Loss Reserves (Tables)

9 Months Ended

Sep. 30, 2016

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, 2016 and 2015:



	Nine months ended September 30,
(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	292,090			338,611
Prior years ⁽¹⁾	(99,591		)	(90,130		)
Subtotal	192,499			248,481

Losses paid:
Losses and LAE paid in respect of defaults related to:
Current year	5,942			9,227
Prior years	549,706			652,465
Reinsurance terminations ⁽²⁾	(2,854		)	(15,440		)
Subtotal	552,794			646,252

Net reserve at end of period	1,488,620			1,941,195
Plus reinsurance recoverables	46,863			38,748

Reserve at end of period	$	1,535,483		$	1,979,943


⁽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 nine months of 2016 and 2015 is reflected in the following table.



	Nine months ended September 30,
(In millions)	2016			2015
Decrease in estimated claim rate on primary defaults	$	(108	)	$	(95	)
Increase in estimated severity on primary defaults	12			12
Change in estimates related to pool reserves, LAE reserves and reinsurance	(4		)	(7		)
Total prior year loss development ⁽¹⁾	$	(100	)	$	(90	)


⁽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, 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 September 30,				Nine months ended September 30,
	2016		2015		2016		2015
Default inventory at beginning of period	52,558		66,357		62,633		79,901
New notices	17,607		19,509		50,418		55,856
Cures	(15,556	)	(17,036	)	(50,249	)	(56,700	)
Paids (including those charged to a deductible or captive)	(3,051	)	(3,958	)	(9,619	)	(12,671	)
Rescissions and denials	(125	)	(230	)	(477	)	(623	)
Other items removed from inventory	—		—		(1,273	)	(1,121	)
Default inventory at end of period	51,433		64,642		51,433		64,642

Aging of the primary default inventory

As of September 30, 2016 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 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.”

Consecutive months in default

	September 30, 2016			December 31, 2015			September 30, 2015
3 months or less	12,333	24	%	13,053	21	%	13,991	22	%
4 - 11 months	12,648	25	%	15,763	25	%	14,703	23	%
12 months or more ⁽¹⁾	26,452	51	%	33,817	54	%	35,948	55	%
Total primary default inventory	51,433	100	%	62,633	100	%	64,642	100	%

Primary claims received inventory included in ending default inventory	1,636	3	%	2,769	4	%	2,982	5	%


⁽¹⁾	Approximately 48%, 50%, and 50% 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 September 30, 2016, December 31, 2015, and September 30, 2015, respectively.

Number of payments delinquent

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

Number of payments delinquent

	September 30, 2016			December 31, 2015			September 30, 2015
3 payments or less	18,374	36	%	20,360	33	%	20,637	32	%
4 - 11 payments	12,282	24	%	15,092	24	%	14,890	23	%
12 payments or more	20,777	40	%	27,181	43	%	29,115	45	%
Total primary default inventory	51,433	100	%	62,633	100	%	64,642	100	%