UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)
☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
	For the quarterly period ended	June 30, 2020

OR

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

Commission file number 001-36174

NMI Holdings, Inc.

(Exact name of registrant as specified in its charter)

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

(855) 530-6642

(Registrant's telephone number, including area code)

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

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

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).

Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.

Large accelerated filer	☒	Accelerated filer	☐
Non-accelerated filer	☐	Smaller reporting company	☐
		Emerging growth company	☐

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

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes ☐ No ☒

The number of shares of common stock, $0.01 par value per share, of the registrant outstanding on August 3, 2020 was 84,805,164 shares.

1

TABLE OF CONTENTS

Cautionary Note Regarding Forward Looking Statements		3
PART I		5
Item 1.	Financial Statements	5
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	29
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	57
Item 4.	Controls and Procedures	58
PART II		59
Item 1.	Legal Proceedings	59
Item 1A.	Risk Factors	59
Item 6.	Exhibits	63
Signatures		66

2

CAUTIONARY NOTE REGARDING FORWARD LOOKING STATEMENTS

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

•uncertainty relating to the coronavirus (COVID-19) pandemic and the measures taken by governmental authorities and other third parties to combat it, including their impact on the global economy, the U.S. housing, real estate, housing finance and mortgage insurance markets, and our business, operations and personnel;

•changes in the business practices of Fannie Mae and Freddie Mac (collectively, the GSEs), including decisions that have the impact of decreasing or discontinuing the use of mortgage insurance as credit enhancement generally, or with first time homebuyers or on very high loan-to-value mortgages;

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

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

•our future profitability, liquidity and capital resources;

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

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

•adoption of new or changes to existing laws and regulations that impact our business or financial condition directly or the mortgage insurance industry generally or their enforcement and implementation by regulators, including any action by the Consumer Financial Protection Bureau to address the planned expiration of the "QM Patch" under the Dodd-Frank Act Ability to Repay/Qualified Mortgage rule;

•legislative or regulatory changes to the GSEs' role in the secondary mortgage market or other changes that could affect the residential mortgage industry generally or mortgage insurance in particular;

•potential future lawsuits, investigations or inquiries or resolution of current lawsuits or inquiries;

•changes in general economic, market and political conditions and policies, interest rates, inflation and investment results or other conditions that affect the housing market or the markets for home mortgages or mortgage insurance;

•our ability to successfully execute and implement our capital plans, including our ability to access the capital, credit and reinsurance markets and to enter into, and receive approval of, reinsurance arrangements on terms and conditions that are acceptable to us, the GSEs and our regulators;

3

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

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

•failure of risk management or pricing or investment strategies;

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

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

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

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

•ability to recruit, train and retain key personnel.

For more information regarding these risks and uncertainties as well as certain additional risks that we face, you should refer to Part I, Item 2, "Management's Discussion and Analysis of Financial Condition and Results of Operations" and elsewhere in this report on Form 10-Q, including the exhibits hereto. In addition, for additional discussion of those risks and uncertainties that have the potential to affect our business, financial condition, results of operations, cash flows or prospects in a material and adverse manner, you should review the Risk Factors in Part II, Item 1A of this Report and in Part I, Item 1A, of our Annual Report on Form 10-K for the year ended December 31, 2019 (2019 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 the "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

INDEX TO FINANCIAL STATEMENTS

Condensed Consolidated Balance Sheets as of June 30, 2020 (Unaudited) and December 31, 2019	6
Condensed Consolidated Statements of Operations and Comprehensive Income for the three and six months ended June 30, 2020 and 2019 (Unaudited)	7
Condensed Consolidated Statements of Changes in Shareholders' Equity for the six months ended June 30, 2020 and 2019 (Unaudited)	8
Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2020 and 2019 (Unaudited)	10
Notes to Condensed Consolidated Financial Statements (Unaudited)	11

5

NMI HOLDINGS, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)

