10-Q 1 nmihq1201710-q.htm NMI HOLDINGS, INC. FORM 10-Q Document


UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
x
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2017
OR
o
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from                   to                   
 
Commission file number 001-36174
NMI Holdings, Inc.
(Exact name of registrant as specified in its charter)

DELAWARE
 
45-4914248
(State or other jurisdiction of incorporation or organization)
 
(I.R.S. Employer Identification No.)
 
 
 
2100 Powell Street, Emeryville, CA
 
94608
(Address of principal executive offices)
 
(Zip Code)

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


Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
YES x NO o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
YES x NO o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer" "smaller reporting company" and "emerging growth company" in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer o
Accelerated filer x
Non-accelerated filer o
Smaller reporting company o
 
 
(Do not check if a smaller reporting company)
 
Emerging growth company x


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

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

The number of shares of common stock, $0.01 par value per share, of the registrant outstanding on May 2, 2017 was 59,785,313 shares.




TABLE OF CONTENTS


2


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

•
our future profitability, liquidity and capital resources;
•
developments in the world's financial and capital markets and our access to such markets, including reinsurance;
•
retention of our existing certificates of authority in each state and the District of Columbia (D.C.) and our ability to remain a mortgage insurer in good standing in each state and D.C.;
•
changes in the business practices of Fannie Mae and Freddie Mac (collectively, the GSEs), including decisions that have the impact of decreasing or discontinuing the use of mortgage insurance as credit enhancement;
•
our ability to remain an eligible mortgage insurer under the private mortgage insurer eligibility requirements (PMIERs) and other requirements imposed by the GSEs, which they may change at any time;
•
actions of existing competitors, including governmental agencies like the Federal Housing Administration (FHA) and the Veterans Administration (VA), and potential market entry by new competitors or consolidation of existing competitors;
•
adoption of new or changes to existing laws and regulations that impact our business or financial condition directly or the mortgage insurance industry generally or their enforcement and implementation by regulators;
•
changes to the GSEs' role in the secondary mortgage market or other changes that could affect the residential mortgage industry generally or mortgage insurance in particular;
•
potential future lawsuits, investigations or inquiries or resolution of current lawsuits or inquiries;
•
changes in general economic, market and political conditions and policies, interest rates, inflation and investment results or other conditions that affect the housing market or the markets for home mortgages or mortgage insurance;
•
our ability to successfully execute and implement our capital plans, including our ability to access the reinsurance market and to enter into, and receive approval of, reinsurance arrangements on terms and conditions that are acceptable to us, the GSEs and our regulators;
•
our ability to implement our business strategy, including our ability to write mortgage insurance on high quality low down payment residential mortgage loans, implement successfully and on a timely basis, complex infrastructure, systems, procedures, and internal controls to support our business and regulatory and reporting requirements of the insurance industry;
•
our ability to attract and retain a diverse customer base, including the largest mortgage originators;
•
failure of risk management or pricing or investment strategies;
•
emergence of unexpected claim and coverage issues, including claims exceeding our reserves or amounts we had expected to experience;
•
the inability of our counter-parties, including third party reinsurers, to meet their obligations to us;

3


•
our ability to utilize our net operating loss carryforwards, which could be limited or eliminated in various ways, including if we experience an ownership change as defined in Section 382 of the Internal Revenue Code;
•
failure to maintain, improve and continue to develop necessary information technology (IT) systems or the failure of technology providers to perform; and
•
ability to recruit, train and retain key personnel.
For more information regarding these risks and uncertainties as well as certain additional risks that we face, you should refer to Part I, Item 2, "Management's Discussion and Analysis of Financial Condition and Results of Operations" and elsewhere in this report on Form 10-Q, including the exhibits hereto. In addition, for additional discussion of those risks and uncertainties that have the potential to affect our business, financial condition, results of operations, cash flows or prospects in a material and adverse manner, you should review the Risk Factors in Part I, Item 1A, of our Annual Report on Form 10-K for the year ended December 31, 2016 (2016 10-K), as subsequently updated in other reports we file from time to time with the U.S. Securities and Exchange Commission (SEC).
Unless expressly indicated or the context requires otherwise, the terms "we," "our," "us" and "Company" in this document refer to NMI Holdings, Inc., a Delaware corporation, and its wholly owned subsidiaries on a consolidated basis.


4


PART I

Item 1. Financial Statements and Supplementary Data



INDEX TO FINANCIAL STATEMENTS

Condensed Consolidated Balance Sheets as of March 31, 2017 and December 31, 2016
Condensed Consolidated Statements of Operations and Comprehensive Income for the three months ended March 31, 2017 and 2016
Condensed Consolidated Statements of Changes in Shareholders' Equity for the three months ended March 31, 2017 and the year ended December 31, 2016
Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 2017 and 2016
Notes to Condensed Consolidated Financial Statements


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


 
March 31, 2017
 
December 31, 2016
Assets
(In Thousands, except for share data)
Fixed maturities, available-for-sale, at fair value (amortized cost of $658,463 and $630,688 as of March 31, 2017 and December 31, 2016, respectively)
$
658,640

 
$
628,969

Cash and cash equivalents
12,543

 
47,746

Premiums receivable
15,566

 
13,728

Accrued investment income
3,900

 
3,421

Prepaid expenses
2,935

 
1,991

Deferred policy acquisition costs, net
32,165

 
30,109

Software and equipment, net
21,168

 
20,402

Intangible assets and goodwill
3,634

 
3,634

Prepaid reinsurance premiums
38,348

 
37,921

Deferred tax asset, net
50,529

 
51,434

Other assets
734

 
542

Total assets
$
840,162

 
$
839,897

 
 
 
 
Liabilities
 
 
 
Term loan
$
144,010

 
$
144,353

Unearned premiums
154,711

 
152,906

Accounts payable and accrued expenses
14,175

 
25,297

Reserve for insurance claims and claim expenses
3,761

 
3,001

Reinsurance funds withheld
31,243

 
30,633

Deferred ceding commission
4,790

 
4,831

Warrant liability, at fair value
3,563

 
3,367

Total liabilities
356,253

 
364,388

Commitments and contingencies


 


 
 
 
 
Shareholders' equity
 
 
 
Common stock - class A shares, $0.01 par value;
59,783,358 and 59,145,161 shares issued and outstanding as of March 31, 2017 and December 31, 2016, respectively (250,000,000 shares authorized)
598

 
591

Additional paid-in capital
578,081

 
576,927

Accumulated other comprehensive loss, net of tax
(4,054
)
 
(5,287
)
Accumulated deficit
(90,716
)
 
(96,722
)
Total shareholders' equity
483,909

 
475,509

Total liabilities and shareholders' equity
$
840,162

 
$
839,897

See accompanying notes to consolidated financial statements.

6
NMI HOLDINGS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (UNAUDITED)


For the three months ended March 31,

2017

2016
Revenues
(In Thousands, except for share data)
Net premiums earned
$
33,225

 
$
19,807

Net investment income
3,807

 
3,231

Net realized investment losses
(58
)
 
(885
)
Other revenues
80

 
32

Total revenues
37,054

 
22,185

Expenses
 
 
 
Insurance claims and claims expenses
635

 
458

Underwriting and operating expenses
25,989

 
22,672

Total expenses
26,624

 
23,130

Other (expense) income
 
 
 
(Loss) gain from change in fair value of warrant liability
(196
)
 
670

Interest expense
(3,494
)
 
(3,632
)
Total other expense
(3,690
)
 
(2,962
)
 
 
 
 
Income (loss) before income taxes
6,740

 
(3,907
)
Income tax expense
1,248

 
—

Net income (loss)
$
5,492

 
$
(3,907
)

 
 
 
Earnings (loss) per share
 
 
 
Basic
$
0.09


$
(0.07
)
Diluted
$
0.09


$
(0.07
)

 
 
 
Weighted average common shares outstanding
 
 
 
Basic
59,183,973

 
58,936,694

Diluted
62,338,856

 
58,936,694


 
 
 
Net income (loss)
$
5,492

 
$
(3,907
)
Other comprehensive income, net of tax:
 
 
 
Net unrealized gains in accumulated other comprehensive income, net of tax expense of $664 and $0 for the quarters ended March 31, 2017 and March 31, 2016, respectively
1,175

 
9,101

Reclassification adjustment for losses included in net loss (gain), net of tax expense of $0 for the quarters ended March 31, 2017 and 2016
58

 
885

Other comprehensive income, net of tax
1,233


9,986

Comprehensive income
$
6,725


$
6,079

See accompanying notes to consolidated financial statements.

