain risks, our underwriting and credit risk management policies and practices may not be sufficient to mitigate the effects of these risks.
A lower level of persistency could reduce our future revenues from our monthly-paid premium products, which constituted about 89% of our primary IIF at year-end 2022. Higher than expected persistency rates could negatively impact our future profitability on monthly premium policies if market and economic conditions change significantly from those we expected when we established the premium rates.
A lower level of persistency could reduce our future revenues from our monthly-paid premium products, which constituted about 90% of our primary IIF at year-end 2023. Higher than expected persistency rates could negatively impact our future profitability on monthly premium policies if market and economic conditions change significantly from those we expected when we established the premium rates.
Risk Related to Regulation of the Mortgage Insurance Industry • There can be no assurance that the GSEs will continue to treat us as an approved insurer in the future, and our failure to maintain compliance with the GSEs' PMIERs could adversely impact our business, financial condition and operating results. • Changes in the business practices of the GSEs, including a decision to decrease or discontinue the use of private MI, or changes in the terms on which mortgage insurance coverage may be cancelled, federal legislation that changes their charters or a restructuring of the GSEs or changes in loan delivery pricing imposed by the GSEs could reduce the private MI market opportunity, reduce our revenues or increase our losses. • We are subject to comprehensive state insurance regulations and capital adequacy requirements, which we must satisfy to continue to operate our MI business. • The private MI industry is, and as a participant we are, subject to litigation and regulatory enforcement risk generally. • Our business prospects and operating results could be adversely impacted if, and to the extent that, the Consumer Financial Protection Bureau's ATR Rules defining a QM negatively impact the size of the origination market. • The Company may be adversely impacted by the phasing out of London Interbank Offered Rate ( LIBOR).
Risk Related to Regulation of the Mortgage Insurance Industry • There can be no assurance that the GSEs will continue to treat us as an approved insurer in the future, and changes to, or our failure to maintain compliance with, the GSEs' PMIERs, could adversely impact our business, financial condition and operating results. • Changes in the business practices of the GSEs, including a decision to decrease or discontinue the use of private MI, or changes in the terms on which mortgage insurance coverage may be cancelled, federal legislation that changes their charters or a restructuring of the GSEs or changes in loan delivery pricing imposed by the GSEs could reduce the private MI market opportunity, reduce our revenues or increase our losses. • We are subject to comprehensive state insurance regulations and capital adequacy requirements, which we must satisfy to continue to operate our MI business. • The private MI industry is, and as a participant we are, subject to litigation and regulatory enforcement risk generally. • Our business prospects and operating results could be adversely impacted if, and to the extent that, the Consumer Financial Protection Bureau's ATR Rules defining a QM negatively impact the size of the origination market. • The implementation of the Basel rules may discourage the use of mortgage insurance.
Factors that could cause government MIs to remain significant include, among others: • change to federal housing policy and/or priorities, including government MIs reducing their premiums, which may be more likely under the current Presidential administration, or loosening their underwriting guidelines; • increase in premium rates or tightening of underwriting guidelines by private mortgage insurers; • capital constraints in the private MI industry; • increase in capital requirements imposed on private mortgage insurers by the GSEs or states; • continuation of increases to or imposition of new GSE loan delivery fees on loans that require MI, which may result in higher borrower costs for MI loans compared to loans insured by government MIs; • loans insured under federal government-supported mortgage insurance programs are eligible for securitization in Ginnie Mae securities, which may be viewed by investors as more desirable than GSE securities due to the explicit backing of Ginnie Mae securities by the full faith and credit of the U.S. federal government; • difference in the spread between GSE mortgage-backed securities and Ginnie Mae mortgage-backed securities; • increase in government MIs' loan limits above GSE loan limits; • change in GSEs' demand to participate in the high-LTV or first-time homebuyer origination market; and • perceived operational ease of using insurance from government MIs compared to private MI.
Factors that could cause government MIs to remain significant include, among others: • change to federal housing policy and/or priorities, including government MIs reducing their premiums, which may be more likely under the current Presidential administration, or loosening their underwriting guidelines; • increase in premium rates or tightening of underwriting guidelines by private mortgage insurers; • capital constraints in the private MI industry; • increase in capital requirements imposed on private mortgage insurers by the GSEs or states; • continuation of increases to or imposition of new GSE loan delivery fees on loans that require MI, which may result in higher borrower costs for MI loans compared to loans insured by government MIs; • loans insured under federal government-supported mortgage insurance programs are eligible for securitization in Ginnie Mae securities, which may be viewed by investors as more desirable than GSE securities due to the explicit backing of Ginnie Mae securities by the full faith and credit of the U.S. federal government; • difference in the spread between GSE mortgage-backed securities and Ginnie Mae mortgage-backed securities; • increase in government MIs' loan limits above GSE loan limits; • change in GSEs' demand to participate in the high-LTV or first-time homebuyer origination market; and • perceived operational ease of using insurance from government MIs compared to private MI. 33 The degree to which lenders or borrowers may select these alternatives now, or in the future, is difficult to predict.
Our IT systems and networks, including those functions that we may outsource, are vulnerable to unauthorized access, interruptions or failures due to events that are often beyond our control, including cyber-attacks, natural disasters, theft, terrorist attacks and general technology failures.
See Item 1C, " Cybersecurity ." Our IT systems and networks, including those functions that we may outsource, are vulnerable to unauthorized access, interruptions or failures due to events that are often beyond our control, including cyber-attacks, natural disasters, theft, terrorist attacks and general technology failures.
NMIH's principal source of operating cash is investment income, and could in the future include dividends from NMIC and Re One, which currently does not have active insurance exposure. NMIC has the capacity to pay aggregate ordinary dividends of $98.0 million to NMIH during the twelve-month period ending December 31, 2023, without prior approval from the Wisconsin OCI.
NMIH's principal source of operating cash is investment income, and could in the future include dividends from NMIC and Re One, which currently does not have active insurance exposure. NMIC has the capacity to pay aggregate ordinary dividends of $96.3 million to NMIH during the twelve-month period ending December 31, 2024, without prior approval from the Wisconsin OCI.
In addition, if the Federal Reserve decides to continue its interest rate hikes, there can be no guarantee the Fed will raise rates at a gradual pace, nor can there be any assurance that markets will not adversely react to rate increases and that the rate hikes would not trigger an economic downturn.
In addition, if the Federal Reserve decides to resume its interest rate hikes in the future, there can be no guarantee it will raise rates at a gradual pace, nor can there be any assurance that markets will not adversely react to rate increases and that the rate hikes would not trigger an economic downturn.
If we cannot obtain adequate capital, our business, financial condition and operating results could be adversely affected. Our substantial indebtedness could adversely affect our financial condition. We currently have and will continue to have a substantial amount of indebtedness. As of December 31, 2022 our debt totaled approximately $396.1 million.
If we cannot obtain adequate capital, our business, financial condition and operating results could be adversely affected. Our substantial indebtedness could adversely affect our financial condition. We currently have and will continue to have a substantial amount of indebtedness. As of December 31, 2023 our debt totaled approximately $397.6 million.
In an attempt to curb rising inflation, the Federal Reserve repeatedly and rapidly increased the federal funds rate in 2022 which led to rising interest rates and mortgage interest rates. Higher interest rates and mortgage rates may have an adverse impact on the refinancing origination market and purchase origination market.
In an attempt to curb rising inflation, the Federal Reserve repeatedly and rapidly increased the federal funds rate in 2022 and 2023 which led to rising interest rates and mortgage interest rates, before announcing a pause in September 2023. Higher interest rates and mortgage rates may have an adverse impact on the refinancing origination market and purchase origination market.
Our current credit ratings may adversely affect our ability to access capital and the cost of such capital, which could have a material adverse effect on our business, financial condition and operating results. Our current issuer credit and debt ratings are below investment grade.
Our current credit ratings may adversely affect our ability to access capital and the cost of such capital, which could have a material adverse effect on our business, financial condition and operating results.
We have not declared or paid dividends in the past, and we may not pay dividends in the future. As a result, until we otherwise declare and pay dividends on our common stock, only appreciation in the price of our common stock, which may not occur, will provide a return to investors.
As a result, until we otherwise declare and pay dividends on our common stock, only appreciation in the price of our common stock, which may not occur, will provide a return to investors.
Although we believe that we have appropriate information security policies and systems in place, t here is no assurance that our information security policies and systems in place can prevent unauthorized use or disclosure of confidential information, including nonpublic personal information.
Although w e seek to have appropriate information security policies and systems in place, t here is no assurance that our information security policies and systems in place can prevent unauthorized use or disclosure of confidential information, including nonpublic personal information.
In addition, our claims experience is affected by macroeconomic factors such as housing prices, inflation, interest rates, mortgage rates, unemployment rates and other events, such as natural disasters or global pandemics (including the ultimate future consequences of COVID-19), and any federal, state or local governmental response thereto.
In addition, our claims experience is affected by macroeconomic factors such as housing prices, inflation, interest rates, mortgage rates, unemployment rates and other events, such as natural disasters or global pandemics, and any federal, state or local governmental response thereto.
In 2022, in an attempt to curb rising inflation, the Federal Reserve repeatedly and rapidly increased the federal funds rate which hit its highest 37 levels in 15 years in December 2022, and led to rising interest rates and mortgage interest rates.
Starting in 2022, in an attempt to curb rising inflation, the Federal Reserve repeatedly and rapidly increased the federal funds rate which, in 36 July 2023, hit its highest levels in 22 years, and led to rising interest rates and mortgage interest rates in 2022 and 2023.