	June 30, 2020		December 31, 2019
Assets	(In Thousands, except for share data)
Fixed maturities, available-for-sale, at fair value (amortized cost of $1,286,803 and $1,113,779 as of June 30, 2020 and December 31, 2019, respectively)	$	1,339,771	$	1,140,940
Cash and cash equivalents (including restricted cash of $2,068 and $2,662 as of June 30, 2020 and December 31, 2019, respectively)	515,450		41,089
Premiums receivable	46,408		46,085
Accrued investment income	7,909		6,831
Prepaid expenses	3,416		3,512
Deferred policy acquisition costs, net	63,619		59,972
Software and equipment, net	26,105		26,096
Intangible assets and goodwill	3,634		3,634
Prepaid reinsurance premiums	10,263		15,488
Reinsurance recoverable (1)	14,307		4,939
Other assets (1)	16,049		16,232
Total assets	$	2,046,931	$	1,364,818
Liabilities
Debt	$	392,773	$	145,764
Unearned premiums	115,236		136,642
Accounts payable and accrued expenses	104,777		39,904
Reserve for insurance claims and claim expenses	69,903		23,752
Reinsurance funds withheld	12,205		14,310
Warrant liability, at fair value	2,698		7,641
Deferred tax liability, net	83,785		56,360
Other liabilities	8,517		10,025
Total liabilities	789,894		434,398
Commitments and contingencies
Shareholders' equity
Common stock - class A shares, $0.01 par value; 84,804,766 and 68,358,074 shares issued and outstanding as of June 30, 2020 and December 31, 2019, respectively (250,000,000 shares authorized)	848		684
Additional paid-in capital	927,950		707,003
Accumulated other comprehensive income, net of tax	37,675		17,288
Retained earnings	290,564		205,445
Total shareholders' equity	1,257,037		930,420
Total liabilities and shareholders' equity	$	2,046,931	$	1,364,818

⁽¹⁾ Reinsurance recoverable has been reclassified from "Other assets" in the prior period.

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

6

NMI HOLDINGS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (UNAUDITED)

	For the three months ended June 30,				For the six months ended June 30,
	2020		2019		2020		2019
Revenues	(In Thousands, except for per share data)
Net premiums earned	$	98,944	$	83,249	$	197,661	$	157,118
Net investment income	7,070		7,629		15,174		15,012
Net realized investment gains (losses)	711		(113)		639		(300)
Other revenues	1,223		415		2,123		456
Total revenues	107,948		91,180		215,597		172,286
Expenses
Insurance claims and claim expenses	34,334		2,923		40,031		5,666
Underwriting and operating expenses(1)	30,370		32,190		62,647		62,990
Service expenses(1)	1,090		353		1,824		402
Interest expense	5,941		3,071		8,685		6,132
Loss (gain) from change in fair value of warrant liability	1,236		1,685		(4,723)		7,164
Total expenses	72,971		40,222		108,464		82,354
Income before income taxes	34,977		50,958		107,133		89,932
Income tax expense	8,129		11,858		22,014		17,933
Net income	$	26,848	$	39,100	$	85,119	$	71,999
Earnings per share
Basic	$	0.36	$	0.58	$	1.20	$	1.07
Diluted	$	0.36	$	0.56	$	1.11	$	1.04
Weighted average common shares outstanding
Basic	73,617		67,590		71,090		67,143
Diluted	74,174		69,590		72,407		69,348
Net income	$	26,848	$	39,100	$	85,119	$	71,999
Other comprehensive income, net of tax:
Unrealized gains in accumulated other comprehensive income, net of tax expense of $8,978 and $3,662 for the three months ended June 30, 2020 and 2019, and $5,162 and $7,615 for the six months ended June 30, 2020 and 2019, respectively	33,773		13,779		19,418		28,647
Reclassification adjustment for realized (gains) losses included in net income, net of tax expense (benefit) of $149 and ($24) for the three months ended June 30, 2020 and 2019, and ($258) and ($63) for the six months ended June 30, 2020 and 2019, respectively	(562)		89		969		237
Other comprehensive income, net of tax	33,211		13,868		20,387		28,884
Comprehensive income	$	60,059	$	52,968	$	105,506	$	100,883

⁽¹⁾ Certain "Underwriting and operating expenses" have been reclassified as "Service expenses" in prior periods.

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

7

NMI HOLDINGS, INC.