7
NMI HOLDINGS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (UNAUDITED)


 
Common Stock - Class A
Additional
Paid-in Capital
Accumulated Other Comprehensive Income (Loss)
Accumulated Deficit
Total
 
Shares
Amount
 
(In Thousands)
Balances, January 1, 2016
58,808

$
588

$
570,340

$
(7,474
)
$
(160,723
)
$
402,731

Common stock: class A shares issued under stock plans, net of shares withheld for employee taxes
337

3

(227
)
—

—

(224
)
Share-based compensation expense
—

—

6,814

—

—

6,814

Change in unrealized investment gains/losses, net of tax expense of $1,178
—

—

—

2,187

—

2,187

Net income
—

—

—

—

64,001

64,001

Balances, December 31, 2016
59,145

$
591

$
576,927

$
(5,287
)
$
(96,722
)
$
475,509

Cumulative effect of change in accounting principle
—

—

—

—

514

514

Common stock: class A shares issued under stock plans, net of shares withheld for employee taxes
638

7

(1,117
)
—

—

(1,110
)
Share-based compensation expense
—

—

2,271

—

—

2,271

Change in unrealized investment gains/losses, net of tax expense of $664
—

—

—

1,233

—

1,233

Net income
—

—

—

—

5,492

5,492

Balances, March 31, 2017
59,783

$
598

$
578,081

$
(4,054
)
$
(90,716
)
$
483,909


See accompanying notes to consolidated financial statements.

8
NMI HOLDINGS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)


 
For the three months ended March 31,
 
2017
 
2016
Cash flows from operating activities
(In Thousands)
Net income (loss)
$
5,492

 
$
(3,907
)
Adjustments to reconcile net income (loss) to net cash used in operating activities:
 
 
 
Net realized investment losses
58

 
885

Loss (gain) from change in fair value of warrant liability
196

 
(670
)
Depreciation and amortization
1,502

 
990

Net amortization of premium on investment securities
357

 
326

Amortization of debt discount and debt issuance costs
403

 
418

Share-based compensation expense
1,911

 
1,410

Changes in operating assets and liabilities:
 
 
 
Accrued investment income
(479
)
 
(271
)
Premiums receivable
(1,838
)
 
(1,435
)
Prepaid expenses
(944
)
 
(1,304
)
Deferred policy acquisition costs, net
(2,056
)
 
(3,418
)
Other assets
(192
)
 
16

Deferred tax asset
1,146

 
—

Unearned premiums
1,805

 
18,322

Reserve for insurance claims and claims expenses
760

 
458

Reinsurance balances, net
141

 
—

Accounts payable and accrued expenses
(10,351
)
 
(11,085
)
Net cash (used in) provided by operating activities
(2,089
)
 
735

Cash flows from investing activities
 
 
 
Purchase of short-term investments
(38,663
)
 
(40,234
)
Purchase of fixed-maturity investments, available-for-sale
(60,212
)
 
(31,085
)
Proceeds from maturity of short-term investments
46,845

 
24,347

Proceeds from redemptions, maturities and sale of fixed-maturity investments, available-for-sale
23,841

 
65,075

Software and equipment
(3,069
)
 
(2,319
)
Net cash (used in) provided by investing activities
(31,258
)
 
15,784

Cash flows from financing activities
 
 
 
Proceeds from issuance of common stock related to employee equity plans
2,392

 
449

Taxes paid related to net share settlement of equity awards
(3,503
)
 
(608
)
Repayments of term loan
(375
)
 
(375
)
Payments of debt modification costs
(370
)
 
—

Net cash used in financing activities
(1,856
)
 
(534
)
 
 
 
 
Net (decrease) increase in cash and cash equivalents
(35,203
)
 
15,985

Cash and cash equivalents, beginning of period
47,746

 
57,317

Cash and cash equivalents, end of period
$
12,543

 
$
73,302

 
 
 
 
Supplemental disclosures of cash flow information
 
 
 
Noncash financing activities
 
 
 
Interest paid
$
3,314

 
$
3,225

Taxes paid
170

 
—

See accompanying notes to consolidated financial statements.

9
NMI HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)


1. Organization and Basis of Presentation
NMI Holdings, Inc. (NMIH) is a Delaware corporation, incorporated in May 2011, to provide private mortgage guaranty insurance (which we refer to as mortgage insurance or MI) through its wholly owned insurance subsidiaries, National Mortgage Insurance Corporation (NMIC) and National Mortgage Reinsurance Inc One (Re One). In April 2012, we completed a private placement of our securities, through which we offered and sold an aggregate of 55,000,000 of our Class A common stock resulting in net proceeds of approximately $510 million (the Private Placement), and we completed the acquisition of our insurance subsidiaries for $8.5 million in cash, common stock and warrants, plus the assumption of $1.3 million in liabilities. In November 2013, we completed an initial public offering of 2.4 million shares of our common stock, and our common stock began trading on the NASDAQ exchange on November 8, 2013, under the symbol "NMIH."
In April 2013, NMIC, our primary insurance subsidiary, issued its first mortgage insurance policy. NMIC is licensed to write mortgage insurance in all 50 states and D.C. In August 2015, NMIH capitalized a wholly owned subsidiary, NMI Services, Inc. (NMIS), through which we offer outsourced loan review services on a limited basis to mortgage loan originators.
Basis of Presentation
The accompanying unaudited condensed consolidated financial statements, which include the results of NMIH and its wholly owned subsidiaries, have been prepared in accordance with the instructions to Form 10-Q as prescribed by the SEC for interim reporting and include other information and disclosures required by accounting principles generally accepted in the U.S. (GAAP). Our accounts are maintained in U.S. dollars. These statements should be read in conjunction with our consolidated financial statements and notes thereto for the year ended December 31, 2016, included in our 2016 10-K. All intercompany transactions have been eliminated. The preparation of financial statements in accordance with GAAP requires management to make estimates and assumptions that affect reported amounts of assets and liabilities, as well as disclosure of contingent assets and liabilities as of the balance sheet date. Estimates also affect the reported amounts of income and expenses for the reporting period. Actual results could differ from those estimates. The results of operations for the interim period may not be indicative of the results that may be expected for the full year ending December 31, 2017.
Deferred Policy Acquisition Costs
Costs directly associated with the successful acquisition of mortgage insurance policies, consisting of certain selling expenses and other policy issuance and underwriting expenses, are initially deferred and reported as deferred policy acquisition costs (DAC). DAC is reviewed periodically to determine that it does not exceed recoverable amounts and is adjusted as appropriate for policy cancellations to be consistent with our revenue recognition policy. We estimate the rate of amortization to reflect actual experience and any changes to persistency or loss development. For each book year of business, these costs are amortized to expense in proportion to estimated gross profits over the estimated life of the policies. Total amortization of DAC for the three months ended March 31, 2017 and 2016, net of a portion of ceding commission related to the 2016 QSR Transaction (see Note 5, "Reinsurance"), was $1.0 million and $0.9 million, respectively.
Premium Deficiency Reserves
We consider whether a premium deficiency exists at each fiscal quarter using best estimate assumptions as of the testing date. Per ASC 944, a premium deficiency reserve shall be recognized if the sum of expected claim costs and claim adjustment expenses, expected dividends to policyholders, unamortized acquisition costs, and maintenance costs exceeds related unearned premiums and anticipated investment income. We have determined that no premium deficiency reserves were necessary for the three months ended March 31, 2017 or 2016.
Reinsurance
We account for premiums, losses and loss expenses that are ceded to reinsurers on bases consistent with those we use to account for the original policies we issue and pursuant to the terms of our reinsurance contracts. We account for premiums ceded to reinsurers as reductions to premium revenue. We earn profit commissions, which represent a percentage of the profits recognized by the reinsurers that are returned to us, based on the level of losses ceded. We recognize any profit commissions we earn as increases in net premium revenue.
We receive ceding commissions, calculated as a percentage of ceded written premiums, which are intended to cover our costs to acquire and service the direct policies. We earn the ceding commissions in a manner consistent with our recognition of earnings on the underlying insurance policies, over the terms of the policies reinsured. We account for ceding commissions as reductions to underwriting and operating expenses.

10
NMI HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)


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

Premiums Receivable
Premiums receivable consist of premiums due on our mortgage insurance policies. If a mortgage insurance premium is unpaid for more than 120 days, the receivable is written off against earned premium and the related insurance policy is canceled.
Recent Accounting Pronouncements
In May 2014, the Financial accounting Standards Board (the FASB) issued Accounting Standards Update (ASU) 2014-09, Revenue from Contracts with Customers (Topic 606). This update is intended to provide a consistent approach in recognizing revenue. In accordance with the new standard, recognition of revenue occurs when a customer obtains control of promised goods or services in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. In addition, the new standard requires that reporting companies disclose the nature, amount, timing and uncertainty of revenue and cash flows arising from contracts with customers. In August 2015, ASU 2015-14 deferred the provisions of ASU 2014-09 to be effective for interim and annual periods beginning after December 15, 2017. In addition, this guidance amends the existing requirements for the recognition of a gain or loss on the transfer of non-financial assets that are not in a contract with a customer (ASU 2017-05). The Company is currently evaluating the impact the adoption of this ASU will have, if any, on the consolidated financial statements; however, this update is not expected to impact the recognition of revenue related to insurance premiums or investments, which represent the majority of our total revenues.

