NMI HOLDINGS, INC. – 10-Q – Management's Discussion and Analysis of Financial Condition and Results of Operations
The following analysis should be read in conjunction with our unaudited condensed consolidated financial statements and the notes thereto included in this report and our audited financial statements, notes thereto and "Management's Discussion and Analysis of Financial Condition and Results of Operations" included in our 2021 10-K, for a more complete understanding of our financial position and results of operations. In addition, investors should review the "Cautionary Note Regarding Forward-Looking Statements" above and the "Risk Factors" detailed in Part II, Item 1A of this report and in Part I, Item 1A of our 2021 10-K, as subsequently updated in other reports we file with theSEC , for a discussion of those risks and uncertainties that have the potential to affect our business, financial condition, results of operations, cash flows or prospects in a material and adverse manner. Our results of operations for interim periods are not necessarily indicative of results to be expected for a full fiscal year or for any other period.
Overview
We provide private MI through our primary insurance subsidiary, NMIC. NMIC is wholly-owned, domiciled inWisconsin and principally regulated by theWisconsin OCI. NMIC is approved as an MI provider by the GSEs and is licensed to write coverage in all 50 states and D.C. Our subsidiary, NMIS, provides outsourced loan review services to mortgage loan originators and our subsidiary, Re One, historically provided reinsurance coverage to NMIC in accordance with certain statutory risk retention requirements. Such requirements have been repealed and the reinsurance coverage provided by Re One to NMIC has been commuted. Re One remains a wholly-owned, licensed insurance subsidiary; however, it does not currently have active insurance exposures. 29 -------------------------------------------------------------------------------- MI protects lenders and investors from default-related losses on a portion of the unpaid principal balance of a covered mortgage. MI plays a critical role in theU.S. housing market by mitigating mortgage credit risk and facilitating the secondary market sale of high loan-to-value (LTV) (i.e., above 80%) residential loans to the GSEs, who are otherwise restricted by their charters from purchasing or guaranteeing high-LTV mortgages that are not covered by certain credit protections. Such credit protection and secondary market sales allow lenders to increase their capacity for mortgage commitments and expand financing access to existing and prospective homeowners. NMIH, aDelaware corporation, was incorporated inMay 2011 , and we began start-up operations in 2012 and wrote our first MI policy in 2013. Since formation, we have sought to establish customer relationships with a broad group of mortgage lenders and build a diversified, high-quality insured portfolio. As ofSeptember 30, 2022 , we had issued master policies with 1,843 customers, including national and regional mortgage banks, money center banks, credit unions, community banks, builder-owned mortgage lenders, internet-sourced lenders and other non-bank lenders. As ofSeptember 30, 2022 , we had$179.2 billion of primary insurance-in-force (IIF) and$46.3 billion of primary risk-in-force (RIF). We believe that our success in acquiring a large and diverse group of lender customers and growing a portfolio of high-quality IIF traces to our founding principles, whereby we aim to help qualified individuals achieve their homeownership goals, ensure that we remain a strong and credible counter-party, deliver a high-quality customer service experience, establish a differentiated risk management approach that emphasizes the individual underwriting review or validation of the vast majority of the loans we insure, utilizing our proprietary Rate GPS® pricing platform to dynamically evaluate risk and price our policies, and foster a culture of collaboration and excellence that helps us attract and retain experienced industry leaders. Our strategy is to continue to build on our position in the private MI market, expand our customer base and grow our insured portfolio of high-quality residential loans by focusing on long-term customer relationships, disciplined and proactive risk selection and pricing, fair and transparent claim payment practices, responsive customer service, and financial strength and profitability. Our common stock trades on the Nasdaq under the symbol "NMIH." Our headquarters is located inEmeryville, California . As ofSeptember 30, 2022 , we had 246 employees. Our corporate website is located at www.nationalmi.com. Our website and the information contained on or accessible through our website are not incorporated by reference into this report. We 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 new insurance writings, the composition of our insurance portfolio and other factors that we expect to impact our results.
Conditions and Trends Affecting Our Business
COVID-19 and Other Developments
OnJanuary 30, 2020 , the WHO declared the outbreak of COVID-19 a global health emergency and subsequently characterized the outbreak as a global pandemic onMarch 11, 2020 . In an effort to stem contagion and control the spread of the virus, the population at large severely curtailed day-to-day activity and local, state and federal regulators imposed a broad set of restrictions on personal and business conduct nationwide. The COVID-19 pandemic, along with the widespread public and regulatory response, caused a dramatic slowdown inU.S. and global economic activity. The global dislocation caused by COVID-19 was unprecedented and the pandemic had a direct impact on theU.S. housing market, private mortgage insurance industry, and our business and operating performance for an extended period. More recently, however, the acute economic impact of COVID-19 has begun to recede. While the pandemic continues to pose a global risk and affect communities across theU.S. , it is no longer the single dominant driver of our performance that it had been in earlier periods. COVID-19 is now one of several mosaic factors, including a range of macroeconomic forces and public policy initiatives that are influencing our market and business. Although we are optimistic that the nationwide COVID-19 vaccination effort and other medical advances will continue to support a normalization of personal and business activity, the path of the virus remains unknown and subject to risk. Given this uncertainty, we are not able to fully assess or estimate the impact the pandemic may have on the mortgage insurance market, our business performance or our financial position at this time, and it remains possible COVID-19 could again trigger more severe and adverse outcomes in future periods. It is also possible that emerging macroeconomic factors, including persistent inflation, increasing interest rates, flagging consumer confidence and increasing jobless claims could have a pronounced impact on the housing market, the mortgage insurance industry and our business in future periods. 30 --------------------------------------------------------------------------------
Key Factors Affecting Our Results
New Insurance Written (NIW), Insurance-In-Force and Risk-In-Force
NIW is the aggregate unpaid principal balance of mortgages underpinning new policies written during a given period. Our NIW is affected by the overall size of the mortgage origination market and the volume of high-LTV mortgage originations. Our NIW is also affected by the percentage of such high-LTV originations covered by private versus government MI or other alternative credit enhancement structures and our share of the private MI market. NIW, together with persistency, drives our IIF. IIF is the aggregate unpaid principal balance of the mortgages we insure, as reported to us by servicers at a given date, and represents the sum total of NIW from all prior periods less principal payments on insured mortgages and policy cancellations (including for prepayment, nonpayment of premiums, coverage rescission and claim payments). RIF is related to IIF and represents the aggregate amount of coverage we provide on all outstanding policies at a given date. RIF is calculated as the sum total of the coverage percentage of each individual policy in our portfolio applied to the unpaid principal balance of such insured mortgage. RIF is affected by IIF and the LTV profile of our insured mortgages, with lower LTV loans generally having a lower coverage percentage and higher LTV loans having a higher coverage percentage. Gross RIF represents RIF before consideration of reinsurance. Net RIF is gross RIF net of ceded reinsurance.