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

	Common Stock - Class A			Additional Paid-in Capital		Accumulated Other Comprehensive Income		Retained Earnings		Total
	Shares	Amount
	(In Thousands)
Balances, December 31, 2019	68,358	$	684	$	707,003	$	17,288	$	205,445	$	930,420
Common stock: class A shares issued related to warrant exercises	6	*		221		—		—		221
Common stock: class A shares issued under stock plans, net of shares withheld for employee taxes	510	5		(3,755)		—		—		(3,750)
Share-based compensation expense	—	—		2,552		—		—		2,552
Change in unrealized investment gains/losses, net of tax benefit of $3,409	—	—		—		(12,824)		—		(12,824)
Net income	—	—		—		—		58,271		58,271
Balances, March 31, 2020	68,874	$	689	$	706,021	$	4,464	$	263,716	$	974,890
Common stock: class A shares issued related to public offering	15,870	159		219,528		—		—		219,687
Common stock: class A shares issued under stock plans, net of shares withheld for employee taxes	61	*		(321)		—		—		(321)
Share-based compensation expense	—	—		2,722		—		—		2,722
Change in unrealized investment gains, net of tax expense of $8,829	—	—		—		33,211		—		33,211
Net income	—	—		—		—		26,848		26,848
Balances, June 30, 2020	84,805	$	848	$	927,950	$	37,675	$	290,564	$	1,257,037

* During the three months ended March 31, 2020, we issued 6,474 common shares, with a par value of $0.01 in connection with the exercise of warrants, which is not identifiable in this schedule due to rounding. During three months ended June 30, 2020, we issued 61,226 common shares, with a par value of $0.01 in connection with shares issued under stock plan, which is not identifiable in this schedule due to rounding.

8

NMI HOLDINGS, INC.

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

	Common Stock - Class A			Additional Paid-in Capital		Accumulated Other Comprehensive Income		Retained Earnings		Total
	Shares	Amount
	(In Thousands)
Balances, December 31, 2018	66,319	$	663	$	682,181	$	(14,832)	$	33,488	$	701,500
Common stock: class A shares issued related to warrant exercises	39	*		944		—		—		944
Common stock: class A shares issued under stock plans, net of shares withheld for employee taxes	1,144	12		(1,471)		—		—		(1,459)
Share-based compensation expense	—	—		2,981		—		—		2,981
Change in unrealized investment gains/losses, net of tax expense of $3,992	—	—		—		15,016		—		15,016
Net income	—	—		—		—		32,899		32,899
Balances, March 31, 2019	67,502	$	675	$	684,635	$	184	$	66,387	$	751,881
Common stock: class A shares issued related to warrants	128	$	1	3,835		—		—		3,836
Common stock: class A shares issued under stock plans, net of shares withheld for employee taxes	138	1		218		—		—		219
Share-based compensation expense	—	—		3,475		—		—		3,475
Change in unrealized investment gains/losses, net of tax expense of $3,686	—	—		—		13,868		—		13,868
Net income	—	—		—		—		39,100		39,100
Balances, June 30, 2019	67,768	$	677	$	692,163	$	14,052	$	105,487	$	812,379

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

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

9

NMI HOLDINGS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

	For the six months ended June 30,
	2020		2019
Cash flows from operating activities	(In Thousands)
Net income	$	85,119	$	71,999
Adjustments to reconcile net income to net cash provided by operating activities:
Net realized investment (gains) losses	(639)		300
(Gain) loss from change in fair value of warrant liability	(4,723)		7,164
Depreciation and amortization	4,914		4,339
Net amortization of premium on investment securities	629		622
Amortization of debt discount and debt issuance costs	3,267		499
Deferred income taxes	22,006		17,840
Share-based compensation expense	5,274		6,456
Changes in operating assets and liabilities:
Premiums receivable	(323)		(6,218)
Accrued investment income	(1,078)		(607)
Prepaid expenses	96		(312)
Deferred policy acquisition costs, net	(3,647)		(5,767)
Other assets	(328)		(260)
Unearned premiums	(21,406)		(7,535)
Reserve for insurance claims and claim expenses	46,151		5,621
Reinsurance recoverable	(9,368)		(774)
Reinsurance balances, net	2,658		336
Accounts payable and accrued expenses	(1,247)		(6,379)
Net cash provided by operating activities	127,355		87,324
Cash flows from investing activities
Purchase of short-term investments	(41,872)		(113,276)
Purchase of fixed-maturity investments, available-for-sale	(451,462)		(126,179)
Proceeds from maturity of short-term investments	85,689		119,748
Proceeds from redemptions, maturities and sale of fixed-maturity investments, available-for-sale	297,977		49,229
Software and equipment	(4,638)		(4,491)
Net cash (used in) investing activities	(114,306)		(74,969)
Cash flows from financing activities
Proceeds from issuance of common stock related to public offering, net of issuance costs	220,284		—
Proceeds from issuance of common stock related to employee equity plans	3,391		12,374
Taxes paid related to net share settlement of equity awards	(7,462)		(13,538)
Proceeds from senior secured notes	400,000		—
Repayments of term loan	(147,750)		(750)
Payments of debt issuance costs	(7,151)		—
Net cash provided by (used in) financing activities	461,312		(1,914)
Net increase in cash, cash equivalents and restricted cash	474,361		10,441
Cash, cash equivalents and restricted cash, beginning of period	41,089		25,294
Cash, cash equivalents and restricted cash, end of period	$	515,450	$	35,735
Supplemental disclosures of cash flow information
Interest paid	$	4,286	$	5,365
Income taxes refunded	$	76	$	134