In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842). This update requires that businesses recognize rights and obligations associated with certain leases as assets and liabilities on the balance sheet.The standard also requires additional disclosures regarding the amount, timing, and uncertainty of cash flows arising from leases. For public business entities, this update is effective for annual periods beginning after December 15, 2018 and interim periods therein. Early adoption is permitted in any period. We expect to adopt this guidance on January 1, 2019. We anticipate this standard will have a material impact on our financial position, primarily due to our office space operating lease, as we will be required to recognize lease assets and lease liabilities on our consolidated balance sheet. We will continue to assess the potential impacts of this standard, including the impact the adoption of this guidance will have on our results of operations or cash flows.
In June 2016, the FASB issued ASU 2016-13, Financial Instruments-Credit Losses (Topic 326). This update requires companies to measure all expected credit losses for financial assets held at the reporting date. The accounting for credit losses on available-for-sale debt securities and purchased financial assets with credit deterioration also is amended in the standard. The standard will take effect for public business entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. The Company is currently in the early stages of evaluating the impact the adoption of this ASU will have, if any, on the consolidated financial statements.
In August 2016, the FASB issued ASU 2016-15, Statement of Cash Flows (Topic 230). This update is intended to reduce diversity in practice in how certain cash receipts and cash payments are presented and classified in the statement of cash flows. The standard will take effect for public business entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2017. The Company is currently in the early stages of evaluating the impact the adoption of this ASU will have, if any, on the consolidated financial statements.
In August 2016, the FASB issued ASU 2016-16, Income Taxes- Intra-Entity Transfers of Assets Other Than Inventory (Topic 740). This update is intended to improve the accounting for the income tax consequences of intra-entity transfers of assets other than inventory. The standard will take effect for public business entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2017. Early adoption is permitted at the beginning of any annual reporting period. The Company is currently in the early stages of evaluating the impact the adoption of this ASU will have, if any, on the consolidated financial statements.
In January 2017, the FASB issued ASU 2017-04, Intangibles - Goodwill and Other (Topic 350). This update is intended to simplify the test for goodwill impairment. The standard will take effect for public business entities for fiscal years, and interim periods within those fiscal years, after December 15, 2020. Early adoption is permitted for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017. The Company is currently in the early stages of evaluating the impact the adoption of this ASU will have, if any, on the consolidated financial statements.

11
NMI HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

In March 2017, the FASB issued ASU 2017-08, Receivables - Nonrefundable Fees and Other Costs (Subtopic 310-20). This update shortens the amortization period for the premium on certain purchased callable debt securities to the earliest call date. The standard will take effect for public business entities for fiscal years beginning after December 15, 2017. Early adoption is permitted, and if an entity early adopts the guidance in an interim period, any adjustments are reflected as of the beginning of the fiscal year that includes that interim period. The Company is currently in the early stages of evaluating the impact the adoption of this ASU will have, if any, on the consolidated financial statements.
Immaterial Correction of Prior Period Amounts
During the first quarter of 2017, after filing its 2016 10-K, including the audited financial statements included therein, the Company discovered that $1.8 million of deferred taxes on vested options associated with employees who had terminated employment in previous years had not been reversed. Because the Company’s deferred tax asset (DTA) was subject to a valuation allowance prior to December 2016, no expense would have been recognized by the Company in periods prior to December 2016. However, at December 31, 2016, when the Company released the valuation allowance against its DTA, the DTA was overstated by $1.8 million. The release of the valuation allowance resulted in a $1.8 million overstatement of the Company’s 2016 income tax benefit and net income.
In order to provide consistency in the consolidated statements and as permitted by Staff Accounting Bulletin (SAB) 108, revisions for these immaterial amounts to previously reported annual amounts are reflected in the Consolidated Balance Sheet financial information herein and will be reflected in the Consolidated Statement of Operations in future filings containing such financial information as permitted by SAB 108. A comparison of the effected amounts as reported and as adjusted are reported below.
As of and for the full year ended December 31, 2016
As previously reported
 
As adjusted
 
(In thousands)
Income Statement
 
 
 
Net income
$
65,841

 
$
64,001

Income tax (benefit)
(54,389
)
 
(52,550
)
Basic EPS
1.11

 
1.08

Diluted EPS
1.08

 
1.05

 
 
 
 
Balance Sheet
 
 
 
Deferred tax asset, net
$
53,274

 
$
51,434

Total assets
841,737

 
839,897

Accumulated deficit
(94,882
)
 
(96,722
)
Total shareholder's equity
477,349

 
475,509

Change in Accounting Principle
In March 2016, the FASB issued ASU 2016-09, Improvements to Employee Share-Based Payment Accounting (Topic 718), which intends to simplify various aspects of the accounting for and reporting of share-based payments. The new accounting is required to be adopted using a modified retrospective approach, with a cumulative-effect adjustment to opening retained earnings for any outstanding liability awards that qualify for equity classification under the new guidance.
As the guidance is effective for annual and interim reporting periods beginning after December 15, 2016, the Company adopted the new guidance in the first quarter of 2017. This requires us to reflect any adjustments as of January 1, 2017, the beginning of the annual period that includes the interim period of adoption. The primary impact of adoption was the recognition of excess tax benefits in our provision for income taxes in our consolidated statement of earnings. Additionally, our consolidated statement of cash flows now present excess tax benefits as an operating activity on a prospective basis. Finally, we have elected to account for forfeitures as they occur, rather than estimate expected forfeitures. The net cumulative effect of this change was recognized as a $0.5 million reduction to the retained deficit as of January 1, 2017.
Subsequent Event
On May 2, 2017, we entered into an excess of loss reinsurance agreement with Oaktown Re Ltd., a Bermuda-domiciled special purpose insurer. In connection with the transaction, NMIC will receive $211.3 million of fully collateralized excess of loss reinsurance protection, covering an existing portfolio of mortgage insurance policies written from 2013 through 2016. In connection

12
NMI HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

with the note offering, as is customary in such capital markets transactions, NMIH indemnified the underwriter with respect to information provided in the offering materials about NMIC and the reinsured loans.
2. Investments
We have designated our investment portfolio as available-for-sale and report it at fair value. The related unrealized gains and losses are, after considering the related tax expense or benefit, recognized as a component of accumulated other comprehensive income and loss in shareholders' equity. Net realized investment gains and losses are reported in income based upon specific identification of securities sold.
Fair Values and Gross Unrealized Gains and Losses on Investments
 
Amortized
Cost
 
Gross Unrealized
 
Fair
Value
 
 
Gains
 
Losses
 
As of March 31, 2017
(In Thousands)
U.S. Treasury securities and obligations of U.S. government agencies
$
66,555

 
$
3

 
$
(850
)
 
$
65,708

Municipal debt securities
70,543

 
316

 
(463
)
 
70,396

Corporate debt securities
360,955

 
2,466

 
(1,781
)
 
361,640

Asset-backed securities
107,008

 
696

 
(313
)
 
107,391

Total bonds
605,061

 
3,481

 
(3,407
)
 
605,135

Short-term investments
53,402

 
103

 
—

 
53,505

Total investments
$
658,463

 
$
3,584

 
$
(3,407
)
 
$
658,640

 
Amortized
Cost
 
Gross Unrealized
 
Fair
Value
 
 
Gains
 
Losses
 
As of December 31, 2016
(In Thousands)
U.S. Treasury securities and obligations of U.S. government agencies
$
64,135

 
$
6

 
$
(962
)
 
$
63,179

Municipal debt securities
40,801

 
131

 
(663
)
 
40,269

Corporate debt securities
349,712

 
1,722

 
(2,356
)
 
349,078

Asset-backed securities
114,456

 
765

 
(560
)
 
114,661

Total bonds
569,104

 
2,624

 
(4,541
)
 
567,187

Short-term investments
61,584

 
198

 
—

 
61,782

Total investments
$
630,688

 
$
2,822

 
$
(4,541
)
 
$
628,969

As of March 31, 2017 and December 31, 2016, there were approximately $6.9 million of cash and investments in the form of U.S. Treasury securities on deposit with various state insurance departments to satisfy regulatory requirements.
Scheduled Maturities
The amortized cost and fair values of available for sale securities as of March 31, 2017 and December 31, 2016, by contractual maturity, are shown below. Expected maturities will differ from contractual maturities because issuers may have the right to call or prepay obligations with or without call or prepayment penalties. Because most asset-backed securities provide for periodic payments throughout their lives, they are listed below in separate categories.