Net Premiums Written and Net Premiums Earned
We set our premium rates on individual policies based on the risk characteristics of the underlying mortgage loans and borrowers, and in accordance with our filed rates and applicable rating rules. OnJune 4, 2018 , we introduced a proprietary risk-based pricing platform, which we refer to as Rate GPS. Rate GPS considers a broad range of individual variables, including property type, type of loan product, borrower credit characteristics, and lender and market factors, and provides us with the ability to set and charge premium rates commensurate with the underlying risk of each loan that we insure. We introduced Rate GPS inJune 2018 to replace our previous rate card pricing system. While most of our new business is priced through Rate GPS, we also continue to offer a rate card pricing option to a limited number of lender customers who require a rate card for operational reasons. We believe the introduction and utilization of Rate GPS provides us with a more granular and analytical approach to evaluating and pricing risk, and that this approach enhances our ability to continue building a high-quality mortgage insurance portfolio and delivering attractive risk-adjusted returns. Premiums are generally fixed for the duration of our coverage of the underlying loans. Net premiums written are equal to gross premiums written minus ceded premiums written under our reinsurance arrangements, less premium refunds and premium write-offs. As a result, net premiums written are generally influenced by: •NIW;
•premium rates and the mix of premium payment type, which are either single,
monthly or annual premiums, as described below;
•cancellation rates of our insurance policies, which are impacted by payments or prepayments on mortgages, refinancings (which are affected by prevailing mortgage interest rates as compared to interest rates on loans underpinning our in force policies), levels of claim payments and home prices; and
•cession of premiums under third-party reinsurance arrangements.
Premiums are paid either by the borrower (BPMI) or the lender (LPMI) in a single payment at origination (single premium), on a monthly installment basis (monthly premium) or on an annual installment basis (annual premium). Our net premiums written will differ from our net premiums earned due to policy payment type. For single premiums, we receive a single premium payment at origination, which is earned over the estimated life of the policy. Substantially all of our single premium policies in force as ofSeptember 30, 2022 were non-refundable under most cancellation scenarios. If non-refundable single premium policies are canceled, we immediately recognize the remaining unearned premium balances as earned premium revenue. Monthly premiums are recognized in the month billed and when the coverage is effective. Annual premiums are earned on a straight-line basis over the year of coverage. Substantially all of our policies provide for either single or monthly premiums. The percentage of IIF that remains on our books after any twelve-month period is defined as our persistency rate. Because our insurance premiums are earned over the life of a policy, higher persistency rates can have a significant impact on our net premiums earned and profitability. Generally, faster speeds of mortgage prepayment lead to lower persistency. Prepayment speeds and the relative mix of business between single and monthly premium policies also impact our profitability. Our premium rates include certain assumptions regarding repayment or prepayment speeds of the mortgages underlying our policies. Because premiums are paid at origination on single premium policies and our single premium policies are generally non-refundable on 31 -------------------------------------------------------------------------------- cancellation, assuming all other factors remain constant, if single premium loans are prepaid earlier than expected, our profitability on these loans is likely to increase and, if loans are repaid slower than expected, our profitability on these loans is likely to decrease. By contrast, if monthly premium loans are repaid earlier than anticipated, we do not earn any more premium with respect to those loans and, unless we replace the repaid monthly premium loan with a new loan at the same premium rate or higher, our revenue is likely to decline.
Effect of reinsurance on our results
We utilize third-party reinsurance to actively manage our risk, ensure compliance with PMIERs, state regulatory and other applicable capital requirements, and support the growth of our business. We currently have both quota share and excess-of-loss reinsurance agreements in place, which impact our results of operations and regulatory capital and PMIERs asset positions. Under a quota share reinsurance agreement, the reinsurer receives a premium in exchange for covering an agreed-upon portion of incurred losses. Such a quota share arrangement reduces premiums written and earned and also reduces RIF, providing capital relief to the ceding insurance company and reducing incurred claims in accordance with the terms of the reinsurance agreement. In addition, reinsurers typically pay ceding commissions as part of quota share transactions, which offset the ceding company's acquisition and underwriting expenses. Certain quota share agreements include profit commissions that are earned based on loss performance and serve to reduce ceded premiums. Under an excess-of-loss agreement, the ceding insurer is typically responsible for losses up to an agreed-upon threshold and the reinsurer then provides coverage in excess of such threshold up to a maximum agreed-upon limit. We expect to continue to evaluate reinsurance opportunities in the normal course of business.
Excess-of-loss reinsurance
Insurance-linked notes
NMIC is party to reinsurance agreements with the Oaktown Re Vehicles that provide it with aggregate excess-of-loss reinsurance coverage on defined portfolios of mortgage insurance policies. Under each agreement, NMIC retains a first layer of aggregate loss exposure on covered policies and the respective Oaktown Re Vehicle then provides second layer loss protection up to a defined reinsurance coverage amount. NMIC then retains losses in excess of the respective reinsurance coverage amounts. The respective reinsurance coverage amounts provided by the Oaktown Re Vehicles decrease over a ten-year period as the underlying insured mortgages are amortized or repaid, and/or the mortgage insurance coverage is canceled (except the coverage provided byOaktown Re VI Ltd. andOaktown Re VII Ltd. , which decreases over a 12.5-year period). As the reinsurance coverage decreases, a prescribed amount of collateral held in trust by the Oaktown Re Vehicles is distributed to ILN Transaction note-holders as amortization of the outstanding insurance-linked note principal balances. The outstanding reinsurance coverage amounts stop amortizing, and the collateral distribution to ILN Transaction note-holders and amortization of insurance-linked note principal is suspended if certain credit enhancement or delinquency thresholds, as