⁽¹⁾ Reinsurance recoverable have been reclassified from "Reinsurance balance, net" in the prior period.

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

10

NMI HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

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

NMI Holdings, Inc. (NMIH) is a Delaware corporation, incorporated in May 2011, to provide private mortgage guaranty insurance (which we refer to as mortgage insurance or MI) through its wholly-owned insurance subsidiaries, National Mortgage Insurance Corporation (NMIC) and National Mortgage Reinsurance Inc One (Re One). Our common stock is listed on the NASDAQ exchange under the ticker symbol "NMIH."

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

Basis of Presentation

The accompanying unaudited condensed consolidated financial statements, which include the results of NMIH and its wholly-owned subsidiaries, have been prepared in accordance with the instructions to Form 10-Q as prescribed by the SEC for interim reporting and include other information and disclosures required by accounting principles generally accepted in the U.S. (GAAP). Our accounts are maintained in U.S. dollars. These statements should be read in conjunction with our consolidated financial statements and notes thereto for the year ended December 31, 2019, included in our 2019 10-K. All intercompany transactions have been eliminated. The preparation of financial statements in accordance with GAAP requires management to make estimates and assumptions that affect reported amounts of assets and liabilities, as well as disclosure of contingent assets and liabilities as of the balance sheet date. Estimates also affect the reported amounts of income and expenses for the reporting period. Actual results could differ from those estimates. Certain reclassifications to previously reported financial information have been made to conform to current period presentation. The results of operations for the interim period may not be indicative of the results that may be expected for the full year ending December 31, 2020.

COVID-19 Developments

On January 30, 2020, the World Health Organization (WHO) declared the outbreak of COVID-19 a global health emergency and characterized the outbreak as a global pandemic on March 11, 2020. In an effort to stem contagion and control the COVID-19 pandemic, the population at large has severely curtailed day-to-day activity and local, state and federal regulators have imposed a broad set of restrictions on personal and business conduct nationwide. The COVID-19 pandemic, along with the widespread public and regulatory response, has caused a dramatic slowdown in U.S. and global economic activity and a record number of Americans have been furloughed or laid-off.

The global dislocation caused by COVID-19 is unprecedented and, while there is broad hope for medical advances that might relieve the crisis and provide for a near-term return to normalized activity, it is not known how long the dislocation will persist and if or when any such medical advances may be developed or made available. In response to the COVID-19 outbreak and continuing uncertainties, we activated our business continuity program to ensure our employees are safe and able to continue serving our customers and their borrowers without interruption. We have also sought to broadly assess the impact that the COVID-19 outbreak has had and may continue to have on the U.S economy and housing market, and the implications for the mortgage insurance market, and our business performance and financial position, including our new business production, default and claims experience, and investment portfolio results. Given the uncertainty that remains, we cannot fully assess or estimate the ultimate impact of COVID-19.

Significant Accounting Principles

There have been no changes to our significant accounting principles as described in Item 8, "Financial Statements and Supplementary Data - Notes to Consolidated Financial Statements - Note 2 - Summary of Accounting Principles" of our 2019 10-K, other than as noted in "Investments," "Premium Receivables," "Reinsurance" and "Recent Accounting Pronouncements - Adopted" below.