Home values may decline even absent deterioration in economic conditions due to declines in demand for homes, which may result from changes in buyers' perceptions of the potential for future home price appreciation, rising interest rates or availability of mortgage credit.
Home values may decline even absent deterioration in economic conditions due to declines in demand for homes, which may result from changes in buyers' perceptions of the potential for future home price appreciation, rising interest rates or availability of mortgage credit. The ending of any widely embraced forbearance programs may also increase the realization of losses related to borrower defaults.
As a result, the members of the MI industry, including NMIC, face litigation risk, including the risk of class action lawsuits, and administrative enforcement by federal regulators and state insurance agencies in the ordinary course of operations.
We operate in highly regulated industries that inherently pose a heightened risk of litigation and regulatory proceedings. As a result, the members of the MI industry, including NMIC, face litigation risk, including the risk of class action lawsuits, and administrative enforcement by federal regulators and state insurance agencies in the ordinary course of operations.
The COVID-19 virus, and the continuing spread and rise of new variants, remains a threat and we cannot estimate how the rise of new variants and government actions in response to them could affect our servicers in the future.
We cannot estimate how the rise of new variants and government actions in response to them could affect our servicers in the future.
We primarily rely on e-commerce and other technologies to provide and distribute our MI products and services. Our customers require us to provide and service our MI products in a secure manner, including through our proprietary technology platform, our internet website or direct electronic data transmissions.
Our customers require us to provide and service our MI products in a secure manner, including through our proprietary technology platform, our internet website or direct electronic data transmissions.
Provisions contained in our organizational documents, as well as provisions of Delaware law and Wisconsin insurance law, could delay or prevent a change of control of us, which could adversely affect the price of shares of our common stock.
Holders of our common stock bear the risk of such future issuances of debt or preferred stock reducing the market value of our common stock. 51 Provisions contained in our organizational documents, as well as provisions of Delaware law and Wisconsin insurance law, could delay or prevent a change of control of us, which could adversely affect the price of shares of our common stock.
Since 2020, the FHFA has been increasingly vocal about climate and natural disasters and their impact on the GSEs and the Federal Home Loan Banks (together, the regulated entities) and the national housing market, and has designated climate change as a priority concern and instructed the GSEs to actively consider its effects in their decision making.
These events also could disrupt public and private infrastructure, including communications and financial services, which could disrupt normal business operations. 40 Since 2020, the FHFA has been increasingly vocal about climate and natural disasters and their impact on the GSEs and the Federal Home Loan Banks (together, the regulated entities) and the national housing market, and has designated climate change as a priority concern and instructed the GSEs to actively consider its effects in their decision making.
Rising unemployment rates and deterioration in economic conditions for extended periods of time, including as a result of any potential economic downturn and developments relating to the COVID-19 virus and its variants, across the U.S. or in specific regional economies (such as the wave of layoffs in the technology sector in the recent past), generally increases the likelihood of borrower defaults.
Rising unemployment rates and deterioration in economic conditions for extended periods of time, across the U.S. or in specific regional economies (such as the wave of layoffs in the technology sector in the recent past), generally increases the likelihood of borrower defaults.
Notwithstanding the GSEs' efforts and other programs, there can be no assurance that borrowers will be able to remain current on their mortgages after a forbearance period ends, and a significant percentage could remain in default and result in mortgage insurance claims.
Since the COVID-related forbearance programs have since ended, there can be no assurance that borrowers will be able to remain current on their mortgages, and a significant percentage could remain in default and result in mortgage insurance claims.
These consequences could, among other things, result in a decline in new business and increased claims from those areas, and adverse effects on home prices in those areas, which could result in unexpected loss experience in our business. These events also could disrupt public and private infrastructure, including communications and financial services, which could disrupt normal business operations.
These consequences could, among other things, result in a decline in new business and increased claims from those areas, and adverse effects on home prices in those areas, which could result in unexpected loss experience in our business.
These provisions, alone or together, could delay hostile takeovers and changes of control of the Company or changes in our management.
These provisions, alone or together, could delay hostile takeovers and changes of control of the Company or changes in our management. Additionally, cumulative voting in the election of our directors is not allowed.
As of December 31, 2022, we had 86,472,742 shares of our common stock issued and 83,549,879 shares outstanding. Sales of substantial amounts of our common stock in the public market in the future, or the perception that these sales could occur, could cause the market price of our common stock to decline.
As of December 31, 2023, we had 87,334,138 shares of our common stock issued and 80,881,280 shares outstanding. Sales of substantial amounts of our common stock in the public market in the future, or the perception that these sales could occur, could cause the market price of our common stock to decline.
Income from our investment portfolio provides a growing source of revenue and cash flow to support our operations and claim payments.
Adverse investment performance may affect our financial results and ability to conduct business. Income from our investment portfolio provides a growing source of revenue and cash flow to support our operations and claim payments.
Accordingly, if we fail to meet the capital adequacy requirements in one or more states, we could be required to suspend writing business in some or all of the states in which we do business.
Accordingly, if we fail to meet the capital adequacy requirements in one or more states, we could be required to suspend writing business in some or all of the states in which we do business. The private MI industry is, and as a participant we are, subject to litigation and regulatory enforcement risk generally.
Further, the technology errors and omissions, and insurance coverage we maintain may be unavailable or inadequate to fully cover claims and/or costs associated with incidents that may occur in the future. 44 Adverse investment performance may affect our financial results and ability to conduct business.
If any of these were to occur, our business, financial condition and operating results could be materially adversely affected. Further, the technology errors and omissions, and insurance coverage we maintain may be unavailable or inadequate to fully cover claims and/or costs associated with incidents that may occur in the future.
To that end, the FHFA announced a new Conservatorship Scorecard which would hold the GSEs accountable for ensuring resiliency to climate risks, and also enhanced its monitoring and supervision of climate change issues.
To that end, the FHFA announced a new Conservatorship Scorecard which would hold the GSEs accountable for ensuring resiliency to climate risks, and also enhanced its monitoring and supervision of climate change issues. The FHFA has also established eight agency-wide internal working groups and a steering committee to assess the progress of the regulated entities in managing climate risk.
Our business prospects and operating results could be adversely impacted if, and to the extent that, the QM regulations or the CFPB's actions negatively impact the size of the origination market. The Company may be adversely impacted by the phasing out of London Interbank Offered Rate (LIBOR).
Our business prospects and operating results could be adversely impacted if, and to the extent that, the QM regulations or the CFPB's actions negatively impact the size of the origination market. 47 The implementation of the Basel rules may discourage the use of mortgage insurance.
An inability to access reinsurance, capital and credit markets when needed to continue to grow our business, refinance our existing debt or raise new debt or equity could have a material adverse effect on our business, financial condition, operating results and liquidity. 51 Risks Related to Ownership of Our Common Stock We do not currently pay any dividends on our common stock and may not pay any dividends on our common stock in the future, and payment of any declared dividends may be delayed.
An inability to access reinsurance, capital and credit markets when needed to continue to grow our business, refinance our existing debt or raise new debt or equity could have a material adverse effect on our business, financial condition, operating results and liquidity.
Any similar litigation against us could result in substantial costs, divert management's attention and resources and harm our business or operating results. 52 The market price of our common stock could decline due to the large number of outstanding shares of our common stock eligible for future sale, and future issuances of our common stock may depress our share price and dilute the book value of our common stock.
The market price of our common stock could decline due to the large number of outstanding shares of our common stock eligible for future sale, and future issuances of our common stock may depress our share price and dilute the book value of our common stock.
The loss of business in general or the specific loss of more profitable business could have a material adverse effect on our financial position and operating results. If we are unable to continue to attract and retain the most significant mortgage originators as customers, our ability to achieve our business goals could be negatively impacted.
If we are unable to continue to attract and retain the most significant mortgage originators as customers, our ability to achieve our business goals could be negatively impacted.
In the past, stockholders of certain companies other than NMIH have sometimes instituted securities class action litigation against such companies following periods of volatility in the market price of their securities.
In the past, stockholders of certain companies other than NMIH have sometimes instituted securities class action litigation against such companies following periods of volatility in the market price of their securities. Any similar litigation against us could result in substantial costs, divert management's attention and resources and harm our business or operating results.
While the initial impact of COVID-19 on our business has moderated, the COVID-19 virus, with the rise of new variants (including those with greater transmissibility and/or mortality rates), has continued to pose a global risk and affect communities across the U.S.
The COVID-19 virus has had and may continue to have negative impacts on the economy and on the financial, equity and credit markets, both globally and within the U.S. The rise of new variants (including those with greater transmissibility and/or mortality rates), may continue to pose a global risk and affect communities across the U.S.
These programs provide financial assistance for businesses and individuals, and targeted regulatory relief for financial institutions. Among other things, the CARES Act suspended foreclosures and evictions and remains in effect today. The GSEs, the primary purchasers of mortgages we insure, have also adopted certain measures during the pandemic to assist borrowers impacted by COVID-19.
Among other things, the CARES Act previously suspended foreclosures and evictions. The GSEs, the primary purchasers of mortgages we insure, also adopted certain measures during the pandemic to assist borrowers impacted by COVID-19, including providing a forbearance plan to certain borrowers.
QMs that are deemed to have the lowest risk profiles are entitled to a safe-harbor presumption of compliance with the ability-to-pay requirements. In the fourth 48 quarter of 2020, the CFPB released a series of final rules to (i) eliminate the QM Patch, (ii) amend the definition of a General QM, and (iii) provide for a new, Seasoned QM category.