defined in each agreement, are triggered (each, a Lock-Out Event). As ofSeptember 30, 2022 , the 2018 ILN Transaction was deemed to be inLock Out due to the default experience of its underlying reference pool and the 2021-2 ILN Transaction was deemed to be inLock Out in connection with the initial build of its target credit enhancement level. As such, the amortization of reinsurance coverage, and distribution of collateral assets and amortization of insurance-linked notes was suspended for both ILN Transactions. The amortization of reinsurance coverage, distribution of collateral assets and amortization of insurance-linked notes issued in connection with the 2018 and 2021-2 ILN Transactions will remain suspended for the duration of the Lock-Out Event for each respective ILN Transaction, and during such period assets will be preserved in the applicable reinsurance trust account to collateralize the excess-of-loss reinsurance coverage provided to NMIC. EffectiveAugust 31, 2022 , a Lock-Out Event for the 2019 ILN Transaction was deemed to have cleared and amortization of the associated reinsurance coverage, and distribution of collateral assets and amortization of the associated insurance-linked notes resumed. NMIC holds optional termination rights under each ILN Transaction, including, among others, an optional call feature which provides NMIC the discretion to terminate the transaction on or after a prescribed date, and a clean-up call if the outstanding reinsurance coverage amount amortizes to 10% or less of the reinsurance coverage amount at inception or if NMIC reasonably determines that changes to GSE or rating agency asset requirements would cause a material and adverse effect on the capital treatment afforded to NMIC under a given agreement. In addition, there are certain events that trigger mandatory termination of an agreement, including NMIC's failure to pay premiums or consent to reductions in a trust account to make principal payments to note-holders, among others. EffectiveMarch 25, 2022 andApril 25, 2022 , NMIC exercised its optional clean-up call to terminate the 2017 and 2020-1 ILN Transactions, respectively. In connection with the termination of each respective transaction, NMIC's excess of loss reinsurance agreements withOaktown Re Ltd. andOaktown Re IV Ltd. were commuted and the insurance-linked notes issued byOaktown Re Ltd. andOaktown Re IV Ltd. were redeemed in full with a distribution of remaining collateral assets. 32 --------------------------------------------------------------------------------
The following table presents the inception date, covered production period,
current reinsurance coverage amount, current first layer retained aggregate loss
and detail on the level of overcollateralization under each outstanding ILN
Transaction. Current amounts are presented as of
2018 ILN 2019 ILN 2020-2 ILN 2021-1 ILN 2021-2 ILN
($ values in thousands) Transaction
Transaction Transaction Transaction Transaction
Inception date
July 25, 2018 July
30, 2019
Covered production
1/1/2017 -
5/31/2018
Current ceded RIF$ 900,608 $
1,010,097
Current first layer retained loss 122,271 122,412 121,177 163,665 146,204 Current reinsurance coverage 158,489 218,121 110,623 322,290 363,596 Eligible coverage$ 280,760 $
340,533
Subordinated coverage (4)
31.17 % 33.71 % 6.25 % 6.75 % 7.15 % PMIERs charge on ceded RIF 7.83 % 7.46 % 5.03 % 6.12 % 6.65 % Overcollateralization (5) (6)$ 158,489 $ 218,121 $ 48,614 $ 46,392 $ 35,765 Delinquency Trigger (7) 4.0% 4.0% 4.7 % 5.1 % 5.4 % (1) Approximately 1% of the production covered by the 2020-2 ILN Transaction has coverage reporting dates betweenJuly 1, 2019 andMarch 31, 2020 . (2) Approximately 1% of the production covered by the 2021-1 ILN Transaction has coverage reporting dates betweenJuly 1, 2019 andSeptember 30, 2020 . (3) Approximately 2% of the production covered by the 2021-2 ILN Transaction has coverage reporting dates betweenJuly 1, 2019 andMarch 31, 2021 . (4) Absent a delinquency trigger, the subordinated coverage is capped at 7.5%, 6.25%, 6.75% and 7.45% for the 2019, 2020-2, 2021-1 and 2021-2 ILN Transactions, respectively. (5) Overcollateralization for each of the 2018 and 2019 ILN Transactions is equal to their current reinsurance coverage as the PMIERs required asset amount on RIF ceded under each transaction is currently below its remaining first layer retained loss. (6) May not be replicated based on the rounded figures presented in the table. (7) Delinquency triggers for the 2018 and 2019 ILN Transactions are set at a fixed 4.0% and assessed on a discrete monthly basis; delinquency triggers for the 2020-2, 2021-1 and 2021-2 ILN Transactions are equal to seventy-five percent of the subordinated coverage level and assessed on the basis of a three-month rolling average. Traditional reinsurance NMIC is a party to two excess-of-loss reinsurance agreements with broad panels of third-party reinsurers - the 2022-1 XOL Transaction, effectiveApril 1, 2022 , and the 2022-2 XOL Transaction, effectiveJuly 1, 2022 - which we refer to collectively as the XOL Transactions. Each XOL Transaction provides NMIC with aggregate excess-of-loss reinsurance coverage on a defined portfolio of mortgage insurance policies. Under each agreement, NMIC retains a first layer of aggregate loss exposure on covered policies and the reinsurers then provide second layer loss protection up to a defined reinsurance coverage amount. The reinsurance coverage amount of each XOL Transaction is set to approximate the PMIERs minimum required assets of its reference pool and decreases from the inception of each respective agreement over a ten-year period in the event the PMIERs minimum required assets of the pool declines. NMIC retains losses in excess of the outstanding reinsurance coverage amount. As ofSeptember 30, 2022 , NMIC's first layer aggregate retained loss exposure under the 2022-1 and 2022-2 XOL Transactions, was$133.4 million and$78.9 million , respectively, and the outstanding reinsurance coverage amount provided under each agreement was$284.0 million and$152.3 million , respectively. NMIC holds optional termination rights which provide it the discretion to terminate each XOL Transaction on or after a specified date. NMIC may also elect to terminate the XOL Transactions at any point if the outstanding reinsurance coverage amount amortizes to 10% or less of the reinsurance coverage amount provided at inception, or if it determines that it will no longer be able to take full PMIERs asset credit for the coverage. Additionally, under the terms of the treaties, NMIC may selectively terminate its engagement with individual reinsurers under certain circumstances. Such selective termination rights arise when, among other reasons, a reinsurer experiences a deterioration in its capital position below a prescribed threshold, and/or a reinsurer breaches (and fails to cure) its collateral posting obligation. 33 --------------------------------------------------------------------------------
Each of the third-party reinsurance providers that is party to the XOL
Transactions has an insurer financial strength rating of A- or better by
both.
