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Reserve for Losses and Loss Adjustment Expenses
 12 Months Ended
Dec. 31, 2020
Liability for Future Policy Benefits and Unpaid Claims and Claims Adjustment Expense [Abstract]  
Reserve for Losses and Loss Adjustment Expenses 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 years ended December 31:
($ in thousands)202020192018
Reserve for losses and LAE at beginning of year$69,362 $49,464 $46,850 
Less: Reinsurance recoverables71 — — 
Net reserve for losses and LAE at beginning of year69,291 49,464 46,850 
Add provision for losses and LAE, net of reinsurance, occurring in:   
Current year317,516 50,562 36,438 
Prior years(16,223)(17,576)(24,863)
Net incurred losses and LAE during the current year301,293 32,986 11,575 
Deduct payments for losses and LAE, net of reinsurance, occurring in:   
Current year1,018 1,288 1,310 
Prior years13,686 11,871 7,651 
Net loss and LAE payments during the current year14,704 13,159 8,961 
Net reserve for losses and LAE at end of year355,880 69,291 49,464 
Plus: Reinsurance recoverables19,061 71 — 
Reserve for losses and LAE at end of year$374,941 $69,362 $49,464 
Loans in default at end of year31,469 5,947 4,024 
For the year ended December 31, 2020, $13.7 million was paid for incurred claims and claim adjustment expenses attributable to insured events of prior years. There has been a $16.2 million favorable prior year development during the year ended December 31, 2020. Reserves remaining as of December 31, 2020 for prior years are $39.4 million as a result of re-estimation of unpaid losses and loss adjustment expenses. For the year ended December 31, 2019, $11.9 million was paid for incurred claims and claim adjustment expenses attributable to insured events of prior years. There was a $17.6 million favorable prior year development during the year ended December 31, 2019. Reserves remaining as of December 31, 2019 for prior years were $20.0 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.

Due to business restrictions, stay-at-home orders and travel restrictions initially implemented in March 2020 as a result of COVID-19, unemployment in the United States increased significantly in the second quarter of 2020 and remained elevated at December 31, 2020. As unemployment is one of the most common reasons for borrowers to default on their mortgage, the increase in unemployment has increased the number of delinquencies on the mortgages that we insure and has the potential to increase claim frequencies on defaults. As of December 31, 2020, insured loans in default totaled 31,469 and included 28,922 defaults classified as COVID-19 defaults. For borrowers that have the ability to begin to pay their mortgage at the end of the forbearance period, we expect that mortgage servicers will work with them to modify their loans at which time the mortgage will be removed from delinquency status. We believe that the forbearance process could have a favorable effect on the frequency of claims that we ultimately pay. Based on the forbearance programs in place and the credit characteristics of the COVID-19 defaulted loans, we expect the ultimate number of COVID-19-related defaults that result in claims will be less than our historical default-to-claim experience. Accordingly, we recorded a reserve equal to approximately 7% of the risk in force for the COVID-19 default notices received in April 2020 through September 2020. The credit characteristics of defaults reported in October 2020 through December 2020 have trended towards those of the pre-pandemic periods and we have observed the normalization of other default patterns during this period. In addition, we observed a normalization during the fourth quarter of 2020 of the proportion of unemployment claims related to permanent layoffs as compared to a higher proportion of temporary layoffs during the second and third quarters of 2020. We believe that while defaults in October 2020 through December 2020 were impacted by the pandemic’s effect on the economy, the underlying credit performance of these defaults may not be the same as the expected performance for default notices received in April 2020 through September 2020 that occurred following the onset of the pandemic and these defaults are more likely to transition like pre-pandemic defaults. Accordingly, although these defaults are classified as COVID-19 defaults, we established reserves for defaults reported in October 2020 through December 2020 using our normal reserve methodology. The reserve for losses and LAE on COVID-19 defaults was $316.3 million at December 31, 2020. It is reasonably possible that our estimate of the losses for the COVID-19 defaults could change in the near term as a result of the continued impact of the pandemic on the economic environment, the results of existing and future governmental programs designed to assist individuals and businesses impacted by the virus and the performance of the COVID-19 defaults in the forbearance programs. A 100 basis point increase or decrease in the reserve rate applied to COVID-19 default notices received in April 2020 through September 2020 would result in a corresponding increase or decrease in our reserve for loss and LAE of approximately $35 million as of December 31, 2020. The impact on our reserves in future periods will be dependent upon the amount of delinquent notices received from loan servicers, the performance of COVID-19 defaults and our expectations for the amount of ultimate losses on these delinquencies.