13
NMI HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

As of March 31, 2017
Amortized
Cost
 
Fair
Value
 
(In Thousands)
Due in one year or less
$
120,819

 
$
120,890

Due after one through five years
147,875

 
148,565

Due after five through ten years
266,793

 
266,076

Due after ten years
15,968

 
15,718

Asset-backed securities
107,008

 
107,391

Total investments
$
658,463

 
$
658,640

As of December 31, 2016
Amortized
Cost
 
Fair
Value
 
(In Thousands)
Due in one year or less
$
94,382

 
$
94,584

Due after one through five years
173,296

 
173,251

Due after five through ten years
242,005

 
240,060

Due after ten years
6,549

 
6,413

Asset-backed securities
114,456

 
114,661

Total investments
$
630,688

 
$
628,969

Aging of Unrealized Losses
As of March 31, 2017, the investment portfolio had gross unrealized losses of $3.4 million, $0.4 million of which has been in an unrealized loss position for a period of 12 months or greater. We did not consider these securities to be other-than-temporarily impaired as of March 31, 2017. We based our conclusion that these investments were not other-than-temporarily impaired as of March 31, 2017 on the following facts: (i) the unrealized losses were primarily caused by interest rate movements since the purchase date; (ii) we do not intend to sell these investments; and (iii) we do not believe that it is more likely than not that we will be required to sell these investments before recovery of our amortized cost basis, which may not occur until maturity. For those securities in an unrealized loss position, the length of time the securities were in such a position is as follows:
 
Less Than 12 Months
 
12 Months or Greater
 
Total
 
# of Securities
Fair Value
Unrealized Losses
 
# of Securities
Fair Value
Unrealized Losses
 
# of Securities
Fair Value
Unrealized Losses
As of March 31, 2017
 
(Dollars in Thousands)
U.S. Treasury securities and obligations of U.S. government agencies
37

$
61,703

$
(850
)
 
—

$
—

$
—

 
37

$
61,703

$
(850
)
Municipal debt securities
14

27,663

(431
)
 
1

1,718

(32
)
 
15

29,381

(463
)
Corporate debt securities
60

100,085

(1,465
)
 
6

11,022

(316
)
 
66

111,107

(1,781
)
Asset-backed securities
23

29,086

(241
)
 
10

8,547

(72
)
 
33

37,633

(313
)
Total investments
134

$
218,537

$
(2,987
)
 
17

$
21,287

$
(420
)
 
151

$
239,824

$
(3,407
)
 
Less Than 12 Months
 
12 Months or Greater
 
Total
 
# of Securities
Fair Value
Unrealized Losses
 
# of Securities
Fair Value
Unrealized Losses
 
# of Securities
Fair Value
Unrealized Losses
As of December 31, 2016
 
(Dollars in Thousands)
U.S. Treasury securities and obligations of U.S. government agencies
33

$
51,093

$
(962
)
 
—

$
—

$
—

 
33

$
51,093

$
(962
)
Municipal debt securities
14

28,659

(617
)
 
1

1,704

(46
)
 
15

30,363

(663
)
Corporate debt securities
77

135,115

(1,955
)
 
8

13,873

(401
)
 
85

148,988

(2,356
)
Asset-backed securities
30

38,702

(510
)
 
6

2,472

(50
)
 
36

41,174

(560
)
Total investments
154

$
253,569

$
(4,044
)
 
15

$
18,049

$
(497
)
 
169

$
271,618

$
(4,541
)

14
NMI HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Net Investment Income
 
For the three months ended March 31,
 
2017
 
2016
 
(In Thousands)
Investment income
$
3,993

 
$
3,408

Investment expenses
(186
)
 
(178
)
Net investment income
$
3,807

 
$
3,231

Net Realized Investment Gains (Losses)
 
For the three months ended March 31,
 
2017
 
2016
 
(In Thousands)
Gross realized investment gains
$
279

 
$
556

Gross realized investment losses
(337
)
 
(1,441
)
Net realized investment losses
$
(58
)
 
$
(885
)
Investment Securities - Other-than-Temporary Impairment (OTTI)
For the quarter ended March 31, 2017, we recognized an OTTI loss in earnings of $144 thousand based on a negative outlook with an unfavorable forecasted recovery.
There were no credit losses recognized in earnings for which a portion of an OTTI loss was recognized in accumulated other comprehensive income (loss).

3. Fair Value of Financial Instruments
The following describes the valuation techniques used by us to determine the fair value of financial instruments held at March 31, 2017 and December 31, 2016:
We established a fair value hierarchy by prioritizing the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). The three levels of the fair value hierarchy under this standard are described below:
Level 1 - Unadjusted quoted prices for identical assets or liabilities in active markets that are accessible at the measurement date for identical assets or liabilities. Financial assets utilizing Level 1 inputs are U.S. Treasury securities;
Level 2 - Prices or valuations based on observable inputs other than quoted prices in active markets for identical assets and liabilities. Financial assets utilizing Level 2 inputs include certain obligations of U.S. government agencies, municipal and corporate debt securities and asset-backed securities; and
Level 3 - Unobservable inputs that are significant to the fair value of the assets or liabilities. Level 3 assets and liabilities include financial instruments whose value is determined using pricing models, discounted cash flow methodologies, or similar techniques, as well as instruments for which the determination of fair value requires significant management judgment or estimation. We value our warrant liability utilizing Level 3 inputs.
The level of market activity used to determine the fair value hierarchy is based on the availability of observable inputs market participants would use to price an asset or a liability, including market value price observations.
Assets classified as Level 1 and Level 2
To determine the fair value of securities available-for-sale in Level 1 and Level 2 of the fair value hierarchy, independent pricing sources have been utilized. One price is provided per security based on observable market data. To ensure securities are appropriately classified in the fair value hierarchy, we review the pricing techniques and methodologies of the independent pricing

15
NMI HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

sources and believe that their policies adequately consider market activity, either based on specific transactions for the issue valued or based on modeling of securities with similar credit quality, duration, yield and structure that were recently traded. A variety of inputs are utilized by the independent pricing sources including benchmark yields, reported trades, non-binding broker/dealer quotes, issuer spreads, two sided markets, benchmark securities, bids, offers and reference data including data published in market research publications. Inputs may be weighted differently for any security, and not all inputs are used for each security evaluation. Market indicators, industry and economic events are also considered. This information is evaluated using a multidimensional pricing model. Quality controls are performed by the independent pricing sources throughout this process, which include reviewing tolerance reports, trading information and data changes, and directional moves compared to market moves. This model combines all inputs to arrive at a value assigned to each security. We have not made any adjustments to the prices obtained from the independent pricing sources. There were no transfers between Level 1 and Level 2 of the fair value hierarchy during the quarter ended March 31, 2017.    
Liabilities classified as Level 3
We calculate the fair value of outstanding warrants using a Black-Scholes option-pricing model in combination with a binomial model. Variables in the model include the risk-free rate of return, dividend yield, expected life and expected volatility of our stock price.
ASC 825, Disclosures about Fair Value of Financial Instruments, requires all entities to disclose the fair value of their financial instruments, both assets and liabilities recognized and not recognized in the balance sheet, for which it is practicable to estimate fair value.
The following is a list of those assets and liabilities that are measured at fair value by hierarchy level:
 
Fair Value Measurements Using
 
 
 
Quoted Prices in
Active Markets for
Identical Assets
(Level 1)
 
Significant Other
Observable Inputs
(Level 2)
 
Significant
Unobservable
Inputs
(Level 3)
 
Fair Value
As of March 31, 2017
(In Thousands)
U.S. Treasury securities and obligations of U.S. government agencies
$
55,746

 
$
9,962

 
$
—

 
$
65,708

Municipal debt securities
—

 
70,396

 
—

 
70,396

Corporate debt securities
—

 
361,640

 
—

 
361,640

Asset-backed securities
—

 
107,391

 
—

 
107,391

Cash, cash equivalents and short-term investments
66,048

 
—

 
—

 
66,048

Total assets
$
121,794

 
$
549,389

 
$
—

 
$
671,183

Warrant liability
—

 
—

 
3,563

 
3,563

Total liabilities
$
—

 
$
—

 
$
3,563

 
$
3,563

 
Fair Value Measurements Using
 
 
 
Quoted Prices in
Active Markets for
Identical Assets
(Level 1)
 
Significant Other
Observable Inputs
(Level 2)
 
Significant
Unobservable
Inputs
(Level 3)
 
Fair Value
As of December 31, 2016
(In Thousands)
U.S. Treasury securities and obligations of U.S. government agencies
$
50,719

 
$
12,460

 
$
—

 
$
63,179

Municipal debt securities
—

 
40,269

 
—

 
40,269

Corporate debt securities
—

 
349,078

 
—

 
349,078

Asset-backed securities
—

 
114,661

 
—

 
114,661

Cash, cash equivalents and short-term investments
109,528

 
—

 
—

 
109,528

Total assets
$
160,247

 
$
516,468

 
$
—

 
$
676,715

Warrant liability
—

 
—

 
3,367

 
3,367

Total liabilities
$
—

 
$
—

 
$
3,367

 
$
3,367


16
NMI HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

The following is a roll-forward of Level 3 liabilities measured at fair value:
 
For the three months ended March 31,
Warrant Liability
2017
 
2016
 
(In Thousands)
Balance, January 1
$
3,367

 
$
1,467

Change in fair value of warrant liability included in earnings
196

 
(670
)
Balance, March 31
$
3,563

 
$
797

We revalue the warrant liability quarterly using a Black-Scholes option-pricing model, in combination with a binomial model, and we value the pricing protection features within the warrants using a Monte-Carlo simulation model. As of March 31, 2017, the assumptions used in the option-pricing model were as follows: a common stock price as of March 31, 2017 of $11.40, risk free interest rate of 1.70%, expected life of 3.92 years, expected volatility of 30.5% and a dividend yield of 0%. The change in fair value is primarily attributable to an increase in the price of our common stock from December 31, 2016 to March 31, 2017.
4. Term Loan
On November 10, 2015, the Company entered into a credit agreement (the Credit Agreement) to obtain a three-year senior secured term loan B (the Term Loan) for $150 million. On February 10, 2017, we entered into an amendment to the Credit Agreement, to extend the maturity date by one year and reduce the interest rate. We performed an analysis and concluded the amendment to the Credit Agreement should be treated as a modification. As of March 31, 2017, the Term Loan bears interest at the Eurodollar Rate, as defined in the Credit Agreement, (1% floor) plus an annual margin rate of 6.75% (an all-in rate of 8.0% as of March 31, 2017), payable quarterly. Quarterly principal payments of $375 thousand are also required. The outstanding balance as of March 31, 2017 was $147.8 million.
Debt issuance costs totaling $4.8 million and a 1% debt discount are being amortized to interest expense, using the effective interest method, over the contractual life of the Term Loan, including $370 thousand related to the modification. Effective interest rate for the Term Loan includes interest, amortization of issuance cost and the discount. For the three months ended March 31, 2017, the Company recorded $3.5 million of interest expense, including amortization of the issuance cost and discount.
NMIH is subject to certain quarterly covenants under the Credit Agreement. These covenants include, but are not limited to the following: a maximum debt-to-total capitalization ratio (as defined) of 35%, maximum risk-to-capital (RTC) ratio of 22.0:1.0, liquidity (as defined) of $33.4 million as of March 31, 2017, compliance with the PMIERs financial requirements (subject to any GSE-approved waivers), and equity requirements. This description is not intended to be complete in all respects and is qualified in its entirety by the terms of the Credit Agreement, including its covenants and events of default. We were in compliance with all covenants as of March 31, 2017.
Future principal payments for the Company's Term Loan as of March 31, 2017 are as follows:
As of March 31, 2017
 