Quota share reinsurance NMIC is a party to six quota share reinsurance treaties - the 2016 QSR Transaction, effectiveSeptember 1, 2016 , the 2018 QSR Transaction, effectiveJanuary 1, 2018 , the 2020 QSR Transaction, effectiveApril 1, 2020 , the 2021 QSR Transaction, effectiveJanuary 1, 2021 , the 2022 QSR Transaction, effectiveOctober 1, 2021 and the 2022 Seasoned QSR Transaction, effectiveJuly 1, 2022 - which we refer to collectively as the QSR Transactions. Under each of the QSR Transactions, NMIC cedes a proportional share of its risk on eligible policies to panels of third-party reinsurance providers. Each of the third-party reinsurance providers that is party to the QSR Transactions has an insurer financial strength rating of A- or better byStandard & Poor's Rating Service (S&P),A.M. Best Company, Inc. (A.M. Best ) or both. Under the terms of the 2016 QSR Transaction, NMIC cedes premiums written related to 25% of the risk on eligible primary policies written for all periods throughDecember 31, 2017 and 100% of the risk under our pool agreement with Fannie Mae, in exchange for reimbursement of ceded claims and claim expenses on covered policies, a 20% ceding commission, and a profit commission of up to 60% that varies directly and inversely with ceded claims. Under the terms of the 2018 QSR Transaction, NMIC cedes premiums earned related to 25% of the risk on eligible policies written in 2018 and 20% of the risk on eligible policies written in 2019, in exchange for reimbursement of ceded claims and claim expenses on covered policies, a 20% ceding commission, and a profit commission of up to 61% that varies directly and inversely with ceded claims. Under the terms of the 2020 QSR Transaction, NMIC cedes premiums earned related to 21% of the risk on eligible policies written fromApril 1, 2020 throughDecember 31, 2020 , in exchange for reimbursement of ceded claims and claim expenses on covered policies, a 20% ceding commission, and a profit commission of up to 50% that varies directly and inversely with ceded claims. Under the terms of the 2021 QSR Transaction, NMIC cedes premiums earned related to 22.5% of the risk on eligible policies written in 2021 (subject to an aggregate risk written limit which was exhausted onOctober 30, 2021 ), in exchange for reimbursement of ceded claims and claim expenses on covered policies, a 20% ceding commission, and a profit commission of up to 57.5% that varies directly and inversely with ceded claims. Under the terms of the 2022 QSR Transaction, NMIC cedes premiums earned related to 20% of the risk on eligible policies written betweenOctober 30, 2021 andDecember 31, 2022 , in exchange for reimbursement of ceded claims and claims expenses on covered policies, a 20% ceding commission, and a profit commission of up to 62% that varies directly and inversely with ceded claims. In connection with the 2022 QSR Transaction, NMIC entered into an additional back-to-back quota share agreement that is scheduled to incept onJanuary 1, 2023 (the 2023 QSR Transaction). Under the terms of the 2023 QSR Transactions, NMIC will cede premiums earned related to 20% of the risk on eligible policies written in 2023, in exchange for reimbursement of ceded claims and claim expenses on covered policies, a 20% ceding commission, and a profit commission of up to 62% that varies directly and inversely with ceded claims. Under the terms of the 2022 Seasoned QSR Transaction, NMIC cedes premiums earned related to 95% of the net risk on eligible policies primarily for a seasoned pool of mortgage insurance policies that had previously been covered under the now retired 2017 and 2020-1 ILN Transactions, after the consideration of coverage provided by other QSR Transactions in exchange for reimbursement of ceded claims and claim expenses on covered policies, a 35% ceding commission, and a profit commission of up to 55% that varies directly and inversely with ceded claims. NMIC may elect to terminate its engagement with individual reinsurers on a run-off basis (i.e., reinsurers continue providing coverage on all risk ceded prior to the termination date, with no new cessions going forward) or cut-off basis (i.e., the reinsurance arrangement is completely terminated with NMIC recapturing all previously ceded risk) under certain circumstances. Such selective termination rights arise when, among other reasons, a reinsurer experiences a deterioration in its capital position below a prescribed threshold and/or a reinsurer breaches (and fails to cure) its collateral posting obligations under the relevant agreement. EffectiveApril 1, 2019 , NMIC elected to terminate its engagement with one reinsurer under the 2016 QSR Transaction on a cut-off basis. In connection with the termination, NMIC recaptured approximately$500 million of previously ceded primary RIF and stopped ceding new premiums written with respect to the recaptured risk. With this termination, ceded premiums written 34 -------------------------------------------------------------------------------- under the 2016 QSR Transaction decreased from 25% to 20.5% on eligible policies. The termination had no effect on the cession of pool risk under the 2016 QSR Transaction. See Item 1, "Financial Statements - Notes to Condensed Consolidated Financial Statements - Note 5, Reinsurance" for further discussion of these third-party reinsurance arrangements. Portfolio Data The following table presents primary and pool NIW and IIF as of the dates and for the periods indicated. Unless otherwise noted, the tables below do not include the effects of our third-party reinsurance arrangements described above. Primary and pool IIF and NIW As of and for the three months ended For the nine months ended September 30, September 30, September 30, 2022 September 30, 2021 2022 2021 IIF NIW IIF NIW NIW (In Millions) Monthly$ 158,897 $ 16,676 $ 124,767 $ 16,861 $ 45,465 $ 60,047 Single 20,276 563 18,851 1,223 2,550 7,185 Primary 179,173 17,239 143,618 18,084 48,015 67,232 Pool 1,078 - 1,339 - - - Total$ 180,251 $ 17,239 $ 144,957 $ 18,084 $ 48,015 $ 67,232 NIW for the three and nine months endedSeptember 30, 2022 was$17.2 billion and$48.0 billion compared to$18.1 billion and$67.2 billion for the three and nine months endedSeptember 30, 2021 . NIW decreased year-on-year primarily due to a decline in the size of the total mortgage insurance market. Total IIF increased 24% atSeptember 30, 2022 compared toSeptember 30, 2021 , primarily due to the NIW generated between such measurement dates, partially offset by the run-off of in-force policies. Our persistency rate improved to 80.1% atSeptember 30, 2022 from 58.1% atSeptember 30, 2021 , reflecting a slowdown in the pace of refinancing activity during the intervening twelve-month period driven by an increase in interest and mortgage note rates.
The following table presents net premiums written and earned for the periods
indicated:
Primary and pool premiums written
and earned For the three months ended For the nine months ended
September 30, September 30, September 30,
2022 2021 2022 September 30, 2021
(In Thousands)
Net premiums written $ 113,546 $ 111,931 $ 348,037 $ 354,388
Net premiums earned 118,317 113,594 355,682 330,361
Net premiums written increased 1% during the three months ended September 30,
2022 compared to the three months ended September 30, 2021 and decreased 2%
during the nine months ended September 30, 2022 compared to the nine months
ended September 30, 2021 . The year-on-year development in net premiums written
reflects growth in our monthly IIF and monthly pay policy premium receipts
during the three and nine months ended September 30, 2022 , balanced by a
decrease in single premium policy production during the periods.
Net premiums earned during the three and nine months ended September 30, 2022
increased 4% and 8%, respectively, compared to the three and nine months ended
September 30, 2021 . The increases in the net premiums earned were primarily due
to the growth of our IIF, partially offset by a decrease in the contribution
from single premium policy cancellations and an increase in total premiums ceded
under our reinsurance transactions.
Pool premiums written and earned for the three and nine months ended
September 30, 2022 and 2021, were $0.3 million and $0.9 million , and
$0.4 million and $1.3 million , respectively, before giving effect to the 2016
QSR Transaction, under which all of our written and earned pool premiums are
ceded. A portion of our ceded pool premiums written and earned are recouped
through profit commission.