During the third quarter of 2017, certain regions of the U.S. experienced hurricanes which have impacted our insured portfolio’s performance. Loans in default identified as hurricane-related defaults totaled 2,288 as of December 31, 2017 and in the fourth quarter of 2017, we provided reserves of $11.1 million for losses and LAE on these hurricane-related defaults. In the year ended December 31, 2018, 2,150 of the 2,288 defaults previously identified as hurricane-related cured. In the fourth quarter of 2018, we reduced the reserves on hurricane-related defaults by $9.9 million based on the performance to date and our expectations of the amount of ultimate losses on the remaining delinquencies.
The following table summarizes incurred loss and allocated loss adjustment expense development, IBNR plus expected development on reported defaults and the cumulative number of reported defaults. The information about incurred loss development for the years ended December 31, 2011 to 2019 is presented as supplementary information.
Incurred Loss and Allocated LAE,
For the Years Ended December 31,		As of December 31, 2020
($ in thousands)Total of IBNR plus Expected Development on Reported DefaultsCumulative Number of Reported Defaults (1)
Unaudited
Accident Year2011201220132014201520162017201820192020
2011$57 $— $— $— $— $— $— $— $— $— $— 1 
20121,523 858 814 781 748 809 808 808 808 — 19 
20132,986 2,461 2,008 1,997 2,060 2,058 2,058 2,058 — 51 
20146,877 4,312 3,323 2,984 2,930 2,897 2,882 1 92 
201514,956 9,625 8,893 8,439 8,461 8,323 18 214 
201621,889 11,890 9,455 9,219 8,972 45 252 
201738,178 16,261 12,202 11,488 85 365 
201836,438 23,168 19,536 424 606 
201950,562 39,085 2,151 1,551 
2020317,516 23,023 29,834 
Total$410,668 
(1) Cumulative number of reported defaults includes cumulative paid claims plus loans in default by accident year as of December 31, 2020.

The following table summarizes cumulative paid losses and allocated loss adjustment expenses, net of reinsurance. The information about paid loss development for the years ended December 31, 2011 through 2019 is presented as supplementary information.
($ in thousands)Cumulative Paid Losses and Allocated LAE
For the Years Ended December 31,
Unaudited
Accident Year2011201220132014201520162017201820192020
2011$— $— $— $— $— $— $— $— $— $— 
201224 535 659 665 665 808 808 808 808 
2013239 928 1,501 1,775 1,880 2,058 2,058 2,058 
2014138 1,587 2,463 2,787 2,897 2,882 2,867 
2015544 3,610 6,960 7,535 7,961 8,055 
2016927 4,896 6,947 7,864 8,270 
2017633 5,370 9,156 10,257 
20181,310 8,067 13,406 
20191,288 8,049 
20201,018 
Total $54,788 
All outstanding liabilities before 2011, net of reinsurance
— 
Reserve for losses and LAE, net of reinsurance$355,880 

The following table provides a reconciliation of the net incurred losses and paid claims development tables above to the reserve for losses and LAE at December 31, 2020:
($ in thousands)December 31, 2020
Reserve for losses and LAE, net of reinsurance$355,880 
Reinsurance recoverables on unpaid claims19,061 
Total gross reserve for losses and LAE$374,941 
For our mortgage insurance portfolio, our average annual payout of losses as of December 31, 2020 is as follows:
Average Annual Percentage Payout of Incurred Losses and Allocated LAE by Year
Year123456789
Average Payout6 %40 %28 %9 %4 %7 %0 %0 %0 %