Principal
 
 
(In thousands)
2017
 
$
1,125

2018
 
1,500

2019
 
145,125

Total
 
$
147,750

 
 
 

5. Reinsurance
In September 2016, in order to continue to grow our business and manage insurance risk and our minimum required assets under PMIERs financial requirements, the Company entered into a quota-share reinsurance transaction with a panel of third-party reinsurers, subject to certain conditions (2016 QSR Transaction). Each of the third-party reinsurers has an insurer financial strength rating of A- or better by Standard and Poor’s Rating Services (S&P), A.M. Best or both. The GSEs and the

17
NMI HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Wisconsin Office of the Commissioner of Insurance (Wisconsin OCI) approved the 2016 QSR Transaction (subject to certain conditions), giving full capital credit under PMIERs and statutory accounting principles, respectively, for the risk ceded under the agreement. The credit that we receive under PMIERs is subject to periodic review by the GSEs.

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

•25% of existing risk written on eligible policies as of August 31, 2016;
•
100% of our existing risk under our pool agreement with Fannie Mae; and
•
25% of risk on eligible policies written from September 1, 2016 through December 31, 2017.
    
The effect of reinsurance on net premiums written and earned is as follows:
 
For the three months ended
 
March 31, 2017
 
March 31, 2016
 
(In Thousands)
Net premiums written
 
 
 
Direct
$
39,245

 
$
38,129

Ceded
(4,641
)
 
—

Net premiums written
$
34,604


$
38,129

 
 
 
 
Net premiums earned
 
 
 
Direct
$
37,438

 
$
19,807

Ceded
(4,213
)
 
—

Net premiums earned
$
33,225


$
19,807

The following tables show the amounts ceded related to the 2016 QSR Transaction:
 
For the three months ended
 
March 31, 2017
 
March 31, 2016
 
(In Thousands)
Ceded risk-in-force
$
2,167,745

 
$
—

Ceded premiums written
(4,641
)
 
—

Ceded premiums earned
(4,213
)
 
—

Ceding commission written
2,058

 
—

Ceding commission earned
2,065

 
—

    
NMIC receives a 20% ceding commission for premiums ceded pursuant to this transaction. NMIC will also receive a profit commission, provided that the loss ratio on the loans covered under the agreement generally remains below 60%, as measured annually. Losses on the ceded risk reduce NMIC's profit commission on a dollar-for-dollar basis.
In accordance with the terms of the 2016 QSR Transaction, rather than making a cash payment or transferring investments for ceded premiums written, NMIC established a funds withheld liability, which also includes amounts due to NMIC for ceding and profit commissions. Any loss recoveries and any potential profit commission to NMIC will be realized from this account until exhausted. Ceded premiums written are recorded on the balance sheet as prepaid reinsurance premiums and amortized to ceded premiums earned in a manner consistent with the recognition of income on direct premiums.    
The reinsurance recoverable on loss reserves related to our 2016 QSR Transaction was $564 thousand as of March 31, 2017. The reinsurance recoverable balance is further supported by trust accounts established and maintained by each reinsurer in accordance with the PMIERs funding requirements that address ceded risk.
The agreement is scheduled to terminate on December 31, 2027, except with respect to the ceded pool risk, which is scheduled to terminate on August 31, 2023. However, NMIC has the option, based on certain conditions and subject to a

18
NMI HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

termination fee, to terminate the agreement as of December 31, 2020, or at the end of any calendar quarter thereafter, which would result in NMIC reassuming the related risk.
6. Reserves for Insurance Claims and Claims Expenses
We establish claim reserves to recognize the estimated liability for insurance claims and claim expenses related to defaults on insured mortgage loans. Our method, consistent with industry practice, is to establish claim reserves only for loans that have been reported to us as having been in default for at least 60 days. Our claim reserves also include amounts for estimated claims incurred on loans that have been in default for at least 60 days that have not yet been reported to us by the servicers, often referred to as IBNR. As of March 31, 2017, we have established reserves for insurance claims and claims expenses of $3.8 million for 207 primary loans in default. We paid 4 claims totaling $142 thousand during the quarter ended March 31, 2017.
In 2013, we entered into a pool insurance transaction with Fannie Mae. We only establish claim or IBNR reserves for pool risk if we expect claims to exceed the deductible under the pool agreement, which represents the amount of claims absorbed by Fannie Mae before we are obligated to pay any claims. At March 31, 2017, 47 loans in the pool were past due by 60 days or more. These 47 loans represent approximately $3.1 million in risk-in-force (RIF). Due to the size of the remaining deductible of $10.1 million, the low level of notices of default (NODs) reported through March 31, 2017 and the expected severity (all loans in the pool have loan-to-value ratios (LTVs) under 80%), we have not established any pool reserves for claims or IBNR for the three months ended March 31, 2017 and 2016. In connection with settlement of pool claims, we applied $256 thousand to the pool deductible through March 31, 2017. We have not paid any pool claims to date.
The following table provides a reconciliation of the beginning and ending reserve balances for primary insurance claims and claims expenses:
 
For the three months ended March 31,
 
2017
 
2016
 
(In Thousands)
Beginning balance
$
3,001

 
$
679

Less reinsurance recoverables (1)
(297
)
 
—

Beginning balance, net of reinsurance recoverables
2,704

 
679

 
 
 
 
Add claims incurred:
 
 
 
Claims and claim expenses incurred:
 
 
 
Current year (2)
955

 
553

Prior years (3)
(320
)
 
(95
)
Total claims and claims expenses incurred
635

 
458

 
 
 
 
Less claims paid:
 
 
 
Claims and claim expenses paid:
 
 
 
Current year (2)
—

 
—

Prior years (3)
142

 
—

Total claims and claim expenses paid
142

 
—

 
 
 
 
Reserve at end of period, net of reinsurance recoverables
3,197

 
1,137

Add reinsurance recoverables (1)
564

 
—

Balance, March 31
$
3,761

 
$
1,137

(1) Related to ceded losses recoverable on the 2016 QSR Transaction, included in "Other Assets" on the Condensed Consolidated Balance Sheets. See Note 5, "Reinsurance" for additional information.
(2) Related to defaults occurring in the current year.
(3) Related to defaults occurring in prior years.
The “claims incurred” section of the table above shows claims and claim expenses incurred on default notices received in the current year and in prior years.  The amount of claims incurred relating to default notices received in the current year represents

19
NMI HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

the estimated amount to be ultimately paid on such default notices.  The decreases during the periods presented in reserves held for prior year defaults are generally the result of ongoing analysis of recent loss development trends. We may increase or decrease our original estimates as we learn additional information about individual defaults and claims.
There was a $320 thousand favorable prior year development during the three months ended March 31, 2017 as a result of NOD cures and ongoing analysis of recent loss development trends. Reserves of $2.5 million related to prior year defaults remained as of March 31, 2017.
The following tables provide claim development data, by accident year, and a reconciliation to the reserve for insurance claims and claim expenses, related to the new guidance on short-duration contracts.
 
Reserves net of Reinsurance
 
As of March 31, 2017
Accident Year
2013
 
2014
 
2015
 
2016
 
2017
 
Total of IBNR
 
NODs
 
($ Values In Thousands)
2013
$
—

 
$
24

 
$
—

 
$
—

 
$
—

 
$
—

 
—

2014
 
 
56

 
34

 
—

 
—

 
—

 
—

2015
 
 
 
 
652

 
614

 
408

 
9

 
9

2016
 
 
 
 
 
 
2,210

 
1,921

 
113

 
107

2017
 
 
 
 
 
 
 
 
716

 
96

 
91

 
 
 
 
 
 
 
Total

 
$
3,045

 
$
218

 
207

Our IBNR reserves reflect the actuarial estimate for claims incurred but not reported as of March 31, 2017. The number of NODs outstanding as of March 31, 2017 is the total number of loans in default over 60 days for which we have established reserves.
 