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Portfolio Statistics
Unless otherwise noted, the portfolio statistics tables presented below do not include the effects of our third-party reinsurance arrangements described above. The table below highlights trends in our primary portfolio as of the dates and for the periods indicated. Primary portfolio trends
As of and for the three months ended
September 30, December 31, September 30,
2022 June 30, 2022 March 31, 2022 2021 2021
($ Values In Millions, except as noted below)
New insurance written $ 17,239 $
16,611
Percentage of monthly premium
97 % 94 % 92 % 93 % 93 % Percentage of single premium 3 % 6 % 8 % 7 % 7 % New risk written$ 4,616 $ 4,386 $ 3,721 $ 4,786 $ 4,640 Insurance-in-force (1)$ 179,173 $
168,639
Percentage of monthly premium
89 % 88 % 88 % 87 % 87 % Percentage of single premium 11 % 12 % 12 % 13 % 13 % Risk-in-force (1)$ 46,259 $
43,260
Policies in force (count) (1)
580,525 551,543 526,976 512,316 490,714
Average loan size ($ value in thousands) (1)
306 $ 301
Coverage percentage (2)
25.8 % 25.7 % 25.5 % 25.4 % 25.2 % Loans in default (count) (1) 4,096 4,271 5,238 6,227 7,670 Default rate (1) 0.71 % 0.77 % 0.99 % 1.22 % 1.56 % Risk-in-force on defaulted loans (1)$ 284 $ 295 $ 362$ 435 $ 546 Net premium yield (3) 0.27 % 0.30 % 0.30 % 0.31 % 0.32 % Earnings from cancellations$ 1.8 $ 2.2 $ 2.9$ 5.1 $ 7.7 Annual persistency (4) 80.1 % 76.0 % 71.5 % 63.8 % 58.1 % Quarterly run-off (5) 4.0 % 4.3 % 5.0 % 6.7 % 8.1 % (1) Reported as of the end of the period. (2) Calculated as end of period RIF divided by end of period IIF. (3) Calculated as net premiums earned divided by average primary IIF for the period, annualized. (4) Defined as the percentage of IIF that remains on our books after a given twelve-month period. (5) Defined as the percentage of IIF that is no longer on our books after a given three-month period.
The table below presents a summary of the change in total primary IIF for the
dates and periods indicated.
As of and for the three months As of and for the nine months
Primary IIF ended ended
September 30, September 30, September 30, September 30,
2022 2021 2022 2021
(In Millions)
IIF, beginning of period $ 168,639 $ 136,598 $ 152,343 $ 111,252
NIW 17,239 18,084 48,015 67,232
Cancellations, principal repayments and
other reductions (6,705) (11,064) (21,185) (34,866)
IIF, end of period $ 179,173 $ 143,618 $ 179,173 $ 143,618
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We consider a "book" to be a collective pool of policies insured during a
particular period, normally a calendar year. In general, the majority of
underwriting profit, calculated as earned premium revenue minus claims and
underwriting and operating expenses, generated by a particular book year emerges
in the years immediately following origination. This pattern generally occurs
because relatively few of the claims that a book will ultimately experience
typically occur in the first few years following origination, when premium
revenue is highest, while subsequent years are affected by declining premium
revenues, as the number of insured loans decreases (primarily due to loan
prepayments), and by increasing losses.
The table below presents a summary of our primary IIF and RIF by book year as of
the dates indicated.
Primary IIF and RIF As of September 30, 2022 As of September 30, 2021
IIF RIF IIF RIF
(In Millions)
September 30, 2022 $ 46,695 $ 12,385 $ - $ -
2021 74,507 19,025 64,885 16,274
2020 36,869 9,386 47,196 11,848
2019 9,621 2,527 14,502 3,800
2018 3,755 965 5,675 1,446
2017 and before 7,726 1,971 11,360 2,885
Total $ 179,173 $ 46,259 $ 143,618 $ 36,253
We utilize certain risk principles that form the basis of how we underwrite and
originate NIW. We have established prudential underwriting standards and
loan-level eligibility matrices which prescribe the maximum LTV, minimum
borrower FICO score, maximum borrower DTI ratio, maximum loan size, property
type, loan type, loan term and occupancy status of loans that we will insure and
memorialized these standards and eligibility matrices in our Underwriting
Guideline Manual that is publicly available on our website. Our underwriting
standards and eligibility criteria are designed to limit the layering of risk in
a single insurance policy. "Layered risk" refers to the accumulation of
borrower, loan and property risk. For example, we have higher credit score and
lower maximum allowed LTV requirements for investor-owned properties, compared
to owner-occupied properties. We monitor the concentrations of various risk
attributes in our insurance portfolio, which may change over time, in part, as a
result of regional conditions or public policy shifts.
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The tables below present our primary NIW by FICO, LTV and purchase/refinance mix
for the periods indicated. We calculate the LTV of a loan as the percentage of
the original loan amount to the original purchase value of the property securing
the loan.
Primary NIW by FICO For the three months ended For the nine months ended
September 30, September 30, September 30, September 30,
2022 2021 2022 2021
(In Millions)
>= 760 $ 6,815 $ 8,073 $ 21,177 $ 32,377
740-759 3,663 3,254 8,951 12,812
720-739 2,751 2,563 6,744 9,678
700-719 2,245 2,099 5,534 6,255
680-699 1,477 1,487 3,998 4,139
<=679 288 608 1,611 1,971
Total $ 17,239 $ 18,084 $ 48,015 $ 67,232
Weighted average FICO 748 749 749 753
Primary NIW by LTV For the three months ended For the nine months ended
September 30, 2022 September 30, 2021 September 30, 2022 September 30, 2021
(In Millions)
95.01% and above $ 1,610 $ 1,957 $ 4,553 $ 6,585
90.01% to 95.00% 9,398 8,344 24,706 29,336
85.01% to 90.00% 4,505 4,961 13,145 19,071
85.00% and below 1,726 2,822 5,611 12,240
Total $ 17,239 $ 18,084 $ 48,015 $ 67,232
Weighted average LTV 92.6 % 91.8 % 92.3 % 91.3 %
Primary NIW by purchase/refinance mix For the three months ended For the nine months ended
September 30,
2022 2021 2022 2021
(In Millions)
Purchase $ 16,944 $ 16,400 $ 46,545 $ 53,220
Refinance 295 1,684 1,470 14,012
Total $ 17,239 $ 18,084 $ 48,015 $ 67,232
38
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The tables below present our total primary IIF and RIF by FICO and LTV, and
total primary RIF by loan type as of the dates indicated.
