Loss Reserves (Tables)

9 Months Ended

Sep. 30, 2015

Reconciliation of beginning and ending loss reserves

The following table provides a reconciliation of beginning and ending loss reserves for the nine months ended September 30, 2015 and 2014:



	Nine months ended September 30,
	2015			2014
	(In thousands)

Reserve at beginning of period	$	2,396,807		$	3,061,401
Less reinsurance recoverable	57,841			64,085
Net reserve at beginning of period	2,338,966			2,997,316

Losses incurred:
Losses and LAE incurred in respect of default notices related to:
Current year	338,611			454,390
Prior years (1)	(90,130		)	(75,387		)
Subtotal	248,481			379,003

Losses paid:
Losses and LAE paid in respect of default notices related to:
Current year	9,227			11,574
Prior years	652,465			895,061
Reinsurance terminations (2)	(15,440		)	—
Subtotal	646,252			906,635

Net reserve at end of period	1,941,195			2,469,684
Plus reinsurance recoverables	38,748			57,898

Reserve at end of period	$	1,979,943		$	2,527,582


(1)	A negative number for prior year losses incurred indicates a redundancy of prior year loss reserves and a positive number for prior year losses incurred indicates a deficiency of prior year loss reserves.

(2)

In a termination or commutation, the reinsurance agreement is cancelled, with no future premium ceded and funds for any incurred but unpaid losses transferred to us. The transferred funds result in an increase in our investment portfolio (including cash and cash equivalents) and a decrease in net losses paid (reduction in losses incurred). In addition, there is an offsetting decrease in the reinsurance recoverable (increase in losses incurred), and thus there is no net impact to losses incurred.

Prior year development of the reserves

The prior year development of the reserves in the first nine months of 2015 and 2014 is reflected in the table below.



	Nine months ended September 30,
	2015			2014
	(In millions)
Decrease in estimated claim rate on primary defaults	$	(95	)	$	(38	)
Increase in estimated severity on primary defaults	12			(20		)
Change in estimates related to pool reserves, LAE reserves and reinsurance	(7		)	(17		)
Total prior year loss development (1)	$	(90	)	$	(75	)


(1)	A negative number for prior year loss development indicates a redundancy of prior year loss reserves, and a positive number indicates a deficiency of prior year loss reserves

Rollforward of primary default inventory

A rollforward of our primary default inventory for the three and nine months ended September 30, 2015 and 2014 appears in the table 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 number of business days in a month and transfers of servicing between loan servicers.



	Three months ended September 30,				Nine months ended September 30,
	2015		2014		2015		2014
Default inventory at beginning of period	66,357		85,416		79,901		103,328
New notices	19,509		22,927		55,856		67,451
Cures	(17,036	)	(19,582	)	(56,700	)	(68,082	)
Paids (including those charged to a deductible or captive)	(3,958	)	(5,288	)	(12,671	)	(18,420	)
Rescissions and denials	(230	)	(319	)	(623	)	(1,123	)
Items removed from inventory resulting from the Countrywide settlement on GSE loans	—		—		(1,121	)	—
Default inventory at end of period	64,642		83,154		64,642		83,154

Aging of the primary default inventory

As of September 30, 2015 the percentage of loans in the inventory that have been in default for 12 or more consecutive months has declined compared with the prior year end and one year prior, as shown in the table below. Historically as a default ages it becomes more likely to result in a claim. The percentage of loans that have been in default for 12 or more consecutive months and the number of loans in our primary claims received inventory have been affected by our suspended rescissions and the resolution of certain of those rescissions discussed below and in Note 5 – “Litigation and Contingencies.”



	September 30, 2015			December 31, 2014			September 30, 2014
Consecutive months in default
3 months or less	13,991	22	%	15,319	19	%	16,209	19	%
4 - 11 months	14,703	23	%	19,710	25	%	18,890	23	%
12 months or more	35,948	55	%	44,872	56	%	48,055	58	%

Total primary default inventory	64,642	100	%	79,901	100	%	83,154	100	%

Primary claims received inventory included in ending default inventory (1)	2,982	5	%	4,746	6	%	5,194	6	%


(1)	Our claims received inventory includes suspended rescissions, as we have voluntarily suspended rescissions of coverage related to loans that we believed would be included in a potential resolution. As of September 30, 2015, rescissions of coverage on approximately 430 loans had been voluntarily suspended compared to 1,425 at December 31, 2014 and 1,575 at September 30, 2014.

Number of payments delinquent

The number of payments that a borrower is delinquent is shown in the table below.



	September 30, 2015			December 31, 2014			September 30, 2014
Number of payments delinquent
3 payments or less	20,637	32	%	23,253	29	%	23,769	28	%
4 - 11 payments	14,890	23	%	19,427	24	%	18,985	23	%
12 payments or more	29,115	45	%	37,221	47	%	40,400	49	%

Total primary default inventory	64,642	100	%	79,901	100	%	83,154	100	%