Cumulative Paid Claims, net of Reinsurance
Accident Year
2013
 
2014
 
2015
 
2016
 
2017
 
(In Thousands)
 
 
2013
$
—

 
$
—

 
$
—

 
$
—

 
$
—

2014
 
 
—

 
4

 
—

 
—

2015
 
 
 
 
50

 
196

 
105

2016
 
 
 
 
 
 
171

 
37

2017
 
 
 
 
 
 
 
 
—

 
 
 
 
 
 
 
Total

 
$
142


Reconciliation of Disclosure of Incurred and Paid Claims Development to the Liability for Unpaid Claims and Claim Adjustment Expenses
(In Thousands)
 
 
As of March 31, 2017
Liabilities for unpaid claims and claim adjustment expenses, net of reinsurance
 
$
3,121

Reinsurance recoverable on unpaid claims
 
564

Unallocated claims adjustment expenses
 
76

Total gross liability for unpaid claims and claim adjustment expenses
 
$
3,761


20
NMI HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

The below table shows, on average, the percentage of claims paid over the years after a claim is incurred.
 
Average annual percentage payout of incurred claims by age, net of reinsurance
 
Year 1
 
Year 2
 
Year 3
 
Year 4
 
Year 5
Claims duration disclosure
3%
 
11
%
 
9
%
 
—
%
 
—
%
7. Earnings (Loss) per Share

Basic earnings (loss) per share is based on the weighted average number of shares of common stock outstanding, while diluted earnings (loss) per share is based on the weighted average number of shares of common stock outstanding and common stock equivalents that would be issuable upon the exercise of stock options, other share-based compensation arrangements, and the dilutive effect of outstanding warrants. The following table reconciles the net income and the weighted average shares of common stock outstanding used in the computations of basic and diluted earnings (loss) per share of common stock:

 
For the three months ended March 31,
 
2017
 
2016

(In Thousands, except for per share data)
Net income (loss)
$
5,492

 
$
(3,907
)
 
 
 
 
Basic earnings (loss) per share
$
0.09

 
$
(0.07
)
 
 
 
 
Basic weighted average shares outstanding
59,183,973

 
58,936,694

Dilutive effect of non-vested shares
3,154,883

 
—

Dilutive weighted average shares outstanding
62,338,856

 
58,936,694

 
 
 
 
Diluted earnings (loss) per share
$
0.09


$
(0.07
)

For the three months ended March 31, 2017, 1,121,471 of our common stock equivalents we issued under share-based compensation arrangements were not included in the calculation of diluted earnings (loss) per share because they were anti-dilutive. Non-vested shares of 3,154,883 were included in our weighted average number of common shares outstanding for the three months ended March 31, 2017.
As a result of our net losses for the three months ended March 31, 2016, 7,351,338 of our common stock equivalents we issued under share-based compensation arrangements and warrants were not included in the calculation of diluted earnings (loss) per share as of such dates because they were anti-dilutive.
8. Warrants
We issued 992,000 warrants in connection with our Private Placement. Each warrant gives the holder thereof the right to purchase one share of common stock at an exercise price equal to $10.00. The warrants were issued with an aggregate fair value of $5.1 million.
Upon exercise of these warrants, the amounts will be treated as additional paid-in capital. No warrants were exercised during the three months ended March 31, 2017 and 2016.
We account for these warrants to purchase our common shares in accordance with ASC 470-20, Debt with Conversion and Other Options and ASC 815-40, Derivatives and Hedging - Contracts in Entity's Own Equity.
9. Income Taxes
We are a U.S. taxpayer and are subject to a statutory U.S. federal corporate income tax rate of 35%. Our holding company files a consolidated U.S. federal and various state income tax returns on behalf of itself and its subsidiaries. Our provision for income taxes for the interim reporting periods are based on an estimated annual effective tax rate for the year ending December 31, 2017. Our effective tax rate on our pre-tax income was 18.5% for the three months ended March 31, 2017, compared to 0.0% for the comparable 2016 period. The increase in the effective tax expense for the three months ended March 31, 2017, against the comparable 2016 period was attributable to the elimination of tax benefits during the comparable 2016 period due to the recognition of a full

21
NMI HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

valuation allowance which had been recorded to reflect the amount of the deferred taxes that may not be realized. See Item 1, “Financial Statements and Supplementary Data - Notes to Consolidated Financial Statements - Note 1, Organization and Basis of Presentation - Immaterial Correction of Prior Period Amounts” for further details.
10. Statutory Information
Our insurance subsidiaries, NMIC and Re One, file financial statements in conformity with statutory basis accounting principles (SAP) prescribed or permitted by the Wisconsin OCI, NMIC's principal regulator. Prescribed SAP includes state laws, regulations and general administrative rules, as well as a variety of publications of the National Association of Insurance Commissioners. The Wisconsin OCI recognizes only statutory accounting practices prescribed or permitted by the state of Wisconsin for determining and reporting the financial condition and results of operations of an insurance company and for determining its solvency under Wisconsin insurance laws.
NMIC and Re One's combined statutory net loss, statutory surplus, contingency reserve and risk-to-capital (RTC) ratios were as follows:
As of and for the three months and year ended
March 31, 2017
 
December 31, 2016
 
(In Thousands)
Statutory net income (loss)
$
(10,090
)
 
$
(26,653
)
Statutory surplus
404,359

 
413,809

Contingency reserve
109,198

 
90,479

Risk-to-Capital
12.4:1

 
11.6:1

NMIH is not subject to any limitations on its ability to pay dividends except those generally applicable to corporations that are incorporated in Delaware, such as NMIH. Delaware corporation law provides that dividends are only payable out of a corporation's capital surplus or recent net profits (subject to certain limitations). Since inception, NMIC has not paid any dividends to NMIH. As NMIC had a statutory net loss for the year ended December 31, 2016, NMIC cannot pay any dividends to NMIH through December 31, 2017, without the prior approval of the Wisconsin OCI.
 

22


Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
The following analysis should be read in conjunction with our unaudited consolidated financial statements and the notes thereto included in this report and our audited financial statements, notes thereto and "Management's Discussion and Analysis of Financial Condition and Results of Operations" included in our 2016 10-K, for a more complete understanding of our financial position and results of operations. In addition, investors should review the "Cautionary Note Regarding Forward-Looking Statements" above and the "Risk Factors" detailed in Part I, Item 1A of our 2016 10-K and Part II, Item IA of this report, as subsequently updated in reports we file with the SEC, for a discussion of those risks and uncertainties that have the potential to affect our business, financial condition, results of operations, cash flows or prospects in a material and adverse manner. Our results of operations for interim periods are not necessarily indicative of results to be expected for a full fiscal year or for any other period.
Overview
We provide MI through our insurance subsidiaries. Our primary insurance subsidiary, NMIC, is a qualified MI provider on loans purchased by the GSEs and is licensed in all 50 states and D.C. to issue MI. Our reinsurance subsidiary, Re One, solely provides reinsurance to NMIC on certain loans insured by NMIC to meet state statutory coverage limits. Our subsidiary, NMIS, provides outsourced loan review services on a limited basis to mortgage loan originators. Our stock trades on the NASDAQ under the symbol "NMIH."
MI protects mortgage lenders from all or a portion of default-related losses on residential mortgage loans made to home buyers who generally make down payments of less than 20% of a home's purchase price. By protecting lenders and investors from credit losses, we help facilitate the availability of mortgages to prospective, primarily first-time, U.S. home buyers, thus promoting homeownership while protecting lenders and investors against potential losses related to a borrower's default. MI also facilitates the sale of these mortgage loans in the secondary mortgage market, most of which are sold to the GSEs. We are one of six companies in the U.S. who offer MI. Our business strategy is to continue to expand our customer base and write insurance on high quality, low down payment residential mortgages in the U.S. We reported our first profitable results on an annual basis for the year ended December 31, 2016, and for the quarter ended March 31, 2017, we reported net income of $5.5 million.
We had total insurance-in-force (IIF) of $38.3 billion and total risk-in-force (RIF) of $8.5 billion as of March 31, 2017, compared to total IIF of $35.8 billion and total RIF of $7.9 billion as of December 31, 2016. Of total IIF as of March 31, 2017, we had $34.8 billion of primary IIF and $3.5 billion of pool IIF, compared to $32.2 billion of primary IIF and $3.6 billion of pool IIF as of December 31, 2016. As of March 31, 2017, our primary RIF was $8.4 billion, compared to primary RIF of $7.8 billion as of December 31, 2016. Pool RIF was $93.1 million as of March 31, 2017 and December 31, 2016.
We discuss below our results of operations for the periods presented, as well as the conditions and trends that have impacted or are expected to impact our business, including customer development, new business writings, the composition of our insurance portfolio and other factors that we expect to impact our results. Our headquarters are located in Emeryville, California and our website is www.nationalmi.com. Our website and the information contained on or accessible through our website are not incorporated by reference into this report.
Conditions and Trends Impacting Our Business    
Customer Development
Our sales and marketing strategy is focused on expanding relationships with existing customers and attracting new mortgage originator customers in the U.S. that fall into two primary categories, which we refer to as "National Accounts" and "Regional Accounts." In the recent quarter, we increased our customer base. We had 1,174 master policy holders as of March 31, 2017, compared to 1,023 master policy holders as of March 31, 2016. Of those master policy holders, 537 or 45.7% generated new insurance written (NIW) in the first quarter of 2017, compared to 469, or 45.8% that generated NIW in the first quarter of 2016.
Lenders in the combined residential mortgage market who control the MI decision are currently comprised of three groups:
•
Top 10, primarily National Accounts, representing approximately 19% of the MI market;
•
Next 30, a combination of National and Regional Accounts, representing approximately 17% of the MI market; and
•
Approximately 1,500, primarily Regional Accounts, representing the remainder of the MI market.