Primary IIF by FICO As of
September 30, 2022 September 30, 2021
($ Values In Millions)
>= 760 $ 87,152 48 % $ 73,080 51 %
740-759 31,770 18 24,676 17
720-739 25,089 14 19,898 14
700-719 17,852 10 13,206 9
680-699 12,185 7 8,678 6
<=679 5,125 3 4,080 3
Total $ 179,173 100 % $ 143,618 100 %
Primary RIF by FICO As of
September 30, 2022 September 30, 2021
($ Values In Millions)
>= 760 $ 22,125 48 % $ 18,200 51 %
740-759 8,298 18 6,280 17
720-739 6,574 14 5,086 14
700-719 4,747 10 3,432 9
680-699 3,223 7 2,243 6
<=679 1,292 3 1,012 3
Total $ 46,259 100 % $ 36,253 100 %
Primary IIF by LTV As of
September 30, 2022 September 30, 2021
($ Values In Millions)
95.01% and above $ 17,269 10 % $ 13,179 9 %
90.01% to 95.00% 84,396 47 63,828 45
85.01% to 90.00% 53,456 30 44,451 31
85.00% and below 24,052 13 22,160 15
Total $ 179,173 100 % $ 143,618 100 %
Primary RIF by LTV As of
September 30, 2022 September 30, 2021
($ Values In Millions)
95.01% and above $ 5,308 12 % $ 3,932 11 %
90.01% to 95.00% 24,921 54 18,810 52
85.01% to 90.00% 13,167 28 10,902 30
85.00% and below 2,863 6 2,609 7
Total $ 46,259 100 % $ 36,253 100 %
39
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Primary RIF by Loan Type As of
September 30, 2022 September 30, 2021
Fixed 99 % 99 %
Adjustable rate mortgages:
Less than five years - -
Five years and longer 1 1
Total 100 % 100 %
The table below presents selected primary portfolio statistics, by book year, as
of September 30, 2022 .
As of September 30, 2022
Original Remaining % Remaining of Incurred Loss
Insurance Insurance in Original Number of Policies in Number of Loans Ratio (Inception Cumulative Default Current Default
Book Year Written Force Insurance Policies Ever in Force Force in Default # of Claims Paid to Date) (1) Rate (2) Rate (3)
($ Values In Millions)
2013 $ 162 $ 5 3 % 655 38 1 1 1.0 % 0.3 % 2.6 %
2014 3,451 222 6 % 14,786 1,374 30 50 4.0 % 0.5 % 2.2 %
2015 12,422 1,332 11 % 52,548 7,363 147 125 2.8 % 0.5 % 2.0 %
2016 21,187 2,911 14 % 83,626 15,009 315 141 2.5 % 0.5 % 2.1 %
2017 21,582 3,256 15 % 85,897 17,140 526 115 3.4 % 0.7 % 3.1 %
2018 27,295 3,755 14 % 104,043 19,145 648 103 5.5 % 0.7 % 3.4 %
2019 45,141 9,621 21 % 148,423 40,171 673 27 6.6 % 0.5 % 1.7 %
2020 62,702 36,869 59 % 186,174 118,938 625 3 3.9 % 0.3 % 0.5 %
2021 85,574 74,507 87 % 257,972 231,306 1,027 1 5.3 % 0.4 % 0.4 %
2022 48,015 46,695 97 % 132,911 130,041 104 - 4.9 % 0.1 % 0.1 %
Total $ 327,531 $ 179,173 1,067,035 580,525 4,096 566
(1) Calculated as total claims incurred (paid and reserved) divided by
cumulative premiums earned, net of reinsurance.
(2) Calculated as the sum of the number of claims paid ever to date and number
of loans in default divided by policies ever in force.
(3) Calculated as the number of loans in default divided by number of policies
in force.
Geographic Dispersion
The following table shows the distribution by state of our primary RIF as of the
dates indicated. The distribution of our primary RIF as of September 30, 2022 is
not necessarily representative of the geographic distribution we expect in the
future.
Top 10 primary RIF by state As of
September 30, 2022 September 30, 2021
California 10.7 % 10.2 %
Texas 8.7 9.9
Florida 8.2 8.6
Virginia 4.2 4.9
Georgia 4.1 3.7
Illinois 4.0 3.7
Washington 3.9 3.5
Colorado 3.5 4.0
Maryland 3.4 3.8
Pennsylvania 3.4 3.2
Total 54.1 % 55.5 %
40
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Insurance Claims and Claim Expenses
Insurance claims and claim expenses incurred represent estimated future payments
on newly defaulted insured loans and any change in our claim estimates for
previously existing defaults. Claims incurred are generally affected by a
variety of factors, including the macroeconomic environment, national and
regional unemployment trends, changes in housing values, borrower risk
characteristics, LTV ratios and other loan level risk attributes, the size and
type of loans insured, the percentage of coverage on insured loans, and the
level of reinsurance coverage maintained against insured exposures.
Reserves for claims and claim expenses are established for mortgage loans that
are in default. A loan is considered to be in default as of the payment date at
which a borrower has missed the preceding two or more consecutive monthly
payments. We establish reserves for loans that have been reported to us in
default by servicers, referred to as case reserves, and additional loans that we
estimate (based on actuarial review and other factors) to be in default that
have not yet been reported to us by servicers, referred to as IBNR. We also
establish reserves for claim expenses, which represent the estimated cost of the
claim administration process, including legal and other fees and other general
expenses of administering the claim settlement process. Reserves are not
established for future claims on insured loans which are not currently reported
or which we estimate are not currently in default.
Reserves are established by estimating the number of loans in default that will
result in a claim payment, which is referred to as claim frequency, and the
amount of the claim payment expected to be paid on each such loan in default,
which is referred to as claim severity. Claim frequency and severity estimates
are established based on historical observed experience regarding certain loan
factors, such as age of the default, cure rates, size of the loan and estimated
change in property value. Reserves are released the month in which a loan in
default is brought current by the borrower, which is referred to as a cure.
Adjustments to reserve estimates are reflected in the period in which the
adjustment is made. Reserves are also ceded to reinsurers under the QSR
Transactions and ILN Transactions, as applicable under each treaty. We have not
yet ceded any reserves under the ILN Transactions as incurred claims and claim
expenses on each respective reference pool remain within our retained coverage
layer of each transaction. Our pool insurance agreement with Fannie Mae contains
a claim deductible through which Fannie Mae absorbs specified losses before we
are obligated to pay any claims. We have not established any claims or claim
expense reserves for pool exposure to date.