In the fourth quarter of 2020, the CFPB released a series of final rules to (i) eliminate the temporary QM category, typically referred to as the "QM Patch", (ii) amend the definition of a General QM, and (iii) provide for a new, Seasoned QM category.
Any of these occurrences could result in a diminished ability to operate our business, potential liability to customers, reputational damage and regulatory intervention, which could result in a material adverse effect on our financial position and operating results. 43 If we do not maintain connectivity with or otherwise meet the technological demands of our customers or are unable to develop, enhance and maintain our proprietary technology platform, our business and financial performance could be adversely affected.
Any of these occurrences could result in a diminished ability to operate our business, potential liability to customers, reputational damage and regulatory intervention, which could result in a material adverse effect on our financial position and operating results.
During the pandemic, there were a number of governmental and GSE efforts to implement programs designed to assist individuals and businesses impacted by the COVID-19 virus, including the CARES Act, the Consolidated Appropriations Act, 2021 (2021 Appropriations Act), the American Rescue Plan Act (the American Rescue Plan).
During the pandemic, there were a number of governmental and GSE efforts to implement programs designed to assist individuals and businesses impacted by the COVID-19 virus, among them the Coronavirus Aid, Relief, and Economic Security Act (CARES Act). These programs provided financial assistance for businesses and individuals, and targeted regulatory relief for financial institutions.
Given the continuing spread and mutation of COVID-19 virus and the rise of new variants both within and outside of the U.S., the extent to which the COVID-19 virus and its current and future variants may materially impact our future financial results, business, liquidity and/or financial condition is uncertain and cannot be predicted.
The extent to which the COVID-19 virus and future variants may materially impact our future financial results, business, liquidity and/or financial condition is uncertain and cannot be predicted. The occurrence of natural or man-made disasters or pandemics could adversely affect our business, financial condition and operating results.

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Item 2. Properties

Properties — owned and leased real estate

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Biggest changeItem 2. Properties We lease approximately 36,983 square feet of office space in Emeryville, California pursuant to an office facility lease that we initially entered into in 2012 (as amended, the Lease). The term of the Lease extends through March 2030.
Biggest changeItem 2. Properties We lease approximately 36,983 square feet of office space in Emeryville, California pursuant to an office facility lease that we initially entered into in 2012 (as amended, the Lease). The term of the Lease extends through March 2030. 53

Item 3. Legal Proceedings

Legal Proceedings — active lawsuits and investigations

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Biggest changeWe have been named as a defendant in one litigation case that involves refunds of mortgage insurance premiums under the Homeowners Protection Act. We currently are unable to assess the outcome of this litigation nor whether this litigation may become material over time.
Biggest changeAs we have previously disclosed, we were named as a defendant in one litigation case that involves refunds of mortgage insurance premiums under the Homeowners Protection Act. In September 2023, the United States District Court for the Eastern District of Virginia granted our motion to dismiss the case.
In accordance with applicable accounting guidance, we establish accruals for all lawsuits, claims and expected settlements when we believe it is probable that a loss has been incurred and the amount of the loss is reasonably estimable. When a loss contingency is not both probable and reasonably estimable, we do not establish an accrual.
In accordance with applicable accounting guidance, we establish accruals for all lawsuits, claims and expected settlements when we believe it is probable that a loss has been incurred and the amount of the loss is reasonably estimable. When a loss contingency is not both probable and estimable, we do not establish an accrual.
We also disclose information relating to any material potential loss that is probable but not reasonably estimable. Where reasonably practicable, we will provide an estimate of loss or range of potential loss. No disclosures are generally made for any loss contingencies that are deemed to be remote.
We will also disclose information relating to any material potential loss that is probable but not reasonably estimable. Where reasonably practicable, we will provide an estimate of loss or range of potential loss. No disclosures are generally made for any loss contingencies that are deemed to be remote.
To the extent we believe any potential loss relating to such lawsuits and claims may have a material impact on our liquidity, consolidated financial position, results of operations, and/or our business as a whole and is reasonably possible but not probable, we disclose information relating to any such potential loss, whether in excess of any established accruals or where there is no established accrual.
To the extent we believe any potential loss relating to such lawsuits and claims may have a material impact on our liquidity, consolidated financial position, results of operations, and/or our business as a whole and is reasonably possible but not probable, we will disclose information relating to any such potential loss, whether in excess of any established accruals or where there is no established accrual.
Mine Safety Disclosures Not applicable. 55 PART II
Mine Safety Disclosures Not applicable. 54 PART II
Added
Subsequently, the plaintiff filed a notice of appeal in October 2023, appealing the District Court’s decision to the United States Court of Appeals for the Fourth Circuit. The appeal is currently pending.

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

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Biggest change($ In Thousands, except for per share data) Total Number of Shares Purchased Average Price Paid per Share Total Number of Shares Repurchased as Part of Publicly Announced Plans or Programs (1) Approximate Dollar Value of Shares That May Yet Be Repurchased Under the Plans or Program (1) Period: 10/1/2022 to 10/31/2022 223,377 $ 20.93 223,377 $ 68,457 11/1/2022 to 11/30/2022 31,925 21.93 31,925 68,425 12/1/2022 to 12/31/2022 — — — 68,425 Total 255,302 $ 21.05 255,302 (1) On February 10, 2022, our Board of Directors approved a $125 million share repurchase program effective through December 31, 2023.
Biggest change(In Thousands, except for per share data) Total Number of Shares Purchased Average Price Paid per Share Total Number of Shares Repurchased as Part of Publicly Announced Plans or Programs (1) Approximate Dollar Value of Shares That May Yet Be Repurchased Under the Plans or Program (1) Period: 10/1/2023 to 10/31/2023 549,758 $ 27.11 549,758 $ 193,582 11/1/2023 to 11/30/2023 321,094 27.80 321,094 184,655 12/1/2023 to 12/31/2023 271,998 28.36 271,998 176,940 Total 1,142,850 $ 27.60 1,142,850 (1) On February 10, 2022, our Board of Directors approved a $125 million share repurchase program effective through December 31, 2023, excluding associated costs and applicable taxes.
" Issuer Purchases of Equity Securities The following table provides information about purchases of NMI Holdings, Inc. common stock by us during the three months ended December 31, 2022.
" Issuer Purchases of Equity Securities The following table provides information about purchases of NMI Holdings, Inc. common stock by us during the three months ended December 31, 2023.
There are no shares of our Class B common stock outstanding. The closing price of our common stock on Nasdaq on February 10, 2023 was $22.95. No dividends on our common stock have previously been declared or paid, and we may not declare or pay dividends in the future.
There are no shares of our Class B common stock outstanding. The closing price of our common stock on Nasdaq on February 9, 2024 was $30.19. No dividends on our common stock have previously been declared or paid, and we may not declare or pay dividends in the future.
Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Our common stock is listed on the Nasdaq stock exchange under the symbol "NMIH." On February 10, 2023, there were 83,656,173 shares of our Class A common stock outstanding and approximately thirteen holders of record.
Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Our common stock is listed on the Nasdaq stock exchange under the symbol "NMIH." On February 9, 2024, there were 80,879,843 shares of our Class A common stock outstanding and approximately twelve holders of record.
Information contained or referenced in the stock performance graph below is being furnished with this report and will not be deemed "filed" for purposes of Section 18 of the Exchange Act or deemed to be incorporated by reference into any filing under the Exchange Act or the Securities Act. 56 12/31/2017 12/31/2018 12/31/2019 12/31/2020 12/31/2021 12/31/2022 NMI Holdings, Inc. $ 100 $ 105 $ 195 $ 133 $ 129 $ 123 Russell 2000 Index 100 89 112 134 154 122 S&P Small Cap 600 100 92 112 125 159 133 Peer Index (ESNT, MTG, RDN) 100 79 122 105 111 97 Item 6. [Reserved] 57
Information contained or referenced in the stock performance graph below is being furnished with this report and will not be deemed "filed" for purposes of Section 18 of the Exchange Act or deemed to be incorporated by reference into any filing under the Exchange Act or the Securities Act. 12/31/2018 12/31/2019 12/31/2020 12/31/2021 12/31/2022 12/31/2023 NMI Holdings, Inc. $ 100 $ 186 $ 127 $ 122 $ 117 $ 166 Russell 2000 Index 100 126 151 173 138 161 S&P Small Cap 600 100 123 137 173 145 169 Peer Index (ESNT, MTG, RDN) 100 154 132 140 123 171 Item 6. [Reserved] 56
Common Stock Performance Graph The following graph compares the cumulative total stockholder return on our Class A common stock from December 31, 2017 until December 31, 2022, with the cumulative total stockholder return on the Russell 2000 Index, S&P Small Cap 600 Index and an index of selected mortgage insurance companies (Peer Index).
See Item 8, " Financial Statements and Supplementary Data - Notes to Consolidated Financial Statements - Note 15, Common Stock, " for additional information. 55 Common Stock Performance Graph The following graph compares the cumulative total stockholder return on our Class A common stock from December 31, 2018 until December 31, 2023, with the cumulative total stockholder return on the Russell 2000 Index, S&P Small Cap 600 Index and an index of selected mortgage insurance companies (Peer Index).
As of December 31, 2022, $68.4 million of repurchase authority remained available under the program. See Item 8, " Financial Statements and Supplementary Data - Notes to Consolidated Financial Statements - Note 15, Common Stock, " for additional information.
As of December 31, 2023, no repurchase authority remained available under the February 2022 share repurchase program and $176.9 million repurchase authority remained under the July 2023 share repurchase program.