Investments

We hold all investments on an available-for-sale basis and evaluate each position quarterly for impairment. We recognize an impairment on a security through the statement of operations if (i) we intend to sell the impaired security; or (ii) it is more likely than not that we will be required to sell the impaired security prior to recovery of its amortized cost basis. If a sale is intended or likely to be required, we write down the amortized cost basis of the security to fair value and recognize the full amount of the impairment through the statement of operations as a "Realized Investment Loss."

11

NMI HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

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.

To the extent we determine that a security impairment is credit-related, an impairment loss is recognized through the statement of operations as a provision for credit loss expense, and presented as a "Realized Investment Loss." We recognize an allowance for credit losses for the difference between the amortized cost and present value of future expected cash flows, limited by the amount the fair value of the security is below its amortized cost. Subsequent changes (favorable and unfavorable) in credit losses are recognized through the statement of operations as a provision for or a reversal of credit loss expense, and presented as a "Realized Investment Gain or Loss." The portion of a security impairment attributed to other non-credit related factors is recognized in other comprehensive income, net of taxes.

We have elected to present accrued interest receivable separately from available for sale securities on our consolidated balance sheet. Accrued interest receivable was $7.9 million as of June 30, 2020 and is included in "Accrued Investment Income." We have elected not to measure an allowance for credit losses for accrued interest receivable on available for sale securities. Accrued interest for available for sale securities is written off against interest income when the receivable has aged 90 days past due. We did not write off any accrued interest receivable during the three or six months ended June 30, 2020.

Premiums Receivable

Premiums receivable consists of premiums due on our mortgage insurance policies. If a mortgage insurance premium is unpaid for more than 120 days, the associated receivable is written off against earned premium and the related insurance policy is canceled. We recognize an allowance for credit losses for premiums receivable based on credit losses expected to arise over the life of the receivable. Due to the nature of our insurance policies (a necessary precondition for access to mortgage credit for covered borrowers) and the short duration of the related receivables, we do not typically experience credit losses against our premium receivables and did not establish an allowance for credit loss at June 30, 2020.

Premiums receivable may be written off prior to 120 days in the ordinary course of business for non-credit events including, but not limited to, the modification or refinancing of an underlying insured loan. We have established a reserve for premium write-offs based on historical experience; such reserve was deemed to be immaterial at June 30, 2020.

Reinsurance

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

NMIC has entered into quota share reinsurance treaties effective September 1, 2016 (the 2016 QSR Transaction), January 1, 2018 (the 2018 QSR Transaction) and April 1, 2020 (the 2020 QSR Transaction), which we refer to collectively as the QSR Transactions. We earn profit and ceding commissions in connection with the QSR Transactions. Profit commissions represent a percentage of the profits recognized by reinsurers that are returned to us, based on the level of claims and claim expenses that we cede. We recognize any profit commissions we earn as increases to premium revenue. Ceding commissions are calculated as a percentage of ceded written premiums under the 2016 QSR Transaction and as a percentage of ceded earned premiums under the 2018 and 2020 QSR Transactions, and are intended to cover our costs of acquiring and servicing direct policies. We recognize any ceding commissions we earn in a manner consistent with our recognition of earnings on the underlying insurance policies, over the terms of the policies reinsured. We account for ceding commissions earned as a reduction to underwriting and operating expenses.

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Under the QSR Transactions, we cede a portion of claims and claim expense reserves to our reinsurers, and account for such ceded reserves as "Reinsurance Recoverables" on the consolidated balance sheets and such ceded claims as reductions to claims expenses on the consolidated statements of operations. As of June 30, 2020, we had $14.3 million of reinsurance recoverables under the QSR Transactions. We remain directly liable for all claim payments if we are unable to collect the recoverables due from our reinsurers and, as such, we actively monitor and manage our counterparty credit exposure to our reinsurance providers. We establish an allowance for expected credit loss against our reinsurance recoverables if we do not expect to recover amounts due from one or more of our reinsurance counterparties, and report our reinsurance recoverables net of such allowance, if any. We actively monitor the counterparty credit profiles of our reinsurers and each is required to partially collateralize its obligations under the terms of our QSR Transactions. As of June 30, 2020, we did not recognize any allowance for credit loss with respect to our reinsurance recoverables.