The actual claims we incur as our portfolio matures are difficult to predict and
depend on the specific characteristics of our current in-force book (including
the credit score and DTI of the borrower, the LTV ratio of the mortgage and
geographic concentrations, among others), as well as the risk profile of new
business we write in the future. In addition, claims experience will be affected
by macroeconomic factors such as housing prices, interest rates, unemployment
rates and other events, such as natural disasters or global pandemics, and any
federal, state or local governmental response thereto.
Our reserve setting process considers the beneficial impact of forbearance,
foreclosure moratorium and other assistance programs available to defaulted
borrowers. We generally observe that forbearance programs are an effective tool
to bridge dislocated borrowers from a time of acute stress to a future date when
they can resume timely payment of their mortgage obligations. The effectiveness
of forbearance programs is enhanced by the availability of various repayment and
loan modification options which allow borrowers to amortize or, in certain
instances, outright defer payments otherwise due during the forbearance period
over an extended length of time.
In response to the COVID-19 pandemic, politicians, regulators, lenders, loan
servicers and others have offered extraordinary assistance to dislocated
borrowers through, among other programs, the forbearance, foreclosure moratorium
and other assistance programs codified under the Coronavirus Aid, Relief, and
Economic Security Act (CARES Act). The FHFA and GSEs have offered further
assistance by introducing new repayment and loan modification options to assist
borrowers with their transition out of forbearance programs and default status.
We generally observe that forbearance, repayment and modification, and other
assistance programs aid affected borrowers and drive higher cure rates on
defaults than would otherwise be expected on similarly situated loans that did
not benefit from broad-based assistance programs.
41
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The following table provides a reconciliation of the beginning and ending gross
reserve balances for primary insurance claims and claim (benefits) expenses:
For the three months ended For the nine months ended
September 30, September 30, September 30, September 30,
2022 2021 2022 2021
(In Thousands)
Beginning balance $ 98,462 $
101,235
Less reinsurance recoverables (1)
(19,588) (19,726) (20,320) (17,608) Beginning balance, net of reinsurance recoverables 78,874 81,509 83,231 72,959 Add claims incurred: Claims and claim (benefits) expenses incurred: Current year (2) 9,348 3,649 28,135 19,275 Prior years (3) (12,737) (445) (35,179) (6,469) Total claims and claim (benefits) expenses incurred (3,389) 3,204 (7,044) 12,806 Less claims paid: Claims and claim expenses paid: Current year (2) 47 3 73 15 Prior years (3) 249 526 925 1,566 Total claims and claim expenses paid 296 529 998 1,581 Reserve at end of period, net of reinsurance recoverables 75,189 84,184 75,189 84,184 Add reinsurance recoverables (1) 19,755 20,420 19,755 20,420 Ending balance$ 94,944 $ 104,604 $ 94,944 $ 104,604 (1) Related to ceded losses recoverable under the QSR Transactions. See Item 1, "Financial Statements - Notes to Condensed Consolidated Financial Statements - Note 5, Reinsurance" for additional information. (2) Related to insured loans with their most recent defaults occurring in the current year. For example, if a loan defaulted in a prior year and subsequently cured and later re-defaulted in the current year, the default would be included in the current year. Amounts are presented net of reinsurance and included$23.3 million attributed to net case reserves and$4.2 million attributed to net IBNR reserves for the nine months endedSeptember 30, 2022 and$14.0 million attributed to net case reserves and$4.8 million attributed to net IBNR reserves for the nine months endedSeptember 30, 2021 . (3) Related to insured loans with defaults occurring in prior years, which have been continuously in default before the start of the current year. Amounts are presented net of reinsurance and included$29.2 million attributed to net case reserves and$4.7 million attributed to net IBNR reserves for the nine months endedSeptember 30, 2022 and$1.8 million attributed to net case reserves and$5.0 million attributed to net IBNR reserves for the nine months endedSeptember 30, 2021 . The "claims incurred" section of the table above shows claims and claim (benefits) expenses incurred on defaults occurring in current and prior years, including IBNR reserves and is presented net of reinsurance. We may increase or decrease our claim estimates and reserves as we learn additional information about individual defaulted loans, and continue to observe and analyze loss development trends in our portfolio. Gross reserves of$58.9 million related to prior year defaults remained as ofSeptember 30, 2022 . 42 -------------------------------------------------------------------------------- The following table provides a reconciliation of the beginning and ending count of loans in default: For the three months ended For the nine months ended September 30, 2022 September 30, 2021 September 30, 2022 September 30, 2021 Beginning default inventory 4,271 8,764 6,227 12,209 Plus: new defaults 1,354 1,624 3,586 4,486 Less: cures (1,511) (2,694) (5,654) (8,964) Less: claims paid (16) (24) (59) (59) Less: rescission and claims denied (2) - (4) (2) Ending default inventory 4,096 7,670 4,096 7,670 Ending default inventory declined fromSeptember 30, 2021 toSeptember 30, 2022 as borrowers initially impacted by the COVID-19 pandemic continued to cure their delinquencies, and fewer new defaults emerged as the acute economic stress of the pandemic crisis continued to recede. While our default population declined fromSeptember 30, 2021 toSeptember 30, 2022 , our default inventory remains elevated compared to historical experience due to the continued challenges certain borrowers are facing related to the COVID-19 pandemic and their decision to access the forbearance program for federally backed loans codified under the CARES Act or similar programs made available by private lenders. As ofSeptember 30, 2022 , 2,145 of our 4,096 defaulted loans were in a COVID-19 related forbearance program. The following table provides details of our claims paid, before giving effect to claims ceded under the QSR Transactions and ILN Transactions, for the periods indicated: For the three months ended For the nine months ended September 30, September 30, 2022 September 30, 2021 September 30, 2022 2021 ($ In Thousands) Number of claims paid (1) 16 24 59 59 Total amount paid for claims $ 376 $ 674 $ 1,249$ 1,982 Average amount paid per claim $ 24 $ 28 $ 21$ 34 Severity (2) 55 % 55 % 46 % 60 % (1) Count includes three and 19 claims settled without payment during the three and nine months endedSeptember 30, 2022 , respectively, and six and ten claims settled without payment during the three and nine months endedSeptember 30, 2021 , respectively. (2) Severity represents the total amount of claims paid including claim expenses divided by the related RIF on the loan at the time the claim is perfected, and is calculated including claims settled without payment. We paid 16 and 59 claims during the three and nine months endedSeptember 30, 2022 , respectively, and 24 and 59 claims during the three and nine months endedSeptember 30, 2021 , respectively. The number of claims paid was modest relative to the size of our insured portfolio and number of defaulted loans we reported in each period, primarily due to the forbearance program and foreclosure moratorium implemented by the GSEs in response to the COVID-19 pandemic and codified under the CARES Act. Such forbearance and foreclosure programs have extended, and may ultimately interrupt, the timeline over which loans would otherwise progress through the default cycle to a paid claim. Our claims paid experience for the three and nine months endedSeptember 30, 2022 and 2021, further benefited from broad national house price appreciation. An increase in the value of the homes collateralizing the mortgages we insure provides defaulted borrowers with alternative paths and incentives to cure their loan prior to the development of a claim. Our claims severity for the three and nine months endedSeptember 30, 2022 was 55% and 46%, respectively, compared to 55% and 60% for the three and nine months endedSeptember 30, 2021 , respectively. Claims severity for the three and nine months endedSeptember 30, 2022 and 2021 remained low compared to historical industry experience, primarily because of the same broad national house price appreciation that our claims paid benefit from. An increase in the value of the homes collateralizing the mortgages we insure provides additional equity support to our risk exposure and raises the prospect of a third-party sale of a foreclosed property, which can mitigate the severity of our settled claims. 43 -------------------------------------------------------------------------------- The following table provides detail on our average reserve per default, before giving effect to reserves ceded under the QSR Transactions, as of the dates indicated: Average reserve per default: As of September 30, 2022 As of September 30, 2021 (In Thousands) Case (1) $ 21.5 $ 12.6 IBNR (1)(2) 1.7 1.0 Total $ 23.2 $ 13.6 (1) Defined as the gross reserve per insured loan in default. (2) Amount includes claims adjustment expenses. Average reserve per default increased fromSeptember 30, 2021 toSeptember 30, 2022 primarily due to the "aging" of early COVID-related defaults. While we have generally established lower reserves for defaults that we consider to be connected to the COVID-19 pandemic given our expectation that forbearance, repayment and modification, and other assistance programs will aid affected borrowers and drive higher cure rates on such defaults than we would otherwise expect to experience on similarly situated loans that did not benefit from broad-based assistance programs, we have increased such reserves over time as individual defaults remain outstanding or "age." The increased average reserve per default atSeptember 30, 2022 also reflects an incrementally conservative set of assumptions about future macroeconomic and housing market conditions compared to those assumed atSeptember 30, 2021 .
