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Loss Reserves | 9 Months Ended
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Sep. 30, 2019
Insurance Loss Reserves [Abstract] |
Loss Reserves | Loss Reserves We establish reserves to recognize the estimated liability for losses and loss adjustment expenses (“LAE”) related to defaults on insured mortgage loans. Loss reserves are established by estimating the number of loans in our inventory of delinquent loans that will result in a claim payment, which is referred to as the claim rate, and further estimating the amount of the claim payment, which is referred to as claim severity. Estimation of losses is inherently judgmental. The conditions that affect the claim rate and claim severity include the current and future state of the domestic economy, including unemployment and the current and future strength of local housing markets; exposure on insured loans; the amount of time between default and claim filing; and curtailments and rescissions. The actual amount of the claim payments may be substantially different than our loss reserve estimates. Our estimates could be adversely affected by several factors, including a deterioration of regional or national economic conditions, including unemployment, leading to a reduction in borrowers’ income and thus their ability to make mortgage payments, and a drop in housing values which may affect borrower willingness to continue to make mortgage payments when the value of the home is below the mortgage balance. Changes to our estimates could result in a material impact to our consolidated results of operations and financial position, even in a stable economic environment. The “Losses incurred” section of table 11.1 below shows losses incurred on delinquencies that occurred in the current year and in prior years. The amount of losses incurred relating to delinquencies that occurred in the current year represents the estimated amount to be ultimately paid on such delinquencies. The amount of losses incurred relating to delinquencies that occurred in prior years represents the difference between the actual claim rate and severity associated with those delinquencies resolved in the current year compared to the estimated claim rate and severity at the prior year-end, as well as a re-estimation of amounts to be ultimately paid on delinquencies continuing from the end of the prior year. This re-estimation of the claim rate and severity is the result of our review of current trends in the delinquent inventory, such as percentages of delinquencies that have resulted in a claim, the amount of the claims relative to the average loan exposure, changes in the relative level of delinquencies by geography and changes in average loan exposure. Losses incurred on delinquencies that occurred in the current year decreased in the first nine months of 2019 compared to the same period in 2018, due to a decrease in the estimated claim rate on delinquencies that occurred in the current year. For the nine months ended September 30, 2019 and 2018, we experienced favorable loss reserve development on previously received delinquencies. This was, in large part, due to the resolution of approximately 61% and 65%, respectively, of the prior year delinquent inventory, with lower claim rates due to improved cure rates. The favorable loss reserve development resulting from a reduction in the estimated claim rate was partially offset in the nine months ended September 30, 2019 by the recognition of a probable loss of $23.5 million related to litigation of our claims paying practices and an increase in our LAE reserves, and for the nine months ended September 30, 2018, by an increase in our severity assumption on previously received delinquencies and an increase in our LAE reserves. The “Losses paid” section of table 11.1 below shows the amount of losses paid on delinquencies that occurred in the current year and losses paid on delinquencies that occurred in prior years. For several years, the average time it took to receive a claim associated with a delinquency had increased significantly from our historical experience of approximately twelve months. This was, in part, due to new loss mitigation protocols established by servicers and to changes in some state foreclosure laws that may include, for example, a requirement for additional review and/or mediation processes. In recent quarters, we have experienced a decline in the average time servicers are utilizing to process foreclosures, which has reduced the average time to receive a claim associated with new delinquent notices that do not cure. All else being equal, the longer the period between delinquency and claim filing, the greater the severity. During the first nine months of 2019 and 2018, our losses paid included amounts paid upon commutation of coverage of pools of non-performing loans (“NPLs”). The impacts of these payments were as follows:
• | 2019 - 195 items were removed from the delinquent inventory with an amount paid of $4 million.
• | 2018 - 1,243 items were removed from the delinquent inventory with an amount paid of $40 million.
Premium refunds Our estimate of premiums to be refunded on expected claim payments is accrued for separately in “Other Liabilities” on our consolidated balance sheets and approximated $31 million and $40 million at September 30, 2019 and December 31, 2018, respectively. Table 11.1 provides a reconciliation of beginning and ending loss reserves as of and for the nine months ended September 30, 2019 and 2018.
Development of reserves for losses and loss adjustment expenses
Table | 11.1 |  |  |  |
|  |  | Nine Months Ended September 30,
(In thousands) |  | 2019 |  | 2018
Reserve at beginning of period |  | $ | 674,019 |  |  | $ | 985,635 |
Less reinsurance recoverable |  | 33,328 |  |  | 48,474 |
Net reserve at beginning of period |  | 640,691 |  |  | 937,161 |
Losses incurred: |  |  |  |
Losses and LAE incurred in respect of delinquency notices received in: |  |  |  |
Current year |  | 142,644 |  |  | 155,808 |
Prior years (1) |  | (47,760 | ) |  | (146,931 | )
Total losses incurred |  | 94,884 |  |  | 8,877 |
Losses paid: |  |  |  |
Losses and LAE paid in respect of delinquency notices received in: |  |  |  |
Current year |  | 980 |  |  | 2,449 |
Prior years |  | 165,844 |  |  | 257,808 |
Reinsurance terminations |  | (13,980 | ) |  | (1,984 | )
Total losses paid |  | 152,844 |  |  | 258,273 |
Net reserve at end of period |  | 582,731 |  |  | 687,765 |
Plus reinsurance recoverables |  | 19,566 |  |  | 33,281 |
Reserve at end of period |  | $ | 602,297 |  |  | $ | 721,046 |
(1) | A negative number for prior year losses incurred indicates a redundancy of prior year loss reserves. See the following table for more information about prior year loss development.