23


Since April 2013, we have increased our customer base significantly, and we expect to continue to acquire new customers. As of March 31, 2017, we had active customer relationships with 31 of the top 40 lenders and expect to develop additional active customer relationships. We believe our most significant growth opportunity is within the large and fragmented market of Regional Accounts, which includes some of the top correspondent lenders. In addition to adding new customers, we believe existing customers will begin to allocate more of their business to us for placement of our MI.
New Insurance Written, Insurance in Force and Premiums
NMIC's primary insurance may be written on a flow basis, in which loans are insured in individual, loan-by-loan transactions, or on an aggregated basis, in which each loan in a portfolio of loans is individually insured in a single transaction. NMIC has also written pool insurance under an agreement with Fannie Mae, in which it insured a group of loans (or pool) in one transaction. NMIC's pool insurance has a stated aggregate loss limit and a deductible under which no losses are paid by NMIC until losses on the pool of loans exceed the deductible. See Item 1, "Financial Statements and Supplementary Data - Notes to Consolidated Financial Statements - Note 6, Reserves for Insurance Claims and Claims Expenses," above. NIW production is impacted by a variety of factors, including the size of the origination and refinance markets, business development, pricing relative to competitors and customer service, among others.
We set premiums for an insured loan at the time the loan is insured, based on our filed rates and rating rules. We offer borrower-paid (BPMI) and lender-paid (LPMI) mortgage insurance options. Premium rates are based on the risk characteristics of each insured loan and the capital required to support particular products.  Capital charges are governed primarily by the GSEs' private mortgage insurer eligibility requirements (PMIERs), as well as by regulatory and economic capital requirements. See "- GSE Oversight" and "- Capital Position of our Insurance Subsidiaries and Financial Strength Ratings," below.
We offer monthly, single and annual premium payment plans. For monthly policies, premiums are collected and earned each month as coverage is provided. Policies written on a single premium basis are paid through a single, upfront payment, the majority of which is initially deferred as unearned premium and earned over the policy's expected life. Annual policies represent an insignificant amount of our NIW to date.
Effect of reinsurance on our results
We utilize third party reinsurance to continue to grow our business and manage insurance risk and our minimum required assets under the PMIERs financial requirements. In September 2016, we entered into the 2016 QSR Transaction. On May 2, 2017, we entered into an excess of loss reinsurance agreement with Oaktown Re Ltd., a Bermuda-domiciled special purpose insurer, to secure $211.3 million of excess of loss reinsurance coverage (2017 XOL Transaction). Our results of operations are impacted by our reinsurance arrangements; although, we will not experience impacts from the 2017 XOL Transaction until second quarter 2017. We expect reinsurance will continue to be a primary component of our capital structure.
Under the terms of the 2016 QSR Transaction, premiums are ceded to reinsurers who assume a portion of the risk under the insurance policies we write. Our net premiums written and earned are net of ceded amounts, offset by a profit commission associated with the premiums ceded. The 2016 QSR Transaction protects us against a fixed percentage of losses arising from policies covered by the agreement and reduces the capital we are required to hold under state insurance regulations and GSE requirements.
The 2016 QSR Transaction affects premiums, underwriting expenses and losses incurred. In the quarter ended March 31, 2017, our pre-tax net cost of reinsurance was approximately $1.9 million. With respect to the 2016 QSR Transaction:
•
We cede a fixed percentage of premiums on insurance covered by the agreement.
•
We cede a fixed percentage of losses incurred on insurance covered by the agreement.
•
We receive the benefit of a profit commission through a reduction in the premiums we cede. The profit commission varies directly and inversely with the level of losses on a dollar for dollar basis and is eliminated at levels of losses that we do not expect to occur. This means that lower levels of losses result in our realization of a higher profit commission and less benefit from ceded losses; higher levels of losses result in more benefit from ceded losses and our realization of a lower profit commission (or for levels of losses we do not expect, its elimination).
•
We receive the benefit of a ceding commission equal to 20% of premiums ceded. The ceding commission is deferred and recognized as a reduction in underwriting expenses over the expected life of the risk associated with the reinsured policies.
The effects described above result in an implied after-tax cost of reinsurance of approximately 3-4%, so long as loss ratios remain below 60%. The effect of the reinsurance on income will vary from period to period, depending on the level of ceded losses.

24



Portfolio Data
The tables below show primary and pool IIF, NIW and premiums written and earned. Single NIW and IIF include policies written on an aggregated and flow basis. Unless otherwise noted, the following tables do not include the effects of the 2016 QSR Transaction, as described above.
Primary and pool IIF and NIW
As of and for the quarter ended
 
March 31, 2017
 
March 31, 2016
 
IIF
 
NIW
 
IIF
 
NIW
 
(In Millions)
Monthly
$
21,511

 
$
2,892

 
$
9,210

 
$
2,492

Single
13,268

 
667

 
9,354

 
1,762

Primary
34,779

 
3,559

 
18,564

 
4,254

 
 
 
 
 
 
 
 
Pool
3,545

 
—

 
4,136

 
—

Total
$
38,324

 
$
3,559

 
$
22,700

 
$
4,254

For the quarter ended March 31, 2017, primary NIW decreased 16% compared to the first quarter of 2016, primarily due to our continued efforts to reduce the percentage of singles in our product mix. In the first quarter of 2017, monthly premium NIW increased 16% over the first quarter of 2016 as a result of our continuing efforts to increase our volume with existing customers and to build business with new customers. For the three months ended March 31, 2017, 81% of our NIW consisted of monthly premium policies, which is consistent with our long-term goal of achieving a monthly mix in line with the industry average of approximately 75-80%. As of March 31, 2017, our IIF was comprised of approximately 62% of monthly premium policies. We expect our IIF mix to continue to trend toward the industry average.
Primary and pool premiums written and earned
For the quarter ended
 
March 31, 2017
 
March 31, 2016
 
(In Thousands)
Net premiums written (1)
$
34,604

 
$
38,129

Net premiums earned (1)
33,225

 
19,807

(1) Premiums written and earned are reported net of the 2016 QSR Transaction.
For the quarter ended March 31, 2017, we had net premiums written of $34.6 million and premiums earned of $33.2 million, compared to net premiums written of $38.1 million and premiums earned of $19.8 million for the quarter ended March 31, 2016. Premiums written and earned are influenced by NIW, product mix, pricing and persistency. Additionally, premiums earned are influenced by the amortization of earnings on our single premium product over the policies' expected lives in accordance with the expiration of risk for policies covering more than one year.
The increase in net premiums earned for the quarter ended March 31, 2017 is primarily the result of the continued growth of our primary flow business. The decrease in premiums written is due to the changing product mix as well as the 2016 QSR Transaction, under which we ceded approximately 25% of premiums written and earned. Period over period, premiums earned increased due to the changing product mix and growing number of monthly premium policies in force during the quarter ended March 31, 2017. Pool premiums written and earned for the quarter ended March 31, 2017 were $1.0 million, compared to pool premiums written and earned of $1.2 million for the quarter ended March 31, 2016.
In our industry, a "book" is a group of loans that an MI company insures in a particular period, normally a calendar year. In general, the majority of any underwriting profit (i.e., the earned premium revenue minus claims and expenses, excluding investment income) that a book generates occurs in the early years of the book, with the largest portion of the underwriting profit for that book realized in the first year. This pattern generally occurs because relatively few of the claims that a book will ultimately experience typically occur in the first few years of the book, when premium revenue is highest, while subsequent years are affected by declining premium revenues, as the number of insured loans decreases (primarily due to loan prepayments), and by increasing losses. The earnings we record and the cash flow we receive vary based on the type of MI product (e.g., BPMI or LPMI) and premium plan (e.g., single or monthly) our customers select.