While average reserve per default increased from
intervening period due to the significant decline in our total default
inventory.
GSE Oversight
As an approved insurer, NMIC is subject to ongoing compliance with the PMIERs established by each of the GSEs (italicized terms have the same meaning that such terms have in the PMIERs, as described below). The PMIERs establish operational, business, remedial and financial requirements applicable to approved insurers. The PMIERs financial requirements prescribe a risk-based methodology whereby the amount of assets required to be held against each insured loan is determined based on certain loan-level risk characteristics, such as FICO, vintage (year of origination), performing vs. non-performing (i.e., current vs. delinquent), LTV ratio and other risk features. In general, higher quality loans carry lower asset charges. Under the PMIERs, approved insurers must maintain available assets that equal or exceed minimum required assets, which is an amount equal to the greater of (i)$400 million or (ii) a total risk-based required asset amount. The risk-based required asset amount is a function of the risk profile of an approved insurer's RIF, assessed on a loan-by-loan basis and considered against certain risk-based factors derived from tables set out in the PMIERs, which is then adjusted on an aggregate basis for reinsurance transactions approved by the GSEs, such as with respect to our ILN Transactions and QSR Transactions. The aggregate gross risk-based required asset amount for performing, primary insurance is subject to a floor of 5.6% of performing primary adjusted RIF, and the risk-based required asset amount for pool insurance considers both factors in the PMIERs tables and the net remaining stop loss for each pool insurance policy. ByApril 15th of each year, NMIC must certify it met all PMIERs requirements as ofDecember 31st of the prior year. We certified to the GSEs byApril 15, 2022 that NMIC was in full compliance with the PMIERs as ofDecember 31, 2021 . NMIC also has an ongoing obligation to immediately notify the GSEs in writing upon discovery of a failure to meet one or more of the PMIERs requirements. We continuously monitor NMIC's compliance with the PMIERs. The following table provides a comparison of the PMIERs available assets and risk-based required asset amount as reported by NMIC as of the dates indicated: As of September 30, 2022 September 30, 2021 (In Thousands) Available assets $ 2,275,487 $ 1,992,964 Risk-based required assets 1,172,581 1,365,656 44
-------------------------------------------------------------------------------- Available assets were$2.3 billion atSeptember 30, 2022 , compared to$2.0 billion atSeptember 30, 2021 . The$283 million increase in available assets between the dates presented was primarily driven by NMIC's positive cash flow from operations during the intervening period, partially offset by the payment of an ordinary course dividend by NMIC to NMIH inApril 2022 and the extraordinary dividend paid from Re One to NMIH following the termination and commutation of the reinsurance agreement between NMIC and Re One inDecember 2021 .
The decrease in the risk-based required asset amount between the dates presented
was primarily due to an increase in the risk ceded under our third-party
reinsurance agreements, partially offset by the growth in our gross RIF and
aggregate gross-risk based required asset amount.
Competition
The MI industry is highly competitive and currently consists of six private mortgage insurers, including NMIC, as well as government MIs such as the FHA,USDA orVA . Private MI companies compete based on service, customer relationships, underwriting and other factors, including price, credit risk tolerance and IT capabilities. We expect the private MI market to remain competitive, with pressure for industry participants to maintain or grow their market share. The private MI industry overall competes more broadly with government MIs who significantly increased their share in the MI market following the 2008 Financial Crisis. Although there has been broad policy consensus toward the need for increasing private capital participation and decreasing government exposure to credit risk in theU.S. housing finance system, it remains difficult to predict whether the combined market share of government MIs will recede to pre-2008 levels. A range of factors influence a lender's and borrower's decision to choose private over government MI, including among others, premium rates and other charges, loan eligibility requirements, the cancelability of private coverage, loan size limits and the relative ease of use of private MI products compared to government MI alternatives.
LIBOR Transition
OnMarch 5, 2021 ,ICE Benchmark Administration Limited (IBA), the administrator for LIBOR, confirmed it would permanently cease the publication of overnight, one-month, three-month, six-month and twelve-month USD LIBOR settings in their current form afterJune 30, 2023 .The U.K. Financial Conduct Authority , the regulator of IBA, announced on the same day that it intends to stop requiring panel banks to continue to submit to LIBOR and all USD LIBOR settings in their current form will either cease to be provided by any administrator or no longer be representative afterJune 30, 2023 . We have exposure to USD LIBOR-based financial instruments, such as LIBOR-based securities held in our investment portfolio and certain ILN Transactions that require LIBOR-based payments. We are in the process of reviewing our LIBOR-based contracts and transitioning, as necessary and applicable, to a set of alternative reference rates. We will continue to monitor, assess and plan for the phase out of LIBOR; however, we do not expect the impact of such transition to be material to our operations or financial results. 45
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