Added
On July 31, 2023, our Board of Directors approved an extension of the $125 million repurchase program through December 31, 2025. The Board also approved a new $200 million share repurchase program (excluding associated costs and applicable taxes) effective through December 31, 2025.

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

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Biggest changeAs of December 31, 2022 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) Current Default Rate (3) ($ Values In Millions) 2013 $ 162 $ 5 3 % 655 34 — 1 0.2 % 0.2 % — % 2014 3,451 206 6 % 14,786 1,285 30 51 4.0 % 0.5 % 2.3 % 2015 12,422 1,226 10 % 52,548 6,839 135 126 2.7 % 0.5 % 2.0 % 2016 21,187 2,668 13 % 83,626 13,938 277 146 2.1 % 0.5 % 2.0 % 2017 21,582 3,089 14 % 85,897 16,409 487 121 2.8 % 0.7 % 3.0 % 2018 27,295 3,579 13 % 104,043 18,355 611 106 4.8 % 0.7 % 3.3 % 2019 45,141 9,194 20 % 148,423 38,580 646 30 5.1 % 0.5 % 1.7 % 2020 62,702 34,656 55 % 186,174 112,845 628 4 3.2 % 0.3 % 0.6 % 2021 85,574 72,766 85 % 257,972 227,124 1,323 3 6.5 % 0.5 % 0.6 % 2022 58,734 56,579 96 % 163,281 158,733 312 — 11.8 % 0.2 % 0.2 % Total $ 338,250 $ 183,968 1,097,405 594,142 4,449 588 (1) Calculated as total claims incurred (paid and reserved) divided by cumulative premiums earned, net of reinsurance.
Biggest changeAs of December 31, 2023 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) Current Default Rate (3) ($ Values In Millions) 2014 and prior $ 3,613 $ 157 4 % 15,441 980 20 57 3.7 % 0.5 % 2.0 % 2015 12,422 990 8 % 52,548 5,561 84 141 2.5 % 0.4 % 1.5 % 2016 21,187 2,011 9 % 83,626 10,697 209 170 1.8 % 0.5 % 2.0 % 2017 21,582 2,487 12 % 85,897 13,684 336 153 2.2 % 0.6 % 2.5 % 2018 27,295 2,934 11 % 104,043 15,452 481 150 3.1 % 0.6 % 3.1 % 2019 45,141 7,602 17 % 148,423 32,733 505 59 2.3 % 0.4 % 1.5 % 2020 62,702 27,428 44 % 186,174 92,425 581 21 1.9 % 0.3 % 0.6 % 2021 85,574 62,051 73 % 257,972 199,115 1,476 28 4.6 % 0.6 % 0.7 % 2022 58,734 52,783 90 % 163,281 150,963 1,262 7 20.9 % 0.8 % 0.8 % 2023 40,473 38,586 95 % 111,994 108,080 145 1 8.9 % (4) 0.1 % 0.1 % Total $ 378,723 $ 197,029 1,209,399 629,690 5,099 787 (1) Calculated as total claims incurred (paid and reserved) divided by cumulative premiums earned, net of reinsurance.
(2) Approximately 1% of the production covered by the 2021-1 ILN Transaction has coverage reporting dates between July 1, 2019 and September 30, 2020. (3) Approximately 2% of the production covered by the 2021-2 ILN Transaction has coverage reporting dates between July 1, 2019 and March 31, 2021.
(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.
Additionally, under the terms of the QSR Transactions, NMIC may elect to selectively to terminate its engagement with individual reinsurers on a run-off basis ( i.e., reinsurers continue providing coverage on all risk ceded prior to the termination date, with no new cessions going forward) or cut-off basis ( i.e., the reinsurance arrangement is completely terminated with NMIC recapturing all previously ceded risk) under certain circumstances.
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.
We establish reserves for loans that have been reported to us in default by servicers, referred to as case reserves, and additional loans that we estimate (based on actuarial review and other factors) to be in default that have not yet been reported to us by servicers, referred to as IBNR.
We establish reserves for loans that have been reported to us in default by servicers, referred to as case reserves, and additional loans that we estimate (based on actuarial review and other factors) to be in default that have not yet been reported to us by servicers, referred to as IBNR reserves.
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.
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 ratio 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.
We establish reserves for loans that have been reported to us in default by servicers, referred to as case reserves, and additional loans that we estimate (based on actuarial review and other factors) to be in default that have not yet been reported to us by servicers, referred to as incurred but not reported (IBNR) reserves.
We establish reserves for loans that have been reported to us in default by servicers, referred to as case reserves, and additional loans that we estimate (based on actuarial review and other factors) to be in default that have not yet been reported to us by servicers, referred to as incurred but not reported (IBNR).
Claims incurred are generally affected by a variety of factors, including: • future macroeconomic factors, including national and regional unemployment rates, which affect the likelihood that borrowers may default on their loans and probability of claims, and interest rates, which tend to drive increased persistency as they rise, thereby extending the average life of our insured portfolio and increasing expected future claims and decrease persistency as they fall, thereby shortening the average life of our insured portfolio and moderating future expected claims; 69 • changes in housing values, as such changes affect loss mitigation opportunities (available to us and a borrower) on loans in default, as well as borrowers' behaviors and willingness to default if the values of their homes are below or perceived to be below the balance of their mortgage; • borrowers' FICO scores, with lower FICO scores tending to have a higher probability of claims; • borrowers' DTI ratios, with higher DTI ratios tending to have a higher probability of claims; • LTV ratios, with higher average LTV ratios tending to increase the probability of claims; • the size of loans insured, with higher loan amounts tending to result in higher incurred claim amounts than smaller loan amounts; • the percentage of coverage on insured loans, with higher percentages of insurance coverage tending to result in higher incurred claim amounts than lower percentages of insurance coverage; • other borrower, property-type and loan level risk characteristics, such as cash-out refinancings, second homes or investment properties; and • the level and amount of reinsurance coverage maintained with third parties.
Claims incurred are generally affected by a variety of factors, including: • future macroeconomic factors, including national and regional unemployment rates, which affect the likelihood that borrowers may default on their loans and probability of claims, and interest rates, which tend to drive increased persistency as they rise, thereby extending the average life of our insured portfolio and increasing expected future claims and decrease persistency as they fall, thereby shortening the average life of our insured portfolio and moderating future expected claims; • changes in housing values, as such changes affect loss mitigation opportunities (available to us and a borrower) on loans in default, as well as borrowers' behaviors and willingness to default if the values of their homes are below or perceived to be below the balance of their mortgage; • borrowers' FICO scores, with lower FICO scores tending to have a higher probability of claims; • borrowers' DTI ratios, with higher DTI ratios tending to have a higher probability of claims; • LTV ratios, with higher average LTV ratios tending to increase the probability of claims; • the size of loans insured, with higher loan amounts tending to result in higher incurred claim amounts than smaller loan amounts; • the percentage of coverage on insured loans, with higher percentages of insurance coverage tending to result in higher incurred claim amounts than lower percentages of insurance coverage; • other borrower, property-type and loan level risk characteristics, such as cash-out refinancings, second homes or investment properties; and • the level and amount of reinsurance coverage maintained with third parties.
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 claim payments and home prices; and • cession of premiums under third-party reinsurance arrangements.
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; 58 • 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 claim payments and home prices; and • cession of premiums under third-party reinsurance arrangements.
The change in fair value of our warrant liability can vary significantly across periods and is influenced principally by equity market and general economic factors that do not impact or reflect our current period operating results. Furthermore, all unexercised warrants expired in April 2022 and, as such, no change in fair value will be recognized in future reporting periods.
The change in fair value of our warrant liability can vary significantly across periods and is influenced principally by equity market and general economic factors that do not impact or reflect our current period operating results. Furthermore, all unexercised warrants expired in April 2022 and, as such, no change in fair value will be recognized in future reporting periods thereafter.
Financial Conduct Authority (FCA), the regulator of IBA, announced on the same day that it intends to stop requiring panel banks to continue to submit to LIBOR and all USD LIBOR settings in their current form will either cease to be provided by any administrator or no longer be representative after June 30, 2023.
Financial Conduct Authority, the regulator of IBA, announced on the same day that it intends to stop requiring panel banks to continue to submit to LIBOR and all USD LIBOR settings in their current form will either cease to be provided by any administrator or no longer be representative after June 30, 2023.
(5) Defined as the percentage of IIF that is no longer on our books after a given three-month period. Figures shown represent fourth quarter values for the respective years. 65 The table below presents a summary of the change in total primary IIF for the dates and periods indicated.
(5) Defined as the percentage of IIF that is no longer on our books after a given three-month period. Figures shown represent fourth quarter values for the respective years. The table below presents a summary of the change in total primary IIF for the dates and periods indicated.
Under the guidance, non-performing loans that are subject to a forbearance program granted in response to a financial hardship related to COVID-19 will benefit from a permanent 70% risk-based required asset haircut for the duration of the forbearance period and subsequent repayment plan or trial modification period.
Under the guidance, non-performing loans that are subject to a forbearance program granted in response to a financial hardship related to COVID-19 will benefit from a 70% risk-based required asset haircut for the duration of the forbearance period and subsequent repayment plan or trial modification period.
The outstanding reinsurance coverage amounts stop amortizing, and the collateral distribution to ILN Transaction noteholders and amortization of insurance-linked note principal is suspended if certain credit enhancement or delinquency thresholds, as defined in each agreement, are triggered (each, a Lock-Out Event).
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).
