Reserves for Insurance Claims and Claim Expenses

9 Months Ended

Sep. 30, 2015

Reserves for Insurance Claims and Claim Expenses

Reserves for Insurance Claims and Claims Expenses

We establish claim reserves to recognize the estimated liability for insurance claims and claim expenses related to defaults on insured mortgage loans. Our method, consistent with industry practice, is to establish claim reserves only for loans in default. Our claim reserves also include amounts for estimated claims incurred on loans that have been in default for at least 60 days that have not yet been reported to us by the servicers, often referred to as IBNR. As of September 30, 2015, we have established reserves for insurance claims of $358 thousand for twenty primary loans in default. We settled our first primary claim in July 2015 for $4 thousand.

In 2013, we entered into a pool insurance agreement with Fannie Mae. We only establish claim or IBNR reserves for pool risk if we expect claims to exceed the deductible under the pool agreement, which represents the amount of claims absorbed by Fannie Mae before we are obligated to pay any claims. At September 30, 2015, thirty-six loans in the pool were past due by sixty days or more. These thirty-six loans represent approximately $2.4 million in RIF. Due to the remaining deductible of $10.3 million, the level of notices of default (NODs) reported through September 30, 2015 and the expected severity (all loans in the pool have loan-to-value ratios (LTVs) under 80%), we have not established any pool reserves for claims or IBNR for the three and nine months ended September 30, 2015 and 2014. In connection with settlement of pool claims, we applied $18 thousand to the pool deductible through September 30, 2015. We have not paid any pool claims to date.

The following table provides a reconciliation of the beginning and ending reserve balances for primary insurance claims and claims expenses:



	For the nine months ended September 30,
	2015			2014
	(In Thousands)
Balance, January 1	$	83		$	—

Claims incurred:
Claims and claim expenses incurred:
Current year	358			2
Prior years	(79		)	—
Total claims incurred	279			2

Claims paid:
Claims and claim expenses paid:
Current year	—			—
Prior years	4			—
Total claims paid	4			—

Balance, September 30	$	358		$	2

There was a $79 thousand favorable prior year development during the nine months ended September 30, 2015. There were no reserves remaining for defaults occurring in prior years as of September 30, 2015 as a result of NOD cures and claim payments. The decrease in the period is generally the result of ongoing analysis of recent loss development trends. We may increase or decrease our original estimates as we learn additional information about individual defaults and claims.