Recent Accounting Pronouncements - Adopted

In June 2016, the Financial Accounting Standard Board (FASB) issued Accounting Standards Update (ASU) 2016-13, Financial Instruments-Credit Losses (Topic 326) and subsequently issued amendments to the initial guidance: ASU 2019-04, Codification Improvements to Topic 326, Financial Instruments-Credit Losses (Topic 815), Derivatives and Hedging, and Topic 825, Financial Instruments, ASU 2019-05, Financial Instruments-Credit Losses: Targeted Transition Relief, and ASU 2019-11, Codification Improvements to Topic 326, Financial Instruments-Credit Losses. These updates will require companies to measure and establish reserves for lifetime expected credit losses on many financial assets held at a given reporting date. Under the guidance, the methodology for measuring lifetime credit losses shifts from an incurred loss model, whereby losses are only recognized once probable and estimable, to a current expected credit loss (CECL) model, whereby losses are recognized upfront based on a future economic forecast. Credit losses relating to available-for-sale fixed maturity securities are recorded through an allowance for credit losses, rather than a write-down of the asset as was required, with the amount of the allowance limited to the amount by which fair value is less than amortized cost. The length of time an available-for sale fixed maturity security has been held in an unrealized loss position will no longer impact its credit loss determination. We adopted these updates on January 1, 2020. Adoption of the updated standards did not have a material impact on our consolidated financial statements, and had no impact on our accounting for insurance claims and claim expenses as these items are not in scope of the guidance.

In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820). This update modifies the fair value measurement disclosure requirements of ASC 820. We adopted this ASU on January 1, 2020 and determined it did not have a material impact on our consolidated financial statements.

In August 2018, the FASB issued ASU 2018-15, Intangibles - Goodwill and Other - Internal-Use Software (Subtopic 350-40). This update applies to cloud computing arrangements structured as service contracts, and provides companies with guidance on the criteria for capitalizing implementation, set-up and other up-front costs incurred in association with these arrangements. We adopted this ASU on January 1, 2020 and applied it on a prospective basis for eligible costs incurred after the effective date. The adoption of this ASU did not have a material impact on our consolidated financial statements.

Recent Accounting Pronouncements - Not Yet Adopted

In August 2018, the FASB issued ASU 2018-12, Targeted Improvements to the Accounting for Long-Duration Contracts. This update provides guidance to the existing recognition, measurement, presentation and disclosure requirements for long-duration contracts issued by an insurance entity. The FASB subsequently issued ASU 2019-09 in November 2019, which amended the effective date for this standard. The standard will now take effect for public business entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2021. We are currently evaluating the impact the adoption of this ASU will have, if any, on our consolidated financial statements.

In November 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740). This update eliminates certain exceptions for recognizing deferred taxes for investments, performing intra-period allocations and calculating income taxes in interim periods. The ASU also includes guidance to reduce complexity in certain income tax areas, including recognizing deferred taxes for tax goodwill and allocating taxes to members of a consolidated group. The standard will take effect for public business entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020. We are currently evaluating the impact the adoption of this ASU will have, if any, on our consolidated financial statements.

In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848). This update provides optional guidance to ease the potential burden in accounting for reference rate reform on financial reporting. Reference rate reform refers to the global transition away from referencing the London Interbank Offered Rate (LIBOR) in financial contracts, which is expected to be discontinued in 2021. The ASU includes optional expedients and exceptions for applying GAAP to contracts, hedging relationships and other transactions affected by reference rate reform if certain criteria are met. The standard is effective

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

immediately through December 31, 2022 for all entities that have contracts, hedging relationships, and other transactions that reference LIBOR or another reference rate expected to be discontinued because of reference rate reform. We are currently evaluating the impact the adoption of this ASU would have, if any, to our contract modifications that are affected by the discontinuation of LIBOR.

2. Investments

We hold all investments on an available-for-sale basis and evaluate each position quarterly for impairment. We recognize an impairment on a security through the statement of operations if (i) we intend to sell the impaired security; or (ii) it is more likely than not that we will be required to sell the impaired security prior to recovery of its amortized cost basis. If a sale is intended or likely to be required, we write down the amortized cost basis of the security to fair value and recognize the full amount of the impairment through the statement of operations as a "Realized Investment Loss." To the extent we determine that a security impairment is credit-related, an impairment loss is recognized through the statement of operations as a provision for credit loss expense. The portion of a security impairment attributed to other non-credit related factors is recognized in other comprehensive income, net of taxes.