During the year ended December 31, 2021, we accelerated the rate and recognized an additional $11.1 million of DAC amortization due to the significant increase in mortgage refinancing activity and material decline in persistency on certain prior book years' insurance in-force experienced during the period.
During the year ended December 31, 2021, we accelerated the rate and recognized an additional $11.1 million of DAC amortization due 85 to the significant increase in mortgage refinancing activity and material decline in persistency on certain prior book years' insurance in-force experienced during the period.
Under an excess-of-loss agreement, the ceding insurer is typically responsible 60 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. We expect to continue to evaluate reinsurance opportunities in the normal course of business.
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. We expect to continue to evaluate reinsurance opportunities in the normal course of business.
(2) Expense ratio is calculated by dividing underwriting and operating expenses by net premiums earned. (3) Combined ratio may not foot due to rounding. (4) See " Explanation and Reconciliation of Our Use of Non-GAAP Financial Measures, " below.
(2) Expense ratio is calculated by dividing underwriting and operating expenses by net premiums earned. (3) Combined ratio may not foot due to rounding. (4) See “ Explanation and Reconciliation of Our Use of Non-GAAP Financial Measures, ” below.
The credit agreement for 82 2021 Revolving Credit Facility also prohibits, restricts or limits, among other things, NMIH's and its subsidiaries' ability to (i) incur additional indebtedness, (ii) incur liens on their property, (iii) pay dividends or make other distributions, (iv) sell their assets, (v) make certain loans or investments, (vi) merge or consolidate and (vii) enter into transactions with affiliates, in each case subject to certain limitations, exceptions and qualifications as set forth in the credit agreement for 2021 Revolving Credit Facility.
The credit agreement for 2021 Revolving Credit Facility also prohibits, restricts or limits, among other things, NMIH's and its subsidiaries' ability to (i) 80 incur additional indebtedness, (ii) incur liens on their property, (iii) pay dividends or make other distributions, (iv) sell their assets, (v) make certain loans or investments, (vi) merge or consolidate and (vii) enter into transactions with affiliates, in each case subject to certain limitations, exceptions and qualifications as set forth in the credit agreement for 2021 Revolving Credit Facility.
Cash provided by operating activities declined during the year ended December 31, 2022 primarily due to an increase in the purchase of tax and loss bonds during the period, as well as a decrease in premium written tied to a decline in single premium policies written during the period, both of which were largely offset by a reduction in the technology service costs paid under our long-term IT services agreement with TCS.
Cash provided by operating activities declined during the year ended December 31, 2022 compared to the year ended December 31, 2021, primarily due to an increase in the purchase of tax and loss bonds during the period, as well as a decrease in premium written tied to a decline in single premium policies written during the period, both of which were largely offset by a reduction in the technology service costs paid under our long-term IT services agreement with TCS.
We consider the appropriateness of such inputs at each fiscal quarter and conduct an actuarial review annually to evaluate and, if necessary, update these assumptions. 86 It is possible that a relatively small change in our estimates for claim frequency or claim severity could have a material impact on our reserve position and our consolidated results of operations, even in a stable macroeconomic environment.
We consider the appropriateness of such inputs at each fiscal quarter and conduct an actuarial review annually to evaluate and, if necessary, update these assumptions. 84 It is possible that a relatively small change in our estimates for claim frequency or claim severity could have a material impact on our reserve position and our consolidated results of operations, even in a stable macroeconomic environment.
The FHFA and GSEs have offered further assistance by introducing new repayment and loan modification options to assist borrowers with their transition out of forbearance programs and default status.
The FHFA and GSEs offered further assistance by introducing new repayment and loan modification options to assist borrowers with their transition out of forbearance programs and default status.
Our ability to utilize our remaining federal net operating loss carryforwards is restricted by Section 382 of the Internal Revenue Code (IRC), which imposes annual limitations if there is an "ownership change." As a result of the acquisition of our insurance subsidiaries in 2012, $7.3 million of federal net operating losses were subject to annual limitations of $0.8 million through 2016, $0.5 million in 2017 and $0.3 million, thereafter, through 2028.
Our ability to utilize our remaining federal net operating loss carryforward is restricted by Section 382 of the Internal Revenue Code (IRC), which imposes annual limitations if there is an "ownership change." As a result of the acquisition of our insurance subsidiaries in 2012, $7.3 million of federal net operating losses were subject to annual limitations of $0.8 million through 2016, $0.5 million in 2017 and $0.3 million, thereafter, through 2028.
For single premiums, we receive a single premium payment at origination, which is earned over the estimated life of the policy. Substantially all of our single premium policies in force as of December 31, 2022 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.
For single premiums, we receive a single premium payment at origination, which is earned over the estimated life of the policy. Substantially all of our single premium policies in force as of December 31, 2023 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.
We recognize an impairment on a security through the consolidated statement of operations and comprehensive income 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.
We recognize an impairment on a security through the consolidated statements of operations and comprehensive income 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 we determine it is necessary and appropriate to establish a premium deficiency reserve, and actual premium patterns and claims experience differ from the assumptions used to establish the reserve, the difference between the actual results and our estimates would affect our consolidated results of operations in future periods. 88
If we determine it is necessary and appropriate to establish a premium deficiency reserve, and actual premium patterns and claims experience differ from the assumptions used to establish the reserve, the difference between the actual results and our estimates would affect our consolidated results of operations in future periods. 86
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.
Premiums are paid either by the borrower (borrower-paid mortgage insurance or BPMI) or the lender (lender-paid mortgage insurance or 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.
Adjusted income before tax is defined as GAAP income before tax, excluding the pre-tax effects of the gain or loss related to the change in fair value of our warrant liability, periodic costs incurred in connection with capital markets transactions, 78 net realized gains or losses from our investment portfolio, and other infrequent, unusual or non-operating items in the periods in which such items are incurred.
Adjusted income before tax is defined as GAAP income before tax, excluding the pre-tax effects of the gain or loss related to the change in fair value of our warrant liability, periodic costs incurred in connection with capital markets transactions, net realized gains or losses from our investment portfolio, and other infrequent, unusual or non-operating items in the periods in which such items are incurred. 76 Adjusted net income is defined as GAAP net income, excluding the after-tax effects of the gain or loss related to the change in fair value of our warrant liability, periodic costs incurred in connection with capital markets transactions, net realized gains or losses from our investment portfolio, and other infrequent, unusual or non-operating items in the periods in which such items are incurred.
We continue to evaluate the realizability of our state net deferred tax asset position, and our examination of results through December 31, 2022 and review of future expectations support the continued application of a valuation allowance against such state net deferred tax assets.
We continue to evaluate the realizability of our state net deferred tax asset position, and our examination of results through December 31, 2023 and review of future expectations support the continued application of a valuation allowance against such state net deferred tax assets.
If a sale is intended or likely to be required, we write down the amortized cost basis of the security to fair value and recognize the full amount of the impairment through the statement of operations as a " Realized Investment Loss ." For securities in an unrealized loss position where a sale is not intended or likely to be required, we further assess if the decline in fair value below amortized cost is driven by a credit related impairment, considering several items including, but not limited to: • the severity of the decline in fair value; • the financial condition of the issuer; • the failure of the issuer to make scheduled interest or principal payments; • recent rating downgrades of the applicable security or issuer by one or more nationally recognized statistical ratings organization; and • other adverse conditions related to or impacting the security or issuer.
If a sale is intended or likely to be required, we write down the amortized cost basis of the security to fair value and recognize the full amount of the impairment through the consolidated statements of operations and comprehensive income as a "Realized Investment Loss." For securities in an unrealized loss position where a sale is not intended or likely to be required, we further assess if the decline in fair value below amortized cost is driven by a credit related impairment, considering several items including, but not limited to: • the severity of the decline in fair value; • the financial condition of the issuer; • the failure of the issuer to make scheduled interest or principal payments; • recent rating downgrades of the applicable security or issuer by one or more nationally recognized statistical ratings organization; and • other adverse conditions related to or impacting the security or issuer.
We were in compliance with all covenants at December 31, 2022. NMIC and Re One are subject to certain capital and dividend rules and regulations prescribed by jurisdictions in which they are authorized to operate and the GSEs.
We were in compliance with all covenants at December 31, 2023. NMIC and Re One are subject to certain capital and dividend rules and regulations prescribed by jurisdictions in which they are authorized to operate and the GSEs.
Under the terms of the 2023 QSR Transactions, NMIC cedes premiums earned related to 20% of the risk on eligible policies written from January 1, 2023 to December 31, 2023, in exchange for reimbursement of ceded claims and claim expenses on covered policies, a 20% ceding commission, and a profit commission of up to 62% that varies directly and inversely with ceded claims.
Under the terms of the 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, in exchange for reimbursement of ceded claims and 61 claim expenses on covered policies, a 20% ceding commission, and a profit commission of up to 62% that varies directly and inversely with ceded claims.
Investment Securities - Allowance for credit losses We did not recognize an allowance for credit loss for any security in the investment portfolio as of December 31, 2022 or 2021, and we did not record any provision for credit loss for investment securities during the years ended December 31, 2022 or 2021.
Investment Securities - Allowance for credit losses We did not recognize an allowance for credit loss for any security in the investment portfolio as of December 31, 2023 or 2022, and we did not record any provision for credit loss for investment securities during the years ended December 31, 2023 or 2022.
Our underwriting standards and eligibility criteria are designed to limit the layering of risk 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.
Our underwriting standards and eligibility criteria are designed to limit the layering of risk 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.
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.
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.
