Loss Reserves (Tables)

3 Months Ended

Mar. 31, 2016

Reconciliation of beginning and ending loss reserves

The following table provides a reconciliation of beginning and ending loss reserves for the three months ended March 31, 2016 and 2015:



	Three months ended March 31,
(In thousands)	2016			2015
Reserve at beginning of period	$	1,893,402		$	2,396,807
Less reinsurance recoverable	44,487			57,841
Net reserve at beginning of period	1,848,915			2,338,966

Losses incurred:
Losses and LAE incurred in respect of defaults related to:
Current year	92,479			109,381
Prior years ⁽¹⁾	(7,467		)	(27,596		)
Subtotal	85,012			81,785

Losses paid:
Losses and LAE paid in respect of defaults related to:
Current year	204			312
Prior years	221,457			231,230
Reinsurance terminations ⁽²⁾	(4		)	—
Subtotal	221,657			231,542

Net reserve at end of period	1,712,270			2,189,209
Plus reinsurance recoverables	41,119			55,415

Reserve at end of period	$	1,753,389		$	2,244,624


⁽¹⁾	A negative number for prior year losses incurred indicates a redundancy 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 three months of 2016 and 2015 is reflected in the following table.



	Three months ended March 31,
(In millions)	2016			2015
Decrease in estimated claim rate on primary defaults	$	(26	)	$	(39	)
Increase in estimated severity on primary defaults	22			17
Change in estimates related to pool reserves, LAE reserves and reinsurance	(3		)	(6		)
Total prior year loss development ⁽¹⁾	$	(7	)	$	(28	)


⁽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 months ended March 31, 2016 and 2015 appears in the following table. 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 March 31,
	2016		2015
Default inventory at beginning of period	62,633		79,901
New notices	16,731		18,896
Cures	(19,053	)	(21,767	)
Paids (including those charged to a deductible or captive)	(3,373	)	(4,573	)
Rescissions and denials	(210	)	(221	)
Items removed from inventory resulting from settlements ⁽¹⁾	(1,138	)	—
Default inventory at end of period	55,590		72,236


⁽¹⁾	Includes 732 loans whose insurance was terminated by agreement to settle coverage on certain non-performing loans, and 406 loans for which we had previously suspended rescissions and that were included in a rescission settlement agreement. Both agreements became effective in the first quarter of 2016 and neither had a material financial impact in the quarter.

Aging of the primary default inventory

As of March 31, 2016 the percentage of loans in the inventory that have been in default for 12 or more consecutive months remained consistent compared with the prior year end and declined compared to one year prior, as shown in the following table. 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.”



	March 31, 2016			December 31, 2015			March 31, 2015
Consecutive months in default
3 months or less	10,120	18	%	13,053	21	%	11,604	16	%
4 - 11 months	15,319	28	%	15,763	25	%	18,940	26	%
12 months or more ⁽¹⁾	30,151	54	%	33,817	54	%	41,692	58	%
Total primary default inventory	55,590	100	%	62,633	100	%	72,236	100	%

Primary claims received inventory included in ending default inventory	2,267	4	%	2,769	4	%	4,448	6	%


⁽¹⁾	Approximately 49%, 50%, and 53% of the primary default inventory in default for 12 consecutive months or more has been in default for at least 36 consecutive months as of March 31, 2016, December 31, 2015, and March 31, 2015, respectively.

Number of payments delinquent

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



	March 31, 2016			December 31, 2015			March 31, 2015
Number of payments delinquent
3 payments or less	16,864	30	%	20,360	33	%	19,159	27	%
4 - 11 payments	14,595	26	%	15,092	24	%	18,372	25	%
12 payments or more	24,131	44	%	27,181	43	%	34,705	48	%
Total primary default inventory	55,590	100	%	62,633	100	%	72,236	100	%