Reserve for Losses and Loss Adjustment Expenses

9 Months Ended

Sep. 30, 2024

Liability for Future Policy Benefits and Unpaid Claims and Claims Adjustment Expense [Abstract]

Reserve for Losses and Loss Adjustment Expenses

The following table provides a reconciliation of the beginning and ending reserve balances for losses and loss adjustment expenses (“LAE”) for the nine months ended September 30:


(In thousands)	2024		2023
Reserve for losses and LAE at beginning of period	$	260,095	$	216,464
Less: Reinsurance recoverables	24,104		14,618
Net reserve for losses and LAE at beginning of period	235,991		201,846

Add provision for losses and LAE, net of reinsurance, occurring in:
Current period	124,180		101,547
Prior years	(83,935)		(89,645)
Net incurred losses and LAE during the current period	40,245		11,902
Deduct payments for losses and LAE, net of reinsurance, occurring in:
Current period	1,824		187
Prior years	17,062		7,496
Net loss and LAE payments during the current period	18,886		7,683
Net reserve for losses and LAE at end of period	257,350		220,578
Plus: Reinsurance recoverables	30,966		20,755
Reserve for losses and LAE at end of period	$	288,316	$	241,333

For the nine months ended September 30, 2024, $17.1 million was paid for incurred claims and claim adjustment expenses attributable to insured events of prior years. There has been $83.9 million of favorable prior year development during the nine months ended September 30, 2024. Reserves remaining as of September 30, 2024 for prior years are $135.0 million as a result of re-estimation of unpaid losses and loss adjustment expenses. For the nine months ended September 30, 2023, $7.5 million was paid for incurred claims and claim adjustment expenses attributable to insured events of prior years. There was $89.6 million of favorable prior year development during the nine months ended September 30, 2023. Reserves remaining as of September 30, 2023 for prior years were $104.7 million as a result of re-estimation of unpaid losses and loss adjustment expenses. In both periods, the favorable prior years' loss development was the result of a re-estimation of amounts ultimately to be paid on prior year defaults in the default inventory, including the impact of previously identified defaults that cured. Original estimates are increased or decreased as additional information becomes known regarding individual claims.

The Federal Reserve increased the target federal funds rate several times during 2022 and 2023 in an effort to reduce consumer price inflation. As a result of progress on inflation, in September 2024, the Federal Reserve reduced the target federal funds rate by 50 basis points. Mortgage interest rates remain elevated which may lower home sale activity and affect the options available to delinquent borrowers. It is reasonably possible that our estimate of losses could change in the near term as a result

of changes in the economic environment, the impact of elevated mortgage interest rates on home sale activity, housing inventory and home prices.

On September 26, 2024, Hurricane Helene made landfall and caused property damage in certain counties in Florida, Georgia, South Carolina, North Carolina, Tennessee and Virginia. On October 9, 2024, Hurricane Milton made landfall causing damage in certain counties in Florida. We believe these hurricanes could have an impact on our insured portfolio’s performance and expect to experience increased defaults in these areas beginning in the fourth quarter of 2024. As of October 31, 2024, our insurance in force in counties with Federal Emergency Management Agency disaster declarations due to hurricanes Helene and Milton is approximately 12.5% of our total insurance in force. It is too early to tell how many claims we ultimately may have to pay associated with any defaults in the hurricane impacted areas. There are many factors contributing to the uncertainty surrounding these insured loans. Under our master policy, loan servicers are not required to notify us of a default until the borrower has missed two consecutive minimum payments. Also, the level of damage being reported in these areas varies significantly from region to region. Further, under our master policy, our exposure may be limited on hurricane-related claims. For example, we are permitted to exclude a claim entirely where damage to the property underlying a mortgage was the proximate cause of the default and adjust a claim where the property underlying a mortgage in default is subject to unrestored physical damage. These events have not materially affected our reserves as of September 30, 2024.