For further information regarding income taxes and their impact on our results of operations and financial position, see Item 8, " Financial Statements and Supplementary Data - Notes to Consolidated Financial Statements - Note 11, Income Taxes.
For further information regarding income taxes and their impact on our results of operations and financial position, see Item 8, " Financial Statements and Supplementary Data - Notes to Consolidated Financial Statements - Note 10, Income Taxes.
For further information regarding income taxes and their impact on our results of operations and financial position, see Item 8, " Financial Statements and Supplementary Data - Notes to Consolidated Financial Statements - Note 11, Income Taxes.
For further information regarding income taxes and their impact on our results of operations and financial position, see Item 8, " Financial Statements and Supplementary Data - Notes to Consolidated Financial Statements - Note 10, Income Taxes.
We evaluated the securities in an unrealized loss position as of December 31, 2022, assessing their credit ratings as well as any adverse conditions specifically related to the security.
We evaluated the securities in an unrealized loss position as of December 31, 2023, assessing their credit ratings as well as any adverse conditions specifically related to the security.
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 December 31, 2022, we had issued master policies with 1,875 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 lenders.
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 December 31, 2023, we had issued master policies with 1,974 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 lenders.
Top 10 primary RIF by state As of December 31, 2022 2021 2020 California 10.6 % 10.4 % 11.2 % Texas 8.7 9.7 8.8 Florida 8.2 8.6 7.3 Virginia 4.1 4.7 5.1 Georgia 4.1 3.8 3.1 Illinois 3.9 3.6 3.8 Washington 3.9 3.7 3.5 Colorado 3.5 3.8 4.1 Pennsylvania 3.4 3.3 3.4 Maryland 3.4 3.7 3.7 Total 53.8 % 55.3 % 54.0 % 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.
Top 10 primary RIF by state As of December 31, 2023 2022 2021 California 10.2 % 10.6 % 10.4 % Texas 8.7 8.7 9.7 Florida 7.6 8.2 8.6 Georgia 4.1 4.1 3.8 Washington 4.0 3.9 3.7 Illinois 4.0 3.9 3.6 Virginia 3.9 4.1 4.7 Pennsylvania 3.4 3.4 3.3 Maryland 3.3 3.4 3.7 Colorado 3.2 3.5 3.8 Total 52.4 % 53.8 % 55.3 % 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.
The number of claims paid and our severity experience in future periods may be impacted by developing economic cycles and each could increase if house price declines serve to limit the alternative paths and incentives to cure delinquencies that are available to defaulted borrowers or erode the equity value of the homes collateralizing the mortgages we insure. 72 The following table provides detail on our average reserve per default, before giving effect to reserves ceded under the QSR Transactions, as of the dates indicated: Average reserve per default: As of December 31, 2022 2021 2020 (In Thousands) Case (1) $ 20.8 $ 15.3 $ 6.8 IBNR (1) (2) 1.6 1.3 0.6 Total $ 22.4 $ 16.6 $ 7.4 (1) Defined as the gross reserve per insured loan in default.
The number of claims paid and our severity experience in future periods may be impacted by developing economic cycles and each could increase if house price declines serve to limit the alternative paths and incentives to cure delinquencies that are available to defaulted borrowers or erode the equity value of the homes collateralizing the mortgages we insure. 71 The following table provides detail on our average reserve per default, before giving effect to reserves ceded under the QSR Transactions, as of the dates indicated: Average reserve per default: As of December 31, 2023 2022 2021 (In Thousands) Case (1) $ 22.4 $ 20.8 $ 15.3 IBNR (1) (2) 1.9 1.6 1.3 Total $ 24.3 $ 22.4 $ 16.6 (1) Defined as the gross reserve per insured loan in default.
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.
Quota Share Reinsurance NMIC is 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 (and amended effective January 1, 2024), 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.
Our common stock trades on the Nasdaq under the symbol "NMIH." Our headquarters is located in Emeryville, California. As of December 31, 2022, we had 242 employees. Our corporate website is located at www.nationalmi.com . Our website and the information contained on or accessible through our website are not incorporated by reference into this report.
Our common stock trades on the Nasdaq under the symbol "NMIH." Our headquarters is located in Emeryville, California. As of December 31, 2023, we had 238 employees. Our corporate website is located at www.nationalmi.com . Our website and the information contained on or accessible through our website are not incorporated by reference into this report.
We consider an activation to be the point at which we have signed a Master Policy, established IT connectivity and generated a first application or first dollar of NIW from a customer. During the year ended December 31, 2022, we activated 120 lenders, compared to 122 and 101 for the years ended December 31, 2021 and December 31, 2020, respectively.
We consider an activation to be the point at which we have signed a Master Policy, established IT connectivity and generated a first application or first dollar of NIW from a customer. During the year ended December 31, 2023, we activated 70 lenders, compared to 120 and 122 for the years ended December 31, 2022 and 2021, respectively.
Non-performing loans that have missed two or more payments are generally assessed a significantly higher charge than performing loans, regardless of the underlying borrower or loan risk profile; however, special consideration is given under PMIERs to loans that are delinquent on homes located in an area declared by FEMA to be a Major Disaster zone eligible for Individual Assistance.
Non-performing loans that have missed two or more payments are generally assessed a significantly higher charge than performing loans, regardless of the underlying borrower or loan risk profile; however, special consideration is given under PMIERs to loans that are delinquent on homes located in an area declared by the Federal Emergency Management Agency to be a Major Disaster zone eligible for Individual Assistance.
Claims severity in each year benefited from the same broad national house price appreciation that supported our claims paid experience.
Claims severity for each year benefited from the same broad national house price appreciation that supported our claims paid experience.
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.
The reinsurance coverage amount of each XOL Transaction is set to approximate the PMIERs minimum required assets of its reference pool and decreases from its peak 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.
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 December 31, 2022 are not indicative of the ultimate collectability of the current amortized cost of the securities.
Based upon our assessment of the amount and timing of cash flows to be collected over the remaining life of each instrument, we believe the unrealized losses as of December 31, 2023 are not indicative of the ultimate collectability of the current amortized cost of the securities.
R e One has no risk in force remaining and no longer reports a RTC ratio. 83 NMIC's principal sources of liquidity include (i) premium receipts on its insured portfolio and new business production, (ii) interest income on its investment portfolio and principal repayments on maturities therein, and (iii) existing cash and cash equivalent holdings.
Re One has no risk in force remaining and no longer reports a RTC ratio. 81 NMIC's principal sources of liquidity include (i) premium receipts on its insured portfolio and new business production, (ii) interest income on its investment portfolio and principal repayments on maturities therein, and (iii) existing cash and cash equivalent holdings.
Pool premiums written and earned for the years ended December 31, 2022, 2021 and 2020, were $1.2 million, $1.6 million and $2.5 million, respectively, before giving effect to the 2016 QSR Transaction, under which all of our written and earned pool premiums are ceded. A portion of our ceded pool premiums written and earned are recouped through profit commission.
Pool premiums written and earned for the years ended December 31, 2023, 2022 and 2021 were $0.7 million, $1.2 million and $1.6 million, respectively, before giving effect to the 2016 QSR Transaction, under which all of our written and earned pool premiums are ceded. A portion of our ceded pool premiums written and earned are recouped through profit commission.
At December 31, 2022, we had issued 1,875 Master Policies and established 1,434 active customer relationships, compared to 1,732 and 1,316, respectively, as of December 31, 2021 and 1,570 and 1,195, respectively, as of December 31, 2020. New Insurance Written, Insurance-In-Force and Risk-In-Force NIW is the aggregate unpaid principal balance of mortgages underpinning new policies written during a given period.
At December 31, 2023, we had issued 1,974 Master Policies and established 1,503 active customer relationships, compared to 1,875 and 1,434, respectively, as of December 31, 2022 and 1,732 and 1,316, respectively, as of December 31, 2021. New Insurance Written, Insurance-In-Force and Risk-In-Force NIW is the aggregate unpaid principal balance of mortgages underpinning new policies written during a given period.
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 law provides that dividends are only payable out of a corporation's surplus or recent net profits (subject to certain limitations). As of December 31, 2022, NMIH had $88.9 million of cash and investments.
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 law provides that dividends are only payable out of a corporation's surplus or recent net profits (subject to certain limitations). As of December 31, 2023, NMIH had $113.7 million of cash and investments.
Cash used in investing activities for the years ended December 31, 2022, 2021 and 2020 reflects the purchase of fixed and short-term maturities with cash provided by operating activities and, as available, financing activities, and the reinvestment of coupon payments, maturities and sale proceeds within our investment portfolio.
Cash used in investing activities for the years ended December 31, 2023, 2022 and 2021 reflects the purchase of fixed and short-term maturities with cash provided by operating activities, and the reinvestment of coupon payments, maturities and sale proceeds within our investment portfolio.
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 M ae, 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.
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 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.
NMIH's principal sources of net cash are dividends from its subsidiaries and investment income. NMIC has the capacity to pay aggregate ordinary dividends of $98.0 million to NMIH during the twelve-month period ending December 31, 2023. NMIH also has access to $250 million of undrawn revolving credit capacity under the 2021 Revolving Credit Facility.
NMIH's principal sources of net cash are dividends from its subsidiaries and investment income. NMIC has the capacity to pay aggregate ordinary dividends of $96.3 million to NMIH during the twelve-month period ending December 31, 2024. NMIH also has access to $250 million of undrawn revolving credit capacity under the 2021 Revolving Credit Facility.