The prior year development of the reserves in the first nine months of 2019 and 2018 is reflected in table 11.2 below.
Reserve development on previously received delinquencies
Table | 11.2 |  |  |  |
|  |  | Nine Months Ended September 30,
(In millions) |  | 2019 |  | 2018
Decrease in estimated claim rate on primary defaults |  | $ | (94 | ) |  | $ | (184 | )
Increase in estimated severity on primary defaults |  | 2 |  |  | 22 |
Change in estimates related to pool reserves, LAE reserves, reinsurance, and other |  | 44 |  |  | 15 |
Total prior year loss development (1) |  | $ | (48 | ) |  | $ | (147 | )
(1) | A negative number for prior year loss development indicates a redundancy of prior year loss reserves.
Delinquent inventory A rollforward of our primary delinquent inventory for the three and nine months ended September 30, 2019 and 2018 appears in table 11.3 below. The information concerning new notices and cures is compiled from monthly reports received from loan servicers. The level of new notice and cure activity reported in a particular month can be influenced by, among other things, the date on which a servicer generates its report, the accuracy of the data provided by servicers, the number of business days in a month, transfers of servicing between loan servicers and whether all servicers have provided the reports in a given month.
Delinquent inventory rollforward |  |  |  |
Table | 11.3 |  |  |  |  |  |  |  |
|  | Three Months Ended September 30, |  | Nine Months Ended September 30,
|  | 2019 |  | 2018 |  | 2019 |  | 2018
Delinquent inventory at beginning of period |  | 29,795 |  |  | 36,037 |  |  | 32,898 |  |  | 46,556 |
New notices |  | 14,019 |  |  | 13,569 |  |  | 40,545 |  |  | 40,351 |
Cures |  | (12,592 | ) |  | (14,197 | ) |  | (39,822 | ) |  | (47,620 | )
Paid claims |  | (1,045 | ) |  | (1,374 | ) |  | (3,345 | ) |  | (4,446 | )
Rescissions and denials |  | (42 | ) |  | (56 | ) |  | (141 | ) |  | (200 | )
Other items removed from inventory |  | (195 | ) |  | (581 | ) |  | (195 | ) |  | (1,243 | )
Delinquent inventory at end of period |  | 29,940 |  |  | 33,398 |  |  | 29,940 |  |  | 33,398 |
When compared to the prior year periods, the decrease in the primary delinquent inventory experienced during the three and nine months ended September 30, 2019 and 2018 was generally across all markets and primarily in book years 2008 and prior. New notices increased in the three and nine months ended September 2019 when compared to the same periods of 2018 primarily due to our larger, more recent book years entering their expected peak loss years, and an overall increase in our insurance in force and policies in force. New notice activity in the three months ended September 30, 2019 exceeded the reductions to our delinquent inventory resulting in a slight increase in our delinquent inventory from June 30, 2019. Table 11.4 below shows the number of consecutive months a borrower is delinquent. Historically as a delinquency ages it becomes more likely to result in a claim.
Primary delinquent inventory - consecutive months delinquent
Table | 11.4 |  |  |
| September 30, 2019 | December 31, 2018 | September 30, 2018
3 months or less | 9,462 |  | 9,829 |  | 9,484 |
4-11 months | 9,082 |  | 9,655 |  | 9,564 |
12 months or more (1) | 11,396 |  | 13,414 |  | 14,350 |
Total | 29,940 |  | 32,898 |  | 33,398 |
3 months or less | 32 | % | 30 | % | 28 | %
4-11 months | 30 | % | 29 | % | 29 | %
12 months or more | 38 | % | 41 | % | 43 | %
Total | 100 | % | 100 | % | 100 | %
Primary claims received inventory included in ending delinquent inventory | 557 |  | 809 |  | 766 |
(1) | Approximately 36%, 38%, and 39% of the primary delinquent inventory delinquent for 12 consecutive months or more has been delinquent for at least 36 consecutive months as of September 30, 2019, December 31, 2018, and September 30, 2018, respectively.
Claims paying practices Our loss reserving methodology incorporates our estimates of future rescissions and curtailments. A variance between ultimate actual rescission and curtailment rates and our estimates, as a result of the outcome of litigation, settlements or other factors, could materially affect our losses. Our estimate of premiums to be refunded on expected future rescissions is accrued for separately and is included in “Other liabilities” on our consolidated balance sheets. For information about discussions and legal proceedings with customers with respect to our claims paying practices see Note 5 – “Litigation and Contingencies.”

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- Definition The entire disclosure for liabilities related to future policy benefits and unpaid claims and claim adjustments. + References Reference 1: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 944 -SubTopic 40 -URI http://asc.fasb.org/subtopic&trid=2560295 + Details
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