Fair Values and Gross Unrealized Gains and Losses on Investments

	Amortized Cost		Gross Unrealized				Fair Value
			Gains		Losses
As of June 30, 2020	(In Thousands)
U.S. Treasury securities and obligations of U.S. government agencies	$	31,196	$	2,484	$	—	$	33,680
Municipal debt securities	175,035		7,743		—		182,778
Corporate debt securities	987,938		42,964		(984)		1,029,918
Asset-backed securities	92,278		1,071		(310)		93,039
Total bonds	1,286,447		54,262		(1,294)		1,339,415
Short-term investments	356		—		—		356
Total investments	$	1,286,803	$	54,262	$	(1,294)	$	1,339,771

	Amortized Cost		Gross Unrealized				Fair Value
			Gains		Losses
As of December 31, 2019	(In Thousands)
U.S. Treasury securities and obligations of U.S. government agencies	$	48,203	$	784	$	(58)	$	48,929
Municipal debt securities	189,530		1,721		(1,035)		190,216
Corporate debt securities	661,719		23,373		(211)		684,881
Asset-backed securities	170,153		2,603		(114)		172,642
Total bonds	1,069,605		28,481		(1,418)		1,096,668
Short-term investments	44,174		98		—		44,272
Total investments	$	1,113,779	$	28,579	$	(1,418)	$	1,140,940

We did not own any mortgage-backed securities in our asset-backed securities portfolio at June 30, 2020 or December 31, 2019. We periodically recognize unsettled trades payable or receivable in connection with our investing activity. Unsettled trades payable represent funds due for investments purchased at period end. Unsettled trades receivable represent funds due for investments sold at period end. Included in "Accounts Payable and Accrued Expenses" are $68.9 million and $5.6 million of unsettled trade payables from the purchase of investment securities at June 30, 2020 and December 31, 2019, respectively.

The following table presents a breakdown of the fair value of our corporate debt securities by issuer industry group as of June 30, 2020 and December 31, 2019:

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	June 30, 2020		December 31, 2019
Financial	37	%	38	%
Consumer	23		26
Utilities	13		9
Communications	10		10
Technology	10		7
Industrial	7		8
Energy	—		2
Total	100	%	100	%

As of June 30, 2020 and December 31, 2019, approximately $5.7 million and $5.5 million, respectively, of our cash and investments were held in the form of U.S. Treasury securities on deposit with various state insurance departments to satisfy regulatory requirements.

Scheduled Maturities

The amortized cost and fair value of available-for-sale securities as of June 30, 2020 and December 31, 2019, by contractual maturity, are shown below. Expected maturities will differ from contractual maturities because issuers may have the right to call or prepay obligations with or without call or prepayment penalties. Because most asset-backed securities provide for periodic payments throughout their lives, they are listed below in a separate category.

As of June 30, 2020	Amortized Cost		Fair Value
	(In Thousands)
Due in one year or less	$	72,505	$	73,072
Due after one through five years	387,886		410,176
Due after five through ten years	716,261		744,725
Due after ten years	17,873		18,759
Asset-backed securities	92,278		93,039
Total investments	$	1,286,803	$	1,339,771

As of December 31, 2019	Amortized Cost		Fair Value
	(In Thousands)
Due in one year or less	$	138,776	$	139,113
Due after one through five years	406,986		417,208
Due after five through ten years	380,737		394,180
Due after ten years	17,127		17,797
Asset-backed securities	170,153		172,642
Total investments	$	1,113,779	$	1,140,940

Aging of Unrealized Losses

As of June 30, 2020, the investment portfolio had gross unrealized losses of $1.3 million, of which $0.1 million had been in an unrealized loss position for a period of 12 months or longer. For those securities in an unrealized loss position, the length of time the length of time the securities were in such a position is as follows:

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

	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 June 30, 2020		(Dollars in Thousands)
Corporate debt securities	39	194,885		(982)		2	553		(2)		41	195,438		(984)
Asset-backed securities	16	32,683		(227)		1	2,913		(83)		17	35,596		(310)
Total	55	$	227,568	$	(1,209)	3	$	3,466	$	(85)	58	$	231,034	$	(1,294)

	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, 2019