Traditional reinsurance NMIC is a party to three 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, and the 2022-3 XOL Transaction, effective October 1, 2022 – which we refer to collectively as the XOL Transactions.
Traditional Reinsurance NMIC is party to five 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, the 2023-1 XOL Transaction, effective January 1, 2023, and the 2023-2 XOL Transaction, effective July 1, 2023 – which we refer to collectively as the XOL Transactions.
Our remaining federal net operating loss carryforwards balance is a result of this limitation.
Our remaining federal net operating loss carryforward balance is a result of this limitation.
Service expenses were $1.1 million, $2.5 million and $2.8 million for the years ended December 31, 2022, 2021 and 2020, respectively. Service expenses represent third-party costs incurred by NMIS in connection with the services it provides. The sequential decline in service expenses in each successive year was primarily driven by a decrease in NMIS' outsourced loan review volume.
Service expenses were $0.8 million, $1.1 million and $2.5 million for the years ended December 31, 2023, 2022 and 2021, respectively. Service expenses represent third-party costs incurred by NMIS in connection with the services it provides. The sequential decline in service expenses in each successive year primarily reflects a decline in NMIS' outsourced loan review volume.
As of December 31, 2022, the investment portfolio had gross unrealized losses of $254.7 million, of which $218.5 million 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.
Other revenues were $1.2 million, $2.0 million and $3.3 million for the years ended December 31, 2022, 2021 and 2020, respectively. Other revenues represent underwriting fee revenue generated by our subsidiary, NMIS, which provides outsourced 76 loan review services to mortgage loan originators.
Other revenues were $0.8 million, $1.2 million and $2.0 million for the years ended December 31, 2023, 2022 and 2021, respectively. Other revenues represent underwriting fee revenue generated by our subsidiary, NMIS, which provides outsourced 74 loan review services to mortgage loan originators.
As of December 31, 2022, we held $154.4 million of tax and loss bonds in "Prepaid federal income taxes" on our consolidated balance sheets. 85 We record a valuation allowance against the state net operating losses generated by NMIH as NMIH operates at a loss, and we do not expect to utilize such net deferred tax assets in the future.
As of December 31, 2023, we held $235.3 million of tax and loss bonds in " Prepaid Federal Income Taxes " on our consolidated balance sheets. 83 We record a valuation allowance against the state net operating losses generated by NMIH as NMIH operates at a loss, and we do not expect to utilize such net deferred tax assets in the future.
At December 31, 2022, assuming all other estimates remain constant, a one percentage point increase/decrease in our average claim severity factor would cause approximately a +/- $0.8 million change in our reserve position, and a one percentage point increase/decrease in our average claim frequency factor cause approximately a +/- $1.4 million change in our reserve position.
At December 31, 2023, assuming all other estimates remain constant, a one percentage point increase/decrease in our average claim severity factor would cause approximately a +/- $0.9 million change in our reserve position, and a one percentage point increase/decrease in our average claim frequency factor cause approximately a +/- $3.4 million change in our reserve position.
In response to the COVID-19 pandemic, politicians, regulators, lenders, loan servicers and others have offered extraordinary assistance to dislocated borrowers through, among other programs, the forbearance, foreclosure moratorium and other assistance programs codified under the CARES Act.
In response to the COVID-19 pandemic, politicians, regulators, lenders, loan servicers and others offered extraordinary assistance to dislocated borrowers through, among other programs, the forbearance, foreclosure moratorium and other assistance programs codified under the Coronavirus Aid, Relief, and Economic Security Act (CARES Act).
Under the 2021 Revolving Credit Facility, NMIH is 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 December 31, 2022, the applicable commitment fee was 0.30%. We are subject to certain covenants under the 2021 Revolving Credit Facility.
Under the 2021 Revolving Credit Facility, NMIH is 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 December 31, 2023, the applicable commitment fee was 0.30%.
(2) Includes +/– ratings. (3) We held one security with a BB+ rating at December 31, 2022, which is not identifiable in the table due to rounding. All of our investments are rated by one or more nationally recognized statistical rating organizations.
(4) We held one security with a BB+ rating at December 31, 2023 and 2022, which is not identifiable in the table due to rounding. All of our investments are rated by one or more nationally recognized statistical rating organizations.
Amounts are presented net of reinsurance and included $42.5 million attributed to net case reserves and $4.7 million attributed to net IBNR reserves for the year ended December 31, 2022, $6.3 million attributed to net case reserves and $5.0 million attributed to net IBNR reserves for the year ended December 31, 2021, and $6.2 million attributed to net case reserves and $1.3 million attributed to net IBNR reserves for the year ended December 31, 2020.
Amounts are presented net of reinsurance and included $50.9 million attributed to net case reserves and $4.5 million attributed to net IBNR reserves for the year ended December 31, 2023, $42.5 million attributed to net case reserves and $4.7 million attributed to net IBNR reserves for the year ended December 31, 2022, and $6.3 million attributed to net case reserves and $5.0 million attributed to net IBNR reserves for the year ended December 31, 2021.
The sequential increase in net premiums earned during each successive year was primarily driven by our NIW production and growth of our IIF, partially offset by an increase in total premiums ceded under our reinsurance transactions, a decline in the contribution from single premium policy cancellations and the run-off of a portion of our prior period monthly policy production and associated premium receipts.
The sequential increase in net premiums earned during each successive year was primarily driven by our NIW production and the growth of our IIF, partially offset by an increase in total premiums ceded under our reinsurance transactions and a decline in the contribution from single premium policy cancellations.
During the year ended December 31, 2022, NMIC paid a $34.9 million ordinary course dividend to NMIH. NMIC has the capacity to pay aggregate ordinary dividends of $98.0 million to NMIH during the twelve-month period ending December 31, 2023.
During the year ended December 31, 2023, NMIC paid a $98.0 million ordinary course dividend to NMIH. NMIC has the capacity to pay aggregate ordinary dividends of $96.3 million to NMIH during the twelve-month period ending December 31, 2024.
Under the PMIERs, NMIC must maintain available assets that are equal to or exceed a minimum risk-based required asset amount, subject to a minimum floor of $400 million. At December 31, 2022, NMIC reported $2,379 million available assets against $1,204 million risk-based required assets for a $1,175 million "excess" funding position.
Under the PMIERs, NMIC must maintain available assets that are equal to or exceed a minimum risk-based required asset amount, subject to a minimum floor of $400 million. At December 31, 2023, NMIC reported $2,718 million available assets against $1,516 million risk-based required assets for a $1,202 million "excess" funding position.
The following tables present a breakdown of our investment portfolio and cash and cash equivalents by investment type and credit rating: Percentage of portfolio's fair value December 31, 2022 December 31, 2021 Corporate debt securities 60 % 64 % Municipal debt securities 23 26 Cash, cash equivalents, and short-term investments 10 4 U.S. treasury securities and obligations of U.S. government agencies 4 1 Asset-backed securities 3 5 Total 100 % 100 % 84 Investment portfolio ratings at fair value (1) December 31, 2022 December 31, 2021 AAA 19 % 9 % AA (2) 25 28 A (2) 41 46 BBB (2) 15 17 BB (3) — — Total 100 % 100 % (1) Excluding certain operating cash accounts.
The following tables present a breakdown of our investment portfolio and cash and cash equivalents by investment type and credit rating: Percentage of portfolio's fair value December 31, 2023 December 31, 2022 Corporate debt securities 61 % 60 % Municipal debt securities 25 23 U.S. treasury securities and obligations of U.S. government agencies 7 4 Cash, cash equivalents, and short-term investments 5 10 Asset-backed securities 2 3 Total 100 % 100 % 82 Investment portfolio ratings at fair value (1) December 31, 2023 December 31, 2022 AAA (2) 9 % 19 % AA (3) 34 25 A (3) 44 41 BBB (3) 13 15 BB (4) — — Total 100 % 100 % (1) Excluding certain operating cash accounts.
(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. The Company paid 81, 82 and 143 claims for the years ended December 31, 2022, 2021 and 2020, 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. We paid 199, 81 and 82 claims during the years ended December 31, 2023, 2022 and 2021, respectively.
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).
The respective reinsurance coverage amounts provided by the Oaktown Re Vehicles decrease (over a ten-year period in the case of Oaktown Re III Ltd. and Oaktown Re V Ltd. and 12.5-year period in the case of Oaktown Re VI Ltd. and Oaktown Re VII Ltd.) as the underlying insured mortgages are amortized or repaid, and/or the mortgage insurance coverage is canceled.
Our effective income tax rate on pre-tax income was 22.4%, 22.1% and 21.3% for the years ended December 31, 2022, 2021 and 2020, respectively.
Our effective income tax rate on pre-tax income was 22.0%, 22.4% and 22.1% for the years ended December 31, 2023, 2022 and 2021, respectively.
Primary IIF As of and for the years ended December 31, 2022 2021 2020 (In Millions) IIF, beginning of period $ 152,343 $ 111,252 $ 94,754 NIW 58,734 85,574 62,702 Cancellations, principal repayments and other reductions (27,109) (44,483) (46,204) IIF, end of period $ 183,968 $ 152,343 $ 111,252 We consider a "book" to be a collective pool of policies insured during a particular period, normally a calendar year.
Primary IIF As of and for the years ended December 31, 2023 2022 2021 (In Millions) IIF, beginning of period $ 183,968 $ 152,343 $ 111,252 NIW 40,473 58,734 85,574 Cancellations, principal repayments and other reductions (27,412) (27,109) (44,483) IIF, end of period $ 197,029 $ 183,968 $ 152,343 We consider a "book" to be a collective pool of policies insured during a particular period, normally a calendar year.