25


We price our products to achieve a mid-teens percentage return on PMIERs required assets. Our pricing is risk-based, meaning that loans with higher LTVs and lower credit scores will generally be priced higher than loans with lower LTVs and higher credit scores. See "- GSE Oversight," below for a discussion of the PMIERs financial requirements. Since the industry adopted risk-based pricing in 2016, pricing for monthly premium product, which represents approximately 75% - 80% of the market, has generally been stable. Single-premium LPMI, which historically has represented approximately 20% - 25% of industry NIW, has generally been more price competitive.
Our persistency rate is the percentage of IIF that remains on our books after any 12-month period. Because our insurance premiums are earned over the life of a policy, changes in persistency rates can have a significant impact on our earnings. The persistency rate on our portfolio was 81.3% at March 31, 2017. Persistency rates are sensitive to fluctuations in interest rates. Decreases in interest rates typically increase our portfolio's cancellation rate. When cancellations increase, we experience lower profitability and returns on our monthly premium business, and conversely, higher returns on our single premium business because, rather than amortizing the single premium over the expected life of the policy, upon cancellation, we immediately recognize all unamortized single premium as earned.
Portfolio Statistics
The table below shows primary portfolio trends, by quarter, for the last five quarters.
Primary portfolio trends
As of and for the quarter ended
 
March 31, 2017
 
December 31, 2016
 
September 30, 2016
 
June 30, 2016
 
March 31, 2016
 
($ Values In Millions)
New insurance written
$
3,559

 
$
5,240

 
$
5,857

 
$
5,838

 
$
4,254

New risk written
868

 
1,244

 
1,415

 
1,411

 
1,016

Insurance in force (1)
34,779

 
32,168

 
28,228

 
23,624

 
18,564

Risk in force (1)
8,444

 
7,790

 
6,847

 
5,721

 
4,487

Policies in force (count) (1)
145,632

 
134,662

 
119,002

 
100,547

 
79,700

Weighted-average coverage (2)
24.3
%
 
24.2
%
 
24.3
%
 
24.2
%
 
24.2
%
Loans in default (count)
207

 
179

 
115

 
79

 
55

Percentage of loans in default
0.1
%
 
0.1
%
 
0.1
%
 
0.1
%
 
0.1
%
Risk in force on defaulted loans
$
12

 
$
10

 
$
6

 
$
4

 
$
3

Average premium yield (3)
0.40
%
 
0.44
%
 
0.48
%
 
0.47
%
 
0.45
%
Earnings from cancellations
$
2.5

 
$
5.1

 
$
5.8

 
$
3.5

 
$
2.3

Annual persistency (4)
81.3
%
 
80.7
%
 
81.8
%
 
83.3%

 
82.7
%
Quarterly persistency (5)
88.2
%
 
81.6
%
 
78.8
%
 
83.2
%
 
86.1
%

(1) 
Reported as of the end of the period.
(2) 
End of period RIF divided by IIF.
(3) 
Average premium yield is calculated by dividing net primary and pool premiums earned, net of reinsurance, by average gross IIF for the period, annualized.
(4) 
Defined as the percentage of IIF that remains on our books after any 12-month period.
(5) 
Defined as the percentage of IIF that remains on our books after any 3-month period, annualized.
The table below reflects a summary of the change in total primary IIF for the three months ended March 31, 2017 and 2016.
Primary IIF
For the three months ended
 
March 31, 2017
 
March 31, 2016
 
(In Millions)
IIF, beginning of period
$
32,168

 
$
14,824

NIW
3,559

 
4,254

Cancellations and other reductions
(948
)
 
(514
)
IIF, end of period
$
34,779

 
$
18,564


26



The table below reflects a summary of our primary IIF and RIF by book year as of March 31, 2017 and 2016.
Primary IIF and RIF
As of March 31, 2017
 
As of March 31, 2016
 
IIF
 
RIF
 
IIF
 
RIF
 
(In Millions)
March 31, 2017
$
3,544

 
$
865

 
$
—

 
$
—

2016
19,774

 
4,756

 
4,232

 
1,011

2015
9,681

 
2,384

 
11,806

 
2,864

2014
1,735

 
428

 
2,461

 
597

2013
45

 
11

 
65

 
15

Total
$
34,779

 
$
8,444

 
$
18,564

 
$
4,487

We utilize certain risk principles that form the basis of how we underwrite and originate primary NIW. We manage our portfolio credit risk by using several loan eligibility matrices which prescribe the maximum LTV, minimum borrower credit score, maximum loan size, property type, loan type, loan term and occupancy status of loans that we will insure. Our loan eligibility matrices, as well as all of our detailed underwriting guidelines, are contained in our Underwriting Guideline Manual that is publicly available on our website. Our eligibility criteria and underwriting guidelines are designed to mitigate the layered risk inherent in a single insurance policy. "Layered risk" refers to the accumulation of borrower, loan and property risk. For example, we have higher credit score and lower maximum allowed LTV requirements for riskier property types, such as investor properties, compared to owner-occupied properties. We monitor the concentrations of various risk attributes in our insurance portfolio. Generally, insuring loans made to borrowers with higher credit scores tends to result in a lower frequency of claims than with loans made to borrowers with lower credit scores.    
The tables below reflect our total primary NIW by FICO, LTV and purchase/refinance mix for the three months ended March 31, 2017 and 2016. We calculate the LTV of a loan as the percentage of the original loan amount to the original value of the property securing the loan. In general, the lower the LTV the lower the likelihood of a default, and for loans that default, a lower LTV generally results in lower severity for a resulting claim, as the borrower has more equity in the property.
Primary NIW by FICO
For the three months ended
 
March 31, 2017
 
March 31, 2016
 
(In Millions)
>= 760
$
1,683

 
$
2,283

740-759
551

 
712

720-739
456

 
473

700-719
396

 
411

680-699
264

 
245

<=679
209

 
130

Total
$
3,559

 
$
4,254

Primary NIW by LTV
For the three months ended
 
March 31, 2017
 
March 31, 2016
 
(In Millions)
95.01% and above
$
274

 
$
209

90.01% to 95.00%
1,612

 
1,816

85.01% to 90.00%
1,101

 
1,420

85.00% and below
572

 
809

Total
$
3,559

 
$
4,254


27


Primary NIW by purchase/refinance mix
For the three months ended
 
March 31, 2017
 
March 31, 2016
 
(In Millions)
Purchase
$
2,984

 
$
2,919

Refinance
575

 
1,335

Total
$
3,559

 
$
4,254

The tables below show the primary weighted average FICO and weighted average LTV, by policy type, for NIW in the quarters presented.
Weighted Average FICO
For the three months ended
 
March 31, 2017
 
March 31, 2016
Monthly
745
 
753
Single
764
 
759
Weighted Average LTV
For the three months ended
 
March 31, 2017
 
March 31, 2016
Monthly
92
%
 
92
%
Single
91
%
 
91
%
The tables below reflect our total primary IIF and RIF by FICO, average loan size, LTV and loan type.
Primary IIF by FICO
As of
 
March 31, 2017
 
March 31, 2016
 
($ Values In Millions)
>= 760
$
17,408

 
50
%
 
$
9,146

 
49
%
740-759
5,658

 
16

 
3,045

 
16

720-739
4,460

 
13

 
2,515

 
14

700-719
3,533

 
10

 
1,877

 
10

680-699
2,336

 
7

 
1,305

 
7

<=679
1,384

 
4

 
676

 
4

Total
$
34,779

 
100
%
 
$
18,564

 
100
%
Primary RIF by FICO
As of
 
March 31, 2017
 
March 31, 2016
 
($ Values In Millions)
>= 760
$
4,253

 
50
%
 
$
2,207

 
49
%
740-759
1,383

 
16

 
747

 
17

720-739
1,081

 
13

 
613

 
14

700-719
851

 
10

 
453

 
10

680-699
556

 
7

 
312

 
7

<=679
320

 
4

 
155

 
3

Total
$
8,444

 
100
%
 
$
4,487

 
100
%

28


Primary Average Loan Size by FICO
As of
 
March 31, 2017
 
March 31, 2016
 
(In Thousands)
>= 760
$
250

 
$
247

740-759
241

 
237

720-739
235

 
232

700-719
233

 
229

680-699
224

 
220

<=679
210

 
206

Primary IIF by LTV
As of
 
March 31, 2017
 
March 31, 2016
 
($ Values In Millions)
95.01% and above
$
1,931

 
5
%
 
$
699

 
4
%
90.01% to 95.00%
15,601

 
45

 
8,220

 
44

85.01% to 90.00%
11,058

 
32

 
6,326

 
34

85.00% and below
6,189

 
18

 
3,319

 
18

Total
$
34,779

 
100
%
 
$
18,564

 
100
%
Primary RIF by LTV
As of
 
March 31, 2017
 
March 31, 2016
 
($ Values In Millions)
95.01% and above
$
533

 
6
%
 
$
196

 
5
%
90.01% to 95.00%
4,585

 
55

 
2,423

 
54

85.01% to 90.00%
2,626

 
31

 
1,498

 
33

85.00% and below
700

 
8

 
370

 
8

Total
$
8,444

 
100
%
 
$
4,487

 
100
%
Primary RIF by Loan Type
As of
 
March 31, 2017
 
March 31, 2016
 
 
 
 
Fixed
99
%
 
98
%
Adjustable rate mortgages:
 
 
 
Less than five years
—

 
—

Five years and longer
1

 
2

Total
100
%
 
100
%
As of March 31, 2017 and March 31, 2016, 100% of each of our pool IIF and RIF was comprised of insurance on fixed rate mortgages.


29


The table below shows primary portfolio statistics, by book year, as of March 31, 2017.
 
As of March 31, 2017
Origination 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)
 
($ Values in Millions)
2013
$
162

 
$
45

 
28
%
 
655

 
224

 
—

 
1

 
0.2
%
 
0.2
%
2014
3,451

 
1,735

 
50
%
 
14,786

 
8,527

 
47

 
5

 
2.7
%
 
0.4
%
2015
12,422

 
9,681

 
78
%
 
52,548

 
43,414

 
114

 
9

 
2.5
%
 
0.2
%
2016
21,188

 
19,774

 
93
%
 
83,628

 
79,595

 
46

 
—

 
0.9
%
 
0.1
%
2017
3,559

 
3,544

 
100
%
 
13,926

 
13,872