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.
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. 64 The table below presents a summary of our primary IIF and RIF by book year as of the dates indicated.
In addition, we have a business continuity plan that is designed to allow us to continue to operate in the midst of certain disruptive events, including disruptions to our IT systems, and we have an incident response plan that is designed to address information security incidents, including any breaches of our IT systems.
In addition, we have a business continuity plan that is designed to mitigate the operational impact of certain disruptive events, including disruptions to our IT systems, and we have an incident response plan that is designed to address information security incidents, including any breaches of our IT systems.
Non-GAAP Financial Measure Reconciliations For the years ended December 31, 2022 2021 2020 ($ In Thousands, except for per share data) As reported Income before income tax $ 377,305 $ 296,725 $ 218,106 Income tax expense 84,403 65,595 46,540 Net income $ 292,902 $ 231,130 $ 171,566 Adjustments Net realized investment gains (481) (729) (930) Gain from change in fair value warrant liability (1,113) (566) (2,907) Capital market transaction costs 205 3,979 7,237 Other infrequent, unusual or non-operating items — 3,829 — Adjusted income before tax 375,916 303,238 221,506 Income tax (benefit) expense on adjustments (1) (58) 806 1,324 Adjusted net income $ 291,571 $ 236,837 $ 173,642 Weighted average diluted shares outstanding 85,999 86,885 79,263 Adjusted diluted EPS $ 3.39 $ 2.73 $ 2.19 (1) Marginal tax impact of non-GAAP adjustments is calculated based on our statutory U.S. federal corporate income tax rate of 21%, except for those items that are not eligible for an income tax deduction.
Non-GAAP Financial Measure Reconciliations For the years ended December 31, 2023 2022 2021 ($ In Thousands, except for per share data) As reported Income before income tax $ 412,703 $ 377,305 $ 296,725 Income tax expense 90,593 84,403 65,595 Net income $ 322,110 $ 292,902 $ 231,130 Adjustments Net realized investment losses (gains) 33 (481) (729) Gain from change in fair value warrant liability — (1,113) (566) Capital market transaction costs — 205 3,979 Other infrequent, unusual or non-operating items — — 3,829 Adjusted income before tax $ 412,736 $ 375,916 $ 303,238 Income tax expense (benefit) on adjustments (1) 7 (58) 806 Adjusted net income $ 322,136 $ 291,571 $ 236,837 Weighted average diluted shares outstanding 83,854 85,999 86,885 Adjusted diluted EPS $ 3.84 $ 3.39 $ 2.73 (1) Marginal tax impact of non-GAAP adjustments is calculated based on our statutory U.S. federal corporate income tax rate of 21%, except for those items that are not eligible for an income tax deduction.
Amounts are presented net of reinsurance and included $39.9 million attributed to net case reserves and $4.5 million attributed to net IBNR reserves for the year ended December 31, 2022, $18.1 million attributed to net case reserves and $4.7 million attributed to net IBNR reserves for the year ended December 31, 2021, and $60.8 million attributed to net case reserves and $5.0 million attributed to net IBNR reserves for the year ended December 31, 2020.
Amounts are presented net of reinsurance and included $70.6 million attributed to net case reserves and $6.3 million attributed to net IBNR reserves for the year ended December 31, 2023, $39.9 million attributed to net case reserves and $4.5 million attributed to net IBNR reserves for the year ended December 31, 2022, and $18.1 million attributed to net case reserves and $4.7 million attributed to net IBNR reserves for the year ended December 31, 2021.
As of December 31, 2022, the fair value of our investment portfolio was $2.1 billion and we held an additional $44 million of cash and equivalents. Pre-tax book yield on the investment portfolio for the year ended December 31, 2022 was 2.1%.
As of December 31, 2023, the fair value of our investment portfolio was $2.4 billion and we held an additional $96.7 million of cash and cash equivalents. Pre-tax book yield on the investment portfolio for the year ended December 31, 2023 was 2.6%.
The following table provides details of our claims paid, before giving effect to claims ceded under the QSR Transactions for the periods indicated: For the years ended December 31, 2022 2021 2020 ($ Values In Thousands) Number of claims paid (1) 81 82 143 Total amount paid for claims $ 1,741 $ 2,554 $ 6,434 Average amount paid per claim $ 21 $ 31 $ 45 Severity (2) 49 % 59 % 80 % (1) Count includes 30, 15 and nine claims settled without payment for the years ended December 31, 2022, 2021 and 2020, respectively.
The following table provides details of our claims paid, before giving effect to claims ceded under the QSR Transactions for the periods indicated: For the years ended December 31, 2023 2022 2021 ($ Values In Thousands) Number of claims paid (1) 199 81 82 Total amount paid for claims $ 5,192 $ 1,741 $ 2,554 Average amount paid per claim $ 26 $ 21 $ 31 Severity (2) 55 % 49 % 59 % (1) Count includes 70, 30 and 15 claims settled without payment during the years ended December 31, 2023, 2022 and 2021, respectively.
" 77 Net Income Net income was $292.9 million, $231.1 million and $171.6 million for the years ended December 31, 2022, 2021 and 2020, respectively. Adjusted net income was $291.6 million, $236.8 million and $173.6 million, for the same periods, respectively.
" 75 Net Income Net income was $322.1 million, $292.9 million and $231.1 million for the years ended December 31, 2023, 2022 and 2021, respectively. Adjusted net income was $322.1 million, $291.6 million and $236.8 million, for the same periods, respectively.
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.
At December 31, 2023, the 2019 ILN Transaction was deemed to be in Lock-Out due to the default experience of its underlying pool. 59 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.

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Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risk — interest-rate, FX, commodity exposure

9 edited+2 added−0 removed7 unchanged
Biggest changeThese 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 .
Biggest changeDeterioration in the quality of investments, identified through changes to our own or third-party ( e.g. , rating agency or investment advisors) assessments, will reduce the value and potentially the liquidity of investments. • Concentration Risk .
The risk premium amounts under the ILN Transactions are calculated by multiplying the outstanding reinsurance coverage amount at the beginning of any payment period by a coupon rate, which is the sum of one-month LIBOR or SOFR, as applicable, and a risk margin, and then subtracting actual investment income earned on the trust balance during that payment period.
The risk premium amounts under the ILN Transactions are calculated by multiplying the outstanding reinsurance coverage amount at the beginning of any payment period by a coupon rate, which is the sum of one-month SOFR, as applicable, and a risk margin, and then subtracting actual investment income earned on the trust balance during that payment period.
Excluding cash, our fixed income portfolio duration was 3.89 years, which means that an instantaneous parallel shift (movement up or down) in the yield curve of 100 basis points would result in a change of 3.89% in fair value of our fixed income portfolio.
Excluding cash, our fixed income portfolio duration was 3.97 years, which means that an instantaneous parallel shift (movement up or down) in the yield curve of 100 basis points would result in a change of 3.97% in fair value of our fixed income portfolio.
An increase in one-month LIBOR or SOFR, as applicable, would generally increase the risk premium payments, while an increase to money market rates, which directly affect investment income earned on the trust balance, would generally decrease them.
An increase in one-month SOFR, as applicable, would generally increase the risk premium payments, while an increase to money market rates, which directly affect investment income earned on the trust balance, would generally decrease them.
Additionally, the changes in Eurodollar based interest rates affect the interest expense related to the Company's debt. • Changes to the term structure of interest rates . Rising or falling rates typically change by different amounts along the yield curve.
Additionally, the changes in SOFR based interest rates affect the interest expense related to the Company's debt. • Changes to the term structure of interest rates . Rising or falling rates typically change by different amounts along the yield curve.
Although we expect the two rates to move in tandem, to the extent they do not, it could increase or decrease the risk premium payments that otherwise would be due. 89
Although we expect the two rates to move in tandem, to the extent they do not, it could increase or decrease the risk premium payments that otherwise would be due. 87
As of December 31, 2022, the duration of our fixed income portfolio, including cash and cash equivalents, was 3.87 years, which means that an instantaneous parallel shift (movement up or down) in the yield curve of 100 basis points would result in a change of 3.87% in fair value of our fixed income portfolio.
As of December 31, 2023, the duration of our fixed income portfolio, including cash and cash equivalents, was 3.96 years, which means that an instantaneous parallel shift (movement up or down) in the yield curve of 100 basis points would result in a change of 3.96% in fair value of our fixed income portfolio.
The primary market risk to our investment portfolio is interest rate risk associated with investments in fixed maturity securities. We mitigate the market risk associated with our fixed maturity securities portfolio by matching the duration of our fixed maturity securities with the expected duration of the liabilities that those securities are intended to support.
We mitigate the market risk associated with our fixed maturity securities portfolio by matching the duration of our fixed maturity securities with the expected duration of the liabilities that those securities are intended to support.
Bonds may have call provisions that permit debtors to repay prior to maturity when it is to their advantage. This typically occurs when rates fall below the interest rate of the debt. The carrying value of our investment portfolio as of December 31, 2022 and 2021 was $2.1 billion, of which 100% was invested in fixed maturity securities.
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.
Added
These changes may have unforeseen impacts on the value of certain assets. • Market volatility/changes in the real or perceived credit quality of investments .
Added
The carrying value of our investment portfolio as of December 31, 2023 and 2022 was $2.4 billion and $2.1 billion, respectively, of which 100% was invested in fixed maturity securities. The primary market risk to our investment portfolio is interest rate risk associated with investments in fixed maturity securities.

Other NMIH 10-K year-over-year comparisons